<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 1998
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 333-31157
IRI INTERNATIONAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2044681
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 Louisiana, Suite 5900, Houston, Texas 77002
- -------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 651-8002
---------------------------
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 shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 13, 1998
- --------------------------------------- -------------------------------
Common stock, $0.01 par value per share 39,900,000
<PAGE> 2
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,822 $ 49,473
Marketable securities, at fair value (cost of $12,765 at June 30, 1998
and $7,448 at December 31, 1997) 12,469 8,218
Accounts receivable, less allowance for doubtful accounts of $577 at
June 30, 1998 and $455 at December 31, 1997 26,371 33,130
Inventories 112,432 100,901
Costs and estimated earnings in excess of billings on uncompleted contracts 9,113 8,853
Other current assets 2,346 1,444
------------ ------------
Total current assets 194,553 202,019
Property, plant and equipment, net 47,137 43,219
Other assets 4,972 5,836
------------ ------------
$ 246,662 $ 251,074
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 16,743 $ 27,797
Customer advances 9,866 7,546
Other liabilities 2,346 4,786
------------ ------------
Total current liabilities 28,955 40,129
Negative goodwill, less accumulated amortization 6,710 9,393
Accrued postretirement benefits 2,373 2,420
Other long-term liabilities 544 726
------------ ------------
Total liabilities 38,582 52,668
------------ ------------
Shareholders' equity:
Preferred stock, $1 par value, 25,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value, 100,000,000 shares authorized,
39,900,000 shares issued and outstanding 399 399
Additional paid-in capital 168,514 168,538
Retained earnings 40,823 30,926
Accumulated other comprehensive loss (1,656) (1,457)
------------ ------------
Total shareholders' equity 208,080 198,406
Commitments and contingencies
$ 246,662 $ 251,074
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE JUNE
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 51,399 $ 41,191 $ 98,631 $ 57,785
Cost of goods sold 35,931 32,674 70,314 45,126
------------ ------------ ------------ ------------
Gross profit 15,468 8,517 28,317 12,659
Administrative and selling expense 6,820 6,630 14,179 8,928
------------ ------------ ------------ ------------
Operating income 8,648 1,887 14,138 3,731
------------ ------------ ------------ ------------
Other income (expense):
Interest income 599 25 1,311 79
Interest expense (132) (2,882) (229) (3,147)
Unrealized losses on trading securities (2,359) -- (1,976) --
Special charge (631) -- (631) --
Other, net (376) (98) (370) (74)
------------ ------------ ------------ ------------
(2,899) (2,955) (1,895) (3,142)
------------ ------------ ------------ ------------
Income before income taxes 5,749 (1,068) 12,243 589
Income taxes 224 168 2,346 168
------------ ------------ ------------ ------------
Net income (loss) $ 5,525 $ (1,236) $ 9,897 $ 421
============ ============ ============ ============
Basic and diluted net income (loss) per common share $ 0.14 $ (0.04) $ 0.25 $ 0.01
============ ============ ============ ============
Weighted average shares outstanding 39,900 30,000 39,900 30,000
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EARNINGS LOSS EQUITY
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1997 $ 399 $ 168,538 $ 30,926 $ (1,457) $ 198,406
Net income (unaudited) -- -- 9,897 -- 9,897
Direct costs of initial public offering
(unaudited) -- (24) -- -- (24)
Translation adjustment (unaudited) -- -- -- (199) (199)
---------- ---------- ---------- ---------- ----------
Balances at June 30, 1998
(unaudited) $ 399 $ 168,514 $ 40,823 $ (1,656) $ 208,080
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,897 $ 421
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 2,792 1,073
Amortization of negative goodwill (2,683) (2,684)
Change in employee benefit accounts (107) (272)
Changes in assets and liabilities:
Marketable securities (4,251) --
Accounts receivable 6,759 (1,770)
Inventories (11,531) (6,755)
Other current assets (1,162) 2,054
Other non current assets 226 --
Accounts payable and accrued liabilities,
customer advances and other liabilities (11,151) (244)
Change in cumulative translation adjustment (199) --
------------ ------------
Net cash flows used in operations (11,410) (8,177)
