<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
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 (I.R.S. Employer
incorporation or organization) Identification No.)
743 North Eckhoff Street, Orange, Ca 92868
(Address of principal executive offices)
(Zip code)
(714) 978-1900
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
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 ____
31,670,790
(Number of shares of Common Stock outstanding at March 31, 1997)
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
Pursuant to General Instruction D to Form 10-Q, the Condensed
Consolidated Statements of Cash Flows, Condensed Consolidated Balance Sheets and
Condensed Consolidated Statements of Income of Varco International, Inc., (the
"Company") and its subsidiaries included in the registrant's First Quarter
Report to Shareholders for the three months ended March 31, 1997, filed as
Exhibit 19 hereto are incorporated herein by reference. Such financial
statements should be read in light of the following:
Adjustments. The financial statements contained in Exhibit 19 hereto
include all adjustments which in the opinion of management are of a normal
recurring nature, considered necessary to present fairly the results of
operations for the interim periods presented.
Net Income Per Share. Net income per share is based upon an average
of 32,385,000 and 30,728,000 shares outstanding for the three months ended March
31, 1997, and 1996 respectively.
Inventories. The Company estimates the components of inventory at
March 31, 1997, and December 31, 1996, to be as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
Raw Materials $ 6,361,000 $ 6,545,000
Work in Process 28,647,000 22,646,000
Finished Goods 83,575,000 77,150,000
LIFO Reserves (13,496,000) (14,468,000)
------------ ------------
$105,087,000 $ 91,873,000
============ ============
</TABLE>
Fixed Assets. Fixed assets are stated net of accumulated depreciation
of $56,497,000 at March 31, 1997, and $54,534,000 at December 31, 1996.
Common Stock and Additional Paid-In-Capital. On March 31, 1997, the
Company Common Stock account was $22,039,000 and Additional Paid-In-Capital
accounts were $122,510,000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Pursuant to General Instruction D to Form 10-Q, Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
registrant's First Quarter Report
<PAGE>
to Shareholders for the three months ended March 31, 1997, filed as Exhibit 19
hereto, is incorporated herein by reference.
PART II-OTHER INFORMATION
Item 2. Changes in Securities
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.
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
(as amended, 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.
The Note Agreement prohibits any "Restricted Payment" subsequent to July
17, 1992 unless after giving effect thereto, (i) the aggregate amount of all
Restricted Payments subsequent to such date would not exceed $5,000,000 plus the
cumulative sum of 50% of the Company's consolidated net income (or minus 100% in
the case of a deficit) subsequent to March 31, 1992 and (ii) the Company could
incur at least $1.00 of additional indebtedness under the Note Agreement
covenant limiting indebtedness. The term "Restricted Payment" includes (a) any
dividend (other than dividends payable in shares of capital stock) or other
distributions on any shares of capital stock of the Company; (b) any purchase,
redemption or other acquisition of any shares of the capital stock of the
Company or any rights or options to purchase or acquire such shares; and (c) any
"Restricted Investment", which is generally defined as any investment other than
an investment in a subsidiary of the Company or an investment in certain
designated government or rated securities. In addition, the Company may
purchase, redeem or otherwise acquire shares of its capital stock or make
Restricted Investments from the net cash proceeds of the substantially
concurrent sales of shares of capital stock or from the sale of securities
convertible into such shares upon conversion.
Pursuant to a waiver and amendment dated as of March 8, 1995, the holders
of the Senior Notes (1) waived compliance with the limitations on Restricted
Payments discussed above, (2) agreed that the amount expended in the Tender
Offer would not constitute a Restricted Payment, and (3) amended certain
covenants to take into account the effect of the consummation of the Tender
Offer on certain financial ratios.
On February 25, 1993 the Company entered into an unsecured revolving credit
agreement with Citicorp USA, Inc. and Citibank, N.A. (as amended, 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.
Under the terms of the Credit Agreement, 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 the December 31, 1995 amendment to
the Credit Agreement discussed above, the Company could 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re computation of per share earnings for the three months
ended March 31, 1997 and 1996.
19 Varco International, Inc. First Quarter Report to Shareholders, Three
Months Ended March 31, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VARCO INTERNATIONAL, INC.
