<PAGE> 1
- -------------------------------------------------------------------------------
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-11051
NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0475815
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5555 SAN FELIPE
HOUSTON, TEXAS
77056
----------------------------------------
(Address of principal executive offices)
(713) 960-5100
----------------------------------------------------
(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
----- -----
As of May 9, 1997, 17,874,128 common shares were outstanding.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,349 $ 4,315
Receivables, less allowance of $2,688 and $2,760 98,345 102,858
Inventories 121,001 115,479
Deferred taxes 3,938 4,028
Prepaids and other current assets 6,849 6,710
-------- --------
Total current assets 235,482 233,390
Property, plant and equipment, net 18,243 18,680
Deferred taxes 6,296 6,847
Goodwill 6,286 6,327
Deferred financing costs 1,105 1,166
Other assets 194 333
-------- --------
$267,606 $266,743
======== ========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable $ 70,077 $ 77,935
Customer prepayments 2,524 5,126
Accrued compensation 4,878 7,839
Other accrued liabilities 16,051 12,420
-------- --------
Total current liabilities 93,530 103,320
Long-term debt 42,007 36,392
Insurance reserves 6,378 6,599
Other liabilities 10,985 11,352
-------- --------
Total liabilities 152,900 157,663
Commitments and contingencies
Owners' equity:
Common stock - par value $.01; 17,874,128 shares issued
and outstanding 179 179
Additional paid-in capital 107,497 107,497
Cumulative translation adjustment 744 1,159
Retained earnings 6,286 245
-------- --------
114,706 109,080
-------- --------
$267,606 $266,743
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 3
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---------- ---------
<S> <C> <C>
Revenues $ 176,154 $ 141,144
Cost of revenues 149,894 122,850
--------- ---------
Gross profit 26,260 18,294
Selling, general and administrative 14,976 13,021
--------- ---------
Operating income 11,284 5,273
Interest and financial costs (1,255) (3,078)
Interest income 81 16
Other income (expense) (173) (130)
--------- ---------
Income before income taxes 9,937 2,081
Provision for income taxes 3,896 647
--------- ---------
Net income $ 6,041 $ 1,434
========= =========
Weighted average shares outstanding 18,190 13,590
========= =========
Net income per share $ 0.33 $ 0.10
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,041 $ 1,434
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 929 946
Provision for losses on receivables 25 304
Provision for deferred income taxes 961 647
Gain on sale of assets (39) 16
Foreign currency transaction (gain) loss 190 107
Changes in operating assets and liabilities:
Decrease (increase) in receivables 4,642 (5,986)
Decrease (increase) in inventories (5,718) (3,013)
Decrease (increase) in prepaids and other current assets (139) (2,883)
Increase (decrease) in accounts payable (7,710) (12,294)
Increase (decrease) in other assets/liabilities, net (3,439) (4,101)
------- ---------
Net cash provided (used) by operating activities (4,257) (24,823)
------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment (482) (395)
Proceeds from sale of assets 115 16
Acquisition of predecessor company, net of cash acquired -- (106,248)
Other -- (350)
------- ---------
Net cash provided (used) by investing activities (367) (106,977)
------- ---------
Cash flow from financing activities:
Proceeds from revolving lines of credit, net 5,709 11,477
Payments on long-term debt -- (9,128)
Proceeds from issuance of common stock -- 30,179
Acquisition debt proceeds -- 103,378
------- ---------
Net cash provided (used) by financing activities 5,709 135,906
------- ---------
Effect of exchange rate losses on cash (51) (20)
------- ---------
Increase in cash and equivalents 1,034 4,086
Cash and cash equivalents, beginning of period 4,315 --
------- ---------
Cash and cash equivalents, end of period $ 5,349 $ 4,086
======= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Effective January 1, 1996, National-Oilwell, Inc. acquired
National-Oilwell, a general partnership between National Supply Company,
Inc., a subsidiary of Armco Inc., and Oilwell, Inc., a subsidiary of USX
Corporation, and subsidiaries (the "Acquisition").
