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 MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to __________
Commission file number 1-7867
WEATHERFORD ENTERRA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1681642
(State or other jurisdiction
of incorporation or (I.R.S. Employer
organization) Identification No.)
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 51,402,963 shares of Common Stock, $.10 par value, of the registrant
outstanding as of April 22, 1998.
(Page 1 of 14)
<PAGE>
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>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 17,318 $ 42,348
Receivables, net of allowance of $24,251 and $22,467 ............ 267,991 261,449
Inventories, net of allowance of $20,904 and $16,671 ............ 183,583 169,048
Deferred tax and other current assets ........................... 37,746 32,033
----------- -----------
Total current assets .......................................... 506,638 504,878
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST ............................. 1,263,446 1,250,494
Less -- Accumulated depreciation ................................ 701,006 682,048
----------- -----------
562,440 568,446
----------- -----------
GOODWILL, NET ...................................................... 263,466 266,121
----------- -----------
OTHER ASSETS ....................................................... 33,215 38,550
----------- -----------
$ 1,365,759 $ 1,377,995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt ........... $ 4,547 $ 2,823
Accounts payable ................................................ 54,942 63,808
Accrued income taxes ............................................ 34,294 30,404
Other accrued liabilities ....................................... 92,339 95,310
----------- -----------
Total current liabilities ..................................... 186,122 192,345
----------- -----------
LONG-TERM DEBT ..................................................... 210,452 209,124
----------- -----------
DEFERRED TAX LIABILITIES ........................................... 27,308 27,401
----------- -----------
OTHER LONG-TERM LIABILITIES ........................................ 15,103 14,999
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par; shares authorized 1,000,000; none issued -- --
Common stock, $.10 par; shares authorized 80,000,000;
issued 52,770,441 and 52,701,964 .............................. 5,277 5,270
Paid-in capital ................................................. 653,898 652,378
Retained earnings ............................................... 343,703 313,216
Cumulative translation adjustment ............................... (25,576) (23,795)
Treasury stock, 1,367,478 and 322,667 common shares, at cost .... (50,528) (12,943)
----------- -----------
Total stockholders' equity .................................... 926,774 934,126
----------- -----------
$ 1,365,759 $ 1,377,995
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1997
--------- ---------
REVENUES:
Services and rentals .............................. $ 196,453 $ 201,317
Products .......................................... 63,276 65,796
--------- ---------
Total revenues .................................. 259,729 267,113
--------- ---------
COSTS AND EXPENSES:
Cost of services and rentals ...................... 126,459 136,754
Cost of products .................................. 41,249 44,817
Selling, general and administrative expenses ...... 31,899 36,190
Research and development .......................... 2,038 2,774
Equity in earnings of unconsolidated affiliates ... (780) (509)
Foreign currency (gain) loss, net ................. (407) 393
Other expense, net ................................ 4,935 5,812
--------- ---------
Total costs and expenses ........................ 205,393 226,231
--------- ---------
OPERATING INCOME ..................................... 54,336 40,882
Interest expense ..................................... 4,018 6,134
Interest income ...................................... (480) (701)
--------- ---------
INCOME BEFORE INCOME TAXES ........................... 50,798 35,449
Income tax provision ................................. 20,311 12,497
--------- ---------
NET INCOME ........................................... $ 30,487 $ 22,952
========= =========
Basic earnings per common share ...................... $ 0.59 $ 0.44
========= =========
Diluted earnings per common share .................... $ 0.59 $ 0.44
========= =========
Weighted average shares outstanding, basic ........... 51,610 52,242
========= =========
Weighted average shares outstanding, diluted ......... 51,886 52,567
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(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, 1997 ........................ $ 5,270 $ 652,378 $ 313,216 $ (23,795) $ (12,943) $ 934,126
Shares issued under employee
benefit plans ................................. -- 47 -- -- -- 47
Stock grants and options exercised .............. 7 1,473 -- -- (157) 1,323
Purchases of treasury stock ..................... -- -- -- -- (37,428) (37,428)
Currency translation adjustment ................. -- -- -- (1,781) -- (1,781)
Net income ...................................... -- -- 30,487 -- -- 30,487
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1998 ........................... $ 5,277 $ 653,898 $ 343,703 $ (25,576) $ (50,528) $ 926,774
