<PAGE>
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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 JUNE 30, 1999 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-13439
DRIL-QUIP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2162088
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
13550 HEMPSTEAD HIGHWAY
HOUSTON, TEXAS
77040
(Address of principal executive offices)
(Zip Code)
(713) 939-7711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [_]
As of August 12, 1999, the number of shares outstanding of the registrant's
common stock, par value $.01 per share, was 17,245,000.
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<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DRIL-QUIP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 11,869 $ 12,479
Trade receivables...................................... 44,527 36,085
Inventories............................................ 55,536 52,231
Deferred taxes......................................... 3,883 4,471
Prepaids and other current assets...................... 1,387 1,150
-------- --------
Total current assets................................. 117,202 106,416
Property, plant and equipment, net...................... 59,753 67,100
Other assets............................................ 291 307
-------- --------
Total assets......................................... $177,246 $173,823
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 16,712 $ 11,693
Current maturities of long-term debt................... 165 130
Accrued income taxes................................... 1,637 509
Customer prepayments................................... 9,039 7,666
Accrued compensation................................... 3,742 3,835
Other accrued liabilities.............................. 2,312 2,510
-------- --------
Total current liabilities............................ 33,607 26,343
Long-term debt.......................................... 150 105
Deferred taxes.......................................... 1,577 1,574
-------- --------
Total liabilities.................................... 35,334 28,022
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized at $0.01
par value (none issued)............................... -- --
Common stock:
50,000,000 shares authorized at $0.01 par value,
17,245,000 shares issued and outstanding.............. 172 172
Additional paid-in capital............................. 63,291 63,291
Retained earnings...................................... 80,017 86,056
Foreign currency translation adjustment (1,568) (3,718)
-------- --------
Total stockholders' equity........................... 141,912 145,801
-------- --------
Total liabilities and stockholders' equity........... $177,246 $173,823
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(In thousands except share amounts)
<S> <C> <C> <C> <C>
Revenues................... $ 44,888 $ 39,895 $ 85,704 $ 79,479
Cost and expenses:
Cost of sales............. 30,274 27,435 57,557 53,968
Selling, general and
administrative........... 5,223 5,262 10,159 10,752
Engineering and product
development.............. 2,883 2,844 5,554 5,679
----------- ----------- ----------- -----------
38,380 35,541 73,270 70,399
----------- ----------- ----------- -----------
Operating income........... 6,508 4,354 12,434 9,080
Interest expense (income).. (322) (78) (700) (181)
----------- ----------- ----------- -----------
Income before income
taxes..................... 6,830 4,432 13,134 9,261
Income tax provision....... 2,356 1,535 4,531 3,222
=========== =========== =========== ===========
Net income................. $ 4,474 $ 2,897 $ 8,603 $ 6,039
=========== =========== =========== ===========
Earnings per share:
Basic..................... $ 0.26 $ 0.17 $ 0.50 $ 0.35
=========== =========== =========== ===========
Fully diluted............. $ 0.26 $ 0.17 $ 0.50 $ 0.35
=========== =========== =========== ===========
Weighted average shares:
Basic..................... 17,245,000 17,245,000 17,245,000 17,245,000
=========== =========== =========== ===========
Fully diluted............. 17,311,000 17,273,000 17,305,000 17,259,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months
ended June 30,
----------------
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Operating activities
Net income.................................................. $ 8,603 $ 6,039
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 2,550 3,261
Gain on sale of equipment.................................. (8) (177)
Deferred income taxes...................................... (552) (588)
Changes in operating assets and liabilities:
Trade receivables......................................... (6,492) 8,123
Inventories............................................... 620 1,683
Prepaids and other assets................................. (401) 187
Trade accounts payable and accrued expenses............... 7,068 (6,786)
------- -------
Net cash provided by operating activities................... 11,388 11,742
Investing activities
Purchase of property, plant and equipment.................. (14,924) (11,579)
Proceeds from sale of equipment............................ 192 322
------- -------
Net cash used in investing activities...................... (14,732) (11,257)
Financing activities
Principal payments on long-term debt....................... (105) (79)
------- -------
Net cash provided by (used in) financing activities........ (105) (79)
Effect of exchange rate changes on cash activities......... (118) 204
------- -------
Increase (decrease) in cash................................ (3,567) 610
Cash at beginning of period................................ 32,612 11,869
------- -------
Cash at end of period...................................... $29,045 $12,479
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Dril-Quip, Inc., a Delaware corporation (the "Company" or "Dril-Quip"),
manufactures highly engineered offshore drilling and production equipment
which is well suited for use in deepwater, harsh environment and severe
service applications. The Company's principal products consist of subsea and
surface wellheads, subsea and surface production trees, mudline hanger
systems, specialty connectors and associated pipe, drilling and production
riser systems, wellhead connectors and diverters for use by major integrated,
large independent and foreign national oil and gas companies in offshore areas
throughout the world. Dril-Quip also provides installation and reconditioning
services and rents running tools for use in connection with the installation
and retrieval of its products. The Company has three subsidiaries that
manufacture and market the Company's products abroad. Dril-Quip (Europe)
Limited is located in Aberdeen, Scotland, with branches in Norway, Holland and
Denmark. Dril-Quip Asia Pacific PTE Ltd. is located in Singapore. DQ Holdings
PTY Ltd. is located in Perth, Australia.
