- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- --------------------------------------------------------------------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 1-7867
WEATHERFORD ENTERRA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1681642
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1360 POST OAK BOULEVARD
SUITE 1000
HOUSTON, TEXAS
77056
(Address of principal executive offices)
(Zip code)
(713) 439-9400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]. No [ ].
There were 52,091,238 shares of Common Stock, $.10 par value,
of the registrant outstanding as of July 31, 1996.
(Page 1 of 13)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 19,617 $ 32,800
Receivables, net of allowance of $15,715 and $15,942 .................. 260,686 231,125
Inventories, net of allowance of $20,552 and $23,760 .................. 182,834 165,383
Deferred tax and other current assets ................................. 27,499 34,054
----------- -----------
Total current assets ............................................. 490,636 463,362
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST ..................................... 1,212,654 1,181,570
Less -- Accumulated depreciation ...................................... 679,417 667,025
----------- -----------
533,237 514,545
----------- -----------
GOODWILL, NET .............................................................. 280,169 259,450
----------- -----------
OTHER ASSETS ............................................................... 29,397 21,503
----------- -----------
$ 1,333,439 $ 1,258,860
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt ................. $ 36,993 $ 36,976
Accounts payable ...................................................... 53,258 52,157
Accrued income taxes .................................................. 14,014 4,650
Other accrued liabilities ............................................. 92,488 102,199
----------- -----------
Total current liabilities ........................................ 196,753 195,982
----------- -----------
LONG-TERM DEBT ............................................................. 315,837 292,290
----------- -----------
DEFERRED TAX LIABILITIES ................................................... 3,816 5,243
----------- -----------
OTHER LONG-TERM LIABILITIES ................................................ 20,818 33,348
----------- -----------
MINORITY INTERESTS ......................................................... 548 1,154
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par; shares authorized 1,000,000; none issued ..... -- --
Common stock, $.10 par; shares authorized 80,000,000;
issued 52,115,098 and 50,988,741 ................................. 5,212 5,099
Paid-in capital ....................................................... 638,053 602,231
Retained earnings ..................................................... 158,618 130,243
Cumulative translation adjustment ..................................... (5,488) (5,869)
Treasury stock, 24,497 and 41,260 common shares, at cost .............. (728) (861)
----------- -----------
Total stockholders' equity ....................................... 795,667 730,843
----------- -----------
$ 1,333,439 $ 1,258,860
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-2-
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Services and rentals ............ $ 174,938 $ 150,032 $ 337,013 $ 294,959
Products ........................ 58,844 61,047 115,610 135,409
--------- --------- --------- ---------
Total revenues ............. 233,782 211,079 452,623 430,368
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of services and rentals .... 126,787 105,242 243,764 205,672
Cost of products ................ 44,268 50,598 85,813 107,559
Selling, general and
administrative expenses .... 33,584 35,251 66,898 71,420
Research and development ........ 1,568 1,189 3,283 2,214
Equity in earnings of
unconsolidated affiliates .. (855) (374) (1,356) (899)
Foreign currency (gain) loss, net (483) (636) (502) (969)
Other expense, net .............. 1,977 690 4,003 1,928
Unusual charges ................. -- 28,282 -- 28,282
--------- --------- --------- ---------
Total costs and expenses ... 206,846 220,242 401,903 415,207
--------- --------- --------- ---------
OPERATING INCOME (LOSS): ............. 26,936 (9,163) 50,720 15,161
Interest expense ................ 5,465 4,144 10,537 8,255
Interest income ................. (421) (405) (990) (772)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES .................... 21,892 (12,902) 41,173 7,678
Income tax provision (benefit) .. 6,963 (9,473) 12,788 (3,305)
Minority interests .............. 31 (284) 10 (311)
--------- --------- --------- ---------
NET INCOME (LOSS): ................... $ 14,898 $ (3,145) $ 28,375 $ 11,294
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding ... 52,082 50,790 51,791 50,716
========= ========= ========= =========
INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT
SHARE ........................... $ 0.29 $ (0.06) $ 0.55 $ 0.22
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ -------- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 ................... $5,099 $602,231 $130,243 $(5,869) $(861) $730,843
Shares issued under employee
