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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-8158
VARCO INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-0472620
(state or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
743 NORTH ECKHOFF STREET, 92668
ORANGE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (714) 978-1900
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
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proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
As of March 1, 1996, 30,223,796 shares of common stock were outstanding. The
aggregate market value of the common stock on such date (based upon the closing
price of such shares on the New York Stock Exchange) held by persons other than
affiliates of registrant was approximately $230.2 million; the basis of this
calculation does not constitute a determination by the registrant that such
persons are affiliates, as defined in Rule 405.
DOCUMENTS INCORPORATED BY REFERENCE
Part II, Items 5, 6, 7 and 8 The Company's Annual Report to
Shareholders for the year ended
December 31, 1995.
Part III, Items 10, 11, 12 and 13 The Company's definitive Proxy
Statement for the Annual Meeting of
Shareholders to be held on May 16,
1996 to be filed with the Commission
not later than April 29, 1996.
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ITEM 1. BUSINESS
INTRODUCTION
Varco was founded in 1908 and incorporated under the laws of the State of
California in 1911. Varco and its subsidiaries are engaged in the design,
manufacture, sale and rental of drilling tools, equipment and integrated systems
and rig instrumentation used for oil and gas drilling worldwide.
The Company's principal products are drilling equipment, drilling rig
instrumentation, pressure control and motion compensation equipment and solids
control equipment. Drilling equipment includes integrated systems for rotating
and handling the various sizes and types of pipe utilized on a drilling rig
("drilling systems") and specific purpose pipe handling tools, hoisting
equipment and rotary equipment ("oil tools"). Drilling systems are
manufactured and sold by the Varco Drilling Systems Division while oil tools are
manufactured and sold by the Varco BJ Oil Tools Division. Drilling rig
instrumentation products are manufactured, sold and rented by the Martin-
Decker/TOTCO Instrumentation Division. Pressure control and motion compensation
equipment are manufactured and sold by the Shaffer Division. Solids control
equipment and systems are products of the Thule Rigtech Division.
The following table sets forth the contribution to the Company's total
revenues of its five Divisions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1995 1994 1993
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(IN THOUSANDS)
<S> <C> <C> <C>
Varco Drilling Systems $101,440 $74,405 $58,703
Varco BJ Oil Tools 41,663 41,309 40,157
Martin-Decker/TOTCO Instrumentation 58,013 54,176 44,738
Shaffer 60,925 50,900 48,169
Thule Rigtech 10,310 653
</TABLE>
Sales of the Company's products depend on the level of construction of new
drilling rigs and the replacement and upgrading of equipment for existing rigs,
particularly intermediate to deep rigs (land rigs designed for drilling in
excess of 8,000 feet and rigs designed for offshore drilling). The level of
construction of drilling rigs and the rate at which equipment on existing rigs
is replaced or upgraded depends, in substantial part, on the level of worldwide
exploration and development drilling activity. Rental revenue, which is
generated predominately by the Martin-Decker/TOTCO Instrumentation Division, is
directly related to the level of drilling activity, particularly in the U.S. and
Canada. To a lesser extent, sales and rentals of the Company's products are
dependent upon the level of remedial ("workover") activity on wells previously
drilled. Sales of equipment and sales and rentals of instrumentation products
have also depended on the design, development and successful introduction of new
products for the drilling industry. Equipment and instrumentation are also sold
to existing rigs for use as spare or replacement parts.
The level of worldwide drilling activity can be influenced by numerous
factors, including economic and political conditions, the prices of oil and gas,
development of alternative energy sources, availability of equipment and
materials, availability of new onshore and offshore acreage or concessions, and
new and continued governmental regulations regarding environmental protection,
taxation, price controls and product allocations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
THE DRILLING PROCESS
An oil or gas well is drilled by a bit attached to the end of the drill stem
which is made up of 30-foot lengths of drill pipe joined by threaded connections
known as "tool joints." Heavy drill collars at the bottom of the drill stem
put weight on the bit. Using the conventional rotary drilling method, the drill
stem is turned from the rotary table in the floor of the drilling rig by torque
applied to the "kelly" (a square or hexagonal section of pipe located at the
top
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of the drill stem) by means of the master bushing and kelly bushing. During the
drilling process heavy fluids ("drilling mud") are pumped down through the drill
stem and forced out through the bit. The drilling mud returns to the surface
through the hole area surrounding the drill stem, carrying with it the cuttings
drilled out by the bit. The cuttings are removed from the mud by a filtering
system and the mud is continuously recirculated back into the hole. The drilling
mud also serves to contain pressure surges ("kicks") caused by natural gas that
may intrude into the formation.
As the hole depth increases, the kelly must be removed frequently so that
additional 30-foot sections of pipe can be added to the drill stem, which may
reach lengths in excess of five miles. When the bit becomes dull, the entire
drill stem is pulled out of the hole and disassembled, the disconnected sections
of pipe are set aside or "racked," the old bit is replaced and the drill stem
reassembled and lowered back into the hole (a process called "tripping").
During drilling and tripping operations, tool joints must be screwed together
and tightened ("spun in" and "made up"), and loosened and unscrewed
("broken out" and "spun out"). When the hole has reached certain depths, all
of the drill pipe is pulled out of the hole and larger diameter pipe known as
casing is lowered into the hole and cemented in place in order to protect
against collapse and contamination of the hole.
The raising and lowering of the drill stem while drilling or tripping, and the
lowering of casing into the well bore, are accomplished with the rig's hoisting
system. A conventional hoisting system is a block and tackle mechanism and the
derrick must have sufficient structural integrity to support the entire weight
of the drill stem or casing string.
During the drilling process it is possible for formation fluids, such as
natural gas, water or oil, to get into the wellbore creating additional pressure
which, if not controlled, could lead to a "blowout" of the well. To prevent
blowouts a series of high-pressure valves known as blowout preventers ("BOPs")
are positioned at the top of the well and, when activated, form pressure tight
seals which prevent the escape of fluids. When closed, conventional BOPs prevent
normal rig operations and are activated only if drilling mud and normal well
control procedures cannot safely contain the pressure. BOPs must be designed to
contain pressure of up to 15,000 psi.
After the well has reached its total depth and the final section of casing has
been set, the drilling rig is moved off of the well and the well is prepared to
begin producing oil or gas in a process known as "well completion." A
producing well may undergo workover procedures to extend its life and increase
its production rate.
The Top Drive Drilling System, originally introduced by Varco in 1982,
significantly alters the traditional drilling process. Using the Top Drive
Drilling System, the drill stem is rotated from its top by means of a large
electric motor. This motor is affixed to rails installed in the derrick and
traverses from near the top of the derrick to the rig floor as the drill stem
penetrates the earth. Therefore, the Top Drive eliminates the use of the rotary
table for drilling. Components of the Top Drive also are used to connect
additional lengths of pipe to the drill stem during drilling operations.
VARCO DRILLING SYSTEMS
The Varco Drilling Systems Division designs and manufactures integrated systems
for rotating and handling the various sizes and types of pipe used on a drilling
rig. They are designed to enhance the safety and productivity of the drilling
rig through mechanization and automation.
The Varco Top Drive Drilling System ("TDS") combines elements of pipe handling
tools, as well as hoisting and rotary equipment, in a single system. Torque to
turn the drill stem is imparted directly by means of a large electric motor
which moves up and down along rails installed in the derrick and into which the
drill stem is connected. During drilling operations, elements of the TDS
perform functions such as spinning-in and making-up tool joints. It also
incorporates a drill pipe elevator, providing the capability to maneuver a stand
of pipe into position to be added to the drill string when drilling, or to hold
and hoist the entire drill stem.
Drilling with a Top Drive Drilling System provides several advantages over
conventional drilling. It enables drilling with three lengths of drill pipe,
reducing by two-thirds the time spent in making connections of drill pipe. In
addition it facilitates "horizontal" and "extended reach" drilling (the practice
of drilling wells which deviate
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substantially from the vertical) by providing the ability to rotate the pipe as
it is removed from, or replaced into, the hole, thus reducing friction and the
incidence of pipe sticking. The Top Drive Drilling System also increases the
safety of drilling operations.
The Top Drive Drilling System has demonstrated substantial economic
advantages. Users of the system generally report reductions in drilling time
ranging from 20% to 40%. By facilitating extended reach drilling, the TDS
increases the area which can be drilled from a given location, such as a fixed
platform or man-made island. Thus, the production from a given reservoir of oil
can be increased and the number of costly fixed platforms required to develop
the field can be minimized.
The Top Drive Drilling System has evolved continuously since its initial
introduction. Today, the Top Drive product line includes several models, each
designed to satisfy specific customer requirements. The version initially
introduced to the market in 1982, the TDS-3, remains a part of the product line.
The TDS-4, introduced in 1990, is a two-speed model which permits a variation in
speed and torque that is desirable for differing drilling conditions. The TDS-
6S, first delivered in 1991, is a dual motor version which provides double the
power and torque of a single motor unit. The TDS-7S, initially introduced in
1993, is powered by an alternating current ("AC") motor instead of the direct
current ("DC") motor used on previous models. The AC system offers lower
maintenance cost, as well as providing higher torque for longer periods and a
running speed more than twice that of conventional DC motor powered systems.
The Integrated Drilling System ("IDS") is an adaptation of the Top Drive
concept which is more compact than its Top Drive counterparts, and which is
affixed to a separately installed torque tube rather than rails permanently
installed in the derrick. It can be used on rigs which are smaller and which do
not have the structural integrity necessary to support a traditional Top Drive.
In 1995 the TDS-9S was introduced. It is powered by dual AC motors, is
reduced in length and rides on a separately installed torque tube. For these
reasons it especially well suited to the conventional land rig market, where
portability is critical. It is designed for ease of installation in existing
derricks, can be rigged up and rigged down in a matter of hours, and is easily
transported from one location to another. Eight TDS-9S units were delivered in
1995.
Pipe racking systems are used to handle drill pipe, casing and other types of
pipe (collectively "tubulars") on a drilling rig. Vertical pipe racking systems
move drill pipe and casing between the well and a storage ("racking") area on
the rig floor. Horizontal racking systems are used to handle tubulars while
stored horizontally (for example, on the pipe deck of an offshore rig),
transport it up to the rig floor and raise it to a vertical position from which
it may be passed to a vertical racking system.
Mechanical vertical pipe racking systems include those developed and sold by
BJ Machinery prior to its acquisition by Varco in 1988. Such systems reduce,
but do not eliminate, the manual effort involved in pipe handling. The Pipe
Handling Machine, introduced by Varco in 1985, provides a fully automated
mechanism for handling and racking of drill pipe and drill collars during
drilling and tripping operations. It incorporates the spinning and torquing
functions of the Automated Roughneck with the automatic hoisting and racking of
disconnected sections of pipe. These functions are integrated via computer
controlled sequencing, and the Pipe Handling Machine is operated by a person in
an environmentally secure cabin.
The Automated Roughneck is an automated version of the Iron Roughneck/R/,
which was originally introduced by Varco in 1976. It is a microprocessor
controlled device which automatically performs the torquing and spinning
functions required to connect and disconnect sections of drill pipe during
drilling and tripping operations, as well as during the setting of casing.
The "Star" Pipe Racking System, to which the Company acquired the rights in
1990, is a semi-automated vertical pipe racking system. When used in
conjunction with an Automated Roughneck, it provides an alternative to the Pipe
Handling Machine. Its design makes it more easily adapted for installation on
a land rig or existing offshore rig.
Vertical pipe racking systems are used predominantly on offshore rigs and are
virtually mandatory on
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floating rigs such as semisubmersibles.
Horizontal pipe racking systems were introduced by Varco in 1993. They
include the Pipe Deck Machine ("Pipe Mite") which is used to manipulate and move
tubulars while stored in a horizontal position; the Pipe Conveyor which
transports sections of pipe to the rig floor; and a Pickup Laydown System
("PLS") which raises the pipe to a vertical position for transfer to a vertical
racking system. These components may be employed separately, or incorporated
together to form a complete horizontal racking system, known as the Pipe
Transfer System ("PTS").
VARCO BJ OIL TOOLS
The Varco BJ Oil Tools product line consists of a full complement of
conventional rig tools and equipment. It was formed by the combination of the
original Varco oil tool products and the related products acquired in the BJ
Machinery Division and the Martin-Decker Division acquisitions. These products
include pipe handling tools, hoisting equipment and rotary equipment.
Varco's pipe handling tools are designed to enhance the safety, efficiency and
reliability of pipe handling operations. Many of these tools have provided
innovative methods of performing the designated task through mechanization of
functions previously performed manually.
Varco BJ Oil Tools manufactures various tools used in the making up and
breaking out of drill pipe, including spinning wrenches, manual tongs, torque
wrenches and kelly spinners. The spinning wrench is a tool used to screw
together and unscrew sections of drill pipe. Powered pneumatically or
hydraulically, it replaces a hazardous device known as a spinning chain. Manual
tongs are used to make up or break out tool joints, while the torque wrench is a
hydraulically powered device which performs this function with enhanced safety
and precision. The kelly spinner is a pneumatically or hydraulically powered
tool used to connect and disconnect the kelly to and from the drill stem as
additional lengths of pipe are added while drilling.
The Company also manufactures other tools used in various pipe handling
functions. Slips are gripping devices which hold pipe or casing in suspension
while in the hole, and they may be either manual or spring operated. Other
products, which include safety clamps, casing bushings and casing bowls, are
used to hold and guide drill pipe or casing while in the hole.
When drilling, tripping or setting casing, lengths of pipe must be hoisted
into position above the hole, lowered into or lifted from the hole and held in
suspension while in the hole. Hoisting equipment includes devices used to grip
and hold various types of pipe ("tubulars") while being raised or lowered. Drill
pipe elevators are used to hold lengths of drill pipe as they are hoisted into
position to be attached to the drill stem, and to hold the entire drill stem as
it is lowered into or lifted from the hole. Similarly, casing elevators and
spiders are gripping devices used to hold the casing as additional lengths are
added and lowered into the hole. Links are elongated steel forgings from which
the elevator is suspended and which, in turn, hangs from beneath the hook which
is connected to the hoisting mechanism of the drilling rig. The Company
manufactures elevators to accommodate a variety of tubulars, as well as a
complete line of links and hooks, together with casing elevators and spiders, to
handle a variety of casing sizes and accommodate casing weighing up to 1,000
tons.
Varco BJ Oil Tools expanded its casing spider line in 1994 with the
introduction of the Flush Mounted Spider ("FMS 375"), designed to improve safety
and efficiency during casing operations. Conventional casing spiders mount
above the rotary table, and result in the coupling connection height 8 feet
above the rig floor. This requires scaffolding to be erected around the spider
as a raised work platform for the rig crew to operate the casing tongs. The FMS
375 mounts inside the rotary table and flush with the rig floor, eliminating the
need for this scaffolding.
Rotary equipment products consist of kelly bushings and master bushings. The
kelly bushing applies torque to the kelly to rotate the drill stem and fits in
the master bushing which is turned by the rotary table on the floor of the rig.
Varco produces kelly bushings and master bushings for most sizes of kellys and
makes of rotary tables.
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A substantial portion of the Company's sales in some of the Oil Tools products
is attributable to sales of replacement parts which are subject to normal wear
and to sales of spare parts. Replacement parts for kelly bushings, rotary slips,
casing tools and spinning wrenches are a material part of the sales of those
product lines.
MARTIN-DECKER/TOTCO INSTRUMENTATION
The Martin-Decker/TOTCO Instrumentation Division designs, manufactures and
sells or rents instrumentation, primarily for use in oil and gas well drilling
operations and, to a lesser extent, provides instrumentation to certain general
industrial markets and for use in non-drilling related oilfield applications.
A drilling rig instrumentation package is generally comprised of four
elements: (1) sensors, which measure selected variables at the point of origin;
(2) a mechanical or electronic means of transmitting that data to the display
device; (3) a display, which may range in sophistication from a simple gauge to
a computer terminal or workstation; and (4) a method for permanently recording
and/or electronically transmitting the data for subsequent review and analysis.
This equipment must be sufficiently rugged to withstand the hostile
environmental conditions of a drilling rig.
The driller relies on certain instruments to provide information critical to
the operation of the drilling rig. At a minimum, this information includes the
status of such basic data as weight-on-bit, rotary RPM, rotary torque, hook
load, rate of penetration, mud pit volume, and mud flow. The indicators which
display this data are generally contained in a common housing called a drilling
console. A drilling console may range in sophistication from a collection of
analog gauges to a microprocessor based system such as the Martin-Decker/TOTCO
"Spectrum 1000."
Computer based electronic data acquisition systems provide real-time analysis
and display of the various drilling data at the driller's station, as well as
other locations around the rig. In 1991 Martin-Decker/TOTCO introduced the
TOTAL system, a computer-based data acquisition system incorporating up to date
electronic technology with comprehensive analytical capabilities. The emphasis
in TOTAL is on the analysis and interpretation of data via computer software, so
that the information displayed to the driller enables him to operate the rig
more safely and efficiently.
In 1992 the Company licensed from the Sedco Forex Division of Schlumberger
Limited the rights to develop, manufacture and market the MDS/TM/ System, an
advanced computer-based drilling information and alarm system which is
integrated with TOTAL. Its software programs incorporate the knowledge and
experience of drilling personnel and engineers to provide critical information
in a user-friendly format.
In addition to MDS/TM/, a number of additional analytical capabilities have
been developed for the TOTAL System. Drill-Off, a computerized drilling
optimization program was jointly developed by Martin-Decker/TOTCO and Exxon. An
agreement with Schlumberger's Anadril Division, authorizing MD/TOTCO to
manufacture and market a sophisticated kick detection system known as Kick-Alert
/SM/ was finalized in 1993. A joint effort by Martin-Decker/Totco and British
Petroleum to incorporate a software program known as Early Kick Detection (EKD)
on the TOTAL system was completed in 1995. An exclusive worldwide marketing
agreement with Logware, Inc. to market a Windows/TM/ based drilling information
system was completed in 1993.
The TOTAL system is designed so that it may be scaled to the requirements of a
particular drilling operation. For relatively routine drilling requirements it
can represent a cost-effective means of providing basic information; however, it
can be expanded to encompass the full range of analytical capability for complex
and costly offshore drilling.
Other drilling related products of Martin-Decker/TOTCO Instrumentation include
drift indicators, which are used to measure and record the degree of drift of
the well from vertical; mechanical recorders, which produce a permanent record
in chart form when an electronic system is not being used; drilling control
systems (auto-drillers) which automatically maintain a constant pressure on the
drill bit, and drilling chokes which provide a remotely actuated method of
controlling "kicks."
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Products of the Martin-Decker/TOTCO Instrumentation Division used outside the
drilling process include load and radius indicating systems for pedestal type
cranes, anchor tension monitoring systems for use in mooring and positioning
applications, and specialty scales for industrial use.
In August 1993, the Company acquired all the outstanding shares of Metrox,
Inc., a manufacturer of strain gauge systems. The acquisition of strain gauge
technology provides further penetration into the industrial crane and weight
monitoring markets as well as enhancing the overall Martin-Decker/TOTCO sensor
technology. Strain gauges provide a more precise measurement of many variables
critical to drilling operations.
Drilling consoles are typically sold as original equipment to the rig
manufacturer. However, electronic drilling consoles may be sold as upgrades to
existing rigs. In the United States and Canada, most other instrumentation
products are rented to the drilling contractor or oil company when necessary,
and are therefore not permanently installed on the rig. Internationally, nearly
all instrumentation equipment is sold to the rig owner and becomes a permanent
part of the drilling rig. A significant portion of the sales of some
instrumentation product lines is in spare and replacement parts.
SHAFFER
The Shaffer Division designs, manufactures, sells and distributes pressure
control equipment, including ram blowout preventers, annular or spherical
blowout preventers and rotating blowout preventers; blowout preventer control
systems; and motion compensation systems, including riser tensioners,
drillstring compensators and crown mounted compensators.
Blowout preventers ("BOPs") are devices used to seal the space between the
drill string and the borehole to prevent an uncontrolled flow of formation
fluids and gases. Shaffer manufactures three types of BOPs. Ram and annular BOPs
are back-up devices and are activated only if other techniques for controlling
pressure in the well bore are inadequate. When closed, these devices prevent
normal rig operations. Ram BOPs seal the wellbore by hydraulically closing rams
against each other across the wellbore. Specially designed packers seal around
specific sizes of pipe in the wellbore, shear pipe in the wellbore or close off
an open hole. Annular BOPs seal the wellbore by hydraulically closing a rubber
packing unit around the drill pipe or kelly or by sealing against itself if
nothing is in the hole. The rotating BOP allows operators to drill or strip into
or out of the well at low pressures without interrupting normal operations.
Shaffer expanded its BOP line in 1995 with the introduction of a system for
achieving Pressure Control While Drilling ("PCWD"). This new BOP allows normal
drilling operations to proceed without other pressure control procedures up to
2,000 psi and will operate as a normal spherical BOP up to pressures of 5,000
psi. During 1995 Shaffer sold two PCWD units and rented two additional units.
Shaffer sells BOP control systems under the registered trademark "Koomey."
The Koomey/R/ control system remotely opens and closes BOPs and associated
valves for both land systems and offshore systems.
Shaffer sells motion compensation equipment under the registered trademark
"Rucker." Motion compensation equipment stabilizes the bit on the bottom of
the hole, increasing drilling effectiveness of floating offshore rigs by
compensating for wave and wind action. Shaffer also manufactures tensioners
which provide continuous reliable axial tension to the marine riser pipe and
guide lines on floating drilling rigs, tension leg platforms and jack-up rigs.
Shaffer also manufactures and sells flowline devices, primarily Best chokes,
used in the production phase of the oil and gas industry. These chokes are
designed for both topside-platform and subsea production, for both standard
service and sulfur (H2S) service. Prior to 1993, these chokes were manufactured
and sold by Varco BJ Oil Tools.
Sales of spare and replacement parts, and the repair and reconditioning of
used equipment constitute a significant part of Shaffer's revenue.
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THULE RIGTECH
The Thule Rigtech Division designs, sells and rents equipment for use in the
mixing, handling, transport and cleaning of drilling fluid ("mud") used in the
drilling process. This equipment includes shale shakers, mud cleaners,
hydrocyclones, fume extraction hoods, mud chemical handling systems and
automated mud system controls. Thule Rigtech products are generally
subcontracted to third parties for manufacturing.
In the drilling operation, mud is pumped down the drill pipe and through the
holes in the drill bit. The mud acts as a lubricant to the drill bit, as a
pressure equalizer and as a vehicle which carries the drilled cuttings back to
the surface. Shale shakers are the principal machines used to clean the
cuttings from the mud, enabling it to be reused. The VSM 100 is designed to
pass large volumes of mud over fine mesh screens to extract as many of the
cuttings as possible from the mud, thus avoiding the use of the other filtering
processes before the mud is recirculated. Other equipment that may be employed
to remove cuttings are the VSM 200 mud cleaner and de-sander and de-silter
hydrocyclones.
The AMS 2000 mud chemical handling system is designed to handle, store and mix
mud chemicals. The mud chemicals are provided to the rig in 1-ton bags which
are placed in a hopper fitted with a vibrating mechanism. A computer controlled
valve in the base of the bag is used to discharge the chemical powder to the mud
mixer at the desired rate. The AMS 2000 eliminates the manual handling of large
sacks of powdered chemicals, improving efficiency and reducing exposure to a
potentially hazardous work environment.
The AMS 1000 automated mud system is a computer controlled system which
oversees and controls the entire mud function. The aim of the system is to
release manpower from manual operations while continuously monitoring the
process to ensure that it is performing properly.
Thule Rigtech equipment and systems are designed to minimize the cost of
drilling through lowering mud costs and improving operational efficiency, while
at the same time reducing the labor requirement and improving the safety of the
drilling operation.
RESEARCH AND NEW PRODUCT DEVELOPMENT
Varco believes that it is a leader in the development of new technology and
equipment to enhance the safety and productivity of the drilling process, and
that its sales and earnings have been dependent, in part, upon the successful
introduction of new or improved products. Varco's significant product
developments have included the safety spinning wrench, the torque wrench, the
spring slip, pneumatically operated casing elevators and spiders, the Automated
Roughneck, the Top Drive Drilling System, the Pipe Handling Machine and the
TOTAL system. At December 31, 1995 the Company employed 194 persons on its
engineering and design staffs who were principally engaged in research and
development. Total expenditures for research and development were $13.2 million
in 1995, $11.4 million in 1994 and $9.5 million in 1993.
As of December 31, 1995 the Company held 203 United States patents and had 7
patent applications pending. Expiration dates of such patents range from 1996 to
2012. As of such date the Company also had 250 foreign patents and 54 patent
applications pending relating to inventions covered by the United States
patents. The preceding include patent rights received in connection with the BJ
Machinery, Martin-Decker, TOTCO and Shaffer acquisitions. There are no
assurances that patents will be granted in response to pending applications.
Although the Company believes that its patents and applications have value,
competitive products with different designs have been successfully developed and
marketed by others. The Company considers the quality and timely delivery of its
products, the service it provides to its customers and the technical knowledge
and skills of its personnel to be more important than its patents in its ability
to compete. While the Company stresses the importance of its research and
development programs, the expense and market uncertainties associated with the
development and successful introduction of new products are such that there can
be no assurance that the Company will realize future revenues from new products.
