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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12317
NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0475815
- --------------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5555 SAN FELIPE
HOUSTON, TEXAS
77056
------------------------------------------------------
(Address of principal executive offices)
(713) 960-5100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
As of November 5, 1997, 25,486,170 common shares were outstanding, assuming the
exchange on a one-for-one basis of all Exchangeable Shares of Dreco Energy
Services Ltd. into shares of National-Oilwell, Inc. common stock.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1997 1996
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27,730 $ 13,611
Receivables, less allowance of $2,915 and $3,044 180,000 139,186
Inventories 177,117 128,611
Deferred income taxes 2,925 4,028
Prepaid and other current assets 5,365 7,963
--------- ---------
393,137 293,399
Property, plant and equipment, net 68,499 44,446
Deferred income taxes 10,906 6,847
Goodwill 25,041 6,327
Other assets 519 1,499
--------- ---------
$ 498,102 $ 352,518
========= =========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,385 $ 6,100
Accounts payable 96,482 87,461
Customer prepayments 22,908 5,889
Accrued compensation 10,204 9,778
Accrued income taxes 10,928 3,439
Other accrued liabilities 22,746 11,835
--------- ---------
164,653 124,502
Long-term debt 67,596 39,136
Insurance reserves 6,078 6,599
Deferred income taxes 2,254 1,913
Other liabilities 8,721 11,352
--------- ---------
249,302 183,502
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 25,328,021 shares
and 23,543,717 shares issued and outstanding 253 235
at September 30, 1997 and December 31, 1996
Additional paid-in capital 198,350 149,497
Cumulative translation adjustment (5,027) (2,302)
Retained earnings 55,224 21,586
--------- ---------
248,800 169,016
--------- ---------
$ 498,102 $ 352,518
========= =========
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues $ 264,959 $ 200,773 $ 705,719 $ 561,023
Cost of revenues 209,607 166,015 568,689 472,808
--------- --------- --------- ---------
Gross profit 55,352 34,758 137,030 88,215
Selling, general and administrative 26,650 21,356 73,690 57,547
Special charge 10,660 -- 10,660 --
--------- --------- --------- ---------
Operating income 18,042 13,402 52,680 30,668
Other income (expense):
Interest and financial costs (1,768) (3,413) (4,803) (10,167)
Interest income 466 207 1,292 1,131
Other (25) 619 (194) 669
--------- --------- --------- ---------
Income before income taxes
and extraordinary loss 16,715 10,815 48,975 22,301
Provision for income taxes 7,268 3,948 18,764 9,243
--------- --------- --------- ---------
Income before extraordinary loss 9,447 6,867 30,211 13,058
Extraordinary loss net of income tax
benefit of $376 (623) -- (623) --
--------- --------- --------- ---------
Net income $ 8,824 $ 6,867 $ 29,588 $ 13,058
========= ========= ========= =========
Weighted average shares outstanding 26,067 19,499 25,886 19,482
========= ========= ========= =========
Income per share:
Before extraordinary loss $ 0.36 $ 0.35 $ 1.17 $ 0.67
Extraordinary loss (0.02) -- (0.03) --
--------- --------- --------- ---------
Net income $ 0.34 $ 0.35 $ 1.14 $ 0.67
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended September 30,
------------------------------
1997 1996
--------- ---------
Cash flow from operating activities:
Net income $ 29,588 $ 13,058
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 10,480 6,342
Provision for losses on receivables (395) 531
Provision for deferred income taxes (894) 1,720
Gain on sale of assets (2,393) (1,698)
Foreign currency transaction (gain) loss 115 (34)
Special charge 10,660 --
Extraordinary loss, net of tax benefit 623 --
Changes in operating assets and liabilities:
Decrease (increase) in receivables (30,891) (34,621)
Decrease (increase) in inventories (37,654) (2,176)
Decrease (increase) in prepaid and other current assets (1,157) (748)
