<PAGE>
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 March 31, 1997
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 [X] No [ ]
Number of shares of common stock outstanding at April 30, 1997: 6,663,356
<PAGE>
DRILEX INTERNATIONAL INC.
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1997 and
December 31, 1996................................................ 3
Consolidated Statement of Income for the Three
Months Ended March 31, 1997 and 1996............................. 4
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1997 and 1996....................... 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 6. Exhibits and Reports on Form 8-K.......................... 12
Signatures........................................................ 13
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 1,406 $ 2,552
Receivables:
Trade, net of allowance for doubtful accounts
of $968 and $814 at March 31, 1997 and
December 31, 1996, respectively................... 21,899 20,015
Other.............................................. 843 1,031
Inventories......................................... 11,689 10,733
Prepaid expenses and other current assets........... 1,452 1,208
------------ ------------
Total current assets........................... 37,289 35,539
Property and equipment, net........................... 36,183 33,909
Goodwill, net of accumulated amortization
of $608 and $519 at March 31, 1997 and
December 31, 1996, respectively...................... 13,712 13,801
Other assets, net of accumulated amortization of
$1,571 and $1,397 at March 31, 1997 and
December 31, 1996, respectively...................... 3,023 3,521
------------ ------------
$ 90,207 $ 86,770
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 7,903 $ 8,614
Accrued compensation and related benefits........... 1,075 1,112
Accrued taxes, other than on income................. 318 475
Accrued income taxes................................ 240 356
Other accrued liabilities........................... 286 347
Long-term debt, current maturities.................. 886 2,471
------------ ------------
Total current liabilities....................... 10,708 13,375
Long-term debt, less current maturities............... 19,311 11,883
Other noncurrent liabilities.......................... 2,918 2,944
------------ ------------
Total liabilities............................... 32,937 28,202
============ ============
Commitments and contingencies
Minority interests.................................... 888 888
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: March 31, 1997 - 6,663,356
and December 31, 1996 - 6,759,879................... 67 68
Additional paid-in capital........................... 49,477 50,777
Retained earnings.................................... 6,838 6,835
------------ ------------
Total stockholders' equity....................... 56,382 57,680
------------ ------------
$ 90,207 $ 86,770
============ ============
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenues:
Rental and service................................. $ 13,160 $ 17,039
Equipment sales.................................... 3,873 2,418
----------- -----------
17,033 19,457
----------- -----------
Operating expenses:
Costs of sales and operations (exclusive of
depreciation and amortization):
Rental and service................................. 8,978 10,836
Equipment sales.................................... 1,802 1,182
Selling, general and administrative expenses........ 3,992 4,243
Depreciation and amortization....................... 1,939 1,580
----------- -----------
16,711 17,841
----------- -----------
Operating income...................................... 322 1,616
Interest expense...................................... (317) (811)
----------- -----------
Income before income taxes and minority interests..... 5 805
Provision for income taxes............................ (2) (290)
Minority interests.................................... - 11
----------- -----------
Net income............................................ $ 3 $ 526
=========== ===========
Net income per common and common equivalent share...... $ .00 $ .12
=========== ===========
Weighted average common and common equivalent
shares outstanding (in thousands).................... 6,828 4,552
=========== ===========
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 3 $ 526
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization...................... 1,939 1,580
Minority interests................................. - (11)
Net losses on disposition of property
and equipment..................................... 147 193
Changes in assets and liabilities, excluding
the effects of acquisitions:
(Increase) decrease in receivables................ (1,696) 508
(Increase) in inventories......................... (2,190) (1,080)
(Increase) in prepaid expenses and other assets... (185) (151)
Increase (decrease) in accounts payable.......... (711) 521
(Decrease) in accrued and other liabilities....... (396) (837)
------------ -----------
Net cash provided by (used for) operating
activities..................................... (3,089) 1,249
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (3,204) (1,816)
Net proceeds from disposition of property
and equipment...................................... 292 692
Net proceeds from reduction of non-compete
agreement in connection with the Cobb Buyout
Agreement.......................................... 313 -
------------ -----------
Net cash used for investing activities.......... (2,599) (1,124)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement..... 7,650 1,550
Principal payments on long-term debt................ (1,805) (1,106)
Purchases of common stock........................... (1,303) -
------------ -----------
Net cash provided by financing activities....... 4,542 444
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. (1,146) 569
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 2,552 819
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 1,406 $ 1,388
============ ===========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Transfers of drilling equipment parts from
inventories to property and equipment.............. $ 1,235 $ 1,222
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid....................................... $ 314 $ 800
Income taxes paid................................... 109 312
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE>
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 years ended December 31, 1995
and 1996, and related notes thereto, included in the Annual Report on Form 10-K
for the year ended December 31, 1996, filed by Drilex International Inc. with
the Securities and Exchange Commission. All references herein to the "Company"
include Drilex International Inc. and its subsidiary companies unless otherwise
indicated or the context otherwise requires.
