UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _____.
Commission file number 0-30723
OSCA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-0868136
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
156 COMMISSION BLVD.
LAFAYETTE, LA 70508
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 337-837-6047
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (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
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class A - 6,940,384 Shares as of September 30, 2001
Class B - 7,900,000 Shares as of September 30, 2001
Part I - Financial Information
Item 1. Financial Statements
OSCA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 8,729 $ 3,551
Accounts and notes receivable, less allowance for doubtful accounts of $475 and
$558 at September 30, 2001 and December 31, 2000, respectively 44,599 40,583
Inventories 29,975 27,214
Prepaid expenses and other current assets 3,041 1,324
Deferred income taxes 1,685 1,883
--------- ---------
Total current assets 88,029 74,555
--------- ---------
Property and equipment, net 47,257 41,759
Goodwill and other intangibles, net 6,860 7,119
Other assets 1,113 873
--------- ---------
Total Assets $ 143,259 $ 124,306
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 17,752 $ 11,492
Accrued liabilities 4,795 5,508
Income taxes payable 4,142 301
Current portion of notes payable 577 118
Due to Great Lakes 6,550 3,293
--------- ---------
Total current liabilities 33,816 20,712
--------- ---------
Note payable - related party 118 236
Long-term debt 27,000 30,860
Other long-term liabilities 830 691
Deferred income taxes 3,196 3,086
--------- ---------
Total liabilities 64,960 55,585
--------- ---------
Stockholders' equity:
Class A common stock, $.01 par value, 25,000,000 shares authorized, 6,940,384
and 6,440,000 shares issued and outstanding at September 30, 2001 and
December 31, 2000, respectively 69 64
Class B common stock, $.01 par value, 40,000,000 shares authorized, 7,900,000
and 8,400,000 shares issued and outstanding at September 30, 2001 and
December 31, 2000, respectively 79 84
Additional paid-in capital 90,804 90,798
Retained earnings (deficit) (10,637) (20,285)
Accumulated other comprehensive income (loss) (2,016) (1,940)
--------- ---------
Total stockholders' equity 78,299 68,721
--------- ---------
Total Liabilities and Stockholders' Equity $ 143,259 $ 124,306
========= =========
See accompanying notes to consolidated financial statements.
1
OSCA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net revenue $ 48,537 $ 34,136 $ 134,176 $ 89,519
Operating Expenses:
Cost of sales 35,409 25,541 99,652 66,875
Selling, general & administrative expenses 5,863 5,143 16,942 15,383
Amortization of intangibles 109 99 308 298
--------- --------- --------- ---------
Total operating expenses 41,381 30,783 116,902 82,556
--------- --------- --------- ---------
Operating income 7,156 3,353 17,274 6,963
Interest expense 361 648 1,211 780
Interest (income) (37) (29) (135) (203)
Foreign currency (gains) losses (65) 37 433 37
Other expense (income), net (117) 4 426 (324)
--------- --------- --------- ---------
Income before income taxes 7,014 2,693 15,339 6,673
Income taxes 2,599 949 5,691 2,574
--------- --------- --------- ---------
Net income $ 4,415 $ 1,744 $ 9,648 $ 4,099
========= ========= ========= =========
Earnings per share:
Basic $ 0.30 $ 0.12 $ 0.65 $ 0.38
Diluted $ 0.30 $ 0.12 $ 0.65 $ 0.38
Weighted average shares outstanding 14,840 14,732 14,840 10,822
Weighted average shares outstanding
assuming dilution 14,878 14,732 14,916 10,824
See accompanying notes to consolidated financial statements.