Increase (decrease) in accounts payable 3,779 (3,900)
Increase (decrease) in other assets/liabilities, net 8,945 3,428
--------- ---------
Net cash provided (used) by operating activities (9,194) (18,098)
--------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment (19,462) (10,780)
Proceeds from sale of assets 4,081 2,490
Acquisition of businesses, net of cash acquired (18,045) --
Acquisition of partnership, net of cash acquired -- (106,248)
Other (1,403) (350)
--------- ---------
Net cash provided (used) by investing activities (34,829) (114,888)
--------- ---------
Cash flow from financing activities:
Proceeds from revolving line of credit, net 45,095 (7,321)
Payments on long-term debt (21,359) --
Proceeds from issuance of common stock 37,700 30,749
Acquisition debt proceeds -- 103,378
--------- ---------
Net cash provided (used) by financing activities 61,436 126,806
--------- ---------
Effect of exchange rate losses on cash (1,544) --
--------- ---------
Increase (decrease) in cash and equivalents 15,869 (6,180)
Cash and cash equivalents, beginning of period 13,611 21,391
Change in cash during period to conform year end (1,750) (5,626)
--------- ---------
Cash and cash equivalents, end of period $ 27,730 $ 9,585
========= =========
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Effective January 1, 1996, National-Oilwell, Inc. acquired
National-Oilwell, a general partnership between National Supply Company,
Inc., a subsidiary of Armco Inc., and Oilwell, Inc., a subsidiary of USX
Corporation, and subsidiaries (the "Acquisition").
Effective September 25, 1997, National-Oilwell completed a combination
("Combination") with Dreco Energy Services Ltd. ("Dreco"). As a result of
the Combination, each Dreco Class "A" common share ("Dreco Common Share")
outstanding was converted into a Dreco Exchangeable Share at an exchange
ratio of .9159 of an Exchangeable Share for each Dreco Common Share
outstanding at September 25, 1997 and, accordingly, approximately 7.2
million Exchangeable Shares were issued.
Each Exchangeable Share is intended to have substantially identical
economic and legal rights as, and will ultimately be exchanged on a
one-for-one basis for, a share of National-Oilwell common stock. In
addition, options to purchase Dreco Common Shares were converted into
options to purchase shares of National-Oilwell common stock at the same
exchange ratio.
The Combination has been accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements of National-Oilwell and
Dreco have been combined and all prior periods have been restated to give
effect to the Combination. Information concerning common stock and per
share data has been restated on an equivalent share basis and assumes the
exchange of all Exchangeable Shares.
National-Oilwell has a year end of December 31 and, prior to the
Combination, Dreco had a year end of August 31. The restated financial
statements combine the December 31, 1996 balance sheet of National-Oilwell
with the November 30, 1996 balance sheet of Dreco, while reflecting the
combination of the September 30, 1997 balance sheet of each company. The
income statement reflects the combination of the three months ended
September 30, 1997 for each company, compared to the combination of the
three months ended September 30, 1996 for National-Oilwell with the three
months ended August 31, 1996 for Dreco. For the 1997 nine month period, the
nine months ended September 30, 1997 for National-Oilwell is combined with
the six months ended May 31, 1997 and the three months ended September 30,
1997 for Dreco. For the 1996 nine month period, the nine months ended
September 30, 1996 for National-Oilwell is combined with the nine months
ended August 31, 1996 for Dreco. As a result of conforming reporting
periods subsequent to the Combination to a calendar quarter basis, the
operating results for Dreco for the month of June 1997 were included in the
Consolidated Statements of Stockholders' Equity. For June 1997, Dreco
recorded revenues of $13.4 million, net income of $917,000 and net income
per share of $0.04.