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 March 31, 1997, and
the consolidated results of operations and cash flows for the three months ended
March 31, 1997 and 1996. 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.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
(In thousands of dollars)
<S> <C> <C>
Drilling equipment parts........................ $ 10,922 $ 9,879
Work in process................................. 767 854
---------- -----------
$ 11,689 $ 10,733
========== ===========
</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:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
(In thousands of dollars)
<S> <C> <C>
Bank Credit Agreement:
Revolving Credit Facility....................... $ 16,650 $ 9,000
Promissory Note payable to Posi-Trak
Mud Motors, Inc. (See Note 4)................... - 1,333
Promissory Note payable to Cobb
Directional Drilling Company, Inc. (See Note 4). - 417
Promissory Notes payable to former
stockholders of Sharewell, Inc.................. 3,547 3,604
---------- -----------
20,197 14,354
Less: current maturities......................... (886) (2,471)
---------- -----------
$ 19,311 $ 11,883
========== ===========
</TABLE>
On September 16, 1996, the Company entered into an unsecured credit
agreement with a bank (the "Bank Credit Agreement") which replaced previous
credit agreements entered into by the Company and its subsidiaries. The Bank
Credit Agreement, as amended on February 10, 1997, consists of a revolving line
of credit (the "Revolving Credit Facility") which matures on September 30, 1999
and provides for borrowings of up to $20,000,000, of which up to $3,000,000 may
be used for letters of credit. As of March 31, 1997, $3,350,000 was available
for borrowings of which $2,780,000 was available for letters of credit. Letters
of credit outstanding amounted to $220,000 at March 31, 1997.
4. COBB BUYOUT AGREEMENT
On January 31, 1997, the Company entered into a stock repurchase and
promissory note repayment agreement and general release (the "Cobb Buyout
Agreement"), which was effected on February 10, 1997, with Mr. Archie Cobb and
certain of his affiliates from whom the Company previously acquired assets. The
Cobb Buyout Agreement provides for, among other things, the repurchase of
Company stock, early payment of outstanding notes payable, the termination of
Mr. Cobb's employment as of January 31, 1997 and the amendment of the non-
compete provision in the related employment agreement. Company stock repurchased
was 96,523 shares at the January 31, 1997 market closing price of $13.50 per
share. The notes payable repaid were to Posi-Trak Mud Motors, Inc. and Cobb
Directional Drilling Company, Inc. having principal balances outstanding of
$1,333,000 and $417,000, respectively. The employment agreement was amended to
provide for a reduction in the duration of the post-termination non-compete from
five years to two years. The total cash payment made by the Company under the
Cobb Buyout Agreement was $2,726,000 and was funded through its Revolving Credit
Facility.
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. 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.
6. 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.
7. SUBSEQUENT EVENTS
On April 11, 1997, the Company purchased the 30% minority interest in its
Canadian subsidiary, Drilex Systems Canada, Inc., for approximately $1.4
million.
On April 17, 1997, the Company announced that it had entered into a
definitive agreement to be acquired by Baker Hughes Incorporated. The agreement
is subject to satisfaction of customary conditions including clearance by
appropriate government agencies. The acquisition is expected to close before
September 30, 1997.
-8-
<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 March 31, 1997 and its results of operations
for the three-month periods ended March 31, 1997 and 1996. The statements in
this discussion regarding the industry outlook, the Company's expectations
regarding growth in the precision drilling segment, the Company's expectations
regarding the future performance of its businesses, and other statements which
are not historical facts in this discussion are forward-looking statements. The
words "anticipate," "believe," "estimate," "except," "intend," "plan,"
"project," "will," "could," "may," "predict," and similar expressions are also
intended to identify forward-looking statements. Such statements are subject to
numerous risks and uncertainties, including but not limited to the effect of
competition, the level of petroleum industry exploration and production
expenditures, world economic conditions, prices of and the demand for crude oil
and natural gas, drilling activity, weather, the legislative environment in the
United States and other countries, OPEC policy, conflict in the Middle East and
other major petroleum producing regions, the condition of the capital and equity
markets, unanticipated technological changes and other factors detailed herein
and in the Company's Annual Report on Form 10-K for the year ended December 31,
1996, filed by the Company with the Securities and Exchange Commission. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. 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 Company's 1996
Form 10-K.