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ACQUISITIONS
On July 17, 1992 Varco acquired substantially all of the assets and assumed
certain of the liabilities of the Shaffer Product Line ("Shaffer") of Baroid
Corporation for a cash consideration of approximately $36,000,000. Shaffer
designed, manufactured, and sold blowout prevention equipment and related
control systems and motion compensation systems used on drilling rigs in the oil
and gas industry. The Shaffer operations now comprise the Company's Shaffer
Division.
On August 17, 1993 the Company acquired all of the outstanding common stock of
Metrox, Inc. for a cash consideration of approximately $4,000,000. Metrox
designed and manufactured instrumentation used in the oil and gas industry, as
well as in general commercial and industrial applications. Metrox has been
combined with, and is reported within, the Company's Martin-Decker/TOTCO
Instrumentation Division.
On November 30, 1994 the Company acquired all of the outstanding shares of
Rig Technology Limited ("Thule Rigtech"), a company incorporated in Scotland,
for a cost of approximately $8,954,000. Thule Rigtech provides equipment and
systems used in the handling, mixing, transport and conditioning of drilling
fluids and operates as the Company's Thule Rigtech Division.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
INTERNATIONAL OPERATIONS
The Company's products are sold for use in approximately 82 countries by
United States customers operating in the United States and abroad, as well as by
foreign customers such as privately-owned corporations and national oil
companies. The Company includes as an international sale any sale where the
product is designated for use other than in the United States. Revenues from
products sold for use outside the United States accounted for approximately 69%,
68% and 71% of the Company's total revenues for the years ended December 31,
1995, 1994, and 1993, respectively. For further information regarding the
Company's worldwide operations and international sales and rentals, see Note K
of Notes to Consolidated Financial Statements.
The Company's international operations are subject to the usual risks of
changes in international conditions such as changes in governmental policies
affecting the oil industry (e.g., environmental regulations or the
nationalization of the operations of the Company's customers). Most
international sales are payable in United States dollars.
The Company has a policy prohibiting the payment of any bribe, kickback or
similar gratuity to any person in order to facilitate the sale of the Company's
products or to secure favorable action by a government official. The Company
believes that this policy does not impede its competitive position in the sale
of its products abroad.
SALES AND DISTRIBUTION
To facilitate the distribution of its drilling equipment and pressure control
products, the Company maintains domestic sales and service facilities in
California, Louisiana, Oklahoma, Texas and Wyoming. The rental of drilling rig
instrumentation requires local availability of equipment, transportation of the
equipment to the rig site and installation by qualified personnel. To service
this market, the Company maintains Martin-Decker/TOTCO Instrumentation sales and
service facilities in 13 states, including those mentioned above, as well as 3
locations in Canada. Internationally, the Company maintains offices in Abu
Dhabi, Scotland, Moscow, Holland, Singapore and Venezuela. The Company employs
independent agents in Mexico, South America, Europe, the Middle East, the Far
East and Asia, the South Pacific and in parts of the United States.
The Company's customers include private and government-owned oil companies,
drilling contractors, drilling
10
<PAGE>
rig manufacturers, rental tool companies, and supply companies which supply
oilfield products to the end users of the Company's products.
Drilling systems, such as the Automated Roughneck, Top Drive Drilling System
and pipe racking systems and pressure control and motion compensation equipment,
represent significant capital expenditures and are usually sold directly to an
oil company, drilling contractor or rig builder. Other drilling equipment
products may be sold through supply stores or directly to government-owned oil
companies or drilling contractors.
No customer accounted for more than 10% of annual sales during each of the
years during the period 1993 through 1995.
BACKLOG
Sales of the Company's products are made on the basis of written purchase
orders or contracts and, consistent with industry practice, by telex, letter or
oral commitment later confirmed by a written order. In accordance with industry
practice, orders and commitments generally can be canceled by customers at any
time. In addition, orders and commitments are sometimes modified before or
during manufacture of the products.
The backlog of unshipped orders was approximately as follows on the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Varco Drilling Systems $30,849 $36,770 $13,131
Varco BJ Oil Tools 7,147 6,558 6,666
Martin-Decker/TOTCO Instrumentation 4,535 4,581 4,416
Shaffer 31,918 3,882 8,074
Thule Rigtech 915 984
------- ------- -------
Total $75,364 $52,775 $32,287
======= ======= =======
</TABLE>
Most of the backlog at December 31, 1995 is scheduled to be shipped before
December 31, 1996.
COMPETITION
The products of the Company are sold in highly-competitive markets and its
sales and earnings can be affected by competitive actions such as price changes,
new product development or improved availability and delivery. The Company
competes with a large number of companies, some of which are larger than the
Company and have greater resources and more extensive and diversified
operations.
Varco's principal competitor with respect to most Drilling Systems products is
Maritime Hydraulics A/S, a Norwegian company. Other competitors with respect to
the Top Drive Drilling System include National-Oilwell, A/S Hydralift, another
Norwegian company which acquired the rights to the product previously marketed
by ACB offshore, a French company, and Tesco Corporation, a Canadian company
that competes principally in the land Top Drive market against Drilling Systems'
new TDS-9S. Since its introduction in 1982 and as of December 31, 1995, Varco
had sold and delivered 449 Top Drive Drilling Systems, and the Company believes
that its competitors had sold and delivered less than 150 systems during the
same time period.
11
<PAGE>
Varco's most significant domestic competitors with respect to oil tools
include Woolley Tool and Manufacturing, a Division of Enterra Corporation,
DenCon Oil Tools and Weatherford International, Inc. In foreign markets Varco
experiences competition from most of its domestic competitors and from foreign
companies as well.
Martin-Decker/TOTCO Instrumentation competes, in the domestic rental market,
with the Swaco Geolograph Division of Smith International, Inc., Petron Inc. and
Adair Supply Inc. In domestic product sales, the competition consists of Wagner
International Inc., Atlas Company and a number of smaller regional companies. In
the international market it competes with these same companies along with such
foreign competitors as Rigserv, a United Kingdom company, and Hitec A/S, a
Norwegian company.
Shaffer competes, in the BOP and related controls market, with Cooper Cameron
Corporation and Hydril Company, a privately held company. Shaffer's principal
competitor with respect to motion compensation equipment is Maritime Hydraulics
A/S.
Thule Rigtech competes in the solids control equipment market with Derrick
Manufacturing Inc. and the Brandt Company.
Although accurate industry figures are not available, the Company believes
that it has a substantial share of the market for most of its equipment and
instrumentation products.
MANUFACTURING AND RAW MATERIALS
The manufacturing processes for the Company's drilling and pressure control
equipment products generally consist of machining, welding and fabrication, heat
treating, assembly of manufactured and purchased components, and testing. The
Company's drilling and pressure control equipment products are manufactured
primarily from alloy steel, and the availability of alloy steel castings,
forgings, purchased components and bar stock is critical to the production and
timing of shipments. The Company believes that there are currently adequate
sources of supply for alloy steel castings, forgings, purchased components and
bar stock. The primary manufacturing processes associated with instrumentation
and solids control products are fabrication, machining, assembly of manufactured
and purchased components, and testing. The Company believes that adequate
sources of supply exist for all such purchased components.
Thule Rigtech products are generally subcontracted to third parties for
manufacturing. The Company believes that an adequate number of subcontractors
exist for the manufacture of Thule Rigtech products.
EMPLOYEES
At December 31, 1995 the Company had a total of 1,636 employees (of which 221
were temporary employees). Of such employees, 431 employees were engaged in
sales and marketing, 194 employees were engaged in engineering and design, 127
employees were engaged in administrative or clerical capacities, and 884 were
engaged in manufacturing. The Company considers its relations with its employees
to be excellent and has never suffered a work stoppage or interruption due to a
labor dispute.
12
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Varco are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------
<S> <C> <C>
Walter B. Reinhold 71 Chairman of the Board and Director
George Boyadjieff 57 President, Chief Executive Officer and Director
Richard A. Kertson 56 Vice President-Finance and Chief Financial Officer
Donald L. Stichler 52 Controller-Treasurer and Chief Accounting Officer and
Secretary
Marshall Bailey 48 Vice President and Managing Director-Rig Technology
Robert J. Gondek 52 Vice President and President - Martin-Decker/TOTCO
Instrumentation
Mark A. Merit 38 Vice President and President - Shaffer
Roger D. Morgan 52 Vice President and President - Varco Drilling Systems
Michael W. Sutherlin 49 Vice President and President - Varco BJ Oil Tools
</TABLE>
Officers are elected by, and serve at the pleasure of, the
Board of Directors.
Mr. Reinhold has been a director of the Company since 1970. He served as Chief
Executive Officer of the Company from 1970 until April 1991, and prior thereto
he served as Executive Vice President. He has been employed by the Company since
1949. Mr. Reinhold is a director of Amdahl Corporation and Revco Drug Stores,
Inc.
Mr. Boyadjieff was elected President of the Company in May 1981 and Chief
Executive Officer in April 1991. Mr. Boyadjieff served as Chief Operating
Officer from June 1979 until April 1991. Prior to his election as President, he
was the Senior Vice President - Operations. He has been a director of the
Company since 1976 and joined the Company in 1969. Mr. Boyadjieff is a
Director of Unit Instruments, Inc.
Mr. Kertson was elected Vice President - Finance and Chief Financial Officer
in May 1984. He had been Controller of Varco Oil Tools since January 1982. He
joined the Company in October 1975, as Director of Management Information
Services.
Mr. Stichler was elected Controller-Treasurer in May 1984, Secretary in May
1993 and Chief Accounting Officer in May 1995. He served as Corporate
Controller from December 1982 to May 1984. He served as Manager of Accounting
and Taxation from 1981, when he joined the Company.
Mr. Bailey was elected Vice President of the Company and Managing Director of
Rig Technology in May 1995. Mr. Bailey was the Managing Director and principal
shareholder of Rig Technoloby Limited. from 1988 until 1994 when it was acquired
by the Company.
Mr. Gondek has served as President of Martin-Decker/TOTCO Instrumentation
Division since November 1990 and was elected Vice President of the Company in
April 1991. From September 1986 until November 1990 Mr. Gondek was the Vice
President and General Manager of the TOTCO operations of Baker Hughes
Incorporated. Prior to 1986 he held various positions with TOTCO International
Corporation including Vice President of Engineering, Vice President of
Manufacturing and Senior Vice President.
Mr. Merit was elected Vice President of the Company and President of Shaffer
in October 1992. He had been Vice President-Manufacturing of Varco Drilling
Systems since August 1991. Previously he was Operations Manager of Varco U.K.
Limited from March 1990, and prior to that he was Manager of Engineering
Software
13
<PAGE>
Development for Varco Drilling Systems since 1985. He has been employed by the
Company in various capacities since 1980.
Mr. Morgan was elected Vice President of the Company in May 1984 and President
of Varco Drilling Systems in May 1990. He had been Vice President-Materials and
Manufacturing of Varco Oil Tools since May 1981. Previously, he was Vice
President-Materials and Production of Varco Oil Tools. He has been employed by
the Company in various capacities since 1974.
Mr. Sutherlin was elected Vice President of the Company in May 1984 and
President-Varco BJ Oil Tools in July 1988. Previously he served as Vice
President-Best Operations. He has been employed by the Company in various
capacities since 1975.
ITEM 2. PROPERTIES
The Company's principal manufacturing facilities are located in Orange,
California (the "Orange Facility"), Etten-Leur, The Netherlands (the "Etten-
Leur Facility"), Cedar Park, Texas (the "Cedar Park Facility") and Houston,
Texas (the "Shaffer Facility"). The Orange Facility and the Etten-Leur
Facility are used primarily for manufacturing the Company's drilling equipment;
the Cedar Park Facility manufactures primarily instrumentation products; and the
Shaffer Facility is used for manufacturing pressure control, motion compensation
and drilling equipment and flow line devices. Thule Rigtech products are
generally subcontracted to third parties for manufacturing.
The Orange Facility occupies approximately nine acres in Orange County,
California which are leased under a long-term lease. The Orange Facility
includes three manufacturing/warehouse buildings comprising a total of
approximately 135,000 square feet and a four-story high-rise facility with
automatic storage and retrieval capabilities. The Orange Facility is currently
leased from certain officers, shareholders, and directors of the Company and
affiliated trusts. This facility is the primary manufacturing location for the
Varco Drilling Systems Division, and the Company estimates that based upon
direct labor hours and a two shift operation, utilization of this facility was
approximately 95% of capacity in 1995 as compared to 70% and 45% of capacity in
1994 and 1993 respectively.
The Etten-Leur Facility consists of approximately 73,000 square feet of
manufacturing and warehousing space and approximately 12,900 square feet of
office space on approximately six acres of land. This facility is the primary
manufacturing location for the Varco BJ Oil Tools Division, and the Company
estimates that based upon direct labor hours and a two shift operation,
utilization of this facility was approximately 80% of capacity in 1995 as
compared to 75% of capacity in 1994 and 50% of capacity in 1993.
The Martin-Decker/TOTCO Instrumentation products are manufactured at the Cedar
Park Facility. The Company leased this facility from Cooper Industries, Inc.
until 1995 when the Company purchased this facility for aproximately $3.6
million. The Cedar Park Facility consists of approximately 200,000 square feet
of manufacturing and warehousing space and approximately 33,000 square feet of
office space located on approximately 40 acres. The Company estimates that based
upon direct labor hours and a two shift operation, utilization of this facility
was approximately 95% of capacity during 1995 and 1994 as compared to 70% of
capacity during 1993.
The Shaffer Division's products are manufactured at the Shaffer Facility,
which consists of approximately 270,000 square feet of manufacturing and
warehousing space and approximately 73,000 square feet of office space located
on approximately 34 acres. In addition, certain products of the Varco BJ Oil
Tools Division are manufactured at this facility. The Shaffer facility has been
operated by the Company since the acquisition of Shaffer on July 17, 1992. The
Company estimates that based upon direct labor hours and a two shift operation,
utilization of this facility for 1995 was approximately 80% as compared to 70%
in 1994 and 65% in 1993.
An additional manufacturing facility located in Houston (the "Houston BJ
Facility") was closed during the fourth quarter of 1992 and activities
previously performed at that plant have been moved to other Company locations,
principally the Shaffer Facility. The Houston BJ Facility, which consists of
approximately 135,000 square feet of manufacturing and office space, and the
32.2 acres of land on which it is located are owned by the Company. This
facility has been listed for sale.
14
<PAGE>
The Drilling Systems Division's administration and the Company's executive
offices are located in Orange, California adjacent to the Orange Facility. They
comprise approximately 36,000 square feet of office space and are leased from
certain officers, shareholders and directors of the Company and affiliated
trusts.
The Company owns sales and service facilities in Oklahoma, Wyoming, Scotland
and Singapore and leases approximately four such facilities throughout the
United States in addition to facilities in Canada, Mexico and Venezuela.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which Varco or any of its subsidiaries
is a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information concerning the market for the Registrant's Common Stock and
related stockholder matters contained under the captions "Price Range of Varco
Common Stock," "Dividend Policy" and "Common Stock" on page 42 of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1995,
is hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information set forth under the caption "Five Year
Financial and Operating Highlights" on page 20 of the Registrant's Annual
Report to Shareholders for the year ended December 31, 1995, is hereby
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 22 through 26 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1995, is hereby incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is hereby incorporated by reference to
pages 27 through 40 of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1995. The Report of Independent Auditors is included
in Item 14(d).
15
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference to
the information set forth under the sub caption "Nominees" under the caption
"ELECTION OF DIRECTORS" in the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on May 16, 1996, except that information
concerning the Executive Officers of the Registrant is contained in Item 1 under
the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to
the information set forth under the sub captions "Compensation and Stock Option
Information" and "Compensation Committee Interlocks and Insider
Participation" under the caption "EXECUTIVE COMPENSATION" and under the
subcaption "Director Compensation" under the caption "ELECTION OF DIRECTORS"
in the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on May 16, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to
the information set forth under the caption "BENEFICIAL OWNERSHIP OF VARCO
SECURITIES" in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 16, 1996.
16
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to
the information set forth under the caption "CERTAIN TRANSACTIONS AND
RELATIONSHIPS" in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 16, 1996.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of Varco International, Inc.
and subsidiaries, included in the Registrant's Annual Report to Shareholders for
the year ended December 31, 1995, are incorporated by reference in Item 8:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL
REPORT
-------
<S> <C>
Consolidated Balance Sheets-as of December 31, 1995 and 1994..................................... 27
Consolidated Statements of Income-Years ended December 31, 1995, 1994 and 1993................... 28
Consolidated Statements of Shareholders' Equity-Years ended December 31, 1995, 1994 and 1993..... 29
Consolidated Statements of Cash Flows-Years ended December 31, 1995, 1994 and 1993............... 30
Notes to Consolidated Financial Statements....................................................... 31
</TABLE>
The Report of Independent Auditors and the following consolidated
financial statement schedule of Varco International, Inc., and
subsidiaries are included in Item 14(d):
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.......................................... 22
Schedule II - Valuation and Qualifying Accounts......................... 23
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Individual financial statements of the registrant have been omitted as the
registrant is primarily an operating company and all subsidiaries included in
the consolidated financial statements filed, in the aggregate, do not have
minority equity interest and/or indebtedness to any person other than the
registrant or its consolidated subsidiaries in amounts which together (excepting
indebtedness incurred in the ordinary course of business which is not overdue
and matures within one year from the date of its creation, whether or not
evidenced by securities, and indebtedness of subsidiaries which is
collateralized by the registrant by guarantee, pledge, assignment or otherwise)
exceed 5 percent of the total assets as shown by the most recent year-end
consolidated balance sheet.
(b) REPORTS ON FORM 8-K
Varco filed no reports on Form 8-K during the three months ended December 31,
1995.
18
<PAGE>
(c) EXHIBITS
Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have heretofore been filed with the Commission and are incorporated
herein by reference. Each management contract or compensation plan or
arrangement filed as an exhibit hereto is identified by a dagger.
*3.1 Amended and Restated Articles of Incorporation of Varco.
3.2 Bylaws of Varco, incorporated by reference to Exhibit 3.7 to Amendment
No. 1 to Varco's Registration Statement on Form S-1, Registration
No. 33-40191.
4.1 Note Agreement, dated as of July 1, 1992 between Varco International,
Inc. and the Purchasers named in Schedule 1 thereto, incorporated by
reference to Exhibit 4.0 to Varco's Quarterly report on Form 10-Q for
the quarter ended September 30, 1992.
4.2 First Amendment to Note Agreement, dated as of November 12, 1992, to
Note Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.3 to Varco's annual report on Form 10-K for the
year ended December 31, 1992.
4.3 Waiver and Second Amendment to Note Agreement, dated as of February 25,
1993, to Note Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.4 to Varco's annual report on Form 10-K for the
year ended December 31, 1992.
4.4 Waiver, dated as of March 8, 1995, to Note Agreement included as
Exhibit 4.1 hereto incorporated by reference to Exhibit 4.4 to Varco's
annual report on Form 10-K for the year ended December 31, 1994.
*4.5 Waiver and Third Amendment to Note Agreement, dated as of March 8,
1995, to Note Agreement included as Exhibit 4.1 hereto.
4.6 Credit Agreement, dated as of February 25, 1993 among Varco
International, Inc., Citicorp USA, Inc. and Citibank, N.A.,
incorporated by reference to Exhibit 4.5 to Varco's annual report on
Form 10-K for the year ended December 31, 1992.
4.7 First Amendment dated as of August 3, 1993 to Credit Agreement included
as Exhibit 4.6 hereto, incorporated by reference to Exhibit 4 to
Varco's quarterly report on Form 10-Q for the quarter ended September
30, 1993.
4.8 Second Amendment dated as of September 23, 1993 to Credit Agreement
included as Exhibit 4.6 hereto, incorporated by reference to Exhibit
4.6 to Varco's annual report on Form 10-K for the year ended
December 31, 1993.
4.9 Third Amendment dated as of December 1, 1993 to Credit Agreement
included as Exhibit 4.6 hereto, incorporated by reference to Exhibit
4.7 to Varco's annual report on Form 10-K for the year ended December
31, 1993.
4.10 Fourth Amendment dated as of May 12, 1994 to Credit Agreement included
as Exhibit 4.6 hereto, incorporated by reference to Exhibit 4 to
Varco's quarterly report on Form 10-Q for the quarter ended September
30, 1994.
4.11 Fifth Amendment dated as of October 31, 1994 to Credit Agreement
included as Exhibit 4.6 hereto, incorporated by reference to
Exhibit 4.10 to Varco's annual report on Form 10-K for the year
ended December 31, 1994.
19
<PAGE>
*4.12 Sixth Amendment dated as of March 17, 1995 to Credit
Agreement included as Exhibit 4.6 hereto.
*4.13 Seventh Amendment dated as of December 31, 1995 to Credit Agreement
included as Exhibit 4.6 hereto.
10.1+ Varco International, Inc. Non-Qualified Stock Option Plan, as amended,
incorporated by reference to Exhibit 14.4 to Post-Effective Amendment
No. 4 to Varco's Registration Statement on Form S-8, Registration No. 2-
66830.
10.2+ The Varco 1980 Stock Option Plan, as amended, incorporated by reference
to Exhibit 4.5 to Post-Effective Amendment No. 4 to Varco's Registration
Statement on Form S-8, Registration No. 2-66830.
10.3+ Amendment to Varco 1980 Stock Option Plan, incorporated by reference to
Exhibit 10.2 to Varco's quarterly report on Form 10-Q for the quarter
ended September 30, 1984.
10.4+ The Varco 1982 Non-Employee Director Stock Option Plan, incorporated by
reference to Exhibit 19.3 to Varco's quarterly report on Form 10-Q for
the quarter ended June 30, 1982.
10.5+ Varco International, Inc. Supplemental Executive Retirement Plan,
incorporated by reference to Exhibit 10.6 to Varco's annual report on
Form 10-K for the year ended December 31, 1992.
10.6+ Varco International, Inc. Stock Bonus Plan, incorporated by reference to
Exhibit 10.8 to Varco's annual report on Form 10-K for the year ended
December 31, 1985.
*10.7+ Amendment to Varco International, Inc. Stock Bonus Plan included as
Exhibit 10.6 hereto.
10.8 Lease dated March 7, 1975, as amended, incorporated by reference to
Exhibit 10.7 to Varco's annual report on Form 10-K for the year ended
December 31, 1981, and agreement with respect thereto dated as of
January 1, 1982, incorporated by reference to Exhibit 10.8 to Varco's
annual report on Form 10-K for the year ended December 31, 1982.
10.9 Agreement dated as of January 1, 1984, with respect to Lease included as
Exhibit 10.8 hereto, incorporated by reference to Exhibit 10.13 to
Varco's annual report on Form 10-K for the year ended December 31, 1984.
10.10 Agreement dated as of February 8, 1985, with respect to Lease included
as Exhibit 10.8 hereto, incorporated by reference to Exhibit 10.14 to
Varco's annual report on Form 10-K for the year ended December 31, 1984.
10.11 Agreement dated as of April 12, 1985 to Lease included as Exhibit 10.8
hereto., incorporated by reference to Exhibit 10.2 to Varco's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1985.
*10.12 Amendment dated as of January 11, 1995 to Lease included as Exhibit 10.8
hereto.
10.13 Agreement dated as of June 11, 1981, among W.B. Reinhold, B. Reinhold,
Jr., Charlotte
20
<PAGE>
Reinhold Lorenz, Baldwin Terry Reinhold and Leo J. Pircher, incorporated
by reference to Exhibit 10.14 to Amendment No. 2 to Varco's Registration
Statement on Form S-1, Registration No. 33-9341.
10.14 Standard Industrial Lease-Net dated September 29, 1988 for the premises
at 743 N. Eckhoff, Orange, California, incorporated by reference to
Exhibit 10.14 to Varco's annual report on Form 10-K for the year ended
December 31, 1988.
*10.15 First amendment dated as of January 11, 1995 to Lease included as
Exhibit 10.14 hereto.
10.16 Asset Purchase Agreement between Varco International, Inc. and Baker
Hughes Incorporated dated as of August 10, 1988, incorporated by
reference to Exhibit 2.0 to Varco's Form 8-K dated September 29, 1988.
10.17+ The Varco International Inc. 1990 Stock Option Plan, incorporated by
reference to Exhibit 10.0 to Varco's Form 10-Q for the quarter ended
March 31, 1990.
10.18+ Varco 1980 Employee Stock Purchase Plan, as amended, incorporated by
reference to Exhibit 28 to Varco's Registration Statement on Form S-8,
Registration No. 33-36841.
*10.19+ Amendment to the Varco 1980 Employee Stock Purchase Plan included as
Exhibit 10.18 hereto.
10.20 Amended and Restated Asset Purchase Agreement, dated as of August 1,
1990 by and between Varco and Baker Hughes Incorporated, incorporated by
reference to Exhibit 2 to Varco's quarterly report on Form 10-Q for the
quarter ended June 30, 1990.