Revenues and net income before special charges and extraordinary loss of
the separate companies for the period preceding the combination were as
follows (in thousands):
Nine Months Ended
September 30,1997
-----------------
Revenues
National-Oilwell $593,415
Dreco 112,304
--------
$705,719
========
Net income before special charges
and extraordinary loss
National-Oilwell $ 25,348
Dreco 12,991
--------
$ 38,339
========
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The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with generally accepted accounting
principles. In the opinion of management, the information furnished
reflects all adjustments, all of which are of a normal, recurring nature,
necessary for a fair presentation of the results of the interim periods. It
is recommended that these statements be read in conjunction with the
restated consolidated financial statements and notes thereto for the three
years ended December 31, 1996 to be included in a Current Report on Form
8-K. No significant accounting changes have occurred during the nine months
ended September 30, 1997.
2. ACQUISITIONS
On December 2, 1996, Dreco acquired 100% of the issued and outstanding
shares of Vector Oil Tool Ltd. ("Vector") for consideration of 389,000
Dreco Common Shares (as adjusted for the exchange ratio in the Combination)
and cash consideration of $1,481,000. This business involves the
manufacture, sale, rental and service of downhole motors and other
products. The transaction was accounted for using the purchase method and
did not have a material effect on the Company's consolidated financial
statements. Results of operations for Vector are included, by virtue of the
Combination described above, in the Company's financial statements for
reporting periods beginning in 1997.
On April 25, 1997, the Company purchased the drilling controls business of
Ross Hill Controls and its affiliate, Hill Graham Controls Limited for
approximately $20 million in cash. This business involves the manufacture,
sale and service of electrical control systems used in conjunction with
drilling operations. The transaction was accounted for under the purchase
method of accounting and did not have a material effect on the Company's
financial statements.
On May 15, 1997, the Company acquired by merger 100% of the common stock of
PEP, Inc., a manufacturer of petroleum expendable pump products. The
Company issued 400,000 shares of common stock pursuant to the transaction
which was recorded in accordance with the pooling-of-interests method of
accounting. The transaction did not have a material effect on the Company's
historical financial statements and financial statements prior to April 1,
1997 were not restated.
3. INVENTORIES Inventories consist of (in thousands):
September 30, December 31,
1997 1996
-------- --------
Raw materials $ 17,381 $ 12,854
Work in process 23,747 8,367
Finished goods 135,989 107,390
-------- --------
$177,117 $128,611
======== ========
4. STATEMENTS OF CASH FLOWS
The following information is provided to supplement the Statements of Cash
Flows (in thousands):
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ------------
Cash paid during the period for:
Interest $ 2,629 $ 6,066
Income taxes 12,225 2,429
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5. LONG-TERM DEBT
On September 25, 1997, the Company entered into a new five-year unsecured
$125 million revolving credit facility (the "New Credit Facility") that was
used in part to repay in full amounts outstanding under the previous credit
facility as well as the seller notes payable, together with deferred
interest, incurred in connection with the Acquisition. The balance of the
New Credit Facility will be available for acquisitions and general
corporate purposes. The New Credit Facility provides for interest at prime
or LIBOR plus 0.5%, subject to adjustment based on the Company's
Capitalization Ratio, as defined. The New Credit Facility contains
financial covenants and ratios regarding minimum tangible net worth,
maximum debt to capital and minimum interest coverage.
6. SPECIAL CHARGE
In connection with the Combination described in Note 1 above,
National-Oilwell incurred one-time combination expenses of $10.7 million
($8.1 million net of income taxes, or $0.31 per share) related to various
professional fees and integration costs.
7. EXTRAORDINARY LOSS
The replacement of the previous credit facility by the New Credit Facility
described in Note 4, resulted in the write-off of $1.0 million ($0.6
million after tax) in deferred financing costs related to the replaced
agreement.
8. COMMON STOCK
On December 2, 1996, the Company issued 389,000 Dreco Common Shares (as
adjusted for the exchange ratio in the Combination) in connection with the
acquisition of Vector Oil Tool Ltd. (see Note 2). On December 10, 1996, the
Company completed the sale of 1,053,000 Dreco Common Shares (as adjusted
for the exchange ratio in the Combination) for total net proceeds of $39.2
million. As these transactions were completed by Dreco after November 30,
1996, the effect is included in the September 30, 1997 combined balance
sheet but not in the December 31, 1996 combined balance sheet (see Note 1).