benefit plans .............................. 2 1,199 -- -- -- 1,201
Stock grants and options exercised ........... 36 8,178 -- -- 133 8,347
Shares issued in Nodeco acquisition .......... 75 26,445 -- -- -- 26,520
Currency translation adjustment .............. -- -- -- 381 -- 381
Net income ................................... -- -- 28,375 -- -- 28,375
------ -------- -------- ------- ----- --------
BALANCE, JUNE 30, 1996 ....................... $5,212 $638,053 $158,618 $(5,488) $(728) $795,667
====== ======== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED-IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
NET INCOME ......................................................... $ 28,375 $ 11,294
Income items not requiring (providing) cash:
Depreciation and amortization ................................. 51,147 46,828
Noncash portion of unusual charges ............................ -- 27,145
Gain on sales of assets ....................................... (6,552) (6,522)
Deferred income tax provision (benefit) ....................... (888) (11,336)
Other non-cash charges ........................................ (1,235) (116)
Increase (decrease) in cash from changes in operating accounts:
Receivables, net ......................................... (24,618) (2,800)
Inventories, net ......................................... (11,470) (2,969)
Prepayments and other .................................... 7,118 (4,161)
Accounts payable and accrued liabilities ................. (5,895) (32,230)
Other long-term liabilities .............................. (12,387) (363)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES .............................. 23,595 24,770
--------- ---------
Purchases of property, plant and equipment ......................... (57,409) (52,401)
Proceeds from disposition of assets ................................ 12,957 12,396
Acquisitions, net of notes issued and cash acquired ................ (14,393) (1,868)
Other net cash flows from investing activities ..................... 2,219 (1,393)
--------- ---------
CASH USED IN INVESTING ACTIVITIES .................................. (56,626) (43,266)
--------- ---------
Borrowings under credit facilities ................................. 244,407 191,951
Repayment of borrowings ............................................ (227,195) (185,212)
Payment of deferred loan costs ..................................... (4,538) --
Net cash flows from currency hedging transactions .................. 1,615 (3,780)
Proceeds from sale of stock to employee benefit plans and stock
option exercises .............................................. 9,415 1,052
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES .............................. 23,704 4,011
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................ (3,856) (1,490)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS .............................. (13,183) (15,975)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................... 32,800 36,106
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................... $ 19,617 $ 20,131
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ...................................................... $ 8,317 $ 6,991
Income taxes, net of refunds received ......................... 5,850 10,003
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The consolidated financial statements of Weatherford Enterra, Inc. and its
subsidiaries (the "Company" or "Weatherford Enterra") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
information furnished reflects all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
results of the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading.
Certain reclassifications were made to previously reported amounts in the
consolidated financial statements and notes to make them consistent with the
current presentation format.
It is suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. No significant
accounting changes have occurred during the six months ended June 30, 1996.
(2) INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE. Income (loss) per
common and common equivalent share is computed on the basis of the weighted
average number of shares of common stock and common stock equivalents (if
dilutive) outstanding during the respective periods. Fully diluted earnings per
share are equal to primary earnings per share in all periods presented.
(3) INVENTORIES. Consolidated net inventories consist of the following (in
thousands):
JUNE 30, DECEMBER 31,
1996 1995
-------- --------
Spare parts and components $ 47,035 $ 34,911
Raw materials ............ 38,652 44,494
Work in process .......... 30,594 27,287
Finished goods ........... 66,553 58,691
-------- --------
$182,834 $165,383
======== ========
(4) LONG-TERM DEBT. On May 28, 1996, the Company completed the sale of
$200,000,000 of 7 1/4% Notes Due May 15, 2006 (the "Notes"). Net proceeds of
$197,824,000 from the sale of the Notes were used to repay indebtedness
outstanding under the Company's Revolving Credit Facility ($129,000,000) and to
repay a portion of the indebtedness outstanding under the Company's Term Loan.
Interest on the Notes is payable semi-annually on May 15 and November 15 of each
year, beginning November 15, 1996.