The consolidated financial statements included herein have been prepared by
Dril-Quip and are unaudited, except for the balance sheet at December 31,
1998, which has been prepared from the audited financial statements at that
date. In the opinion of management, the unaudited consolidated interim
financial statements include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the financial
position as of June 30, 1999, the results of operations for each of the three
and six-month periods ended June 30, 1999 and 1998 and the cash flows for each
of the six-month periods ended June 30, 1999 and 1998. Although management
believes the unaudited interim related disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in annual
audited financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The results of
operations and the cash flows for the six-month period ended June 30, 1999 are
not necessarily indicative of the results to be expected for the full year.
The consolidated financial statements included herein should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1998 1999
------------ -----------
(In thousands)
<S> <C> <C>
Raw materials and supplies............................. $13,114 $12,897
Work in progress....................................... 18,114 12,055
Finished goods and purchased supplies.................. 24,308 27,279
------- -------
$55,536 $52,231
======= =======
</TABLE>
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholders' equity.
SFAS No. 130 requires the Company to include unrealized gains or losses on
foreign currency translation adjustments in other comprehensive income, which
prior to adoption were reported separately in stockholders' equity.
5
<PAGE>
During the first six months of 1999 and 1998, total comprehensive income
amounted to $3.9 million and $9.0 million, respectively. For the three-month
periods ended June 30, 1999 and 1998, total comprehensive income equaled $2.3
million and $3.9 million, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected certain aspects of the Company's
financial position and results of operations during the periods included in
the accompanying unaudited consolidated financial statements. This discussion
should be read in conjunction with the unaudited consolidated financial
statements included elsewhere herein, and with the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the annual consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Overview
Dril-Quip manufactures highly engineered offshore drilling and production
equipment which is well suited for use in deepwater, harsh environment and
severe service applications. The Company designs and manufactures subsea
equipment, surface equipment and offshore rig equipment for use by major
integrated, large independent and foreign national oil and gas companies in
offshore areas throughout the world. The Company's principal products consist
of subsea and surface wellheads, subsea and surface production trees, mudline
hanger systems, specialty connectors and associated pipe, drilling and
production riser systems, wellhead connectors and diverters. Dril-Quip also
provides installation and reconditioning services and rents running tools for
use in connection with the installation and retrieval of its products.
The market for offshore drilling and production equipment and services is
fundamentally driven by the exploration, development and production spending
of oil and gas companies, particularly with respect to offshore activities
worldwide.
Revenues. Dril-Quip's revenues are generated by its two operating groups:
the Product Group and the Service Group. The Product Group manufactures
offshore drilling and production equipment, and the Service Group provides
installation and reconditioning services as well as rental running tools for
installation and retrieval of its products. For the six months ended June 30,
1999, the Company derived 87% of its revenues from the sale of its products
and 13% of its revenues from services. Revenues from the Service Group
generally correlate to revenues from product sales because increased product
sales generate increased revenues from installation services and rental
running tools. Substantially all of Dril-Quip's sales are made on a purchase
order basis. Purchase orders are subject to change and/or termination at the
option of the customer. In case of a change or termination, the customer is
required to pay the Company for work performed and other costs necessarily
incurred as a result of the change or termination.
