<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
October 26, 2000
GRANT PRIDECO, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 001-15423 76-0312499
(State or other jurisdiction of (Commission file Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1450 LAKE ROBBINS DRIVE, 77380
SUITE 600, (Zip Code)
THE WOODLANDS, TEXAS
(Address of principal executive offices)
</TABLE>
(281) 297-8500
(Registrant's telephone number, include area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
We are filing a shelf registration on Form S-3 to sell from time to time up
to $500 million in debt securities, common and preferred stock, depository
shares and warrants. We expect that all of our domestic subsidiaries will be
guarantors of any series of debt securities, and our domestic subsidiaries are
therefore co-registrants under the registration statement. Pursuant to Rule 3-10
of Regulation S-X, we are filing historical financial information for our
subsidiary guarantors. We have not otherwise changed the information in our
audited financial statements from those previously filed. The financial
information filed as part of this report includes:
(1) The audited financial statements as of December 31, 1998 and 1999
and for each of the three years in the period ended December 31, 1999 in
order to reflect the inclusion therein of the subsidiary guarantor
financial information required under Rule 3-10 of Regulation S-X.
(2) The unaudited subsidiary guarantor financial information required
under Rule 3-10 of Regulation S-X as of June 30, 2000 and for the three and
six month periods ended June 30, 1999 and 2000.
On October 25, 2000, we issued a press release reporting our third quarter
2000 results of operations. A copy of that press release is attached to this
report as Exhibit 99.1.
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
99.1 Press Release dated October 25, 2000.
</TABLE>
<PAGE> 3
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.
GRANT PRIDECO, INC.
By: /s/ FRANCES R. POWELL
----------------------------------
Frances R. Powell
Vice President and Chief Financial
Officer
Date: October 26, 2000
<PAGE> 4
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements of Grant Prideco
Report of Independent Public Accountants.................. F-2
Combined Balance Sheets as of December 31, 1998 and
1999................................................... F-3
Combined Statements of Operations for the years ended
December 31, 1997, 1998, and 1999...................... F-4
Combined Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-5
Combined Statements of Stockholder's Equity for the years
ended December 31, 1997, 1998 and 1999................. F-6
Notes to Combined Financial Statements.................... F-7
Quarterly Financial Information -- Subsidiary Guarantor
Financial Information
Condensed Consolidating Balance Sheet as of June 30,
2000................................................... F-33
Condensed Combining Statements of Operations for the three
and six months ended June 30, 1999..................... F-34
Condensed Consolidating Statements of Operations for the
three and six months ended June 30, 2000............... F-36
Condensed Combining Statement of Cash Flows for the six
months ended June 30, 1999............................. F-38
Condensed Consolidating Statement of Cash Flows for the
six months ended June 30, 2000......................... F-39
</TABLE>
F-1
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grant Prideco, Inc.:
We have audited the accompanying combined balance sheets of the drilling
product businesses of Weatherford International, Inc. (a Delaware corporation)
(Grant Prideco), as of December 31, 1998 and 1999, and the related combined
statements of operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Grant Prideco as of
December 31, 1998 and 1999, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
January 28, 2000 (except with respect
to the matter discussed in Note 18,
as to which the date is October 26, 2000)
F-2
<PAGE> 6
GRANT PRIDECO
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 6,070 $ 6,204
Restricted Cash........................................... -- 3,658
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $366 and $500 at December 31, 1998 and
1999................................................... 129,019 77,650
Inventories............................................... 186,267 173,904
Current Deferred Tax Asset................................ 10,785 6,197
Other Current Assets...................................... 18,155 4,425
-------- --------
350,296 272,038
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Machinery and Equipment................................... 197,552 224,225
Land, Buildings and Other Property........................ 86,350 81,390
-------- --------
283,902 305,615
Less: Accumulated Depreciation............................ 74,908 98,906
-------- --------
208,994 206,709
-------- --------
GOODWILL, NET............................................... 162,464 187,765
INVESTMENT IN UNCONSOLIDATED AFFILIATES..................... 6,848 37,453
OTHER ASSETS................................................ 9,712 30,610
-------- --------
$738,314 $734,575
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current Portion of Long-Term
Debt................................................... $ 52,881 $ 14,710
Accounts Payable.......................................... 41,377 47,459
Accrued Wages and Benefits................................ 4,427 6,277
Current Deferred Tax Liability............................ 8,231 7,144
Customer Advances......................................... 5,248 18,503
Purchase Credit........................................... 8,000 --
Other Accrued Liabilities................................. 24,104 13,308
-------- --------
144,268 107,401
-------- --------
SUBORDINATED NOTE TO WEATHERFORD............................ 100,000 100,000
LONG-TERM DEBT.............................................. 9,265 24,276
DEFERRED INCOME TAXES....................................... 24,838 44,533
MINORITY INTEREST........................................... -- 886
OTHER LONG-TERM LIABILITIES................................. 14,732 3,623
COMMITMENTS AND CONTINGENCIES
TOTAL STOCKHOLDER'S EQUITY.................................. 445,211 453,856
-------- --------
$738,314 $734,575
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 7
GRANT PRIDECO
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
REVENUES.................................................... $630,021 $646,454 $286,370
-------- -------- --------
COSTS AND EXPENSES:
Cost of Sales............................................. 471,779 480,034 262,269
Selling, General and Administrative Attributable to
Segments............................................... 29,903 31,986 31,104
Corporate General and Administrative...................... 11,983 14,407 14,638
Equity (Income) Loss in Unconsolidated Affiliates......... -- (267) 419
Weatherford Charges....................................... 920 960 1,500
Nonrecurring Charges...................................... -- 6,450 9,454
-------- -------- --------
514,585 533,570 319,384
-------- -------- --------
OPERATING INCOME (LOSS)..................................... 115,436 112,884 (33,014)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense.......................................... (5,726) (4,758) (4,093)
Weatherford Interest Expense.............................. (7,250) (7,250) (7,250)
Other, Net................................................ (396) 4,692 (138)
-------- -------- --------
(13,372) (7,316) (11,481)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... 102,064 105,568 (44,495)
PROVISION (BENEFIT) FOR INCOME TAXES........................ 40,550 39,848 (11,199)
-------- -------- --------
NET INCOME (LOSS) BEFORE MINORITY INTEREST.................. 61,514 65,720 (33,296)
MINORITY INTEREST........................................... -- -- (215)
-------- -------- --------
NET INCOME (LOSS)........................................... $ 61,514 $ 65,720 $(33,511)
======== ======== ========
Pro Forma Earnings (Loss) Per Share:
Basic..................................................... $ 0.64 $ 0.68 $ (0.33)
======== ======== ========
Diluted................................................... $ 0.63 $ 0.67 $ (0.33)
======== ======== ========
Pro Forma Weighted Average Shares:
Basic..................................................... 96,052 97,065 101,245
======== ======== ========
Diluted................................................... 97,562 97,757 101,245
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 8
GRANT PRIDECO
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)......................................... $ 61,514 $ 65,720 $(33,511)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided By Operating Activities:
Non-Cash Portion of Other Nonrecurring Charges............ -- 30,500 9,454
Depreciation and Amortization............................. 27,051 31,173 30,514
Deferred Income Tax Provision (Benefit)................... 14,944 (4,513) 9,531
Equity (Income) Loss in Unconsolidated Affiliates -- (267) 419
Gain on Asset Disposal.................................... -- (1,226) --
Sale of Technology License................................ -- (9,000) --
Change in Assets and Liabilities, Net of Effects of
Businesses Acquired:
Accounts Receivable.................................... (40,922) 13,308 41,072
Inventories............................................ (52,686) (22,878) 10,944
Other Current Assets................................... (1,375) (13,812) 8,919
Accounts Payable....................................... 11,964 (57,091) 18,927
Accrued Current Liabilities............................ (12,871) (10,730) (32,291)
Other Assets........................................... (1,456) (1,215) (703)
Customer Advances...................................... 2,904 2,344 13,255
Purchase Credit........................................ -- (8,000) (8,000)
Other, Net............................................. 805 (3,586) (3,290)
-------- -------- --------
Net Cash Provided by Operating Activities.............. 9,872 10,727 65,240
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired........... (50,847) (17,400) (15,072)
Capital Expenditures for Property, Plant and Equipment.... (34,813) (38,102) (19,046)
Proceeds on Sale of Assets................................ -- 6,023 --
-------- -------- --------
Net Cash Used by Investing Activities.................. (85,660) (49,479) (34,118)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net................................... (22,778) (6,990) (54,225)
Stockholder's Investment 105,466 43,609 23,237
-------- -------- --------
Net Cash Provided (Used) by Financing Activities....... 82,688 36,619 (30,988)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 6,900 (2,133) 134
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 1,303 8,203 6,070
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 8,203 $ 6,070 $ 6,204
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 9
GRANT PRIDECO
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
CURRENCY TOTAL
STOCKHOLDER'S RETAINED TRANSLATION STOCKHOLDER'S
INVESTMENT EARNINGS ADJUSTMENT EQUITY
------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................... $150,168 $ 19,122 $ (5,070) $164,220
Total Comprehensive Income (Loss)............ -- 61,514 (2,360) 59,154
Stockholder's Contribution................... 109,348 -- -- 109,348
-------- -------- -------- --------
Balance of December 31, 1997................... 259,516 80,636 (7,430) 332,722
Total Comprehensive Income (Loss)............ -- 65,720 (5,908) 59,812
Stockholder's Contribution................... 51,928 749 -- 52,677
-------- -------- -------- --------
Balance at December 31, 1998................... 311,444 147,105 (13,338) 445,211
Total Comprehensive Loss..................... -- (33,511) (17) (33,528)
Stockholder's Contribution................... 42,173 -- -- 42,173
-------- -------- -------- --------
Balance at December 31, 1999................... $353,617 $113,594 $(13,355) $453,856
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 10
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. WEATHERFORD INTERNATIONAL INC.'S PROPOSED SPINOFF OF ITS DRILLING PRODUCTS
DIVISION
On October 22, 1999, the Board of Directors of Weatherford International,
Inc. ("Weatherford" or "Stockholder") authorized the spinoff of its drilling
products businesses (the "Company" or "Grant Prideco") to its shareholders as an
independent, publicly-traded company (the "Distribution"). The drilling products
businesses will be transferred to Grant Prideco, Inc. from Weatherford. The
Distribution is subject to the effectiveness of a tax ruling by the Internal
Revenue Service that would allow it to be tax-free to shareholders subject to
U.S. Federal income taxes and appropriate stock market conditions. Immediately
following the Distribution, Weatherford will no longer have an equity investment
in Grant Prideco, however, Grant Prideco will have a $100.0 million unsecured
subordinated note to Weatherford due no later than March 31, 2002 and a $30
million drill stem credit obligation to Weatherford. Weatherford will also
remain liable on certain existing contingent liabilities relating to Grant
Prideco which were not able to be released, terminated or replaced prior to the
Distribution date ("unreleased contingent liabilities"). Grant Prideco will
fully indemnify Weatherford for any payments made under the unreleased
contingent liabilities.