10.21+ Varco International Inc. Management Incentive Bonus Plan incorporated by
reference to Exhibit 10.22 to Varco's annual report on Form 10-K for the
year ended December 31, 1990.
10.22 Asset Purchase Agreement, dated as of April 10, 1992, by and between
Varco International, Inc. and Baroid Corporation, incorporated by
reference to Exhibit 2 to Varco's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992.
10.23 Amendments dated May 28, 1992, June 30, 1992, July 15, 1992 and two
amendments dated July 16, 1992 to Asset Purchase Agreement included as
Exhibit 10.22 hereto, incorporated by reference to Exhibit 2.1 to
Varco's Current Report on Form 8-K dated July 17, 1992.
*10.24+ The Varco International Inc. 1994 Directors' Stock Option Plan.
10.25+ The Varco International, Inc. Director Savings Plan incorporated by
reference to Exhibit 10.23 to Varco's annual report on Form 10-K for the
year ended December 31, 1994.
10.26+ The Varco International, Inc. Executive Management Savings Plan
incorporated by reference to Exhibit 10.24 to Varco's annual report on
Form 10-K for the year ended December 31, 1994.
*11 Statement re computation of per share earnings.
*12 Statement re computation of ratios.
21
<PAGE>
*13 1995 Annual Report to Shareholders, to the extent expressly incorporated
by reference in this Report on Form 10-K. Such Annual Report, except for
those portions so incorporated by reference, is furnished only for
information and is not to be deemed filed herewith .
*21 Subsidiaries of Varco.
*23 Consent of Independent Auditors.
*27 Financial Data Schedule
*Filed herewith
+Management contract, compensation plan or arrangement.
As to any security holder of the Registrant requesting a copy of this Form 10-
K, the Registrant will furnish copies of any exhibits listed above as filed with
this Form 10-K upon payment to it of its reasonable expenses in furnishing such
exhibits.
(d) SCHEDULES
The Report of Independent Auditors and the schedule listed in the Index to
Financial Statements and Schedules (Item 14(a)) are filed as part of this Annual
Report on Form 10-K.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Varco International, Inc.
We have audited the consolidated balance sheets of Varco International, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Varco International, Inc. and subsidiaries at
December 31, 1995 and 1994, and the consolidated results of operations
and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Orange County, California
February 15, 1996
22
<PAGE>
VARCO INTERNATIONAL, INC. AND
SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column D
--------------------- ----------------------------------------------------------------------
Additions
-------------------------
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end of
Description of period expenses describe describe period
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 1,580 $ 223 $ 14 $ 232(1) $ 1,585
Allowance for excess and obsolete inventory.. 41,912 789 440(3) 4,072(2) 39,069
Reserve for assets held for sale............. 4,553 239 (42) 4,750
--------------------------------------------------------------------------
TOTALS................................ $48,045 $1,251 $ 412 $4,304 $ 45,404
==========================================================================
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 1,743 $ 34 $ 105 $ 302(1) $ 1,580
Allowance for excess and obsolete inventory.. 45,133 253 133 3,607(2) 41,912
Reserve for assets held for sale............. 4,207 341 5 4,553
--------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
TOTALS.................................. $51,083 $ 628 $ 243 $3,909 $ 48,045
=========================================================================
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 1,703 $ 292 252(1) $ 1,743
Allowance for excess and obsolete inventory.. 47,846 1,476 4,189(2) 45,133
Reserve for assets held for sale............. 4,183 345 321 4,207
--------------------------------------------------------------------------
TOTALS $53,732 $2,113 $4,762 $51,083
==========================================================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventories written off.
(3) Slow moving inventories sold.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VARCO INTERNATIONAL, INC.
By GEORGE I. BOYADJIEFF
-------------------------------------
George I. Boyadjieff
President and Chief Executive Officer
and Director
Dated March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Principal Executive Officer and Director:
<TABLE>
<S> <C> <C>
GEORGE I. BOYADJIEFF President and Chief March 28, 1996
- ---------------------------------- Executive Officer
George I. Boyadjieff
Principal Financial Officer:
RICHARD A. KERTSON Vice President- March 28, 1996
- ---------------------------------- Finance
Richard A. Kertson
Principal Accounting Officer:
Controller-Treasurer
DONALD L. STICHLER and Chief Accounting March 28, 1996
- ---------------------------------- Officer and Secretary
Donald L. Stichler
Other Directors:
WALTER B. REINHOLD Director-Chairman March 28, 1996
- ----------------------------------
Walter B. Reinhold
TALTON R. EMBRY Director March 28, 1996
- ----------------------------------
Talton R. Embry
Director March , 1996
- ----------------------------------
Andre R. Horn
MAURICE E. JACQUES Director March 28, 1996
- ----------------------------------
Maurice E. Jacques
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
JACK W. KNOWLTON Director March 28, 1996
- ----------------------------------
Jack W. Knowlton
LEO J. PIRCHER Director March 28, 1996
- ----------------------------------
Leo J. Pircher
CARROLL W. SUGGS Director March 28, 1996
- ----------------------------------
Carroll W. Suggs
ROBERT A. TEITSWORTH Director March 28, 1996
- ----------------------------------
Robert A. Teitsworth
EUGENE R. WHITE Director March 28, 1996
- ----------------------------------
Eugene R. White
JAMES D. WOODS Director March 28, 1996
- ----------------------------------
James D. Woods
</TABLE>
26
<PAGE>
(c) EXHIBITS
*3.1 Amended and Restated Articles of Incorporation of Varco.
3.2 Bylaws of Varco, incorporated by reference to Exhibit 3.7 to Amendment
No. 1 to Varco's Registration Statement on Form S-1, Registration
No. 33-40191.
4.1 Note Agreement, dated as of July 1, 1992 between Varco International,
Inc. and the Purchasers named in Schedule 1 thereto, incorporated by
reference to Exhibit 4.0 to Varco's Quarterly report on Form 10-Q for
the quarter ended September 30, 1992.
4.2 First Amendment to Note Agreement, dated as of November 12, 1992, to
Note Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.3 to Varco's annual report on Form 10-K for the
year ended December 31, 1992.
4.3 Waiver and Second Amendment to Note Agreement, dated as of February 25,
1993, to Note Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.4 to Varco's annual report on Form 10-K for the
year ended December 31, 1992.
4.4 Waiver, dated as of March 8, 1995, to Note Agreement included as
Exhibit 4.1 hereto incorporated by reference to Exhibit 4.4 to Varco's
annual report on Form 10-K for the year ended December 31, 1994.
*4.5 Waiver and Third Amendment to Note Agreement, dated as of March 8,
1995, to Note Agreement included as Exhibit 4.1 hereto.
4.6 Credit Agreement, dated as of February 25, 1993 among Varco
International, Inc., Citicorp USA, Inc. and Citibank, N.A.,
incorporated by reference to Exhibit 4.5 to Varco's annual report on
Form 10-K for the year ended December 31, 1992.
4.7 First Amendment dated as of August 3, 1993 to Credit Agreement included
as Exhibit 4.6 hereto, incorporated by reference to Exhibit 4 to
Varco's quarterly report on Form 10-Q for the quarter ended September
30, 1993.
4.8 Second Amendment dated as of September 23, 1993 to Credit Agreement
included as Exhibit 4.6 hereto, incorporated by reference to Exhibit
4.6 to Varco's annual report on Form 10-K for the year ended
December 31, 1993.
4.9 Third Amendment dated as of December 1, 1993 to Credit Agreement
included as Exhibit 4.6 hereto, incorporated by reference to Exhibit
4.7 to Varco's annual report on Form 10-K for the year ended December
31, 1993.
4.10 Fourth Amendment dated as of May 12, 1994 to Credit Agreement included
as Exhibit 4.6 hereto, incorporated by reference to Exhibit 4 to
Varco's quarterly report on Form 10-Q for the quarter ended September
30, 1994.
4.11 Fifth Amendment dated as of October 31, 1994 to Credit Agreement
included as Exhibit 4.6 hereto, incorporated by reference to
Exhibit 4.10 to Varco's annual report on Form 10-K for the year
ended December 31, 1994.
<PAGE>
*4.12 Sixth Amendment dated as of March 17, 1995 to Credit
Agreement included as Exhibit 4.6 hereto.
*4.13 Seventh Amendment dated as of December 31, 1995 to Credit Agreement
included as Exhibit 4.6 hereto.
10.1+ Varco International, Inc. Non-Qualified Stock Option Plan, as amended,
incorporated by reference to Exhibit 14.4 to Post-Effective Amendment
No. 4 to Varco's Registration Statement on Form S-8, Registration No. 2-
66830.
10.2+ The Varco 1980 Stock Option Plan, as amended, incorporated by reference
to Exhibit 4.5 to Post-Effective Amendment No. 4 to Varco's Registration
Statement on Form S-8, Registration No. 2-66830.
10.3+ Amendment to Varco 1980 Stock Option Plan, incorporated by reference to
Exhibit 10.2 to Varco's quarterly report on Form 10-Q for the quarter
ended September 30, 1984.
10.4+ The Varco 1982 Non-Employee Director Stock Option Plan, incorporated by
reference to Exhibit 19.3 to Varco's quarterly report on Form 10-Q for
the quarter ended June 30, 1982.
10.5+ Varco International, Inc. Supplemental Executive Retirement Plan,
incorporated by reference to Exhibit 10.6 to Varco's annual report on
Form 10-K for the year ended December 31, 1992.
10.6+ Varco International, Inc. Stock Bonus Plan, incorporated by reference to
Exhibit 10.8 to Varco's annual report on Form 10-K for the year ended
December 31, 1985.
*10.7+ Amendment to Varco International, Inc. Stock Bonus Plan included as
Exhibit 10.6 hereto.
10.8 Lease dated March 7, 1975, as amended, incorporated by reference to
Exhibit 10.7 to Varco's annual report on Form 10-K for the year ended
December 31, 1981, and agreement with respect thereto dated as of
January 1, 1982, incorporated by reference to Exhibit 10.8 to Varco's
annual report on Form 10-K for the year ended December 31, 1982.
10.9 Agreement dated as of January 1, 1984, with respect to Lease included as
Exhibit 10.8 hereto, incorporated by reference to Exhibit 10.13 to
Varco's annual report on Form 10-K for the year ended December 31, 1984.
10.10 Agreement dated as of February 8, 1985, with respect to Lease included
as Exhibit 10.8 hereto, incorporated by reference to Exhibit 10.14 to
Varco's annual report on Form 10-K for the year ended December 31, 1984.
10.11 Agreement dated as of April 12, 1985 to Lease included as Exhibit 10.8
hereto., incorporated by reference to Exhibit 10.2 to Varco's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1985.
*10.12 Amendment dated as of January 11, 1995 to Lease included as Exhibit 10.8
hereto.
10.13 Agreement dated as of June 11, 1981, among W.B. Reinhold, B. Reinhold,
Jr., Charlotte
<PAGE>
Reinhold Lorenz, Baldwin Terry Reinhold and Leo J. Pircher, incorporated
by reference to Exhibit 10.14 to Amendment No. 2 to Varco's Registration
Statement on Form S-1, Registration No. 33-9341.
10.14 Standard Industrial Lease-Net dated September 29, 1988 for the premises
at 743 N. Eckhoff, Orange, California, incorporated by reference to
Exhibit 10.14 to Varco's annual report on Form 10-K for the year ended
December 31, 1988.
*10.15 First amendment dated as of January 11, 1995 to Lease included as
Exhibit 10.14 hereto.
10.16 Asset Purchase Agreement between Varco International, Inc. and Baker
Hughes Incorporated dated as of August 10, 1988, incorporated by
reference to Exhibit 2.0 to Varco's Form 8-K dated September 29, 1988.
10.17+ The Varco International Inc. 1990 Stock Option Plan, incorporated by
reference to Exhibit 10.0 to Varco's Form 10-Q for the quarter ended
March 31, 1990.
10.18+ Varco 1980 Employee Stock Purchase Plan, as amended, incorporated by
reference to Exhibit 28 to Varco's Registration Statement on Form S-8,
Registration No. 33-36841.
*10.19+ Amendment to the Varco 1980 Employee Stock Purchase Plan included as
Exhibit 10.18 hereto.
10.20 Amended and Restated Asset Purchase Agreement, dated as of August 1,
1990 by and between Varco and Baker Hughes Incorporated, incorporated by
reference to Exhibit 2 to Varco's quarterly report on Form 10-Q for the
quarter ended June 30, 1990.
10.21+ Varco International Inc. Management Incentive Bonus Plan incorporated by
reference to Exhibit 10.22 to Varco's annual report on Form 10-K for the
year ended December 31, 1990.
10.22 Asset Purchase Agreement, dated as of April 10, 1992, by and between
Varco International, Inc. and Baroid Corporation, incorporated by
reference to Exhibit 2 to Varco's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992.
10.23 Amendments dated May 28, 1992, June 30, 1992, July 15, 1992 and two
amendments dated July 16, 1992 to Asset Purchase Agreement included as
Exhibit 10.22 hereto, incorporated by reference to Exhibit 2.1 to
Varco's Current Report on Form 8-K dated July 17, 1992.
*10.24+ The Varco International Inc. 1994 Directors' Stock Option Plan.
10.25+ The Varco International, Inc. Director Savings Plan incorporated by
reference to Exhibit 10.23 to Varco's annual report on Form 10-K for the
year ended December 31, 1994.
10.26+ The Varco International, Inc. Executive Management Savings Plan
incorporated by reference to Exhibit 10.24 to Varco's annual report on
Form 10-K for the year ended December 31, 1994.
*11 Statement re computation of per share earnings.
*12 Statement re computation of ratios.
<PAGE>
*13 1995 Annual Report to Shareholders, to the extent expressly incorporated
by reference in this Report on Form 10-K. Such Annual Report, except for
those portions so incorporated by reference, is furnished only for
information and is not to be deemed filed herewith .
*21 Subsidiaries of Varco.
*23 Consent of Independent Auditors.
*27 Financial Data Schedule
*Filed herewith
+Management contract, compensation plan or arrangement.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
VARCO INTERNATIONAL, INC.
Richard A. Kertson and Donald L. Stichler certify that:
1. They are the duly elected and acting Vice President-Finance and
Secretary, respectively, of Varco International, Inc., a California corporation
(the "Company").
2. The Articles of Incorporation of the Company are amended and restated
to read in full as follows:
Name
One: The name of the corporation is:
Varco International, Inc.
Purpose
Two: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the
trust company business or the practice of a profession permitted to
be incorporated under the California Corporations Code.
Authorized Shares
Three: This corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock,"
referred to herein as Common Stock or Common Shares and Preferred
Stock or Preferred Shares, respectively. The number of shares of
Common Stock is eighty million (80,000,000) and the number of shares
of Preferred Stock is ten million (10,000,000). The Preferred Shares
may be issued from time to time in one or more series. The Board of
Directors is authorized to fix the number of shares of any series of
Preferred Shares and to determine the designation of any such
series. The Board of Directors is also authorized to determine or
alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Shares
and, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not
below the number of shares of such
<PAGE>
series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series.
Election
Four: The corporation elects to be governed by all of the provisions of
Division 1 of Title 1 of the California Corporations Code (as
amended by act of the California Legislature, 1975-1976 regular
session, effective January 1, 1977, as defined in Section 2300 of
the California General Corporation Law) and not otherwise applicable
to the corporation under Chapter 23 of said Division 1.
Five: (a) Limitation of Directors' Liability. The liability of the
----------------------------------
directors of this corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.
(b) Indemnification of Corporate Agents. This corporation is
-----------------------------------
authorized to provide indemnification of agents (as defined in
Section 317 of the California Corporations Code) by bylaw
provisions, agreements with agents, vote of shareholders or
disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the limits set forth in Section
204 of the California Corporations Code with respect to actions for
breach of duty to this corporation and its stockholders.
(c) Repeal or Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article Five by the shareholders of
this corporation shall not adversely affect any right or protection
of an agent of this corporation existing at the time of such repeal
or modification.
3. The amendment and restatement set forth herein have been duly
approved by the Board of Directors of the Company.
4. The Certificate of Determination for the series of Preferred Stock
designated as "$2.00 Cumulative Convertible Preferred Stock, Series A" (the
"Series A Preferred Stock") provides that upon the acquisition thereof by the
Company, shares of Series A Preferred Stock shall be returned to the status of
authorized but unissued shares of Preferred Stock and, accordingly, shares so
acquired may not be reissued as shares of Series A Preferred Stock. All of the
authorized shares of the Series A Preferred Stock have been acquired by the
Company. Accordingly, all statements of the rights, preferences, privileges, and
restrictions relating solely to the Series A Preferred Stock have been
eliminated from the Articles of Incorporation in the foregoing amendment and
restatement. The foregoing is the only amendment to the Articles of
Incorporation effected by
<PAGE>
the amendment and restatement set forth herein. The foregoing amendment is one
which may be adopted with approval of the Board of Directors alone pursuant to
the provisions of Section 510(b) of the California Corporations Code.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on May
18, 1995.
/s/ RICHARD A. KERTSON
----------------------------
Richard A. Kertson
Vice President-Finance
/s/ DONALD L. STICHLER
----------------------------
Donald L. Stichler
Secretary
The undersigned, Richard A. Kertson and Donald L. Stichler, the Vice
President-Finance and Secretary, respectively, of Varco International, Inc.,
each declares under penalty of perjury that the matters set forth in the
foregoing Certificate are true of his own knowledge.
Executed at Orange, California on May 18, 1995.
/s/ RICHARD A. KERTSON
----------------------------
Richard A. Kertson
Vice President-Finance
/s/ DONALD L. STICHLER
----------------------------
Donald L. Stichler
Secretary
<PAGE>
EXHIBIT 4.5
VARCO INTERNATIONAL, INC.
WAIVER AND THIRD AMENDMENT
TO
NOTE AGREEMENT
DATED AS OF MARCH 8, 1995
To Each of the Institutions Named
in the Attached Schedule I (the "Holders")
Ladies and Gentlemen:
Reference is made to the Note Agreement dated as of July 1, 1992 (as
heretofore amended, modified or supplemented by amendment or waiver, the "Note
Agreement") between Varco International, Inc., a California corporation (the
"Company"), and each of the Purchasers named in Schedule 1 thereto pursuant to
which the Company issued $50,000,000 aggregate principal amount of its 8.95%
Senior Notes due June 30, 1999 (the "Notes"). This Waiver and Third Amendment to
Note Agreement is hereinafter referred to as this "Waiver." Capitalized terms
used and not otherwise defined herein shall have the meanings ascribed to such
terms in the Note Agreement.
The Company intends to repurchase shares of its outstanding Common Stock
for a purchase price of approximately $40,000,000 in a self-tender offer. It is
likely that the Company would use a "Dutch Auction" type tender offer in which
the number of shares is specified and the purchase price per share is expressed
as a range. Whether the self-tender is a "Dutch Auction" type or a tender for a
fixed number of shares at a fixed price, the maximum aggregate purchase price
for all shares purchased will not exceed $45,000,000. The self-tender described
in this paragraph is hereinafter referred to as the "Self-Tender."
The Company has requested an amendment of Sections 7.1, 7.3 and 7.4(d) of
the Note Agreement and certain waivers to avoid violating Section 7.8 of the
Note Agreement, and the Holders are willing to agree to such amendments and
grant such waivers on the terms and conditions hereinafter set forth.
In consideration of the premises and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Holders agree as follows:
<PAGE>
(S)1 AMENDMENT OF THE NOTE AGREEMENT
1.1 AMENDMENT OF SECTION 7.1. Section 7.1 of the Note Agreement is
amended to read in its entirety as follows:
"7.1 Consolidated Tangible Net Worth. The Company will not permit,
-------------------------------
at any time, its Consolidated Tangible Net Worth to be less than the
lesser of (a) $72,000,000 plus the cumulative sum of 50% of Consolidated
Net Income (without reduction for any losses) subsequent to December 31,
1994, or (b) $135,000,000."
1.2 AMENDMENT OF SECTION 7.3. Section 7.3 of the Note Agreement is
amended to read in its entirety as follows:
"7.3 Current Ratio. The Company will not permit, at any time, the
-------------
ratio of Consolidated Current Assets to Consolidated Current Liabilities
to be less than 2.2 to 1.0."
1.3 AMENDMENT OF SECTION 7.4(d). Section 7.4(d) of the Note Agreement is
amended to read in its entirety as follows:
"(d) Additional Indebtedness of the Company or a Restricted
Subsidiary, provided that at the time of incurring such additional
Indebtedness and after giving effect thereto and to the application of the
proceeds therefrom, (i) Consolidated Indebtedness then to be outstanding
shall not exceed 60% of Consolidated Net Tangible Assets if such
additional Indebtedness is incurred on or before December 31, 1995, or 50%
of Consolidated Net Tangible Assets if such additional Indebtedness is
incurred after December 31, 1995 and (ii) the pro forma ratio of
Consolidated Income Available for Fixed Charges to Fixed Charges for the
four consecutive fiscal quarters immediately preceding such date shall not
be less than 2.5 to 1.0; and"
(S)2 CONSENT, WAIVER AND AGREEMENT. The Holders hereby (i) consent to the
Self-Tender and waive any violation of Section 7.8 of the Note Agreement
resulting therefrom, (ii) agree that the amount expended by the Company in
connection with the Self-Tender shall not constitute a "Restricted Payment", as
such term is defined in the Note Agreement and, accordingly, shall not be
included in any calculation of aggregate Restricted Payments for the purposes of
Section 7.8 of the Note Agreement and (iii) agree that neither the sale of short
term investments by the Company to fund the Self-Tender nor the amount expended
by the Company in the Self-Tender shall constitute a "Disposition" as such term
is defined in Section 7.11 of the Note Agreement.
2.
<PAGE>
(S)3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As an inducement to the Holders to enter into this Waiver, the Company
represents and warrants that:
3.1 EVENT OF DEFAULT. Upon the effectiveness of this Waiver, there will
exist no Default or Event of Default under the Note Agreement, as amended
hereby.
3.2 AUTHORIZATION. The execution and delivery by the Company of this
Waiver have been duly authorized by proper corporate proceedings, and this
Waiver and the Note Agreement, as amended hereby, constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
3.3 NO CONFLICT. Neither the execution and delivery by the Company of
this Waiver, nor compliance with the provisions hereof or with the Note
Agreement as amended hereby, will violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Company or the
articles of incorporation or by-laws of the Company or the provisions of any
indenture, instrument or agreement to which the Company is a party or is
subject, or by which it or its property is bound, or conflict with or constitute
a default thereunder.
3.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
set forth in Section 3.1 of the Note Agreement are true and correct, in all
material respects, as of the date of this Waiver.
(S)4. EFFECTIVE DATE OF WAIVER. This Waiver shall be effective as of the date
set forth above upon the execution and delivery of this Waiver by the Holders of
at least 66-2/3% in aggregate principal amount of the Notes outstanding.
(S)5. MISCELLANEOUS.
5.1 RATIFICATION. The Note Agreement, as amended hereby, shall remain in
full force and effect and is ratified, approved and confirmed in all respects.
5.2 REFERENCE TO NOTE AGREEMENT. From and after the effective date of
this Waiver, each reference in the Note Agreement to "this Agreement," "hereof,"
or "hereunder" or words of like import, and all references to the Note Agreement
in any and all agreements, instrument, documents, notes, certificates and other
writings of every kind and nature shall be deemed to mean the Note Agreement, as
modified and amended by this Waiver.
3.
<PAGE>
5.3 CHOICE OF LAW. This Waiver shall be governed by and construed in
accordance with the laws of the State of Illinois.
5.4 EXECUTION IN COUNTERPARTS. This Waiver may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company and the Holders have caused this Waiver to
be executed and delivered by their respective officer or officers thereunto duly
authorized.
VARCO INTERNATIONAL, INC.
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
FEDERAL KEMPER LIFE ASSURANCE
COMPANY
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
FIDELITY LIFE ASSOCIATION
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
4.
<PAGE>
AMERICAN MANUFACTURERS MUTUAL
INSURANCE COMPANY
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:
--------------------------------------
Title:
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By:
--------------------------------------
Title:
JOHN HANCOCK LIFE INSURANCE
COMPANY OF AMERICA
By:
--------------------------------------
Title:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:
--------------------------------------
Title:
CENTRAL LIFE ASSURANCE COMPANY
By:
--------------------------------------
Title:
5.
<PAGE>
SCHEDULE I
LIST OF HOLDERS
Kemper Investors Life Insurance Company*
Federal Kemper Life Assurance Company*
Fidelity Life Association*
American Manufacturers Mutual Insurance Company*
John Hancock Mutual Life Insurance Company
John Hancock Variable Life Insurance Company
John Hancock Life Insurance Company of America
Massachusetts Mutual Life Insurance Company
Central Life Assurance Company**
- ------------
* Note registered in the name of KEMCO & CO, as nominee.
** Note registered in the name of Salkeld & Co., as nominee for Bankers Trust
Company, as custodian.