------------ ------------
Cash flows from investing activities:
Capital expenditures (6,072) (1,191)
Acquisition of Bowen assets, net of
liabilities assumed -- (74,978)
Acquisition costs of Cardwell, net of liabilities assumed -- (12,565)
------------ ------------
Net cash flows used in investing activities (6,072) (88,734)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable -- 99,503
Payments on notes payable (64) (5,000)
IPO costs (24) (3,807)
Payments on capital lease obligation (81) (54)
------------ ------------
Net cash flows provided by (used in) financing
activities (169) 90,642
------------ ------------
Decrease in cash and cash equivalents (17,651) (6,269)
Cash and cash equivalents at beginning of period 49,473 8,635
------------ ------------
Cash and cash equivalents at end of period $ 31,822 $ 2,366
============ ============
Supplemental cash flow information:
Interest paid $ 229 $ 81
============ ============
Income taxes paid $ 5,019 $ --
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The accompanying condensed consolidated financial statements of IRI
International Corporation and subsidiaries (the Company) as of June 30,
1998 and for the three and six months ended June 30, 1998 and 1997 have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and are unaudited; however, they include all
adjustments (consisting only of normal recurring adjustments) which, in
the opinion of management, are necessary for a fair presentation for such
periods. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of operations
for the interim periods presented are not necessarily indicative of the
results to be expected for the entire year.
Certain footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been omitted herein. The interim information
should be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of
comprehensive income in a full set of general-purpose financial
statements. Comprehensive income includes net income and other
comprehensive income which is generally comprised of changes in the fair
value of available-for-sale marketable securities, foreign currency
translation adjustments and adjustments to recognize additional minimum
pension liabilities. The Company had accumulated other comprehensive loss
at December 31, 1997 of $1,457,000 consisting entirely of an adjustment
to recognize additional minimum pension liability. The Company had other
comprehensive income for the three and six months ended June 30, 1998 of
$(199,000) consisting of foreign currency translation adjustments.
(2) Inventories
Inventories consist of the following at June 30, 1998 and December 31,
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials $ 43,458 $ 39,087
Work-in-process 33,471 28,771
Finished goods 35,503 33,043
--------- ---------
Total $ 112,432 $ 100,901
========= =========
</TABLE>
(3) Commitments and Contingencies
The Company has contract commitments aggregating $56.4 million at June
30, 1998 for the manufacture and delivery of drilling rigs during the
remainder of fiscal 1998. At June 30, 1998, the Company was contingently
liable for approximately $6.0 million in letters of credit which
guarantee the Company's performance for payment to third parties in
accordance with
6
<PAGE> 7
specified contractual terms and conditions. These letters of credit are
primarily secured by the Company's cash, accounts receivable and
inventory. Management does not expect any material losses to result from
these off-balance-sheet instruments as it anticipates full performance on
the related contracts.
(4) Net Income (Loss) per Common Share
Stock options outstanding at June 30, 1998 of 3,866,000 shares were
not considered in the computation of net income per common share because
the exercise price exceeded the average market price for the period and
are therefore antidilutive.
(5) Acquisitions
On March 31, 1997, the Company acquired certain assets and assumed
certain liabilities of Bowen Tools, Inc. ("Bowen"), a wholly-owned
subsidiary of the French chemical concern L'Air Liquide, for a total cash
consideration of $75.1 million. On April 17, 1997, the Company also
acquired the stock of Cardwell International Ltd. ("Cardwell"), a
privately owned company, as well as certain assets held by affiliates of
Cardwell for approximately $12 million in cash at closing and partial
payment ($3 million) of a note payable to bank. In addition, the Company
incurred approximately $3.2 million ($2.6 million for Bowen and $.6
million for Cardwell) of transaction costs in connection with the
acquisitions.