On October 10, 1997 the Company's Board of Directors declared a 2-for-1
stock split in the form of a one-for-one stock dividend payable on November
18, 1997 to stockholders of record on November 10, 1997. The financial
statements included herein have not been restated to reflect the stock
split.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company is a worldwide leader in the design, manufacture and sale of
machinery and equipment and in the distribution of maintenance, repair and
operating ("MRO") products used in oil and gas drilling and production. The
Company's revenues are directly related to the level of worldwide oil and
gas drilling and production activities and the profitability and cash flow
of oil and gas companies and drilling contractors, which in turn are
affected by current and anticipated prices of oil and gas.
Effective September 25, 1997, National-Oilwell completed a combination (the
"Combination") with Dreco Energy Services Ltd. ("Dreco"). As a result of
the Combination, each Dreco Class "A" common share ("Dreco Common Share")
outstanding was converted into a Dreco Exchangeable Share at an exchange
ratio of .9159 of an Exchangeable Share for each Dreco Common Share
outstanding at September 25, 1997 and, accordingly, approximately 7.2
million Exchangeable Shares were issued. Each Exchangeable Share is
intended to have substantially identical economic and legal rights as, and
will ultimately be exchanged on a one-for-one basis for, a share of
National-Oilwell common stock.
The Combination has been accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements of National-Oilwell and
Dreco have been combined and all prior periods have been restated to give
effect to the Combination. Information concerning common stock and per
share data has been restated on an equivalent share basis and assumes the
exchange of all Exchangeable Shares.
National-Oilwell has a year end of December 31 and, prior to the
Combination, Dreco had a year end of August 31. The restated financial
statements combine the December 31, 1996 balance sheet of National-Oilwell
with the November 30, 1996 balance sheet of Dreco, while reflecting the
combination of the September 30, 1997 balance sheet of each company. The
income statement reflects the combination of the three months ended
September 30, 1997 for each company, compared to the combination of the
three months ended September 30, 1996 for National-Oilwell with the three
months ended August 31, 1996 for Dreco. For the 1997 nine month period, the
nine months ended September 30, 1997 for National-Oilwell is combined with
the six months ended May 31, 1997 and the three months ended September 30,
1997 for Dreco. For the 1996 nine month period, the nine months ended
September 30, 1996 for National-Oilwell is combined with the nine months
ended August 31, 1996 for Dreco. As a result of conforming reporting
periods subsequent to the Combination to a calendar quarter basis, the
operating results for Dreco for the month of June 1997 were included in the
Consolidated Statements of Stockholders' Equity. For June 1997, Dreco
recorded revenues of $13.4 million, net income of $917,000 and net income
per share of $0.04.
During 1996 and 1997, the capital structure of the Company changed
significantly. In January 1996, the Company acquired the operations of
National-Oilwell (the "Acquisition"), resulting in the incurrence of
significant amounts of debt and related interest expense. On October 29,
1996, the Company sold 4.6 million shares of its common stock through an
initial public offering (the "IPO"). Net proceeds from the IPO of
approximately $72 million were used to repay debt incurred in connection
with the Acquisition. On December 10, 1996, the Company sold 1,053,000
Dreco Common Shares (as adjusted for the exchange ratio in the Combination)
for proceeds of $39.2 million. This latter transaction is reflected in the
financial statements as a 1997 occurrence due to the combination of
differing balance sheet dates.
In December 1996, the Company acquired the stock of Vector Oil Tool Ltd.
for consideration of 389,000 Dreco Common Shares (as adjusted for the
exchange ratio in the Combination) and cash consideration of $1,481,000.