(5) NODECO ACQUISITION. On May 23, 1996, the Company acquired the business and
assets of Nodeco AS, a Norwegian company, and its wholly-owned subsidiary,
Aarbakke AS (collectively, "Nodeco"), in a transaction accounted for as a
purchase. The Company paid cash of $14,393,000, net of cash acquired, and issued
750,000 shares of its Common Stock to Nodeco. Additionally, the Company assumed
all liabilities of Nodeco, including approximately $7,000,000 of debt. Results
of operations of Nodeco are included in the accompanying consolidated financial
statements since the date of acquisition.
Nodeco designs, manufactures, sells and rents oil and gas well completion
products primarily consisting of liner hanger equipment and related services, as
well as packers used in completions with electric submersible pumps. Nodeco's
primary markets for these products are the Norwegian and United Kingdom sectors
of the North Sea. Nodeco also provides products and services for reservoir and
wellbore monitoring and manufactures precision mechanical components for
customers that are primarily affiliated with the oil industry.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BUSINESS REVIEW
Weatherford Enterra is a diversified international energy service and
manufacturing company that provides a variety of services and equipment to the
exploration, production and transmission sectors of the oil and gas industry.
The Company's principal business segments are oilfield services, energy
products, gas compression and pipeline services. Weatherford Enterra operates in
virtually every oil and gas exploration and production region in the world, with
more than 330 locations in 47 countries.
In 1991, the Company's management implemented a business strategy focused
on offering a broader mix of services and products in domestic and international
markets, becoming a leading participant in each of its core businesses and
pursuing cost efficiencies in its existing operations and its newly-acquired
businesses. Management has pursued this strategy through a series of
acquisitions. As a result of these acquisitions, management believes it has
positioned the Company as a market leader in its oilfield services, gas
compression and pipeline services segments and in certain businesses included in
its energy products segment. The acquisitions have allowed the Company to expand
its product and service lines, improve its worldwide market position and realize
significant consolidation cost savings.
RESULTS OF OPERATIONS
A summary of operating results by business segment is shown below:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUES:
Oilfield services ...... $ 121,757 $ 117,725 $ 241,052 $ 231,388
Energy products ........ 57,675 52,104 108,690 110,776
Gas compression ........ 42,256 24,243 75,899 53,390
Pipeline services ...... 12,094 17,007 26,982 34,814
--------- --------- --------- ---------
Total ............. $ 233,782 $ 211,079 $ 452,623 $ 430,368
========= ========= ========= =========
UNUSUAL CHARGES:
Oilfield services ...... $ -- $ 7,206 $ -- $ 7,206
Energy products ........ -- 16,262 -- 16,262
Gas compression ........ -- -- -- --
Pipeline services ...... -- 4,562 -- 4,562
Corporate .............. -- 252 -- 252
--------- --------- --------- ---------
Total ............. $ -- $ 28,282 $ -- $ 28,282
========= ========= ========= =========
OPERATING INCOME (LOSS):
Oilfield services ...... $ 19,987 $ 11,268 $ 40,243 $ 27,093
Energy products ........ 5,513 (16,497) 8,781 (12,630)
Gas compression ........ 3,093 2,014 5,718 5,511
Pipeline services ...... 219 (3,247) 437 556
Corporate .............. (1,876) (2,701) (4,459) (5,369)
--------- --------- --------- ---------
Total ............. $ 26,936 $ (9,163) $ 50,720 $ 15,161
========= ========= ========= =========
-7-
OILFIELD SERVICES. Revenues increased 3% from $117,725,000 in the second
quarter of 1995 to $121,757,000 in the second quarter of 1996, primarily as a
result of increased service activity in certain markets, including the North
Sea, Canada and West Africa, partially offset by lower activity in the Middle
East and the Asia-Pacific Regions. During the second quarter of 1996, the
average worldwide drilling rig count was 7% higher than in the same period of
1995. Excluding the impact of the unusual charges in 1995 discussed below,
operating income for the oilfield services segment improved 8% to $19,987,000 in
the second quarter of 1996 as compared to the second quarter of 1995, primarily
as a result of the increased revenues and cost savings achieved in consolidating
the operations of Enterra Corporation ("Enterra") and Weatherford International
Incorporated ("Weatherford"), which were merged in October 1995, partially
offset by higher costs and lower margin service contracts in certain areas.
