<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
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 0-18312
------------------------------
VARCO INTERNATIONAL, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0252850
---------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2835 Holmes Road, Houston, Texas 77051
---------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
(713) 799-5100
----------------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------------------------
(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
---------- ----------
The Registrant had 94,438,625 shares of common stock outstanding as of
November 8, 2000.
<PAGE>
VARCO INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999 (restated) 2
Unaudited Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2000 and 1999 (restated) 3
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 2000 and 1999 (restated) 4
Notes to Unaudited Consolidated Financial Statements 5-10
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II - OTHER INFORMATION
Signature Page 17
Exhibit Index 18-21
Appendix A - Financial Data Schedule 22
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
1
<PAGE>
VARCO INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------- -------------------
<S> <C> <C>
A S S E T S (unaudited) (restated)
----------- (In thousands)
Current assets:
Cash and cash equivalents............................................. $ 26,232 $ 83,117
Accounts receivable, net.............................................. 244,317 250,307
Inventory, net........................................................ 134,913 138,701
Other current assets.................................................. 24,904 26,534
-------------------- -------------------
Total current assets................................................ 430,366 498,659
-------------------- -------------------
Property and equipment, net............................................. 326,247 339,264
Identified intangibles, net............................................. 26,688 28,744
Goodwill, net........................................................... 236,106 242,343
Other assets, net....................................................... 20,808 24,123
-------------------- -------------------
Total assets........................................................ $1,040,215 $1,133,133
==================== ===================
L I A B I L I T I E S A N D E Q U I T Y
-----------------------------------------
Current liabilities:
Accounts payable...................................................... $ 50,945 $ 61,461
Accrued liabilities................................................... 85,278 94,726
Income taxes payable.................................................. 2,470 4,911
Current portion of long-term debt..................................... 33,090 33,886
-------------------- -------------------
Total current liabilities........................................... 171,783 194,984
Long-term debt.......................................................... 112,087 199,449
Other liabilities....................................................... 45,037 44,455
-------------------- -------------------
Total liabilities................................................... 328,907 438,888
-------------------- -------------------
Common stockholders' equity:
Common stock, $.01 par value, 200,000,000 shares authorized,
95,856,589 shares issued and 94,431,889 shares outstanding
at September 30, 2000 (92,066,543 shares issued and 90,641,843
outstanding at December 31, 1999).................................... 959 926
Paid in capital....................................................... 493,763 475,734
Retained earnings..................................................... 250,515 243,525
Accumulated other comprehensive loss.................................. (18,599) (10,610)
Less: treasury stock at cost (1,424,700 shares)....................... (15,330) (15,330)
-------------------- -------------------
Total common stockholders' equity................................... 711,308 694,245
-------------------- -------------------
Total liabilities and equity........................................ $1,040,215 $1,133,133
==================== ===================
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
VARCO INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- ---------- -------- ---------
(restated) (restated)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue.................................. $211,393 $235,710 $620,989 $730,889
Costs and expenses:
Costs of services and products sold... 149,093 171,808 445,105 533,527
Goodwill amortization................. 2,103 2,190 6,320 6,543
Selling, general and administration... 29,628 31,952 88,723 98,565
Research and engineering costs........ 8,264 10,689 23,571 31,377
Merger and transaction costs.......... 1,164 -- 24,760 --
-------- ---------- -------- ---------
Operating profit......................... 21,141 19,071 32,510 60,877
Other expense (income):
Interest expense...................... 3,048 4,535 12,275 14,206
Interest income....................... (356) (711) (3,088) (1,674)
Other, net............................ 65 938 1,291 168
-------- ---------- -------- ---------
Income before income taxes............... 18,384 14,309 22,032 48,177
Provision for income taxes............... 7,569 5,486 15,042 17,626
-------- ---------- -------- ---------
Net income............................... $ 10,815 $ 8,823 $ 6,990 $ 30,551
======== ========== ======== =========
Earnings per common share:
Basic earnings per common share....... $0.12 $0.10 $0.08 $0.34
======== ========== ======== =========
Dilutive earnings per common share.... $0.11 $0.09 $0.07 $0.33
======== ========== ======== =========
Weighted average number of common shares
outstanding:
Basic................................. 93,450 90,701 92,173 90,524
======== ========== ======== =========
Dilutive.............................. 95,828 93,845 95,178 92,463
======== ========== ======== =========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
VARCO INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
--------- ---------
(restated)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 6,990 $ 30,551
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 42,965 43,353
Non-cash merger and transaction costs......................... 8,600 --
Other non-cash charges (benefits)............................. 8,438 (1,600)
Changes in assets and liabilities, net of effects of acquired
companies:
Accounts receivable....................................... 4,901 41,502
Inventory................................................. 260 64,033
Prepaid expenses and other assets......................... (1,258) (12,198)
Accounts payable and accrued liabilities.................. (18,608) (106,837)
Federal and foreign income taxes payable.................. 88 4,249
--------- ---------
Net cash provided by operating activities..................... 52,376 63,053
--------- ---------
Cash flows used for investing activities:
Capital expenditures............................................ (28,463) (21,313)
Business acquisitions, net of cash acquired..................... -- (11,031)
Other........................................................... 19 (587)
--------- ---------
Net cash used for investing activities........................ (28,444) (32,931)
--------- ---------
Cash flows used for financing activities:
Borrowings under financing agreements........................... 16,917 37,215
Principal payments under financing agreements................... (105,002) (62,444)
Proceeds from sale of common stock, net......................... 7,268 3,038
Financing costs................................................. -- (775)
--------- ---------
Net cash used for financing activities........................ (80,817) (22,966)
--------- ---------
Net increase (decrease) in cash and cash equivalents.............. (56,885) 7,156
Cash and cash equivalents:
Beginning of period............................................. 83,117 37,873
--------- ---------
End of period................................................... $ 26,232 $ 45,029
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the nine month period for:
Interest...................................................... $ 16,285 $ 17,480
========= =========
Taxes......................................................... $ 10,108 $ 16,564
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
VARCO INTERNATIONAL, INC.