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with generally
accepted accounting principles. In the opinion of management, the
information furnished reflects all adjustments, all of which are of a
normal, recurring nature, necessary for a fair presentation of the results
of the interim periods. It is recommended that these statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1996. No significant accounting changes have occurred during
the three months ended March 31, 1997.
2. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Raw Materials $ 9,855 9,510
Work in process 7,039 6,141
Finished goods 104,107 99,828
-------- --------
$121,001 115,479
======== ========
</TABLE>
3. STATEMENTS OF CASH FLOWS
The following information is provided to supplement the Statements of Cash
Flows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest $456 $1,979
Income taxes 197 48
</TABLE>
4. ACQUISITIONS
On April 25, 1997, the Company purchased the drilling business of Ross
Hill Controls and its affiliate, Hill Graham Controls Limited. This
business involves the manufacture, sale and service of innovative
electrical control systems used in conjunction with drilling operations.
Borrowings available under the revolving credit facility were used to
finance the $19 million purchase price and the transaction will be
accounted for under the purchase method of accounting.
On April 11, 1997, the Company signed a letter of intent, subject to a
definitive agreement, to purchase 100% of the common stock of PEP, Inc., a
manufacturer of petroleum expendable products. Issuance of Company stock
is anticipated to fund the transaction which is expected to be recorded in
accordance with the pooling of interests method of accounting. The
transaction is not expected to have a material impact on the Company's
current financial statements.
4
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company is a worldwide leader in the design, manufacture and sale
of machinery and equipment and in the distribution of maintenance,
repair and operating products used in oil and gas drilling and
production. The Company's revenues are directly related to the level
of worldwide oil and gas drilling and production activities and the
profitability and cash flow of oil and gas companies and drilling
contractors, which in turn are affected by current and anticipated
prices of oil and gas.
During 1996, the Company completed two significant capital
transactions. First, in January 1996, the Company acquired the
operations of National-Oilwell, resulting in the incurrence of
significant amounts of debt and related interest expense. Second, on
October 29, 1996, the Company sold 4.6 million shares of its common
stock through an initial public offering (the "IPO"). Net proceeds
from the IPO of approximately $72 million were used to repay debt
incurred in connection with the Acquisition. At that same time, the
Company entered into a new $120 million five-year senior secured
revolving credit facility.
RESULTS OF OPERATIONS
Operating results (unaudited) by segment are as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
March 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues
Products and Technology $ 50,527 $ 38,680
Distribution Services 139,558 114,149
Eliminations (13,931) (11,685)
--------- ---------
Total $ 176,154 $ 141,144
========= =========
Operating Income
Products and Technology $ 7,461 $ 2,933
Distribution Services 4,830 3,310
Corporate (1,007) (970)
--------- ---------
Total $ 11,284 $ 5,273
========= =========
</TABLE>
5
<PAGE> 7
Products and Technology
The Products and Technology segment designs and manufactures a large
line of proprietary products, including drawworks, mud pumps, power
swivels and reciprocating pumps. A substantial installed base of
these products results in a recurring replacement parts and
maintenance business. Drilling pump expendable products are sold for
maintenance of the Company's and other manufacturers' equipment.
Sales of new capital equipment can result in large fluctuations in
volume between periods depending on the size and timing of the
shipment of orders.
Products and Technology revenues increased $11.8 million (31%) in the
first quarter of 1997 as compared to 1996 due primarily to an
increase in demand for drilling capital equipment, fluid end
expendable parts, and reciprocating pumps and associated parts.
Operating income for the Products and Technology segment increased
$4.5 million in the first quarter of 1997 as compared to the prior
year, representing 38% of the revenue increase.
Distribution Services
Distribution Services revenues result primarily from the sale of
maintenance, repair and operating supplies ("MRO") from the Company's
network of distribution service centers and from the sale of well
casing and production tubing. These products are purchased from
numerous manufacturers and vendors, including the Company's Products
and Technology segment. While the Company has increased revenues and
improved its operating income by entering into alliances and
outsourcing arrangements, improvements in operating results remain
primarily dependent on attaining increased volumes of activity
through its distribution service centers while controlling the fixed
costs associated with numerous points of sale.