Revenues increased 4% from $231,388,000 in the first six months of 1995 to
$241,052,000 in the first six months of 1996, primarily as a result of increased
service activity in certain markets, including the North Sea, Canada, Latin
America and West Africa. During the first six months of 1996, the average
worldwide drilling rig count was 5% higher than in the same period of 1995.
Excluding the impact of the unusual charges in 1995 discussed below, operating
income for the oilfield services segment improved 17% to $40,243,000 in the
first six months of 1996 as compared to the first six months of 1995 primarily
as a result of the increased revenues and cost savings achieved in consolidating
the operations of Enterra and Weatherford.
ENERGY PRODUCTS. Revenues of $57,675,000 in the second quarter of 1996
increased $5,571,000, or 11%, compared to the second quarter of 1995, primarily
as a result of a higher volume of cementation product and gas lift equipment
sales and the inclusion of the Nodeco operations acquired in May 1996, which
contributed $2,265,000 of revenues during the 1996 second quarter. Excluding the
impact of the 1995 unusual charges discussed below, operating income for the
energy products segment improved from a loss of $235,000 in the second quarter
of 1995 to operating income of $5,513,000 in the second quarter of 1996,
reflecting the higher sales volume and increased productivity in several
manufacturing operations.
Comparing the first six months of 1996 to the same period of 1995, revenues
in the energy products segment decreased $2,086,000, or 2%, to $108,690,000,
primarily because of the inclusion in 1995 results of an unusual $5,900,000
export sale of products and $23,784,000 of revenues from businesses sold in
September 1995 and February 1996, substantially offset by the impact of
increased cementation product sales, gas lift equipment sales and engineering
service revenues. Excluding the impact of the 1995 unusual charges discussed
below, operating income for the energy products segment improved 142% to
$8,781,000 in the first six months of 1996 compared to $3,632,000 in the first
six months of 1995, reflecting the shift in revenue mix toward more profitable
product lines and increased productivity in several manufacturing operations.
GAS COMPRESSION. Revenues increased $18,013,000, or 74%, from $24,243,000
in the second quarter of 1995 to $42,256,000 in the second quarter of 1996,
primarily as a result of the December 1995 acquisition of the assets of Energy
Industries, Inc. and Zapata Energy Industries, L.P. (collectively, "Energy
Industries"). Rental activity continued to improve as a result of higher natural
gas prices, while sales of compressor packages remained weak due to low demand,
particularly in Canada. Operating income increased $1,079,000, or 54%, to
$3,093,000 in the second quarter of 1996 compared to $2,014,000 in the second
quarter of 1995, primarily as a result of the increased revenues.
Comparing the first six months of 1996 to the same period of 1995, revenues
in the gas compression segment increased $22,509,000, or 42%, to $75,899,000,
primarily as a result of the inclusion of the Energy Industries operations in
1996. Operating income improved 4% to $5,718,000 as a result of the higher
revenues, substantially offset by additional costs related to the Energy
Industries operations.
PIPELINE SERVICES. Revenues decreased $4,913,000, or 29%, to $12,094,000 in
the second quarter of 1996 compared to $17,007,000 in the second quarter of
1995, and operating income (excluding the unusual charges discussed below)
decreased $1,096,000, or 83%, from $1,315,000 in the second quarter 1995 to
$219,000 in the second quarter of 1996. Comparing the first six months of 1996
to the same period of 1995, revenues in the pipeline segment decreased
$7,832,000, or 22%, to $26,982,000, and operating income (excluding the unusual
charges discussed below) decreased $4,681,000, or 91%, to $437,000 in 1996.
Results in 1995 were highlighted by extremely high equipment
-8-
rental activity on pipeline projects in Canada and North Africa that were
completed in 1995. Operating results in the pipeline segment can vary
significantly from period to period due to the timing of large pipeline
construction projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of revenue decreased to 14.4% in the
second quarter of 1996 from 16.7% for the same period of 1995, and to 14.8% in
the first six months of 1996 from 16.6% for the same period of 1995, primarily
as a result of cost efficiencies achieved in consolidating the operations of
Enterra into the Company.