<PAGE>
EXHIBIT 4.12
SIXTH AMENDMENT
Dated as of March 17, 1995
SIXTH AMENDMENT dated as of March 17, 1995 (this "Amendment") to CREDIT
AGREEMENT dated as of February 25, 1993 (as amended by First Amendment dated as
of August 3, 1993, Second Amendment dated as of September 23, 1993, Third
Amendment dated as of December 1, 1993, Fourth Amendment dated as of May 12,
1994, and Fifth Amendment and Waiver dated as of October 31, 1994, the "Credit
Agreement") among VARCO INTERNATIONAL, INC., a California corporation, CITICORP
USA, INC. and CITIBANK, N.A.
PRELIMINARY STATEMENTS. The parties to the Credit Agreement wish to amend
the Credit Agreement in certain respects as hereinafter set forth. Terms
defined in the Credit Agreement are used in this Amendment as defined in the
Credit Agreement and, except as otherwise indicated, all references to Sections
and Articles refer to the corresponding Sections and Articles of the Credit
Agreement.
The parties hereto therefore agree as follows:
SECTION 1. Amendments. Effective as of the Amendment Effective Date (as
----------
defined in Section 2 hereof), and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, the Credit Agreement is hereby amended
as follows:
a. The definition of "Borrowing Base" in Section 1.01 is amended by
--------------
deleting clause (b) and restating it as follows:
(b) seventy percent (70%) of Eligible Inventory
b. The definition of "Change of Control" in Section 1.01 is deleted and
-----------------
restated as follows:
"Change of Control" means the acquisition by any Person (or "group" within
-----------------
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) of beneficial ownership of 20% or more of the common stock of the
Borrower, or the occurrence of any transaction which has in substance the same
effect, except that the term "Change of Control" shall not include the
acquisition by Baker Hughes Incorporated of beneficial ownership of 20% or more
(but not in excess of 25%) of the common stock of the Company solely as a result
of any reduction in the number of outstanding shares of common stock
attributable to the Stock Repurchase Program.
c. The definition of "Consolidated Fixed Charges" in Section 1.01 is
--------------------------
deleted and restated in full as follows:
"Consolidated Fixed Charges" means, for any period, the sum of (a)
--------------------------
Consolidated Interest Expense for such period plus (b) the amount of any
principal payments on Debt (excluding the Subordinated Note, the Subordinated
Debentures and Debt included in clauses (c) or (d) of the definition of "Debt")
required to be paid during such period.
d. The definition of "Loan Maturity Date" in Section 1.01 is deleted and
------------------
restated in full as follows:
"Loan Maturity Date" means October 31, 1998 or the earlier date of
------------------
termination in whole of the Commitments pursuant to Section 2.07 or 6.01.
e. The definition of "Note" in Section 1.01 is deleted and restated in full
----
as follows:
"Note" means the Promissory Note substantially in the form of Exhibit A
----
hereto, made by the Borrower in favor of the Lender to evidence the indebtedness
resulting from the Advances.
<PAGE>
f. The definition of "Stock Repurchase Program" in Section 1.01 is deleted
------------------------
and restated in full as follows:
"Stock Repurchase Program" means the purchase by the Borrower at any time
------------------------
or from time to time during the period commencing May 12, 1994 and ending on
December 31, 1995 of its common stock for an aggregate cost not exceeding
$50,000.000.
g. The definition of "Termination Date" in Section 1.01 is deleted and
----------------
restated in full as follows:
"Termination Date" means December 31, 1998 or the earlier date of
----------------
termination in whole of the Commitments pursuant to Section 2.07 or 6.01.
h. Section 2.01 is deleted and restated as follows:
SECTION 2.01 The Advances. The Lender agrees, on the terms and conditions
------------
hereinafter set forth, to make advances (the "Advances") to the Borrower from
time to time on any Business Day during the period from the date hereof to, but
excluding, the Loan Maturity Date in an amount not to exceed the Availability on
such date and in an aggregate amount not to exceed at any time outstanding
$25,000,000 as such amount may be reduced pursuant to Section 2.07. Each
Advance shall be in an amount not less than $1,000,000 or an integral multiple
of $500,000 in excess thereof, except that a Base Rate Advance may be in an
------
amount equal to the maximum Advance available hereunder. Within the limits set
forth in this Section 2.01, the Borrower may borrow, repay pursuant to Section
2.11 and reborrow under this Section 2.01.
i. Section 4.09 is deleted and restated as follows:
SECTION 4.09 Not a Purpose Credit. The Borrower and its Subsidiaries are
--------------------
not engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation G, U or X issued by the
Board of Governors of the Federal Reserve System), and no proceeds of any
Advance will be used to purchase or carry any margin stock (other than purchases
of common stock of the Borrower not otherwise prohibited by this Agreement) or
to extend credit to others for the purpose of purchasing or carrying any margin
stock.
j. Section 5.01(i) is deleted and restated as follows:
(i) Use of Proceeds. The Borrower will use the proceeds of the Advances
---------------
for the Stock Repurchase Program and for general corporate purposes.
k. Section 5.02(h) is deleted and restated as follows:
(h) Prepayment of Senior Notes. The Borrower will not and will not permit
--------------------------
any of its Subsidiaries to prepay, redeem, defease (whether actually or in
substance) or purchase in any manner (or deposit or set aside funds for the
purpose of any of the foregoing), or make any payment in respect of principal
of, the Senior Notes; provided that nothing herein shall prohibit the payment of
--------
any scheduled principal installments of the Senior Notes.
l. Section 5.02(a) is deleted and restated as follows:
(o) Capital Expenditures. The Borrower will not and will not permit any of
--------------------
its Subsidiaries to make or incur any Capital Expenditures during any fiscal
year if the amount of such Capital Expenditures, when added to the aggregate
amount of all other Capital Expenditures made by the Borrower and its
Subsidiaries on a Consolidated basis during such fiscal year, would exceed 50%
of the sum of Consolidated net income of the Borrower and its Subsidiaries for
such fiscal year, plus any
----
<PAGE>
amount which, in the determination of Consolidated net income for such fiscal
year, has been deducted for depreciation and amortization.
m. Section 5.02(q) is deleted and restated as follows:
(q) Operating Lease Obligations. The Borrower will not and will not permit
---------------------------
any of its Subsidiaries to create or suffer to exist any obligations for the
payment of rental for any property under leases or agreements to lease with a
term of one year or longer (other than Capital Lease Obligations permitted
pursuant to Section 5.02(p)), except for such obligations providing for
aggregate rentals payable during any fiscal year by the Borrower and its
Subsidiaries on a Consolidated basis not exceeding 3% of Consolidated gross
revenues of the Borrower and its Subsidiaries for such fiscal year.
n. Section 5.03(a) is deleted and restated as follows:
(a) Minimum Consolidated Interest Coverage Ratio. At the end of any fiscal
--------------------------------------------
quarter the Borrower will not permit the ratio of its Consolidated EBIT to its
Consolidated Interest Expense to be less than 3.0 to 1 for the four consecutive
fiscal quarter period ending on such date.
o. Section 5.03(b) is deleted and restated as follows:
(b) Minimum Consolidated Fixed Charge Coverage Ratio. At the end of any
------------------------------------------------
fiscal quarter the Borrower will not permit the ratio of Consolidated Cash Flow
to Consolidated Fixed Charges to be less than 1.0 to 1 for the four consecutive
fiscal quarter period ending on such date.
p. Section 5.03(c) is deleted and restated as follows:
(c) Minimum Consolidated Current Ratio. The Borrower will not permit the
----------------------------------
ratio of Consolidated Current Assets to Consolidated Current Liabilities to be
less than 2.2 to 1 as of the last day of any fiscal quarter.
q. Section 5.03(d) is deleted and restated as follows:
(d) Minimum Consolidated Leverage Ratio. The Borrower will not permit the
-----------------------------------
ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth to be
more than (a) 1.5 to 1 at any time prior to January 1, 1996, (b) 1.1 to 1 at
any time from January 1, 1996 to January 1, 1997, and (c) 1.0 to 1 at any time
thereafter.
r. Section 5.03(e) is deleted and restated as follows:
(e) Minimum Consolidated Tangible Net Worth. The Borrower will not permit
---------------------------------------
its Consolidated Tangible Net Worth at any time to fall below an amount equal to
the sum of (x) $72,000,000 plus (y) 75% of Consolidated net income of the
----
Borrower and its Subsidiaries, on a cumulative basis, for each fiscal quarter of
the Borrower in which such Consolidated net income is positive (beginning with
the fiscal quarter ending on March 31, 1995 and including each fiscal quarter of
the Borrower ending thereafter). The cumulative total in clause (x) above shall
not be reduced or affected by any net losses incurred in any fiscal quarter.
s. Exhibit A is deleted and restated in its entirely in the form of Exhibit
A hereto.
SECTION 2. Conditions to Effectiveness: Consent. This Amendment shall be
------------------------------------
effective as of March 17, 1995 (the "Amendment Effective Date"), subject to the
Lender's receipt of: (i) a counterpart of this Amendment executed by the
Borrower, (ii) a promissory note substantially in the form Exhibit A hereto made
by the Borrower in favor of the Lender (the "Replacement Note"), (iii) a
certificate of the Secretary or an Assistant Secretary of the Borrower
attaching a copy of the resolutions of the Board of Directors of the
<PAGE>
Borrower authorizing the execution and delivery of this Amendment and the
Replacement Note and certifying the name and true signature of each officer of
the Borrower executing this Amendment and the Replacement Note on its behalf,
(iv) counterparts of a Consent and Acknowledgment in the form attached as
Exhibit B hereto executed by each Guarantor, (v) evidence satisfactory to the
Lender of the execution and delivery by the Borrower and the holders of at least
66-2/3% in aggregate principal amount of the Senior Notes of a Waiver and Third
Amendment to Note Agreement in the form previously furnished to the Lender (the
"Note Agreement Amendment"), (vi) evidence satisfactory to the Lender of the
execution and delivery by the Borrower and the holders of at least 66-2/3% in
aggregate principal amount of the Senior Notes of the Waiver dated March 8, 1995
in the form previously furnished to the Lender (the "Note Agreement Waiver"),
and (vii) evidence satisfactory to the Lender that the execution of this
Amendment and performance of the Credit Agreement as hereby amended will not
conflict with the Senior Note Agreement and that the covenants of the Senior
Note Agreement have been amended so as to be no more restrictive than the
covenants set forth in Section 5.03 as hereby amended. The Lender and the
Issuing Bank hereby consent to the Note Agreement Amendment and the Note
Agreement Waiver, in each case whether the same is executed and delivered before
or after the execution and delivery of this Amendment.
SECTION 3. Representations and Warranties. The Borrower represents and
------------------------------
warrants as follows as of the date hereof and the Amendment Effective Date: (a)
the Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction indicated at the beginning of this
Amendment; (b) the execution, delivery and performance by the Borrower of this
Amendment and the Replacement Note are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action and do not
contravene the Borrower's charter or by-laws, or any law or any contractual
restriction binding on or affecting the Borrower; (c) no authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for the due execution and delivery by the
Borrower of this Amendment and the Replacement Note or for the performance by
the Borrower of the Credit Agreement as hereby amended; (d) this Amendment, the
Replacement Note and the Credit Agreement as hereby amended constitute the
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms; (e) except as set forth in
the Notice of Default from the Company to the Lender and the Issuing Bank dated
March 8, 1995 (the "Notice of Default"), all representations and warranties of
the Borrower set forth in Article IV are true and correct, as if repeated and
restated in full herein (except to the extent that such representations and
warranties expressly relate solely to an earlier date and then are correct as of
such date); and (f) except as set forth in the Notice of Default, no Default or
Event of Default has occurred and is continuing.
SECTION 4. Reference to and Effect on the Credit Agreement. Upon the
-----------------------------------------------
effectiveness of Section 1 hereof, on and after the Amendment Effective Date,
(a) each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, and each reference in the Note or
the other Loan Documents to "the Credit Agreement," shall mean and be a
reference to the Credit Agreement as amended by this Amendment and (b) each
reference in the Credit Agreement and the other Loan Documents to the Note shall
mean and be a reference to the Replacement Note. Except as specifically amended
above, the Credit Agreement shall continue to be in full force and effect and is
hereby in all respects ratified and confirmed.
SECTION 5. Execution in Counterparts. This Amendment may be executed in
-------------------------
any number of counterparts and by any combination of the parties hereto in
separate counterparts, each of which counterparts shall be an original and all
of which taken together shall constitute one and the same Amendment.
SECTION 6. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with the laws of the State of New York.
SECTION 7. Expenses. Each party hereto shall bear its own costs and
--------
expenses (including counsel fees and expenses) in connection with the
preparation, execution and delivery of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
VARCO INTERNATIONAL, INC.
By:__________________________________
Title:_______________________________
CITICORP USA, INC.
By:__________________________________
Vice President
CITIBANK, N.A.
By:__________________________________
Vice President
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$25,000,000 Dated: February 25, 1993
FOR VALUE RECEIVED, the undersigned, Varco International, Inc., a
California corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
Citicorp USA, Inc. (the "Lender") on the Loan Maturity Date (as defined in the
Credit Agreement) the principal amount of $25,000,000 or, if less, the aggregate
principal amount of all Advances made by the Lender to the Borrower pursuant to
the Credit Agreement (as hereinafter defined) outstanding on such date.
The Borrower promises to pay interest on the principal amount of each
Advance from the date of such Advance until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Credit Agreement referred to below.
Both principal and interest are payable in lawful money of the United
States of America to the Lender at the office of Citibank, N.A. located at 399
Park Avenue, New York, New York 10043 in same day funds. Each Advance made by
the Lender to the Borrower, and all payments made on account of the principal
amount thereof, shall be recorded by the Lender and, prior to any transfer
thereof, endorsed on the grid attached hereto which is a part of this Promissory
Note, provided that the failure of the Lender to record or endorse any such
matters shall not affect the validity of this Note or the obligations of the
Borrower under the Credit Agreement.
This Promissory Note is the Note referred to in, and is entitled to the
benefits of, the Credit Agreement dated as of February 25, 1993 (as amended to
the date hereof and as it may be further amended from time to time, the "Credit
Agreement") among the Borrower, the Lender and Citibank, N.A. as Issuing Bank,
and the Guaranties referred to therein and entered into pursuant thereto. The
Credit Agreement, among other things (i) provides for the making of advances
(the "Advances") by the Lender to the Borrower from time to time in an aggregate
amount not to exceed at any time outstanding the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of the principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
This Promissory Note is delivered in exchange and substitution for the
promissory note of the undersigned dated February 25, 1993 in the principal
amount of $13,000,000.
VARCO INTERNATIONAL, INC.
By:__________________________________
Name:______________________
Title:_______________________
<PAGE>
EXHIBIT B
CONSENT AND ACKNOWLEDGMENT
Each of the undersigned hereby (a) acknowledges receipt of a draft in the
form attached as Annex I hereto of the Sixth Amendment dated as of March 17,
1995 (the "Amendment") to the Credit Agreement dated as of February 25, 1993
among Varco International, Inc., Citicorp USA, Inc. and Citibank, N.A. (as
amended to the date of the Amendment, the "Credit Agreement"), (b) consents to
the terms of the Amendment and (c) confirms and agrees that each Loan Document
executed by the undersigned pursuant to and as defined in the Credit Agreement
is, and shall continue to be, in full force and effect and is hereby ratified
and confirmed in all respects except that, on and after the effective date of
the Amendment, (i) each reference in each such Loan Document to "the Credit
Agreement," "thereunder," "thereof," "therein" or words of like import referring
to the Credit Agreement shall mean and be a reference to the Credit Agreement as
amended by the Amendment and (ii) each reference to the "Note" shall mean and be
a reference to the Replacement Note (as defined in the Amendment). This Consent
and Acknowledgment may be executed by the undersigned in two or more
counterparts, each of which shall be deemed an original.
BEST INDUSTRIES, INC., a Texas corporation
By:____________________________
Richard A. Kertson
Vice President - Finance
MARTIN-DECKER TOTCO, INC., a Texas corporation
By:____________________________
Richard A. Kertson
Vice President
VARCO INTERNATIONAL INC PTE LTD, a corporation
organized under the laws of the Republic of Singapore
By:____________________________
Richard A. Kertson
Director
By:____________________________
George Boyadjieff
Director
VARCO (U.K.) LIMITED, a corporation organized
under the Companies Acts in Scotland
By:____________________________
Name:__________________________
Director
By:____________________________
Name:__________________________
Director
<PAGE>
304774 ALBERTA LTD., a corporation organized
under the laws of the Province of Alberta, Canada
By:____________________________
Richard A. Kertson
Vice President - Finance
VARCO BJ OIL TOOLS B.V., a corporation
organized under the laws of the Netherlands
By:____________________________
Name:__________________________
Managing Director
By:____________________________
Name:__________________________
Managing Director
VARCO SHAFFER, INC., a Texas corporation
By:____________________________
Richard A. Kertson
Vice President - Finance
METROX, INC., a California corporation
By:____________________________
Richard A. Kertson
Vice President
RIG TECHNOLOGY LIMITED
By:____________________________
Richard A. Kertson
Director
By:____________________________
George Boyadjieff
Director
<PAGE>
EXHIBIT 4.13
SEVENTH AMENDMENT
Dated as of December 31, 1995
SEVENTH AMENDMENT dated as of December 31, 1995 (this "Amendment") to
CREDIT AGREEMENT dated as of February 25, 1993 (as amended by First Amendment
dated as of August 3, 1993, Second Amendment dated as of September 23, 1993,
Third Amendment dated as of December 1, 1993, Fourth Amendment dated as of May
12, 1994, Fifth Amendment and Waiver dated as of October 31, 1994, and Sixth
Amendment dated as of March 17, 1995, the "Credit Agreement") among VARCO
INTERNATIONAL, INC., a California corporation, CITICORP USA, INC. and CITIBANK,
N.A.
PRELIMINARY STATEMENTS. The parties to the Credit Agreement wish to amend
the Credit Agreement in certain respects as hereinafter set forth. Terms defined
in the Credit Agreement are used in this Amendment as defined in the Credit
Agreement and, except as otherwise indicated, all references to Sections and
Articles refer to the corresponding Sections and Articles of the Credit
Agreement.
The parties hereto therefore agree as follows:
SECTION 1. Amendment. Effective as of the Effective Date (as defined in
---------
Section 2 hereof), and subject to the satisfaction of the conditions precedent
set forth in Section 2 hereof, the definition of "Stock Repurchase Program" in
------------------------
Section 1.01 is deleted and restated in full as follows:
"Stock Repurchase Program" means the purchase by the Borrower at any
------------------------
time or from time to time during the period commencing on May 12, 1994 and
ending on December 31, 1996 of its common stock for an aggregate cost not
exceeding $50,000,000.
SECTION 2. Conditions to Effectiveness. This Amendment shall be effective
---------------------------
as of December 31, 1995 (the "Effective Date"), subject to the Lender's receipt
of: (i) a counterpart of this Amendment executed by the Borrower, (ii) a
certificate of the Secretary or an Assistant Secretary of the Borrower attaching
a copy of the resolutions of the Board of Directors of the Borrower authorizing
the execution and delivery of this Amendment and certifying the name and true
signature of each officer of the Borrower executing this Amendment on its
behalf, and (iii) counterparts of a Consent and Acknowledgement in the form
attached as Annex A hereto executed by each Guarantor.
<PAGE>
SECTION 3. Representations and Warranties. The Borrower represents and
------------------------------
warrants as follows as of the date hereof and the Effective Date: (a) the
Borrower is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction indicated at the beginning of this Amendment;
(b) the execution, delivery and performance by the Borrower of this Amendment
are within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action and do not contravene the Borrower's charter or
by-laws, or any law or any contractual restriction binding on or affecting the
Borrower; (c) no authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution and delivery by the Borrower of this Amendment or for the
performance by the Borrower of the Credit Agreement as hereby amended; (d) this
Amendment and the Credit Agreement as hereby amended constitute the legal, valid
and binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms; (e) all representations and warranties
of the Borrower set forth in Article IV are true and correct, as if repeated and
restated in full herein (except to the extent that such representations and
warranties expressly relate solely to an earlier date and then are correct as of
such date); and (f) no Default or Event of Default has occurred and is
continuing.
SECTION 4. Reference to and Effect on the Credit Agreement. Upon the
-----------------------------------------------
effectiveness of Section 1 hereof, on and after the Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in the Note or the other
Loan Documents to "the Credit Agreement", shall mean and be a reference to the
Credit Agreement as amended by this Amendment. Except as specifically amended
above, the Credit Agreement shall continue to be in full force and effect and is
hereby in all respects ratified and confirmed.
SECTION 5. Execution in Counterparts. This Amendment may be executed in
-------------------------
any number of counterparts and by any combination of the parties hereto in
separate counterparts, each of which counterparts shall be an original and all
of which taken together shall constitute one and the same Amendment.
SECTION 6. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
SECTION 7. Expenses. Each party hereto shall bear its own costs and
--------
expenses (including counsel fees and expenses) in connection with the
preparation, execution and delivery of this Amendment.
2.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
VARCO INTERNATIONAL, INC.
By:____________________________
Title:_________________________
CITICORP USA, INC.
By:____________________________
Vice President
CITIBANK, N.A.
By:____________________________
Vice President
3.
<PAGE>
EXHIBIT 10.7
Varco International Inc.
Amendment to
Stock Bonus Plan
RESOLVED, that Sections 4.02 and 6.02 of the Varco International Inc.
Stock Bonus Plan be, and the same hereby are, amended to read in their
entirety as follows:
"4.02 The total number of shares of Common Stock which may be subject
to Bonus Awards granted under the Plan shall not exceed 1,000,000
shares, subject, however, to adjustment pursuant to the provisions of
Section 4.03. Any shares of Common Stock subject to Bonus Awards
granted under the Plan but not issued because of the termination of an
Employee's employment with the Company or otherwise shall not be
available for the grant of future Bonus Awards under the Plan".
"6.02 The Board may at any time terminate the Plan by appropriate
corporate resolution. Unless sooner terminated by the Board, the Plan
shall automatically terminate upon the earlier of (i) the 15th
anniversary of the date the Plan was adopted by the Board or (ii) the
first date when all the shares available for the grant of Bonus Awards
under the Plan shall have been granted. Under no circumstances shall
the termination of the Plan affect the rights of any Employee with
respect to any Bonus Award granted to him prior to such termination,
and any such Bonus Award shall continue to be paid in accordance with
its designated payment schedule.
<PAGE>
EXHIBIT 10.12
1995 AMENDMENT TO GROUND LEASE
(759 NORTH ECKHOFF, ORANGE, CALIFORNIA)
---------------------------------------
THIS 1995 AMENDMENT TO GROUND LEASE ("AMENDMENT") is made as of the 11TH
---------
day of January, 1996, by and among WALTER B. REINHOLD, G. J. BECKER and RUTH M.
BECKER, Trustees of THE G. J. BECKER FAMILY TRUST, dated July 6, 1981, HOWARD
PERRY LORENZ, as Executor of THE ESTATE OF CHARLOTTE LORENZ, deceased, B.
REINHOLD, JR. and MARY E. REINHOLD, Trustees of THE REINHOLD TRUST dated August
28, 1989, HOWARD PERRY LORENZ, as Trustee of THE CHARLOTTE L. TEDHAMS
IRREVOCABLE TRUST Under Indenture dated March 1, 1982, and LEO J. PIRCHER (as
and collectively hereinafter called "LESSORS"), and VARCO INTERNATIONAL, INC., a
-------
California corporation (as and hereinafter called "LESSEE").
------
WITNESSETH THAT WHEREAS
A. Lessors are the lessors under that certain ground lease captioned
"GROUND LEASE", dated as of March 7, 1975, between W.B. Reinhold, B. Reinhold,
------------
Jr., Charlotte Lorenz, G.J. Becker and Ruth M. Becker and Leo J. Pircher and
Phyllis M. Pircher, as lessors, and Lessee, as lessee, as amended by amendments
dated as of May 1, 1975, January 1, 1982, January 1, 1984, February 8, 1985 and
April 12, 1985 (as amended prior to the date hereof, the "GROUND LEASE"). The
------------
real property subject to the Ground Lease (referred to in the Ground Lease, and
hereinafter called, "SAID PREMISES") is more particularly described in Exhibit
-------------
"A", hereunto annexed and made a part hereof and prior to the conveyance
described in paragraph 1 hereof, comprised approximately 8.845 acres. Said
Premises are improved with a facility used by Lessee primarily for manufacturing
purposes.
B. Lessors (other than B. Reinhold Jr. and Mary E. Reinhold and Howard
Perry Lorenz as Trustee of the Charlotte L. Tedhams Irrevocable Trust) are also
the lessors (together with Baldwin Terry Reinhold and Carol Anne Reinhold as
Trustees of the Reinhold Family Trust dated August 9, 1993) under that certain
Lease ("ADJOINING PROPERTY LEASE") captioned
------------------------
1
<PAGE>
"STANDARD INDUSTRIAL LEASE - NET" dated September 29, 1988 between Alfred
F. DeLeo, Charlotte R. Lorenz and The G.J. Becker Family Trust, as lessors, and
Lessee, as lessee. The real property subject to the Adjoining Property Lease
("ADJOINING PROPERTY") adjoins Said Premises and is described in Exhibit "B",
------------------
hereunto annexed and made a part hereof. The Adjoining Property is improved with
an office building used primarily as the home office of Lessee.