Historically, Dril-Quip recognized revenues upon the delivery of a
completed product. Beginning in 1997, the Company began receiving orders
relating to larger and more complex projects that have longer manufacturing
time frames. The Company accounts for such projects on a percentage of
completion basis. For the first six months of 1999, seven projects
representing approximately 27% of the Company's revenues were accounted for
using percentage of completion accounting. This percentage may increase in the
future. Revenues accounted for in this manner are generally recognized on the
ratio of costs incurred to the total estimated costs. Accordingly, price and
cost estimates are reviewed periodically as the work progresses, and
adjustments proportionate to the percentage of completion are reflected in the
period when such estimates are revised. Amounts received from customers in
excess of revenues recognized are classified as a current liability.
Foreign sales represent a significant portion of the Company's business. In
the six months ended June 30, 1999, the Company generated approximately 51% of
its revenues from foreign sales. In this period, approximately 71% (on the
basis of revenues generated) of all products sold were manufactured in the
United States.
6
<PAGE>
Cost of Sales. The principal elements of cost of sales are labor, raw
materials and manufacturing overhead. Variable costs, such as labor, raw
materials, supplies and energy, generally account for approximately two-thirds
of the Company's cost of sales. Fixed costs, such as the fixed portion of
manufacturing overhead, constitute the remainder of the Company's cost of
sales. Cost of sales as a percentage of revenues is also influenced by the
product mix sold in any particular quarter and market conditions. The
Company's costs related to its foreign operations do not significantly differ
from its domestic costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the costs associated with sales and marketing,
general corporate overhead, compensation expense, legal expenses and other
related administrative functions.
Engineering and Product Development Expenses. Engineering and product
development expenses consist of new product development and testing, as well
as application engineering related to customized products.
Income Tax Provision. Dril-Quip's effective tax rate has historically been
lower than the statutory rate due to benefits from its foreign sales
corporation.
Results of Operations
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1998 1999 1998 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product Group.................. 87.3 % 88.9 % 87.6 % 87.0 %
Service Group.................. 12.7 % 11.1 % 12.4 % 13.0 %
--------- --------- -------- --------
Total......................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales................... 67.5 % 68.8 % 67.2 % 67.9 %
Selling, general and
administrative expenses........ 11.6 % 13.2 % 11.8 % 13.5 %
Engineering and product
development expenses........... 6.4 % 7.1 % 6.5 % 7.2 %
--------- --------- -------- --------
Operating income................ 14.5 % 10.9 % 14.5 % 11.4 %
Interest expense (income)....... (0.7)% (0.2)% (0.8)% (0.2)%
--------- --------- -------- --------
Income before income taxes...... 15.2 % 11.1 % 15.3 % 11.6 %
Income tax provision............ 5.2 % 3.8 % 5.3 % 4.0 %
--------- --------- -------- --------
Net income...................... 10.0 % 7.3 % 10.0 % 7.6 %
========= ========= ======== ========
</TABLE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998.
Revenues. Revenues decreased by $5.0 million, or 11%, to $39.9 million in
the three months ended June 30, 1999 from $44.9 million in the three months
ended June 30, 1998. The net decrease resulted from increased domestic sales
in the United States of $5.8 million, increased export sales from the United
States of $1.3 million, offset by decreased sales of $6.2 million in the Asia-
Pacific area and decreased sales of $5.9 million in the European area. The
decrease in revenues can be attributed to previously depressed oil prices
which led to worldwide exploration and production budget cuts by most major
oil companies. These reductions have resulted in pricing pressure and less
demand for Dril-Quip products.
7
<PAGE>
Cost of Sales. Cost of sales decreased $2.8 million, or 9%, to $27.5
million for the three months ended June 30, 1999 from $30.3 million for the
same period in 1998. As a percentage of revenues, cost of sales were 68.8% and
67.5% for the three-month periods ending June 30, 1999 and 1998. This increase
was due to pricing pressure as discussed above.