Revenues during the first quarter of 1997 increased $25.4 million
(22%) over the comparable 1996 period as MRO products and tubular
products sales reflected gains of $11 million and $7 million,
respectively. Business with alliance customers caused a substantial
portion of this growth during the quarter. Operating income increased
$1.5 million during the first quarter of 1997 compared to the same
period in 1996. A portion of the increased margin from the higher
revenue levels was offset by higher operating costs associated with
the addition in the second half of 1996 of operating and
administrative personnel in order to better manage assets and in
anticipation of future revenue growth.
Interest Expense
Interest expense decreased substantially during the first three
months of 1997 due to substantially lower levels of debt.
6
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $142 million,
an increase of $12 million from December 31, 1996. Accounts
receivable decreased by $4.5 million during the first three months of
1997 as revenues declined 2.4% from the fourth quarter of 1996.
Inventories increased $5.5 million during this period due to specific
build programs and in response to increasing demand for oilfield
equipment and supplies.
The Company's business has not required large expenditures for
capital equipment in recent years. Total capital expenditures were
$0.5 million during the first three months of 1997 and have averaged
$3.8 million per year over the last three years. Enhancements to
information and inventory control systems represent a large portion
of these capital expenditures. Total annual capital expenditures of
as much as $6 million are anticipated over the next three years to
meet the Company's operating needs, including further enhancements to
the Company's information systems. The Company believes it has
sufficient existing manufacturing capacity to meet current and
anticipated demand over the next twelve months for its products and
services. Any significantly greater increases in demand for oilfield
equipment products, to the extent qualified subcontracting and
outsourcing are not available, could result in additional increases
in capital expenditures.
The Company believes that cash generated from operations and amounts
available under its revolving credit facility will be sufficient to
fund operations, working capital needs, capital expenditure
requirements and financing obligations. The Company also believes any
significant increase in capital expenditures caused by any need to
increase manufacturing capacity can be funded from operations or
through debt financing.
The Company intends to pursue acquisition candidates, but the timing,
size or success of any acquisition effort and the related potential
capital commitments cannot be predicted. The Company expects to fund
future acquisitions primarily through cash flow from operations and
borrowings, including the unborrowed portion of the revolving credit
facility and/or issuances of additional equity. There can be no
assurance that additional financing for acquisitions will be
available at terms acceptable to the Company.
FORWARD-LOOKING STATEMENTS
This document, other than historical financial information, may
contain forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual
future events or results. Readers are referred to documents filed by
the Company with the Securities and Exchange Commission which
identify significant risk factors which could cause actual results to
differ from those contained in the forward-looking statements,
including "Risk Factors" at Item 1 of the Annual Report on Form 10-K
7
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any report on Form 8-K during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 9, 1997 / s / Steven W. Krablin
-------------------- ------------------------------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
8
<PAGE> 10
INDEX TO EXHIBITS
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any report on Form 8-K during the quarter for
which this report is filed.
<TABLE> <S> <C>
<ARTICLE> 5
<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> 5,439
<SECURITIES> 0
<RECEIVABLES> 101,033
<ALLOWANCES> 2,688
<INVENTORY> 121,001
<CURRENT-ASSETS> 235,482
<PP&E> 23,132
<DEPRECIATION> 4,889
<TOTAL-ASSETS> 267,606
<CURRENT-LIABILITIES> 93,530
<BONDS> 42,007
0
0
<COMMON> 179
<OTHER-SE> 114,527
<TOTAL-LIABILITY-AND-EQUITY> 267,606
<SALES> 176,154
<TOTAL-REVENUES> 176,154
<CGS> 149,894
<TOTAL-COSTS> 149,894
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 1,255
<INCOME-PRETAX> 9,937
<INCOME-TAX> 3,896
<INCOME-CONTINUING> 6,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,041
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