Basis of Presentation
The combined financial statements reflect the results of operations of
Weatherford's drilling products businesses that will be transferred to Grant
Prideco, Inc. from Weatherford. The combined financial statements have been
prepared using the historical bases in the assets and liabilities and historical
results of operations related to Grant Prideco, except as noted herein. The
combined financial statements include allocations ("carve-outs") of general and
administrative corporate overhead costs of Weatherford to Grant Prideco and
direct costs of services provided by Weatherford for the benefit of Grant
Prideco (See Note 15). Management believes such allocations are reasonable;
however, the costs of these services charged to Grant Prideco are not
necessarily indicative of the costs that would have been incurred if Grant
Prideco had performed these functions as a stand-alone entity. Subsequent to the
Distribution, Grant Prideco will perform these functions using its own resources
or purchased services and will be responsible for the costs and expenses
associated with the management of a public corporation.
The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in stockholder's
equity and cash flows of Grant Prideco in the future or what they would have
been had it been a separate, stand-alone entity during the periods presented.
The combined financial statements included herein do not reflect any changes
that may occur in the financing of Grant Prideco as a result of the
Distribution.
Nature of Operations
The Company manufactures and supplies drill pipe and drilling tools,
premium connectors and associated high grade tubular and marine connectors used
in the exploration and production of oil and natural gas.
Principles of Combination
Intercompany transactions and balances between Grant Prideco's businesses
have been eliminated. The Company accounts for its 50% or less-owned affiliates
using the equity method. The minority's interest in H-Tech (46%) is included in
the balance sheets and statements of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE> 11
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
Property Plant and Equipment
Property, plant and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of renewals, replacements and betterments
are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The Company evaluates potential impairment of property, plant and
equipment and other long-lived assets on an ongoing basis and reduces the
carrying value whenever events or circumstances effecting the carrying amounts
indicate that amounts may not be fully recoverable. The useful lives of the
major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Machinery and equipment................................ 3 - 20 years
Buildings and other property........................... 5 - 40 years
</TABLE>
Intangible Assets and Amortization
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, principally patents and technology licenses. The
Company periodically evaluates goodwill and other intangible assets, net of
accumulated amortization, for impairment based on the undiscounted cash flows
associated with the asset compared to the carrying amount of that asset.
Management believes that there have been no events or circumstances which
warrant revision to the remaining useful life or which affect the recoverability
of any intangible assets. Goodwill is being amortized on a straight-line basis
over the lesser of the estimated useful life or 40 years. Other identifiable
intangible assets, included as a component of other assets, are amortized on a
straight-line basis over the years expected to be benefited, ranging from 5 to
15 years.
Amortization expense for goodwill and other intangible assets was
approximately $3.4 million, $5.8 million and $6.1 million for the years ended
December 31, 1997, 1998, and 1999, respectively. Accumulated amortization for
goodwill at December 31, 1998 and 1999 was $7.1 million and $11.7 million,
respectively.
Foreign Currency Translation
The functional currency for most of the Company's international operations
is the applicable local currency. Results of operations for foreign subsidiaries
with functional currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities of these
foreign subsidiaries are translated into U.S. dollars using the exchange rates
in effect at the balance sheet date, and the resulting translation adjustments
are included in stockholder's equity. Currency transaction gains and losses are
reflected in income for the period.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts only as a hedge against
existing economic exposures, and not for speculative or trading purposes. These
contracts reduce exposure to currency movements affecting specific existing
assets and liabilities denominated in foreign currencies. The future value of
these contracts and related currency positions are subject to offsetting market
risks resulting from foreign currency exchange rate volatility. The
counterparties to the Company's foreign exchange contracts are creditworthy
multinational commercial banks. Management believes that the risk of
counterparty nonperformance is immaterial. At December 31, 1999, Weatherford had
a contract maturing on January 31, 2000 to
F-8
<PAGE> 12
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase Austrian schillings equivalent to $23.9 million. Gains and losses on
the change in market value of the contract are recognized currently in earnings.
Although we are exposed to exchange rate fluctuations in the Austrian schilling
subsequent to January 31, 2000, we are reviewing longer-term hedge arrangements
to mitigate this risk.
Accounting for Income Taxes
The accompanying financial statements have been prepared under Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes
assuming Grant Prideco was a separate entity. Under SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
In connection with the Distribution, Grant Prideco and Weatherford will
enter into a tax allocation agreement (the "Tax Allocation Agreement"). Under
the terms of the Tax Allocation Agreement, Grant Prideco, will be responsible
for all taxes and associated liabilities relating to the historical businesses
of Grant Prideco. The Tax Allocation Agreement will also provide that any tax
liabilities associated with the spinoff shall be assumed and paid by Grant
Prideco subject to certain exceptions relating to changes in control of
Weatherford. The Tax Allocation Agreement will further provide that in the event
there is a tax liability associated with the historical operations of the
Company that is offset by a tax benefit of Weatherford, Weatherford will apply
the tax benefit against such tax liability and will be reimbursed for the value
of such tax benefit when and as Weatherford would have been able to otherwise
utilize that tax benefit for its own businesses. Also, the Tax Allocation
Agreement will provide that Weatherford will have the future benefit of any tax
losses incurred by Grant Prideco prior, as a part of a consolidated return with
Weatherford, to the spinoff, and Grant Prideco will be required to pay
Weatherford an amount of cash equal to any such benefit utilized by Grant
Prideco or which expires unused by Grant Prideco to the extent those benefits
are not utilized by Weatherford.
As Weatherford manages its tax position on a consolidated basis, which
takes into account the results of all of its businesses, the Company's effective
tax rate in the future could vary from its historical effective rates. Grant
Prideco's future effective tax rate will largely depend on its structure and tax
strategies as a separate, independent company.
Revenue Recognition
The Company recognizes revenue as products are shipped or accepted by the
customer. Customer advances or deposits are deferred and recognized as revenue
when the Company has met all of its performance obligations related to the sale.
Pro Forma Earnings Per Share
Pro forma earnings per share has been calculated using Grant Prideco's pro
forma basic and diluted weighted average shares outstanding for each of the
periods presented. Grant Prideco's pro forma basic weighted average shares have
been calculated by adjusting Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of Grant
Prideco shares that would have been outstanding at the time assuming the
distribution of one share of Grant Prideco common stock for each share of
Weatherford common stock. Grant Prideco's pro forma diluted weighted average
shares reflect an estimate of the potential dilutive effect of common stock
equivalents. Such estimate is calculated based on Weatherford's dilutive effect
of stock options and restricted stock. The effect of stock options and
restricted stock is not included in the diluted computation for periods in which
a loss occurs because to do so would have been anti-dilutive.
F-9
<PAGE> 13
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Requirements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS No. 133 has been amended by SFAS No. 137, which delays
the effective date to fiscal years beginning after June 15, 2000. We are
currently evaluating the impact of SFAS No. 133 on the Company's combined
financial statements.
2. INVENTORIES
Inventories by category are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Raw materials, components and supplies...................... $126,559 $ 93,980
Work in process............................................. 17,060 15,720
Finished goods.............................................. 42,648 64,204
-------- --------
$186,267 $173,904
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
3. ACQUISITIONS
On October 27, 1999, the Company acquired an additional 27% interest in
H-Tech, an Indonesia-based drill pipe manufacturer with facilities located on
Batam Island, for $6.0 million in cash. The Company previously held a 27%
interest in H-Tech and with this purchase owns a controlling 54% interest in
H-Tech. The results of operations of H-Tech have been consolidated in our
results of operations from November 1, 1999. Prior to November 1, 1999, our
investment in H-Tech was accounted for under the equity method. The results of
operations of H-Tech prior to November 1, 1999 were not material to the
Company's results of operations; therefore, pro forma financial information is
not presented.
On October 1, 1999, the Company acquired Drill Pipe Industries, Inc., a
manufacturer of drill stem products, for $1.4 million in cash and a $1.4 million
non-interest bearing note which was repaid in January 2000.
On August 25, 1999, the Company acquired Louisiana-based Petro-Drive, Inc.,
for 0.3 million shares of Weatherford common stock and assumed debt of
approximately $3.5 million. Petro-Drive's offerings include conductors,
connections and installation services and equipment. If any of the former
Petro-Drive shareholders sell any shares of Weatherford common stock and the
corresponding shares of Grant Prideco common stock between August 2000 and
August 2001 at a combined price of less than $36.50, the Company will be
obligated to pay cash to these persons equal to the amount of such deficit. In
January 2000, we exercised our option to acquire the facility leased by
Petro-Drive for approximately $1.6 million.
On July 23, 1999, the Company acquired a 50.01% interest in the
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG ("VA") for approximately $32.6
million, of which approximately $8.0 million was paid in cash and the remainder
is to be paid over a period of up to 7.5 years. VA produces high quality
seamless tubulars in Austria. The Company's investment in Voest-Alpine is
reported on the equity method of accounting.