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2000 and 1999
and as of December 31, 1999
1. Business Combination - Merger
On May 30, 2000, Tuboscope Inc. (the Company) completed a merger with Varco
International, Inc. (Varco) by exchanging 46.8 million shares of its common
stock for all of the common stock of Varco (the "Merger"). Each share of
Varco's stock was exchanged for .7125 of one share of the Company's common
stock. In addition, outstanding Varco stock options were converted at the
same exchange ratio into options to acquire approximately 2.2 million shares
of the Company's common stock. In connection with the merger, the Company
changed its name to Varco International, Inc., and it's New York Stock
Exchange (NYSE) symbol from "TBI" to "VRC".
The merger has been accounted for as a pooling of interests and accordingly
all prior period consolidated financial statements have been restated to
include the combined results of operations, financial condition and cash
flows of Varco.
2. Organization and Basis of Presentation of Interim Consolidated Financial
Statements
The accompanying unaudited consolidated financial statements of the Company
and its wholly-owned subsidiaries have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to these rules and
regulations. The unaudited consolidated financial statements included in
this report reflect all the adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of
the results of operations for the interim periods covered and for the
financial condition of the Company at the date of the interim balance sheet.
Results for the interim periods are not necessarily indicative of results
for the year.
The financial statements included in this report should be read in
conjunction with Tuboscope Inc.'s and Varco's 1999 audited consolidated
financial statements and accompanying notes included in Tuboscope Inc.'s and
Varco's 1999 Form 10-K's, filed under the Securities Exchange Act of 1934,
as amended.
3. Merger and Transaction Costs
Revenues and net income before merger and transaction costs of the separate
companies for the nine month period ending September 30, 2000 were as
follows (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 2000
---------------------
<S> <C>
Revenues:
Tuboscope................................... $351,636
Varco....................................... 269,353
--------
Total................................. $620,989
========
Net income before merger and transaction costs:
Tuboscope................................... $ 14,768
Varco....................................... 13,307
--------
Total................................. $ 28,075
========
</TABLE>
5
<PAGE>
In connection with the Merger, the Company incurred $24,760,000 of
transaction costs in the nine months ended September 30, 2000. Cash
transaction costs included financial advisor fees of $9,714,000,
compensation costs of $3,516,000 and other legal, accounting and printing
costs of $2,930,000. Non-cash transaction costs included $5,072,000 to fully
vest employees participating in the Executive Stock Match Program and
$3,528,000 of equipment rationalization write-offs.
As a result of the Merger, certain executives and key employees of the
Company may, upon termination of their employment, be entitled to enhanced
severance benefits pursuant to their severance agreements with the Company.
It is not possible to estimate the number of executives or key employees who
may voluntarily or involuntarily terminate their employment with the
Company, accordingly, no amounts have been provided for such payments. The
maximum amount that would be paid pursuant to all such severance agreements
is approximately $16,800,000.
4. Inventory
At September 30, 2000 and December 31, 1999, inventories consisted of the
following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials....... $ 51,001 $ 51,315
Work in process..... 33,343 23,877
Finished goods...... 50,569 63,509
------------- ------------
Total inventory..... $134,913 $138,701
============= ============
</TABLE>
5. Comprehensive Income (Loss)
Comprehensive income (loss) for the three and nine months ended September
30, 2000 and 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------- ------------ ----------- -------
<S> <C> <C> <C> C>
Comprehensive income (loss):
Net income.......................... $10,815 $ 8,823 $ 6,990 $30,551
Cumulative translation adjustment... (4,114) 1,501 (7,989) (3,773)
-------------- ------------ ----------- -------
Total comprehensive income (loss)... $ 6,701 $10,324 $ (999) $26,778
============== ============ =========== =======
</TABLE>
6. Business Segments
The Company is organized based on the products and services it offers. In
conjunction with the Merger, the Company has changed its organizational
structure along four principal business segments: Rig Product Sales, Tubular
Services, Rig Services, and Coiled Tubing & Wireline Products.
Rig Product Sales: This segment manufactures and sells integrated systems
and equipment for rotating and handling pipe on a drilling rig; a complete
line of conventional drilling rig tools and equipment, including pipe
handling tools, hoisting equipment and rotary equipment; pressure control
and motion compensation equipment; and flow devices. Customers include major
oil and gas companies and drilling contractors.
Tubular Services: This segment provides internal coating products and
services; inspection and quality assurance services for tubular goods; and
fiberglass tubulars. Additionally, Tubular Services includes the sale and
leasing of proprietary equipment used to inspect tubular products at steel
mills. Tubular Services also provides technical inspection services and
quality assurance services for in-service pipelines used to transport
6
<PAGE>
oil and gas. Customers include major oil and gas companies, independent
producers, national oil companies, drilling contractors, oilfield supply
stores, major pipeline operators, and steel mills.
