Exhibit 99.1
TUBOSCOPE, INC. 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, 1998
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Financial Statements and Supplemental Schedules
Year ended December 31, 1998
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 Schedules
Item 27(a) - Schedule of Assets Held for Investment Purposes 9
Item 27(d) - Schedule of Reportable Transactions........... 10
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, 1998 and 1997, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the changes in its net assets available for
benefits for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment purposes as of December 31, 1998, and reportable
transactions for the year then ended are presented for purposes of additional
analysis and are not a required part of the financial statements but are
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 schedules are the responsibility of the
Plan's management. The fund information in the statement of changes in net
assets available for benefits is presented for purposes of additional analysis
rather than to present the changes in net assets available for benefits of each
fund. The supplemental schedules and fund information have been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
June 4, 1999
1
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Statements of Net Assets Available for Benefits
December 31
1998 1997
------------------------------
Assets
Investments at fair value (Note 2):
AIM Weingarten Fund $ 3,841,450 $ 2,662,570
Aurora National Life Assurance Co. Guaranteed
Investment Contract (Note 4) - 3,253,820
Davis New York Venture Fund 3,367,582 2,683,975
Merrill Lynch Basic Value Fund 5,668,521 4,624,104
Merrill Lynch Capital Fund 3,913,099 3,661,497
Merrill Lynch Corporate Bond Fund 2,062,787 1,717,389
Merrill Lynch Global Allocation Fund 2,466,443 2,626,072
Merrill Lynch Retirement Preservation Trust 13,246,762 10,481,166
Tuboscope Inc. common stock 2,367,445 3,299,424
Participant loans 2,310,621 2,086,892
------------------------------
Total investments 39,244,710 37,096,909
Cash 3,575 674
Receivables:
Participant contributions 202,611 212,257
Employer contributions 78,914 82,597
Accrued interest and dividends 21,727 18,039
------------------------------
Total receivables 303,252 312,893
------------------------------
Total assets 39,551,537 37,410,476
Liabilities
Liability for securities purchased 71,926 5,082
------------------------------
Total liabilities 71,926 5,082
------------------------------
Net assets available for benefits $ 39,479,611 $ 37,405,394
==============================
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, 1998
Participant-Directed
------------------------------------------------------------------------------------
Merrill Lynch Merrill Merrill Merrill
AIM Retirement Lynch Lynch Lynch
Company Weingarten Preservation Corporate Capital Basic Value
Stock Fund Trust Bond Fund Fund Fund
------------------------------------------------------------------------------------
Additions to net assets attributed to:
Participant contributions $ 70,080 $ 462,445 $ 644,431 $ 219,864 $ 438,518 $ 612,667
Employer contributions in stock 1,191,354 - - - - -
Rollover contributions 909 66,672 24,909 60,159 61,842 219,571
Investment income - 223,361 849,544 119,445 250,580 446,470
Net (depreciation) appreciation in
fair value of investments (2,994,372) 677,798 - 31,362 (15,868) 103,223
Other 6,448 4,170 25,661 836 4,586 6,768
------------------------------------------------------------------------------------
Total additions (1,725,581) 1,434,446 1,544,545 431,666 739,658 1,388,699
Deductions from net assets attributed to:
Benefits paid to participants 98,084 285,512 2,373,642 110,872 411,838 402,735
Administrative expenses 7,354 4,170 35,270 3,052 4,586 5,295
------------------------------------------------------------------------------------
Total deductions 105,438 289,682 2,408,912 113,924 416,424 408,030
Transfers from other qualified plans - - 822,330 - 211,198 -
------------------------------------------------------------------------------------
Net increase (decrease) prior to
interfund transfers (1,831,019) 1,144,764 (42,037) 317,742 534,432 980,669
Interfund transfers, net 895,357 34,116 (446,187) 27,656 (282,830) 63,748
------------------------------------------------------------------------------------
Net (decrease) increase (935,662) 1,178,880 (488,224) 345,398 251,602 1,044,417
Net assets available for benefits at
beginning of year 3,382,021 2,662,570 13,734,986 1,717,389 3,661,497 4,624,104
------------------------------------------------------------------------------------
Net assets available for benefits at
end of year $ 2,446,359 $3,841,450 $13,246,762 $2,062,787 $3,913,099 $ 5,668,521
====================================================================================
-----------------------------------------------------------------------------
Merrill
Lynch Davis
Global New York
Allocation Venture Participant
Fund Fund Loans Other Total
----------------------------------------------------------------------------
Additions to net assets attributed to:
Participant contributions $ 370,918 $ 556,454 $ - $ (9,646) $ 3,365,731
Employer contributions in stock - - - - 1,191,354
Rollover contributions 14,387 129,372 - 10,000 587,821
Investment income 300,324 75,835 165,956 3,688 2,435,203
Net (depreciation) appreciation in
fair value of investments (279,793) 325,818 - - (2,151,832)
Other 3,057 6,429 - 4,486 62,441
-----------------------------------------------------------------------------
Total additions 408,893 1,093,908 165,956 8,528 5,490,718
Deductions from net assets attributed to:
Benefits paid to participants 230,002 364,853 123,852 (12,270) 4,389,120
Administrative expenses 3,057 4,882 - (181) 67,485
-----------------------------------------------------------------------------
Total deductions 233,059 369,735 123,852 (12,451) 4,456,605
Transfers from other qualified plans - 6,576 - - 1,040,104
-----------------------------------------------------------------------------
Net increase (decrease) prior to
interfund transfers 175,834 730,749 42,104 (20,979) 2,074,217
Interfund transfers, net (335,463) (47,142) 181,625 (90,880) -
-----------------------------------------------------------------------------
Net (decrease) increase (159,629) 683,607 223,729 (69,901) 2,074,217
Net assets available for benefits at
beginning of year 2,626,072 2,683,975 2,086,892 225,888 37,405,394
-----------------------------------------------------------------------------
Net assets available for benefits at
end of year $2,466,443 $3,367,582 $2,310,621 $155,987 $39,479,611
=============================================================================
See accompanying notes.