On July 7, 1999, the Company acquired Texas Pup, Inc., a manufacturer of
premium and API pup joints (odd-sized tubular products) and utility boring drill
pipe, for 0.1 million shares of common stock of Weatherford and assumed debt of
approximately $1.7 million.
F-10
<PAGE> 14
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On May 31, 1999, the Company acquired Texas Pipe Works, Inc., a
manufacturer of API couplings, for approximately $1.7 million in cash and 50,000
shares of Weatherford common stock.
On May 31, 1999, the Company acquired InterOffshore Services, Pte., a
manufacturer of drilling tool accessories, for approximately $2.1 million in
cash.
In December 1998, the Company acquired from Tubos de Acero de Mexico, S.A.
("TAMSA") 93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that the Company was operating under
a capital lease arrangement. The total consideration given was $59.0 million
comprised of $48.5 million in debt (which was repaid in March 1999), cash of
$1.5 million and a $9.0 million license to the international rights of the
Company's Atlas Bradford thread line. The Company sold the international rights,
excluding Canada, to its Atlas Bradford tubular connection line to TAMSA through
a license arrangement that resulted in a sale of all of the Company's rights
which became effective upon the closing of this transaction. The Company
retained no obligations with respect to the development, maintenance or
improvement of the Atlas Bradford connection line for carbon grade tubular for
the international market and TAMSA has no obligation to give any additional
consideration for this license. Any future support by Grant Prideco is provided
on a fee basis. The rights sold through this license arrangement had a fair
value of $9.0 million. As a result, in December 1998 the Company recorded $9.0
million in revenues to recognize the sale of the international rights to the
Atlas Bradford connection line.
On February 12, 1998, the Company acquired Drill Tube International, Inc.,
a manufacturer of drill pipe and other drill stem products, for $29 million. The
consideration paid in the acquisition consisted of $9 million in cash and a
contractual purchase credit obligation to manufacture and deliver products to
the seller over a two year period. Under the Company's contract with the
Sellers, the Company was required to provide product to the Sellers at a
notional price of $16 million. The fair value of the products to be delivered to
the Sellers was $20 million. Accordingly, a liability of $20 million was
recorded as of the date of the acquisition. As products are delivered under this
commitment the liability is reduced. As of December 31, 1999 and 1998, the
contractual purchase credit balance was $0 and $8 million, respectively.
On August 25, 1997, the Company acquired XLS Holding, Inc. ("XL"), a
provider of premium connections for conductors, risers and other offshore
structure components. The acquisition was accounted for as a pooling of
interests and the consideration paid consisted of approximately 0.9 million
shares of Weatherford common stock. The accompanying financial statements
include the results of XL for all periods presented.
The separate results of Grant Prideco, XL and the combined company were as
follows:
<TABLE>
<CAPTION>
JANUARY 1 TO
AUGUST 25,
1997
---------------
(IN THOUSANDS)
<S> <C>
Revenues:
Grant Prideco............................................. $376,030
XL........................................................ 18,306
--------
Combined.................................................. $394,336
========
Net Income (Loss):
Grant Prideco............................................. $ 40,924
XL........................................................ (5,514)
--------
Combined.................................................. $ 35,410
========
</TABLE>
On July 23, 1997, the Company acquired Rotary Drilling Tools ("RDT"), a
manufacturer of drill collars and accessories, for $3.3 million in cash.
F-11
<PAGE> 15
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On July 18, 1997, the Company acquired Coastal Tubular Inc. ("Coastal"), a
manufacturer of API threads and thread connections, for approximately $3.3
million in cash.
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA") for
approximately $44.1 million in cash and $19.7 million of assumed debt. TA
designs, manufactures and markets premium and API couplings and accessories
under the brand names Texas Arai and Tube-Alloy.
The acquisitions discussed above, with the exception of XL, were accounted
for using the purchase method of accounting. The results of operations of all
acquisitions, excluding XL, are included in the Combined Statements of
Operations from their respective dates of acquisition. The 1997, 1998 and 1999
acquisitions are not material to the Company individually or in the aggregate
for each applicable year.
4. SHORT-TERM BORROWINGS
In connection with the October 1, 1999 acquisition of Drill Pipe
Industries, Inc., the Company issued a non-interest bearing note payable of $1.4
million due in January 2000. This note was subsequently paid in January 2000.
The Company has an uncommitted credit facility which provides for
short-term loans for periods up to 12 months. At December 31, 1999, the Company
had an outstanding balance of $3.9 million under the facility. The average
interest rate for borrowings under the facility was 3.50% per annum at December
31, 1999. The Company also has $0.3 million of short-term notes payable with
interest rates ranging up to 8.6%.
The Company, through Weatherford, also has various credit facilities
available only for stand-by letters of credit and bid and performance bonds,
pursuant to which funds are available to the Company to secure performance
obligations. The Company had a total of $3.7 million of such letters of credit
and bid and performance bonds outstanding as of December 31, 1999.
In December 1998, the Company acquired 93% of the stock of the company that
owned the Veracruz, Mexico facility. As part of the consideration for the
acquisition the Company issued a note payable of $48.5 million due in March of
1999 with an effective interest rate of 7.0%. This note was subsequently paid in
March 1999.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Long-term loan, interest at prime less .025%, due March
2001...................................................... $ 6,750 $ 3,750
Long-term loan, interest at 6 month EURIBOR, due 2002....... -- 8,757
Long-term loan, interest at 6 month EURIBOR, due 2007....... -- 14,595
Capital lease obligations under various agreements.......... 5,114 4,459
Other....................................................... 1,832 1,825
------- -------
13,696 33,386
Less: amounts due in one year............................... 4,431 9,110
------- -------
$ 9,265 $24,276
======= =======
</TABLE>
F-12
<PAGE> 16
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of scheduled long-term debt maturities by year
(in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 9,110
2001....................................................... 6,664
2002....................................................... 5,924
2003....................................................... 2,884
2004....................................................... 3,225
Thereafter................................................. 5,579
-------
$33,386
=======
</TABLE>
In connection with the July 1999 acquisition of a 50.01% interest in VA,
the Company incurred debt in the amount of $24.6 million (the "VA Debt"). The VA
Debt bears interest at a rate equal to the six month EURIBOR rate. Principal of
$9.2 million is payable over three years in six equal installments beginning in
January 2000 and in each July and January thereafter until July 2002. The
remaining principal balance of $15.4 million shall be paid over a 7.5 year
period out of the annual dividend payable to the Company as a shareholder in VA.
If the total principal balance has not been repaid by the fifth anniversary of
the closing date of the acquisition, the remaining unpaid principal shall be
paid in five equal semi-annual installments beginning on December 1, 2004.
Interest on the VA Debt is payable every six months beginning January 2000. The
interest rate as of December 31, 1999 was 3.52% per annum.
The Company is expected to have a capital structure different from the
capital structure in the combined financial statements and accordingly, interest
expense is not necessarily indicative of the interest expense that the Company
would have incurred as a separate, independent company or will incur in future
periods.
Capital Lease
In 1997, the Company effected a major expansion of its Veracruz, Mexico
tool joint manufacturing facility. As a result of this expansion, the Company
recorded a capital lease obligation of approximately $16.3 million. In December
1998, this Veracruz facility was purchased through the acquisition of 93% of the
outstanding shares of the company that owned the Veracruz, Mexico facility,
which extinguished the capital lease.
6. SUBORDINATED NOTE TO WEATHERFORD
In connection with the Distribution, the Company will issue an unsecured
subordinated note in the amount of $100.0 million. The Weatherford note will
bear interest at an annual rate of 10%. Interest payments will be due quarterly,
and principal and all unpaid interest will be due no later than March 31, 2002.
If the Company completes a debt or equity financing (whether public or private,
but excluding working capital borrowings under the credit facility and any
equity issued in connection with a business combination) while the Weatherford
note is outstanding, the Company generally will be required to use a portion of
the net proceeds of that financing to repay any amount outstanding under the
Weatherford note as of the time the Company completes that financing. The
Weatherford note will be subordinated to the credit facility. The Company
expects to refinance the Weatherford note as soon as practicable when market
conditions permit.
Weatherford interest expense shown in the combined financial statements
reflects the interest expense associated with the $100.0 million indebtedness
for each period presented based on Weatherford's average long-term debt rates
for the applicable periods. As of December 31, 1999, the effective interest rate
was 7.25%. It is not practical to estimate the fair market value of the
subordinated note payable to Weatherford as borrowing rates available to the
Company have not been determined.
F-13
<PAGE> 17
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDER'S EQUITY
Changes in stockholder's equity represent net income and comprehensive net
income of the Company plus net transfers between the Company and Weatherford.
8. OTHER CHARGES
Drill pipe and other products are manufactured for the Company by Oil
Country Tubular Limited ("OCTL") in India under a long-term exclusive
manufacturing arrangement. Although the Company has sought to minimize the risks
of this operation through a manufacturing agreement rather than owning a local
manufacturing operation, it has provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products OCTL manufactures for
the Company. The Company's business in India through its relationship with OCTL
has been adversely affected by the downturn of the economies in the eastern
hemisphere and is subject to various political and economic risks as well as
financial and operational risks with respect to OCTL.
As of December 31, 1999, OCTL owed us approximately $25.1 million for prior
advances made by the Company to it and the Company had assets in India with a
book value of approximately $1.7 million. In 1999, the Company substantially
curtailed our purchases from OCTL, and in December of 1999, the Company decided
to terminate our existing manufacturing relationship with OCTL and seek an
alternative arrangement for the recovery of our prior advances. The Company is
currently discussing with OCTL a restructuring of our relationship that would
allow OCTL to repay our prior advances in cash, equity in OCTL or product from
OCTL.