Date: May 12, 1997 By: /s/ Richard A. Kertson
----------------------
Vice President-Finance
and Chief Financial Officer
Date: May 12, 1997 By: /s/ Donald L. Stichler
----------------------
Controller-Treasurer
and Secretary
<PAGE>
EXHIBIT INDEX
11 Statement re computation of per share earnings for the three months ended
March 31, 1997 and 1996.
19 Varco International, Inc. First Quarter Report to Shareholders, Three
Months Ended March 31, 1997.
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
VARCO INTERNATIONAL, INC.
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months
Ended March 31 1996
-------------------
<S> <C>
A. CALCULATION OF ADJUSTED EARNINGS
Net Income After Tax $ 3,028,000
</TABLE>
<TABLE>
<CAPTION>
Average Stock
Total Number Number 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 March 31, 1996 91 2,747,512,520 30,192,445 535,138 30,727,583
</TABLE>
C. CALCULATION OF EARNINGS PER SHARE
Income Per Share = Net Income After Tax
------------------------
Total Shares Outstanding
Income Per Share =
<TABLE>
<S> <C> <C>
Three Months Ended March 31, 1996 3,028,000 = $0.10
---------------
30,727,583
</TABLE>
VARCO INTERNATIONAL, INC.
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months
Ended March 31 1997
-------------------
<S> <C>
A. CALCULATION OF ADJUSTED EARNINGS
Net Income After Tax $ 7,384,000
</TABLE>
<TABLE>
<CAPTION>
Average Stock
Total Number Number 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 March 31, 1997 90 2,846,385,246 31,626,503 758,079 32,384,582
</TABLE>
C. CALCULATION OF EARNINGS PER SHARE
Income Per Share = Net Income After Tax
------------------------
Total Shares Outstanding
Income Per Share =
<TABLE>
<S> <C> <C>
Three Months Ended March 31, 1997 7,384,000 = $0.23
---------------
32,384,582
</TABLE>
<PAGE>
EXHIBIT 19
Varco International, Inc.
1997 First Quarter Report
<PAGE>
To Our Shareholders
As industry conditions continued to improve, our financial results for the first
quarter of 1997 were significantly above those of the first quarter a year ago.
Net Income more than doubled, to $7.4 million, $.23 per share, from $3.0
million, $.10 per share; and Revenues grew 42 percent, to $101.1 million from
$71.0 million last year. Moreover, it appears that the underlying factors behind
this growth are soundly based.
The offshore rig market is continuing to strengthen, with reported
utilization of the mobile offshore rig fleet approximating 95 per cent and the
effective availability of desirable rigs approaching zero. As one would expect,
day rates are moving higher and longer-term contracts are more prevalent.
The trend toward deep water drilling which began about eighteen months ago
remains an important influence on the overall offshore market, as the demand for
floating rigs capable of such drilling exceeds the available supply. In
response, rig owners continue to upgrade the water depth capacity of existing
rigs, to convert vessels which had been diverted to other uses into drilling
rigs, and to initiate the construction of new rigs. More recently, the demand-
supply relationship for jackup rigs has also narrowed, accelerating rig upgrades
and prompting the beginning of some new rig construction.
As we have indicated in our recent reports to you, these industry trends are
having a substantial impact on Varco's revenues and orders. In particular, the
upgrading, conversion and new construction of floating rigs has dramatically
affected our Shaffer Division because its product line includes a significant
amount of equipment of the types essential to these activities. Shaffer's
Revenue was $43.1 million in the most recent quarter, almost triple the $15.4
million it recorded in the first quarter a year ago. That increase accounts for
more than 90 per cent of the Revenue growth for the Company as a whole over that
same period.
Total incoming orders for the quarter were $140.3 million, an increase of 37
per cent from the initial quarter of 1996. Indicative of the overall improvement
in the offshore market, the order growth was widely distributed across the
Company's business units. Shaffer's orders remained strong, totaling $54.2
million versus $48.0 million in the first quarter a year ago. The Drilling
Systems Division recorded orders of $39.8 million as compared to $24.3 million
for the initial three months of last year; and the Varco BJ Oil Tools and M/D
Totco Divisions booked orders of $23.5 million and $20.8 million, respectively,
in the most recent quarter, versus $14.1 million and $13.6 million in the
comparable period of 1996. The principal factors driving the increased business
are the offshore rig upgrades and new construction previously mentioned, as well
as an increased volume of spare and replacement parts resulting from the general
increase in drilling activity.