Selling, General and Administrative Expenses. In the three months ended
June 30, 1999, selling, general and administrative expenses increased by
$39,000, or 1%, to $5.3 million from $5.2 million in the 1998 period. Selling,
general and administrative expenses increased as a percentage of revenues to
13.2% from 11.6%.
Engineering and Product Development Expenses. In the three months ended
June 30, 1999, engineering and product development expenses decreased by
approximately 1% to $2.8 million from $2.9 million in the same period in 1998.
Engineering and product development expenses increased as a percent of
revenues to 7.1% from 6.4%.
Interest Income. Interest income for the three months ended June 30, 1999
was $78,000 as compared to interest income of $322,000 for the three-month
period ended June 30, 1998. This decrease of approximately $244,000 resulted
from reductions in the Company's invested cash balance from 1998 to 1999.
Net Income. Net income decreased by approximately $1.6 million, or 35%, to
$2.9 million in the three months ended June 30, 1999 from $4.5 million for the
same period in 1998 for the reasons set forth above.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Revenues. Revenues decreased by $6.2 million, or 7%, to $79.5 million in
the six months ended June 30, 1999 from $85.7 million in the six months ended
June 30, 1998. The net decrease was primarily due to increased domestic sales
in the United States of $8.9 million, offset by decreased export sales from
the United States of $1.2 million, decreased sales of $8.1 in the Asia-Pacific
area and decreased sales of $5.8 million in the European area. The decrease in
revenues can be attributed to previously depressed oil prices which led to
worldwide exploration and production budget cuts by most major oil companies.
These reductions have resulted in pricing pressure and less demand for Dril-
Quip products.
Cost of Sales. Cost of sales decreased $3.6 million, or 6%, to $54.0
million for the six months ended June 30, 1999 from $57.6 million for the same
period in 1998. As a percentage of revenues, cost of sales were 67.9% and
67.2% for the six month periods ending June 30, 1999 and 1998, respectively.
This increase was due to pricing pressure as discussed above.
Selling, General and Administrative Expenses. In the six months ended June
30, 1999, selling, general and administrative expenses increased by $593,000,
or 6%, to $10.8 million from $10.2 million in the 1998 period. The increase
was primarily due to higher labor costs. Selling, general and administrative
expenses increased as a percent of revenues from 11.8% to 13.5%.
Engineering and Product Development Expenses. In the six months ended June
30, 1999, engineering and product development expenses increased by $125,000,
or approximately 2%, to $5.7 million from $5.6 million in the same period in
1998. Engineering and product development expenses increased as a percent of
revenues to 7.2% from 6.5%.
Interest Income. Interest income for the six months ended June 30, 1999 was
approximately $181,000 as compared to interest income of $700,000 for the six
month period ended June 30, 1998. This decrease of approximately $519,000
resulted from reductions in the Company's invested cash balance from 1998 to
1999.
Net Income. Net income decreased by approximately $2.6 million, or 30%, to
$6.0 million in the six months ended June 30, 1999 from $8.6 million for the
same period in 1998 for the reasons set forth above.
8
<PAGE>
Liquidity and Capital Resources
The primary liquidity needs of the Company are (i) to fund capital
expenditures to increase manufacturing capacity, improve and expand facilities
and manufacture additional rental running tools and (ii) to fund working
capital. In the past, the Company's principal sources of funds were cash flows
from operations and bank indebtedness. However, as a result of the Company's
October 1997 initial public offering of common stock, all of the Company's
bank indebtedness was repaid in 1997. Since that time, the Company has used
the remaining proceeds from the initial public offering and cash flows from
operations as its principal sources of funds.
Net cash provided by operating activities was approximately $11.7 million
and $11.4 million for the six months ended June 30, 1999 and 1998,
respectively. Improvements in cash flow from operating activities are
principally due to decreased working capital requirements attributable to
decreases in accounts receivable related to project sales offset by decreases
in trade accounts payable.
Capital expenditures by the Company were $11.6 million and $14.9 million
for the six months ended June 30, 1999 and 1998, respectively. Principal
payments on long-term debt were approximately $79,000 and $105,000 for the six
months ended June 30, 1999 and 1998, respectively.