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED-IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
NET INCOME ....................................................... $ 30,487 $ 22,952
Income items not requiring (providing) cash:
Depreciation and amortization ................................. 29,207 27,378
Gain on sales of assets ....................................... (3,473) (2,836)
Deferred income tax provision (benefit) ....................... 87 453
Other non-cash charges ........................................ (136) 409
Increase (decrease) in cash from changes in operating accounts:
Receivables, net ............................................ (3,505) (20,150)
Inventories, net ............................................ (15,049) (11,476)
Prepayments and other ....................................... 199 6,987
Accounts payable and accrued liabilities .................... (9,784) (3,560)
Other long-term liabilities ................................. 164 (748)
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES ............................ 28,197 19,409
-------- --------
Purchases of property, plant and equipment ....................... (31,125) (23,018)
Proceeds from sales of property, plant and equipment ............. 6,297 7,503
Other net cash flows from investing activities ................... 3,928 305
-------- --------
CASH USED IN INVESTING ACTIVITIES ................................ (20,900) (15,210)
-------- --------
Borrowings under credit facilities ............................... 4,356 7,069
Repayment of borrowings .......................................... (762) (18,657)
Net cash flows from currency hedging transactions ................ 822 2,409
Purchases of treasury stock ...................................... (37,428) --
Proceeds from sale of stock to employee benefit plans and stock
option exercises .............................................. 1,370 2,900
-------- --------
CASH USED IN FINANCING ACTIVITIES ................................ (31,642) (6,279)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......................... (685) (1,200)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ............................ (25,030) (3,280)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................... 42,348 33,029
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................... $ 17,318 $ 29,749
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ...................................................... $ 157 $ 1,659
Income taxes, net of refunds received ......................... 7,323 3,970
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
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") 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, 1997. No significant
accounting changes have occurred during the three months ended March 31, 1998.
See Note 5.
(2) EVI MERGER. On March 4, 1998, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") providing for the merger of the Company
into EVI, Inc. ("EVI"). Pursuant to the terms of the Merger Agreement,
Weatherford stockholders will receive 0.95 of a share of EVI common stock for
each share of Weatherford Common Stock. The transaction, which is expected to be
accounted for as a pooling of interests and to result in no immediate federal
income tax recognition for the Company's stockholders, is subject to the
approval of the stockholders of each of EVI and Weatherford as well as other
conditions to closing. The transaction is expected to close on May 27, 1998.
There can be no assurance that this merger will be consummated.
(3) EARNINGS PER COMMON SHARE. In the fourth quarter of 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." Basic earnings per common share is computed by dividing net income
by the weighted average number of shares of Common Stock outstanding during the
period. Diluted earnings per common share also assume the exercise of employee
stock options under the treasury stock method.
A reconciliation of the numerators and the denominators of the basic and
diluted earnings per common share computation follows (in thousands except per
share amounts):
PER SHARE
NET INCOME SHARES AMOUNT
------- ------ -----
THREE MONTHS ENDED MARCH 31, 1998:
Basic earnings per common share ......... $30,487 51,610 $0.59
======= ====== =====
Employee stock options .................. -- 276 --
------- ------ -----
Diluted earnings per common share ....... $30,487 51,886 $0.59
======= ====== =====
THREE MONTHS ENDED MARCH 31, 1997:
Basic earnings per common share ......... $22,952 52,242 $0.44
======= ====== =====
Employee stock options .................. -- 325 --
------- ------ -----
Diluted earnings per common share ....... $22,952 52,567 $0.44
======= ====== =====
6
<PAGE>
(4) INVENTORIES. Consolidated net inventories consist of the following (in
thousands):
MARCH 31, DECEMBER 31,
1998 1997
-------- --------
Spare parts and components ................... $ 44,572 $ 56,686
Raw materials ................................ 44,722 29,920
Work in process .............................. 22,390 19,904
Finished goods ............................... 71,899 62,538
-------- --------
$183,583 $169,048
======== ========
(5) COMPREHENSIVE INCOME. In January 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
financial statement display of comprehensive income. A reconciliation of net
income and comprehensive income of the Company follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
