<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 8-K
ON
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): June 15, 1998
WEATHERFORD INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 1-13086 04-2515019
------------------------ ------------ -------------------
(State of incorporation) (Commission (I.R.S. Employer
file number) Identification No.)
5 Post Oak Park, Suite 1700, Houston, Texas 77027-3415
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 297-8400
--------------------------------------------------
(Registrant's telephone number, include area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Exhibit Index Appears on Page 49
<PAGE> 2
EXPLANATORY NOTE
This Amendment No. 2 on Form 8-K/A of Weatherford International, Inc., a
Delaware corporation ("Weatherford"), amends Weatherford's Form 8-K dated June
15, 1998, to amend and restate Item 5 in its entirety and amends Item 7.
ITEM 5. OTHER EVENTS
BUSINESS COMBINATION
On May 27, 1998, EVI, Inc. ("EVI") and Weatherford Enterra, Inc. ("WII")
merged pursuant to an Agreement and Plan of Merger dated March 4, 1998, as
amended, between EVI and WII, with EVI being the surviving corporation (the
"Merger"). Under the terms of the Merger, the name of the combined company was
changed to EVI Weatherford, Inc. (together with its subsidiaries, the
"Company"). Under the terms of the Merger, the stockholders of WII received 0.95
of a share of EVI common stock, $1.00 par value ("Common Stock"), in exchange
for each outstanding share of WII common stock outstanding immediately prior to
the Merger. The Merger has been accounted for as a pooling of interests and the
consolidated financial statements of Weatherford have been restated to include
the accounts of WII for all periods presented. The following sets forth Selected
Financial Data and Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company on a restated basis. The discussion
should be read in conjunction with the restated Consolidated Financial
Statements of the Company filed with this report. The financial statements
contained herein, together with the following Selected Financial Data and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, restate the historical Financial Statements, Selected Financial Data
and Management's Discussion and Analysis of Financial Condition and Results of
Operations previously filed by EVI prior to the Merger and supersede the
previously filed pro forma financial statements reflecting the Merger and
supersede the previously filed supplemental restated historical financial
statements.
NAME CHANGE
At the Company's annual stockholders' meeting on September 21, 1998, the
stockholders of the Company approved a name change from EVI Weatherford, Inc. to
Weatherford International, Inc. The Company's Common Stock is listed on the New
York Stock Exchange with a new stock symbol of "WFT".
SELECTED FINANCIAL DATA
The following table sets forth certain restated selected historical
consolidated financial data of the Company and should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The following information may not be deemed indicative of
future operating results of the Company. The information presented has been
restated to reflect the Merger, the Company's May 1997 two-for-one stock split
and the adoption of Statement of Financial Accounting Standards No. 128 ("SFAS
No. 128"), Earnings Per Share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 1,969,089 $ 1,467,270 $ 1,125,803 $ 858,993 $ 671,470
Operating Income ........................... 335,992 169,101 12,120 70,952 59,342
Income (Loss) From Continuing
Operations .............................. 196,773 92,161 (8,268) 36,046 35,231
Basic Earnings (Loss) Per Share From
Continuing Operations ................... 2.04 1.03 (0.10) 0.53 0.58
Diluted Earnings (Loss) Per Share
From Continuing Operations .............. 2.01 1.01 (0.10) 0.53 0.58
Total Assets ............................... 2,737,910 2,243,633 1,710,568 1,464,804 885,981
Long-Term Debt ............................. 252,322 417,976 416,473 303,854 56,580
5% Convertible Subordinated Preferred
Equivalent Debentures ................... 402,500 -- -- -- --
Stockholders' Equity ....................... 1,458,549 1,292,704 958,337 845,287 582,187
Cash Dividends Per Share ................... -- -- -- -- --
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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GENERAL
The Company 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 industry segments consist of (i) drilling products, (ii) completion
and oilfield products and services and (iii) artificial lift and compression
products and services. The Company operates in virtually every oil and gas
exploration and production region in the world.