The decision to terminate the Company's existing arrangement with OCTL and
seek an alternative structure resulted in our writing off a $7.8 million product
deposit previously paid to OCTL and approximately $1.7 million in property and
equipment currently located at the OCTL facility. The write off was due to the
anticipated inability to utilize the deposit and recover the equipment following
the termination of the arrangement. The Company's remaining exposure in India is
approximately $17.3 million consisting of unpaid receivables and advances made
to assist OCTL in its working capital needs as part of the Company's
manufacturing arrangement with it. Based on financial information of OCTL known
to the Company and the Company's general knowledge of the business and assets of
OCTL, OCTL would appear to have a sufficient asset and equity value to allow for
a restructuring of its $17.3 million in debt to us through a combination of
cash, equity or product. There is, however, uncertainty as to how much, if any,
of the amounts owed to us by OCTL will ultimately be collected. Accordingly,
there can be no assurance that the Company will be able to fully realize on the
amounts owed to the Company by OCTL or that additional charges relating to India
will not be required in the near term as the negotiation and collection process
continues. The $17.3 million in unpaid receivables and advances owed to us is
classified as "Other Assets" in the accompanying Combined Balance Sheet as of
December 31, 1999.
In 1998, the Company's drill stem segment incurred $35.0 million in charges
relating to the reorganization and rationalization of Grant Prideco's businesses
in light of declining industry conditions and the merger between EVI, Inc.
("EVI") and Weatherford Enterra, Inc. ("WII"). Of these charges, $7.0 million
was incurred in the second quarter of 1998 in accordance with the Company's
formalized plan, and reflected costs associated with the merger between EVI and
WII and the effects of the beginning of a downturn in the industry. Following a
further deterioration in the markets which the Company serves, an additional
$28.0 million charge was incurred in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align the cost
structure of the Company with its then current demand. All such costs had been
fully expended as of December 31, 1998, accordingly no accruals remained on the
Combined
F-14
<PAGE> 18
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Balance Sheet as of December 31, 1998. No adjustments to the initial estimates
were required. The net after-tax effect of these charges was $22.8 million.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 UTILIZED BALANCES AT
CHARGE CHARGE IN 1998 DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $ --
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
---------------
(1) The facility and exit costs were $5.1 million, all of which have been
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of the Company's businesses following the merger of EVI and
WII and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align the Company's costs in response to
the significant decline in market conditions. The costs related primarily to
the (i) closure of the Channelview, Texas facility, (ii) closure of the
sales location in the U.K. and a Houston, Texas administrative location and
(iii) exit costs for certain operations at the Edmonton, Canada, Pearland,
Texas and Bryan, Texas facilities. The Pearland, Texas facility was a
location of WII prior to the merger. The Bryan, Texas, the Channelview,
Texas and the Edmonton, Canada manufacturing facilities, the U.K. sales
location and the Houston, Texas administrative location were EVI locations
prior to the merger.
(2) The severance and related costs included in the Company's second quarter
charge were $0.2 million for approximately 60 employees specifically
identified, with terminations completed in the second half of 1998.
(3) The inventory write-off of $28.5 million was reported as cost of sales. The
second quarter inventory write-off of $2.5 million resulted from the
elimination of certain products at the time of the merger between EVI and
WII and due to the declining industry conditions. The fourth quarter
inventory write-off of $26.0 million related to the significant decline in
market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of 1998. The
charge relates to the write-down of equipment as a result of the
rationalization of product lines and the specific identification of assets
held for sale. The identified equipment had a net book value of $0.6 million
as of December 31, 1998. The effect of suspending depreciation is $0.2
million annually. The equipment was originally projected to be sold in 1999,
but because of market conditions the Company has not been able to dispose of
the equipment to date. The Company currently expects to dispose of these
assets in 2000.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1999,
$3.7 million of cash was restricted.
Cash paid for interest and income taxes (net of refunds) was as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Interest paid.............................................. $5,349 $4,768 $4,565
Income taxes paid, net of refunds.......................... 474 1,779 2,294
</TABLE>
F-15
<PAGE> 19
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For the year ended December 31, 1997, there were noncash investing activities of
$28.3 million relating to capital leases (See Note 5).
The following summarizes investing activities relating to acquisitions (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets, net of cash acquired........... $ 63,213 $ 12,133 $ 46,539
Goodwill............................................. 56,198.. 58,644 29,073
Total liabilities.................................... (68,564) (53,377) (42,892)
Weatherford common stock issued...................... -- -- (17,648)
-------- -------- --------
Cash consideration, net of cash acquired............. $ 50,847 $ 17,400 $ 15,072
======== ======== ========
</TABLE>
10. STOCK-BASED COMPENSATION
Stock Option Plans
Various employees of the Company were granted stock options under
Weatherford's 1998 Employee Stock Option Plan (the "1998 Plan"). The total
number of options granted to the Grant Prideco employees under the 1998 Plan was
951,000 at December 31, 1999. Under the terms of the 1998 Plan, the options
granted to the Grant Prideco employees are to be converted into options to
solely acquire Grant Prideco's common stock (the "Grant Prideco Common Stock").
As a result, the Company has adopted the Grant Prideco Employee Stock Option
Plan under which options would be granted to the employees of Grant Prideco in
substitution of the Weatherford options granted under the 1998 Plan. Under the
terms of the 1998 Plan, the options to be granted to the Grant Prideco employees
will be determined based on the relative market price of Grant Prideco Common
Stock to the stock of Weatherford prior to the Distribution. The exercise price
for the options to be granted to the Grant Prideco employees will be the
historical option price multiplied by a percentage equal to the percentage that
the value of the Grant Prideco Common Stock represents to the value of the
Weatherford stock prior to the spinoff. The number of shares that will be
subject to the options will also be adjusted so that each option holder will be
entitled to purchase a number of shares of Grant Prideco Common Stock having the
same aggregate exercise price of the prior 1998 Plan options held by the option
holder.
Employees, as well as the directors of Weatherford, also hold various
options to purchase shares of Weatherford that were granted prior to September
1998. It is anticipated that these options will be divided into options to
purchase Weatherford common stock and Grant Prideco Common Stock, with the
exercise price allocated between the Weatherford common stock and the Grant
Prideco Common Stock based on the relative market value of the shares following
the spinoff. All other terms will remain the same. In connection with the
Distribution, the Company will agree to issue to the holders of those options
the number of shares of Grant Prideco Common Stock issuable upon the exercise of
those options. Similarly, Weatherford will agree to issue to the employees of
Grant Prideco who hold options to purchase Weatherford common stock the number
of shares of Weatherford common stock subject to the options held by those
employees. At December 31, 1999, there were 1,353,323 options granted under
these various plans. The Company cannot currently determine the number of shares
its common stock that will be subject to substitute awards after the
Distribution.
Executive Deferred Compensation Plan
Weatherford and the Company each have maintained an Executive Deferred
Compensation Stock Ownership Plan ("EDC Plan"). Prior to the Distribution,
participants in the EDC Plan had a right to receive shares of Weatherford common
stock upon termination of their employment based on the deferred amounts placed
in an account for them. Under the EDC Plan, in the event of a dividend or
special distribution to the
F-16
<PAGE> 20
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
shareholders of Weatherford, the accounts of the employees are to represent a
right to receive the consideration provided through the spinoff or dividend. As
a result, upon the spinoff, participants in the EDC Plan will be entitled to
receive shares of both Weatherford common stock and Grant Prideco Common Stock
in respect of amounts deferred by the participants prior to the Distribution.
Participants will only be entitled to receive shares in respect of amounts
deferred subsequent to the Distribution of Weatherford or the Company, depending
upon which company they are employed with.
In order to satisfy the obligations of Weatherford and Grant Prideco under
the EDC Plan, Weatherford and Grant Prideco have established a Grantor Trust to
fund the benefits under the EDC Plan. The funds provided to the trust are
invested by a trustee independent of Weatherford and Grant Prideco primarily in
shares of common stock of Weatherford, which is purchased by the trustee in the
open market. The trustee of the EDC Plan will agree to waive the trust's receipt
of any shares of Grant Prideco common stock to be issued to the trust in respect
of the shares of Weatherford common stock held by the trust in consideration of
the Company's agreement to issue directly to the participants in the EDC Plan
any shares of Grant Prideco common stock that may be required to be issued to
them upon distribution of amounts under the plan. Shares of stock are held by
the trustee as part of the Trust to satisfy the obligations of Weatherford and
Grant Prideco to the employees of Weatherford and Grant Prideco. A separate
trust will be established by Grant Prideco following the Distribution in which
only shares of the Company will be purchased for satisfaction of future
obligations under a new Executive Deferred Compensation Stock Ownership Plan to
be adopted by Grant Prideco. The assets of these trusts are available to satisfy
the claims of all general creditors of Weatherford and Grant Prideco in the
event of a bankruptcy or insolvency.
11. RETIREMENT AND EMPLOYEE BENEFIT PLANS
Weatherford has defined contribution plans covering certain of the
Company's employees. The Company's expenses related to these plans totaled $0.8
million, $0.6 million and $0.7 million in 1997, 1998 and 1999, respectively.
Grant Prideco plans to adopt similar plans.
12. INCOME TAXES
The domestic and foreign components of earnings (loss) before income taxes
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................. $ 66,021 $ 93,767 $(40,690)
Foreign.............................................. 36,043 11,801 (3,805)
-------- -------- --------
Total earnings (loss) before income
taxes.................................... $102,064 $105,568 $(44,495)
======== ======== ========
</TABLE>
F-17
<PAGE> 21
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. federal and state income taxes................. $ 22,638 $37,249 $(14,030)
Foreign............................................. 2,968 7,112 (6,700)
-------- ------- --------
25,606 44,361 (20,730)
-------- ------- --------
Deferred..............................................
U.S. federal........................................ 4,105 (1,170) 4,099
Foreign............................................. 10,839 (3,343) 5,432
-------- ------- --------
14,944 (4,513) 9,531
-------- ------- --------
Total income tax provision (benefit)........ $ 40,550 $39,848 $(11,199)
======== ======= ========
</TABLE>
The following is a reconciliation of income taxes at the U.S. Federal
income tax rate of 35% to the effective provision for income taxes reflected in
the Combined Statements of Operations:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rates......... $ 35,721 $36,949 $(15,573)
Effect of foreign income tax, net..................... 1,191 (361) 65
Foreign Sales Corporation benefit..................... (308) (308) --
Foreign loss not benefited............................ -- -- 1,014
Non-deductible expense................................ 3,099 1,014 1,934
State and local income taxes net of U.S. Federal
income tax benefit.................................. 847 2,554 1,214
Other................................................. -- -- 147
-------- ------- --------
Provision (benefit) for income taxes.................. $ 40,550 $39,848 $(11,199)
======== ======= ========
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions which the Company has
operations.