The following sets forth selected consolidated financial information for
the Company on a pro forma basis for the six months ended June 30, 1997,
assuming the Bowen and Cardwell acquisitions had occurred on January 1,
1997 (in thousands, except per share amounts):
<TABLE>
<S> <C>
Revenues $ 80,195
============
Gross profit $ 22,507
============
Operating income $ 5,294
============
Net loss $ (1,231)
============
Net loss per common share $ (0.04)
============
</TABLE>
Pro forma adjustments primarily relate to additional interest expense
resulting from debt to finance the acquisitions, additional depreciation
and amortization expenses as a result of the purchase price allocations
to property, plant and equipment and excess of cost over net tangible
assets purchased and the related tax effects of these adjustments.
The pro forma information is not necessarily indicative of the results
that actually would have been achieved had such transactions been
consummated as of January 1, 1997, or that may be achieved in the future.
(6) Special Charge
On April 28, 1998, the Company terminated a proposed merger with Hitec
ASA, a Norwegian Corporation. External expenses incurred in connection
with the merger have been reported as a special charge of $631,000 for
the three and six months ended June 30, 1998.
7
<PAGE> 8
(7) New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting of the Costs
of Start-up Activities, which is effective for financial statements
issued for periods beginning after December 15, 1998. The Company
believes SOP 98-5 will not have a material impact on its financial
statements or accounting policies. The Company will adopt the
provisions of SOP 98-5 in the first quarter of 1999.
The Company is assessing the reporting and disclosure requirements of
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement requires a public business enterprise to
report financial and descriptive information about its reportable
operating segments. The statement is effective for financial statements
for periods beginning after December 15, 1997, but is not required for
interim financial statements in the initial year of its application.
The Company will adopt the provisions of SFAS No. 131 in its December
31, 1998 consolidated financial statements.
The Company is also assessing the reporting and disclosure requirements
of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. The
statement is effective for financial statements for fiscal years
beginning after June 15, 1999. The Company believes SFAS No. 133 will
not have a material impact on its financial statements or accounting
policies. The Company will adopt the provisions of SFAS No. 133 in the
first quarter of 2000.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto.
OVERVIEW
The Company manufactures land-based drilling and well-servicing rigs,
rig component parts, and downhole tools and related equipment for use in the
domestic and international markets. The Company's revenues are substantially
dependent upon the condition of the oil and gas industry and worldwide levels of
exploration, development and production activity, including the number of oil
and gas wells being drilled, the depth and drilling conditions of such wells,
the number of well completions and the level of workover activity. Exploration,
development and production activity is largely dependent on the prevailing view
of future oil and natural gas prices, which have been characterized by
significant volatility over the last 20 years. Oil and natural gas prices are
influenced by numerous factors affecting the supply of and demand for oil and
gas, including the level of drilling activity, worldwide economic activity,
interest rates and the cost of capital, environmental regulation, tax policies,
political requirements of national governments, coordination by OPEC and the
cost of producing oil and gas. Demand for the Company's products in certain
emerging market countries may depend somewhat less on the prevailing view of
future oil and natural gas prices as such countries may generally place greater
emphasis on their need for internal development, energy self-sufficiency or hard
currency earnings.
RESULTS OF OPERATIONS
Sales of new rigs manufactured by the Company can produce large
fluctuations in revenues depending on the size and the timing of the
construction of orders. Individual orders of rig packages range from $1 million
to $25 million and cycle times for the design, engineering and manufacturing of
rig packages range from six to nine months. These fluctuations may affect the
Company's quarterly revenues and operating income.
