Exhibit 99.1
TUBOSCOPE VETCO INTERNATIONAL INC. 401(K) THRIFT SAVINGS PLAN FINANCIAL
STATEMENTS AND SCHEDULES PREPARED IN ACCORDANCE WITH THE FINANCIAL REPORTING
REQUIREMENTS OF ERISA
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Year ended December 31, 2000
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Financial Statements and Supplemental Schedule
Year ended December 31, 2000
Contents
Report of Independent Auditors........................................ 1
Audited Financial Statements
Statements of Net Assets Available for Benefits....................... 2
Statement of Changes in Net Assets Available for Benefits............. 3
Notes to Financial Statements......................................... 4
Supplemental Schedule
Schedule H, Line 4(i) - Schedule of Assets (Held At End of Year)...... 9
Report of Independent Auditors
Administrative Committee
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan as of
December 31, 2000 and 1999, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2000. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2000 and 1999, and the changes in its net assets available for
benefits for the year ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2000 is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Houston, Texas
May 30, 2001
1
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Statements of Net Assets Available for Benefits
December 31
2000 1999
---------------------------
Assets
Cash $ 322 $ 18,750
Receivables:
Participant contributions 236,121 164,967
Employer contributions 96,507 62,363
Accrued investment income 31,017 26,558
Sales pending 42,333 -
---------------------------
Total receivables 405,978 253,888
Investments 49,379,383 45,706,199
---------------------------
Net assets available for benefits $49,785,683 $45,978,837
===========================
See accompanying notes.
2
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2000
Additions:
Employer contributions in stock $ 1,061,166
Participant contributions 2,873,065
Participant rollovers 158,562
Investment income 4,450,645
-----------
Total additions 8,543,438
Deductions:
Benefits paid to participants 3,547,827
Administrative expenses 68,033
Net depreciation in fair value of investments 1,120,732
-----------
Total deductions 4,736,592
Net increase 3,806,846
Net assets available for benefits at:
Beginning of year 45,978,837
-----------
End of year $49,785,683
===========
See accompanying notes.
3
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements
December 31, 2000
1. Description of Plan
General
The Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan (the "Plan")
is a defined contribution plan which covers domestic employees of Tuboscope
Vetco International Inc. and certain subsidiaries (collectively, the "Company").
Employees are eligible upon hiring or subsequent rehiring by the Company. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA").
On May 30, 2000, the Company completed a merger with Varco International, Inc.
("Varco"), by exchanging 46.8 million shares of its common stock for all of the
common stock of Varco. Each share of Varco's stock was exchanged for .7125 of
one share of the Company's common stock. In connection with the merger, the
Company changed its name to Varco International, Inc.
The following brief description of the Plan is provided for general information
purposes only. Participants should refer to the Summary Plan Description for a
more complete description of the Plan's provisions, a copy of which is available
from the Company.
Participant Contributions
The Plan allows participants to contribute from 1% to 20% of their base salary
in any combination of before-tax and after-tax dollars, subject to certain
limits prescribed by law.
Employer Contributions
The Plan allows for matching contributions by the Company of one-half of each
participant's contributions, up to a maximum of 3% of the participant's salary.
Matching contributions are made by the Company in shares of Varco Stock
(formerly Tuboscope, Inc. common stock) ("Common Stock") and are valued at the
fair market value as of the date of contribution to the Plan.
The Company may, at its sole discretion, contribute shares of Common Stock to
the Plan for each participant who elected to defer compensation or make
voluntary contributions to the Plan an additional contribution of one-half of
the participant's deferred compensation and one-half of the participant's
voluntary contributions, up to a maximum of 1% of the participant's salary.
Participants may transfer all employer matching contributions to another fund
option at any time, and therefore the matching contribution is considered to be
participant directed.
4
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
Participant Loans
Participants are allowed to borrow a minimum of $1,000 and a maximum of $50,000.
The amount of a loan may not exceed 50% of the value of the participant's
deferred compensation account and vested employer's contributions account. The
security for a loan extended under the Plan is 50% of the value of the
borrower's vested account balance as determined immediately after the loan is
extended. The administrative committee determines a reasonable interest rate to
be applied uniformly and charged on outstanding loans. The term of a loan is
limited to five years unless the loan is used to acquire the borrower's
principal residence.