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
Ended March 31, Ended March 31,
1997 1996
--------------- ---------------
Percent Percent
of Net of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues............................ $ 17,033 100.0% $ 19,457 100.0%
Operating expenses:
Costs of sales and operations......... 10,780 63.3 12,018 61.8
Selling, general and administrative
expenses............................. 3,992 23.4 4,243 21.8
Depreciation and amortization......... 1,939 11.4 1,580 8.1
-------- ------- -------- --------
Operating income........................ 322 1.9 1,616 8.3
Interest expense........................ (317) (1.9) (811) (4.2)
-------- ------- -------- --------
Income before income taxes and
minority interests..................... 5 0 805 4.1
Provision for income taxes.............. (2) 0 (290) (1.5)
Minority interests...................... - 0 11 0.1
-------- ------- -------- --------
Net income.............................. $ 3 0% $ 526 2.7%
======== ======= ======== ========
</TABLE>
Comparison of Three Months Ended March 31, 1997 and 1996
Consolidated revenues for the three months ended March 31, 1997 were $17.0
million, a decrease of 12% from revenues of $19.5 million for the corresponding
period in the prior year. The $2.5 million decrease was primarily attributable
to delays in the start of drilling projects in Texas and Venezuela and to lower
activity from the Louisiana operations in the first quarter of 1997. The Texas
delays were due to changes in drilling projects in the deep Austin Chalk that
cause longer intervals for drilling the vertical section of the wellbore prior
to the Company performing the directional drilling services. The lower Venezuela
revenues were attributable to the delay of rig availability until early April.
These lower revenue levels were partially offset by a sales and service
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<PAGE>
contract to the Far East which is expected to provide for ongoing service
revenues.
Costs of sales and operations decreased from $12.0 million in the first
quarter of 1996 to $10.8 million in the first quarter of the current year. This
decrease is almost entirely attributable to the lower revenues described above.
As a percentage of revenues, costs of sales and operations increased from 61.8%
in the first quarter of 1996 to 63.3% in the first quarter of the current year.
The increase in costs of sales and operations as a percentage of revenues is
primarily attributable to the effect of the combination of fixed period expenses
and lower revenues.
Selling, general and administrative expenses decreased from $4.2 million in
the first quarter of 1996 to $4.0 million in the first quarter of 1997. The
dollar reduction in selling, general and administrative expenses was not
sufficient to compensate for the lower than expected revenue levels.
Depreciation and amortization increased from $1.6 million in the first
quarter of 1996 to $1.9 million in the first quarter of 1997. This increase was
primarily associated with the increase in the depreciable cost of measurement-
while-drilling (MWD) equipment related to the purchase and deployment of
additional MWD equipment to areas that were previously renting third-party MWD
units.
Interest expense decreased from $0.8 million in the first quarter of 1996
to $0.3 million in the first quarter of 1997. Beginning in the third quarter of
1996, interest expense has been substantially reduced as a result of retiring
approximately $32.2 million in debt in connection with the Company's July 1996
initial public offering. This reduction was partially offset by an increase in
the amount outstanding under the Company's revolving line of credit (the
"Revolving Credit Facility") due to the purchase of additional MWD units and to
the cash payment in connection with a stock repurchase and promissory note
repayment agreement and general release (the "Cobb Buyout Agreement"), which was
effected on February 10, 1997, with Mr. Archie Cobb and certain of his
affiliates from whom the Company previously acquired assets (see "Liquidity and
Capital Resources").
During the first quarter of 1997, the Company completed the combination of
its guidance instrumentation support services into a single Houston facility.
This centralization of personnel, controls and procedures is expected to reduce
costs, enhance guidance instrument performance and improve service delivery.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $26.6 million,
compared to working capital of $22.2 million at December 31, 1996. The increase
of $4.4 million from December 31, 1996 primarily reflects increases in accounts
receivable and inventory and decreases in current maturities of long term debt
related to note repayments pursuant to the Cobb Buyout Agreement.