Results of Segment Operations
The following discussion of the results of operations of the Company's
oilfield equipment, downhole products and specialty steel segments does not
reflect the allocation of corporate and unallocated administrative expenses,
amortization of negative goodwill and amortization of goodwill on an individual
segment basis. Certain information that reconciles the discussion of the results
of operations of the individual segments to the Company's Condensed Consolidated
Financial Statements is as follows:
9
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Oilfield equipment $ 25,118 $ 18,433 $ 50,180 $ 31,330
Downhole products 23,600 19,676 43,176 19,676
Specialty steel 2,694 3,082 5,600 6,779
Eliminations (13) -- (325) --
---------- ---------- ---------- ----------
Total $ 51,399 $ 41,191 $ 98,631 $ 57,785
========== ========== ========== ==========
SEGMENT OPERATING INCOME
Oilfield equipment $ 4,772 $ 1,822 $ 9,813 $ 2,644
Downhole products 5,655 1,982 8,793 1,982
Specialty steel 737 587 1,255 1,766
---------- ---------- ---------- ----------
Total 11,164 4,391 19,861 6,392
Corporate overhead and unallocated
administrative expenses (3,527) (3,592) (7,769) (5,091)
Amortization of negative goodwill 1,342 1,342 2,684 2,684
Amortization of goodwill (331) (254) (638) (254)
---------- ---------- ---------- ----------
Operating income $ 8,648 $ 1,887 $ 14,138 $ 3,731
========== ========== ========== ==========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Oilfield Equipment
Revenues and operating income for the oilfield equipment unit were
$25.1 million and $4.8 million, respectively, for the three months ended June
30, 1998, as compared to $18.4 million and $1.8 million, respectively, for the
three months ended June 30, 1997. The increase in revenues resulted from strong
demand domestically for rigs and related equipment and increased spare parts and
refurbishment activity. Increased operating income resulted from increased sales
volume and a favorable mix between manufactured equipment and buyouts. Revenues
for the three months ended June 30, 1998, compared to the same period for the
prior year, included a higher ratio of manufactured equipment to equipment
purchased from third parties. Equipment purchased from third parties is
commonly referred to as buyouts and normally carries a lower gross margin. Gross
margin for the three months ended June 30, 1998 was 23.2%, as compared to 14.9%
for the three months period ended June 30, 1997. The increase in gross margin
was due primarily to increased productivity and a favorable mix between
manufactured equipment and buyouts.
Downhole Products
Revenues and operating income for the downhole products unit were $23.6
million and $5.7 million, respectively, for the three months ended June 30,
1998, as compared to $19.7 million and $2.0 million, respectively, for the three
months ended June 30, 1997. Increased revenues and operating income for the
downhole products unit were primarily attributable to improved pricing and
increased demand for fishing tools and power equipment, primarily in
international markets. Gross margin for the three months ended June 30, 1998
was 33.3%, as compared to 20.6% for the three months ended June 30, 1997. The
increase in gross margin was primarily due to improved pricing and increased
sales volume.
10
<PAGE> 11
Specialty Steel
Revenues and operating income for the specialty steel unit were $2.7
million and $0.7 million, respectively, for the three months ended June 30,
1998, as compared to $3.1 and $0.6 million, respectively, for the three months
ended June 30, 1997. The decrease in revenues was primarily the result of
reduced demand from a major customer. Gross margin for the three months ended
June 30, 1998 was 28.8%, as compared to 20.3% for the three months ended June
30, 1997. The increase in gross margin was primarily due to an aggressive cost
reduction program, which has more than offset the reduced sales volume.
Corporate and Administrative Expenses
Corporate and administrative expenses were $3.5 million for the three
months ended June 30, 1998, as compared to $3.6 million for the three months
ended June 30, 1997.
Other Income (Expense)
Interest income increased $574,000 for the three months ended June 30,
1998 over the comparable period in 1997 due to higher average cash balances in
the current year. Interest expense decreased $2.8 million for the three months
ended June 30, 1998, as compared to the prior year quarter, as a result of the
repayment of debt in November 1997 with the proceeds from the Company's initial
public offering. The Company incurred a special charge of $631,000 in the second
quarter of 1998 relating to expenses incurred in connection with the Company's
proposed acquisition of Hitec ASA, which was terminated on April 28, 1998.
