<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, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12317
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.)
10000 RICHMOND AVENUE
4TH FLOOR
HOUSTON, TEXAS
77042-4200
(Address of principal executive offices)
(713) 346-7500
(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.
As of May 12, 2000, 66,351,790 common shares were outstanding, assuming the
exchange on a one-for-one basis of all Exchangeable Shares of Dreco Energy
Services Ltd. into shares of National-Oilwell, Inc. common stock.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,822 $ 12,403
Receivables, less allowance of $5,913 and $5,506 232,854 185,920
Inventories 254,155 254,052
Deferred taxes 7,513 9,296
Income taxes receivable 10,171 10,171
Prepaid and other current assets 5,644 6,534
--------- ---------
Total current assets 524,159 478,376
Property, plant and equipment, net 114,766 109,147
Deferred taxes 8,301 7,781
Goodwill, net 310,400 174,498
Property held for sale 7,424 7,424
Other assets 5,099 5,085
--------- ---------
$ 970,149 $ 782,311
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ --
Accounts payable 122,088 100,963
Customer prepayments 11,291 16,838
Accrued compensation 3,178 4,232
Other accrued liabilities 44,641 54,177
--------- ---------
Total current liabilities 181,198 176,210
Long-term debt 227,425 196,007
Deferred taxes 2,844 6,138
Other liabilities 8,114 8,881
--------- ---------
Total liabilities 419,581 387,236
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 66,340,591 shares
and 58,223,971 shares issued and outstanding
at March 31, 2000 and December 31, 1999 663 582
Additional paid-in capital 402,723 246,553
Accumulated other comprehensive income (15,237) (11,537)
Retained earnings 162,419 159,477
--------- ---------
550,568 395,075
--------- ---------
$ 970,149 $ 782,311
========= =========
</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,
-----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenues $ 229,386 $ 203,923
Cost of revenues 186,967 162,459
--------- ---------
Gross profit 42,419 41,464
Selling, general and administrative 33,188 31,187
--------- ---------
Operating income 9,231 10,277
Other income (expense):
Interest and financial costs (4,590) (4,210)
Interest income 288 166
Other (184) (614)
--------- ---------
Income before income taxes 4,745 5,619
Provision for income taxes 1,803 2,284
--------- ---------
Net income $ 2,942 $ 3,335
========= =========
Net income per share:
Basic $ 0.05 $ 0.06
========= =========
Diluted $ 0.05 $ 0.06
========= =========
Weighted average shares outstanding:
Basic 63,557 58,198
========= =========
Diluted 64,303 58,267
========= =========
</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,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,942 $ 3,335
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 6,919 5,784
Provision for losses on receivables 853 547
Provision (benefit) for deferred income taxes (2,031) 228
Gain on sale of assets (823) (341)
Foreign currency transaction loss 163 558
Changes in assets and liabilities, net of acquisitions:
Receivables (23,218) 70,314
Inventories 4,168 19,187
Prepaid and other current assets 890 (1,027)
Accounts payable 7,780 (28,792)
Other assets/liabilities, net (15,257) (31,869)
-------- --------
Net cash provided/(used) by operating activities (17,614) 37,924
-------- --------
Cash flow from investing activities:
Purchases of property, plant and equipment (5,281) (4,198)
Proceeds from sale of assets 2,199 880
Business acquired, net of cash (4,526) --
-------- --------
Net cash used by investing activities (7,608) (3,318)
-------- --------
Cash flow from financing activities:
Borrowings/(payments) on line of credit 24,418 (32,950)
Proceeds from stock options exercised 2,224 --
Other -- (390)
-------- --------
Net cash provided/(used) by financing activities 26,642 (33,340)
-------- --------
Effect of exchange rate (gain) loss on cash (1) (24)
-------- --------
Increase in cash and equivalents 1,419 1,242
Cash and cash equivalents, beginning of period 12,403 11,963
-------- --------
Cash and cash equivalents, end of period $ 13,822 $ 13,205
======== ========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 6,468 $ 6,351
Income taxes 884 6,253
</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
Information concerning common stock and per share data has been restated on an
equivalent share basis and assumes the exchange of all Exchangeable Shares
issued in connection with the combination with Dreco Energy Services Ltd. The
Company employs accounting policies that are in accordance with generally
accepted accounting principles in the United States which requires Company
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The accompanying unaudited consolidated financial statements present information
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and applicable rules of
Regulation S-X. Accordingly, they do not include all information or footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the Company's 1999 Annual
Report on Form 10-K.