------- --------
Net income .......................................... $ 30,487 $ 22,952
Change in cumulative translation adjustment ........ (1,781) (9,185)
------- --------
Comprehensive income ............................... $ 28,706 $ 13,767
======= ========
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain statements which follow may be "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements may include, but are not limited to, future sales,
earnings, margins, production levels and costs; expected savings from
acquisitions; demand for products and services; product deliveries, market
trends in the oil and gas industry and the oilfield service sector thereof;
research and development, environmental and other expenditures; currency
fluctuations and various business trends. Forward-looking statements may be made
by Weatherford's management orally or in writing including, but not limited to,
Weatherford's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to, changes in the price of oil
and gas, the impact of recent declines in the price of oil on the demand for
Weatherford's products and services, changes in the domestic and international
rig count, global trade policies, domestic and international drilling
activities, worldwide political stability and economic growth, including
currency fluctuations, governmental export and import policies, technological
advances involving Weatherford's products and services, Weatherford's successful
execution of internal operating plans, changes in the market for Weatherford's
products and services, performance issues with key suppliers and subcontractors,
the ability of Weatherford to maintain pricing levels and market shares, raw
material costs changes, availability of personnel, regulatory uncertainties and
legal proceedings. Although the Company's management believes the assumptions
are reasonable, there are certain risks and uncertainties inherent in the
Company's business and there can be no assurance that such assumptions will
prove to have been correct. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
BUSINESS REVIEW
Weatherford is a diversified 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
industry segments are oilfield services, oilfield products and gas compression,
with operations in virtually every oil and gas exploration and production region
in the world. The Company's 1997 operating results included several other
businesses that the Company sold during 1997 in connection with a divestiture
program announced in September 1996.
On March 4, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for the merger of the Company into EVI, Inc.
("EVI"). Pursuant to the terms of the Merger Agreement, Weatherford stockholders
will receive 0.95 of a share of EVI common stock for each share of Weatherford
Common Stock. The transaction, which is expected to be accounted for as a
pooling of interests and to result in no immediate federal income tax
recognition for the Company's stockholders, is subject to the approval of the
stockholders of each of EVI and Weatherford as well as other conditions to
closing. The transaction is expected to close on May 27, 1998. There can be no
assurance that this merger will be consummated.
8
<PAGE>
RESULTS OF OPERATIONS
A summary of operating results by business segment is shown below (in
thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------
1998 1997
--------- ---------
REVENUES:
Oilfield services ................... $ 168,504 $ 146,192
Oilfield products ................... 48,223 41,009
Gas compression ..................... 43,002 44,836
Other businesses .................... -- 35,076
--------- ---------
Total ............................. $ 259,729 $ 267,113
========= =========
OPERATING INCOME:
Oilfield services ................... $ 43,273 $ 32,282
Oilfield products ................... 10,436 7,071
Gas compression ..................... 4,070 3,235
Other businesses .................... -- 1,415
Corporate ........................... (3,443) (3,121)
--------- ---------
Total ............................. $ 54,336 $ 40,882
========= =========
OILFIELD SERVICES. Oilfield services operations are located worldwide near
oil and gas producing regions and consist of oilfield equipment rental, downhole
services including fishing and milling, and tubular running services including
the installation and testing of casing and tubing connections.
During the first quarter of 1998, revenues increased 15% to $168.5 million
while operating income grew 34% to $43.3 million compared to the first quarter
of 1997, primarily as a result of continued strength in oil and gas drilling
activity and increased profitability in international markets. North America
service revenues increased 14% to $95.8 million in the first quarter of 1998
compared to the same period in 1997, with the most significant revenue increases
occurring in Canada, South and West Texas and the Rocky Mountain region.
Comparing the same periods, the average North America drilling rig count
improved 16%, and the average workover rig count declined 14%.
Oilfield service revenues outside of North America increased 17% to $72.7
million in the first quarter of 1998 compared to the first quarter of 1997,
reflecting increased activity in the Middle East and Asia Pacific regions. Over
the same period, the average drilling rig count outside of North America
increased 1%.