The Company's drilling products segment manufactures (i) drill pipe and
other drilling products, (ii) premium engineered connections and associated
tubulars and (iii) marine connectors and related accessories. The Company's
drilling products are designed and engineered for high performance
applications. Drill pipe, as well as drill collars, heavyweights and kellys
manufactured by the Company, serve as the principal mechanical drilling tools
used to drill an oil or natural gas well. These products constitute all
components of the drill stem used to drill a well from the rig to the drill
bit. The Company's premium tubulars consist of premium tubing, liner and casing
and, together with the Company's line of premium engineered connections, are
used for the production of oil and natural gas in harsh downhole environments.
The Company's marine connector product line consists of downhole conductors for
offshore applications and are used to define the original architecture of an
offshore well and to support subsea applications.
The Company's completion and oilfield products and services segment
manufactures, sells and services cementation products and liner hangers and
equipment used to provide oilfield services. Other products manufactured by this
segment include hydraulic power tongs and related equipment used to provide
tubular running services, milling tools, whipstocks and weighted drill pipe used
in rental and downhole services and sold to customers. This segment also
provides oilfield equipment rental, downhole services and tubular running
services. The Company's rental equipment includes specialized pressure control
equipment, drill string equipment, handling tools, stabilizers and other
equipment and tools used in the drilling, completion and workover of oil and gas
wells. Downhole services include fishing, milling, whipstock installation and
retrieval, well control assistance, plugging and abandonment services, pipe
recovery wireline services, foam services and internal casing patch
installation.
The Company's artificial lift and compression segment (i) designs,
manufactures and services a complete line of artificial lift equipment and (ii)
manufactures, packages, rents and sells parts and services for gas compressor
units over a broad horsepower range. The Company's artificial lift product line
includes a wide range of downhole pumps, surface pump drive units, gas lift
equipment, hydraulic lift products and progressing cavity pumps. The Company's
gas compressor units are used for increasing natural gas pressure to facilitate
gas flow from the wellhead and through gas gathering systems and processing
plants and injecting natural gas into oil wells to enhance recovery and into gas
storage wells. Other general applications include cogeneration, seismic marine
surveys and natural gas fueling stations.
The Company has achieved significant growth in recent years through a
consistent strategy of synergistic acquisitions and internal development.
Acquisitions have focused on the acquisition of name brand products, geographic
expansion, the development of complete product lines and savings through
consolidation. Internal development has focused on product development and
geographic expansion. The Company's growth strategy has resulted in the Company
becoming the largest manufacturer of drill pipe, drill collars and heavyweight
drill pipe in the world, the largest provider of premium tubular connectors in
North America and one of the largest providers of artificial lift equipment in
the world. The Company is the leading worldwide supplier of rental tools and
fishing and other downhole services and the leading worldwide provider of
tubular running services. To the Company's knowledge, none of its competitors
has as broad a product line of rod lift and progressing cavity pumps.
MARKET TRENDS
The demand for the Company's products and services is affected by the price
and demand of natural gas, the level of oil and gas exploration, production and
consumption, the number of oil and gas wells being drilled, the depth and
drilling conditions of such wells, the volume of production, the number of well
completions, the level of workover activity, the construction of gathering and
storage systems and the age and operating pressures of natural gas wells.
Exploration and production activities are affected by worldwide economic
conditions, supply and demand for oil and natural gas, seasonal trends and the
political stability of oil producing countries. Drilling and workover activity
can fluctuate significantly in a short period of time, particularly in the
United States and Canada.
The willingness of oil and gas operators to make capital expenditures for
the exploration and production of oil and natural gas is influenced by numerous
factors over which the Company has no control, including the prevailing
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and expected market prices for oil and natural gas. Such prices are impacted by,
among other factors, worldwide demand for oil and gas, costs of exploration and
production, general economic and political conditions, availability of new
leases and concessions, the ability of the members of the Organization of
Petroleum Exporting Countries ("OPEC") to maintain price stability through
voluntary production limits, the level of production by non-OPEC countries, and
governmental regulations regarding, among other things, environmental
protection, taxation, price controls and product allocations.