Capital expenditures for the first three months of 1997 were $3.2 million
as compared to $1.8 million for the first quarter of 1996. The 1997 expenditures
included $2.7 million for acquisitions of new MWD/guidance equipment. The
Company expects to spend approximately $5.2 million for capital expenditures
during the remaining nine months of 1997. Such expenditures are expected to
relate primarily to acquisitions of new MWD systems.
During the remainder of 1997, the Company expects to fund its working
capital, anticipated capital expenditures and debt maturity requirements
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. The Company believes that cash flow from operations and its Revolving
Credit Facility will be adequate to support its normal working capital and
capital expenditures for at least the remainder of 1997. However, if 1997
capital expenditures exceed expected levels or if cash flow from operations for
the year is less than anticipated, the Company may need to seek an increase in
its borrowing limit under the Revolving Credit Facility.
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<PAGE>
On February 10, 1997, the Company entered into an amended and restated
credit agreement with a bank (the "Bank Credit Agreement") which replaced the
Company's previous bank credit agreement. The Bank Credit Agreement consists of
the unsecured Revolving Credit Facility which matures on September 30, 1999. The
Revolving Credit Facility provides for borrowings of up to $20.0 million, of
which up to $3.0 million may be used for letters of credit. As of March 31,
1997, $3.4 million was available for borrowing under the Revolving Credit
Facility, of which $2.8 million was available for letters of credit. Borrowings
under the Revolving Credit Facility bear interest at a rate per annum, at the
Company's election, equal to (i) a Eurodollar or Eurosterling interbank offered
rate plus 3/4% or (ii) the bank's prime rate. With respect to the former, the
interest rate margin may be increased by 3/8% (non-cumulatively) based on a
quarterly financial test. The Bank Credit Agreement requires the Company to
maintain certain financial covenants and places restrictions on the Company's
ability to, among other things, incur debt and liens, pay dividends, enter into
unrelated lines of business, undertake transactions with affiliates and make
investments.
In February 1997, pursuant to the closing of the Cobb Buyout Agreement, the
Company repaid certain notes issued in connection with (i) the Company's
September 30, 1994 acquisition of substantially all the assets of Cobb
Directional Drilling Company, Inc. and its affiliate, Posi-Trak Mud Motors, Inc.
and (ii) the Company's March 23, 1995 purchase of a minority interest in a
subsidiary of the Company from an affiliate of Mr. Cobb. Also pursuant to the
Cobb Buyout Agreement, the Company repurchased the 96,523 shares of Common Stock
held by Mr. Cobb and entered into an amendment to the non-competition provisions
of Mr. Cobb's employment agreement in connection with Mr. Cobb's termination of
employment. The Cobb Buyout Agreement resulted in a net payment by the Company
of approximately $2.7 million.
On April 17, 1997, the Company announced that it had entered into a
definitive agreement to be acquired by Baker Hughes Incorporated. The Agreement
is subject to satisfaction of customary conditions including clearance by
appropriate government agencies. The acquisition is expected to close before
September 30, 1997. The comsummation of such acquisition, pursuant to which the
Company will become a wholly owned subsidiary of Baker Hughes Incorporated, is
expected to have a material effect on the Company's financial position and
operations. Accordingly, if the acquisition is consummated, actual outcomes may
vary materially from those indicated in the foregoing discussion of the
Company's results of opertions and liquidity and capital resources.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS 128
is effective for financial statements issued for periods ending after December
15, 1997; earlier application is not permitted. SFAS No. 128 revises the
methodology to be used in computing Earnings per Share such that the computation
required for primary and fully diluted Earnings per Share are to be replaced
with "basic" and "diluted" Earnings per Share. Basic Earnings per Share is
computed by dividing net income by the weighted average number of common shares
outstanding during the year. Diluted Earnings per Share is computed in the same
manner as fully diluted Earnings per Share, except that, among other changes,
the average share price for the period is used in all cases when applying the
treasury stock method to potentially dilutive outstanding options.
The Company will adopt SFAS No. 128 effective December 31, 1997, and, as
required, will restate Earnings per Share for all periods presented. The Company
anticipates that the amounts to be reported for basic and diluted Earnings per
Share for the three months ended March 31, 1997 and 1996 will not differ
significantly from the amounts reported under the current accounting standards.
-11-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
*2.1 Agreement and Plan of Merger among Baker Hughes Incorporated,
Baker Hughes Merger, Inc. and Drilex International Inc. dated
as of April 16, 1997. (Form 8-K, April 17, 1997, Exhibit 99.1).