Results of operations for Vector are included in the Company's financial
statements for reporting periods beginning in 1997 due to the combination
of differing reporting periods. During the second quarter of 1997, the
Company completed the acquisition of the drilling controls business of Ross
Hill Controls and its affiliate for $20 million in cash, and acquired by
merger 100% of the common stock of PEP, Inc. in exchange for 400,000 shares
of National-Oilwell common stock. These transactions did not have a
material effect on the Company's historical financial statements.
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RESULTS OF OPERATIONS
Operating results by segment are as follows (in millions):
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues
Products and Technology $ 102.3 $ 70.5 $ 248.0 $ 201.9
Downhole Products 18.1 10.3 48.6 25.4
Distribution Services 162.4 134.5 456.8 371.8
Eliminations (17.8) (14.5) (47.7) (38.1)
-------- -------- -------- --------
Total $ 265.0 $ 200.8 $ 705.7 $ 561.0
======== ======== ======== ========
Operating Income
Products and Technology $ 15.0 $ 6.9 $ 31.7 $ 16.6
Downhole Products 7.7 4.5 18.5 8.9
Distribution Services 8.1 4.6 19.5 12.0
Corporate (2.1) (2.7) (6.3) (6.8)
-------- -------- -------- --------
28.7 13.4 63.4 30.7
Special Charge 10.7 -- 10.7 --
-------- -------- -------- --------
Total $ 18.0 $ 13.4 $ 52.7 $ 30.7
======== ======== ======== ========
Products and Technology
The Products and Technology segment designs and manufactures a large line
of proprietary products, including drawworks, mud pumps, power swivels,
electrical control systems and reciprocating pumps, as well as complete
land drilling and well servicing rigs and structural components such as
masts, derricks and substructures. A substantial installed base of these
products results in a recurring replacement parts and maintenance business.
Sales of new capital equipment can result in large fluctuations in volume
between periods depending on the size and timing of the shipment of orders.
This segment also provides drilling pump expendable products for
maintenance of the Company's and other manufacturers' equipment.
Backlog of the Products and Technology group has grown throughout 1997 and
was $240 million at September 30, 1997, compared to $38 million at December
31, 1996. Substantially all of the current backlog will be shipped by the
end of 1998.
Revenues for the Products and Technology segment increased by $31.8 million
(45%) in the third quarter of 1997 as compared to the same quarter in 1996
due to the inclusion of $7.6 million of revenues generated by acquisitions
completed during 1997 that were not restated for 1996 and due to increased
revenues from the sale of drilling capital equipment and spare parts.
Operating income increased by $8.1 million (117%) in the third quarter
compared to the same quarter in 1996, with $1.5 million of the increase due
to the acquired businesses and the balance due to higher activity levels.
Products and Technology revenues increased $46.1 million (23%) in the first
nine months of 1997 as compared to the same period in 1996 due primarily to
an increase in demand for drilling capital equipment and spare parts, fluid
end expendable parts, and reciprocating pumps and associated parts, as well
as the acquisitions noted above. Operating income for the Products and
Technology segment increased $15.1 million (91%) in the first nine months
of 1997 as compared to the prior year period, representing 33% of the
revenue increase.
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Downhole Products
National-Oilwell designs and manufactures drilling motors and specialized
drilling tools for rent and sale. Rentals generally involve products that
are not economical for a customer to own or maintain because of the broad
range of equipment required for the diverse hole sizes and depths
encountered in drilling for oil and gas. Sales generally involve products
that require infrequent service, are disposable or are sold in countries
where National-Oilwell does not provide repair and maintenance services.
Downhole Products revenues increased by $7.8 million (76%) in the third
quarter of 1997 and $23.2 million (91%) in the first nine months of 1997
when compared to the same periods in 1996, primarily due to the inclusion
of Vector in both periods.
Operating income for the Downhole Products segment increased by $3.2
million (71%) in the third quarter of 1997 compared to the same quarter in
1996. Nine month operating income results for 1997 have increased by $9.6
million (108%) over the same period in 1996. The Vector acquisition
accounted for virtually all of this increase.
