<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission file number 0-20689
DRILEX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0438889
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15151 SOMMERMEYER
HOUSTON, TEXAS
77041
(Address of principal executive offices)
(Zip Code)
(713) 937-8888
(Registrant's telephone number, including area code)
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 / / No /X/*
* The Registrant became subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934 on July 1, 1996.
Number of shares of common stock outstanding at August 1, 1996: 6,753,740
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DRILEX INTERNATIONAL INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1996 and December 31, 1995 3
Consolidated Statement of Income for the three and six months ended June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows for the six months ended June 30, 1996 and 1995 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,111 $ 819
Receivables:
Trade, net of allowance for doubtful accounts of $841 and $933
at June 30, 1996 and December 31, 1995, respectively 20,707 20,994
Other 743 694
Inventories 8,754 8,259
Prepaid expenses and other current assets 973 1,217
------- -------
Total current assets 32,288 31,983
Property and equipment, net of accumulated depreciation of $6,770 and
$4,732 at June 30, 1996 and December 31, 1995, respectively 28,910 27,557
Goodwill, net of accumulated amortization of $350 and $170
at June 30, 1996 and December 31, 1995, respectively 13,971 14,151
Other assets, net of accumulated amortization of $1,036 and $686
at June 30, 1996 and December 31, 1995, respectively 5,188 4,063
------- -------
$80,357 $77,754
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,619 $ 8,706
Accrued compensation and related benefits 1,318 1,550
Accrued taxes, other than on income 471 1,064
Accrued income taxes 413 476
Other accrued liabilities 1,645 936
Long-term debt, current maturities 5,840 5,886
------- -------
Total current liabilities 20,306 18,618
Long-term debt, less current maturities 32,851 32,467
Other noncurrent liabilities 2,143 2,182
------- -------
Total liabilities 55,300 53,267
------- -------
Commitments and contingencies
Minority interests 698 805
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 25,000,000 shares authorized; shares
issued: June 30, 1996 - 4,391,778 and December 31, 1995 - 4,381,205 44 44
Additional paid-in capital 19,903 19,845
Retained earnings 4,412 3,793
------- -------
Total stockholders' equity 24,359 23,682
------- -------
$80,357 $77,754
======= =======
</TABLE>
See condensed notes to consolidated financial statements.
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DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------
1996 1995 1996 1995
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net revenues:
Rental and service $16,100 $ 9,290 $33,139 $17,727
Equipment sales 2,493 3,053 4,911 5,143
------- ------- ------- -------
18,593 12,343 38,050 22,870
------- ------- ------- -------
Operating expenses:
Costs of sales and operations (exclusive of
depreciation and amortization):
Rental and service 10,592 5,732 21,428 11,305
Equipment sales 1,115 1,582 2,297 2,471
Selling, general and administrative expenses 4,482 3,072 8,725 5,716
Depreciation and amortization 1,581 934 3,161 1,695
------- ------- ------- -------
17,770 11,320 35,611 21,187
------- ------- ------- -------
Operating income 823 1,023 2,439 1,683
Interest expense (828) (443) (1,639) (646)
------- ------- ------- -------
Income (loss) before income taxes and minority
interests (5) 580 800 1,037
Credit (provision) for income taxes 2 (209) (288) (373)
Minority interests 96 (10) 107 (98)
------- ------- ------- -------
Net income $ 93 $ 361 $ 619 $ 566
======= ======= ======= =======
Net income per common and common equivalent share $.02 $.08 $.14 $.13
======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding (in thousands) 4,545 4,339 4,549 4,365
======= ======= ======= =======
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 619 $ 566
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 3,161 1,695
Minority interests (107) 98
Net losses (gains) on disposition of property and equipment (97) 750
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase in accounts payable 1,913 125
Decrease (increase) in prepaid expenses and other assets 477 (54)
Decrease (increase) in receivables 248 (1,546)
Increase in inventories (2,772) (2,699)
Decrease in accrued and other liabilities (1,026) (192)
------- -------
Net cash provided by (used for) operating activities 2,416 (1,257)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and equipment 1,699 242
Capital expenditures (3,518) (2,386)
Acquisition of Sharewell, Inc., net of cash acquired -- (3,727)
Other (201) --
------- -------
Net cash used for investing activities (2,020) (5,871)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreements 2,800 350
Principal payments on long-term debt (2,462) (3,487)
Costs incurred in connection with initial public offering of common stock. (442) --
Proceeds from issuance of long-term debt -- 11,000
Purchases of common stock -- (1,026)
------- -------
Net cash provided by (used for) financing activities (104) 6,837
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 292 (291)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 819 949
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,111 $ 658
======= =======
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Transfers of drilling equipment parts from inventories to property
and equipment $ 2,277 $ 1,369
Amounts recorded in connection with acquisitions:
Fair value of net assets acquired, including goodwill -- 8,708
Issuance of long-term debt -- 4,731
Issuance of long-term debt to reacquire equity interest in subsidiary -- 2,154
Issuance of warrants -- 250
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,348 $ 428
Income taxes paid 401 439
</TABLE>
See condensed notes to consolidated financial statements.