RESEARCH AND DEVELOPMENT. Research and development costs of $1,568,000 in
the second quarter of 1996 and $3,283,000 in the first six months of 1996
increased 32% and 48%, respectively, compared to the respective periods in 1995.
The increases primarily reflected the expansion of the Company's operations and
development activities to support all four of its principal business segments.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES. The Company owns an
interest of 50% or less in several joint ventures, primarily in the oilfield
services segment. Compared to the respective periods in 1995, the Company's
equity in the earnings of these affiliates increased 129% to $855,000 in the
second quarter of 1996 and 51% to $1,356,000 in the first six months of 1996,
primarily as a result of increased service and sales activity in Saudi Arabia.
The Company received cash dividends from its 50% or less-owned affiliates
totaling $783,000 in each of the first six months of 1996 and 1995.
FOREIGN CURRENCY (GAIN) LOSS, NET. As a result of the fluctuation of the
U.S. dollar against the major foreign currencies in which the Company conducts
business, the Company recorded net foreign currency gains of $483,000 in the
second quarter of 1996 compared to $636,000 in the second quarter of 1995. The
Company recorded net foreign currency gains of $502,000 in the first six months
of 1996 compared to $969,000 in the first six months of 1995.
OTHER EXPENSE, NET. Other expense, net, increased to $1,977,000 in the
second quarter of 1996 compared to $690,000 in the second quarter of 1995, and
to $4,003,000 in the first six months of 1996 compared to $1,928,000 in the
first six months of 1995. The increase was primarily attributable to the
amortization of goodwill related to the acquisitions of Energy Industries and
Nodeco, and lower net gains on sales of property, plant and equipment.
UNUSUAL CHARGES. During the second quarter of 1995, Enterra recorded
unusual charges totaling $28,282,000 ($26,000,000 of which was non-cash),
representing writedowns to fair value of certain businesses to be disposed of,
asset writedowns related to certain excess facilities, equipment and
inventories, and estimated costs in connection with the closure of certain
pipeline businesses and the consolidation of certain oilfield service
administrative and operating facilities.
INTEREST. Interest expense increased 32% to $5,465,000 in the second
quarter of 1996 compared to $4,144,000 in the second quarter of 1995, and 28% to
$10,537,000 in the first six months of 1996 compared to $8,255,000 in the first
six months of 1995, primarily as a result of higher average debt balances
outstanding. The increased indebtedness primarily related to the acquisitions of
Energy Industries in December 1995 and Nodeco in May 1996.
INCOME TAXES. Income taxes increased from net benefits of $9,473,000 and
$3,305,000 for the three- and six-month periods ended June 30, 1995,
respectively, to net provisions of $6,963,000 and $12,788,000 for the three-and
six-month periods ended June 30, 1996, respectively. The benefits recorded in
1995 primarily related to the unusual charges discussed above. Income tax
provision as a percentage of income before income taxes was 32% and 31% in the
second quarter and first six months of 1996, respectively. This effective rate
was lower than the U.S. statutory rate of 35% primarily as a result of foreign
income taxed at various rates and the availability of U.S. net operating loss
carryforwards. The effective rate for the 1995 periods is not meaningful as a
result of the impact of the unusual charges discussed above.
-9-
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations provided cash of $23,595,000 during the first six
months of 1996 compared to $24,770,000 during the first six months of 1995. Net
income before depreciation and amortization of $79,522,000 in the first six
months of 1996 increased $21,400,000, or 37%, when compared to the same period
in 1995, primarily as a result of growth in the Company's operations. Changes in
working capital and other operating accounts used cash of $47,252,000 during the
first six months of 1996 compared to $42,523,000 in the same period of 1995,
primarily as a result of increases in accounts receivable and inventories and
decreases in accounts payable and accrued liabilities. Working capital increased
from $267,380,000 at December 31, 1995 to $293,883,000 at June 30, 1996.
In connection with the Company's plan to consolidate the operations of
Enterra into Weatherford, the Company committed to vacate certain excess
facilities. Accrued liabilities associated with such plan decreased from
$24,328,000 to $6,488,000 between December 31, 1995 and June 30, 1996, as a
result of cash payments in accordance with the consolidation plan.