Vesting
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the participant's employer contributions account, including
actual earnings thereon, is based upon years of continuous service. A
participant vests 20% each year and is 100% vested after five years of credited
service. Full vesting in the participant's employer contributions will also
occur at death, age 60, disability, retirement, or the termination or
discontinuation of the Plan. Forfeitures of nonvested accounts may be used to
reduce future employer contributions.
Benefit Payments
Upon termination of service, each participant can receive his/her vested amount
in one lump-sum payment or, in certain cases, the participant may defer
withdrawals. In addition, active service withdrawals may be taken at age 59 1/2
and at age 62 in 10% increments once each calendar quarter.
Administrative Expenses
Certain administrative expenses such as legal fees and audit fees are paid by
the Company. The Plan pays all other administrative expenses.
5
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
Plan Termination
The Company has the right under the Plan to discontinue contributions at any
time and to terminate the Plan subject to ERISA. In the event of Plan
termination, participants will become fully vested in their accounts. The
Company has not expressed any intent to terminate the Plan and distribute
assets; however, the Plan will merge into another qualified plan effective
January 1, 2001 as discussed in Note 5.
2. Summary of Accounting Policies
Basis of Accounting
The accompanying financial statements of the Plan have been prepared on the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States. Benefit payments to participants are recorded
upon distribution.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes and schedule. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Mutual fund investments and Common Stock are stated at fair value based on
market prices obtained from national securities exchanges. The Merrill Lynch
Retirement Preservation Trust and participant loans are stated at cost, which
approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the ex-
dividend date.
6
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
3. Investments
Individual investments that represent 5% or more of the Plan's net assets are as
follows:
December 31
2000 1999
-------------------------
Varco International, Inc. Common Stock (formerly
Tuboscope, Inc. Common Stock) $ 8,872,587 $ 5,899,868
Merrill Lynch Retirement Preservation Trust 12,819,730 13,093,141
Merrill Lynch Capital Fund Class A 3,559,186 3,526,441
Merrill Lynch Basic Value Fund 5,802,408 5,897,141
Merrill Lynch Global Allocation Fund Class A 3,049,415 2,773,898
AIM Weingarten Fund 5,884,132 5,740,015
Davis New York Venture Fund 4,783,986 4,410,394
During 2000, the Plan's investments (including investments bought, sold, and
held during the year) appreciated (depreciated) in value as follows:
Common Stock $ 2,369,247
Mutual funds (3,489,979)
-----------
Net depreciation $(1,120,732)
===========
4. Income Tax Status
The Plan has received a favorable determination letter from the Internal Revenue
Service dated February 13, 2001 regarding its qualification status under Section
401(a) of the Internal Revenue Code (the "Code") and, therefore, the related
trust is exempt from taxation. Once qualified, the Plan is required to operate
in conformity with the Code to maintain its qualification. The Company believes
the Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan, as amended, is qualified and the
related trust is tax exempt.
5. Subsequent Event
Effective January 1, 2001, the Plan will be merged into the Varco International,
Inc. 401(k)/Profit Sharing Retirement Plan ("Varco Plan").
7
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
6. Reconciliation to Form 5500
The accompanying financial statements reflect the net assets available for
benefits of the Plan just prior to the merger discussed in Note 5. The 2000 Form
5500 will be filed as the final Form 5500 for the Plan and, therefore, reflects
the merger as of the stroke of midnight on December 31, 2000.
December 31
2000
-------------
Net assets available for benefits per the financial
statements $ 49,785,683
Transfer to Varco Plan (49,785,683)
-------------
Net assets available for benefits per the Form 5500 $ -
=============
8
Supplemental Schedule
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Schedule H, Line 4(i) - Schedule of Assets (Held At End of Year)
EIN: 74-1473942 PN: 001
December 31, 2000
Identity of
Issue, Borrower, Lessor Current
or Similar Party Description of Investment Value
- ------------------------------------------------------------------------------
*Varco International Inc. 407,935 shares of common stock $ 8,872,587
*Merrill Lynch Retirement Preservation Trust 12,819,730
*Merrill Lynch Global Allocation Fund Class A 3,049,415
*Merrill Lynch Corporate Bond Fund Investment Grade 1,731,737
Class A
*Merrill Lynch Capital Fund Class A 3,559,186
*Merrill Lynch Basic Value Fund 5,802,408
AIM Management Weingarten Fund 5,884,132
Davis Funds Davis New York Venture Fund 4,783,986
*Participant loans Varying maturity dates and interest
rates ranging from 9.5% to 10.5% 2,876,202
-----------
$49,379,383
===========
* Party-in-interest
9