We believe that the current recovery is solidly based and is reflective of a
more balanced relationship between supply and demand across the entire industry
than has existed for a number of years. Therefore, we are optimistic that the
fundamentals are in place to promote a healthy industry environment going
forward. We also believe that because Varco offers an array of products that
significantly enhance the productivity of a drilling rig, we are particularly
well positioned to take advantage of today's industry conditions.
Two long-time directors have indicated that they do not intend to stand for
re-elec-
<PAGE>
tion this year. Talton R. Embry, Chairman and Chief Investment Officer of
Magten Asset Management Corporation, has been a director of Varco since 1986.
His tenure began during a very difficult period in the Company's history and has
spanned the years during which we built it into that which exists today.
Through it all, Talley's broad perspective, keen insight and sharp wit have
provided both guidance and inspiration, and are much appreciated by all of us.
Maurice E. Jacques has been a director since 1982 and, although he will no
longer serve on the Board of Directors, his vast knowledge and understanding of
our industry will still be available to us as he continues in his role as Vice
President-Marketing of the Varco Drilling Systems Division.
As always, we appreciate your continued support.
Walter B. Reinhold George I. Boyadjieff
Chairman President and
Chief Executive Officer
May 12, 1997
<PAGE>
Condensed Consolidated
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(in thousands)
<S> <C> <C>
Current Assets
- --------------
Cash and cash equivalents $ 3,897 $ 5,794
Receivables (net) 94,054 95,160
Inventories 105,087 91,873
Other 15,502 13,835
- ----------------------------------------------------------------------------------------------------------------
Total Current Assets 218,540 206,662
Property, plant and equipment
at cost less accumulated
depreciation 53,049 48,711
Rental inventory less accumulated
depreciation 14,950 13,601
Cost in excess of
net assets required 35,341 35,879
Other assets 11,011 11,168
- ----------------------------------------------------------------------------------------------------------------
Total Assets $332,891 $316,021
================================================================================================================
Current Liabilities
- -------------------
Accounts payable $ 42,854 $ 37,815
Other Liabilities 35,456 38,601
Current portion of long-term debt 10,000 10,000
- ----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 88,310 86,416
Long-term debt 29,259 22,715
Other non-current liabilities 11,779 11,382
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 129,348 120,513
Shareholders' Equity
- --------------------
Common Stock and additional
paid-in capital 144,549 143,533
Retained earnings 58,994 51,975
- ----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 203,543 195,508
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders'
Equity $ 332,891 $ 316,021
================================================================================================================
</TABLE>
<PAGE>
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
- --------------------
Net Income $ 7,384 $ 3,028
Depreciation and amortization 3,811 3,012
Increase(decrease) in operating
cash flows:
Receivables 1,106 (3,751)
Inventories (13,214) (9,024)
Additions to rental equipment (1,866) (3,484)
Accounts payable 5,039 5,604
Customer deposits 953 3,902
Taxes payable 652 1,198
Interest payable 699 (886)
Other (6,303) (1,750)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (1,739) (2,151)
- -----------------------------------------------------------------------------------------------------------------
Investing Activities
- --------------------
Equipment purchases (7,182) (2,266)
Proceeds from equipment sales 77 172
- -----------------------------------------------------------------------------------------------------------------
Net cash from (used in)
investing activities (7,105) (2,094)
- -----------------------------------------------------------------------------------------------------------------
Financing Activities
- ---------------------
Increase in line of credit 6,500 2,000
Proceeds from issuance of
Common Stock 447 196
- -----------------------------------------------------------------------------------------------------------------
Net cash from financing
activities 6,947 2,196
- -----------------------------------------------------------------------------------------------------------------
Net change in cash
and cash equivalents (1,897) (2,049)
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
beginning of year 5,794 6,762
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of quarter $ 3,897 $ 4,713
=================================================================================================================
</TABLE>
<PAGE>
Condensed Consolidated
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in thousands, except per share data) 1997 1996
...............................................................................