On May 23, 1996, the Company acquired the business and assets of Nodeco AS,
a Norwegian company, and its wholly-owned subsidiary, Aarbakke AS (collectively,
"Nodeco"), in a transaction accounted for as a purchase. The Company paid cash
of $14,393,000, net of cash acquired, and issued 750,000 shares of its Common
Stock to Nodeco. Additionally, the Company assumed all liabilities of Nodeco,
including approximately $7,000,000 of debt. Nodeco designs, manufactures, sells
and rents oil and gas well completion products primarily consisting of liner
hanger equipment and related services, as well as packers used in completions
with electric submersible pumps. Nodeco's primary markets for these products are
the Norwegian and United Kingdom sectors of the North Sea. Nodeco also provides
products and services for reservoir and wellbore monitoring and manufactures
precision mechanical components for customers that are primarily affiliated with
the oil industry.
Capital expenditures, excluding acquisitions, increased to $57,409,000
during the six months ended June 30, 1996 compared to $52,401,000 for the same
period in 1995. The increase was primarily attributable to increased capital
spending requirements as a result of the Company's December 1995 acquisition of
Energy Industries.
The Company's consolidated indebtedness increased from $329,266,000 at
December 31, 1995 to $352,830,000 at June 30, 1996, primarily as a result of the
indebtedness resulting from the Nodeco acquisition. The Company's total
debt-to-total capitalization ratio remained 31% at June 30, 1996 compared to
December 31, 1995.
On May 28, 1996, the Company completed the sale of $200,000,000 of 7 1/4%
Notes Due May 15, 2006 (the "Notes"). Net proceeds of $197,824,000 from the sale
of the Notes were used to repay amounts outstanding under the Company's primary
bank credit facilities discussed below. Interest on the Notes is payable
semi-annually on May 15 and November 15 of each year, beginning November 15,
1996.
The Company's primary bank credit facilities consist of a $200,000,000 Term
Loan and a $200,000,000 Revolving Credit Facility (collectively, the
"Facilities"). The Facilities replaced the previous bank credit facilities of
Weatherford and Enterra. The Term Loan is repayable in equal quarterly
installments through September 30, 2001. The Revolving Credit Facility matures
on September 30, 2000. Amounts outstanding under the Facilities accrue interest
at a variable rate, ranging from 0.375% to 0.625% above a specified Eurodollar
rate, depending on the Company's total debt-to- total capitalization ratio. The
applicable interest rate on amounts outstanding at June 30, 1996 was 5.94%. A
commitment fee ranging from 0.15% to 0.225% per annum, depending on the
Company's total debt-to-total capitalization ratio, is payable quarterly on the
unused portion of the Revolving Credit Facility. The Company is required under
the Facilities agreement to maintain certain financial ratios, including a
maximum debt-to-capitalization ratio of 45% through September 30, 1996 and 40%
thereafter. At June 30, 1996, the balances outstanding under the Term Loan and
the Revolving Credit Facility were $121,800,000 and $0, respectively, and the
Company had $200,000,000 available to borrow under the Revolving Credit
Facility. In addition, at June 30, 1996, the Company and its subsidiaries had
$18,480,000 outstanding and $7,317,000 available for borrowing under working
capital facilities. The Company also has various credit facilities available
only for standby letters of credit and bid and performance bonds, pursuant to
which funds are available to the Company to secure performance obligations and
-10-
certain retrospective premium adjustments under insurance policies. The Company
had a total of $19,277,000 of letters of credit and bid performance bonds
outstanding at June 30, 1996.
The Company conducts a portion of its business in currencies other than the
U.S. dollar, including the Canadian dollar, the German mark, the U.K. pound
sterling, the Norwegian krone, certain Latin American currencies and the Italian
lira. Although most of the revenues of the Company's foreign operations are
denominated in the local currency, the effects of foreign currency fluctuations
are largely mitigated because local expenses of such foreign operations also
generally are denominated in the same currency. As a result of a stronger U.S.
dollar, the weighted average currency exchange rates used to translate the
statements of income of the Company's international subsidiaries were generally
higher during 1996 compared to 1995. Had the average exchange rates in 1996 been
the same as in 1995, revenues for the first six months of 1996 would have been
approximately $1,800,000 higher. The impact on net income would not have been
material.