Rig Services: This segment consists of the sale and rental of technical
equipment used in, and the provision of services related to, the separation
of drill cuttings (solids) from fluids used in the oil and gas drilling
processes. The Company also provides instrumentation products used in the
management of drilling operations and control of equipment. Customers
include major oil and gas companies, independent producers, national oil
companies and drilling contractors.
Coiled Tubing & Wireline Products: This segment consists of the sale of
highly-engineered coiled tubing equipment, related pressure control
equipment, pressure pumping, wireline equipment and related tools to
companies engaged in providing oil and gas well drilling, and completion and
remediation services. Customers include major oil and gas coiled tubing
service companies, as well as major oil companies and large independents.
The Company evaluates the performance of its operating segments at the
operating profit level which consists of income before interest expense
(income), other expense (income), nonrecurring items and income taxes.
Intersegment sales and transfers are not significant.
Summarized information for the Company's reportable segments is contained in
the following table. Other operating profit (loss) includes corporate
expenses and certain goodwill and identified intangible amortization not
allocated to product lines. Transaction costs of $24,760,000 related to the
Varco merger are excluded from the table.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- -------- ------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenue:
Rig Products $ 63,202 $115,497 $205,285 $388,173
Tubular Services 62,070 48,297 178,291 142,798
Rig Services 62,716 52,527 177,480 142,577
Coiled Tubing & Wireline Products 23,405 19,389 59,933 57,341
---------- -------- -------- --------
Total $211,393 $235,710 $620,989 $730,889
========== ======== ======== ========
Operating Profit:
Rig Products $ 5,105 $ 18,715 $ 20,557 $ 63,967
Tubular Services 10,411 4,580 27,010 14,837
Rig Services 11,232 2,735 26,918 2,442
Coiled Tubing & Wireline Products 4,265 1,631 9,609 6,141
Other (8,708) (8,590) (26,824) (26,510)
---------- -------- -------- --------
Total $ 22,305 $ 19,071 $ 57,270 $ 60,877
========== ======== ======== ========
</TABLE>
7. $100.0 Million Senior Notes and Unaudited Condensed Consolidating Financial
Information
On February 25, 1998, the Company issued $100,000,000 of 7 1/2% Senior Notes
due 2008 ("Notes"). The Notes are fully and unconditionally guaranteed, on a
joint and several basis, by certain wholly-owned subsidiaries of the Company
(collectively "Guarantor Subsidiaries" and individually "Guarantor"). Each
of the guarantees is an unsecured obligation of the Guarantor and ranks pari
passu with the guarantees provided by and the obligations of such Guarantor
Subsidiaries under the Senior Credit Agreement and with all existing and
future unsecured indebtedness of such Guarantor for borrowed money that is
not, by its terms, expressly subordinated in right of payment to such
guarantee. The following condensed consolidating balance sheet as of
September 30, 2000 and related condensed consolidating statements of income
and cash flows for the nine months ended September 30, 2000 should be read
in conjunction with the notes to these consolidated financial statements.
7
<PAGE>
VARCO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (cont'd)
7. Unaudited Condensed Consolidating Financial Information (cont'd)
Balance Sheet
<TABLE>
<CAPTION>
September 30, 2000
(in thousands)
Varco Non-
International, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
----------------- ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......... $ 10,284 $ 2,274 $ 13,674 $ -- $ 26,232
Accounts receivable, net.......... 448,987 140,705 357,388 (702,763) 244,317
Inventory, net.................... -- 103,510 31,403 -- 134,913
Other current assets.............. 16,475 8,429 -- -- 24,904
----------------- ---------------- ---------------- ------------------ ----------------
Total current assets........... 475,746 254,918 402,465 (702,763) 430,366
================= ================ ================ ================== ================
Investment in subsidiaries.......... 510,849 398,650 -- (909,499) --
Property and equipment, net......... 500 218,035 107,712 -- 326,247
Identified intangibles, net......... -- 26,688 -- -- 26,688
Goodwill, net....................... 1,960 130,923 103,223 -- 236,106
Other assets, net................... 5,456 4,135 11,217 -- 20,808
----------------- ---------------- ---------------- ------------------ ----------------
Total assets................... $994,511 $1,033,349 $624,617 $(1,612,262) $1,040,215
================= ================ ================ ================== ================
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable.................. $139,714 $ 446,715 $167,279 $ (702,763) $ 50,945
Accrued liabilities............... 6,939 41,907 36,432 -- 85,278
Income taxes payable.............. 3,631 (1,800) 639 -- 2,470
Current portion of long-term
debt........................... 28,600 3,992 498 -- 33,090
----------------- ---------------- ---------------- ------------------ ----------------
Total current liabilities...... 178,884 490,814 204,848 (702,763) 171,783
Long term debt...................... 104,319 7,370 398 -- 112,087
Other liabilities................... -- 24,316 20,721 -- 45,037
----------------- ---------------- ---------------- ------------------ ----------------
Total liabilities.............. 283,203 522,500 225,967 (702,763) 328,907
Common stockholders' equity:
Common stock...................... 959 -- -- -- 959
Paid in capital................... 493,763 285,385 204,370 (489,755) 493,763
Retained earnings................. 250,515 225,464 212,879 (438,343) 250,515
Cumulative translation
adjustment...................... (18,599) -- (18,599) 18,599 (18,599)
Treasury Stock.................... (15,330) -- -- -- (15,330)
----------------- ---------------- ---------------- ------------------ ----------------
Total common stockholders'
equity....................... 711,308 510,849 398,650 (909,499) 711,308
----------------- ---------------- ---------------- ------------------ ----------------