C. Lessee has advised Lessors that it desires to expand the improvements on
the Adjoining Property by the addition of approximately 10,000 square feet of
space; that, however, in order to accomplish such expansion, it will be
necessary to place a portion of the added improvements on Said Premises and, in
addition, to use a portion of Said Premises for parking and other uses
associated with the office building; that accordingly, Lessee desires that a
portion of Said Premises be added to the premises subject to the Adjoining
Property Lease.
D. Lessors have advised Lessee that they are agreeable to adding a portion
of Said Premises to the Adjoining Property Lease as aforesaid, provided Lessee
obtains all required governmental approvals associated therewith (including, but
not limited to, the approval of the City of Orange, California to a lot line
adjustment) and agrees, in addition, to certain amendments to the Ground Lease
as hereinafter set out. Lessee has advised Lessors that it has obtained all such
governmental approvals and that it is agreeable to such amendments.
NOW THEREFORE, in consideration of the premises and the respective
undertaking of the parties hereinafter set forth, it is hereby agreed as
follows:
1. Premises subject to Ground Lease. Concurrently with the execution
--------------------------------
hereof, Lessee and the lessors of the Adjoining Property Lease are amending the
Adjoining Property Lease to, among other things, add approximately .5 acre of
Said Premises to the Adjoining Property (the portion of Said Premises so added
will be herein called "TRANSFERRED PROPERTY"). As of the date hereof, the Ground
--------------------
Lease shall be terminated with respect only to the Transferred Property and Said
Premises shall be the real property described in said Exhibit "A" except for
2
<PAGE>
the Transferred Property. After the conveyance of the Transferred Property as
aforesaid, the legal description of Said Premises shall be as set forth in
Exhibit "C", hereunto annexed and made a part hereof.
2. Continuation of Lessors' Rights. Notwithstanding the termination of the
-------------------------------
Ground Lease with respect thereto, Lessors' rights and interests under the
Ground Lease from and after the date hereof shall remain the same as if the
Transferred Property had not been added to the Adjoining Property Lease as
aforesaid, but, instead, had remained subject to the Ground Lease for the entire
remaining term of the same. Accordingly, and without limitation on the
foregoing: (a) the rental payable under the Ground Lease shall not be reduced
now or in the future as a result of the reduction of the real property subject
to the Ground Lease resulting from the termination of the Ground Lease with
respect to the Transferred Property; and therefore, each Rental Adjustment
pursuant to paragraph 2 of the Ground Lease made after the date hereof shall be
calculated as though the Transferred Property were still subject to the Ground
Lease (and thus in determining each such Rental Adjustment, the fair rental
value of the said Premises shall be deemed to be the fair rental value of the
real property described in Exhibit "A" hereof, undiminished by the Transferred
Property); and (b) in the event of any purchase of said Premises by Lessee from
Lessors pursuant to the Ground Lease, the real property purchased shall not
include the Transferred Property, but, nevertheless, the purchase price of the
real property so purchased shall be determined as if said Premises included the
Transferred Property, and, therefore, such purchase price shall include the
value of the Transferred Property.
3. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective heirs, successors and
assigns. As modified herein, the terms and provisions of the Ground Lease are
hereby ratified and confirmed in their entirety.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
LESSORS:
-------
/S/ WALTER B. REINHOLD
----------------------
WALTER B. REINHOLD
THE G. J. BECKER FAMILY TRUST
By /S/ G.J. BECKER
---------------
G. J. Becker, Trustee
By /S/ RUTH M. BECKER
------------------
Ruth M. Becker, Trustee
THE ESTATE OF CHARLOTTE LORENZ
By /S/ HOWARD PERRY LORENZ
-----------------------
Howard Perry Lorenz, Executor
THE REINHOLD TRUST
dated August 28, 1989
By: /S/ BALDWIN REINHOLD, JR.
-------------------------
Baldwin Reinhold, Jr., Trustee
By: /S/ MARY E. REINHOLD
--------------------
Mary E. Reinhold, Trustee
4
<PAGE>
THE CHARLOTTE L. TEDHAMS IRREVOCABLE
TRUST dated March 1, 1982
By: /S/ HOWARD PERRY LORENZ
-----------------------
Howard Perry Lorenz, Trustee
/S/ LEO J. PIRCHER
------------------
LEO J. PIRCHER
LESSEE:
------
VARCO INTERNATIONAL, INC., a California
corporation
By: /S/ R.A. KERTSON
----------------
Its: Vice President
5
<PAGE>
Exhibit "A"
DESCRIPTION
THAT PORTION OF LOTS 5 AND 6 OF THE GLASSELL AND CHAPMAN TRACT, IN THE CITY OF
ORANGE, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON A MAP RECORDED IN
BOOK 5, PAGE 408 OF MISCELLANEOUS RECORDS IN THE OFFICE OF THE COUNTY RECORDER
OF LOS ANGELES COUNTY, CALIFORNIA, TOGETHER WITH THAT PORTION OF THE LAND
ALLOTTED TO ALFRED B. CHAPMAN IN DECREE OF PARTITION OF THE RANCHO SANTIAGO DE
SANTA ANA RECORDED IN BOOK B OF JUDGMENTS, OF THE 17TH JUDICIAL DISTRICT COURT
OF CALIFORNIA, DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE SOUTHWESTERLY RIGHT OF WAY LINE OF THE
ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY AS DESCRIBED IN DEED RECORDED
FEBRUARY 6, 1889 IN BOOK 542, PAGE 21 OF DEEDS, RECORDS OF LOS ANGELES COUNTY,
CALIFORNIA WITH THE CENTERLINE OF ECKHOFF STREET DESCRIBED IN PARCEL Y68-110 IN
THAT CERTAIN FINAL ORDER OF CONDEMNATION, S.C.C. 143799, FILED MARCH 20, 1967, A
CERTIFIED COPY OF WHICH WAS RECORDED MARCH 20, 1967 IN BOOK 8203, PAGE 278 OF
OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY,
CALIFORNIA; THENCE SOUTH 70 DEGREES 38' 25" EAST 811.98 FEET ALONG SAID
SOUTHWESTERLY RIGHT OF WAY LINE; THENCE SOUTH 19 DEGREES 21' 35" WEST 481.42
FEET; THENCE NORTH 89 DEGREES 32' 47" WEST 590.24 FEET TO A POINT ON THE SAID
CENTERLINE OF ECKHOFF STREET, SAID POINT BEING ON A CURVE CONCAVE EASTERLY AND
HAVING A RADIUS OF 1000.00 FEET, A RADIAL LINE TO SAID POINT BEARS SOUTH 78
DEGREES 28' 20" WEST; THENCE NORTHERLY ALONG SAID CENTERLINE OF ECKHOFF STREET
AND ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 11 DEGREES 57' 49" AN ARC
DISTANCE OF 208.80 FEET; THENCE NORTH 0 DEGREES 26' 09" EAST 511.26 FEET ALONG
SAID CENTERLINE OF ECKHOFF STREET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THAT PORTION LYING WESTERLY OF A LINE PARALLEL WITH AND
DISTANT EASTERLY 30.00 FEET FROM THE CENTERLINE OF ECKHOFF STREET, AS SAID
CENTERLINE IS DESCRIBED IN PARCEL Y68-110 IN FINAL ORDER OF CONDEMNATION
RECORDED MARCH 20, 1967 IN BOOK 8203, PAGE 278 OF OFFICIAL RECORDS.
<PAGE>
Exhibit "A"
ALSO EXCEPTING THEREFROM THE SOUTHWESTERLY 10.00 FEET OF THAT PORTION DESCRIBED
IN PARCEL NO. Y68-108.1 IN SAID FINAL ORDER OF CONDEMNATION AND IN PARCEL 109.1
OF A DEED RECORDED APRIL 13, 1966 IN BOOK 7898, PAGE 562 OF OFFICIAL RECORDS.
<PAGE>
Exhibit "B"
DESCRIPTION
PARCEL A:
PARCEL 1, IN THE CITY OF ORANGE, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN
ON PARCEL MAP NO. 84 758, AS PER MAP FILED IN BOOK 206, PAGES 4 AND 5 OF PARCEL
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
PARCEL B:
AN EASEMENT FOR INGRESS AND EGRESS AND DRAINAGE OVER THE FOLLOWING:
THAT PORTION OF PARCEL 2 OF PARCEL MAP NO. 84-758 IN THE CITY OF ORANGE, COUNTY
OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 206, PAGES 4 AND 5
OF PARCEL MAPS, RECORDS OF SAID COUNTY, BEING A STRIP OF LAND 12.50 FEET WIDE,
THE SOUTHERLY AND WESTERLY LINES OF WHICH ARE PARALLEL WITH AND 12.50 FEET
SOUTHERLY AND WESTERLY OF THAT CERTAIN LINE COMMON TO PARCEL 1 AND PARCEL 2 AS
SHOWN ON SAID PARCEL MAP, SAID COMMON LINE BEING DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWEST CORNER OF SAID PARCEL 2, SAID POINT BEING IN THE
EASTERLY LINE OF ECKHOFF STREET AS SHOWN ON SAID PARCEL MAP; THENCE, ALONG SAID
COMMON LINE, NORTH 73 DEGREES 26' 09" EAST, 20.00 FEET; THENCE, SOUTH 77 DEGREES
54' 01" EAST, 40.14 FEET; THENCE SOUTH 89 DEGREES 32' 47" EAST, 169.50 FEET;
THENCE, SOUTH 00 DEGREES 27' 13" WEST, 150.52 FEET IN THE NORTHERLY LINE OF
SEQUOIA AVENUE, AS SHOWN ON SAID PARCEL MAP.
THE SIDELINES OF SAID 12.50 FOOT EASEMENT SHALL BE PROLONGED OR SHORTENED TO
MEET AT ANGLE POINTS AND TO TERMINATE AT SAID EASTERLY LINE OF ECKHOFF STREET
AND SAID NORTHERLY LINE OF SEQUOIA AVENUE.
<PAGE>
Exhibit "C"
DESCRIPTION
Parcel 2 of that certain Lot Line adjustment No. LL-95-8 recorded October 10,
1995 as instrument No. 95-444698, and re-recorded November 14, 1995 as
instrument No. 95-505666, Official Records, County of Orange, State of
California.
<PAGE>
EXHIBIT 10.15
FIRST AMENDMENT TO LEASE
(743 NORTH ECKHOFF, ORANGE, CALIFORNIA)
---------------------------------------
THIS FIRST AMENDMENT TO LEASE ("AMENDMENT") is made as of the 11th day of
---------
January, 1996, by and among WALTER B. REINHOLD, G. J. BECKER and RUTH BECKER,
Trustees of THE G. J. BECKER FAMILY TRUST, dated July 6, 1981, HOWARD PERRY
LORENZ, as Executor of THE ESTATE OF CHARLOTTE R. LORENZ, deceased, BALDWIN
TERRY REINHOLD and CAROL ANNE REINHOLD, Trustees of THE REINHOLD FAMILY TRUST
dated August 9, 1993 and LEO J. PIRCHER (as and collectively hereinafter called
"LESSOR"), and VARCO INTERNATIONAL, INC., a California corporation (as and
------
hereinafter called "LESSEE")
------
WITNESSETH THAT WHEREAS
A. Lessor is the owner of the improved real property described in Exhibit
"A" hereunto annexed and made a party hereof. By lease ("ORIGINAL LEASE")
--------------
captioned "STANDARD INDUSTRIAL LEASE - NET" dated September 29, 1988, Alfred F.
-------------------------------
DeLeo, Charlotte R. Lorenz and The G.J. Becker Family Trust (predecessors in
interest of Lessor) leased to Lessee a portion of the real property described in
said Exhibit "A" (the real property covered by the Original Lease being herein
called "ORIGINAL DEMISED PREMISES").
-------------------------
B. Lessee has advised Lessor that Lessee desires that the existing building
on said real property (which is used principally as Lessee's home office) be
expanded by the addition of approximately 10,000 square feet of space and that
in order to accommodate such expansion, additional land must be added to the
real property demised under the Original Lease. In addition, Lessee has
requested that Lessor contribute $625,000 toward the cost of such expansion.
C. Lessor is agreeable to adding additional land to the real property
demised under the Original Lease in order to accommodate such expansion and to
contributing $625,000 toward the cost of such expansion, provided the term of
the Original Lease is extended and the rent increased as hereinafter provided
and the other changes are made in the
1
<PAGE>
Original Lease as hereinafter set forth. As used herein, the term "LEASE" shall
-----
mean the Original Lease as amended by this Amendment.
NOW, THEREFORE, in consideration of the premises and respective
undertakings of the parties hereinafter set forth, it is hereby agreed as
follows:
1. Premises. Exhibit "A" to the Original Lease, which describes the
--------
land demised thereunder, is hereby deleted and Exhibit "I", hereunto annexed and
made a part hereof, is hereby substituted therefor. From and after the date
hereof, "THE PREMISES" (i.e. the real property subject to the Lease) shall be
------------
the land described in said Exhibit "1" and all improvements now or hereafter
thereon.
2. Term. Paragraph 3.1 of the Original Lease is hereby amended to read
----
as follows:
"3.1 Term. The term of this Lease shall commence on September 29,
--------
1988 and shall end on December 31, 2005, unless sooner terminated pursuant to
any provision hereof."
3. Rent. Paragraph 4 of the Original Lease is hereby amended to read
----
as follows:
"4. Lessee shall pay the Lessor as rent for the Premises, monthly
payments in advance on the first day of each month of the term hereof, as
follows: $12,797.85 per month through February, 1990; commencing March 1, 1990,
$19,762.00 per month through February 6, 1996; commencing February 7, 1996,
$29,250.70 per month; all of the foregoing subject to paragraphs 48 and 49
hereof. Rent for any period during the term hereof which is for less than one
(1) month shall be a prorata portion of the monthly installment for such month.
Rent shall be payable in lawful money of the United States to Lessor as
designated from time to time in writing to Lessee by Lessor (or the persons
comprising Lessor, with respect to the share of such person)."
2
<PAGE>
5. Notices. Paragraph 23 of the Original Lessee is hereby amended to read
-------
as follows:
"23 Notices. Any notice which a party is required or may desire to give the
other shall be in writing and may be sent by personal delivery or by mail
(either [i] by United States registered or certified mail, return receipt
requested, postage prepaid, or [ii] by Federal Express or similar generally
recognized overnight carrier regularly providing proof of delivery), addressed
as follows (subject to the right of a party to designate a different address for
itself by notice similarly given):
TO LESSOR:
----------
c/o Leo J. Pircher, Esq.
1999 Avenue of the Stars
26th Floor
Los Angeles, California 90067
TO LESSEE:
----------
743 N. Eckhoff Street
Orange, California 92668
Attn: Mr. Richard Kertson
Any notice so given by mail shall be deemed to have been given as of the
date of delivery (whether accepted or refused) established by U.S. Post Office
return receipt or the overnight carrier's proof of delivery, as the case may be.
Any such notice not so given shall be deemed given upon receipt of the same by
the party to whom the same is to be given."
6. Rent Adjustment. Paragraph 49 of the Original Lease is hereby amended as
---------------
follows:
(a) Subparagraph (a) of said paragraph 49 is hereby amended to read as
3
<PAGE>
follows:
"(a) On May 1, 1991, November 1, 1993, May 1, 1996, November 1, 1998,
May 1, 2001 and November 1, 2003, the monthly rent payable under paragraph 4 of
the Lease shall be adjusted by the increase, if any, from the date this Lease
commenced, in The Consumer Price Index of the Bureau of Labor Statistics of the
U.S. Department of Labor for Urban Wage Earners and Clerical Workers, Los
Angeles - Anaheim - Riverside, California (1967 = 100), "ALL ITEMS", herein
---------
referred to as C.P.I.."
------
(b) Subparagraph (b) of said paragraph 49 is hereby amended to read as
follows:
"(b) The monthly rent payable in accordance with subparagraph (a) of this
paragraph 49, shall be calculated as follows:
(i) With respect to the adjustments on May 1, 1991 and November
1, 1993, the rent payable commencing March 1, 1990 (i.e. $19,762.00 per month)
shall be multiplied by a fraction the numerator of which shall be the C.P.I. of
the calendar month as of which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences (i.e. September 1988). The sum so calculated shall
constitute the new monthly rent hereunder, but in no event, shall such new
monthly rent be less than the rent payable for the month immediately preceding
the date for rent adjustment. In no event shall the C.P.I. of the calendar month
as of which the adjustment is to take place (i.e. May, 1991 or November, 1993,
as the case may be) be deemed to exceed the C.P.I. for the calendar month in
which the original lease term commences (i.e. September, 1988) by more than 7%
multiplied by the number of years and fraction of a year between September, 1988
and the calendar month as of which the adjustment is to take place, inclusive,
nor be deemed to be less than 3% multiplied by the number of years and fraction
of a year between September, 1988 and the calendar month as of which the
adjustment is to take place, inclusive.
4
<PAGE>
(ii) With respect to the adjustments on May 1, 1996, November 1, 1998,
May 1, 2001 and November 1, 2003, the adjustment shall be made in two parts as
follows:
(A) The monthly rent payable commencing March 1, 1990 (i.e.
$19,762.00 per month) shall be multiplied by a fraction the numerator of which
shall be the C.P.I of the calendar month as of which the adjustment is to take
effect, and the denominator of which shall be the C.P.I. for the calendar month
in which the original Lease term commences (i.e. September 1988); In no event
shall the C.P.I. of the calendar month as of which the adjustment is to take
place (i.e. May, 1991 or November, 1993, as the case may be) be deemed to exceed
the C.P.I. for the calendar month in which the original Lease term commences
(i.e. September, 1988) by more than 7% multiplied by the number of years and
fraction of a year between September, 1988 and the calendar month as of which
the adjustment is to take place, inclusive, nor be deemed to be less than 3%
multiplied by the number of years and fraction of a year between September, 1988
and the calendar month as of which the adjustment is to take place, inclusive.
(B) In addition, the monthly rent added as of the date of this
Amendment (i.e. $5,208.34 per month) shall be multiplied by a fraction, the
numerator of which shall be the C.P.I of the calendar month ("CALCULATION
------------
MONTH") as of which the adjustment is to take effect, and the denominator of
- -----
which shall be the C.P.I. for the calendar month ("BASE MONTH") in which this
----------
Amendment is entered into (i.e. December 1995); In no event shall the C.P.I. of
the Calculation Month be deemed to exceed the C.P.I. for the Base Month by more
than 7% multiplied by the number of years and fraction of a year between the
Base Month and Calculation Month, inclusive, nor be deemed to be less than 3%
multiplied by the number of years and fraction of a year between the Base Month
and Calculation Month, inclusive.
The new monthly rent hereunder shall be the sum of the amounts calculated
under clauses (A) and (B) above, but in no event shall such new monthly rent be
less than the rent payable for the month immediately preceding the date for rent
adjustment."
5
<PAGE>
(c) Subparagraph (e) of said paragraph 49 is hereby deleted.
7. Option to Extend. The parties agree that the option of the Lessee to
----------------
extend the term of the Lease for a sixty (60) month period commencing when the
original term of the Lease expires, as such option is set forth in paragraph 50
of the Original Lease, shall apply to the Lease as amended hereby; that,
however, the sixty (60) month "Option Period" with respect to which such option
shall apply shall commence when the original term of this Lease expires, as such
term is extended by paragraph 2 hereof (i.e. December 31, 2005).
8. Expansion: The Original Lease is hereby amended by adding a new
----------
paragraph 53, which shall read as follows:
"53 Construction and Tenant Allowances on Expansion.
-----------------------------------------------
A. Lessee intends to expand the improvements included in the Premises over
and above those existing as of January 1, 1995 by, among other things, the
addition of approximately 10,000 square feet of space and related parking
facilities. Lessee shall furnish all of the materials, provide all of the
fixtures, equipment and personal property and perform all of the work in
accordance with the terms hereinafter set forth, required to complete such
expansion, including, but not limited to, all building additions, tenant
improvements and, without limitation, other work relating to or necessitated by
the same. All improvements and property comprising or relating to such
expansion, including, but not limited to, such building additions, tenant
improvements and other work, shall be deemed to be a part of the Premises. The
materials, fixtures, equipment, personal property and work required as aforesaid
will herein collectively be called the "EXPANSION."
---------
"B. Lessee shall construct, complete and provide the Expansion in a good
and workmanlike manner, free from material defects, in accordance with all
agreements, encumbrances and restrictions ("BUSINESS AGREEMENT(S)") affecting
---------------------
the Premises or any part thereof, and all federal, state and local laws,
ordinances, rules, regulations, and orders (including, but not limited to, those
relating to the environment, health and safety or
6
<PAGE>
handicapped persons), including any of the same with respect to which the
requirement of compliance is deferred for any reason to a time after the
completion of the Expansion.
"C. In a timely manner, Lessee shall obtain all licenses and permits
(including building permits and certificates of occupancy) necessary or
desirable in connection with the Expansion. Lessee shall (a) promptly satisfy
all conditions shown on any temporary certificates of occupancy issued in
connection with the Expansion, (b) promptly cause each such temporary
certificate of occupancy to be renewed until a final and unqualified certificate
of occupancy is issued in replacement thereof, and (c) promptly cause to be
delivered to Lessor final, unqualified and unconditional certificates of
occupancy relating to all the Expansion.
"D. Lessee shall promptly complete the Expansion (but in no event later
than the earliest date required by any Business Agreement or any law, ordinance,
rule, regulation or order).
"E. Lessor will have the right to enter upon and inspect the construction,
but neither the exercise of such right, nor the failure to exercise the same,
nor Lessor's acceptance of the Expansion in whole or in part will relieve Lessee
of its liability or responsibility hereunder for any failure to comply with its
obligations hereunder.
"F. Lessee shall cause the work under this paragraph 53 to be performed on
a lien-free basis, and, in the event of the filing of a mechanic's or
materialman's lien or liens with respect thereto, shall cause the same to be
immediately discharged at Lessee's sole cost and expense.
"G. Neither Lessee nor any contractor or subcontractor or supplier of
Lessee shall be the agent of Lessor and no person employed by Lessee or any
contractor, subcontractor or supplier shall be an agent or employee of or under
the direction of Lessor.
7
<PAGE>
"H. On the date of this Amendment, Lessor shall deliver to Lessee the sum
of $625,000 as full compensation for the performance by Lessee of its duties and
obligations under this paragraph 53, as the same may hereafter be modified with
Lessor's approval. Accordingly, and without limitation on the foregoing, all
performance by Lessee under this paragraph 53 shall be at its sole cost and
expense (it being fully compensated for the same by the payment of said $625,000
as aforesaid)."
8. No Representations or Warranties by Lessor. Except as provided in
------------------------------------------
paragraph 38 of the Lease, Lessee has acquired and is acquiring its interest and
estate in the Premises pursuant to the Lease on an "as is" basis without
-----
representations or warranties of any kind or nature, express, implied or
otherwise, including, but not limited to, any representation or warranty
concerning the physical condition of the Premises (Lessee acknowledging that it
has occupied the Premises, including the portion of the same added by this
Amendment, for many years and is fully familiar with the same and its physical
condition).
9. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective heirs, successors and
assigns. As modified herein, the terms and provision of the Lease are hereby
ratified and confirmed in their entirety.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Lease
as of the day and year first above written.
LESSORS:
-------
/S/ WALTER B. REINHOLD
----------------------
WALTER B. REINHOLD
8
<PAGE>
THE G. J. BECKER FAMILY TRUST
By /S/ G.J. BECKER
---------------
G. J. Becker, Trustee
By /S/ RUTH BECKER
---------------
Ruth Becker, Trustee
THE ESTATE OF CHARLOTTE LORENZ
By /S/ HOWARD PERRY LORENZ
-----------------------
Howard Perry Lorenz, Executor
THE REINHOLD FAMILY TRUST
By /S/ BALDWIN TERRY REINHOLD
--------------------------
Baldwin Terry Reinhold, Trustee
By /S/ CAROL ANNE REINHOLD
-----------------------
Carol Anne Reinhold, Trustee
/S/ LEO J. PIRCHER
------------------
LEO J. PIRCHER
LESSEE:
------
VARCO INTERNATIONAL, INC., a California
corporation
By: /S/ R.A. KERTSON
----------------
Its: Vice President
9
<PAGE>
Exhibit "A"
DESCRIPTION
PARCEL A:
PARCEL 1 OF LOT LINE ADJUSTMENT NO. LL-95-8, IN THE CITY OF ORANGE, COUNTY OF
ORANGE, STATE OF CALIFORNIA, RECORDED OCTOBER 10, 1995 AS INSTRUMENT NO.
95-444698 AND RE-RECORDED NOVEMBER 14, 1995 AS INSTRUMENT NO. 95-505666 OF
OFFICIAL RECORDS OF ORANGE COUNTY CALIFORNIA.