2
OSCA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,648 $ 4,099
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles 6,726 6,174
Deferred income taxes 308 422
Loss (gain) on sale of property and equipment 118 (193)
Changes in operating assets and liabilities:
Accounts and notes receivable, net (4,016) (11,179)
Inventories (2,761) (6,261)
Prepaid expenses and other current assets (1,717) 228
Accounts payable 6,260 1,457
Intercompany changes 3,257 (42,195)
Accrued and other liabilities 3,587 1,232
Other (150) (132)
-------- --------
Net Cash Provided by (Used in) Operating Activities 21,260 (46,348)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (13,268) (3,125)
Proceeds from the sale of property and equipment 901 828
-------- --------
Net Cash Used in Investing Activities (12,367) (2,297)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings and (repayments) of notes payable, net (3,978) 30,164
Proceeds from sale of stock, net 6 90,172
Cash dividends to Great Lakes -- (73,219)
-------- --------
Net Cash Provided by (Used in) Financing Activities (3,972) 47,117
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 4,921 (1,528)
Cash and Cash Equivalents at Beginning of Year 3,551 3,898
Effect of exchange rate changes on cash and cash equivalents 257 (861)
-------- --------
Cash and Cash Equivalents at End of Period $ 8,729 $ 1,509
======== ========
See accompanying notes to consolidated financial statements.
3
OSCA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT AS INDICATED)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of OSCA, Inc. and
its consolidated subsidiaries ("OSCA" or "the Company") have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for a fair
financial statement presentation. The results for the interim periods are not
necessarily indicative of the results to be expected for the year.
Effective June 15, 2000, Great Lakes Chemical Corporation ("Great Lakes") sold
40% of its ownership in OSCA in an Initial Public Offering ("IPO"). On July 13,
2000, the over-allotment option granted to the underwriters was exercised and
resulted in an additional distribution of stock which reduced Great Lakes
ownership by 3.4% to 56.6%. The net proceeds of the IPO and the over-allotment
were paid to Great Lakes to satisfy indebtedness or as a dividend.
During the periods ended March 31, 2001 and June 30, 2001, Great Lakes sold
250,000 shares each quarter of OSCA stock reducing its common stock ownership to
53.2% as of June 30, 2001. Upon sale, these shares were automatically converted
from Class B shares to Class A shares of the Company's common stock.
NOTE 2: SPECIAL CHARGES
During 1998, in connection with a Great Lakes repositioning plan, OSCA
recognized a special charge of $13.4 million or $8.3 million after income taxes.
Of the $13.4 million, $10.8 million was recorded for actions taken in the third
quarter of 1998 and another $2.6 million was recorded in the fourth quarter of
1998. In addition, in the fourth quarter of 1999, due to certain changes in the
repositioning plan, OSCA recognized a credit to special charges in the amount of
$2.6 million. Also, in the fourth quarter of 2000, OSCA recognized a credit to
special charges in the amount of $0.7 million.
A summary of spending against the reserve for special charges since December 31,
2000 is as follows (in thousands):
SPENDING
NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
2000 SEPTEMBER 30, 2001 2001
------------ ------------------ -------------
Lease costs (Completion Services) $272 $272 $ -
4
NOTE 3: INVENTORIES
The major components of OSCA's inventories are as follows:
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
Raw materials $ 755 $ 363
Finished products 29,220 26,851
------- -------
$29,975 $27,214
======= =======
NOTE 4: INCOME TAXES
A reconciliation of the U. S. Federal income tax rate to the effective income
tax rate follows:
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2001 2000
---- ----
U.S. Federal income tax rate 35.0% 35.0%
State income taxes (net of federal benefit) 0.6 1.5
Foreign taxes 0.8 0.1
Goodwill amortization 0.6 1.0
Other 0.1 1.0
---- ----
37.1% 38.6%
==== ====
NOTE 5: COMPREHENSIVE INCOME
Comprehensive income was as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income $ 4,415 $ 1,744 $ 9,648 $ 4,099
Other comprehensive income (loss) 50 182 (76) (929)
------- ------- ------- -------
Comprehensive income $ 4,465 $ 1,926 $ 9,572 $ 3,170
======= ======= ======= =======
5
NOTE 6: EARNINGS PER SHARE
The computation of basic and diluted earnings per share is determined by
dividing net income as reported as the numerator by the number of shares
included in the denominator, as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2001 2000 2001 2000
------ ------ ------ ------
Denominator for basic earnings per share
(weighted - average shares) 14,840 14,732 14,840 10,822
Effect of dilutive securities 38 0 76 2
------ ------ ------ ------
Denominator for diluted earnings per share 14,878 14,732 14,916 10,824
====== ====== ====== ======
NOTE 7: SEGMENT INFORMATION
OSCA is organized into three global business segments: Completion Fluids,
Completion Services and Downhole Completion Tools. The units are organized to
offer a distinct but synergistic group of products, technology and services.