Total liabilities and equity... $994,511 $1,033,349 $624,617 $(1,612,262) $1,040,215
================= ================ ================ ================== ================
</TABLE>
8
<PAGE>
VARCO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (cont'd)
7. Unaudited Condensed Consolidating Financial Information (cont'd)
Statement of Income
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
(in thousands)
Varco Non-
International, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Revenue............................. $ -- $388,580 $264,420 $(32,011) $620,989
Operating costs..................... 21,193 387,574 211,723 (32,011) 588,479
-------------- ---------------- ---------------- ------------------ ----------------
Operating profit (loss)............. (21,193) 1,006 52,697 -- 32,510
Other expense (income).............. (26,185) 22,453 1,935 -- (1,797)
Interest expense.................... 10,813 1,039 423 -- 12,275
-------------- ---------------- ---------------- ------------------ ----------------
Income (loss) before taxes.......... (5,821) (22,486) 50,339 -- 22,032
Provision for taxes................. -- 4,036 11,006 -- 15,042
Equity in net income of subsidiaries 12,811 39,333 -- (52,144) --
-------------- ---------------- ---------------- ------------------ ----------------
Net income (loss)................... $ 6,990 $ 12,811 $ 39,333 $(52,144) $ 6,990
============== ================ ================ ================== ================
</TABLE>
9
<PAGE>
VARCO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (cont'd)
7. Unaudited Condensed Consolidating Financial Information (cont'd)
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
(in thousands)
Varco Non-
International, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ---------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.............................. $ 9,888 $ 24,326 $ 18,162 $ -- $ 52,376
Net cash used for investing activities:
Capital expenditures.................... -- (16,806) (11,657) -- (28,463)
Other................................... -- -- 19 -- 19
-------------- ---------------- ---------------- ------------------ -------------
Net cash used for investing
activities........................... -- (16,806) (11,638) -- (28,444)
Cash flows used for financing
activities:
Net payments under financing agreements. (80,941) (5,554) (1,590) -- (88,085)
Net proceeds from sale of common stock.. 7,268 -- -- -- 7,268
-------------- ---------------- ---------------- ------------------ -------------
Net cash used for financing
activities........................... (73,673) (5,554) (1,590) -- (80,817)
-------------- ---------------- ---------------- ------------------ -------------
Net increase (decrease) in cash and cash
equivalents............................. (63,785) 1,966 4,934 -- (56,885)
Cash and cash equivalents:
Beginning of period..................... 74,069 308 8,740 -- 83,117
-------------- ---------------- ---------------- ------------------ -------------
End of period........................... $ 10,284 $ 2,274 $ 13,674 $ -- $ 26,232
============== ================ ================ ================== =============
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Business Combination-Merger
---------------------------
On May 30, 2000, the shareholders of Tuboscope Inc. (the Company) and Varco
International, Inc. (Varco) approved the merger of Varco into the Company
through an exchange of .7125 shares of the Company's stock for each share of
Varco. In connection with the merger, the Company changed its name to Varco
International, Inc., and it's New York Stock Exchange (NYSE) symbol from "TBI"
to "VRC".
The merger has been accounted for as a pooling of interests and accordingly all
prior periods consolidated financial statements have been restated to include
the combined results of operations and financial condition. The following
management's discussion and analysis of results of operations and financial
condition is based upon such combined results. The Company's debt to total
capitalization ratio was 17.0% at September 30, 2000 compared to a pre-merger
ratio of 41.2% at December 31, 1999.
Industry Conditions
-------------------
The business of the Company depends primarily upon the level of worldwide
drilling activity. The level of drilling activity can be influenced by numerous
factors, including the prices of oil and gas, economic and political conditions,
discovery and development costs of oil companies, oil companies' exploration and
production spending, 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.
Prices for oil and gas improved significantly during the third quarter and first
nine months of 2000 compared to the prior year periods. The average price of
West Texas Intermediate Crude was $31.74 and $29.79 for the third quarter and
first nine months of 2000, up from averages of $21.68 and $17.43 in the third
quarter and first nine months of 1999, respectively. Natural gas prices also
improved with the third quarter 2000 average of $4.49 per mmbtu up 76% over the
average price in the third quarter of 1999. These improvements in oil and gas
prices have led to increases in third quarter 2000 rig activity of 52%, 23%, and
23% in the U.S., Canada, and International markets, respectively, compared to
the third quarter of 1999. In addition, third quarter 2000 rig activity
increased 16%, 28%, and 10% over the second quarter 2000 in the U.S., Canada,
and International markets, respectively.
These favorable market conditions had a positive impact on third quarter 2000
results that were up $5.6 million in revenue and $5.9 million in operating
profit (excluding transaction costs) over the second quarter of 2000. Third
quarter 2000 results were up over the second quarter 2000 due to stronger
operations from the Company's oilfield services business. In addition, the
Company's Rig Products group was recently awarded a $25 million dollar rig order
from Maersk, which combined with other new orders led to a 54 percent increase
in orders for the third quarter of 2000 over the second quarter of 2000. If the
recent improvements in rig activity continue during subsequent quarters, the
Company expects that its business will continue to improve compared to the first
nine months of 2000.