PARCEL B:
AN EASEMENT FOR INGRESS AND EGRESS AND DRAINAGE OVER THE FOLLOWING:
THAT PORTION OF PARCEL 2 OF PARCEL MAP NO. 84-758 IN THE CITY OF ORANGE, COUNTY
OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 206, PAGES 4 AND 5
OF PARCEL MAPS, RECORDS OF SAID COUNTY, BEING A STRIP OF LAND 12.50 FEET WIDE,
THE SOUTHERLY AND WESTERLY LINES OF WHICH ARE PARALLEL WITH AND 12.50 FEET
SOUTHERLY AND WESTERLY OF THAT CERTAIN LINE COMMON TO PARCEL 1 AND PARCEL 2 AS
SHOWN ON SAID PARCEL MAP, SAID COMMON LINE BEING DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWEST CORNER OF SAID PARCEL 2, SAID POINT BEING IN THE
EASTERLY LINE OF ECKHOFF STREET AS SHOWN ON SAID PARCEL MAP; THENCE, ALONG SAID
COMMON LINE, NORTH 73 DEGREES 26' 09" EAST, 20.00 FEET; THENCE, SOUTH 77 DEGREES
54' 01" EAST, 40.14 FEET; THENCE SOUTH 89 DEGREES 32' 47" EAST, 169.50 FEET;
THENCE, SOUTH 00 DEGREES 27' 13" WEST, 150.52 FEET IN THE NORTHERLY LINE OF
SEQUOIA AVENUE, AS SHOWN ON SAID PARCEL MAP.
THE SIDELINES OF SAID 12.50 FOOT EASEMENT SHALL BE PROLONGED OR SHORTENED TO
MEET AT ANGLE POINTS AND TO TERMINATE AT SAID EASTERLY LINE OF ECKHOFF STREET
AND SAID NORTHERLY LINE OF SEQUOIA AVENUE.
<PAGE>
EXHIBIT 10.19
Varco International Inc.
Amendment to
Varco 1980 Employee Stock Purchase Plan
RESOLVED, that Sections 3.2 and 6.1 of the Varco 1980 Employee Stock
Purchase Plan be, and the same hereby are, amended to read in their
entirety as follows:
"3.2 Term of the Plan. The Plan shall remain in force for a period of
-----------------
twenty-five years following its effective date unless it is sooner
terminated by a resolution adopted by the Company's Board of
Directors. Termination of the Plan by action of the Board of
Directors shall not diminish the Rights of any existing Participant,
nor shall it impair the Company's obligations under any outstanding
Rights".
"6.1 Shares Subject to the Plan. Subject to the provisions in Section
---------------------------
9 (relating to adjustment upon changes in the Company's
capitalization), shares of stock sold pursuant to Rights existing
under the Plan shall not exceed, in the aggregate, 2,000,000 shares of
the Company's authorized Stock. These shares may be unissued or
reacquired shares, or shares purchased on the market for purposes of
the Plan".
<PAGE>
EXHIBIT 10.24
VARCO INTERNATIONAL, INC.
1994 DIRECTORS' STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1994 Directors' Stock Option Plan (the "Plan") of Varco
International, Inc. (the "Company") is to advance the interests of the Company
and its shareholders by enabling the Company to attract and retain highly
qualified directors who are not also employees of the Company or any of its
subsidiaries and by encouraging increased ownership of shares of the Common
Stock of the Company (the "Common Stock") by such directors.
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") appointed by the
Board of Directors of the Company (the "Board"), which shall consist of not less
than three directors of the Company. The Board may designate its Compensation
Committee, if any, as the Committee. The Committee is authorized to interpret
the Plan and may from time to time adopt such rules and regulations, not
inconsistent with the provisions of the Plan, as it may deem advisable.
Notwithstanding the foregoing, the Plan is intended to meet the requirements of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and, more specifically, to meet the criteria for a plan
providing for "formula awards" set forth in Rule 16b-3(c)(2)(ii) or any
successor rule or regulation, and, accordingly, the Committee shall have no
discretion with respect to the eligibility or selection of directors to be
granted options ("Options") under the Plan, the timing of the grant of any
Option, the number of Shares subject any Option or the exercise price thereof,
or any other matter or determination which would cause the Plan not to meet such
criteria. Decisions of the Committee shall be final and binding upon all
parties having an interest in the Plan.
3. PARTICIPATION
All directors of the Company who are not employees of the Company or any
subsidiary of the Company ("Eligible Directors") shall be eligible to
participate in the Plan. As used herein, "subsidiary" shall mean any
corporation at least 50% of the outstanding voting stock of which is owned,
directly or indirectly through one or more intermediaries, by the Company.
4. COMMON STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7 of the Plan, the maximum number
of shares of Common Stock which may be issued upon the exercise of Options shall
be 650,000. Such shares shall be authorized but unissued shares. If any
<PAGE>
Option shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares which were subject thereto shall again become
available for issuance under the Plan.
5. GRANTS OF OPTIONS
(a) Initial Grants. There shall be granted to each Eligible Director
(i) on the date of his or her initial election as a member of the Board in the
case of each Eligible Director who was not a member of the Board of Directors on
the date the Plan was approved by the Board (the "Board Approval Date"), (ii) on
the Board Approval Date in the case of each Eligible Director who is a member of
the Board on the Board Approval Date, and (iii) on the date a person becomes an
Eligible Director by virtue of the termination of his or her employment by the
Company or any subsidiary of the Company in the case of each Eligible Director
who was not an Eligible Director on the date of his or her initial election as a
member of the Board or on the Board Approval Date, an Option to purchase 5,000
shares of Common Stock.
(b) Annual Grants. There shall be granted to each Eligible Director
annually on the second Thursday of August in each year, commencing with the year
1995 and to an including the year 2003, an Option to purchase 5,000 shares of
Common Stock ("Annual Grant Option").
(c) Election. Any Eligible Director may elect not to receive an
Annual Grant Option, but only by written notice delivered to the Committee not
less than six months prior to the date of grant of such Option.
(d) Adjustments. The number of shares subject to any outstanding
Option and the number of shares subject to any Option to be granted under this
Section 5 shall be subject to adjustment from time to time as provided in
Section 7 of the Plan.
(e) No Limitation on Removal. No Option granted under this Section 5
shall be construed as limiting any right which either the shareholders of the
Company or the Board may have to remove at any time, with or without cause, any
Eligible Director from the Board.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option shall be evidenced by a written instrument in
substantially the form of Exhibit 1 attached hereto or in such other form as may
be approved by the Committee and shall be subject to the following terms and
conditions:
2
<PAGE>
(a) Term. The term of each Option shall be ten years from its date of
grant, subject to earlier termination in accordance with Section 7(b) of the
Plan or as follows:
(i) If any Eligible Director shall cease to be an Eligible Director
for any reason other than his or her death or disability (within the
meaning of Section 422(c)(6) of the Internal Revenue Code of 1986, as
amended (the "Code")) while holding an Option which has not expired and has
not been fully exercised, such holder may exercise such Option to the
extent that it was exercisable at the time he or she ceased to be an
Eligible Director at any time within three months after the date on which
such holder ceased to be an Eligible Director, but in no event later than
ten years from the date such Option was granted. Such Option shall
terminate upon the expiration of such period unless the holder dies prior
to such expiration, in which event he or she shall be deemed to have died
on the date he or she ceased to be an Eligible Director, and such Option be
exercisable and terminate in accordance with the provisions of paragraph
(ii) below.
(ii) If any Eligible Director shall cease to be an Eligible Director
by reason of his or her death or disability (within the meaning of Section
422(c)(6) of the Code), while holding an Option which has not expired and
has not been fully exercised, such holder (or his or her guardian or legal
representative) may exercise such Option to the extent that it was
exercisable at the time he or she ceased to be an Eligible Director by
reason of such death or disability at any time within twelve months after
the date on which such person ceased to be an Eligible Director, but in no
even later than ten years from the date such Option was granted. Such
Option shall terminate upon the expiration of such period.
(b) Exercise Price. The purchase price for each share of Common Stock
subject to an Option shall be equal to 100% of the Fair Market Value (as
hereinafter defined) of the Common Stock on the date such Option is granted. As
used in the Plan, "Fair Market Value" on any date shall be equal to the mean of
the high and low sales prices of a share of Common Stock on such date (or if
such date is not a trading day or there are no sales reported on such date, on
the next preceding trading day for which sales are reported), based on the
composite or consolidated transactions for New York Stock Exchange issues
reported by The Wall Street Journal (or if The Wall Street Journal is not then
being published, by The New York Times or such other source as shall be
determined by the Committee.) In the event that the Common Stock ceases to be
listed on the New York Stock Exchange, the method of determining Fair Market
Value shall be
3
<PAGE>
determined by the Committee. The exercise price of outstanding Options shall be
subject to adjustment from time to time in accordance with Section 7 of the
Plan.
(c) Exercisability. Each Option shall become exercisable with respect to
50% of the shares subject thereto on the first anniversary of the date of grant
of such Option and with respect to the remaining 50% on the second anniversary
of such date of grant, provided that the holder is an Eligible Director on the
applicable anniversary date. Notwithstanding the foregoing, in the event that
(i) any person or entity, including a "group" as contemplated by Section
13(d)(3) of the 1934 Act, acquires or gains ownership or control (including,
without limitation, power to vote) of more than 50% of the outstanding Common
Stock or (ii) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board of Directors of the Company,
then immediately upon the occurrence of any such event (a "Change in Control")
each outstanding Option shall become exercisable with respect to all shares
subject thereto. Options shall also become exercisable pursuant to the
provisions of Section 7(b) of the Plan.
(d) Exercise and Payment. An Option may be exercised only by written
notice to the Company at its principal executive office by the person entitled
to exercise such Option, stating the number of shares of Common Stock with
respect to which such Option is being exercised and accompanied by payment of
the full purchase price for the shares with respect to which it is exercised.
The minimum number of shares of Common Stock with respect to which an Option may
be exercised at any one time shall be 500, unless the number of shares with
respect to which the Option is being exercised is the total number of shares
available for purchase under the Option. The purchase price may be paid in
cash, in shares of Common Stock owned by the Holder, or partly in cash and
partly in shares of Common Stock. The value of shares of Common Stock delivered
in payment of the purchase price shall be their Fair Market Value, as of the
date of exercise. Upon receipt of such notice and payment and payment of any
amount on account of withholding taxes as provided in paragraph (e) below, the
Company shall promptly issue and deliver to the holder (or other person entitled
to exercise the Option) a certificate or certificates for the number of shares
of Common Stock as to which the exercise is made. No holder of an Option shall
have any rights as an owner of Common Stock until the date of issuance to him or
her of such certificate or certificates.
(e) Withholding Taxes. It shall be a condition to the obligation of the
Company to issue shares of Common Stock upon the exercise of an Option, that the
holder pay to the Company the amount requested by the Company for the purpose of
satisfying any liability to withhold federal, state, local or foreign income or
other taxes.
4
<PAGE>
(f) Transferability. No Option shall be transferable by the holder thereof
otherwise than by will or the laws of descent and distribution and any such
Option shall be exercisable during the holder's lifetime only by him or her, or
in the event of disability, by his or her guardian or legal representative.
(g) Nonstatutory Options. Each Option shall be a nonstatutory option not
intended to qualify as an incentive stock option under Section 422 of the Code.
(g) Compliance with Law. The exercise of each Option shall be on the
condition that the purchase of shares of Common Stock thereunder shall be for
investment purposes, and not with a view to resale or distribution unless such
shares are registered under the Securities Act of 1933, as amended, or if in the
opinion of counsel for the Company such registration is not required under such
Act, or any other applicable law, rule or regulation.
7. ADJUSTMENTS
(a) In the event of any change in the outstanding Common Stock by reason of
stock dividends, split-ups, consolidations, recapitalizations, reorganizations
or like events (as determined by the Committee), an appropriate and
proportionate adjustment shall be made by the Committee in the number of shares
available for issuance under the Plan, in the number of shares of Common Stock
to be subject to Options to be granted under Section 5 of the Plan, and in the
number of shares subject to, and the exercise price of shares of Common Stock
subject to Options outstanding under the Plan with respect to any unpurchased
shares. Any such adjustment to an outstanding Option shall be made without a
change in the total exercise price applicable to such unpurchased shares but
with a corresponding adjustment in the per share exercise price. No fractional
shares of Common Stock shall be issued under the Plan on account of any
adjustment under this Section 7(a).
(b) Notwithstanding anything in paragraph (a) above to the contrary, in the
event of any merger, consolidation or other reorganization of the Company in
which the Company is not the surviving or continuing corporation (as determined
by the Committee) or in the event of the liquidation or dissolution of the
Company, all Options shall terminate on the effective date of the merger,
consolidation, reorganization, liquidation or dissolution unless, in the case of
a merger, consolidation or reorganization, the agreement with respect thereto
provides otherwise. Notwithstanding any other provision of the Plan to the
contrary, all outstanding Options shall be exercisable with respect to all
shares subject thereto for a period of 30 days prior to the effective date of
any such merger, consolidation, reorganization, liquidation or dissolution
unless, in the case of a merger, consolidation or reorganization, such Options
are assumed by the continuing or surviving corporation.
5
<PAGE>
8. AMENDMENT
The Plan may be amended at any time and from time to time by the Board,
provided, however, that shareholder approval shall be required for any amendment
materially increasing the benefits accruing to participants under the Plan,
materially increasing the number of shares of Common Stock which may be issued
under the Plan (except as permitted by Section 7 of the Plan) or materially
modifying the requirements as to eligibility for participation in the Plan and
provided, further, that the Plan may not be amended more than once every six
months other than to comply with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. No amendment
to the Plan shall impair the rights of a holder of an Option granted prior to
its adoption without such holder's consent.
9. REGULATORY REQUIREMENTS
(a) The Company may require that any holder, as a condition of the exercise
of any Option, to represent and establish to the satisfaction of the Company
that all shares of Common Stock acquired upon the exercise of such Option will
be acquired for investment and not with a view to resale or distribution. The
Company may prevent the sale or other disposition of any shares acquired
pursuant to the exercise of an Option until it is satisfied that such sale or
other disposition would not be in contravention of applicable state or Federal
securities laws.
(b) No Option shall be exercisable in whole or in part at any time the
Board shall determine in its discretion that the listing or qualification of the
shares of Common Stock subject to such Option on any securities exchange or
under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the exercise of such Option or the issuance of shares of Common Stock
thereunder, unless such listing, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.
10. TERMINATION
The Plan shall terminate upon the earlier of the adoption by the Board of a
resolution terminating the Plan or ten years from the Board Approval Date. The
termination of the Plan shall not affect the validity of any Option outstanding
under the Plan at the date of termination, but no Option shall be granted under
the Plan subsequent to its termination.
6
<PAGE>
11. STOCKHOLDER APPROVAL
The Plan shall become effective upon its adoption by the Board, subject to
approval by the shareholders of the Company on or before July 31, 1995, by the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company present, or represented and entitled to vote, at a meeting duly held
in accordance with the laws of the State of California. In the event such
approval is not obtained, all Options granted under the Plan shall be void and
without effect, and no additional Options shall be granted under the Plan.
7
<PAGE>
EXHIBIT 1
VARCO INTERNATIONAL, INC.
DIRECTOR STOCK OPTION
VARCO INTERNATIONAL, INC., a California corporation, hereby grants to
_______________________ (the "Holder") a stock option pursuant and subject to
the terms and conditions of the 1994 Directors' Stock Option Plan (the "Plan")
of the Company and upon the terms and conditions set forth below. Capitalized
terms used and not otherwise defined in this Option shall have the respective
meanings set forth in the Plan.
1. STOCK OPTION. The Company grants to the Holder the right and option
to purchase from the Company an aggregate of _____ shares of Common Stock of the
Company at an exercise price of $______ per share. This Option shall become
exercisable with respect to _____ shares on _________________, and with respect
to the remaining _____ shares on _________________, provided that the Holder is
an Eligible Director on the applicable date. Notwithstanding the foregoing,
this Option shall become exercisable with respect to all shares of Common Stock
subject hereto immediately upon the occurrence of a Change in Control and shall
become exercisable with respect to all such shares in certain events in
accordance with the provisions of Section 7(b) of the Plan. This Option shall
be a nonstatutory option not intended to qualify as an incentive stock option
under Section 422 of the Code.
2. TERM. The term of this Option is ten years commencing on
_________________ and ending on _________________, subject to earlier
termination in accordance with Section 7(b) of the Plan or as follows:
(a) If the Holder shall cease to be an Eligible Director for any
reason other than his or her death or disability (within the meaning of
Section 422(c)(6) of the Code), prior to the expiration of this Option, the
Holder may exercise this Option to the extent that it was exercisable at
the time he or she ceased to be an Eligible Director at any time within
three months after the date on which he or she ceased to be an Eligible
Director, but in no event later than _________________. This Option shall
terminate upon the expiration of such period unless the Holder dies prior
to such expiration, in which event he or she shall be deemed to have died
on the date he or she ceased to be an Eligible Director, and this Option be
exercisable and terminate in accordance with the provisions of paragraph
(b) below.
<PAGE>
(ii) If the Holder shall cease to be an Eligible Director by reason of
his or her death or disability (within the meaning of Section 422(c)(6) of
the Code), prior to the expiration of this Option, the Holder (or his or
her guardian or legal representative) may exercise this Option to the
extent that it was exercisable at the time he or she ceased to be an
Eligible Director by reason of such death or disability at any time within
twelve months after the date on which he or she ceased to be an Eligible
Director, but in no even later than _________________. This Option shall
terminate upon the expiration of such period.
3. EXERCISE AND PAYMENT. This Option may only be exercised by written
notice to the Company at its principal executive office by the person entitled
to exercise this Option, stating the number of shares of Common Stock with
respect to which it is being exercised (which shall be not less than 500 shares
unless this Option is being exercised with respect to the total number of shares
available for purchase hereunder) and accompanied by payment of the full
purchase price for the shares with respect to which this Option is being
exercised. The purchase price may be paid in cash, in shares of Common Stock
owned by the Holder, valued at their Fair Market Value on the date of exercise,
determined as provided in the Plan, or partly in cash and partly in shares of
Common Stock. It shall be a condition to the exercise of this Option that the
Holder pay to the Company the amount requested by the Company for the purpose of
satisfying any liability to withhold federal, state, local or foreign income or
other taxes. The Holder shall not have any rights as an owner of Common Stock
by reason of the exercise of this Option until the date of issuance to him or
her of a certificate or certificates representing the shares of Common Stock
purchased.
4. ADJUSTMENTS. The number of shares of Common Stock subject to this
Option and the exercise price is subject to adjustment as provided in Section 7
of the Plan.
5. TRANSFERABILITY. This Option may not be transferred by the Holder
otherwise than by will or the laws of descent and distribution and during the
Holder's lifetime shall be exercisable only by him or her, or in the event of
disability, by his or her guardian or legal representative.
6. COMPLIANCE WITH LAW. The exercise of this Option shall be on the
condition that the purchase of shares of Common Stock hereunder shall be for
investment purposes, and not with a view to resale or distribution unless such
shares are registered under the Securities Act of 1933, as amended, or if in the
opinion of counsel for the Company such registration is not required under such
Act, or any other applicable law, rule or regulation.
2
<PAGE>
9. REGULATORY REQUIREMENTS.
(a) The Company may require that the Holder, as a condition of any exercise
of this Option, represent and establish to the satisfaction of the Company that
all shares of Common Stock to be acquired upon such exercise will be acquired
for investment and not with a view to resale or distribution. The Company may
prevent the sale or other disposition of any shares acquired pursuant to any
exercise of this Option until it is satisfied that such sale or other
disposition would not be in contravention of applicable state or Federal
securities laws.
(b) This Option shall not be exercisable in whole or in part at any time
the Board shall determine in its discretion that the listing or qualification of
the shares of Common Stock subject hereto on any securities exchange or under
any applicable law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
exercise of this Option or the issuance of shares of Common Stock hereunder,
unless such listing, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to the Board.
10. CONFLICT. In the event of any conflict between the terms and
provisions of this Option and the terms and provisions of the Plan, the terms
and provisions of the Plan shall govern.
11. GOVERNING LAW. This Option shall be governed by and interpreted in
accordance with the laws of the State of California.
VARCO INTERNATIONAL, INC.
BY_____________________________
Title:
Dated: _________________
45684.2
3
<PAGE>
EXHIBIT 11
VARCO INTERNATIONAL, INC.
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31 1995 December 31 1995
--------------------------------------
<S> <C> <C>
A. CALCULATION OF ADJUSTED EARNINGS
Net Income After Tax $2,442,000 $14,439,000
<CAPTION>
Total Number Average Number Stock Option Shares Used
Number of of Shares after of Shares Equivalent To Calculate
Days Weighing Outstanding Shares EPS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B. CALCULATION OF AVERAGE SHARES OUTSTANDING
Common Stock Outstanding from time-to-time during:
Three Months Ended December 31, 1995 92 2,786,202,550 30,284,810 479,508 30,764,318
Twelve Months Ended December 31, 1995 365 11,406,218,975 31,249,915 479,508 31,729,423
C. CALCULATION OF EARNINGS PER SHARE
Income Per Share = Net Income After Tax
------------------------
Total Shares Outstanding
Income Per Share =
Three Months Ended December 31, 1995 2,442,000 = $0.08
-----------
30,764,318
Three Months Ended December 31, 1995 14,439,000 = $0.46
-----------
31,729,423
</TABLE>
<PAGE>
EXHIBIT 12
VARCO INTERNATIONAL, INC.
STATEMENT RE COMPUTATIONS OF RATIOS
($000'S)
<TABLE>
<CAPTION>
Ratio of Earnings to Fixed Charges 1995 1994 1993
- ---------------------------------- ------- ------- -------
<S> <C> <C> <C>
Earnings:
Pretax Income $21,908 $18,917 $10,811
Plus:
Interest Expense 4,326 4,766 5,010
Amortization of Debt
Issuance Costs 190 185 260
-------------------------------
Total $26,424 $23,868 $16,081
===============================
Fixed Charges:
Interest Expense $ 4,326 $ 4,766 $ 5,010
Amortization of Debt
Issuance Costs 190 185 260
-------------------------------
Total $ 4,516 $ 4,951 $ 5,270
===============================
Ratio of Earnings to Fixed Charges 5.85 4.82 3.05
</TABLE>
<PAGE>
EXHIBIT 13
STOCK INFORMATION
PRICE RANGE OF VARCO COMMON STOCK
The following table sets forth for the periods indicated the high and low sale
prices per share of Common Stock reported by the New York Stock Exchange. There
were 1,755 holders of record of the Common Stock as of the close of business on
March 1, 1996.
<TABLE>
<CAPTION>
High Low High Low
----------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994
FIRST QUARTER 7 3/4 6 FIRST QUARTER 7 5 1/4
SECOND QUARTER 9 1/2 7 5/8 SECOND QUARTER 7 5 1/8
THIRD QUARTER 11 7/8 8 1/8 THIRD QUARTER 7 3/8 5 7/8
FOURTH QUARTER 12 7/8 8 3/8 FOURTH QUARTER 7 3/8 6
</TABLE>
DIVIDEND POLICY
The payment of dividends (other than dividends payable solely in shares of
Common Stock) on, and repurchases of, Common Stock are restricted by the note
agreement between Varco and its institutional lenders and Varco's revolving
credit agreement with two financial institutions. Under the revolving credit
agreement, which is generally the more restrictive, the amount available for the
payment of dividends on, and repurchases of, Common Stock is limited to 25% of
Varco's consolidated net income arising after January 1, 1992, computed on a
cumulative basis. At December 31, 1995, the amount available for dividends and
repurchases under the credit agreement was $8,505,000. In addition, pursuant to
a December 31, 1995 amendment to the Credit Agreement, the Company may
repurchase at any time prior to December 31, 1996 shares of its Common Stock for
an aggregate cost not exceeding $50.0 million including shares purchased
pursuant to the Tender Offer. The Company may also purchase or otherwise
acquire shares of Common Stock from the proceeds of the substantially concurrent
sale of shares of Common Stock.
The Company has not paid a dividend on the Common Stock since 1982, and the
Board of Directors presently has no plans to resume the payment of dividends.
ANNUAL MEETING
The Varco International, Inc. 1996 Annual Meeting will be held May 16, 1996 at
the Doubletree Hotel, 100 The City Drive, Orange, California. All shareholders
are cordially invited to attend.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the year ended December 31, 1995,
as filed with the Securities and Exchange Commission, is available by writing to
Donald L. Stichler, Controller-Treasurer, Varco International, Inc., 743 North
Eckhoff Street, Orange, California 92668.
COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol VRC.