The oil and gas industry has been substantially volatile over the years,
due in large part to volatility in the prevailing prices of oil and natural gas.
In 1996 and much of 1997, the oil and gas service industry experienced a general
improvement in product demand and pricing as relatively stable and improved oil
and or natural gas prices combined with a strong world economy to increase
exploration and development activity worldwide. This trend, together with a
decline in the worldwide inventory of used drill pipe, benefited the Company and
its results in 1997 and 1996.
World oil prices have declined by more than 50% since late 1997 and are
currently at a twelve year low. Natural gas prices, while more stable than oil
prices for most of 1998, have weakened slightly in 1998 as compared to 1997.
These declines have been attributed to, among other things, an excess supply of
oil in the world markets, the impact of the economic downturn in Southeast Asia
and the former Soviet Union on the rest of the world economies, high inventory
levels of oil and gas and lower domestic demand associated with an unseasonably
warm winter in 1997. The depressed economic conditions in Southeast Asia also
have had a negative effect on the economies in other regions around the world
and the associated demand for oil in those regions. These conditions have
resulted in substantially lower rig utilization rates in the U.S. and Canadian
land markets as well as less dramatic declines in the U.S. offshore and
international markets as the Company's customers have reduced or delayed their
exploration and development programs for 1998 and 1999 in light of lower
commodity prices and cash flows. Within the international markets, which are
characterized by larger projects and longer lead times, the declines have been
less dramatic than those experienced in the United States and Canada but have
nevertheless begun to occur. The recent declines in oil prices have also
recently triggered a move toward consolidation in the oil industry, the long
term effect of which cannot currently be predicted with certainty. The Company,
however, expects that the consolidation in the industry will, in the short term,
result in reduced activity as projects are reviewed in light of the proposed
transactions and market conditions. Demand and pricing for oil and gas are not
currently expected to improve significantly during 1999 and will be
substantially dependent on world economic conditions and whether the current
excess in supply of oil will continue to exceed worldwide demand.
The 1998 market conditions have had varying impacts on the Company's
businesses. Within the U.S. and Canada, the Company's artificial lift segment
was among the first segments to be affected by the downturn and experienced
declines in revenue as demand and pricing have fallen with the lower rig count
and oil production activity. The artificial lift segment has been particularly
affected by large declines in demand for its equipment used for the production
of heavy oil and other wells that are highly dependent on oil prices. The
Company's completion and services segment has also experienced declines of
approximately 14% in demand from the beginning of 1998 to September 1998 for its
products and services. This segment is also expected to have further declines in
1999 as a result of a decline in the international rig count and international
exploration and development activity.
The Company's natural gas compression products and services have
experienced a slight increase in demand during 1998 due to more stable natural
gas prices and a general trend in the industry for companies to out source their
compression needs. The impact of the recent downturn in the industry on this
segment of the Company's business is uncertain and will be substantially
dependent upon natural gas prices.
Within the Company's drilling products segment, the Company's backlog of
drill pipe and other drill stem products has declined significantly since the
beginning of 1998 as a result of declines in new orders and the rescheduling or
canceling of existing orders due to lower rig utilization rates and associated
usage of drill pipe inventory. Sales of the Company's drilling products declined
during the first three quarters of 1998 and fourth quarter 1998 sales are
expected to be down from the third quarter of 1998. Although the specific level
of sales of drill pipe and other drill stem products for 1999 is dependent upon
future market conditions that are outside the control of the Company, the
Company currently expects that shipments could be between 40% and 60% lower than
those for 1998. Sales of the Company's premium connections, casings and
couplings have also experienced significant declines as the Company's customers
for these products have begun to reduce their inventory levels in light of
market conditions. Although the Company expects that the demand for premium
connections may increase slightly in 1999 as inventory levels are reduced,
demand for these products will continue to be subject to overall industry
conditions.