OILFIELD PRODUCTS. Closely aligned with the oilfield services segment, the
oilfield products segment includes the manufacture, sale and service of
cementation products, Nodeco(TM) liner hangers, McMurry-Macco(TM) gas lift
equipment and other equipment used to provide oilfield services.
During the first quarter of 1998, revenues increased 18% to $48.2 million and
operating income increased 48% to $10.4 million compared to the first quarter of
1997, primarily as a result of increases in the Company's cementation products
and gas lift businesses. The improved results were largely attributable to
increased North America drilling activity, increased market share and lower
research and development costs.
9
<PAGE>
GAS COMPRESSION. The gas compression segment includes manufacturing,
packaging, renting, selling and providing parts and services for gas compressor
units over a broad horsepower range.
Revenues decreased 4% to $43.0 million during the first quarter of 1998
compared to the first quarter of 1997, primarily as a result of lower packaged
unit sales in Canada partially offset by higher U.S. rental and service
activity. Operating income increased 26% comparing the same periods to $4.1
million, reflecting the higher profit margins in the rental and service
operations as compared to manufacturing and packaging.
Compressor rental and service revenues improved 8% in the first quarter of
1998 to $26 million compared to the same period in 1997, reflecting expansion
and increased utilization of the Company's compressor rental fleet. At March 31,
1998, the Company's rental fleet comprised over 445,000 horsepower with 86%
utilization for the quarter compared to 411,000 horsepower with 83% utilization
at March 31, 1997. Manufacturing and packaging revenues decreased 17% to $17
million in the first quarter of 1998 compared to the first quarter of 1997
primarily as a result of the lower shipments in Canada.
OTHER BUSINESSES. The Company had several non-core businesses that it sold
during 1997. Such businesses include CRC-Evans Pipeline International, Inc.
("CRC-Evans") and Total Engineering Services Team, Inc. ("TEST"), which were
sold in June 1997; and the American Aero Cranes division, which was sold in
September 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of revenue decreased to 12.3% in the
first quarter of 1998 from 13.5% in the first quarter of 1997, primarily as a
result of the increased revenues from continuing businesses and the elimination
of costs from the businesses sold during 1997.
RESEARCH AND DEVELOPMENT. Research and development costs of $2.0 million in
the first quarter of 1998 decreased 27% compared to the first quarter of 1997;
however, the Company anticipates that, over the course of the year, total
research and development costs in 1998 will exceed those of 1997. The Company
committed to the creation of the Weatherford Technology and Training Center
("WTTC") at an existing Company location in Houston, Texas. The WTTC, scheduled
to open in the fourth quarter of 1998, will include a full-scale, drilling test
rig and will require a total capital cost of approximately $6 million.
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. The Company's equity in the earnings of these affiliates was $780,000
in the first quarter of 1998 compared to $509,000 in the first quarter of 1997,
reflecting improved operating results in Saudi Arabia. The Company received cash
dividends from its 50% or less-owned affiliates totaling $735,000 and $509,000
in the first quarter of 1998 and 1997, respectively.
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 a net foreign currency gain of $407,000 in the
first quarter of 1998 compared to a net loss of $393,000 in the first quarter of
1997.
OTHER EXPENSE, NET. Other expense, net, decreased to $4.9 million in the
first quarter of 1998 compared to $5.8 million in the first quarter of 1997. The
decrease was primarily attributable to losses recorded in 1997 related to the
sales of non-core businesses.
INTEREST. Net interest expense decreased to $3.5 million in the first quarter
of 1998 compared to $5.4 million in the first quarter of 1997, primarily as a
result of the repayment of indebtedness during 1997 with cash provided from
operations and the sale of non-core businesses.