<S> <C> <C>
Revenues
- --------
Net sales $ 91,232 $63,832
Rental Income 9,752 6,424
Other Income 87 713
- --------------------------------------------------------------------------------
101,071 70,969
- --------------------------------------------------------------------------------
Costs and Expenses
- ------------------
Cost of sales 63,499 43,603
Cost of rental income 2,873 1,907
Selling, general and administrative
expenses 18,134 16,117
Research and development costs 4,024 3,572
Interest expense 1,035 1,005
- --------------------------------------------------------------------------------
89,565 66,204
- --------------------------------------------------------------------------------
Income before income taxes 11,506 4,765
- --------------------------------------------------------------------------------
Provision for income taxes 4,122 1,737
Net income $ 7,384 $ 3,028
================================================================================
Net income per share of Common Stock $ 0.23 $ 0.10
================================================================================
Shares used to calculate earnings
per share 32,385 30,728
================================================================================
</TABLE>
Note: These statements are condensed and do not contain disclosures required by
generally accepted accounting principles. Reference should be made to the
financial statements contained in the Annual Report to Shareholders for the year
ended December 31, 1996.
<PAGE>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
G E N E R A L I N D U S T R Y
- --------------------------------------------------------------------------------
C O N D I T I O N S
- --------------------------------------------------------------------------------
Worldwide drilling activity, as measured by the average number of active
drilling rigs, increased 14% in the first three months of 1997 to an average of
approximately 2,055 from an average of approximately 1,803 during the same
period in 1996. The U.S. and Canadian component of the rig count averaged
1,251, a 22% increase over the prior year's rig count. The international
component of active drilling rigs averaged approximately 804 in the first
quarter of 1997, an increase of 24, or 3%, over the prior year.
Offshore drilling activity increased significantly year-to-year, as reflected
by an increase in rig utilization (mobile offshore rigs under contract as a
percent of available rigs). For the first quarter of 1997, mobile offshore rig
utilization averaged 93%, the highest level in more than ten years, as compared
to 87% in the first quarter of 1996. The higher utilization was accompanied by
increasing day rates and longer contract periods, particularly among the
"premium" offshore rigs.
The increase in drilling activity, particularly the increase in offshore rig
utilization, has led to higher day rates and improved profits and cash flow for
the Company's major customers, the offshore drilling contractors.
R E S U L T S O F O P E R A T I O N S
- --------------------------------------------------------------------------------
Set forth below are the net orders and revenues for the Company's five
operating divisions:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Net Orders
- ----------
Varco Drilling Systems $ 39,751 $ 24,343
Varco BJ Oil Tools 23,503 14,068
Martin-Decker/TOTCO
Instrumentation 20,778 13,627
Shaffer 54,178 47,951
Thule Rigtech 2,137 2,231
- -----------------------------------------------------------------------------------------
Total $140,347 $102,220
=========================================================================================
Revenues
- --------
Varco Drilling Systems $ 26,528 $ 25,695
Varco BJ Oil Tools 12,347 11,778
Martin-Decker
/TOTCO Instrumentation 16,565 14,639
Shaffer 43,117 15,371
Thule Rigtech 2,427 2,773
- -----------------------------------------------------------------------------------------
Total $100,984 $ 70,256
=========================================================================================
</TABLE>
Order bookings increased $38.1 million, 37%, in the first three months of 1997
as compared to the same period of 1996. This increase is primarily due to orders
associated with the upgrading and construction of offshore drilling rigs,
particularly floating rigs that are capable of drilling in water depths
exceeding 3,000 feet. Each such rig creates significant potential for the high
dollar value products provided by the Shaffer and Drilling Systems Divisions as
well as the products of the other Divisions. In addition, the incoming order
rate was favorably impacted by the overall 14% increase in worldwide drilling
activity discussed above.
The Company's operating revenues increased by 44% in the first three months of
<PAGE>
1997 to $101.0 million, from same period 1996 revenues of $70.3 million. This
increase is accounted for almost entirely by the increase in the Shaffer
Division revenues. The Shaffer Division has particularly benefited from the
upgrading, conversion and new construction of floating rigs because its product
line includes a significant amount of equipment of the types essential to these
activities.
At March 31, 1997 the Company's backlog of unshipped orders was approximately
$226.2 million as compared to $186.9 million at December 31, 1996 and $107.3
million at March 31, 1996. Orders for new rigs and major upgrades generally
include the Company's longer lead-time products. This has resulted in the
Company's backlog increasing approximately 71% during the last six months to the
highest level in the Company's history. The Company expects that most of the
backlog will ship by December 31, 1997 resulting in revenues for the remaining
quarters of 1997 being at a higher rate than the first quarter. In accordance
with industry practice, orders and commitments generally are cancelable by
customers at any time.