The Company currently anticipates that under current market conditions the
demand for its current products and services will continue to decline in the
fourth quarter of 1998. The declines will be most significant in the Company's
drilling products segment, which experienced record sales levels during the
first half of 1998. Compression sales and international completion revenues are
expected to be relatively flat or down for the fourth quarter of 1998 and the
first part of 1999. Downward pressures on prices and margins are expected to
continue into 1999.
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In response to the current industry conditions, the Company has implemented
various actions directed at reducing costs to be in line with the reduced
operating activities. These actions include reductions in employment and the
rationalization of manufacturing operations. Although there can be no assurance
as to future results, assuming no unexpected declines in demand or pricing for
the Company's products for the remainder of 1998, the Company currently expects
that net income for the year ended 1998, excluding the Merger and Other Charges,
should approximate 1997 net income from continuing operations of $2.01 per
diluted share. The specific results for 1998, however, could vary depending
upon the impact of lower oil prices upon demand for the Company's products and
services during the remainder of the year. Results of 1999 will be dependent on
the overall level of industry activity and the success of the Company in
implementing measures to reduce costs in light of current industry conditions.
The Company currently expects that under current market conditions and assuming
no additional material declines in the price of oil or the demand for the
Company's products, results for 1999 could be as much as 50% lower than in 1998.
Actual results, however, will be dependent upon a number of factors outside the
control of the Company, including (i) the impact of current low oil prices on
demand for the Company's products and services, (ii) the impact of recently
announced mergers among the Company's customers, (iii) seasonal factors and
their effect on worldwide inventories of oil and oil prices and (iv) whether the
economic conditions in Asia, in particular, Japan and China, will stabilize or
further decline and further impact the economies in the United States and
Europe.
The current market conditions in the industry are extremely volatile and
make it difficult for the Company to project with any certainly actual results
for 1999. Any material changes in the current market conditions or the expected
impact of those conditions on the Company, including any further declines in the
price and demand of oil and the associated demand for the Company's products and
services, could materially impact the Company's results for 1999. Accordingly,
there can be no assurance as to actual results for 1999 or beyond.
The Company intends to actively monitor market conditions and to react
through reductions in its manufacturing, distribution and sales operations in
order to manage its businesses in a manner consistent with existing market
conditions and activity levels, including reductions in workforce and production
levels.
1998 AND 1997 ACQUISITIONS
In the first quarter of 1998, the Company completed three acquisitions
consisting of (i) Houston Well Screen, a leading provider of downhole sand
control screens, for cash of approximately $27.6 million, (ii) Taro Industries
Limited ("Taro"), a Canadian provider of well monitoring, gas compression and
drilling equipment distribution, for 0.8 million shares of Common Stock and
(iii) Ampscot Equipment Ltd. ("Ampscot"), a Canadian manufacturer of
conventional pumping units, for cash of approximately $57.1 million. The Company
also acquired a business that expanded its tubular products operations for a
total consideration of $30.0 million, including liabilities. The Company has
also effected various other acquisitions during the nine months ended September
30, 1998 for total consideration of approximately $38.8 million. The 1998
acquisitions were accounted for using the purchase method of accounting.