TRANSFER AGENT & REGISTRAR
Harris Trust Company of California
Los Angeles, California
42 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR FINANCIAL AND OPERATING HIGHLIGHTS
(in thousands, except per share amounts and employees)
Years Ended December 31, 1995 1994/(1)/ 1993/(1)/ 1992/(1)/ 1991
- ----------------------------------------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues $273,731 $ 223,601 $ 193,480 $ 173,069 $216,622
Gross Profit 99,214 86,761 72,010 63,049 79,431
Research and Development 13,156 11,438 9,479 9,818 10,757
Selling, General and
Administrative Expenses 61,014 53,798 48,423 49,067 47,616
Interest Expense 4,516 4,766 5,010 3,918 4,509
Income Before Income Taxes 21,908 18,917 10,811 852 16,925
Income Taxes 7,469 6,756 3,715 530 2,894
Income Before Cumulative
Effect of Change in Accounting
for Income Taxes/(2)/ 14,439 12,161 7,096 322 14,031
Net Income 14,439 12,161 7,096 2,358 14,031
As a Percent of Revenues 5.3% 5.4% 3.7% 1.4% 6.5%
Return on Average Shareholders' Equity 9.2% 7.7% 4.8% 1.6% 11.6%
Per share of common stock
Income Before Cumulative
Effect of Change in Accounting
for Income Taxes/(2)/ .46 .36 .21 .01 .45
Net Income .46 .36 .21 .07 .45
Book Value 5.01 4.91 4.58 4.37 4.28
======== ======== ======== ======== ========
Year-end financial position
Working Capital 89,187 112,342 113,241 102,953 82,748
Current Ratio 2.5 3.4 3.9 4.1 3.3
Property and Equipment -- Net 50,622 47,659 47,241 49,797 43,018
Total Assets 246,571 257,641 248,021 232,301 204,066
Long-Term Debt 29,539 39,349 49,164 51,326 25,567
Shareholders' Equity 151,179 163,728 152,608 144,366 141,919
Long-Term Debt as Percent of
Total Capitalization 16.3% 19.4% 24.4% 26.2% 15.3%
======== ======== ======== ======== ========
Other
Capital Expenditures 13,256 8,588 4,029 4,577 7,850
Depreciation and Amortization 12,347 10,996 10,687 10,964 9,943
Number of Employees 1,636 1,410 1,261 1,198 1,310
Average Shares used in Computing
Earnings Per Share 31,729 33,522 33,400 32,996 31,161
======== ======== ======== ======== ========
</TABLE>
(1) Includes the acquisitions of Shaffer as of July 17, 1992; Metrox as of
August 17, 1993 and Rig Technology Limited as of November 30, 1994.
(2) 1992 Cumulative effect of adopting Statement of Financial Accounting
Standards No. 109.
See notes to consolidated financial statements.
20 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
The business of the Company depends primarily upon the level of worldwide
drilling activity, particularly offshore drilling activity. The level of
drilling activity can be influenced by numerous factors, including economic and
political conditions, the prices of oil and gas, development of alternative
energy sources, availability of equipment and materials, availability of new
onshore and offshore acreage or concessions, and new and continued governmental
regulations regarding environmental protection, taxation, price controls and
product allocations.
The price of oil has averaged approximately $18.30, $17.20 and $18.40 a barrel
for 1993, 1994 and 1995, respectively. Oil prices dropped to less than $15 in
December 1993 and remained low through the first quarter of 1994. The price of
oil increased in the second quarter of 1994 and has been relatively stable
since, averaging approximately $18.40 for the balance of 1994 and 1995.
The price of natural gas has averaged approximately $2.00, $1.70 and $1.45 per
thousand cubic feet for 1993, 1994 and 1995, respectively. The price of natural
gas was weak during the first three quarters of 1995, averaging approximately
$1.40. During the fourth quarter of 1995 gas prices increased, averaging $1.80,
the highest level since the first quarter of 1994.
Rig counts, as reported by industry sources, for each of the past three years
are summarized in the following table:
1995 1994 1993
------------------------------------------------------- ----- -----
[S] [C] [C] [C]
Approximate Average Annual Rig Count:
Worldwide average rig count 1,712 1,766 1,711
United States & Canada average rig count 953 1,033 938
International average rig count 759 733 773
Approximate average number of
offshore rigs under contract 542 535 551
Overall drilling activity, as reflected by the average number of rigs drilling
worldwide, was little changed from 1994. The U.S. rig count fell approximately
7%, while international activity was up slightly more than 3%. Offshore
drilling, however, was surprisingly strong, particularly in the second half of
the year. The 1995 worldwide utilization of offshore rigs (rigs under contract
as a percent of available rigs) reached its highest level since 1982
(utilization rates were 84.3%, 80.9% and 83.1% for the years 1995, 1994 and 1993
respectively), driven both by increased demand and a continual shrinking supply
of available rigs. The higher utilization was accompanied by increasing day
rates and longer contract periods, particularly among the "premium" offshore
rigs. This resulted in increased cash flow for the Company's major customers,
the drilling contractors.
ACQUISITIONS
On November 30, 1994 the Company acquired all of the outstanding shares of Rig
Technology Limited ("Thule Rigtech"), a company incorporated in Scotland, for a
cost of approximately $9.0 million. Thule Rigtech provides equipment and
systems used in the handling, mixing, transport and conditioning of drilling
fluids and operates as the Company's Thule Rigtech Division.
On August 17, 1993 the Company acquired all of the outstanding common stock of
Metrox, Inc. for a cash consideration of approximately $4.0 million. Metrox
designed and manufactured instrumentation used in the oil and gas industry, as
well as in general commercial and industrial applications. Metrox has been
combined with, and is reported within, the Company's Martin-Decker/TOTCO
Instrumentation Division.
22 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
For further information concerning these acquisitions see Note L of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The Company operates principally in the oil and gas well drilling equipment
segment of the oilfield service industry. Set forth below are the annual net
orders for the Company's five divisions which serve this segment.
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- ------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Net Orders
Varco Drilling Systems $ 95,519 $ 98,044 $ 52,000
Varco BJ Oil Tools 42,252 41,201 38,279
Martin-Decker/TOTCO Instrumentation 57,967 54,341 46,171
Shaffer 88,961 46,708 46,623
Thule Rigtech 10,242 1,191
-------- -------- --------
Total $294,941 $241,485 $183,073
======== ======== ========
</TABLE>
Order bookings increased $53.5 million, 22%, in 1995 as compared to 1994.
Most of the increase occurred at the Shaffer Division and included orders to
upgrade several offshore rigs (primarily semisubmersible rigs used in deepwater
drilling) with pressure control, motion compensation and related equipment.
Secondarily, the increase from 1994 was due to the full year impact of Thule
Rigtech and increased orders for the TOTAL product line of Martin-Decker/TOTCO.
During 1995 the Drilling Systems Division experienced a shift in orders as
compared to the previous year. Orders for Top Drive Drilling Systems ("TDS")
totaled 37 units, which included orders for 9 TDS-9S units (a new TDS product
designed primarily for conventional land rigs), as compared to 53 unit orders in
1994. However, largely offsetting this decline were orders for pipe handling
systems which totaled $22.3 million in 1995, an increase from $11.7 million in
the prior year.
Order bookings in the fourth quarter of 1995 were $85.6 million as compared to
an average of $69.8 million for the first three quarters of the year. Virtually
all of this increase is attributable to the Shaffer Division, and is a result of
the semisubmersible rig upgrades discussed above.
In 1994 orders increased $58.4 million, 32%, as compared to 1993. The
increase occurred primarily at the Drilling Systems Division and resulted from
an increase in TDS unit orders to 53, from 21 in 1993, together with an increase
in pipe handling systems orders to $11.7 million, from $2.9 million in the prior
year. Additionally, Martin-Decker/TOTCO experienced an $8.2 million increase,
primarily as a result of the factors described in the revenue discussion below.
Set forth below are the annual revenues for the Company's five divisions.
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- -------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Revenues
Varco Drilling Systems $101,440 $ 74,405 $ 58,703
Varco BJ Oil Tools 41,663 41,309 40,157
Martin-Decker/TOTCO Instrumentation 58,013 54,176 44,738
Shaffer 60,925 50,900 48,169
Thule Rigtech 10,310 653
-------- -------- --------
Total $272,351 $221,443 $191,767
======== ======== ========
</TABLE>
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 23
<PAGE>
The Company's Revenues increased by 23% in 1995, to $272.4 million, from
$221.4 million in the prior year. The increase was concentrated in the Drilling
Systems and Shaffer Divisions, along with the full year impact of Thule Rigtech.
TDS unit shipments increased to 48, including 8 TDS-9S units, from 41 in 1994;
and pipe handling systems revenues totaled $17.8 million in 1995 versus $3.6
million in 1994. The year-to-year increase at Shaffer resulted primarily from
the upgrading of offshore rigs with pressure control and motion compensation
equipment.
The growth in Revenue in 1994 as compared to 1993 was concentrated in the
Drilling Systems and Martin-Decker/TOTCO Divisions. Drilling Systems' increase
resulted primarily from the delivery of 41 TDS units, versus 22 in the prior
twelve months. The increase in Martin-Decker/TOTCO's revenues resulted from: an
increase of $5.7 million in international product sales, primarily the TOTAL
System; $2.0 million from the full year effect of the Metrox acquisition; and
$2.5 million in increased rental revenue due to higher North American drilling
activity.
The Company's backlog of unshipped orders was $75.4 million at December 31,
1995 as compared to $52.8 million at December 31, 1994 and $32.3 million at
December 31, 1993. In accordance with industry practice, orders and commitments
generally are cancelable by customers at any time. The Company believes that
substantially all of the backlog at December 31, 1995 will be shipped by
December 31, 1996.
Other income decreased in 1995 as compared to 1994 and 1993, due to a decline
in investment earnings as the Company used approximately $29.6 million of cash
and cash equivalents and short-term investments to repurchase approximately 3.5
million shares of the Company's common stock.
Gross margins (net sales and rental income less costs of sales and rental
income) as a percentage of net sales and rental income for the Company were
36.4% for 1995, 39.2% for 1994 and 37.6% for 1993. Approximately 2.3% of the
2.8% margin decline in 1995 as compared to 1994 is due to lower margins on
Drilling Systems' newer products. This decline is due to a slightly negative
margin on TDS-9S units ($5.1 million in revenue) and to lower than average
margins on newer pipe handling products. The balance of the margin decline is
primarily due to general cost increases at all divisions, such as labor and
material costs. These cost increases were partially offset by a favorable
impact on gross margins of 1.0% resulting from increased utilization of the
Company's manufacturing facilities, from 75% in 1994 to approximately 90% in
1995. The gross margin improvement in 1994 over 1993 is due to increased
utilization of the Company's manufacturing facilities. The Company estimates
that based upon direct labor hours and a two shift operation, its manufacturing
facilities were approximately 75% utilized in 1994 as compared to 60% during
1993. The effect of this higher utilization has been to increase the percentage
of manufacturing expenses allocated to inventory and decrease expenses charged
directly to cost of sales, thereby contributing to an increase in gross margins.
The Company believes that new product development is significant to the future
growth of the Company. Research and development expenses as a percent of
revenue were 4.8%, 5.1%, and 4.9% for the years 1995, 1994 and 1993
respectively. The Company expects to continue to incur research and development
expenses at similar rates.
Selling, general and administrative expenses were $61.0 million in 1995 (22.3%
of revenues), $7.2 million higher than the $53.8 million (24.1% of revenue) in
1994. This increase is primarily due to selling and marketing expenses
associated with the higher revenue levels in 1995 and to the full year impact of
Thule Rigtech. Selling, general and administrative expenses were $53.8 million
in 1994, $5.4 million higher than in 1993. This increase is primarily due to
selling and marketing expenses associated with the higher revenue levels in
1994.
24 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
At December 31, 1995 overall Company employment was 1,636 (including 221
temporary employees) as compared to 1,410 (including 179 temporary employees) at
December 31, 1994. The employment increase is mostly due to an increase in
manufacturing employees to meet the higher level of shipments.
The Company's effective income tax rate was 34.1% in 1995 compared to 35.7% in
1994. This decline is primarily due to lower foreign taxes as a result of
recording a credit for a foreign tax loss carryforward. The Company's effective
income tax rate was 35.7% in 1994 compared to 34.4% in 1993. The increase is
due to the utilization of $1.7 million of U.S. tax credits in 1993 compared to
only $1.3 million of such credits in 1994. At December 31, 1995 the Company had
no further U.S. tax credits to offset against future taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had cash and cash equivalents of $6.8 million
as compared to $38.6 million of cash and cash equivalents and short-term
investments at December 31, 1994. This decline is due to the Tender Offer and
the Senior Note payment, discussed below.
On March 24, 1995, the Company commenced a "Dutch Auction" type tender offer
(the "Tender Offer") to purchase up to 5,300,000 shares of its Common Stock at a
purchase price not greater than $8.00 per share nor less than $6.75 per share.
Pursuant to the Tender Offer, which terminated on April 21, 1995, the Company
purchased 3,150,560 shares of its Common Stock at a purchase price of $8.00 per
share. The aggregate cost to the Company of the Tender Offer, including
expenses, was approximately $26.2 million, which was funded from cash and cash
equivalents and short-term investments.
In July 1992 the Company sold $50.0 million aggregate principal amount of its
8.95% Senior Notes Due June 30, 1999 (the "Senior Notes") to a group of ten
institutional investors pursuant to a Note Agreement dated as of July 1, 1992
(the "Note Agreement"). The principal of the Senior Notes is payable in five
equal annual installments of $10.0 million, the first of which was made on June
30, 1995. Effective as of March 8, 1995, the holders of the Senior Notes waived
compliance with certain covenants contained in the Note Agreement in order to
permit the Tender Offer and amended certain financial covenants to take into
account the effect of the consummation of the Tender Offer. The Senior Notes
include a yield maintenance prepayment penalty if any principal is repaid prior
to the installment due date. Had the entire outstanding principal amount been
prepaid at December 31, 1995 the prepayment penalty would have been
approximately $2.1 million.
On February 25, 1993 the Company entered into an unsecured revolving credit
agreement with Citicorp USA, Inc. and Citibank, N.A. (the "Credit Agreement").
Effective as of March 17, 1995 the Credit Agreement was amended to (1) extend
the maturity date from March 31, 1996 to October 31, 1998; (2) increase the
total maximum facility from $20.0 to $35.0 million, consisting of a loan
facility of $25.0 million and a letter of credit facility of $10.0 million; and
(3) to amend certain covenants to permit the Tender Offer and to take into
account the effect of the consummation of the Tender Offer on certain financial
ratios. At December 31, 1995 there were no advances outstanding and $3.8
million in letters of credit outstanding under this facility.
Both the Note Agreement and the Credit Agreement restrict the payment of
dividends (other than dividends payable solely in shares of Common Stock) on,
and repurchases of, Common Stock. Under the terms of the Credit Agreement,
which is generally the more restrictive of these, the amount available for the
payment of dividends on, and repurchases of, Common Stock is limited to 25% of
the Company's consolidated net income arising after January 1, 1992, computed on
a cumulative basis. In addition, pursuant to a December 31, 1995 amendment
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 25
<PAGE>
to the Credit Agreement, the Company may repurchase at any time prior to
December 31, 1996 shares of its Common Stock for an aggregate cost not exceeding
$50.0 million including shares purchased pursuant to the Tender Offer. The
Company may also purchase or otherwise acquire shares of Common Stock from the
proceeds of the substantially concurrent sale of shares of Common Stock.
On May 26, 1994 the Company announced that its Board of Directors authorized
the repurchase of up to one million shares of the Company's Common Stock for an
aggregate purchase price not exceeding $6.0 million (the "Repurchase Program").
On May 26, 1995 the Company announced an increase and extension of the above
Repurchase Program. The total number of shares authorized for repurchase was
increased to 1,500,000; the maximum aggregate purchase price was increased to
$11.0 million and the purchase period was extended through December 31, 1996.
To date the Company has repurchased on the open market 627,600 shares of its
Common Stock at an average price of approximately $8.00 per share. The last
such purchase was on December 6, 1995.
Working capital was $89.2 million at December 31, 1995 compared to $112.3
million at December 31, 1994. The Company's current ratio has decreased from
3.4 to 1.0 at December 31, 1994 to 2.5 to 1.0 at December 31, 1995 and long-term
debt as a percentage of total capitalization has decreased to 16% at December
31, 1995 from 19% at December 31, 1994. The decrease in working capital and
current ratio is due to the completion of the Tender Offer. The decline in
long-term debt as a percent of total capitalization is due to the June 30
principal payment made on the Senior Notes.
Capital expenditures were $13.3 million in 1995 as compared to $8.6 million in
1994. The Company expects 1996 expenditures will be at a level comparable to
the 1995 amount. The major capital expenditures in 1995 included $3.6 million
for the purchase of Martin-Decker/TOTCO's manufacturing facility which was
previously leased, $7.6 million of machinery and equipment and $2.1 million of
rental assets at Martin-Decker/TOTCO. The Company believes its December 31,
1995 cash and cash equivalents and its credit facility will be sufficient to
meet its capital expenditures and operating cash needs and the principal payment
on the Senior Notes in 1996.
26 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
($ in thousands)
December 31, 1995 1994
- ---------------------------------------------------------------------------------------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 6,762 $ 8,793
Short-term investments--Note B 29,832
Receivables -- principally trade, less allowances for
doubtful accounts of $1,585 (1995) and $1,580 (1994) 60,683 52,250
Inventories -- Note C 70,832 60,299
Deferred tax assets -- Note E 5,130 5,068
Prepaid expenses 3,533 2,535
-------- --------
Total Current Assets 146,940 158,777
Property, plant and equipment -- at cost,
less accumulated depreciation -- Note D 50,622 47,659
Cost in excess of net assets acquired, less accumulated
amortization of $5,331 (1995) and $4,210 (1994) 36,371 37,529
Other assets -- Note C 12,638 13,676
-------- --------
Total Assets $246,571 $257,641
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable -- principally trade $ 21,356 $ 15,345
Accrued payroll and related costs 7,299 7,258
Accrued warranty 2,637 2,563
Taxes payable 1,885 1,152
Other accrued liabilities 14,576 10,117
Current portion of long-term debt -- Note F 10,000 10,000
-------- --------
Total Current Liabilities 57,753 46,435
Long-term debt, less current portion -- Note F 29,539 39,349
Postretirement obligations -- Note I 5,647 4,779
Other non-current liabilities--Note E 2,453 3,350
-------- --------
Total Liabilities 95,392 93,913
Shareholders' equity -- Note G
Preferred Stock: 10,000,000 shares authorized, none issued and outstanding
Common Stock: 80,000,000 shares authorized, 30,161,365 (1995) and
33,335,553 (1994) issued and outstanding, stated value 20,529 23,704
Additional paid-in capital 104,023 102,193
Retained earnings 26,627 37,831
-------- --------
Total Shareholders' Equity 151,179 163,728
Commitments and contingencies-- Note H
Total Liabilities and Shareholders' Equity $246,571 $257,641
======== ========
See notes to consolidated financial statements.
</TABLE>
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 27
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands, except per share data)
Year Ended December 31, 1995 1994 1993
- ------------------------------------------------------------- --------- --------
<S> <C> <C> <C>
Revenues
Net sales $247,114 $197,956 $171,812
Rental income 25,237 23,487 19,955
Other income 1,380 2,158 1,713
-------- -------- --------
273,731 223,601 193,480
Costs and expenses
Cost of sales 165,835 127,752 114,000
Cost of rental income 7,302 6,930 5,757
Selling, general and administrative expenses 61,014 53,798 48,423
Research and development costs 13,156 11,438 9,479
Interest expense 4,516 4,766 5,010
-------- -------- --------
251,823 204,684 182,669
-------- -------- --------
Income before income taxes 21,908 18,917 10,811
Income taxes -- Note E 7,469 6,756 3,715
-------- -------- --------
Net income $ 14,439 $ 12,161 $ 7,096
======== ======== ========
Net income per share $.46 $.36 $.21
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
28 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands)
Common Stock
---------------------- Additional
Year Ended December 31, Issued and Outstanding Paid-in Retained
1995, 1994 and 1993 Shares Amount Capital Earnings Total
- ------------------------------------------------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1992 33,053 23,421 101,735 19,210 144,366
Net income 7,096 7,096
Common Stock issuances 251 251 895 1,146
--------- ---------- ----------- --------- ----------
Balances at December 31, 1993 34,304 23,672 102,630 26,306 152,608
Net income 12,161 12,161
Common Stock repurchased (264) (264) (1,395) (1,659)
Common Stock issuances 296 296 958 1,254
Unrealized losses on investments (462) (462)
Foreign currency translation adjustment (174) (174)
--------- -------- --------- -------- ---------
Balances at December 31, 1994 33,336 23,704 102,193 37,831 163,728
========= ======== ========= ======== =========
Net income 14,439 14,439
Common Stock issuances 339 339 1,830 2,169
Common Stock repurchased (363) (363) (3,020) (3,383)
Self tender (3,151) (3,151) (23,025) (26,176)
Unrealized gains on investments 462 462
Foreign currency translation adjustment (60) (60)
--------- -------- --------- -------- ---------
Balances at December 31, 1995 30,161 20,529 104,023 26,627 151,179
========= ======== ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Operating Activities
Net income $ 14,439 $ 12,161 $ 7,096
Items included in net income not requiring (providing) cash:
Depreciation 9,557 8,250 8,137
Write down of production facility to net realizable value 240 340 345
Amortization 2,790 2,746 2,550
Deferred income taxes (1,802) (517) (519)
(Gain) loss on sale of equipment (101) (44) (1)
Stock bonus 334 261
Post retirement obligations 868 1,174 3,605
Changes in operating assets and liabilities, net of effects of
acquisition:
Receivables (8,433) (10,491) 2,203
Inventories (10,533) (7,761) 8,251
Prepaids (998) 215 974
Accounts payable 6,011 982 2,086
Accrued payroll 41 222 2,388
Accrued warranty 74 (1,437) 1,808
Taxes payable 733 (2,353) 1,614
Accrued liabilities 4,459 (838) (1,749)
Other 516 725 (2,232)
-------- -------- --------
Net Cash from Operating Activities 18,195 3,635 36,556
Investing Activities
Property, plant and equipment purchases (13,256) (8,588) (4,029)
Proceeds from equipment sales 511 178 658
Acquisitions (8,954) (5,553)
Purchases of short-term investments (87,548) (81,470)
Proceeds from sale of short-term investments 21,131 5,221 6,900
Proceeds from maturities of short-term investments 9,407 82,779 43,824
-------- -------- --------
Net Cash from (used in) Investing Activities 17,793 (16,912) (39,670)
Financing Activities
Increases in long-term debt and line of credit 17,500
Payments on long-term debt and line of credit (27,500) (2,055)
Deferred issue costs (189)
Proceeds from issuance of Common Stock 1,540 1,169 997
Common Stock repurchased (29,559) (1,659)
-------- -------- --------
Net Cash (used in) Financing Activities (38,019) (490) (1,247)
Net (decrease) in cash and cash equivalents (2,031) (13,767) (4,361)
Cash and cash equivalents at beginning of year 8,793 22,560 26,921
-------- -------- --------
Cash and cash equivalents at end of year $ 6,762 $ 8,793 $ 22,560
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
30 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- Varco International, Inc. and its subsidiaries
(hereinafter, the "Company") are engaged in the design, manufacture, sale and
rental of tools, equipment and instrumentation used primarily in the worldwide
oil and gas well drilling equipment segment of the oil field service industry.
The Company operates through five divisions: Varco Drilling Systems, whose
products include integrated systems for rotating and handling pipe on a drilling
rig; Varco BJ Oil Tools, whose products include pipe handling tools, hoisting
equipment and rotary equipment; Martin-Decker/TOTCO Instrumentation, whose
instrumentation products are used in the management of drilling operations;
Shaffer, whose products include pressure control and motion compensation
equipment and flow devices; and Thule Rigtech whose products are used in the
handling, mixing, transport and conditioning of drilling fluids.
Principles of Consolidation -- The consolidated financial statements include the
accounts of Varco International, Inc. and its wholly-owned subsidiaries. All
material intercompany items and transactions have been eliminated in
consolidation.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts could differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Short-term Investments -- The Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities,"("Statement 115") for investments held as of or
acquired after January 1, 1994. In accordance with Statement 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. There was no cumulative effect of adopting Statement 115.
Under Statement 115, management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities that the Company has both the positive
intent and ability to hold to maturity are carried at amortized cost. Debt
securities that the Company does not have the positive intent and ability to
hold to maturity and all marketable equity securities are classified as
available-for-sale and carried at fair value. Unrealized holding gains and
losses, net of tax, on securities classified as available-for-sale are carried
as a separate component of shareholders' equity.
The Company classifies its short-term investments as available-for-sale
securities and carries them at their fair value. In 1994 short-term investments
consisted of government and debt securities with interest rates ranging from 3%
to 9%. The Company had no such investments at December 31, 1995.
Concentrations of Credit Risk -- Substantially all of the Company's accounts
receivable are due from customers in the oil and gas industry, both in the
United States and internationally. The Company performs periodic credit
evaluations of its customers and generally does not require collateral. In
certain circumstances, the Company requires letters of credit to further ensure
credit worthiness.
Inventories -- Inventories are stated at the lower of cost or market. The
Company determines the cost of inventories using the last-in, first-out ("LIFO")
method.
Depreciation -- Depreciation is provided using the straight-line method over
estimated useful lives ranging from 3 to 25 years.