3
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements
December 31, 1998
1. Description of the 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. (the "Company"), and certain subsidiaries. Employees
are eligible upon hiring or rehiring by the Company.
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.
Participant Contributions
Effective January 1, 1998, the Plan allows participants to contribute from 1% to
20% of their gross salary in any combination of before-tax and after-tax
dollars, subject to limits prescribed by law.
Participants may elect to have their contributions allocated in 10% increments
to one or more of the following options: AIM Weingarten Fund, Merrill Lynch
Retirement Preservation Trust ("RPT"), Merrill Lynch Corporate Bond Fund,
Merrill Lynch Capital Fund, Merrill Lynch Basic Value Fund, Merrill Lynch Global
Allocation Fund, Davis New York Venture Fund, and Tuboscope Inc. common stock
("Company Stock"). Participants may no longer elect to allocate contributions to
the Guaranteed Investment Contract ("GIC"), and all transactions related to the
GIC have been included with the RPT for financial statement purposes. See Note 4
for discussion of the GIC.
I. 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 Company Stock and are valued
at the fair market value as of the date of contribution to the Plan.
Participants may transfer the matching contribution to another fund option at
any time.
4
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Effective January 1, 1998, the Company may, in its sole discretion, contribute
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.
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 may be applied to reduce the employer's
contribution.
Payment of Benefits
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.
5
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Administrative Expenses
Certain administrative expenses such as legal fees and audit fees are paid by
the Company. The Plan pays all other administrative expenses.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right to
discontinue contributions at any time and to terminate the Plan subject to the
provisions of the Employee Retirement Income Security Act of 1974. In the event
of Plan termination, participants will become fully vested.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of
accounting. Benefit payments to participants are recorded upon distribution.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes and
schedules. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Mutual fund investments and Company Stock are valued at fair value, which is
determined using quoted market prices. The Aurora National Life Assurance
Company ("Aurora") Guaranteed Investment Contract is stated at contract value
(see Note 4). The Merrill Lynch Retirement Preservation Trust and participant
loans are valued 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
Notes to Financial Statements (continued)
3. Federal Income Taxes
The Plan has received a favorable determination letter from the Internal Revenue
Service dated October 31, 1995 regarding its qualification status under Section
401(a) of the Internal Revenue Code (the "Code") and, therefore, the related
trust is exempt from taxation. The Plan has been amended since receiving the
determination letter. 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 is qualified and the related trust
is tax exempt.
4. Executive Life Insurance Company Fund
Certain of the Plan's assets were invested in an Executive Life Insurance
Company ("ELIC") GIC. ELIC was placed into conservatorship on April 11, 1991 by
the California Insurance Commissioner. The decision of the California Insurance
Commissioner to place the funds into conservatorship and subsequent court orders
have restricted the participants' ability to contribute funds to or withdraw
funds from this investment since that time.
On September 3, 1993, Aurora assumed and reinsured the GIC. Aurora adjusted its
estimate of the GIC balance annually for interest earned and account value
adjustments.
In April 1994, the Company elected to opt-in to the ELIC Rehabilitation Plan
with a benefit-responsive guaranteed investment contract. Under the terms of the
ELIC Rehabilitation Plan, current employees who were contract holders had to
remain in the Plan with no withdrawals or transfers of funds permitted until
September 1998.
In August 1995, the Superior Court of Los Angeles, California, rendered a
nonappealable court order stating that all priority litigation ELIC contracts
would be treated as normal annuity contracts. The consequences of this decision
included raising the Plan from a class six to a class five standing in the
conservatorship proceedings. Therefore, the Plan was eligible to receive its
full percentage of the ELIC Rehabilitation Plan settlement amount from Aurora in
1998.