The Company also completed a number of strategic acquisitions during 1997
directed at an expansion of the Company's core operations. These acquisitions
included: (i) TA Industries, Inc. ("TA"), a manufacturer of premium couplings
and casing, in April 1997 for cash of approximately $44.1 million and assumed
debt of $19.7 million, (ii) XLS Holding, Inc. ("XL"), a manufacturer of high
performance connectors for marine applications such as conductors, risers and
offshore structural components, in August 1997 for 0.9 million shares of the
Company's Common Stock, (iii) Trico Industries, Inc. ("Trico"), a manufacturer
and distributor of sub-surface pumps, sucker rods, accessories and hydraulic
lift systems, in December 1997 for cash of approximately $105.0 million and
assumed debt of $8.7 million, (iv) BMW Pump, Inc. ("BMW Pump") and BMW Monarch
(Lloydminster) Ltd. ("BMW Monarch"), a Canadian-based manufacturer and supplier
of progressing cavity pumps, in December 1997 for cash of approximately $96.8
million and assumed debt of $14.3 million, and (v) various small acquisitions,
for total cash of approximately $82.2 million, intended to expand the Company's
manufacturing capabilities, geographic scope and breadth of product lines. The
acquisition of XL was accounted for as an immaterial pooling of interests. The
other 1997 acquisitions were accounted for using the purchase method of
accounting. The results of operations of all 1997 acquisitions have been
included in the Company's operating results since their respective dates of
acquisitions.
The Company's operating results include several immaterial and non-core
businesses that the Company has sold through previously announced divestiture
programs. These businesses included the Harrisburg/Woolley division, which was
sold in 1995; Barber Industries Limited and Enterra Patco Oilfield Products,
Inc., each of which was sold in 1996; and CRC-Evans Pipeline International, Inc.
("CRC-Evans"), Total Engineering Services Team, Inc. ("TEST") and the American
Aero Cranes division ("Cranes"), each of which was sold in 1997.
The Company recorded goodwill of approximately $303.9 million in the year
ended December 31, 1997 in connection with acquisitions. These acquisitions
substantially increased the Company's market share in various products and
expanded its geographic distribution capabilities. The charge associated with
the amortization of
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goodwill and other intangibles was $15.0 million for the year ended December 31,
1997 and is expected to be approximately $23.3 million for the year ended
December 31, 1998.
SECOND QUARTER 1998 MERGER RELATED COSTS
As a result of the Merger, the Company is realigning and reorganizing its
geographic distribution and marketing of the Company's products and services
worldwide. The Company is also rationalizing and consolidating its product lines
and manufacturing, distribution and administrative operations in light of the
Merger and current market conditions in order to achieve cost savings and
greater name identification and market penetration. The Company has reduced its
combined workforce by approximately 15% for the year and is in the process of
reorganizing and restructuring its operations domestically and worldwide to
facilitate the current and proposed business operations of the combined company
following the Merger. The Company currently expects that the consolidation of
the Company's and WII's operations will be substantially completed by year end.
In connection with the above activities and the consummation of the Merger,
the Company recorded merger and other charges (the "Merger and Other Charges")
during the second quarter of 1998 aggregating approximately $120.0 million
before taxes for merger expenses and other matters associated with the
consolidation and reorganization of the Company's operations and businesses in
light of the Merger and recent market conditions. The Merger and Other Charges
consist of $29.9 million in transaction costs, $32.6 million in severance and
termination costs related to former officers, directors and employees and other
employee benefits related to stock grants pursuant to WII employment agreements
and option plans, $5.2 million in corporate related expenses directly associated
with the Merger and $6.3 million related to facility closure costs, associated
with the closure of excess and duplicated manufacturing, distribution and
service locations primarily due to integrating the Company's businesses with
WII's businesses under a Company-wide consolidation plan. The Company has
incurred $4.5 million related to such facility closures as of September 30,
1998. Additionally, the Company recorded $46.0 million associated with the
impairment of various assets as a result of the combination of worldwide
operations and the rationalization of product lines and the elimination of
certain products, services and locations, as a result of the changes in the
operations of the Company following the Merger in accordance with the
Company-wide consolidation plan.