11
<PAGE>
Following is a graph of the rig activity, oil prices, and natural gas prices by
quarter, beginning with the first quarter of 1997 through the third quarter
2000.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1Q97 2Q97 3Q97 4Q97 1Q98 2Q98 3Q98
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
US 856 934 990 998 966 865 794
-------------------------------------------------------------------------------------------------------
Canada 395 255 398 451 459 175 205
-------------------------------------------------------------------------------------------------------
International 804 812 809 813 811 798 726
-------------------------------------------------------------------------------------------------------
West TX Intermediate $ 22.86 $ 19.95 $ 19.70 $ 20.03 $ 15.88 $ 14.63 $ 14.10
-------------------------------------------------------------------------------------------------------
Natural Gas $ 2.49 $ 2.16 $ 2.49 $ 2.83 $ 2.18 $ 2.24 $ 2.02
-------------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US 689 552 523 643 775 770 842 980
-------------------------------------------------------------------------------------------------------------------
Canada 201 290 104 254 337 480 245 314
-------------------------------------------------------------------------------------------------------------------
International 682 620 597 565 571 576 629 694
-------------------------------------------------------------------------------------------------------------------
West TX Intermediate $ 12.95 $ 12.97 $ 17.64 $ 21.68 $ 24.50 $ 28.82 $ 28.82 $ 31.74
-------------------------------------------------------------------------------------------------------------------
Natural Gas $ 1.90 $ 2.05 $ 2.23 $ 2.55 $ 2.49 $ 2.62 $ 3.64 $ 4.49
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Sources: Rig count - Baker Hughes Incorporated ("BHI").
West TX Intermediate Crude Price and Natural Gas Price - U.S.
Department of Energy (Energy Information Administration).
12
<PAGE>
Results of Operations
Three and Nine Months Ended September 30, 2000 and 1999
Operations:
-----------
Revenue: Revenue was $211.4 million and $621.0 million for the third quarter
and first nine months of 2000, representing decreases of $24.3 million (10%) and
$109.9 million (15%) from the same periods of 1999. The decreases in revenue
were primarily attributable to the decline in shipments by the Rig Products
group in the third quarter and first nine months of 2000 compared to the same
periods of 1999. The following table summarizes revenue by operating segment
(in $millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Revenue Segments 2000 1999 2000 1999
--------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Rig Product Sales $ 63.2 $115.5 $205.3 $388.2
Tubular Services 62.1 48.3 178.3 142.8
Rig Services 62.7 52.5 177.5 142.6
Coiled Tubing & Wireline Products 23.4 19.4 59.9 57.3
----------- ---------- ---------- -----------
Total $211.4 $235.7 $621.0 $730.9
=========== ========== ========== ===========
</TABLE>
Rig Product Sales revenue was $63.2 million and $205.3 million in the third
quarter and first nine months of 2000, respectively, down $52.3 million (45%)
and $182.9 million (47%), respectively, from the same periods of 1999. This
sales decline was primarily due to lower shipments of equipment for upgrading,
conversion, and new construction of offshore drilling rigs, particularly
floating rigs that are capable of drilling in water depths exceeding 3,000 feet.
New orders for the three and nine months ended September 30, 2000 increased 36%
(from $67.8 million to $92.2 million) and 33% (from $171.0 million to $228.2
million), respectively, over the same periods of 1999. Backlog at September 30,
2000 for the Rig Products group was $77.8 million, an increase of 39% compared
to December 31, 1999. The increase in new orders and backlog was due to the
increase in worldwide drilling activity discussed above, and the receipt of the
Maersk rig order discussed above.
Tubular Services revenue was $62.1 million and $178.3 million in the third
quarter and first nine months of 2000, respectively, representing increases of
$13.8 million (29%) and $35.5 million (25%) over the same periods of 1999,
respectively. The increases reflect the change in Western Hemisphere rig count
from 1,213 rigs operating at the end of September 30, 1999 to 1,629 rigs
operating at September 30, 2000, an increase of 34%. The majority of the
revenue increase was attributed to North America inspection and coating
activity. The Company's fiberglass tubular operations approximately doubled in
the third quarter and first nine months of 2000 compared to the same periods of
1999. Eastern Hemisphere operations, which include Europe, Middle East, Africa,
and Far East operations, increased over the prior year as result of greater Far
East operations and greater coating revenue from the European coating plants in
the third quarter of 2000.
Rig Services revenue was $62.7 million and $177.5 million in the third quarter
and first nine months of 2000, respectively, representing increases of $10.2
million (19%) and $34.9 million (24%), respectively, compared to the same
periods of 1999. The increases reflect the growth in market activity, as
Western Hemisphere accounted for the majority of the increase. The Venezuela
market was especially strong in the third quarter of 2000. The increase also
reflected the continuing improvement in the European market.
Coiled Tubing and Wireline Services revenue was $23.4 million and $59.9 million
for the third quarter and first nine months of 2000, respectively, an increase
of $4.0 million (21%) and $2.6 million (5%) compared to the three and nine
months ending September 30, 1999, respectively. The increase was primarily
attributable to greater sales of coiled tubing pressure equipment for the three
and nine months ending September 30, 2000 compared to same periods in 1999.