In the opinion of the Company, the consolidated financial statements include all
adjustments, all of which are of a normal, recurring nature, necessary for a
fair presentation of the results for the interim periods. The results of
operations for the three months ended March 31, 2000 and 1999 may not be
indicative of results for the full year. No significant accounting changes have
occurred during the three months ended March 31, 2000.
During February 2000, the Company completed its merger with Hitec ASA, a leading
supplier of highly advanced systems and solutions, including leading-edge
automation and remote control technologies, for the oil and gas industry. The
Company issued approximately 7.9 million shares of common stock at $19.50 per
share for all of the outstanding shares of Hitec with goodwill related to the
transaction approximating $136 million. Hitec's financial results are included
in National Oilwell's consolidated results effective February 1, 2000. Pro forma
results of operations are not presented since they are not considered material.
2. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials and supplies $ 19,992 $ 19,434
Work in process 37,900 32,793
Finished goods and purchased products 196,263 201,825
--------- ---------
Total $ 254,155 $ 254,052
========== =========
</TABLE>
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Company
expects to adopt the new Statement effective January 1, 2001.The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. The Company has not completed its evaluation but currently does not
anticipate that the adoption of this Statement will have a significant effect on
its results of operations or financial position.
4
<PAGE> 6
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------------------
2000 1999
------- -------
<S> <C> <C>
Net income $ 2,942 $ 3,335
Currency translation adjustments (4,019) (2,287)
Unrealized gains on securities 319 189
-------- -------
Comprehensive income/(loss) $ (758) $ 1,237
======== =======
</TABLE>
5. BUSINESS SEGMENTS
Segment information (unaudited) follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------------
2000 1999
---------- --------
<S> <C> <C>
Revenues from unaffiliated customers
Products and Technology $ 106,519 $ 99,163
Distribution Services 122,867 104,852
Intersegment revenues
Products and Technology 9,404 8,516
Distribution Services 110 -
Operating income (loss)
Products and Technology 10,012 13,542
Distribution Services 950 (2,120)
--------- --------
Total profit for reportable segments 10,962 11,422
Unallocated corporate costs (1,731) (1,145)
Net interest expense (4,302) (4,044)
Other expense (184) (614)
--------- --------
Income before income taxes $ 4,745 $ 5,619
========= ========
</TABLE>
<TABLE>
<CAPTION>
March 31,
------------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Total assets
Products & Technology $ 764,495 $ 606,826
Distribution Services $ 218,202 $ 208,765
</TABLE>
5
<PAGE> 7
6. ANNOUNCED MERGER TRANSACTION
On March 15, 2000, National Oilwell signed a definitive merger agreement with
IRI International Corporation (NYSE: IIR) whereby National Oilwell would issue
approximately 13.5 million shares of common stock in exchange for all of the
outstanding common stock of IRI. The transaction is subject to stockholder
approval of both companies and regulatory approval with closing anticipated in
the second quarter of 2000. The transaction is expected to be accounted for
under the pooling-of-interests method of accounting.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
National Oilwell is a worldwide leader in the design, manufacture and sale of
drilling systems, drilling equipment and downhole products as well as the
distribution of maintenance, repair and operating products to the oil and gas
industry. National Oilwell'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. Beginning in late
1997, oil prices declined to less than $15 per barrel due to concerns about
excess production, less demand from Asia due to an economic slowdown and warmer
than average weather in many parts of the United States. The resulting lower
demand for products and services had an increasingly negative effect on both
business segments in 1999. Oil prices have recovered since late July 1999 to a
range of $25-$31 per barrel. National Oilwell expects its revenues to increase
if its customers gain confidence in sustained commodity prices at this level and
as their cash flows from operations improve, allowing them to purchase products
sold by National Oilwell.