*2.2 Stockholder Agreement among Baker Hughes Incorporated, DRLX
Partners, L.P. and Drilex International Inc. dated as of
April 16, 1997. (Form 8-K, April 17, 1997, Exhibit 99.2).
*4.1 Amendment to Amended and Restated Credit Agreement dated as of
February 10, 1997 among the Company, Drilex Systems, Inc., Cobb
Directional Drilling Company, L.L.C., Sharewell, Inc., Drilex
Systems Limited and Texas Commerce Bank National Association,
as lender. (Form 10-K, December 31, 1996, Exhibit 4.10).
4.2 Dollar Note dated February 10, 1997 of the Company, Drilex
Systems, Inc., Sharewell, Inc. and Cobb Directional Drilling
Company, L.L.C. payable to the order of Texas Commerce Bank
National Association.
11.1 Computation of Net Income Per Common and Common Equivalent
Share.
27.1 Financial Data Schedule.
_________________________________
* Incorporated herein by reference as indicated.
(b) Reports on Form 8-K.
Drilex International Inc. ("Drilex") Filed a Report on Form 8-K
on April 17, 1997, reporting that it had entered into an
Agreement and Plan of Merger among Baker Hughes Incorporated,
Baker Hughes Merger, Inc. and Drilex dated April 16, 1997, and
entered into a Stockholders Agreement among Baker Hughes
Incorporated, DRLX Partners, L.P. and Drilex dated as of
April 16, 1997.
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<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.
<TABLE>
<S> <C>
Date: May 14, 1997 By: /s/ JOHN FORREST
_____________________________________
John Forrest
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 By: /s/ G. BRUCE BROUSSARD
_____________________________________
G. Bruce Broussard
Vice President - Finance and
Administration and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
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<PAGE>
EXHIBIT 4.2
DOLLAR NOTE
$20,000,000 Houston, Texas February 10, 1997
FOR VALUE RECEIVED, DRILEX INTERNATIONAL INC. (formerly Drilex Holdings
Corp.), a Delaware corporation, DRILEX SYSTEMS, INC., a Texas corporation,
SHAREWELL, INC. (formerly Shareco, Inc. ("Shareco")), a Delaware corporation,
and COBB DIRECTIONAL DRILLING COMPANY, L.L.C., a Delaware limited liability
company (collectively "Makers"), jointly and severally, promise to pay to the
order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Payee"), a national banking
association, at its principal banking building in the City of Houston, Harris
County, Texas, or at such other place as the holder of this note may hereafter
designate in writing, in immediately available funds and in lawful money of the
USA, the principal sum of TWENTY MILLION DOLLARS ($20,000,000) (or the unpaid
balance of all principal advanced against this note, if that amount is less),
together with interest on the unpaid principal balance of this note form time to
time outstanding until maturity at the rate or rates provided in the Interest
Rate Agreement of even date herewith among Payee and Makers (as amended,
supplemented and restated, the "Interest Rate Agreement") and interest on all
past due amounts, both principal and accrued interest, at the Past Due Rate;
provided that for the full term of this note the interest rate produced by the
aggregate of all sums paid or agreed to be paid to the holder of this note for
the use, forbearance or detention of the debt evidenced hereby shall not exceed
the Highest Lawful Rate.
This note is the Dollar Note which has been issued pursuant to the terms
of that certain Amended and Restated Credit Agreement (as amended, supplemented
and restated, the "Credit Agreement") dated as of September 16, 1996 among
Makers; Drilex Systems Limited, and Payee, to which reference is made for all
purposes. Any term defined in the Credit Agreement and used in this note shall
have the meaning ascribed to it in the Credit Agreement. Advances against this
note by Payee or other holder hereof shall be governed by the Credit Agreement
and the Interest Rate Agreement. Payee is entitled to the benefits of and
security provided for in the Credit Agreement. Such security includes those
certain Security Agreements of even date therewith between the respective Makers
and Payee.
The principal of this note shall be due and payable on the Termination
Date, the final maturity of this note. Accrued and unpaid interest shall be due
and payable as provided in the Interest Rate Agreement.
Subject to the provisions of the Credit Agreement, Makers may at any time
pay the full amount or any part of this note without payment of any premium or
fee.