At December 31, 1999, the Company had net operating loss carryforwards
("NOL's") for tax purposes of approximately $7.7 million, which were not
incurred as part of a consolidated return with Weatherford. These NOL's expire
in the years 2007 through 2010. Under the terms of a tax allocation agreement to
be entered into between the Company and Weatherford, the Company will not have
the future benefits of any prior tax losses, incurred as part of a consolidated
return with Weatherford, associated with the Company's business that occur prior
to the spinoff.
F-18
<PAGE> 22
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities are classified as current or noncurrent
according to the classification of the related asset or liability for financial
reporting. The components of the net deferred tax asset (liability) were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Domestic and foreign operating losses..................... $ 1,204 $ 2,708
Accrued liabilities and reserves.......................... 9,537 407
Inventory basis differences............................... 754 --
Goodwill and other intangibles............................ -- 573
-------- --------
Total deferred tax asset.......................... 11,495 3,688
-------- --------
Deferred tax liabilities:
Property and equipment and other.......................... (31,403) (44,533)
Inventory basis differences............................... -- (1,928)
Goodwill.................................................. (2,376) --
-------- --------
Total deferred tax liability...................... (33,779) (46,461)
-------- --------
Net deferred tax liability................................ $(22,284) $(42,773)
======== ========
</TABLE>
13. DISPUTES, LITIGATION AND CONTINGENCIES
Litigation and Other Disputes
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation, would not have a material adverse effect on the
Company's combined financial position or its results of operations with or
without consideration of insurance coverage.
Insurance
The Company is self-insured through participation in Weatherford's
insurance policy for employee health insurance claims and is self-insured for
workers' compensation claims for certain of its employees. The amounts in excess
of the self-insured levels are fully insured. Self-insurance accruals are based
on claims filed and an estimate for significant claims incurred but not
reported. Although the Company believes that adequate reserves have been
provided for expected liabilities arising from its self-insured obligations, it
is reasonably possible that management's estimates of these liabilities will
change over the near term as circumstances develop.
Weatherford will remain liable on certain existing contingent liabilities
relating to Grant Prideco's businesses which were not able to be released,
terminated or replaced prior to the Distribution Date. Grant Prideco will also
fully indemnify Weatherford for any payments made under the unreleased
contingent liabilities.
14. COMMITMENTS
Operating Leases
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately
F-19
<PAGE> 23
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$1.9 million, $3.8 million and $7.2 million for the years ended December 31,
1997, 1998 and 1999, respectively.
Future minimum rental commitments under these noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
2000...................................................... $ 3,389
2001...................................................... 2,892
2002...................................................... 2,702
2003...................................................... 2,465
2004...................................................... 2,405
Thereafter................................................ 12,887
-------
$26,740
=======
</TABLE>
Other Commitments
At the time of the December 1998 acquisition by the Company of 93% of
TAMSA, the Company entered into a 30 year supply contract with TAMSA. Under the
supply contract, TAMSA has been given the right to supply certain of the
Company's operations as long as the prices are on a competitive basis. This
supply agreement does not obligate the Company to make purchases from TAMSA for
any location other than Mexico and India nor restrict the Company's right to
make purchases without offering a right to purchase the materials from TAMSA to
the extent those purchases are made from affiliates of the Company such as
Voest-Alpine.
As part of the arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, the Company entered into a four-year supply contract with
Voest-Alpine. Under this agreement, the Company agreed to purchase a minimum of
45,000 tonnes of tubulars for the first twelve months of the agreement at a
negotiated third party price that the Company believed to be attractive. The
Company also agreed to purchase 60,000 tonnes per year for the next three years
at the negotiated price.
Grant Prideco maintains consignment purchase arrangements with various
suppliers whereby suppliers' inventory is held on site at the Company's
manufacturing facilities. Under the terms of these arrangements, the Company
pays to the supplier an inventory stocking fee on the consignment inventory and
has an obligation to purchase the inventory under certain circumstances. As of
December 31, 1999, the Company had closed-ended purchase commitments maturing
within the next six months of approximately $3.0 million and open-ended purchase
commitments of approximately $22.1 million.
15. RELATED PARTY TRANSACTIONS
Sales
Weatherford purchases drill pipe and other related products from Grant
Prideco. The amounts purchased by Weatherford for the years ended December 31,
1997, 1998 and 1999 were $7.7 million, $9.6 million and $28.6 million,
respectively. Such sales represent Grant Prideco's cost. The sales to
Weatherford have been eliminated from the accompanying combined financial
statements.
Weatherford Overhead Charges
Weatherford overhead charges represent corporate overhead costs incurred by
Weatherford in providing services to the Company based on the time devoted to
Grant Prideco. These services include accounting, tax, treasury and risk
management services. Such allocation is included in the accompanying Combined
Statements of Operations as Weatherford Charges.
F-20
<PAGE> 24
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Weatherford Direct Services
Grant Prideco was allocated $3.5 million, $5.6 million and $5.6 million of
costs related to Weatherford's information systems function for the years ended
December 31, 1997, 1998 and 1999, respectively. Information systems allocation
charges were allocated based on direct support provided, equipment usage and
number of system users and are included in corporate general and administrative
expense in the accompanying Combined Statements of Operations.
Tax Allocation Agreement
The Company and Weatherford intend to enter into a Tax Allocation Agreement
in connection with the spinoff (see Note 1).
Transition Services Agreement
The Company intends to enter into a transition services agreement with
Weatherford for a period of one year from the Distribution date. Under the
agreement, Weatherford will provide certain services requested by the Company.
The fee for these services will be based on a cost-plus 10% basis. The
transition services to be provided under this agreement may include accounting,
tax, finance and legal services, employee benefit services, information
services, management information systems and may include any other similar
services.
Preferred Supplier Agreement
The Company intends to enter into a preferred supplier agreement with
Weatherford pursuant to which Weatherford will agree for at least a three-year
period to purchase at least 70% of its requirements of drill stem products from
Grant Prideco. The price for those products will be at a price not greater than
that which the Company sells to its best similarly situated customers.
Weatherford will be entitled to apply against its purchases a drill stem credit
granted to it in the amount of $30 million, subject to a limitation of the
application of the credit to no more than 20% of any purchase.
16. SEGMENT INFORMATION
Business Segments
The Company operates through two business segments: Drill Stem Products and
Premium Tubulars and Engineered Connections. The drill stem products segment
manufactures drill pipe, drill collars and heavyweight drill pipe and the
premium tubulars and engineered connections segment manufactures premium
production tubulars, liners, casing and connections for marine conductors and
subsea structures. The Company's products are used in the exploration and
production of oil and natural gas.
Financial information by industry segment is summarized below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
Drill Stem......................................... $333,716 $410,840 $142,732
Premium Tubulars................................... 296,305 235,614 143,638
-------- -------- --------
$630,021 $646,454 $286,370
======== ======== ========
</TABLE>
F-21
<PAGE> 25
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
EBITDA, BEFORE OTHER CHARGES(a):
Drill Stem(b)...................................... $105,604 $148,565 $ 16,639
Premium Tubulars................................... 48,938 44,716 5,359
Corporate.......................................... (12,055) (14,274) (15,044)
-------- -------- --------
$142,487 $179,007 $ 6,954
======== ======== ========
OTHER NONRECURRING CHARGES:
Drill Stem(c)...................................... $ -- $ 34,950 $ 9,454
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Drill Stem......................................... $ 13,685 $ 16,771 $ 15,119
Premium Tubulars................................... 12,518 13,309 14,301
Corporate.......................................... 848 1,093 1,094
-------- -------- --------
$ 27,051 $ 31,173 $ 30,514
======== ======== ========
EQUITY INCOME (LOSS) IN UNCONSOLIDATED AFFILIATES:
Drill Stem......................................... $ -- $ 267 $ (419)
======== ======== ========
OPERATING INCOME (LOSS):
Drill Stem(c)...................................... $ 91,919 $ 96,844 $ (7,934)
Premium Tubulars................................... 36,420 31,407 (8,942)
Corporate.......................................... (12,903) (15,367) (16,138)
-------- -------- --------
$115,436 $112,884 $(33,014)
======== ======== ========
CAPITAL EXPENDITURES FOR PROPERTY, PLANT AND
EQUIPMENT:
Drill Stem......................................... $ 19,956 $ 16,670 $ 12,127
Premium Tubulars................................... 14,468 20,698 6,716
Corporate.......................................... 389 734 203
-------- -------- --------
$ 34,813 $ 38,102 $ 19,046
======== ======== ========
NON-CASH PORTION OF OTHER NONRECURRING CHARGES:
Drill Stem......................................... $ -- $ 30,500 $ 9,454
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
TOTAL ASSETS(d)
Drill Stem......................................... $374,923 $457,709 $437,281
Premium Tubulars................................... 286,418 279,706 294,591
Corporate.......................................... 1,257 899 2,703
-------- -------- --------
$662,598 $738,314 $734,575
======== ======== ========
</TABLE>
---------------
(a) The Company evaluates performance and allocates resources based on EBITDA,
which is calculated as operating income (loss) adding back depreciation and
amortization, excluding the impact of other charges. Calculations of EBITDA
should not be viewed as a substitute to calculations under GAAP, in
particular operating income and net income. In addition, EBITDA
calculations by one company may not be comparable to another company.
F-22
<PAGE> 26
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Includes inventory write-downs of $28.5 million for the year ended December
31, 1998, which have been classified as cost of sales in the accompanying
Combined Statements of Operations.