RESULTS OF OPERATIONS
Operating results (unaudited) by segment are as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31,
------------------------------
2000 1999
-------- ---------
<S> <C> <C>
Revenues
Products and Technology $115,923 $ 107,679
Distribution Services 122,977 104,852
Eliminations (9,514) (8,608)
-------- ---------
Total $229,386 $ 203,923
======== =========
Operating Income
Products and Technology 10,012 13,542
Distribution Services 950 (2,120)
Corporate (1,731) (1,145)
------- --------
Total $ 9,231 $ 10,277
======= ========
</TABLE>
Products and Technology
The Products and Technology segment designs and manufactures a wide range of
proprietary products, including drawworks, mud pumps, power swivels, electrical
control systems and downhole motors and tools, as well as complete land drilling
and well servicing rigs and structural components such as cranes, masts,
derricks and substructures for offshore rigs. A substantial installed base of
these products result in a recurring replacement parts and maintenance business.
Sales of new capital equipment fluctuate between periods depending on the size
and timing of order shipments. In addition, the segment provides pump expendable
products for maintenance of National-Oilwell's and other manufacturers'
equipment.
7
<PAGE> 9
During February 2000, the Company completed its merger with Hitec ASA, a leading
supplier of highly advanced systems and solutions, including leading-edge
automation and remote control technologies, for the oil and gas industry.
Hitec's financial results are included in National Oilwell's consolidated
results effective February 1, 2000. This transaction has been accounted for as a
purchase for financial reporting purposes with goodwill related to this
transaction approximating $136 million. With the addition of Hitec, the Company
intends to expand its emphasis on technology, especially in the areas of
automation and remotely controlled equipment.
Revenues for the Products and Technology segment increased by $8.2 million (8%)
in the first quarter of 2000 as compared to the same quarter in 1999 due
primarily to the inclusion of two months of Hitec revenues. Downhole motor sales
were up almost 50% and capital equipment sales increased 10% due to the shipment
of three rigs, offset in part by reduced shipments of pumps and cranes.
Operating income decreased by $3.5 million (26%) in the first quarter compared
to the same quarter in 1999 resulting primarily from lower margins due to
product mix, increased goodwill amortization due to recent acquisitions and
increased fixed costs associated with the Hitec acquisition.
.
Backlog of the Products and Technology group was $82 million at March 31, 2000,
an increase of $5 million from December 31, 1999. At March 31, 1999, backlog
stood at $50 million. Substantially all of the current backlog will be shipped
by the end of September 2000.
Distribution Services
Distribution Services revenues result primarily from the sale of maintenance,
repair and operating supplies ("MRO") from National Oilwell's network of
distribution service centers and, prior to July 1999, from the sale of well
casing and production tubing. These products are purchased from numerous
manufacturers and vendors, including National Oilwell's Products and Technology
segment. The Company sold its tubular product line in June 1999 for
approximately $15 million, generating a pre-tax loss of $0.9 million ($0.5
million after-tax). Revenues and operating loss recorded in 1999 for the tubular
operations were $23.6 million and $0.6 million, respectively.
Distribution Services revenues during the first quarter of 2000 exceeded the
comparable 1999 period by $18 million. This 17% increase, despite the loss of
$14 million of tubular revenue resulting from the sale of the product line,
reflects increased sales of maintenance, repair and normal operating supplies in
the recovering North American markets. Canadian revenues were 55% higher than
the same period in 1999 and the US operations recorded a 10% increase. Operating
income in the first quarter of 2000 was $3.1 million higher than the first
quarter of 1999 due to revenue volume, offset in part by product mix as Canada
shipped a significant amount of lower margin line pipe and tubular products
during the quarter.