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DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements for the fiscal year ended December 31, 1995,
and related notes thereto, included in the Registration Statement on Form S-1,
as amended (Reg. No. 333-03405), filed by Drilex International Inc. with the
Securities and Exchange Commission. All references to the "Company" include
Drilex International Inc. and its subsidiary companies unless otherwise
indicated or the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at June 30, 1996, the
consolidated results of operations for the three and six months ended June 30,
1996 and 1995 and consolidated cash flows for the six months ended June 30, 1996
and 1995. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December 15,
1995. The adoption of SFAS 121 by the Company in 1996 did not have a material
impact on its consolidated financial statements.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
Drilling equipment parts $7,942 $7,573
Work in process 812 686
------ ------
$8,754 $8,259
====== ======
</TABLE>
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DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following (see Note 6):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
Bank Credit Agreement:
Revolving Credit Facility $12,000 $ 9,200
Term Note 14,833 16,578
Promissory Note payable to Posi-Trak Mud Motors, Inc. 1,333 1,333
Promissory Note payable to Cobb Directional Drilling Company, Inc. 583 750
Promissory Notes payable to former stockholders of Sharewell 3,881 4,431
Promissory Note payable to ENSCO Technology 3,561 3,561
Convertible Promissory Note payable to ENSCO Technology 2,500 2,500
------- -------
38,691 38,353
Less: current maturities (5,840) (5,886)
------- -------
$32,851 $32,467
======= =======
</TABLE>
4. PER SHARE INFORMATION
Per share information is based on the weighted average number of
common shares outstanding during each period and, if dilutive, the weighted
average number of common equivalent shares resulting from the assumed conversion
of outstanding stock options and warrants. Shares issued by the Company during
the one-year period prior to the filing of its Registration Statement (see Note
6) have been included in the computation of weighted average shares from the
date of inception (using the treasury stock method and the anticipated initial
public offering price).
5. CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings
arising in the ordinary course of business. While there are uncertainties
inherent in the ultimate outcome of such matters and it is impossible to
presently determine the ultimate costs that may be incurred, management believes
the resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUBSEQUENT EVENT
In July 1996, the Company consummated its initial public offering of
common stock at a price to the public of $16 per share (the "Offering"). The
Company sold 2,000,000 shares of its common stock and received proceeds of
$29,760,000 (after underwriting discounts of $2,240,000 but before other
expenses of the Offering, which are currently estimated to total approximately
$1,250,000). As part of the Offering, ENSCO International Incorporated, the
holder of the Convertible Promissory Note issued to ENSCO Technology, converted
such note into 361,962 shares of the Company's common stock and sold those
shares to the public. The Company did not receive any proceeds from the sale of
ENSCO International Incorporated's shares. The Company used the proceeds that
it received from the Offering to: (i) retire the outstanding principal amounts
on the Term Note under the Bank Credit Agreement and the Promissory Note issued
to ENSCO Technology, along with accrued interest on such notes through the date
of retirement; and (ii) repay $11,300,000 of outstanding borrowings under the
Revolving Credit Facility of the Bank Credit Agreement. In connection with the
retirement of the Term Note, the Company terminated its interest rate swap
agreement, resulting in cash proceeds to the Company of approximately $57,000.
Substantially all of the expenses related to the Offering had been
incurred as of June 30, 1996. As such, the estimated amount for these expenses
of $1,250,000 is included in other assets on the Company's consolidated balance
sheet as of June 30, 1996. A related accrual for estimated unpaid expenses of
$808,000 is included in other accrued liabilities. In the third quarter of
1996, the actual amount of these expenses will be reflected as a reduction of
the proceeds from the Offering in additional paid-in capital.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
Company's financial condition as of June 30, 1996 and its results of operations
for the three-month and six-month periods ended June 30, 1996 and 1995.
