VARCO INTERNATIONAL INC
11-K, 1996-06-26
OIL & GAS FIELD MACHINERY & EQUIPMENT
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<PAGE>
 
                SECURITIES AND EXCHANGE COMMISSIONUNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                             ______________________

                                   FORM 11-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 March 31, 1996

                                       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 
                                 -----   -----
                         
                         COMMISSION FILE NUMBER 1-8158
                             _____________________

 A.  Full title of the plan and the address of the plan, if different from that
                           of the issuer named below:

                  THE VARCO 1980 EMPLOYEE STOCK PURCHASE PLAN

 B.  Name of issuer of the securities held pursuant to the plan and the address
                       of its principal executive office.

                            VARCO INTERNATIONAL, INC.
                            743 NORTH ECKHOFF STREET
                            ORANGE, CALIFORNIA 92668


This annual report on Form 11-K relates to the Varco 1980 Employee Stock
Purchase Plan (the "Plan") of Varco International, Inc. (the "Company").
<PAGE>
 
ITEM 1. CHANGES IN THE PLAN
- ---------------------------

No changes were made to the Plan during the fiscal year ended March 31, 1996.


ITEM 2. CHANGES IN THE INVESTMENT POLICY
- ----------------------------------------

No changes were made during the fiscal year with respect to investment policy.


ITEM 3. CONTRIBUTIONS UNDER THE PLAN
- ------------------------------------

There have been no Company contributions to the Plan since the effective date of
the Plan on April 1, 1980.


ITEM 4. PARTICIPATING EMPLOYEES
- -------------------------------

There were approximately 416 participating employees in the Plan on March 31,
1996.

 
ITEM 5. ADMINISTRATION
- ----------------------
 
(a)   The Plan is administered by the Compensation Committee of the Company's
      Board of Directors (the "Committee").  For the Plan year ended March 31,
      1996, the members of the Committee and their positions with the Company
      and its affiliates were:

      Member                 Position
      ------                 --------
      James D. Woods         Director of the Company
      Jack W. Knowlton       Director of the Company
      Robert A. Teitsworth   Director of the Company
  
      The address of each member listed above is c/o Varco
      International, Inc. 743 North Eckhoff Street, Orange, California
      92668.
       
(b)   During the fiscal year ended March 31, 1996 no compensation 
      was received from the Plan by any membners of the Committee.
<PAGE>
 
ITEM 6. CUSTODIAN OF INVESTMENTS
- --------------------------------

The Company is the custodian of funds received in respect of contributions by
employees under the Plan.  The Company receives no compensation from the Plan.
Under the provisions of the Plan all funds received or held by the Company under
the Plan are included in the general funds of the Company free of any trust or
other restrictions, and may be used for any corporate purpose.  Pursuant to the
Plan no interest on funds contributed under the Plan is paid or credited to
participants' accounts.


ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES
- ------------------------------------------

Participating employees are furnished a semi-annual statement reflecting the
number of shares of the Company's Common Stock purchased for such employees'
accounts during the most recent period of the Plan and the balance remaining in
the participation account to be refunded to such employees.


ITEM 8. INVESTMENT OF FUNDS
- ---------------------------

All funds received or held by the Company under the Plan are included in the
general funds of the Company.  Reference is made to Item 6 hereof.


ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
- -----------------------------------------
<TABLE>
<CAPTION>
                                                      PAGE NO.
                                                      --------
<S>                                                   <C>
(a)  Financial Statements
 
     Report of Independent Auditors                      F-1
     Statements of Financial Condition                   F-2
     Statements of Changes in Plan Equity                F-3
     Notes to Financial Statements                       F-4
     Schedules -- Schedules I, II, and III have
       been omitted because they are not
       applicable.
 
(b)  Exhibits
 
     Exhibit 23, Consent of Independent Auditors         F-5

</TABLE>
<PAGE>
 
SIGNATURE
- ---------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Compensation Committee of the Board of Directors of Varco International, Inc.
has duly caused this annual report to be signed by the undersigned, thereunto
duly authorized.



THE VARCO 1980 EMPLOYEE STOCK PURCHASE PLAN



                                    /s/ DONALD L. STICHLER
                                    ----------------------
                                    DONALD L. STICHLER
                                    CONTROLLER-TREASURER
                                    JUNE 24, 1996

<PAGE>
 
REPORT OF INDEPENDENT AUDITORS



Compensation Committee of the Board of Directors
Varco International, Inc.
Orange, California

We have audited the accompanying statements of financial condition of The Varco
1980 Employee Stock Purchase Plan as of March 31, 1996 and 1995, and the related
statements of changes in plan equity for each of the three years in the period
ended March 31, 1996.  These financial statements are the responsibility of the
Plan's management.  Our responsibility is to express an opinion on these
financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Varco 1980 Employee Stock
Purchase Plan at March 31, 1996 and 1995 and the changes in Plan equity for each
of the three years in the period ended March 31, 1996, in conformity with
generally accepted accounting principles.