The Company believes that cash on hand plus cash generated from operations
will be sufficient to fund operations, working capital needs and anticipated
capital expenditure requirements. However, should the above mentioned market
conditions result in unexpected cash requirements, the Company believes that
borrowing from commercial lending institutions would be readily available and
more than adequate to meet such requirements.
Year 2000 Readiness Disclosure
Historically, certain computerized systems have used two digits rather than
four digits to define the applicable year, which could result in recognizing
the date using "00" as the year 1900 rather than the year 2000. This could
result in major failures or miscalculations and is generally referred to as
the Year 2000 problem.
The Company has undertaken a Year 2000 readiness program that encompasses a
comprehensive review of three distinct areas that are susceptible to the Year
2000 problem:
. information systems;
. automated production systems; and
. third parties.
Information systems include communications and traditional software and
hardware in the Company network and desktop environments. Automated production
systems include all automation and embedded chips used in production and
manufacturing. Third parties include any party that supplies goods or services
to the Company. The Company does not anticipate any material year 2000
exposure arising out of the sale of its products to third party customers
because the Company's products are mechanical and structural in nature and do
not include integrated circuitry.
The Year 2000 problem is being addressed within the Company and progress is
regularly reported to management and the Board of Directors. In implementing
the Year 2000 program, the Company has prioritized its readiness efforts into
two categories: "mission critical" and "non-mission critical." Systems and
third parties which are considered mission critical are those of which a Year
2000 failure could cause any of the following to occur:
. the inability of the Company to meet its product delivery obligations;
. a reduction or cessation of the Company's manufacturing capacity or
capabilities;
. the inability of the Company to meet its financial obligations; or
. any other major interruption to Company operations.
9
<PAGE>
Mission critical systems and mission critical third parties are addressed on a
priority basis over non-mission critical systems and non-mission critical
third parties.
The Company's Year 2000 program is made up of three phases: assessment,
remediation and testing. As of March 1, 1999, the Company had completed
assessment and remediation of all mission critical information systems and
automated production systems. Testing of mission critical systems is still
underway and is planned to be completed by October 31, 1999. As of July 31,
1999, the Company had completed assessment and remediation of substantially
all non-mission critical systems and testing is planned to be completed by
October 31, 1999.
As of March 1, 1999, the Company had contacted substantially all mission
critical third party suppliers and vendors about their Year 2000 readiness.
The Company has received responses from a majority of those third parties
contacted. As of July 31, 1999, the Company had also contacted substantially
all of its non-mission critical third parties. Although the Company is taking
affirmative steps to determine the readiness of third parties, there can be no
assurance that the systems and processes of such third parties will remain
functional. Year 2000 failures among mission critical third parties could
possibly cause shutdowns or other significant business interruptions that
could result in a material effect on the operations, liquidity or capital
resources of the Company. At this time, the Company cannot quantify the
potential impact of these failures. The Company is currently developing
contingency plans to address issues within its control. The program minimizes,
but does not eliminate, the issues of third parties.
The total cost of the Company's Year 2000 program is not expected to be
material to the Company's operations, liquidity or capital resources. Costs
are being handled within the current information systems budget, and no
special allocations have been made. The total estimated cost for the Company's
Year 2000 program is expected to be less than $200,000. This includes costs
for the replacement, repair or upgrade of existing non-ready systems.
This disclosure is provided pursuant to Securities Exchange Act Release No.
34-40277. As such, it is protected as a forward-looking statement under the
Private Securities Litigation Reform Act of 1995. See "Item 5. Other
Information: Forward Looking Statements" on pages 11 and 12. This disclosure
is also subject to protection under the Year 2000 Information and Readiness
Disclosure Act of 1998, 15 USC (S)1, as a "Year 2000 Statement" and "Year 2000
Readiness Disclosure" as defined therein.
10
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Dril-Quip's annual meeting of stockholders was held on May 13, 1999 for the
purpose of electing two directors to serve a three-year term and approving the
appointment of Ernst & Young LLP as independent public accountants of the
Company for 1999.