Corporate
Corporate costs during the first quarter of 2000 increased $0.6 million from the
comparable 1999 quarter primarily as a result of expenses related to National
Oilwell's e-strategy initiatives.
Interest Expense
Interest expense increased during the three months ended March 31, 2000 when
compared to the prior year due to the higher debt level, including debt
associated with the Hitec acquisition of $7 million.
8
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had working capital of $343 million, a $41
million increase from December 31, 1999. While inventory remained unchanged
during the quarter, accounts receivable increased $47 million due in part to the
revenue increase and the acquisition of Hitec. Accounts payable and other
current liabilities increased $5 million.
Total capital expenditures were $5.3 million during the first three months of
2000. Enhancements to information and inventory control systems, including costs
related to an aggressive e-strategy initiative, represent a significant portion
of these capital expenditures. The Company believes it has sufficient existing
manufacturing capacity to meet currently anticipated demand for its products and
services.
The Company has a five-year unsecured $125 million revolving credit facility
that is available for acquisitions and general corporate purposes. The credit
facility provides for interest at prime or LIBOR plus 0.625% (9.00% and 6.625%
at March 31, 2000), subject to adjustment based on the Company's Capitalization
Ratio, as defined therein. The credit facility contains financial covenants and
ratios regarding minimum tangible net worth, maximum debt to capital and minimum
interest coverage. National Oilwell also has additional credit facilities
totaling $22.6 million used primarily for letters of credit, of which $4.8
million were outstanding at March 31, 2000.
The Company believes that cash generated from operations and amounts available
under the credit facility will be sufficient to fund operations, working capital
needs, capital expenditure requirements and financing obligations.
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
with cash flow from operations and borrowings, including the unborrowed portion
of the credit facility or new debt issuances, but may also issue additional
equity either directly or in connection with acquisitions. There can be no
assurance that additional financing for acquisitions will be available at terms
acceptable to the Company.
ANNOUNCED MERGER TRANSACTION
On March 15, 2000, National Oilwell signed a definitive merger agreement with
IRI International Corporation (NYSE: IIR) whereby National Oilwell would issue
approximately 13.5 million shares of common stock in exchange for all of the
outstanding common stock of IRI. The transaction is subject to stockholder
approval of both companies and regulatory approval with closing anticipated in
the second quarter of 2000. The transaction is expected to be accounted for
under the pooling-of-interests method of accounting.
FORWARD-LOOKING STATEMENTS
This document, other than historical financial information, contains
forward-looking statements that involve risks and uncertainties. Such statements
relate to the Company's revenues, sales of capital equipment, backlog, capacity,
liquidity and capital resources and plans for acquisitions and any related
financings. 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. Given these uncertainties, current or prospective investors are cautioned
not to place undue reliance on any such forward-looking statements. The Company
disclaims any obligation or intent to update any such factors or forward-looking
statements to reflect future events or developments.
9
<PAGE> 11
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 12, 2000 /s/ Steven W. Krablin
------------------- --------------------------------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
10
<PAGE> 12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 13,822
<SECURITIES> 0
<RECEIVABLES> 238,767
<ALLOWANCES> 5,913
<INVENTORY> 254,155
<CURRENT-ASSETS> 524,159
<PP&E> 184,959
<DEPRECIATION> 70,193
<TOTAL-ASSETS> 970,149
<CURRENT-LIABILITIES> 181,198
<BONDS> 227,425
0
0
<COMMON> 663
<OTHER-SE> 549,905
<TOTAL-LIABILITY-AND-EQUITY> 970,149
<SALES> 229,386
<TOTAL-REVENUES> 229,386
<CGS> 186,967
<TOTAL-COSTS> 186,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 853
<INTEREST-EXPENSE> 4,590
<INCOME-PRETAX> 4,745
<INCOME-TAX> 1,803
<INCOME-CONTINUING> 2,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,942
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