Distribution Services
Distribution Services revenues result primarily from the sale of MRO
products from the Company's network of distribution service centers and
from the sale of well casing and production tubing. These products are
purchased from numerous manufacturers and vendors, including the Company's
Products and Technology segment.
Distribution Services revenues during the third quarter of 1997 exceeded
the comparable 1996 period by $27.9 million. This 21% increase reflects the
increased spending levels of the Company's alliance partners and other
customers. Sales of MRO products, tubular products, drilling spares and
fluid end expendable parts accounted for all of this increase. Operating
income in the third quarter of 1997 was $3.5 million (76%) greater than the
third quarter of 1996. An increase in operating expenses offset part of the
margin recorded due to the volume improvement, netting a 13% flow through
of the revenue increase.
Revenues during the first nine months of 1997 increased $85.0 million (23%)
over the comparable 1996 period. Significant increases in the sales of MRO
products ($34 million), tubular goods ($34 million), drilling spares ($7
million) and production products ($6 million) generated the majority of
this gain. Operating income increased $7.5 million (63%) during the first
nine months of 1997 compared to the same period in 1996. A portion of the
increased margin from the higher revenue levels was offset by higher
operating costs associated with the addition in the second half of 1996 of
operating and administrative personnel in order to better manage assets and
in anticipation of the revenue growth that was achieved in 1997.
Corporate
Corporate costs during the third quarter of 1997 were $0.6 million lower
than the prior year due to the absence of an incentive compensation accrual
adjustment that was recorded in the 1996 period by Dreco. Corporate costs
were comparable between the nine month periods.
Special Charge
In connection with the Combination, National-Oilwell incurred one-time
combination expenses of $10.7 million ($8.1 million net of income taxes, or
$0.31 per share) related to various professional fees and integration
costs.
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Interest Expense
Interest expense decreased substantially during the three months and nine
months ended September 30, 1997 due to substantially lower levels of debt
that resulted from the reductions made using cash proceeds from the IPO in
late 1996.
Income Taxes
The income tax rate for the nine months ended September 30, 1997 of 38% was
affected by certain nondeductible Combination expenses in the third
quarter, offset in part by certain one-time Canadian tax credits recorded
in the first two quarters by Dreco.
Extraordinary Loss
The replacement of the previous credit facility by the New Credit Facility
described below, resulted in the write-off of $1.0 million ($0.6 million
after tax) in deferred financing costs related to the replaced agreement.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $228 million, an
increase of $60 million from December 31, 1996. During the first nine
months of 1997, net of non-restated acquisitions, accounts receivable
increased by $41 million, as quarterly revenues increased steadily through
this period. Inventories increased by $49 million, due to specific build
programs and in response to increasing demand for oilfield equipment and
supplies, offset in part by an increase in customer prepayments of $17
million, accounts payable of $9 million and accrued income taxes of $7
million.
The Company's increased business levels have required an increase in
expenditures for capital equipment. Total capital expenditures were $19.5
million during the first nine months of 1997. Additions to the downhole
rental fleet and enhancements to information and inventory control systems
represent a large portion of these capital expenditures. Additional capital
expenditures of as much as $10 million are anticipated in 1997 to meet the
Company's operating needs, including the acquisition of a facility for
approximately $6 million that is currently being leased and further
enhancements to the Company's information systems. The Company believes it
has sufficient existing manufacturing capacity to meet currently
anticipated demand through 1998 for its products and services. Any
significantly greater increases in demand for oilfield equipment products,
to the extent qualified subcontracting and outsourcing are not available,
could result in additional increases in capital expenditures.