Income Taxes
The Company's effective income tax rate for financial reporting
purposes for the three months ended June 30, 1998 of approximately 4 percent was
significantly lower than the U.S. federal statutory rate of 35 percent. The
lower effective rate was primarily the result of the tax benefits from the
projected use of a Foreign Sales Corporation, non-taxable income arising from
the amortization of negative goodwill, and a reduction in the valuation
allowance of approximately $1.5 million against deferred tax assets which are
more likely than not of being realized.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Oilfield Equipment
Revenues and operating income for the oilfield equipment unit were
$50.2 million and $9.8 million, respectively, for the six months ended June 30,
1998, as compared to $31.3 million and $2.6 million, respectively, for the six
months ended June 30, 1997. The increase in revenues resulted from increased
sales of rig packages by the IRI Division, an increase in spare parts and
refurbishment activity, and the inclusion of the operating results of the
Company's subsidiary, Cardwell International, Ltd., for the full 1998 period
compared to three months in 1997. Increased operating income resulted from
increased sales volume and a favorable mix between manufactured equipment and
buyouts in the period. Gross margin for the six months ended June 30, 1998 was
23.8%, as compared to 13.8% for the six month period ended June 30, 1997. The
increase in gross margin was due primarily to increased productivity and a
favorable mix between manufactured equipment and buyouts.
11
<PAGE> 12
Downhole Products
Revenues and operating income for the downhole products unit were $43.2
million and $8.8 million, respectively, for the six months ended June 30, 1998,
as compared to $19.7 million and $2.0 million, respectively, for the six months
ended June 30, 1997. Increased revenues and operating income for the downhole
products unit were primarily attributable to increased demand for fishing tools
and power equipment, primarily in international markets, and the inclusion of
the operating results of the Bowen Tools Division for the full 1998 period
compared to three months in 1997. Gross margin for the six months ended June
30, 1998 was 30.3%, as compared to 20.6% for the six months ended June 30,
1997. The increase in gross margin was primarily due to improved pricing and
increased sales volume.
Specialty Steel
Revenues and operating income for the specialty steel unit were $5.6
million and $1.3 million, respectively, for the six months ended June 30, 1998,
as compared to $6.8 and $1.8 million, respectively, for the six months ended
June 30, 1997. The decrease in revenues was primarily the result of reduced
demand from a major customer. Gross margin for the six months ended June 30,
1998 was 23.8%, as compared to 27.2% for the six months ended June 30, 1997. The
decrease in gross margin was primarily due to the reduction of high margin
business from a major customer.
Corporate and Administrative Expenses
Corporate and administrative expenses were $7.8 million for the six
months ended June 30, 1998, as compared to $5.1 million for the six months ended
June 30, 1997. The increase was due primarily to the inclusion of Bowen and
Cardwell for the full 1998 period compared to three months in 1997.
Other Income (Expense)
Interest income increased $1.2 million for the six months ended
June 30, 1998 over the comparable period in 1997 due to higher average cash
balances in the current year. Interest expense decreased $2.9 million for the
six months ended June 30, 1998 as compared to the prior year period as a result
of the repayment of debt in November 1997. The Company incurred a special charge
of $631,000 in the first six months of 1998 relating to expenses incurred in
connection with the Company's proposed acquisition of Hitec ASA, which was
terminated on April 28, 1998.
Income Taxes
The Company's effective income tax rate for financial reporting
purposes for the six months ended June 30, 1998 of approximately 19 percent was
significantly lower than the U.S. federal statutory rate of 35 percent. The
lower effective rate was primarily the result of the tax benefits from the
projected use of a Foreign Sales Corporation, non-taxable income arising from
the amortization of negative goodwill, and a reduction in the valuation
allowance of approximately $1.2 million against deferred tax assets which are
more likely than not of being realized.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash, cash equivalents and marketable
securities of $44.3 million, compared to $57.7 million at December 31, 1997. At
June 30, 1998, the Company's working capital was $165.6 million, compared to
$161.9 million at December 31, 1997.