Backlog increased $13.6 million (47%) to $42.6 million at September 30, 2000
compared to June 30, 2000.
13
<PAGE>
Gross Profit: Gross profit was $60.2 million (28% of revenue) and $169.6 million
(27% of revenue) in the third quarter and first nine months of 2000 compared to
$61.7 million (26% of revenue) and $190.8 million (26% of revenue) in the same
periods of 1999, respectively. Gross profit dollars were down due to lower
revenue in 2000. The increase in gross profit percentages was due to an
increase in revenue for some of the Company's higher margin business segments.
Gross margins for the quarter were negatively affected by an increase in
manufacturing costs as a result of decreased utilization of some Rig Product's
manufacturing facilities.
Selling, General, and Administrative Costs: Selling, general, and administrative
costs were $29.6 million and $88.7 million for the third quarter and first nine
months of 2000, respectively, down $2.3 million (7%) and $9.8 million (10.0%),
respectively, from the three and nine months ended September 30, 1999. The
decreases were due to cost constraints in service oriented businesses which
were implemented throughout 1999 as a result of depressed market conditions, and
to the decline of general and administrative expenses for Rig Product expenses
in 2000. Cost constraints were maintained during the first nine months of 2000.
Research and Engineering Costs: Research and engineering costs were $8.3 million
and $23.6 million for the third quarter and first nine months of 2000, decreases
of $2.4 million and $7.8 million, compared to the same periods of 1999,
respectively. The lower levels of research and engineering costs are related to
reduced headcount due to current market conditions.
Merger and Transaction Costs: Merger and transactions costs associated with the
merger of the Company and Varco were $1.2 million and $24.8 million for the
quarter and nine months ended September 30, 2000. Costs incurred included
financial advisor fees, full vesting of executive stock matching awards and
employment retirement benefits, equipment rationalization write-offs, certain
costs related to severance agreements, and legal, accounting, and printing costs
associated with the merger.
Operating Profit: Operating profit was $21.1 million and $32.5 million for the
three and nine months ending September 30, 2000 compared to $19.1 million and
$60.9 million for the same periods of 1999, respectively. Excluding merger and
transaction costs, operating profit percentages were 11% and 9% for the third
quarter and first nine months of 2000 compared to 8% for the same periods of
1999.
Interest Expense: Interest expense was $3.0 million and $12.3 million for the
three and nine months ending September 30, 2000, down $1.5 million and $1.9
million from the same periods of 1999, respectively. The decrease was due to
the reduction of debt in the second quarter of 2000, as excess cash from Varco
was applied to reduce debt upon the completion of the merger.
Other Expense (Income): Other income includes interest income, foreign exchange
losses (gains), minority interests and other expense (income), which resulted in
income of $0.3 million and $1.8 million for the three and nine months ending
September 30, 2000, respectively. Other income improved $0.5 million and $0.3
million for the third quarter and first nine months of 2000 over the prior year
periods. The improvements were due to foreign exchange gains in the third
quarter of 2000 and greater interest income in the first nine months of 2000.
Provision for Income Taxes: The Company recorded a tax provision of $7.6 million
and $15.0 million in the third quarter and first nine months of 2000,
respectively, on pre-tax income of $18.4 million and $22.0 million,
respectively, for the same periods. These tax provisions were higher than
expected, based on a domestic tax rate of 35%, due to deductions not allowed
under domestic and foreign jurisdictions related to merger and transaction
costs, goodwill amortization and foreign earnings subject to tax rates differing
from domestic rates.
Net Income: Net income was $10.8 million and $7.0 million for the third quarter
and first nine months of 2000, compared to net income of $8.8 million and $30.6
million, respectively, for the same periods of 1999. The improvement in the
third quarter of 2000, and the decline in the first nine months of 2000 were due
to the factors discussed above.
14
<PAGE>
Financial Condition and Liquidity
September 30, 2000
------------------
At September 30, 2000 the Company had cash and cash equivalents of $26.2
million, and current and long-term debt of $145.2 million. At December 31,
1999, the Company's cash and cash equivalents were $83.1 million, and current
and long-term debt was $233.3 million. During the second quarter of 2000 and
after the completion of the Varco Merger, excess cash on hand was used to reduce
outstanding debt. The Company's outstanding debt at September 30, 2000
consisted of $98.9 million of Notes (net of discounts), $34.0 million of term
loans due under the Company's Senior Credit Agreement, and $12.3 million of
other debt.
For the nine months ended September 30, 2000, cash provided by operating
activities was $52.4 million compared to $63.1 million for the nine months ended
September 30, 1999. Cash was provided by operations through net income of $7.0
million plus non-cash charges of $60.0 million, and a decrease in accounts
receivable of $4.9 million. Accounts receivable declined due to a 14% decline
in revenue in the third quarter of 2000 compared to the fourth quarter of 1999.
These items were offset to some extent by a $1.3 million increase in prepaid
expenses and other assets, and lower accounts payable and accrued liabilities of
$18.6 million. Accounts payable and accrued liabilities decreased due to the
reduction of outstanding overdrafts and lower accrued interest at September 30,
2000 compared to December 31, 1999.
For the nine months ended September 30, 2000, the Company used $28.4 million for
investing activities compared to $32.9 million in the first nine months of 1999.