OSCA evaluates performance and allocates resources based on operating income
which represents net revenue less cost of sales and allocated selling, general
and administrative expenses. Intersegment net revenue and transfers are recorded
at OSCA's cost; there is no intercompany income or loss on intersegment net
revenue or transfers.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(IN THOUSANDS)
Net revenues by segment to external customers:
Completion Fluids $ 19,141 $ 12,076 $ 51,544 $ 36,811
Completion Services 14,732 13,403 40,817 31,065
Downhole Completion Tools 14,664 8,657 41,815 21,643
--------- --------- --------- ---------
$ 48,537 $ 34,136 $ 134,176 $ 89,519
========= ========= ========= =========
Segment operating income:
Completion Fluids $ 1,947 $ 721 $ 3,895 $ 2,337
Completion Services 2,334 2,491 6,264 3,605
Downhole Completion Tools 3,845 1,063 10,077 3,286
--------- --------- --------- ---------
Total operating income of reportable segments 8,126 4,275 20,236 9,228
Corporate and Other (970) (922) (2,962) (2,265)
--------- --------- --------- ---------
Operating income 7,156 3,353 17,274 6,963
Interest expense (income), net 324 619 1,076 577
Other expense (income), net (182) 41 859 (287)
--------- --------- --------- ---------
Income before income taxes $ 7,014 $ 2,693 $ 15,339 $ 6,673
========= ========= ========= =========
6
NOTE 8: CONTINGENCIES
On September 18, 2000, the Company was served with notice that a lawsuit was
filed against it and other named defendants on September 1, 2000 in the District
Court of Harris County, Texas. The action is brought by certain underwriting
syndicates of Lloyd's of London who claim to be subrogated to the claim of their
insureds, Newfield Exploration Company, Apache Oil Corporation, Continental Land
& Fur, and Fidelity Oil ("Plaintiffs"). The other defendants include High
Pressure Integrity, Inc. and Chalmers, Collins & Alwell, Inc. On September 8,
2000, the Company filed a lawsuit against the Plaintiffs and the other
defendants in the United States District Court, Western District of Louisiana,
Lafayette-Opelousas Division. Other actions have also been filed in connection
with the same circumstances.
Each of the lawsuits relates to a blowout of a well situated in the Gulf of
Mexico, offshore Louisiana, for which the Company and others were engaged to
perform specific workover operations. All cases have been consolidated with the
Texas case. Plaintiffs seek substantial actual damages, interest and other
costs, alleging that the Company and the other defendants breached their
contracts to perform workover operations, and were negligent in performing those
operations. The Company alleges negligence against the Plaintiffs and other
defendants and seeks actual damages, interest, costs and general and equitable
relief. OSCA has amended its complaint claiming reimbursement for damages to
include Cardinal Wireline Services, who was performing wireline operations
aboard the platform immediately before the blowout. OSCA has also filed a third
party demand against its underwriters and insurance broker in support of
coverage for claims asserted against OSCA in the Newfield matter.
The Company has denied that it breached its contract or was negligent and
intends to vigorously defend the case against it and to prosecute the merits of
its claims.
While it is not possible to predict or determine the outcome of legal actions
brought by or against the Company, management expects that the outcome will not
have a material adverse effect on the Company's consolidated financial position,
liquidity or results of operations.
The Company may be subject to various legal proceedings, claims and litigation
arising from a variety of matters including governmental regulations,
environmental matters, commercial matters, product liability, personal injury,
workers' compensation claims and other matters arising out of the ordinary
course of its business. In general, while the effect on future financial results
is not subject to reasonable estimation because considerable uncertainty exists,
in the opinion of management, the resolution of these legal proceedings and
claims will not have a material adverse effect on the Company's financial
position, liquidity or results of operations.