Statements regarding future financial performance and results and the other
statements that are not historical facts contained in this discussion are
forward-looking statements. These forward-looking statements are subject to
numerous risks and uncertainties, including but not limited to the uncertainties
relating to exploration and development decisions to be made in the future by
oil and gas exploration and development companies, market factors, the market
price of oil and natural gas, future operations and costs, unanticipated
technological changes and other factors detailed in the Company's Registration
Statement on Form S-1, as amended (Reg. No. 333-03405) (the "Registration
Statement") filed with the Securities and Exchange Commission. This discussion
should be read in conjunction with the response to Part I, Item 1 of this report
and the Consolidated Financial Statements of the Company, including the Notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Registration Statement. Any capitalized
terms used but not defined in this Item have the same meaning given to them in
the Registration Statement.
RESULTS OF OPERATIONS
The Company's business is somewhat seasonal, since domestic oil and
gas drilling activities are generally lower in the first and second quarters.
Adverse weather conditions can curtail operations in certain regions during
different parts of the year. Accordingly, the Company's results of operations
for any one quarter are not necessarily indicative of results to be expected for
the full year.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
----------------------------- ----------------------------- ------------------ --------------------
PERCENT PERCENT PERCENT PERCENT
OF NET OF NET OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------------- -------------- ------------- -------------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $18,593 100.0% $12,343 100.0% $38,050 100.0% $22,870 100.0%
Operating expenses:
Costs of sales and
operations 11,707 63.0 7,314 59.2 23,725 62.4 13,776 60.3
Selling, general and
administrative expenses 4,482 24.1 3,072 24.9 8,725 22.9 5,716 25.0
Depreciation and
amortization 1,581 8.5 934 7.6 3,161 8.3 1,695 7.4
------- ----- ------- ----- ------- ----- ------- -----
Operating income 823 4.4 1,023 8.3 2,439 6.4 1,683 7.3
Interest expense (828) (4.4) (443) (3.6) (1,639) (4.3) (646) (2.8)
------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before
income taxes and
minority interests (5) -- 580 4.7 800 2.1 1,037 4.5
Credit (provision) for
income taxes 2 -- (209) (1.7) (288) (0.8) (373) (1.6)
Minority interests 96 0.5 (10) (0.1) 107 0.3 (98) (0.4)
------- ----- ------- ----- ------- ----- ------- -----
Net income $ 93 0.5% $ 361 2.9% $ 619 1.6% $ 566 2.5%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Comparison of Three Months Ended June 30, 1996 and 1995
Consolidated revenues for the three months ended June 30, 1996 were
$18.6 million, an increase of 51% from revenues of $12.3 million for the
corresponding period in the prior year. Of the $6.3 million increase,
approximately $4.8 million was attributable to the ENSCO Technology Acquisition
(which was effective as of September 30, 1995). The remainder of the increase
is primarily attributable to increased precision drilling services revenues in
the Louisiana Gulf Coast. Consolidated revenues for the three months ended June
30, 1995 includes an export sale of trenchless equipment from Sharewell
amounting to $0.9 million.
-9-
<PAGE>
Costs of sales and operations increased from $7.3 million in the
second quarter of 1995 to $11.7 million in the second quarter of the current
year. This increase is largely attributable to the ENSCO Technology
Acquisition. As a percentage of revenues, costs of sales and operations
increased from 59.2% in the second quarter of 1995 to 63.0% in the second
quarter of the current year. The increase in costs of sales and operations as a
percentage of revenues is primarily attributable to the operations acquired in
the ENSCO Technology and Sharewell Acquisitions. ENSCO Technology's margin has
historically been less than that of the Company's pre-existing oilfield drilling
services (excluding the ENSCO Technology and Sharewell Acquisitions) due to
higher costs associated with measurement-while-drilling (or MWD) equipment and
third-party motor rentals. Similarly, Sharewell's margin was lower than that of
the Company's pre-existing oilfield drilling services due to sales of third-
party equipment. Included in costs of sales and operations for the second
quarter of the current year are incremental engineering project costs of
approximately $0.2 million for the replacement of third-party drilling motors,
which were being used by the acquired companies, with Drilex motors.
Selling, general and administrative expenses increased from $3.1
million in the second quarter of 1995 to $4.5 million in the second quarter of
1996. As a percentage of revenues, such expenses decreased from 24.9% in the
second quarter of 1995 to 24.1% in the second quarter of 1996. The increase in
selling, general and administrative expenses is primarily attributable to the
ENSCO Technology Acquisition, along with a full three months of expenses
associated with the Sharewell Acquisition (which was effective as of May 5,
1995). Corporate overhead increased $0.2 million, primarily for additional
personnel costs associated with the support of these newly acquired operations.
Also included in selling, general and administrative expenses for the second
quarter of 1996 is a charge of approximately $0.3 million for an increase of the
Company's allowance for doubtful accounts related primarily to two Australian
customers of Sharewell. The impact of this charge on the Company's net income
was approximately $150,000.