Gross margin (net sales and rental income less costs of sales and rental
income) as a percentage of net sales and rental income for the first quarter of
1997 was 34.3%. This compares to a gross margin of 35.2% for the same period in
1996. The decline in margin is due to the large increase in Shaffer's revenue.
Shaffer's products carry lower gross margins (due principally to price
competition) than the combined gross margins of the other Divisions. The effect
of the Shaffer increase was partially offset by higher margins at the Drilling
Systems Division. Taken alone, the improved Drilling systems margins would have
increased the overall margin by approximately 1.5% as compared to the first
quarter of 1996. During the first quarter of 1996 Drilling Systems experienced
a slightly negative margin on TDS-9S units.
The decrease in other income is due to the sale of an equity security in 1996
that was previously received in settlement of a previously written-off trade
receivable.
The Company believes that new product development is a significant factor for
the future of the Company. During the first three months of 1997 the Company
spent $4.0 million or 4.0% of revenues on new product development. This compares
to $3.6 million or 5.0% of revenues during the same period in 1996.
Selling, general and administrative expenses increased approximately 12.5%
in the first quarter of 1997 as compared to the first quarter of 1996. As a
percent of revenue, selling, general and administrative expenses decreased to
17.9% from 22.7% in the first quarter of 1996. The dollar increase is primarily
due to increased selling costs associated with the higher revenue level.
Overall Company employment at March 31, 1997 was 2,141 (including 227
temporary employees) which compares to 1,684 (including 210 temporary employees)
a year ago. This increase is mostly in manufacturing employees.
LIQUIDITY AND CAPITAL
- --------------------------------------------------------------------------------
RESOURCES
- --------------------------------------------------------------------------------
At March 31, 1997 the Company had cash and cash equivalents of $3.9 million as
compared to $5.8 million at December 31, 1996. This decline was due to an
increase in working capital during the first quarter.
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 certain purchases of the Company's Common Stock and amended certain
financial covenants. 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 March 31, 1997 the
prepayment penalty would have been approximately $850 thousand.
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) amend certain covenants to permit certain purchases of Company stock and to
amend certain financial ratios. At March 31, 1997 there were $9.5 million in
advances outstanding and $5.9 million in letters of credit outstanding under
<PAGE>
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. 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.
At March 31, 1997 the Company's working capital was $130.2 million as compared
to $120.2 million at December 31, 1996 and its current ratio was 2.5 to 1.0 as
compared to 2.4 to 1.0 at December 31, 1996.
The preceding changes are primarily due to an increase in inventory during the
first quarter of 1997. Long-term debt as a percent of total capitalization was
13% at March 31, 1997 as compared to 10% at December 31, 1996. The increase in
this percentage is primarily due to increased borrowing to fund capital
expenditures made in the first quarter of 1997.
The Company's capital expenditures during the first quarter of 1997 were $7.2
million as compared to $2.3 million for the first quarter of 1996. The Company's
current plans for capital expenditures in 1997 are approximately $30 million.
The Company anticipates that its March 31, 1997 cash and cash equivalents and
its existing credit facility will not be sufficient to meet its capital
expenditures and operating cash needs and the principal payment on the Senior
Notes in 1997. According, the Company is currently negotiating with certain
banks to increase its credit facility by $30 million.
PROFILE
- --------------------------------------------------------------------------------
Varco International, Inc. is a leading manufacturer of products used in the oil
and gas well drilling industry worldwide. The Company also leads in the
development of new technology and equipment to enhance the safety and
productivity of the drilling process. Operating through five divisions, the
Company's products include: integrated systems for rotating and handling the
various sizes and types of pipe used on a drilling rig; conventional pipe
handling tools, hoisting equipment and rotary equipment; drilling rig
instrumentation; pressure control and motion compensation equipment; and solids
control equipment and systems.
INVESTOR CONTACT
- -------------------------------------------------------------------------------
Richard A. Kertson
Vice President - Finance
Varco International, Inc.
743 North Eckhoff Street
Orange, California 92868
Tel (714) 978-1900
Fax (714) 937-5029
E-mail: investor-relations @ ora.varco.com
Web site: http://www.varco.com
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE REGISTRANT INCLUDED IN ITS FIRST QUARTER REPORT TO
SHAREHOLDERS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
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0
0
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