Orange County, California
May 24, 1996



                                      F-1

<PAGE>
 
STATEMENTS OF FINANCIAL CONDITION

THE VARCO 1980 EMPLOYEE STOCK PURCHASE PLAN

<TABLE> 
<CAPTION> 
                                                             MARCH 31,
                                                             ---------
                                                           1996       1995
                                                         --------   --------
<S>                                                      <C>        <C>
Plan Assets:
- ------------
     Accounts receivable from Varco
     International, Inc.--Notes A and B                  $434,673   $330,729
                                                         ========   ========

Plan Liabilities and Equity:
     Obligations to purchase Varco
     International, Inc. Common
     Stock--Notes A and B                                $434,673   $330,729

Plan Equity                                                 ---        ---
                                                         --------   --------
 
Total Plan Liabilities and Equity                        $434,673   $330,729 
                                                         ========   ========
 
</TABLE>



See notes to financial statements.


                                      F-2

<PAGE>
 
STATEMENTS OF CHANGES IN PLAN EQUITY

THE VARCO 1980 EMPLOYEE STOCK PURCHASE PLAN

<TABLE>
<CAPTION>
                                       YEAR ENDED MARCH 31,
                                    1996       1995       1994
                                  --------   --------   --------
<S>                               <C>        <C>        <C>
 
Plan Income:
  Employees' contribution         $828,216   $632,279   $522,160
 
Plan Expenses:
   Purchases of Varco
   International, Inc. Common
   Stock-Note A                    825,356    630,441    520,084

   Amounts refunded to plan
   participants-Note B               2,860      1,838      2,076
                                  --------   --------   --------
 
Plan Equity at March 31           $    -0-   $    -0-   $    -0-
                                  ========   ========   ========
 
</TABLE>



See notes to financial statements.




                                      F-3

<PAGE>
 
NOTES TO FINANCIAL STATEMENTS

THE VARCO 1980 EMPLOYEE STOCK PURCHASE PLAN

March 31, 1996

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
          AND PLAN DESCRIPTION

The accompanying financial statements have been prepared on the accrual basis of
accounting.  Asset valuations are stated at cost which is equivalent to fair
value.

The Plan was adopted by the Company's Board of Directors in December 1979, and
became effective on April 1, 1980.  The Plan permits eligible employees to make
regular and systematic purchases of Common Stock of the Company through payroll
deductions.  Substantially all regular full-time employees are eligible to
participate in the Plan.  Voluntary employee contributions are deducted from the
employee compensation each payday and paid into the Plan for the employee's
account.  All funds received or held by the Company under the Plan are included
in the general funds of the Company.  The Company issues stock certificates to
each participant to the extent that the balance in the participant's account at
the end of the Plan period is sufficient to purchase whole shares of the
Company's stock.  The Plan provides for two six months purchase periods per year
in lieu of a twelve-month purchase period.  The first purchase period commences
on April 1, and ends on September 30.  The second period begins on October 1 and
ends on March 31. The purchase price per share to be paid by each participant is
85% of the fair market value of the Company's Common Stock on the first or last
day of a Purchase Period, whichever amount is lower.  Any Participant may
terminate contributions and withdraw from the Plan at any time.   In February
1995, the Plan was amended by the Board of Directors, and subsequently ratified
by the shareholders in May 1995, to increase the number of shares subject to the
Plan from 1,000,000 to 2,000,000 shares and to extend the term of the Plan from
fifteen years to twenty-five years following its effective date unless it is
sooner terminated by resolution adopted by the Company's Board of Directors.

NOTE B--PURCHASE OF COMMON STOCK

For the fiscal year ended March 31, 1996, the Company issued 60,602 shares of
its Common Stock to 410 participants at a price of $6.4813 a shares for the
Plan's first purchase period (April 1, 1995 through September 30, 1995).   For
the Plan's second period (October 1, 1995 through March 31, 1996), the Company
issued 49,650 shares of its Common Stock to 416 participants at a price of
$8.7125 a share.

For the fiscal year ended March 31, 1995, the Company issued 64,328 shares of
its Common Stock to 355 participants at a price of $4.675 a share for the Plan's
first purchase period (April 1, 1994 through September 30, 1994).  For the
Plan's second period (October 1, 1994 through March 31, 1995), the Company
issued 56,420 shares of its Common Stock to 365 participants at a price of
$5.8438 a share.

For the fiscal year ended March 31, 1994, the Company issued 49,349 shares of
its Common Stock to 339 participants at a price of $5.2063 a share for the
Plan's first purchase period (April 1, 1993 through September 30, 1993).  For
the Plan's second period (October 1, 1993 through March 31, 1994), the Company
issued 57,599 shares of its Common Stock to 359 participants at a price of
$4.5688 a share.

Amounts remaining in the participant's accounts after such issuance, which were
insufficient to purchase whole shares of the Company's Common Stock, were
refunded to the participants.

NOTE C--FEDERAL INCOME TAXES

The Plan qualifies as an Employee Stock Purchase Plan under Section 423 of the
Internal Revenue Code of 1986.  Transfers of shares under this Plan are not
intended to result in taxable income to employees under the Plan based on
provisions in Section 423 of the Internal Revenue Code.

                                      F-4

<PAGE>
 
EXHIBIT 23-- CONSENT OF INDEPENDENT AUDITORS



We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 2-66830, Form S-8 No. 2-96290 and Form S-8 No. 33-61861)
pertaining to The Varco 1980 Employee Stock Purchase Plan of Varco
International, Inc. and in the related prospectuses of our report dated May  24,
1996,  with respect to the financial statements of The Varco 1980 Employee Stock
Purchase Plan included in this Annual Report (Form 11-K) for the year ended
March 31, 1996.



Orange County, California
June 21, 1996



 
                                      F-5


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