NOTE 9: NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but will be subject to
7
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $0.4 million ($.03 per basic share) per year. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
- --------------------------------------------------------------------------------
This Management's Discussion and Analysis of Results of Operations and Financial
Condition should be read in conjunction with the Company's Consolidated
Financial Statements and Management's Discussion and Analysis contained in the
Annual Report on Form 10-K and the unaudited interim consolidated financial
statements included elsewhere in this report. All references to earnings per
share contained in this report are basic earnings per share unless otherwise
noted.
The following table sets forth the percentage relationship to net revenue of
certain income statement items for the Company's operations:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2001 2000 2001 2000
----- ----- ----- -----
(%) (%)
Net revenue 100.0 100.0 100.0 100.0
Gross profit 27.0 25.2 25.7 25.3
Selling, general & administrative expenses 12.1 15.1 12.6 17.2
Amortization of intangibles 0.2 0.3 0.2 0.3
----- ----- ----- -----
Operating income 14.7 9.8 12.9 7.8
Interest expense 0.7 1.9 0.9 0.9
Interest (income) (0.1) (0.1) (0.1) (0.2)
Foreign currency (gains) losses (0.1) 0.1 0.4 0.0
Other expense (income), net (0.3) 0.0 0.3 (0.4)
----- ----- ----- -----
Income before income taxes 14.5 7.9 11.4 7.5
Income taxes 5.4 2.8 4.2 2.9
----- ----- ----- -----
Net income 9.1 5.1 7.2 4.6
===== ===== ===== =====
RESULTS OF OPERATIONS
THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000
Revenues in the third quarter increased 43% to $48.6 million from $34.1 million
compared to the corresponding period in 2000. Increased industry activity and
additional market penetration contributed to the improvement.
9
Costs of sales increased 39% to $35.4 million from $25.5 million, reflecting
increased sales volume. Gross profit margin rose to 27.0% from 25.2% as compared
to the third quarter of 2000 reflecting the effect of changes in product mix.
Selling, general and administrative expenses ("SG&A expenses") increased to $6.0
million as compared to the prior year period amount of $5.2 million. The
increase is primarily due to the addition of personnel required to support
increased business activity. As a percentage of net revenue, SG&A expenses fell
from 15.4% to 12.3%.
Interest expense decreased $0.3 million for the quarter ended September 30, 2001
compared to the same period last year. This decrease was primarily due to lower
interest rates on lower outstanding debt balances.
Net income for the quarter ended September 30, 2001 was $4.4 million, or $0.30
per share, compared to a net income of $1.7 million, or $0.12 per share, one
year ago. The improvement reflects the factors discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000
For the first nine months of 2001, revenues increased 50% to $134.2 million from
$89.5 million one year ago. The increase was primarily due to greater well
completion activity in the Gulf of Mexico driven by higher commodity prices for
oil and gas.
Costs of sales increased 49% to $99.6 million from $66.9 million reflecting
increased sales volume. Gross profit margin increased slightly to 25.7% from
25.3% as compared to the same period of 2000 reflecting the effect of product
mix changes.
SG&A expenses increased to $17.3 million as compared to the prior year period of
$15.6 million. The increase is primarily due to the addition of technical
personnel required to support increased business activity, primarily in the Gulf
of Mexico. As a percentage of net revenue, SG&A expenses fell from 17.5% to
12.8%.
Interest expense increased $0.5 million for the nine months ended September 30,
2001 from the same period last year primarily due to the $31.0 million
interest-bearing loan established in June of 2000.
Other expense (income), net was a net other expense of $0.4 million for the nine
months ended September 30, 2001 compared to net other income of $0.3 million one
year ago. This net expense was primarily attributable to a loss of a sunken
barge and the loss of asset value in the Rabbi Trust during 2001 compared to the
gain on sale of property and equipment in the corresponding period of the prior
year.
Net income for the nine months ended September 30, 2001 was $9.6 million, or
$0.65 per share, compared to net income of $4.1 million, or $0.38 per share, one
year ago. The improvement reflects the factors discussed above.
10
SEGMENT INFORMATION
Set forth below is a discussion of the operations of the Company's business
segments: Completion Fluids, Completion Services and Downhole Completion Tools.
Operating income, which is the income measure the Company uses to evaluate
business segment performance, represents net sales less cost of sales and
selling, general and administrative expenses.