1. Election of Directors
Stockholders elected J. Mike Walker and Gary W. Loveless, each for a three-
year term expiring at the 2002 annual meeting. The vote tabulation for each
individual director was as follows:
<TABLE>
<CAPTION>
Votes Cast Votes Cast Against
Director For Or Withheld
- -------- ---------- ------------------
<S> <C> <C>
J. Mike Walker.................................... 15,603,238 69,154
Gary W. Loveless.................................. 15,603,238 69,154
Directors continuing in office were Lary E. Reimert, Gary D. Smith, and James
M. Alexander.
2. Proposal approving the appointment of Ernst & Young LLP as independent
public accountants of the Company for 1999.
For............................................... 15,656,698
Against........................................... 8,408
Abstain........................................... 7,286
</TABLE>
Item 5. Other Information.
Forward Looking Statements.
Statements contained in all parts of this document that are not historical
facts are forward looking statements that involve risks and uncertainties that
are beyond the Company's control. These forward-looking statements include the
following types of information and statements as they relate to the Company:
. scheduled, budgeted and other future capital expenditures;
. use of initial public offering proceeds;
. working capital requirements;
. the availability of expected sources of liquidity;
. the impact of the Year 2000 problem;
. all statements regarding future operations, financial results, business
plans and cash needs; and
. the use of the words "anticipate," "estimate," "expect," "may,"
"project," "believe" and similar expressions intended to identify
uncertainties.
11
<PAGE>
These statements are based upon certain assumptions and analyses made by
management of the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
subject to a number of assumptions, risks and uncertainties, including but not
limited to, those relating to the volatility of oil and natural gas prices and
cyclicality of the oil and gas industry, the Company's international
operations, operating risks, the Company's dependence on key employees, the
Company's dependence on skilled machinists and technical personnel, the
Company's reliance on product development and possible technological
obsolescence, control by certain stockholders, the potential impact of
governmental regulation and environmental matters, competition, reliance on
significant customers and other factors detailed in the Registration Statement
on Form S-1 (Registration No. 333-33447) filed in connection with the initial
public offering and the Company's other filings with the Securities and
Exchange Commission. Prospective investors are cautioned that any such
statements are not guarantees of future performance, and that, should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*3.1 --Restated Certificate of Incorporation of the Company (Incorporated
herein by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-33447)).
*3.2 --Bylaws of the Company (Incorporated herein by reference to Exhibit
3.3 to the Company's Registration Statement on Form S-1 (Registration
No. 333-33447)).
*4.1 --Certificate of Designations for Series A Junior Participating
Preferred Stock (Incorporated herein by reference to Exhibit 3.4 to
the Company's Registration Statement on Form S-1 (Registration No.
333-33447)).
*4.2 --Form of certificate representing Common Stock (Incorporated herein
by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-33447)).
*4.3 --Rights Agreement between Dril-Quip, Inc. and Chase Mellon
Shareholder Services, L.L.C., as rights agent (Incorporated herein by
reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-1 (Registration No. 333-33447)).
27.1 --Financial Data Schedule.
</TABLE>
- --------
* Incorporated herein by reference as indicated.
Reports on Form 8-K
None.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRIL-QUIP, INC.
/s/Jerry M. Brooks
_____________________________________
Principal Financial Officer
and Duly Authorized Signatory
Date: August 12, 1999
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 11,869 12,479
<SECURITIES> 0 0
<RECEIVABLES> 44,527 36,085
<ALLOWANCES> 0 0
<INVENTORY> 55,536 52,231
<CURRENT-ASSETS> 117,202 106,416
<PP&E> 98,353 107,286
<DEPRECIATION> (38,600) (40,186)
<TOTAL-ASSETS> 177,246 173,823
<CURRENT-LIABILITIES> 33,607 26,343
<BONDS> 0 0
0 0
0 0
<COMMON> 172 172
<OTHER-SE> 141,740 145,629
<TOTAL-LIABILITY-AND-EQUITY> 177,246 173,823
<SALES> 177,642 79,479
<TOTAL-REVENUES> 177,642 79,479
<CGS> 118,923 53,968
<TOTAL-COSTS> 152,184 70,399
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,197) (181)
<INCOME-PRETAX> 26,655 9,261
<INCOME-TAX> 9,228 3,222
<INCOME-CONTINUING> 17,427 6,039
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,427 6,039
<EPS-BASIC> 1.01 0.35
<EPS-DILUTED> 1.01 0.35
</TABLE>