Capital expenditures of $28.5 million for the first nine months of 2000 were
primarily related to the Company's new Truscope Inspection unit, Solids Control
equipment in the strong Canadian and Latin American markets, equipment
associated with the Company's thermal desorption operation in Colombia, new
computer equipment for the Company's Rig Product Sales group, and rental assets
associated with the Company's instrumentation business.
For the nine months ended September 30, 2000, the Company used $80.8 million for
financing activities compared to $23.0 million for the same period of 1999. The
main use of cash for financing activities was for the reduction of outstanding
debt.
At September 30, 2000, the Company had outstanding letters of credit of $8.8
million. The available facility on the Company's $100.0 million revolving
credit facility and $5 million swingline facility was $92.1 million and $3.4
million, respectively, at September 30, 2000.
The Company believes that its September 30, 2000 cash and cash equivalents, its
credit facility, and cash flow from operations will be sufficient to meet its
capital expenditures and its operating cash needs for the foreseeable future.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The forward-looking statements are those that
do not state historical facts and are inherently subject to risk and
uncertainties. The forward-looking statements contained herein are based on
current expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among others, the cyclical
nature of the oilfield services industry, risks associated with growth through
acquisitions and other factors discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 1999 under the caption "Factors Affecting
Future Operating Results."
15
<PAGE>
Item 3. Quantitative & Qualitative Disclosure About Market Risk
The Company does not believe it has a material exposure to market risk. The
Company has historically managed its exposure to interest changes by using a
combination of fixed rate debt, variable rate debt, interest swap and collar
agreements in its total debt portfolio. As of September 30, 2000, the Company
had no interest rate swap and collar agreements outstanding. At September 30,
2000, the Company had $145.2 million of outstanding debt. Fixed rate debt
included $98.9 million of Senior Notes (net of discounts) at a fixed interest
rate of 7 1/2%. With respect to foreign currency fluctuations, the Company uses
natural hedges to minimize the effect of rate fluctuations. When natural hedges
are not sufficient, generally it is the Company's policy to enter into forward
foreign exchange contracts to hedge significant transactions for periods
consistent with the underlying risk. The Company had no forward foreign exchange
contracts outstanding at September 30, 2000. The Company does not enter into
foreign currency or interest rate transactions for speculative purposes.
16
<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.
-------------------------
(Registrant)
Date: November 13, 2000 /s/ Joseph C. Winkler
------------------------- -------------------------------------------
Joseph C. Winkler
Executive Vice President, Chief Financial
Officer and Treasurer (Duly Authorized
Officer, Principal Financial and Accounting
Officer)
/s/ Donald L. Stichler
-------------------------------------------
Donald L. Stichler
Vice President and Controller,
Chief Accounting Officer
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Note No.
------- ----------- --------
No.
---
<S> <C> <C>
3.1 Second Amended and Restated Bylaws. (Note 14)
3.2 Second Restated Certificate of Incorporation, dated May 13, 1999. (Note 14)
4.1 Registration Rights Agreement dated May 13, 1988 among the Company, Brentwood (Note 1)
Associates, Hub Associates IV, L.P. and the investors listed therein.
4.2 Purchase Agreement dated as of October 1, 1991 between the Company and Baker (Note 2)
Hughes Incorporated regarding certain registration rights.
4.3 Registration Rights Agreement dated April 24, 1996 among the Company, SCF III, (Note 8)
L.P., D.O.S. Partners L.P., Panmell (Holdings), Ltd. and Zink Industries Limited.
4.4 Registration Rights Agreement dated March 7, 1997 among the Company and certain (Note 9)
stockholders of Fiber Glass Systems, Inc.
4.5 Warrant for the Purchase of Shares of Common Stock Expiring December 31, 2000 (Note 8)
between the Company and SCF III, L.P. regarding 2,533,000 shares, dated January 3,
1996.
4.6 Indenture, dated as February 25, 1998, between the Company, the Guarantors named (Note 10)
therein and The Bank of New York Trust Company of Florida as trustee, relating to
$100,000,000 aggregate principal amount of 7 1/2 Senior Notes due 2008 Specimen
Certificate of 7 1/2% Senior Notes due 2008 (the "Private Notes"); and Specimen
Certificate at 7 1/2% Senior Notes due 2008 (the "Exchange Notes").
10.1 Amended and Restated Secured Credit Agreement, dated as of February 9, 1998, (Note 10)
between Tuboscope Inc., and Chase Bank of Texas, National Association, ABN
Amro Bank N.V., Houston Agency, and the other Lenders Party Thereto, and ABN
Amro Bank N.V., Houston Agency as Administrative Agent (includes form of
Guarantee).
10.1.1 Form of Amendment No. 1 to Amended and Restated Secured Credit Agreement dated (Note 12)
as of March 29, 1999.
10.1.2 Form of Reaffirmation of Guarantee relating to Amended and Restated Secured Credit (Note 12)
Agreement dated as of March 29, 1999.
10.2 Deferred Compensation Plan dated November 14, 1994; Amendment thereto dated (Note 11)
May 11, 1998.
10.3 Amended and Restated 1996 Equity Participation Plan (Note 13)
10.3.1 Form of Non-qualified Stock Option Agreement for Employees and Consultants; (Note 6)
Form of Non-qualified Stock Option Agreement for Independent Directors.