Depreciation and amortization increased from $0.9 million in the
second quarter of 1995 to $1.6 million in the second quarter of 1996. This
increase was primarily associated with the ENSCO Technology and Sharewell
Acquisitions.
Interest expense increased from $0.4 million in the second quarter of
1995 to $0.8 million in the second quarter of 1996. This increase was primarily
due to debt incurred in connection with the ENSCO Technology Acquisition, along
with a full three months of interest expense from debt incurred in connection
with the Sharewell Acquisition. Beginning in the third quarter of 1996,
interest expense will be substantially reduced as a result of retiring
approximately $32.2 million in debt in connection with the Offering (see Note 6
of the Condensed Notes to Consolidated Financial Statements).
Comparison of Six Months Ended June 30, 1996 and 1995
Consolidated revenues for the six months ended June 30, 1996 were
$38.1 million, an increase of 66% from revenues of $22.9 million for the
corresponding period in the prior year. Of the $15.2 million increase,
approximately $9.6 million was attributable to the ENSCO Technology Acquisition
and approximately $2.3 million was attributable to the Sharewell Acquisition.
The remainder of the increase is primarily attributable to increased precision
drilling services revenues in Venezuela and the Louisiana Gulf Coast.
Costs of sales and operations increased from $13.8 million in the
first six months of 1995 to $23.7 million in the first six months of the current
year. This increase is largely attributable to the ENSCO Technology
Acquisition, along with a full six months of operations associated with the
Sharewell Acquisition. As a percentage of revenues, costs of sales and
operations increased from 60.3% in the first six months of 1995 to 62.4% in the
first six months of the current year. The increase in costs of sales and
operations as a percentage of revenues is primarily attributable to the
operations acquired in the ENSCO Technology and Sharewell Acquisitions, as
discussed above. Included in costs of sales and operations for the first six
months of the current
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<PAGE>
year are incremental engineering project costs of approximately $0.3 million for
the replacement of third-party drilling motors with Drilex motors.
Selling, general and administrative expenses increased from $5.7
million in the first six months of 1995 to $8.7 million in the first six months
of 1996. As a percentage of revenues, such expenses decreased from 25.0% in the
first six months of 1995 to 22.9% in the first six months of 1996. The increase
in selling, general and administrative expenses is primarily attributable to the
ENSCO Technology Acquisition, along with a full six months of expenses
associated with the Sharewell Acquisition. Corporate overhead increased $0.5
million, primarily for additional personnel costs associated with the support of
these newly acquired operations. Also included in selling, general and
administrative expenses for the first six months of 1996 is the previously
discussed charge for the increase in the allowance for doubtful accounts.
Depreciation and amortization increased from $1.7 million in the first
six months of 1995 to $3.2 million in the first six months of 1996. This
increase was primarily associated with the ENSCO Technology and Sharewell
Acquisitions.
Interest expense increased from $0.6 million in the first six months
of 1995 to $1.6 million in the first six months of 1996. This increase was
primarily due to debt incurred in connection with the ENSCO Technology
Acquisition, along with a full six months of interest expense from debt incurred
in connection with the Sharewell Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $12.0 million,
compared to working capital of $13.4 million at December 31, 1995. The decrease
primarily reflects increases in accounts payable and other accrued liabilities,
a substantial portion of which represents costs incurred in connection with the
Offering.
Capital expenditures for the first six months of 1996 were $3.5
million. These expenditures included $2.1 million for acquisitions of new MWD
systems. The Company expects to spend approximately $6.9 million for capital
expenditures (excluding acquisitions) during the remaining six months of 1996.
Such expenditures are expected to relate primarily to acquisitions of new MWD
systems.
During the remainder of 1996, the Company expects to fund its working
capital, anticipated capital expenditures and debt maturity requirements
(excluding debt repaid with proceeds from the Offering) primarily through
cash provided by operating activities and available revolving credit borrowing
capacity. The Company carries substantial inventory and accounts receivable,
and will require increased working capital as its revenues grow.
In July 1996, the Company consummated the Offering at a price to the
public of $16 per share. The Company sold 2,000,000 shares of its common stock
and received proceeds of $29.8 million (after underwriting discounts of $2.2
million but before other expenses of the Offering, which are currently estimated
to total approximately $1.25 million). As part of the Offering, ENSCO
International Incorporated, the holder of the Convertible Promissory Note issued
to ENSCO Technology, converted such note into 361,962 shares of the Company's
common stock and sold those shares to the public. The Company did not receive
any proceeds from the sale of ENSCO International Incorporated's shares. The
Company used the proceeds that it received from the Offering to: (i) retire the
outstanding principal amounts on the Term Note under the Bank Credit Agreement
and the Promissory Note issued to ENSCO Technology, along with accrued interest
on such notes through the date of retirement; and (ii) repay $11.3 million of
outstanding borrowings under the Revolving Credit Facility of the Bank Credit
Agreement.