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 31
<PAGE>
Intangible Assets -- The excess of cost over net assets of businesses acquired
("goodwill") is being amortized on a straight-line basis over periods ranging
from 10 to 40 years. The carrying value of goodwill will be reviewed if the
facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of the goodwill will be reduced by the
estimated shortfall of cash flows. Included in Other Assets are other
intangible assets totaling $4,594,000 net of accumulated amortization of
$4,423,000 at December 31, 1995, which are being amortized on a straight-line
basis over estimated useful lives ranging from 5 to 17 years.
Income Taxes -- The Company follows the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, the liability method is used to account for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to amounts which are more likely than not to be
realized. The provision for income taxes is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax assets and
liabilities.
Impairment of Long-Lived Assets -- In the second quarter of 1995 the Company
adopted FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. Prior
years' financial statements have not been restated and there was no cumulative
effect of adopting Statement 121. Excess equipment and a production facility
held for sale are stated at their estimated net realizable value.
Revenue Recognition -- The Company recognizes revenue upon shipment of product,
upon the use of rented equipment and upon the completed contract method for
installation work.
Fair Value of Financial Instruments -- The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable and
accounts payable approximated fair value as of December 31, 1995 and 1994
because of the relatively short maturity of these instruments. The carrying
value of debt approximated fair value as of December 31, 1995 and 1994, based
upon quoted market prices for similar debt issues.
Foreign Currency -- The Company has determined that the United States dollar is
the functional currency of all its foreign subsidiaries except for Rig
Technology Limited whose functional currency is the British pound sterling.
Accordingly, the financial statements of most foreign operations are remeasured
in terms of the United States dollar and exchange gains and losses are
recognized in operations. Exchange losses were $673,000, $68,000, and $264,000
in 1995, 1994 and 1993 respectively. Financial statements of Rig Technology
Limited are translated at current rates of exchange, with gains or losses
resulting from translation included as a separate component of shareholders'
equity.
Stock Based Compensation -- The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.
Per Share Data -- Per share amounts are computed by dividing net income by the
weighted average number of common shares and dilutive common share equivalents
which were 31,729,423, 33,522,209, and 33,399,956 in 1995, 1994 and 1993,
respectively.
Reclassification -- Certain amounts in the 1994 and 1993 financial statements
have been reclassified to conform with current year classification.
32 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
B SHORT-TERM INVESTMENTS
At December 31, 1995 the Company had no short-term investments. At December 31,
1994 available-for-sale securities were as follows:
<TABLE>
<CAPTION>
Available-for-sale securities
---------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
- --------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury notes and obligations
of U.S. government agencies $ 14,451 $ 9 $ 290 $14,170
Obligations of states and political
subdivisions 10,812 102 10,710
Corporate debt securities 5,031 79 4,952
--------- ---- ------- -------
$ 30,294 $ 9 $ 471 $29,832
========= ==== ======= =======
</TABLE>
For the years ended December 31, 1995 and 1994, gross realized gains on sales of
available-for-sale securities totaled $18,000 and $7,000 respectively, and gross
realized losses totaled $240,000 and $153,000 respectively.
C INVENTORIES
Inventories classified as current assets consist of the following:
<TABLE>
<CAPTION>
December 31, (in thousands) 1995 1994
--------------------------------------- --------
<S> <C> <C>
Raw materials $ 5,480 $ 6,164
Work in process 18,061 13,677
Finished goods 61,052 54,879
LIFO reserves (13,761) (14,421)
-------- --------
$ 70,832 $ 60,299
======== ========
</TABLE>
In 1995, 1994 and 1993 LIFO layers of preceding years were reduced which
decreased cost of goods sold by $359,000, $246,000 and $590,000, respectively.
A portion of the Company's inventory is not expected to be sold or used within
one year and, accordingly has been reclassified as other assets. The amount of
inventory estimated to exceed one year's usage was $3,500,000 at December 31,
1995 and 1994.
D PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, (in thousands) 1995 1994
------------------------------------------------------------ -------
<S> <C> <C>
Land $ 2,434 $ 1,929
Building and improvements 22,616 19,242
Machinery and equipment 56,113 52,679
Rental equipment 17,611 15,615
Furniture and fixtures 11,671 9,814
Autos and trucks 802 713
-------- -------
111,247 99,992
Less accumulated depreciation and amortization 60,625 52,333
-------- -------
$ 50,622 $47,659
======== =======
</TABLE>
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 33
<PAGE>
E INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets are
as follows :
<TABLE>
<CAPTION>
December 31, (in thousands) 1995 1994
- ----------------------------------------------------------------------------------------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 4,036 $ 3,910
Deferred tax assets:
Intercompany profit elimination 3,275 3,530
Postretirement benefit obligation 1,976 1,698
Allowance for loss on sale of assets 1,769 1,663
Allowance for excess inventory 1,667 1,778
Foreign net operating loss carryforward 2,100
Allowance for warranty cost 715 330
Accruals 862 515
Other 444 414
------- -------
Total deferred tax assets 12,808 9,928
Valuation allowance for deferred tax assets (3,206) (2,254)
------- -------
Net deferred tax assets 9,602 7,674
------- -------
Net deferred taxes 5,566 3,764
======= =======
Current deferred tax assets $ 5,130 $ 5,068
Noncurrent deferred tax assets (liabilities) 436 (1,304)
------- -------
Net deferred taxes $ 5,566 $ 3,764
======= =======
</TABLE>
United States and foreign income (loss) before income taxes and the components
of income tax expense are as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
-------------------------------------------------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. $23,260 $17,376 $12,104
Foreign (1,352) 1,541 (1,293)
------- ------- -------
$21,908 $18,917 $10,811
======= ======= =======
</TABLE>
Income tax expense (benefit):
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
--------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Current:
U.S. $ 8,450 $ 7,042 $ 4,894
Foreign 881 660 441
State 545 559 429
Utilization of credits (899) (1,258) (1,680)
Tax benefits credited to paid-in capital 294 270 149
------- ------ -------
9,271 7,273 4,233
Deferred:
U.S. (655) (517) (518)
Foreign (1,147)
------- ------- -------
$ 7,469 $ 6,756 $ 3,715
======= ======= =======
</TABLE>
34 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
Differences between the Company's income tax expense and an amount calculated
utilizing the federal statutory rate are as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------- -------- -------
<S> <C> <C> <C>
At federal statutory rate $ 7,668 $ 6,621 $ 3,684
Increases (reductions) in taxes:
FSC benefit (973) (767) (536)
Financial statement benefit from credit carryovers (418) (1,278)
Tax impact of non-deductible expenses 797 605 421
State taxes, net of federal benefit 354 363 283
Tax rate differential on foreign earnings
and losses recorded without tax benefit 206 120 881
Other (165) (186) 260
-------- -------- -------
Total tax provision $ 7,469 $ 6,756 $ 3,715
======== ======== =======
</TABLE>
The Company has net operating losses available for Netherlands tax purposes of
approximately $6,000,000. These net operating losses can be carried forward for
an indefinite period of time.
Income taxes paid net of refunds received in 1995, 1994 and 1993 were
$7,007,000, $8,957,000 and $2,318,000, respectively.
The Company is currently under examination by the Internal Revenue Service for
the years ended December 31, 1992, 1991 and 1990. Management believes the
resolution of this examination will not have a material adverse effect on the
Company's financial position.
F LONG-TERM DEBT
Long-term debt consists of notes payable to institutional investors under an
8.95% Senior Note Agreement (the "Note Agreement.") Principal is due in five
equal annual installments which commenced June 30, 1995 and interest is payable
semiannually. The Note Agreement contains restrictive covenants requiring the
maintenance of certain financial ratios, limitations on additional borrowings
and capital expenditures, and restrictions on distribution of cash or other
property.
The Company has an unsecured revolving credit and term loan agreement with two
Citicorp affiliates which provides for advances up to $25,000,000 and letters of
credit up to $10,000,000, subject to reduction in certain events. Advances
under the loan agreement bear interest at either a prime rate plus 1/2% or a
rate based on the Eurodollar Market. The agreement requires a commitment fee of
.375% of the unused portion of the credit facility, restricts additional
borrowings if minimum asset levels are not met and contains restrictive
covenants requiring the maintenance of certain financial ratios, limitations on
additional borrowings and capital expenditures, and restrictions on distribution
of cash or other property. The agreement terminates in October 1998. There
were no borrowings under the agreement at December 31, 1995.
Required principal payments on long-term debt as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------
<S> <C>
1996 $ 10,000
1997 10,000
1998 10,000
1999 9,539
---------
$ 39,539
=========
</TABLE>
Interest paid during 1995, 1994 and 1993 was $2,504,000, $4,766,000 and
$4,757,000, respectively.
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 35
<PAGE>
G SHAREHOLDERS' EQUITY
The Company has an employee stock purchase plan under which 2,000,000 shares of
Common Stock may be sold at a price equal to 85% of the lower of market price at
the beginning or end of a six month plan period. As of December 31, 1995,
1,027,852 shares have been sold under this plan.
The Varco International, Inc. Stock Bonus Plan (the "Bonus Plan") authorizes
the Compensation Committee of the Board of Directors to award additional
compensation to selected key employees of the Company in the form of stock
awards payable in shares of Common Stock of the Company to a maximum of
1,000,000 shares. Through December 31, 1995, 329,545 shares have been granted
and issued to key employees under the Bonus Plan.
The Varco International, Inc. 1990 Stock Option Plan permits and predecessor
plans permitted, the grant of incentive and non-statutory options to key
employees and officers. Options granted under the plans must be not less than
the fair market value of the stock on the date of grant. Options are
exercisable during such periods as determined by the Compensation Committee and
expire not later than ten years from the date of the grant.
The Varco International, Inc. 1994 Directors' Stock Option Plan provides for
the annual grant of a 5,000 share stock option to each non-employee director.
Options granted under this plan are at fair market value of the stock on the
date of grant. Options are exercisable for ten years from the date of the grant
unless sooner terminated.
Stock option activity during 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
Number of Shares 1995 1994 1993
- ---------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Stock options outstanding, beginning of year 1,108,622 1,062,732 995,532
Activity during the year (prices per share):
Granted: 330,157 255,750 218,050
1995, $6.375 to $10.75
1994, $6.3125 to $6.69
1993, $4.563
Exercised: 170,310 194,960 144,400
1995, $3.25 to $9.25
1994, $3.0625 to $6.25
1993, $3.0625 to $4.69
Canceled: 3,800 14,900 6,450
1995, $4.563 to $9.25
1994, $4.563 to $6.69
1993, $3.0625 to $4.69
--------- --------- ---------
Stock options outstanding, end of year 1,264,669 1,108,622 1,062,732
1995, $3.25 to $10.75
1994, $3.25 to $9.25
1993, $3.0625 to $9.25
--------- --------- ---------
Stock options exercisable 606,952 590,132 640,162
========= ========= =========
Stock options available for future grant 590,243 916,600 577,500
========= ========= =========
</TABLE>
At December 31, 1995, 3,477,272 shares of Common Stock were reserved for future
issuance in connection with stock purchase, stock bonus and stock option plans.
On March 24, 1995, the Company commenced a "Dutch Auction" type tender offer
(the "Tender Offer") to purchase up to 5,300,000 shares of its Common Stock.
Pursuant to the Tender Offer, which terminated on April 21, 1995, the Company
purchased 3,150,560 shares of its Common Stock at a purchase price of $8.00 per
share. The aggregate cost to the Company of the Tender Offer, including
expenses, was approximately $26.2 million. In addition, the Board of Directors
has authorized a stock repurchase program allowing the repurchase of up to
1,500,000 shares of the Company's Common Stock for an aggregate purchase price
not exceeding $11,000,000.
36 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
Repurchases under this program must be made by December 31, 1996. At December
31, 1995 the Company had repurchased on the open market 627,600 shares of its
Common Stock at an average price of approximately $8.00 per share.
H COMMITMENTS AND CONTINGENCIES
The Company leases land and its executive offices in Orange, California under
two operating leases, from certain officers, directors, and shareholders of the
Company. The land lease expires in 2012, has an annual aggregate rental of
$480,000 (subject to upward adjustment in 2002 based on appraisals) plus real
estate taxes and other expenses. The Company has the option to purchase the
leased land at a price equal to the greater of the original cost of the property
to the lessors or the fair market value at the time of purchase. The office
lease expires in 2005 and has an aggregate annual rental of $351,000 (subject to
periodic upward adjustments based upon the consumer price index.) The Company
has an option to extend this lease for 60 months based on the then fair market
rent of the building.
The Company leases most of its sales, service and distribution facilities
under agreements ranging from one to eight years.
Approximate minimum annual rental payments under noncancelable operating
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Real
(in thousands) Estate Equipment Total
---------------------------------------- --------- --------
<S> <C> <C> <C>
1996 1,593 1,926 3,519
1997 1,217 1,402 2,619
1998 1,092 770 1,862
1999 1,070 368 1,438
2000 922 120 1,042
Thereafter 8,555 8,555
-------- ------- --------
$ 14,449 $ 4,586 $ 19,035
======== ======= ========
</TABLE>
Rent expense amounted to $4,641,000, $4,428,000, and $4,045,000 for 1995,
1994, and 1993, respectively.
The Company is obligated to make royalty payments to Baker Hughes, a
shareholder of the Company, each year for which sales of certain products
("royalty products") exceed $40,000,000. Royalty payments are required until
the earlier of such time as the discounted value (discount rate 12.5%) of all
such payments equals $15,000,000 or September 29, 1996. The royalty rate ranges
from 2% to 4 1/2% as the annual royalty product sales increase from $40,000,000
to in excess of $90,000,000. The Company's royalty payment obligations can be
accelerated in certain circumstances, including a change in control of the
Company. Royalty expense attributable to Baker Hughes amounted to $895,000,
$1,763,000, and $33,000, in 1995, 1994, and 1993, respectively.
At December 31, 1995 the Company was obligated under outstanding letters of
credit in the face amount of approximately $3,753,000.
The Company is sometimes named as a defendant in litigation relating to the
products and services it provides. The Company insures against these risks to
the extent deemed prudent by its management, but no assurance can be given that
the nature and amount of such insurance will in every case fully indemnify the
Company against liabilities arising out of pending and future legal proceedings
relating to its ordinary business activities. The Company provides for costs
related to these contingencies when a loss is probable. It is the opinion of
management that it is remote that there will be an unfavorable resolution in
excess of amounts previously provided.
The Company has been designated as a potentially responsible party ("PRP") for
two separate waste disposal sites. With respect to both of the sites, numerous
other PRPs have similarly been designated. In one case the Company has a
contribution agreement with other PRPs, and settlements and costs paid by the
Company have
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 37
<PAGE>
not been significant. In the opinion of the Company's management neither these
or other environmental matters would have a material adverse effect on the
consolidated financial position of the Company.
I BENEFIT PLANS
The Company has a contributory profit sharing plan covering eligible U.S.
employees and certain foreign employees with more than one year's service.
Under the plan, the Company contributes from 2% to 20% of its net income (as
defined) at the discretion of the Board of Directors. The total contribution
may not exceed the maximum amount allowable for income tax purposes.
Contributions to the Plan amounted to $1,450,000, $1,200,000, and $850,000, for
1995, 1994 and 1993, respectively. In 1993, the Company amended its Profit
Sharing Plan to designate a portion of profit sharing contributions for retiree
healthcare and life insurance benefits for certain eligible employees retiring
after December 31, 1993. In 1995 the Plan was amended to include an employer
matching contribution. The Company's matching contribution amounted to $280,000
in 1995.
The Company also has a supplemental defined benefits plan providing retirement
and death benefits for a number of key employees. The plan is unfunded and the
net pension liability was $1,719,000 and $1,382,000 at December 31, 1995 and
1994, respectively. Expense under the plan was $300,000, $300,000, and $248,000
in 1995, 1994, and 1993, respectively.
For certain former employees who retired prior to December 31, 1993,
healthcare and life insurance benefits are provided through insurance companies.
In 1993 the Company adopted FASB Statement No. 106, Accounting for
Postretirement Benefits Other Than Pensions. The transition obligation is being
amortized over 20 years.
The following table presents the funded status of the defined benefit health
care and life insurance plan, reconciled with amounts recognized in the
Company's balance sheet:
<TABLE>
<CAPTION>
December 31, (in thousands) 1995 1994
- ----------------------------------------------------------------- --------
<S> <C> <C>
Accumulated postretirement benefit obligations $(12,236) $(13,124)
Unrecognized net gain (6,369) (5,376)
Unrecognized transition obligation 12,958 13,721
-------- --------
$ (5,647) (4,779)
======== ========
Net periodic postretirement benefit cost
includes the following components:
Interest cost $ 1,011 $ 1,115
Amortization of transition obligation 763 763
Amortization of (gain) (293)
-------- --------
$ 1,481 $ 1,878
======== ========
</TABLE>
The assumed weighted-average annual rate of increase in the per capita cost of
covered benefits is 9% for 1996 and is assumed to decrease gradually to 5.5% for
2010 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1995 by $1,196,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1995 by
$104,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 8% at December 31, 1995 and
1994, respectively.
The Company has an Executive Management Savings Plan and a Directors Saving
Plan (the Plans) which permit eligible executives and the Company's non-employee
directors to defer a portion of their compensation. Participants in the Plans
may also participate in the Company's "split-dollar" life insurance program
pursuant to
38 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
which the Company will purchase a life insurance policy for a premium equal to
the amounts deferred plus any additional amount required to provide a minimum
death benefit. Amounts payable to a participant under the Plans are offset by
any benefits paid under the participant's life insurance policy. The life
insurance policies are intended to provide security for the payment of benefits
under the Plans. The cost associated with the plans for 1995 was $138,340.
J SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1995
Revenues $57,645 $76,787 $68,053 $71,246
Gross profit 23,787 28,017 24,780 22,630
Income before income taxes 4,721 8,289 5,457 3,441
Provision for income taxes 1,808 2,886 1,776 999
Net income 2,913 5,403 3,681 2,442
Net income per share of common stock .09 .17 .12 .08
1994
Revenues $51,314 $57,519 $54,248 $60,520
Gross profit 20,266 21,440 21,802 23,253
Income before income taxes 3,650 4,616 4,864 5,787
Provision for income taxes 1,292 1,712 1,856 1,896
Net income 2,358 2,904 3,008 3,891
Net income per share of common stock .07 .09 .09 .11
</TABLE>
K GEOGRAPHIC INFORMATION
Information about the Company's worldwide operations for 1995, 1994 and 1993
follows:
<TABLE>
<CAPTION>
Adjustments &
(in thousands) United States Europe Asia Eliminations Consolidated
--------------------------------------------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1995
Sales and rentals to
unaffiliated customers $ 194,941 $ 57,081 $ 20,329 $ 272,351
Intercompany sales 33,974 19,684 1,000 (54,658)
Total sales and rentals 228,915 76,765 21,329 (54,658) 272,351
Operating profit 15,174 5,248 1,486 21,908
Identifiable assets 181,027 53,326 12,444 246,797
1994
Sales and rentals to
unaffiliated customers $ 159,812 $ 39,189 $ 22,442 $ 221,443
Intercompany sales 34,257 15,484 1,085 (50,826)
Total sales and rentals 194,069 54,673 23,527 (50,826) 221,443
Operating profit 12,521 4,037 2,359 18,917
Identifiable assets 191,273 49,924 16,444 257,641
1993
Sales and rentals to
unaffiliated customers $ 140,046 $ 35,890 $ 15,831 $ 191,767
Intercompany sales 29,756 10,819 453 (41,028)
Total sales and rentals 169,802 46,709 16,284 (41,028) 191,767
Operating profit 5,418 4,176 1,217 10,811
Identifiable assets 195,185 40,750 12,086 248,021
</TABLE>
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 39
<PAGE>
Intercompany sales are transferred at prices that approximate those charges to
third party distributors.
International sales from all of the Company's operating locations are
principally to the following geographic areas:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
-------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Europe $ 83,496 $ 49,783 $ 50,735
Asia and Australia 45,480 38,761 33,774
Africa and Middle East 21,217 18,544 13,402
South America 22,797 25,515 15,663
Canada 8,539 7,401 14,861
Mexico 1,125 3,438 1,748
Former Soviet Union 6,359 6,376 6,320
Miscellaneous 174 276 240
--------- --------- ---------
$ 189,187 $ 150,094 $ 136,743
========= ========= =========
</TABLE>
No individual customer accounted for more than 10% of total sales in 1995, 1994
or 1993.
L ACQUISITIONS
On November 30, 1994 the Company acquired all of the outstanding shares of Rig
Technology Limited ("Thule Rigtech"), a company incorporated in Scotland, for
approximately $8,954,000 consisting of cash, the assumption of Thule Rigtech's
debt and the payment of certain expenses. Thule Rigtech provides equipment and
systems used in the handling, mixing, transport and conditioning of drilling
fluids.
On August 19, 1993 the Company acquired all the outstanding common stock of
Metrox, Inc. for a cash consideration of approximately $4,000,000. Metrox
designed and manufactured instrumentation used in the oil and gas industry, as
well as in general commercial and industrial applications. Metrox has been
combined with, and is reported within, the Company's Martin-Decker/TOTCO
Instrumentation Division.
The acquisitions were accounted for as purchases and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair values at
the dates of acquisition and operating results are included in the consolidated
statements of income from the respective dates of acquisition.
Supplemental unaudited information is not presented for Rig Technology Limited
or Metrox because it would not have a material impact on previously reported
results.
40 VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF VARCO INTERNATIONAL, INC.
ALL 100% OWNED
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION ADDRESS
-------------- -------
<S> <C> <C>
Best Industries, Inc. Texas 12950 West Little York
Houston. Texas 77041
--------------------
Varco de Mexico California 743 No. Eckhoff Street
Holdings, Inc. Orange. California 92668
------------------------
Martin-Decker TOTCO, Inc. Texas 1200 Cypress Creek Road
Cedar Park, Texas 78613
-----------------------
Metfox, Inc. California 743 No. Eckhoff Street
Orange. California 92668
------------------------
Varco Shaffer, Inc. Texas 12950 W. Little York
Houston. Texas 77041
--------------------
Varco International Inc Singapore No. 8 Sixth Lok Yang Road
Pte Ltd Jurong
Singapore 2262
--------------
Varco BJ 0il Tools B.V. The Netherlands Nijverheidsweg 45
4879 AP Etten-Leur
P.O. Box 17, 4870 AA Etten-Leur
The Netherlands
---------------
Varco (U.K.) Limited United Kingdom Forties Road, Montrose
Angus. Scotland
---------------
Varco BJ FSC Inc. Barbados 743 No. Eckhoff Street
Orange, California 92668
------------------------
304774 Alberta Ltd. Alberta, Canada Bay 15 - 2916 5th Ave. N.E.
Calgary, Alberta T2A 6M7
Canada
------
Rig Technology Limited United Kingdom South College Street
Aberdeen, Scotland
------------------
</TABLE>
<PAGE>
EXHIBIT 21
PAGE 2 OF 2
<TABLE>
<CAPTION>
JURISDICTION OF
INACTIVE SUBSIDIARIES INCORPORATION ADDRESS
- --------------------- --------------- -------
<S> <C> <C>
Varco Marine Tools Texas 12950 West Little York
International, Inc. Houston, Texas 77041
--------------------
Varco-Disc California 743 No. Eckhoff Street
Orange, California 92668
------------------------
Best Disc Texas 12950 West Little York
Houston, Texas 77041
----------------------
Varco Eastern, Inc. California 743 NO. Eckhoff Street
Orange, California 92668
------------------------
Varco International Netherlands P.O. Box 507
Finance N.V. Antilles Curacao
-------
Varco Singapore, Ltd. California 743 No. Eckhoff Street
Orange, California 92668
------------------------
Varco Middle East California 743 No. Eckhoff Street
Orange, California 92668
------------------------
Varco Electronics, Inc. California 743 No. Eckhoff Street
Orange, California 92668
------------------------
Varco Electronics Disc California 743 No. Eckhoff Street
Orange, California 92668
------------------------
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements Number
2-66830, 2-96290, 33-36841, 33-62118, 33-61861 and 33-61939 on Form S-8 of Varco
International, Inc. and in the related Prospectuses of our report dated February
15, 1996, with respect to the consolidated financial statements and schedule of
Varco International, Inc. included in the annual report on Form 10-K for the
year ended December 31, 1995.
Orange County, California
February 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF THE REGISTRANT INCLUDED IN ITS ANNUAL REORT TO
SHAREHOLDERS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,762,000
<SECURITIES> 0
<RECEIVABLES> 62,268,000
<ALLOWANCES> (1,585,000)
<INVENTORY> 70,832,000
<CURRENT-ASSETS> 146,940,000
<PP&E> 111,247,000
<DEPRECIATION> (60,625,000)
<TOTAL-ASSETS> 246,571,000
<CURRENT-LIABILITIES> 57,753,000
<BONDS> 29,539,000
<COMMON> 124,552,000
0
0
<OTHER-SE> 26,627,000
<TOTAL-LIABILITY-AND-EQUITY> 246,571,000
<SALES> 272,351,000
<TOTAL-REVENUES> 273,731,000
<CGS> 173,137,000
<TOTAL-COSTS> 234,151,000
<OTHER-EXPENSES> 13,156,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,516,000
<INCOME-PRETAX> 21,908,000
<INCOME-TAX> 7,469,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,439,000
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0
</TABLE>