On September 25, 1997, the Company entered into a new five-year unsecured
$125 million revolving credit facility (the "New Credit Facility") that was
used in part to repay in full amounts outstanding under the previous credit
facility as well as the seller notes payable, together with deferred
interest, incurred in connection with the Acquisition. The balance of the
New Credit Facility will be available for acquisitions and general
corporate purposes. The New Credit Facility provides for interest at prime
or LIBOR plus 0.5%, subject to adjustment based on the Company's
Capitalization Ratio, as defined. The New Credit Facility contains
financial covenants and ratios regarding minimum tangible net worth,
maximum debt to capital and minimum interest coverage.
The Company believes that cash generated from operations and amounts
available under its revolving credit facility will be sufficient to fund
operations, working capital needs, capital expenditure requirements and
financing obligations. The Company also believes any significant increase
in capital expenditures caused by any need to increase manufacturing
capacity can be funded from operations or through debt financing.
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The Company intends to pursue acquisition candidates, but the timing, size
or success of any acquisition effort and the related potential capital
commitments cannot be predicted. The Company expects to fund future cash
acquisitions primarily with cash flow from operations and borrowings,
including the unborrowed portion of the New Credit Facility or new debt
issuances, but may also issue additional equity in connection with
acquisitions. There can be no assurance that additional financing for
acquisitions will be available at terms acceptable to the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which specifies the computation, presentation
and disclosure requirements for earnings per share. SFAS No. 128 is
effective for financial statements for periods ending after December 15,
1997, and earlier adoption is not permitted. Initial adoption of this
standard is not expected to have a material impact on National-Oilwell's
financial statements.
FORWARD-LOOKING STATEMENTS
This document, other than historical financial information, may contain
forward-looking statements that involve risks and uncertainties. Readers
are referred to documents filed by the Company with the Securities and
Exchange Commission which identify significant risk factors which could
cause actual results to differ from those contained in the forward-looking
statements, including "Risk Factors" at Item 1 of the Annual Report on Form
10-K, as amended.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders was held on September 25, 1997.
Stockholders approved the Combination Agreement dated as of May 14, 1997,
as amended, between National-Oilwell and Dreco Energy Services Ltd., and
the transactions contemplated thereby, by the following votes: for -
17,066,672; against - 1,015; abstained - 4,615.
Stockholders also approved and adopted a recapitalization plan pursuant to
which the Amended and Restated Certificate of Incorporation authorizes
75,000,000 shares of Common Stock and one share of Special Voting Stock, by
the following votes: for - 16,940,791; against - 125,035; abstained -
6,476.
There were no broker non-votes.
ITEM 5. OTHER INFORMATION
For October 1997, the first full month following the Combination,
National-Oilwell reported consolidated revenues of $89 million and net
income of $5.2 million ($0.20 per share, assuming the exchange of
all Exchangeable Shares).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Loan Agreement dated as of September 25, 1997
27.1 Financial Data Schedule
Restated Financial Data Schedule, Exhibit 27.1 on Form 10-Q
for the Quarter Ended June 30, 1997 filed August 14, 1997
Restated Financial Data Schedule, Exhibit 27.1 on Form 10-Q
for the Quarter Ended March 31, 1997 filed May 13, 1997
(b) Reports on Form 8-K
The Company has not filed any report on Form 8-K during the quarter for
which this report is filed. A report on Form 8-K was filed on October 8,
1997 regarding the completion of the Combination and a report on Form 8-K
will be filed on November 7, 1997 to provide a revised Management's
Discussion and Analysis of Financial Condition and Results of Operations
and the Company's Restated Consolidated Financial Statements on that basis.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 7, 1997 /s/ Steven W. Krablin
-------------------------- -----------------------------
Steven W. Krablin
Principal Financial and
Accounting Officer and Duly
Authorized Signatory
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Loan Agreement dated as of September 25, 1997
27.1 Financial Data Schedule
Restated Financial Data Schedule, Exhibit 27.1 on Form 10-Q
for the Quarter Ended June 30, 1997 filed August 14, 1997
Restated Financial Data Schedule, Exhibit 27.1 on Form 10-Q
for the Quarter Ended March 31, 1997 filed May 13, 1997