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<PAGE>
As of August 1, 1996, the Company had available revolving credit
borrowing capacity of $8.3 million under the Revolving Credit Facility. In
connection with the termination of the Term Loan, the Company terminated a
related interest rate swap agreement. The termination of such swap agreement
resulted in the Company receiving cash proceeds of approximately $57,000.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December 15,
1995. The adoption of SFAS 121 by the Company in 1996 did not have a material
impact on its consolidated financial statements.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Prior to the closing of its initial public offering, the stockholders of the
Company approved a number of matters by written consent. On May 15, 1996, the
stockholders unanimously approved an amendment to the Company's Certificate of
Incorporation (i) increasing the number of authorized shares to 35,000,000,
consisting of 25,000,000 shares of common stock and 10,000,000 shares of
preferred stock; (ii) effecting an approximately 1.81 for 1 stock split with
respect to the Company's common stock then outstanding; and (iii) retiring all
treasury shares of common stock. On June 7, 1996, a stockholder, representing
approximately 94% of the shares of common stock then outstanding, approved an
amendment to the Company's Certificate of Incorporation providing for the
Company's change of name to "Drilex International Inc." On June 28, 1996, the
stockholders unanimously approved the amendment and restatement of the Company's
Certificate of Incorporation, the amendment and restatement of the Company's
Bylaws, the amendment and restatement of the Company's Stock Option Plan, the
adoption of the Executive Value Plan, the adoption of the Deferred Compensation
Plan for Directors, and indemnification agreements between the Company and each
of its directors. The Company's first Annual Meeting of Stockholders as a public
company will be held in fiscal 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.1 Computation of Net Income Per Common and Common Equivalent Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
-13-
<PAGE>
SIGNATURES
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.
DRILEX INTERNATIONAL INC.
Date: August 12, 1996 By: /s/ JOHN FORREST
------------------------------------------------
John Forrest
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1996 By: /s/ G. BRUCE BROUSSARD
------------------------------------------------
G. Bruce Broussard
Vice President - Finance and Administration
and Secretary
(Principal Financial Officer and Principal
Accounting Officer)
-14-
<PAGE>
EXHIBIT 11
DRILEX INTERNATIONAL INC.
COMPUTATION OF NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 93 $ 361 $ 619 $ 566
========== ==========
Interest expense on Convertible Promissory Note,
net of tax 33 66
---------- ----------
As adjusted for fully diluted computation $ 126 $ 685
========== ==========
Weighted average common shares outstanding 4,391,778 3,934,106 4,386,492 4,001,027
Incremental effect of shares issued during the
twelve months prior to the filing date of
the Registration Statement -- 278,083 -- 278,083
Incremental shares attributable to outstanding
stock options and warrants 153,406 127,082 162,229 85,666
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 4,545,184 4,339,271 4,548,721 4,364,776
========== ==========
Incremental shares attributable to conversion
of Convertible Promissory Note 361,962 361,962
---------- ----------
As adjusted for fully diluted computation 4,907,146 4,910,683
========== ==========
Net income per common and common equivalent share:
Primary $ .02 $ .08 $ .14 $ .13
========== ========== ========== ==========
Fully diluted $ .03 $ .14
========== ==========
</TABLE>
Note: The computations in this exhibit are presented in accordance with
Regulation S-K, Item 601(b)(11). Under the provisions of Accounting Principles
Board Opinion No. 15, the fully diluted amounts are not presented in the
Company's Consolidated Statement of Income, since such amounts are anti-
dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of income and is
qualified in its entirety by reference to such consolidated financial statements
together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,111
<SECURITIES> 0
<RECEIVABLES> 21,548
<ALLOWANCES> 841
<INVENTORY> 8,754
<CURRENT-ASSETS> 32,288
<PP&E> 35,680
<DEPRECIATION> 6,770
<TOTAL-ASSETS> 80,357
<CURRENT-LIABILITIES> 20,306
<BONDS> 32,851
0
0
<COMMON> 44
<OTHER-SE> 24,315
<TOTAL-LIABILITY-AND-EQUITY> 80,357
<SALES> 4,911
<TOTAL-REVENUES> 38,050
<CGS> 2,297
<TOTAL-COSTS> 23,725
<OTHER-EXPENSES> 11,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,639
<INCOME-PRETAX> 800
<INCOME-TAX> 288
<INCOME-CONTINUING> 619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