RESULTS OF OPERATIONS
A summary of operating results by industry segment is shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
REVENUES:
Drilling Products .............. $ 611,715 $ 337,312 $ 149,462
Completion and Oilfield
Products and Services ........ 929,001 824,639 759,309
Artificial Lift and Gas
Compression .................. 428,373 305,319 217,032
----------- ----------- -----------
$ 1,969,089 $ 1,467,270 $ 1,125,803
=========== =========== ===========
MERGER-RELATED COSTS AND
OTHER UNUSUAL CHARGES:
Drilling Products .............. $ -- $ -- $ --
Completion and Oilfield
Products and Services ........ -- -- 59,171
Artificial Lift and Gas
Compression .................. -- -- --
Corporate ...................... -- -- 29,011
----------- ----------- -----------
$ -- $ -- $ 88,182
=========== =========== ===========
OPERATING INCOME (LOSS):
Drilling Products .............. $ 120,830 $ 42,573 $ 14,425
Completion and Oilfield
Products and Services ........ 215,412 146,332 5,116
Artificial Lift and Gas
Compression .................. 37,566 19,500 16,276
Corporate ...................... (37,816) (39,304) (23,697)
----------- ----------- -----------
$ 335,992 $ 169,101 $ 12,120
=========== =========== ===========
</TABLE>
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YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
General
Income from continuing operations for 1997 was $196.8 million on revenues
of $1,969.1 million as compared to income from continuing operations for 1996 of
$92.2 million on revenues of $1,467.3 million. The increases in revenues and
income from continuing operations reflect the strength in the Company's markets
and the effect of the 1997 acquisitions and a full year of the 1996
acquisitions. The 1997 acquisitions benefited 1997 revenues by $166.5 million
and income from continuing operations by $12.3 million. The 1996 acquisitions
benefited 1997 revenues by $269.2 million and income from continuing operations
by $24.5 million. Revenues associated with disposed businesses were $76.9
million and $157.8 million in 1997 and 1996, respectively. Net income associated
with the disposed businesses were $8.3 million and $9.6 million in 1997 and
1996, respectively.
Net income for 1997 was $187.8 million compared to $165.8 million for 1996.
The Company recorded in 1997 an extraordinary charge of $9.0 million, net of
taxes, related to the acquisition by the Company on December 15, 1997, of
$119,980,000 principal amount of the Company's outstanding 10 1/4% Senior Notes
due 2004 and 10 1/4% Senior Notes due 2004, Series B (collectively, the "Senior
Notes") from the holders of the Senior Notes pursuant to a cash tender offer and
consent solicitation of the Company (the "Tender Offer"). In 1996, the Company
reported income of $7.5 million, net of taxes, from discontinued operations
related to the Company's Mallard Bay contract drilling division ("Mallard
Division"), which was sold in November 1996, and a gain of $66.9 million, net of
taxes of $44.6 million, related to the disposition. Additionally, the Company
incurred an extraordinary charge of $0.7 million, net of taxes, for the early
extinguishment of debt in 1996.
Revenues during 1997 increased approximately 34% from 1996 primarily as a
result of the various acquisitions described above, the impact of consolidation,
restructuring and higher average sales prices. Cost of goods sold and services
and rentals as a percentage of revenues declined from 74.3% of total revenues in
1996 to 69.6% in 1997 due to stronger prices and sales of higher margin products
and services. Selling, general and administrative costs attributable to segments
as a percentage of total revenues was flat between 1997 and 1996 despite
increased amortization of intangibles and costs associated with the assimilation
of acquired businesses.
Research and development costs of $11.8 million in 1997 increased 29% over
1996. This increase primarily reflects the expansion of the Company's operations
and the development of new products for drilling products to support high
performance applications and for service equipment designs to support the
oilfield products and services businesses.
Of the Company's 1997 sales, 52%, 9%, 4%, 14% and 8%, respectively, were
attributable to sales in the U.S., Europe, Africa, Canada and Latin America,
respectively and for 1996 represented 49%, 13%, 7%, 11% and 8%, respectively.
U.S. sales for 1997 and 1996 included sales to U.S. distributors and other U.S.
companies for ultimate use outside the U.S.