The Company has entered into forward exchange contracts as a hedge against
certain existing economic exposures, and not for speculative or trading
purposes. These contracts reduce exposure to currency movements affecting
existing assets and liabilities denominated in foreign currencies, such exposure
resulting primarily from trade receivables and payables and intercompany loans.
The future value of these contracts and the related currency positions are
subject to offsetting market risk resulting from foreign currency exchange rate
volatility. Settlement of forward exchange contracts resulted in net cash
inflows totaling $1,615,000 during the first six months of 1996 and net cash
outflows of $3,780,000 during the first six months of 1995.
Management believes the combination of working capital, the unused portion
of existing credit facilities and cash flows from operations provide the Company
with sufficient capital resources and liquidity to manage its routine
operations. The Company continues to seek opportunities to enhance its
competitiveness through strategic acquisitions. The Company is currently
considering several potential acquisitions, which are at various stages of
negotiation or due diligence. Management believes that it is premature to
provide specific information with respect to any such possible acquisitions
because of the status of, and possible adverse impact on, negotiations, and
because, in any event, there can be no assurance that any of such possible
acquisitions will be consummated.
Like most multinational oilfield service companies, the Company has
operations in certain international areas, including parts of the Middle East,
North and West Africa, Latin America, the Asia-Pacific Region and the
Commonwealth of Independent States (the "CIS"), that are inherently subject to
risks of civil disturbance and political activities that may disrupt oil and gas
exploration and production activities, restrict the movement of funds, lead to
U.S. government sanctions or limit access to markets for periods of time.
Historically, the economic impact of such disruptions has been temporary and oil
and gas exploration and production activities have eventually resumed in
relation to market forces. Certain areas, including the CIS, Algeria, Nigeria
and Angola have been subjected to political disruption or social unrest in the
past twelve months. Generally, business interruptions resulting from civil or
political disruptions negatively impact near-term results of operations;
however, management believes that it is unlikely that any specific business
disruption caused by existing or foreseen civil or political instability will
have a materially adverse impact on the financial condition or liquidity of the
Company.
The Company has not declared cash dividends on its Common Stock since
December 1982 and management does not anticipate paying cash dividends on its
Common Stock at any time in the foreseeable future.
-11-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 17, 1996, the Company held its annual meeting at which the
stockholders of the Company were asked to elect three directors, each for a
term of three years. The stockholders elected the three persons nominated
by the Board of Directors. Of the shares of Common Stock entitled to vote
and present at the meeting, (1) 47,511,968 shares were voted in favor of
Philip Burguieres and 537,473 shares withheld or abstained; (2) 45,105,850
shares were voted in favor of William E. Greehey and 2,897,741 shares
withheld or abstained; and (3) 47,504,390 shares were voted in favor of
Roger M. Widmann and 545,051 shares withheld or abstained.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Article 5 Financial Data Schedule
(B) Reports on Form 8-K
The Company filed a Form 8-K dated May 28, 1996 on May 31, 1996
reporting the sale of $200,000,000 aggregate amount of the Company's 7
1/4% Notes Due May 15, 2006.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEATHERFORD ENTERRA, INC.
(Registrant)
Date: AUGUST 13, 1996 BY: NORMAN W. NOLEN
NORMAN W. NOLEN
Senior Vice President, Chief Financial
Officer & Treasurer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,617
<SECURITIES> 0
<RECEIVABLES> 276,401
<ALLOWANCES> 15,715
<INVENTORY> 182,834
<CURRENT-ASSETS> 490,636
<PP&E> 1,212,654
<DEPRECIATION> 679,417
<TOTAL-ASSETS> 1,333,439
<CURRENT-LIABILITIES> 196,753
<BONDS> 0
0
0
<COMMON> 5,212
<OTHER-SE> 790,455
<TOTAL-LIABILITY-AND-EQUITY> 1,333,439
<SALES> 452,623
<TOTAL-REVENUES> 452,623
<CGS> 329,577
<TOTAL-COSTS> 329,577
<OTHER-EXPENSES> 72,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,537
<INCOME-PRETAX> 41,173
<INCOME-TAX> 12,788
<INCOME-CONTINUING> 28,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,375
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