In May 1997, $3.2 million was transferred from Aurora to the RPT for ELIC funds
which were being held on behalf of the Plan. Because the litigation related to
the ELIC was settled in 1995, funds representing all terminated participants'
balances as of April 11, 1991 could then be distributed by the Plan. All active
participants' total ELIC balances
7
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Notes to Financial Statements (continued)
4. Executive Life Insurance Company Fund (continued)
and the terminated participants' interests earned since April 11, 1991 on ELIC
balances could not be paid out until the contract expired in September 1998.
Letters were sent to terminated employees describing their options for
distribution of their April 11, 1991 ELIC balances. These options were either to
be paid out immediately or to wait until their entire balance could be
distributed in September 1998. Funds received from Aurora and deposited in the
RPT account could be reallocated to other investment options as directed by
participants.
In September 1998, the remaining funds in the GIC were transferred to the RPT.
Participants whose account balances had been transferred to the RPT could
redirect those amounts to other fund options, if desired.
The GIC was valued at contract value. The net average yield was 4.70% and 4.97%
for 1998 and 1997, respectively. The rate of credited interest for any period of
time was determined by Aurora and could be changed periodically. The net
crediting interest rate was 5.21% and 5.34% at December 31, 1998 and 1997,
respectively. The value of the GIC was subject to the financial stability of
Aurora.
5. Year 2000 Issue (Unaudited)
The Company determined that it will be necessary to take certain steps in order
to ensure that the Company's information systems are prepared to handle year
2000 dates. The Company is taking a two-phase approach. The first phase
addresses internal systems that must be modified or replaced to function
properly. Both internal and external resources are being utilized to replace or
modify existing software applications, and test the software and equipment for
the year 2000 modifications. The Company anticipates substantially completing
this phase of the project by December 1999. Costs associated with modifying
software and equipment are not estimated to be significant and will be paid by
the Company.
For the second phase of the project, Plan management established formal
communications with its third-party service providers to determine that they
have developed plans to address their own year 2000 problems as they relate to
the Plan's operations. All third-party service providers have indicated that
they will be year 2000 compliant by the middle of 1999. If modification of data
processing systems of either the Plan, the Company, or its service providers is
not completed timely, the year 2000 problem could have a material impact on the
operations of the Plan.
8
Supplemental Schedules
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Item 27(a) - Schedule of Assets Held for Investment Purposes
EIN: 74-1473942 PN: 001
December 31, 1998
Identity of Current
Issue Description of Investment Cost Value
- --------------------------------------------------------------------------------
*Tuboscope Inc. Common stock $ 3,884,534 $ 2,367,445
*Merrill Lynch Retirement Preservation 13,246,762 13,246,762
Trust
*Merrill Lynch Global Allocation Fund 2,707,793 2,466,443
Class A
*Merrill Lynch Corporate Bond Fund
Investment Grade Class A 2,059,167 2,062,787
*Merrill Lynch Capital Fund, Class A 3,543,811 3,913,099
*Merrill Lynch Basic Value Fund 4,628,702 5,668,521
AIM Management Weingarten Fund 3,022,201 3,841,450
Davis New York Venture Fund 2,812,820 3,367,582
*Participant loans Varying maturity dates,
bearing interest at prime
plus 1% (interest rates
ranging from 7% - 10%) - 2,310,621
------------------------------
$35,905,790 $39,244,710
==============================
* Party-in-interest
9
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Item 27(d) - Schedule of Reportable Transactions
EIN: 74-1473942 PN: 001
Year ended December 31, 1998
Current
Value of
Asset on
Identity of Purchase Selling Cost of Transaction Net Gain
Party Involved Description Price Price Asset Date (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Category (iii) - Series of transactions in excess of 5% of net assets available for benefits
Merrill Lynch Retirement Preservation $ 11,243,674 $ - $ 11,243,674 $ 11,243,674 $ -
Trust
- 8,478,078 8,478,078 8,478,078 -
Merrill Lynch Basic Value Fund 1,844,441 - 1,844,441 1,844,441 -
- 901,190 795,971 901,190 105,219
Davis New York Venture Fund 1,209,509 - 1,209,509 1,209,509 -
- 851,720 759,735 851,720 91,985
AIM Management Weingarten Fund 1,342,718 - 1,342,718 1,342,718 -
- 841,635 775,274 841,635 66,361
10
Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
Item 27(d) - Schedule of Reportable Transactions (continued)
EIN: 74-1473942 PN: 001
Current
Value of
Asset on
Identity of Purchase Selling Cost of Transaction Net Gain
Party Involved Description Price Price Asset Date (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Category (iii) - Series of transactions in excess of 5% of net assets available for benefits (continued)
Merrill Lynch Capital Fund $ 1,186,844 $ - $ 1,186,844 $ 1,186,844 $ -
- 917,671 810,136 917,671 107,535
Tuboscope Inc. Company Stock 2,886,773 - 2,886,773 2,886,773 -
- 796,609 924,638 796,609 (128,029)
Aurora National
Life Assurance Guaranteed Investment - 3,253,820 3,253,820 3,253,820 -
Company Contract
11