10.4 DOS Ltd. 1993 Stock Option Plan; Form of D.O.S. Ltd. Non Statutory Stock Option Agreement. (Note 7)
10.5 Amended and Restated Stock Option Plan for Key Employees of Tuboscope Vetco International (Note 3)
Corporation; Form of Revised Incentive Stock Option Agreement; and Form of Revised
Non-Qualified Stock Option Agreement.
10.6 Stock Option Plan for Non-Employee Directors; Amendment to Stock Option Plan for (Note 4)
Non-Employee Directors; and Form of Stock Option Agreement.
10.7 The Varco 1982 Non-Employee Director Stock Option Plan (Note 17)
10.8 Varco International, Inc. Supplemental Executive Retirement Plan (Note 23)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description Note No.
------- ----------- --------
No.
----
<S> <C> <C>
10.8.1 Amendment to Varco International, Inc. Supplemental Executive Retirement Plan (Note 25)
10.8.2 Second Amendment to Varco International, Inc. Supplemental Executive Retirement Plan (Note 26)
10.9 Lease dated March 7, 1985, as amended (Note 16)
10.9.1 Agreement dated as of January 1, 1982, with respect to Lease included as Exhibit 10.9 hereof (Note 18)
10.9.2 Agreement dated as of January 1, 1984, with respect to Lease included as Exhibit 10.9 hereto (Note 19)
10.9.3 Agreement dated as of February 8, 1985, with respect to Lease included as Exhibit 10.9 (Note 19)
hereto
10.9.4 Agreement dated as of April 12, 1985, with respect to Lease included as Exhibit 10.9 hereto (Note 20)
10.9.5 Amendment dated as of January 11, 1996, with respect to Lease included as Exhibit 10.9 (Note 24)
hereto
10.10 Standard Industrial Lease-Net dated September 29, 1988 for the premises at 743 N. Eckhoff, (Note 21)
Orange, California
10.10.1 First amendment dated as of January 11, 1996 to Lease included as Exhibit 10.10 hereto (Note 24)
10.11 The Varco International, Inc. 1990 Stock Option Plan, as amended (Note 22)
10.11.1 Amendments to the Varco International, Inc. 1990 Stock Option Plan (Note 27)
10.11.2 Form of amendment to stock option agreements under the Varco International, Inc. 1990 Stock (Note 27)
Option Plan
10.12 Varco International, Inc. 1994 Directors' Stock Option Plan (Note 24)
10.12.1 Amendment to Varco International, Inc. 1994 Directors' Stock Option Plan (Note 26)
10.13 The Varco International, Inc. Deferred Compensation Plan (Note 27)
10.14 Master Leasing Agreement, dated December 18, 1995 between the Company and Heller Financial (Note 6)
Leasing, Inc.
10.14.1 Form of Executive Agreement of certain members of senior management (Note 15)
10.15 Form of First Amendment to Executive Agreements (Note 15)
10.16 Executive Agreement of John F. Lauletta (Note 15)
10.17 Executive Agreement of Joseph C. Winkler (Note 15)
10.18 Executive Agreement of George Boyadjieff (Note 28)
10.19 Executive Agreement of Michael W. Sutherlin (Note 28)
10.20 Executive Agreement of Wallace K. Chan (Note 28)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description Note No.
------- ----------- --------
No.
----
<S> <C> <C>
10.21 Form of Indemnity Agreement (Note 15)
21 Subsidiaries (Note 14)
27 Financial Data
Note 1 Incorporated by reference to the Company's Registration Statement on Form S-1 (No.
33-31102).
Note 2 Incorporated by reference to the Company's Registration Statement on Form S-1 (No.
33-43525).
Note 3 Incorporated by reference to the Company's Registration Statement on Form S-8 (No.
33-72150).
Note 4 Incorporated by reference to the Company's Registration Statement on Form S-8 (No.
33-72072).
Note 5 Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
Note 6 Incorporated by reference to the Company's Registration Statement on Form S-8 (No.
333-05233).
Note 7 Incorporated by reference to the Company's Registration Statement on Form S-8 (No.
333-05237).
Note 8 Incorporated by reference to the Company's Current Report on Form 8-K filed on January 16,
1996.
Note 9 Incorporated by reference to the Company's Current Report on 8-K Filed on March 19, 1997,
as amended by Amendment No. 1 filed on May 7, 1997.
Note 10 Incorporated by reference to the Company's Registration Statement on Form S-4 (No.
333-51115).
Note 11 Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
Note 12 Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
Note 13 Incorporated by reference to the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders.
Note 14 Incorporated by reference to Tuboscope's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
Note 15 Incorporated by reference to the Company's Registration Statement of Form S-4 (333-34582)
Note 16 Incorporated by reference to Varco's Annual Report on Form 10-K for the year ended December
31, 1981.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Note 17 Incorporated by reference to Varco's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1982.
Note 18 Incorporated be reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982.
Note 19 Incorporated by reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1984.
Note 20 Incorporated by reference to Varco's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1985.
Note 21 Incorporated by reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
Note 22 Incorporated by reference to Varco's Registration Statement on Form S-8, Registration No.
333-21681.
Note 23 Incorporated by reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
Note 24 Incorporated by reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
Note 25 Incorporated by reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
Note 26 Incorporated by reference to Varco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
Note 27 Incorporated by reference to Varco's Annual Report on Form 10-K for the year ended December
31, 1999.
Note 28 Incorporated by reference to Varco's Annual Report on Form 10-K/A for the year ended
December 31, 1999.
</TABLE>
21