COMPLETION FLUIDS
The Completion Fluids business unit sells and services high-density brine
completion fluids and related on-site fluid maintenance services including
filtration, engineering and performance additives. Results for the quarter and
first nine months follow (in millions):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2001 2000 2001 2000
----- ----- ----- -----
Net revenue $19.2 $12.1 $51.6 $36.8
Operating income $ 2.0 $ 0.7 $ 4.0 $ 2.3
Completion Fluids revenue for the quarter increased 59% to $19.2 million
compared to $12.1 million one year ago, reflecting higher volumes sold.
Operating income increased 186% to $2.0 million from $0.7 million due to a
better product mix.
For the nine months ended September 30, 2001, revenues increased 40% to $51.6
million from $36.8 million a year ago. Operating income improved by 74% to $4.0
million compared to $2.3 million last year. These increases primarily reflect
higher volume resulting from an increase in the Company's deepwater business.
COMPLETION SERVICES
The Completion Services business unit consists of the Marine Well Service, Skid
Pumping Service and Coiled Tubing Service product lines. Results for the quarter
and first nine months follow (in millions):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2001 2000 2001 2000
----- ----- ----- -----
Net revenue $14.7 $13.4 $40.8 $31.1
Operating income $ 2.3 $ 2.5 $ 6.2 $ 3.6
Completion Services revenue increased 10% in the third quarter of 2001 compared
to the third quarter of 2000. Revenues for the first nine months increased 31%
compared to the same period last year. Third
11
quarter 2001 operating income decreased $0.2 million compared to third quarter
2000. Year-to-date September 2001 operating income increased by $2.6 million
(72%) from the same period last year.
Market penetration in the Gulf of Mexico in conjunction with accelerated and
higher activity levels combined to drive the improvements in revenue. The
increased volumes coupled with higher selling prices are responsible for the
significant improvement in operating income for the year-to-date period.
DOWNHOLE COMPLETION TOOLS
The Downhole Completion Tools business unit provides downhole sand control tools
and production packers/accessories. Results for the quarter and first nine
months follow (in millions):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2001 2000 2001 2000
----- ---- ----- -----
Net revenue $14.7 $8.6 $41.8 $21.6
Operating income $ 3.9 $1.1 $10.1 $ 3.3
Completion Tools revenue increased 71% from the third quarter of 2000. Revenues
for the first nine months of 2001 increased 94% compared to the corresponding
period in 2000. Third quarter 2001 operating income improved by $2.8 million
(255%) from third quarter 2000 while year-to-date 2001 operating income
increased $6.8 million (206%) over the comparable period in 2000.
The significant improvements in revenue and operating income reflect an improved
product mix associated with new technology, which has also increased the
Company's customer base.
FINANCIAL CONDITION & LIQUIDITY
Accounts receivable increased $4.0 million to $44.6 million at September 30,
2001, as compared to December 31, 2000. The increase was primarily due to
increases in revenue from all business segments.
Inventories were $30.0 million at September 30, 2001, an increase of $2.8
million from year-end 2000. The increase in inventories is due to higher
activity levels in the Downhole Completion Tools business.
Current liabilities increased $13.1 million to $33.8 million at September 30,
2001 from $20.7 million at December 31, 2000. The increase was primarily
attributable to increased liabilities resulting from increased expenses incurred
to support increased business activity.
Long-term debt decreased to $27.0 million at September 30, 2001 from $30.9
million at December 31, 2000. This decrease was the result of better utilization
of working capital.
Capital spending for the first nine months amounted to $13.3 million. Spending
for the year is expected to be approximately $18.8 million.
12
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but will be subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $0.4 million ($.03 per basic share) per year. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements involving risks and
uncertainties that affect the Company's operations as discussed in the 2000
Annual Report on Form 10-K filed with the SEC. Accordingly, there is no
assurance that the Company's expectations will be realized.
13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of the report are listed below:
None
(b) The Company did not file, nor was it required to file, a Form 8-K
during the quarter for which this report was filed.
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 12, 2001 By: /s/ Steven J. Brading
------------------- -----------------------------------
Steven J. Brading
Vice President & Chief Financial and
Accounting Officer
14