Page 1 of 4 Pages
<PAGE>
The unpaid principal balance of this note at any time shall be the total
of all principal lent or advanced against this note less the sum of all
principal payments and permitted prepayments made on this note by or for the
account of Makers. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on the
schedule which is attached hereto (and hereby made a part hereof for all
purposes) or otherwise recorded in the holder's records; provided that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Makers' obligations or any holder's rights with respect to that advance,
or (b) any payment or permitted prepayment of principal shall not cancel, limit
or otherwise affect Makers' entitlement to credit for that payment as of the
date received by the holder.
Subject to the provisions of the Credit Agreement, Makers may use all or
any part of the credit provided to be evidenced by this note at any time before
the Termination Date. Makers may borrow, repay and reborrow and there is no
limit on the number of advances against this note so long as the total unpaid
principal at any time outstanding does not exceed the Dollar Available
Commitment.
The occurrence of an Event of Default shall constitute default under this
note, whereupon the holder hereof may elect to exercise any or all rights,
powers and remedies afforded (a) under the Credit Documents and (b) by law,
including the right to accelerate the maturity of this entire note.
If any holder of this note retains an attorney in connection with any such
default or to collect, enforce or defend this note or any papers intended to
secure or guarantee it in any lawsuit or in any probate, reorganization,
bankruptcy or other proceeding, or if Makers sue any holder in connection with
this note or any such papers and do not prevail, then Makers agree to pay to
each such holder, in addition to principal and interest, all reasonable costs
and expenses incurred by such holder in trying to collect this note or in any
such suit or proceeding, including reasonable attorney's fees.
Makers and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such Person agrees that its liability on or with
respect to this note shall not be affected by any release of or change in any
guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
Page 2 of 4 Pages
<PAGE>
This note is given in renewal, extension and rearrangement, and not in
extinguishment, of that certain promissory note (the "Renewed Note") dated
September 16, 1996, made by Drilex Systems, Inc., Drilex International Inc.,
Sharewell, Inc. and Cobb Directional Drilling Company, L.L.C., payable to the
order of Payee and in the maximum principal amount of Fifteen Million Dollars
($15,000,000).
This note shall be governed by and construed in accordance with the laws of
the State of Texas and the USA from time to time in effect. Harris County,
Texas shall be a proper place of venue for suit hereon.
DRILEX INTERNATIONAL INC.,
a Delaware corporation
/s/ JOHN FORREST
By: _______________________________
John Forrest,
President
DRILEX SYSTEMS, INC.,
a Texas corporation
/s/ JOHN FORREST
By: _______________________________
John Forrest,
President
SHAREWELL, INC.,
a Delaware corporation
/s/ JOHN FORREST
By: _______________________________
John Forrest,
Chief Executive Officer
Page 3 of 4 Pages
<PAGE>
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex International Inc.,
a Delaware corporation,
Member
/s/ JOHN FORREST,
By: ____________________________________
John Forrest,
President
By: Drilex Systems, Inc.,
a Texas corporation,
Member
/s/ JOHN FORREST,
By: ____________________________________
John Forrest,
President
Page 4 of 4 Pages
<PAGE>
EXHIBIT 11.1
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
March 31,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Net income.................................... $ 3 $ 526
Interest expense on convertible promissory ===========
note, net of tax............................. 33
----------
As adjusted for fully diluted computation..... $ 559
==========
Weighted average common shares outstanding.... 6,706,255 4,381,205
Incremental shares attributable to
outstanding stock options and warrants....... 121,261 171,051
----------- ----------
Weighted average common and common
equivalent shares outstanding................ 6,827,516 4,552,256
===========
Incremental shares attributable to
conversion of convertible promissory note.... 361,962
----------
As adjusted for fully diluted computation..... 4,914,218
==========
Net income per common and common
equivalent share:
Primary.................................... $ .00 $ .12
=========== ==========
Fully diluted.............................. $ .11
==========
</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 not dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,406
<SECURITIES> 0
<RECEIVABLES> 22,867
<ALLOWANCES> 968
<INVENTORY> 11,689
<CURRENT-ASSETS> 37,289
<PP&E> 46,469
<DEPRECIATION> 10,286
<TOTAL-ASSETS> 90,207
<CURRENT-LIABILITIES> 10,708
<BONDS> 19,311
0
0
<COMMON> 67
<OTHER-SE> 56,315
<TOTAL-LIABILITY-AND-EQUITY> 90,207
<SALES> 3,873
<TOTAL-REVENUES> 17,033
<CGS> 1,802
<TOTAL-COSTS> 10,780
<OTHER-EXPENSES> 5,931
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317
<INCOME-PRETAX> 5
<INCOME-TAX> 2
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