10
<PAGE>
INCOME TAXES. The net income tax provision as a percentage of income before
income taxes was 40% in the first quarter of 1998 compared to 35% in the first
quarter of 1997. The higher effective tax rate in 1998 reflects the utilization
of substantially all of the Company's U.S. net operating loss and tax credit
carryforwards in 1997 and differences in the components and tax rates applicable
to foreign taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations provided cash of $28.2 million during the first
three months of 1998 compared to $19.4 million during the first three months of
1997, primarily as a result of improved operating activity. Operating cash flow
before changes in working capital accounts increased 16% to $56.2 million in the
first three months of 1998 compared to the same period in 1997, reflecting the
growth in the Company's operations. Changes in working capital and other
operating accounts used cash of $28.0 million during the first quarter of 1998
compared to $28.9 million in the same period of 1997. Working capital of $320.5
million at March 31, 1998 increased 3% compared to December 31, 1997. Net
capital expenditures increased to $24.8 million during the three months ended
March 31, 1998 compared to $15.5 million for the same period in 1997. Management
anticipates that the Company's future capital spending levels will continue to
be influenced by market opportunities and growth in the Company's operations.
Pursuant to a stock repurchase program announced in December 1997, the
Company purchased 1,040,300 shares of common stock during the first quarter of
1998 at an average price of $35.98 per share.
The Company's consolidated indebtedness increased slightly to $215.0 million
at March 31, 1998 from $211.9 million at December 31, 1997, primarily as a
result of short-term U.S. working capital borrowings. The Company's ratio of
total debt to total capitalization remained under 20% at March 31, 1998.
The Company has outstanding $200 million of publicly-held 7 1/4% notes due
May 15, 2006 (the "7 1/4% Notes"). IntereST ON the 7 1/4% Notes is payable
semi-annually on May 15 and November 15 of each year.
The Company also has a $200 million revolving credit facility (the "Revolving
Credit Facility"), which extends through October 24, 2002. Amounts outstanding
under the Revolving Credit Facility accrue interest at a variable rate ranging
from 0.25% to 0.625% above a specified Eurodollar rate, depending on the credit
ratings assigned to the 7 1/4% Notes. A commitment fee ranging from 0.09% to
0.20% per annum, depending on the credit ratings assigned to the 7 1/4% Notes,
is payable quarterly on the unused portion of the Revolving Credit Facility. The
Company is required under the Revolving Credit Facility to maintain certain
financial ratios, including a maximum debt-to-capitalization ratio of 50%.
At March 31, 1998, the Company had $200 million available to borrow under the
Revolving Credit Facility. The Company 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 and certain retrospective premium adjustments under insurance
policies. The Company had a total of $15.3 million of letters of credit and bid
and performance bonds outstanding at March 31, 1998.
The Company has developed a plan to ensure that its systems are compliant
with the requirements to process transactions in the year 2000. Management
believes that the Company will achieve year 2000 compliance through a
combination of upgrading to new releases of existing software with new fully
compliant systems by mid-1999. Management believes that the expenses and capital
expenditures associated with achieving year 2000 compliance will not have a
materially adverse impact on the financial condition, results of operations or
liquidity of the Company. The Company is currently gathering information from
its key suppliers, vendors and financial institutions regarding year 2000
compliance. The inability of these key outside parties to achieve year 2000
compliance could have a material impact on the Company's operations.
11
<PAGE>
The Company conducts a portion of its business in currencies other than the
U.S. dollar, including the Canadian dollar, major European currencies and
certain Latin American currencies. Although most of the revenues of the
Company's international 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.
The Company enters into forward exchange contracts only 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 $0.8 million and $2.4 million during the first three months of
1998 and 1997, respectively.
Management believes the combination of working capital, the unused portion of
the Revolving Credit Facility 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. Management believes that any
borrowings made in connection with any such acquisitions will not have a
materially adverse impact on the Company's liquidity. Management believes that
it is premature to provide specific information with respect to any other 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 war, political disruption, civil disturbance and policies that may
disrupt oil and gas exploration and production activities, restrict the movement
of funds, lead to U.S. government or international 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 resumed eventually in relation to market forces. Certain areas,
including the CIS, Algeria, Nigeria, and parts of the Middle East, the Asia
Pacific region and Latin America, 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 dividends on Common Stock since December 1982
and management does not anticipate paying dividends on Common Stock at any time
in the foreseeable future.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
Current Report on Form 8-K dated March 4, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEATHERFORD ENTERRA, INC.
(Registrant)
Date: May 14, 1998 By: NORMAN W. NOLEN
NORMAN W. NOLEN
Senior Vice President, Chief Financial
Officer & Treasurer
14
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