Management believes that current working capital in conjunction with
borrowings under its current credit facility will be sufficient to meet the
Company's short-term (i.e., less than one year) and long-term liquidity needs.
YEAR 2000
The Company has established a task force that is currently working, and
will continue to work, to ascertain and resolve the potential problems
associated with the year 2000, and the processing of date sensitive information
by the Company's computer and other systems. Based on preliminary information
available to date, the Company believes that it will be able to implement
successfully the systems and programming changes necessary to address the year
2000 issues, and does not expect the cost of such changes to have a material
impact on the Company's financial position, results of operations or cash flows
in future periods, though there can be no assurance in this regard.
In addition, the year 2000 problem may adversely affect the suppliers
of the products used by the Company to in turn manufacture its products. While
the Company believes such suppliers fully intend to achieve year 2000
compliance, there can be no assurance they will, or of the impact on the Company
that any such failure may cause.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of the historical information contained in this
report, the matters described herein contain forward-looking statements that
involve risk and uncertainties including, but not limited to, economic and
competitive factors outside of the control of the Company. These factors more
specifically include: dependence on the oil and gas industry, competition from
various entities, the impact of government regulations, the instability of
certain foreign economies, currency fluctuations, risks of expropriation and
changes in law affecting international trade and investment. Forward-looking
statements are typically identified by the words "believe," "expect,"
"anticipate," "intend," "estimate," and similar expressions. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on June 25,
1998.
(c) At the Annual Meeting the following matters were voted upon:
1. Election of Directors
Name Votes For Votes Against
---- --------- -------------
H. Ansary 35,769,047 922,902
D. Moriarity 35,770,072 921,877
A. Andrawos 35,769,797 922,152
N. Ansary 35,768,897 923,052
F. Carlucci 35,818,372 873,577
P. David 35,818,372 873,577
M. Hidayatallah 35,769,922 922,027
R. Higginbotham 35,769,322 922,627
J. Macomber 35,818,372 873,577
E. Palmer 35,817,569 874,380
S. Solarz 35,783,272 908,677
G. Stratulate 35,770,072 921,877
A. Teichgraeber 35,802,672 889,277
A. Trowbridge 35,818,372 873,577
J. West 35,818,372 873,577
2. Proposal to ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending December
31, 1998.
Votes For Votes Against Abstentions
--------- ------------- -----------
36,685,499 4,350 2,100
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index following the signature
page hereof are filed herewith in response to this item.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 16, 1998
regarding the press release announcing the Hitec Transaction.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly consented this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1998
IRI INTERNATIONAL CORPORATION
/s/ Munawar H. Hidayatallah
---------------------------------------
Munawar H. Hidayatallah
Executive Vice President,
Chief Financial and Accounting Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<C> <S>
* 3.1 -- Form of Restated Certificate of Incorporation of IRI International Corporation
* 3.2 -- Amended and Restated Bylaws of the Company
27.1 -- Financial Data Schedule (submitted as an exhibit only in the electronic format of
this Quarterly Report on Form 10-Q submitted to the Securities and Exchange
Commission).
</TABLE>
- --------------------
* Exhibit incorporated herein by reference to the Registrant's registration
statement on Form S-1 (Registration No. 333-31157) dated September 8, 1997,
as amended.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 31,822
<SECURITIES> 12,469
<RECEIVABLES> 26,371
<ALLOWANCES> 577
<INVENTORY> 112,432
<CURRENT-ASSETS> 194,553
<PP&E> 47,137
<DEPRECIATION> 5,570
<TOTAL-ASSETS> 246,662
<CURRENT-LIABILITIES> 28,955
<BONDS> 0
0
0
<COMMON> 399
<OTHER-SE> 207,681
<TOTAL-LIABILITY-AND-EQUITY> 246,662
<SALES> 98,631
<TOTAL-REVENUES> 98,631
<CGS> 70,314
<TOTAL-COSTS> 70,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> 12,243
<INCOME-TAX> 2,346
<INCOME-CONTINUING> 9,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,897
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