(c) Includes a charge of $9.5 million relating to the decision to terminate our
manufacturing arrangement in India for the year ended December 31, 1999.
Includes $35.0 million of other charges relating to the reorganization and
rationalization of our business in light of our industry conditions for the
year ended December 31, 1998.
(d) Certain assets that are not directly attributable to a segment have been
allocated to the segments primarily based upon revenues generated.
Foreign Operations and Export Sales
Financial information by geographic segment for each of the three years
ended December 31, 1999 is summarized below. Revenues are attributable to
countries based on the location of the entity selling products. Long-lived
assets are long term assets excluding deferred tax assets.
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA OTHER TOTAL
-------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997
Revenues................................. $509,451 $45,080 $15,716 $59,774 $630,021
Long-lived assets........................ 228,754 19,713 44,399 18,487 311,353
1998
Revenues................................. $552,375 $31,925 $ 9,327 $52,827 $646,454
Long-lived assets........................ 276,374 18,399 76,559 16,686 388,018
1999
Revenues................................. $247,428 $15,610 $ 6,091 $17,241 $286,370
Long-lived assets........................ 331,813 17,663 83,269 27,085 459,830
</TABLE>
Major Customers and Credit Risk
Substantially all of the Company's customers are engaged in the exploration
and development of oil and gas reserves. The Company's drill pipe and related
products are sold primarily to rig contractors, operators and rental companies.
The Company's premium tubulars and connections are sold primarily to operators
and distributors. This concentration of customers may impact the Company's
overall exposure to credit risk, either positively or negatively, in that
customers may be similarly affected by changes in economic and industry
conditions. The Company performs ongoing credit evaluations of its customers and
does not generally require collateral in support of its trade receivables. The
Company maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1997, 1998 and 1999, there was no individual customer who accounted for
10% of combined revenues.
F-23
<PAGE> 27
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1998 and 1999.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1998
Revenues............................ $189,713 $172,002 $160,117 $124,622 $646,454
Gross Profit........................ 55,487 54,264(a) 47,893 8,776(a) 166,420
Selling, General and
Administrative(b)................ 11,292 11,039 12,174 12,848 47,353
Nonrecurring Charges................ -- 4,450(a) -- 2,000(a) 6,450
Operating Income (Loss)............. 44,195 38,775(a) 35,742 (5,828)(a) 112,884
Net Income (Loss)................... 25,496 23,832(a) 20,515 (4,123)(a) 65,720
Pro Forma Earnings (Loss) Per
Share(c)
Basic............................ 0.26 0.25 0.21 (0.04) 0.68
Diluted.......................... 0.26 0.24 0.21 (0.04) 0.67
1999
Revenues............................ $ 81,303 $ 56,622 $ 58,851 $ 89,594 $286,370
Gross Profit........................ 11,359 7,284 456 5,002 24,101
Nonrecurring Charges................ -- -- -- 9,454(a) 9,454
Selling, General and
Administrative(b)................ 11,512 11,208 12,140 12,382 47,242
Operating (Loss).................... (153) (3,924) (11,684) (17,253)(a) (33,014)
Net (Loss).......................... (2,230) (4,727) (10,443) (16,111)(a) (33,511)
Pro Forma (Loss) Per Share(c)
Basic............................ (0.02) (0.05) (0.10) (0.15) (0.33)
Diluted.......................... (0.02) (0.05) (0.10) (0.15) (0.33)
</TABLE>
---------------
(a) The Company incurred $9.5 million of pre-tax nonrecurring charges, $6.1
million net of tax, in the fourth quarter of 1999 relating to the decision
to terminate our manufacturing arrangement in India. The Company incurred
$7.0 million and $28.0 million of pre-tax nonrecurring charges in the
second and fourth quarters of 1998, respectively. The effect of these
charges, net of tax, in the second and fourth quarters was $4.5 million and
$18.3 million, respectively. Of these charges, $2.5 million and $26.0
million related to the write-off of inventory in the second and fourth
quarters, respectively, and have been classified as cost of sales in the
accompanying Combined Statements of Operations.
(b) Includes Weatherford overhead charges of $250,000 in each of the quarters
ended March 31, 1999 and June 30, 1999, $500,000 in each of the quarters
ended September 30, 1999 and December 31, 1999 and $240,000 per quarter for
the year ended December 31, 1998, respectively.
(c) Pro forma earnings per share has been calculated using Grant Prideco's pro
forma basic and diluted weighted average shares outstanding for each of the
periods presented. Grant Prideco's pro forma basic weighted average shares
have been calculated by adjusting Weatherford's historical basic weighted
average shares outstanding for the applicable period to reflect the number
of Grant Prideco shares that would have been outstanding at the time
assuming the distribution of one share of Grant Prideco common stock for
each share of Weatherford common stock. Grant Prideco's pro forma diluted
weighted average shares reflect an estimate of the potential dilutive
effect of common stock equivalents. Such estimate is calculated based on
Weatherford's dilutive effect of stock options and restricted stock. The
effect of stock options and restricted stock is not included in the diluted
weighted average shares computation for periods in which a loss occurs
because to do so would have been anti-dilutive.
F-24
<PAGE> 28
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The following condensed combining balance sheets as of December 31, 1998
and 1999, and the related condensed combining statements of operations and cash
flows for each of the three years in the period ended December 31, 1999 are
provided for the Company's domestic subsidiaries that we expect will be
guarantors of debt securities issued by the Company in the future.
GRANT PRIDECO, INC.
CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents............. $ -- $ 4,113 $ 1,957 $ -- $ 6,070
Accounts Receivable, Net.............. -- 85,299 43,720 -- 129,019
Inventories........................... -- 149,302 36,965 -- 186,267
Current Deferred Tax Asset............ -- 9,157 1,628 -- 10,785
Other Current Assets.................. -- 10,594 7,561 -- 18,155
-------- -------- -------- --------- --------
-- 258,465 91,831 -- 350,296
-------- -------- -------- --------- --------
PROPERTY, PLANT AND EQUIPMENT........... -- 209,990 73,912 -- 283,902
Less: Accumulated Depreciation........ -- 63,037 11,871 -- 74,908
-------- -------- -------- --------- --------
-- 146,953 62,041 -- 208,994
-------- -------- -------- --------- --------
GOODWILL, NET........................... -- 118,853 43,611 -- 162,464
INVESTMENT IN AND ADVANCES TO
SUBSIDIARIES.......................... 541,721 -- -- (541,721) --
INVESTMENT IN UNCONSOLIDATED
AFFILIATES............................ 6,848 -- -- -- 6,848
OTHER ASSETS............................ -- 1,553 8,159 -- 9,712
-------- -------- -------- --------- --------
$548,569 $525,824 $205,642 $(541,721) $738,314
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current
Portion of Long-Term Debt Term
Debt................................ $ -- $ 4,281 $ 48,600 $ -- $ 52,881
Accounts Payable...................... -- 37,821 3,556 -- 41,377
Current Deferred Tax Liability........ -- -- 8,231 -- 8,231
Customer Advances..................... -- 5,248 -- -- 5,248
Purchase Credit....................... -- 8,000 -- -- 8,000
Other Accrued Liabilities............. -- 16,998 11,533 -- 28,531
-------- -------- -------- --------- --------
-- 72,348 71,920 -- 144,268
-------- -------- -------- --------- --------
SUBORDINATED NOTE TO WEATHERFORD........ 100,000 -- -- -- 100,000
LONG-TERM DEBT.......................... -- 9,187 78 -- 9,265
DEFERRED INCOME TAXES................... -- 24,147 691 -- 24,838
OTHER LONG-TERM LIABILITIES............. 3,358 6,351 5,023 -- 14,732
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY.................... 445,211 413,791 127,930 (541,721) 445,211
-------- -------- -------- --------- --------
$548,569 $525,824 $205,642 $(541,721) $738,314
======== ======== ======== ========= ========
</TABLE>
F-25
<PAGE> 29
GRANT PRIDECO, INC.
CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents.............. $ -- $ 4,998 $ 1,206 $ -- $ 6,204
Restricted Cash........................ -- -- 3,658 -- 3,658
Accounts Receivable, Net............... -- 63,500 14,150 -- 77,650
Inventories............................ -- 140,257 33,647 -- 173,904
Current Deferred Tax Asset............. -- 5,258 939 -- 6,197
Other Current Assets................... -- 2,671 1,754 -- 4,425
-------- -------- -------- --------- --------
-- 216,684 55,354 -- 272,038
-------- -------- -------- --------- --------
PROPERTY PLANT AND EQUIPMENT............. -- 225,208 80,407 -- 305,615
Less: Accumulated Depreciation......... -- 82,013 16,893 -- 98,906
-------- -------- -------- --------- --------
-- 143,195 63,514 -- 206,709
-------- -------- -------- --------- --------
GOODWILL, NET............................ -- 122,738 65,027 -- 187,765
INVESTMENT IN AND ADVANCES TO
SUBSIDIARIES........................... 540,107 -- 3,892 (543,999) --
INVESTMENT IN UNCONSOLIDATED
AFFILIATES............................. 37,453 -- -- -- 37,453
OTHER ASSETS............................. -- 12,413 18,197 -- 30,610
-------- -------- -------- --------- --------
$577,560 $495,030 $205,984 $(543,999) $734,575
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current
Portion of Long-Term Debt........... $ 2,919 $ 7,899 $ 3,892 $ -- $ 14,710
Accounts Payable....................... -- 42,107 5,352 -- 47,459
Current Deferred Tax Liability......... -- 717 6,427 -- 7,144
Customer Advances...................... -- 18,503 -- -- 18,503
Other Accrued Liabilities.............. 352 16,383 2,850 -- 19,585
-------- -------- -------- --------- --------
3,271 85,609 18,521 -- 107,401
-------- -------- -------- --------- --------
SUBORDINATED NOTE TO WEATHERFORD......... 100,000 -- -- -- 100,000
LONG-TERM DEBT........................... 20,433 3,843 -- -- 24,276
DEFERRED INCOME TAXES.................... -- 22,471 22,062 -- 44,533
MINORITY INTEREST........................ -- -- 886 -- 886
OTHER LONG-TERM LIABILITIES.............. -- 3,622 1 -- 3,623
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY..................... 453,856 379,485 164,514 (543,999) 453,856
-------- -------- -------- --------- --------
$577,560 $495,030 $205,984 $(543,999) $734,575
======== ======== ======== ========= ========
</TABLE>
F-26
<PAGE> 30
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ -- $510,306 $119,715 $ -- $630,021
------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of Sales....................... -- 396,737 75,042 -- 471,779
Selling, General and
Administrative................... -- 34,263 7,623 -- 41,886
Weatherford Charges................. 920 -- -- -- 920
------- -------- -------- -------- --------
920 431,000 82,665 -- 514,585
------- -------- -------- -------- --------
OPERATING INCOME (LOSS)............... (920) 79,306 37,050 -- 115,436
------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense.................... -- (3,066) (2,660) -- (5,726)
Weatherford Interest Expense........ (7,250) -- -- -- (7,250)
Equity in Subsidiaries, Net of
Taxes............................ 66,824 -- -- (66,824) --
Other, Net.......................... -- (102) (294) -- (396)
------- -------- -------- -------- --------
59,574 (3,168) (2,954) (66,824) (13,372)
------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES..... 58,654 76,138 34,096 (66,824) 102,064
INCOME TAX PROVISION (BENEFIT)........ (2,860) 30,285 13,125 -- 40,550
------- -------- -------- -------- --------
NET INCOME (LOSS)..................... $61,514 $ 45,853 $ 20,971 $(66,824) $ 61,514
======= ======== ======== ======== ========
</TABLE>
F-27
<PAGE> 31
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ -- $552,869 $93,585 $ -- $646,454
------- -------- ------- -------- --------
COSTS AND EXPENSES:
Cost of Sales....................... -- 411,237 68,797 -- 480,034
Selling, General and
Administrative................... -- 38,782 7,611 -- 46,393
Equity Income in Unconsolidated
Affiliates....................... (267) -- -- -- (267)
Weatherford Charges................. 960 -- -- -- 960
Nonrecurring Charges................ -- 6,450 -- -- 6,450
------- -------- ------- -------- --------
693 456,469 76,408 -- 533,570
------- -------- ------- -------- --------
OPERATING INCOME (LOSS)............... (693) 96,400 17,177 -- 112,884
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense...................... -- (2,795) (1,963) -- (4,758)
Weatherford Interest Expense........ (7,250) -- -- -- (7,250)
Equity in Subsidiaries, Net of
Taxes............................ 70,789 -- -- (70,789) --
Other, Net.......................... -- 3,732 960 -- 4,692
------- -------- ------- -------- --------
63,539 937 (1,003) (70,789) (7,316)
------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES..... 62,846 97,337 16,174 (70,789) 105,568
INCOME TAX PROVISION (BENEFIT)........ (2,874) 37,182 5,540 -- 39,848
------- -------- ------- -------- --------
NET INCOME (LOSS)..................... $65,720 $ 60,155 $10,634 $(70,789) $ 65,720
======= ======== ======= ======== ========
</TABLE>
F-28
<PAGE> 32
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $239,076 $ 47,294 $ -- $286,370
-------- -------- -------- ------- --------
COSTS AND EXPENSES:
Cost of Sales...................... -- 217,858 44,411 -- 262,269
Selling, General and
Administrative.................. -- 38,305 7,437 -- 45,742
Equity Loss in Unconsolidated
Affiliates...................... 419 -- -- -- 419
Weatherford Charges................ 1,500 -- -- -- 1,500
Nonrecurring Charges............... -- -- 9,454 -- 9,454
-------- -------- -------- ------- --------
1,919 256,163 61,302 -- 319,384
-------- -------- -------- ------- --------
OPERATING LOSS....................... (1,919) (17,087) (14,008) -- (33,014)
-------- -------- -------- ------- --------
OTHER INCOME (EXPENSE):
Interest Expense................... (338) (3,441) (314) -- (4,093)
Weatherford Interest Expense....... (7,250) -- -- -- (7,250)
Equity in Subsidiaries, Net of
Taxes........................... (27,185) -- -- 27,185 --
Other, Net......................... -- (172) 34 -- (138)
-------- -------- -------- ------- --------
(34,773) (3,613) (280) 27,185 (11,481)
-------- -------- -------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES.... (36,692) (20,700) (14,288) 27,185 (44,495)
INCOME TAX BENEFIT................... (3,181) (2,125) (5,893) -- (11,199)
-------- -------- -------- ------- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST........................... (33,511) (18,575) (8,395) 27,185 (33,296)
MINORITY INTEREST.................... -- -- (215) -- (215)
-------- -------- -------- ------- --------
NET INCOME (LOSS).................... $(33,511) $(18,575) $ (8,610) $27,185 $(33,511)
======== ======== ======== ======= ========
</TABLE>
F-29
<PAGE> 33
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash (Used) Provided by
Operating Activities............. $(5,310) $ 7,630 $ 7,552 $-- $ 9,872
------- -------- -------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of
Cash Acquired.................... -- (47,685) (3,162) -- (50,847)
Capital Expenditures for Property,
Plant & Equipment................ -- (24,089) (10,724) -- (34,813)
------- -------- -------- --- --------
Net Cash Used by Investing
Activities................ -- (71,774) (13,886) -- (85,660)
------- -------- -------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net............. -- (12,395) (10,383) -- (22,778)
Stockholder's Investment............ 5,310 79,899 20,257 -- 105,466
------- -------- -------- --- --------
Net Cash Provided by
Financing Activities...... 5,310 67,504 9,874 -- 82,688
------- -------- -------- --- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... -- 3,360 3,540 -- 6,900
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................. -- 792 511 -- 1,303
------- -------- -------- --- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................ $ -- $ 4,152 $ 4,051 $-- $ 8,203
======= ======== ======== === ========
</TABLE>
F-30
<PAGE> 34
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash (Used) Provided by
Operating Activities............. $(5,069) $ 7,185 $ 8,611 $-- $ 10,727
------- -------- -------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of
Cash Acquired.................... -- (9,002) (8,398) -- (17,400)
Capital Expenditures for Property,
Plant & Equipment................ -- (33,548) (4,554) -- (38,102)
Proceeds on Sale of Assets.......... -- 6,023 -- -- 6,023
------- -------- -------- --- --------
Net Cash Used by Investing
Activities................ -- (36,527) (12,952) -- (49,479)
------- -------- -------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net............. -- (5,137) (1,853) -- (6,990)
Stockholder's Investment............ 5,069 34,440 4,100 -- 43,609
------- -------- -------- --- --------
Net Cash Provided by
Financing Activities...... 5,069 29,303 2,247 -- 36,619
------- -------- -------- --- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS......................... -- (39) (2,094) -- (2,133)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................. -- 4,152 4,051 -- 8,203
------- -------- -------- --- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................ $ -- $ 4,113 $ 1,957 $-- $ 6,070
======= ======== ======== === ========
</TABLE>
F-31
<PAGE> 35
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash (Used) Provided by
Operating Activities........... $(6,326) $ 24,364 $ 47,202 $ -- $ 65,240
------- -------- -------- ------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of
Cash Acquired.................... (7,999) (3,123) (3,950) -- (15,072)
Capital Expenditures for Property,
Plant & Equipment................ -- (13,038) (6,008) -- (19,046)
------- -------- -------- ------ --------
Net Cash Used by Investing
Activities................ (7,999) (16,161) (9,958) -- (34,118)
------- -------- -------- ------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net............. -- (7,318) (46,907) -- (54,225)
Stockholder's Investment............ 14,325 -- 8,912 -- 23,237
------- -------- -------- ------ --------
Net Cash Provided (Used) by
Financing Activities...... 14,325 (7,318) (37,995) -- (30,988)
------- -------- -------- ------ --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... -- 885 (751) -- 134
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................. -- 4,113 1,957 -- 6,070
------- -------- -------- ------ --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................ $ -- $ 4,998 $ 1,206 $ -- $ 6,204
======= ======== ======== ====== ========
</TABLE>
F-32
<PAGE> 36
GRANT PRIDECO, INC.
SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The following unaudited condensed consolidating balance sheet as of June
30, 2000, condensed combining statements of operations for the three and six
month periods ended June 30, 1999, condensed consolidating statements of
operations for the three and six month periods ended June 30, 2000 condensed
combining statement of cash flows for the six months ended June 30, 1999, and
condensed consolidating statement of cash flows for the six months ended June
30, 2000 are provided for the Company's domestic subsidiaries that we expect
will be guarantors of debt securities issued by the Company in the future.
GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................. $ -- $ 2,290 $ 2,509 $ -- $ 4,799
Restricted Cash........................... -- -- 4,396 -- 4,396
Accounts Receivable, Net.................. -- 89,615 6,748 -- 96,363
Inventories............................... -- 150,680 24,615 -- 175,295
Current Deferred Tax Asset................ -- 5,258 689 -- 5,947
Other Current Assets...................... -- 3,631 3,093 -- 6,724
-------- -------- -------- --------- --------
-- 251,474 42,050 -- 293,524
-------- -------- -------- --------- --------
PROPERTY, PLANT AND EQUIPMENT............... -- 231,680 77,677 -- 309,357
Less: Accumulated Depreciation............ -- 91,503 17,750 -- 109,253
-------- -------- -------- --------- --------
-- 140,177 59,927 -- 200,104
-------- -------- -------- --------- --------
GOODWILL, NET............................... -- 122,346 59,871 -- 182,217
INVESTMENT IN AND ADVANCES TO
SUBSIDIARIES.............................. 558,397 -- -- (558,397) --
INVESTMENT IN UNCONSOLIDATED AFFILIATES..... 36,905 -- -- -- 36,905
OTHER ASSETS................................ -- 27,772 3,098 -- 30,870
-------- -------- -------- --------- --------
$595,302 $541,769 $164,946 $(558,397) $743,620
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current Portion
of Long-Term Debt....................... $ 2,697 $ 22,877 $ -- $ -- $ 25,574
Accounts Payable.......................... -- 51,882 6,066 -- 57,948
Current Deferred Tax Liability............ -- 717 6,427 -- 7,144
Customer Advances......................... -- 1,452 -- -- 1,452
Other Accrued Liabilities................. 7,814 18,314 4,917 -- 31,045
-------- -------- -------- --------- --------
10,511 95,242 17,410 -- 123,163
-------- -------- -------- --------- --------
SUBORDINATED NOTE TO WEATHERFORD............ 100,000 -- -- -- 100,000
LONG-TERM DEBT.............................. 18,047 4,198 -- -- 22,245
DEFERRED INCOME TAXES....................... -- 17,785 9,714 -- 27,499
MINORITY INTEREST........................... -- -- 955 -- 955
OTHER LONG-TERM LIABILITIES................. 20,000 3,013 1 -- 23,014
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY........................ 446,744 421,531 136,866 (558,397) 446,744
-------- -------- -------- --------- --------
$595,302 $541,769 $164,946 $(558,397) $743,620
======== ======== ======== ========= ========
</TABLE>
F-33
<PAGE> 37
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ -- $50,877 $5,745 $ -- $56,622
------- ------- ------ ------ -------
COSTS AND EXPENSES:
Cost of Sales....................... -- 45,625 3,713 -- 49,338
Selling, General and
Administrative................... -- 8,921 2,037 -- 10,958
Weatherford Charges................. 250 -- -- -- 250
------- ------- ------ ------ -------
250 54,546 5,750 -- 60,546
------- ------- ------ ------ -------
OPERATING LOSS........................ (250) (3,669) (5) -- (3,924)
------- ------- ------ ------ -------
OTHER INCOME (EXPENSE):
Interest Expense.................... (1,813) (874) (50) -- (2,737)
Equity in Subsidiaries, Net of
Taxes............................ (3,386) -- -- 3,386 --
Other, Net.......................... -- 136 57 -- 193
------- ------- ------ ------ -------
(5,199) (738) 7 3,386 (2,544)
------- ------- ------ ------ -------
INCOME (LOSS) BEFORE INCOME TAXES..... (5,449) (4,407) 2 3,386 (6,468)
INCOME TAX PROVISION (BENEFIT)........ (722) (1,020) 1 -- (1,741)
------- ------- ------ ------ -------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST............................ (4,727) (3,387) 1 3,386 (4,727)
MINORITY INTEREST..................... -- -- -- -- --
------- ------- ------ ------ -------
NET INCOME (LOSS)..................... $(4,727) $(3,387) $ 1 $3,386 $(4,727)
======= ======= ====== ====== =======
</TABLE>
F-34
<PAGE> 38
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ -- $116,659 $21,266 $ -- $137,925
------- -------- ------- ------ --------
COSTS AND EXPENSES:
Cost of Sales....................... -- 100,967 18,315 -- 119,282
Selling, General and
Administrative................... -- 18,438 3,782 -- 22,220
Weatherford Charges................. 500 -- -- -- 500
------- -------- ------- ------ --------
500 119,405 22,097 -- 142,002
------- -------- ------- ------ --------
OPERATING LOSS........................ (500) (2,746) (831) -- (4,077)
------- -------- ------- ------ --------
OTHER INCOME (EXPENSE):
Interest Expense.................... -- (1,663) (101) -- (1,764)
Weatherford Interest Expense........ (3,625) -- -- -- (3,625)
Equity in Subsidiaries, Net of
Taxes............................ (4,276) -- -- 4,276 --
Other, Net.......................... -- 142 149 -- 291
------- -------- ------- ------ --------
(7,901) (1,521) 48 4,276 (5,098)
------- -------- ------- ------ --------
INCOME (LOSS) BEFORE INCOME TAXES..... (8,401) (4,267) (783) 4,276 (9,175)
INCOME TAX PROVISION BENEFIT.......... (1,444) (452) (322) -- (2,218)
------- -------- ------- ------ --------
NET INCOME (LOSS)..................... $(6,957) $ (3,815) $ (461) $4,276 $ (6,957)
======= ======== ======= ====== ========
</TABLE>
F-35
<PAGE> 39
GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ -- $103,450 $9,085 $ -- $112,535
------- -------- ------ ------- --------
COSTS AND EXPENSES:
Cost of Sales....................... -- 87,448 6,355 -- 93,803
Selling, General and
Administrative................... -- 11,695 1,930 -- 13,625
Equity Income in Unconsolidated
Affiliates....................... (1,483) -- -- -- (1,483)
------- -------- ------ ------- --------
(1,483) 99,143 8,285 -- 105,945
------- -------- ------ ------- --------
OPERATING INCOME...................... 1,483 4,307 800 -- 6,590
------- -------- ------ ------- --------
OTHER INCOME (EXPENSE):
Interest Expense.................... (2,772) (944) (98) -- (3,814)
Equity in Subsidiaries, Net of
Taxes............................ 1,404 -- -- (1,404) --
Other, Net.......................... -- (378) 203 -- (175)
------- -------- ------ ------- --------
(1,368) (1,322) 105 (1,404) (3,989)
------- -------- ------ ------- --------
INCOME (LOSS) BEFORE INCOME TAXES..... 115 2,985 905 (1,404) 2,601
INCOME TAX PROVISION (BENEFIT)........ (1,474) 2,090 372 -- 988
------- -------- ------ ------- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST............................ 1,589 895 533 (1,404) 1,613
MINORITY INTEREST..................... -- -- (24) -- (24)
------- -------- ------ ------- --------
NET INCOME (LOSS)..................... $ 1,589 $ 895 $ 509 $(1,404) $ 1,589
======= ======== ====== ======= ========
</TABLE>
F-36
<PAGE> 40
GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ -- $199,608 $20,072 $ -- $219,680
------- -------- ------- ----- --------
COSTS AND EXPENSES:
Cost of Sales....................... -- 173,423 14,803 -- 188,226
Selling, General and
Administrative................... -- 22,410 3,803 -- 26,213
Equity Income in Unconsolidated
Affiliates....................... (2,090) -- -- -- (2,090)
Weatherford Charges................. 500 -- -- -- 500
------- -------- ------- ----- --------
(1,590) 195,833 18,606 -- 212,849
------- -------- ------- ----- --------
OPERATING INCOME...................... 1,590 3,775 1,466 -- 6,831
------- -------- ------- ----- --------
OTHER INCOME (EXPENSE):
Interest Expense.................... (5,483) (1,666) (161) -- (7,310)
Equity in Subsidiaries, Net of
Taxes............................ 272 -- -- (272) --
Other, Net.......................... -- (658) 268 -- (390)
------- -------- ------- ----- --------
(5,211) (2,324) 107 (272) (7,700)
------- -------- ------- ----- --------
INCOME (LOSS) BEFORE INCOME TAXES..... (3,621) 1,451 1,573 (272) (869)
INCOME TAX PROVISION (BENEFIT)........ (2,632) 1,857 826 -- 51
------- -------- ------- ----- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST............................ (989) (406) 747 (272) (920)
MINORITY INTEREST..................... -- -- (69) -- (69)
------- -------- ------- ----- --------
NET INCOME (LOSS)..................... $ (989) $ (406) $ 678 $(272) $ (989)
======= ======== ======= ===== ========
</TABLE>
F-37
<PAGE> 41
GRANT PRIDECO, INC.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash (Used) Provided by
Operating Activities............. $(2,681) $ 38,871 $ 10,890 $-- $ 47,080
------- -------- -------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of
Cash Acquired.................... -- (1,737) (4,303) -- (6,040)
Capital Expenditures for Property,
Plant & Equipment................ -- (7,139) (744) -- (7,883)
------- -------- -------- --- --------
Net Cash Used by Investing
Activities................ -- (8,876) (5,047) -- (13,923)
------- -------- -------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net............. -- (2,203) (49,548) -- (51,751)
Stockholder's Investment............ 2,681 (31,378) 42,422 -- 13,725
------- -------- -------- --- --------
Net Cash Provided (Used) by
Financing Activities...... 2,681 (33,581) (7,126) -- (38,026)
------- -------- -------- --- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS......................... -- (3,586) (1,283) -- (4,869)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................. -- 4,113 1,957 -- 6,070
------- -------- -------- --- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................ $ -- $ 527 $ 674 $-- $ 1,201
======= ======== ======== === ========
</TABLE>
F-38
<PAGE> 42
GRANT PRIDECO, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash (Used) Provided by Operating
Activities........................ $(1,261) $(36,537) $ 19,660 $-- $(18,138)
------- -------- -------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of
Cash Acquired..................... -- (867) -- -- (867)
Capital Expenditures for Property,
Plant & Equipment................. -- (8,622) (1,015) -- (9,637)
------- -------- -------- --- --------
Net Cash Used by Investing
Activities................. -- (9,489) (1,015) -- (10,504)
------- -------- -------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Revolving Credit
Facility.......................... -- 21,300 -- -- 21,300
Repayments on Debt, Net.............. (1,766) (6,716) (3,750) -- (12,232)
Proceeds from Stock Option
Exercises......................... 720 -- -- -- 720
Purchases of Treasury Stock.......... (283) -- -- -- (283)
Predecessor Stockholder's
Investment........................ 2,590 28,734 (13,592) -- 17,732
------- -------- -------- --- --------
Net Cash Provided (Used) by
Financing Activities....... 1,261 43,318 (17,342) -- 27,237
------- -------- -------- --- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... -- (2,708) 1,303 -- (1,405)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR.............................. -- 4,998 1,206 -- 6,204
------- -------- -------- --- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $ -- $ 2,290 $ 2,509 $-- $ 4,799
======= ======== ======== === ========
</TABLE>
F-39
<PAGE> 43
EXHIBIT INDEX
Exhibit 99.1 -- Press Release dated October 25, 2000