In the fourth quarter of 1996, the Company adopted a plan to close its
Bastrop, Texas tool joint manufacturing facility and to combine its two packer
facilities through the closure of one facility in Arlington, Texas. In
connection with these decisions, the Company incurred a charge of $5.8 million
associated with these closures. Of this charge, $4.3 million related to the tool
joint facility closure and relocation of equipment from this facility and $1.5
million related to the consolidation of its packer facilities and the closure of
one of the plants. The Company incurred $3.8 million in 1996 for costs
associated with these actions during 1996, including costs relating to the
relocation of equipment at its Bastrop facility to other facilities. The Company
also accrued $2.0 million as part of the $5.8 million charge for exit costs that
it expected to be incurred in 1997 relating to a closure of its Bastrop and
Arlington facilities. These costs included $0.8 million for severance and
termination costs, $0.9 million for the reduction in the carrying value of its
Bastrop facility in light of the intended disposition of the facility and $0.3
million for the termination of the Arlington lease. Approximately 400 employees
were affected by these closures. The Company had substantially completed the
closure of both the Bastrop and Arlington facilities by the end of the second
quarter of 1997 and incurred substantially all charges related to the closing of
these facilities.
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Drilling Products Segment
The Company's drilling products segment reported revenues and operating
income of $611.7 million and $120.8 million, respectively, for 1997, up from
$337.3 million and $42.6 million, respectively, for 1996. These improvements
were primarily due to increased demand for drill pipe and other drilling tools,
strength in premium tubular activity and the Company's acquisition of TA, a
premium tubular couplings and accessories manufacturer in April 1997, and the
third quarter acquisition of XL, a manufacturer of marine connectors. The
increase in demand for drill pipe reflected higher domestic and international
drilling activity, in particular offshore drilling. Premium tubular revenues
increased to approximately $307.9 million during 1997 up from approximately
$157.8 million for 1996. The increase in premium tubular revenues reflected
strong demand in the Gulf of Mexico and the acquisition of TA. During 1997, the
acquisitions of TA, XL and various small acquisitions benefited 1997 revenues
and operating income in this segment by $96.8 million and $16.1 million,
respectively.
Cost of goods sold declined as a percentage of revenues from 81.3% in 1996
to 73.7% in 1997, due to increased pricing on the Company's products and reduced
costs resulting from the expansion of the Company's Mexico tool joint facility.
The Company expects annual cost savings of approximately $7.0 million relating
to the expansion and consolidation of the Mexico facility. In the third quarter
of 1997, the Mexico facility became fully operational, which benefited
operations in the second half of 1997. Selling, general and administrative
expenses for 1997 as a percentage of revenues was 6.6% compared to 6.1% for 1996
and reflected higher selling, general and administrative expenses associated
with the operations of TA as well as the increase in the amortization of
goodwill and other intangibles.
Completion and Oilfield Products and Services Segment
The Company's completion and oilfield products and services segment
reported revenues and operating income of $929.0 million and $215.4 million,
respectively, for 1997, up from $824.6 million and $146.3 million, respectively,
for 1996. Included in operating income for this segment was a net loss of $2.7
million realized in 1997 on the sale of various non-core assets. Excluding this
loss, operating income would have increased 49% in 1997 over 1996. These
improvements reflected improvements in the sale of completion products and
oilfield services due to improved market conditions, primarily as a result of
increased drilling activity, improved pricing and the introduction of downhole
services into new markets.
Total oilfield services revenues increased 26% from $527.4 million in 1996
to $665.5 million in 1997, reflecting increased volume of activity and improved
pricing resulting from a 15% increase in worldwide drilling activity, as
reported by Baker Hughes Incorporated. The increased use of certain drilling
techniques, such as re-entry, multi-lateral, horizontal and directional
drilling, were also important contributors to revenue growth in 1997,
particularly in North America. U.S. oilfield service revenues increased 33% to
$317.7 million, while U.S. average rig count increased 21%. Revenues in Canada
increased 31%, while average Canadian rig count increased 39%. Excluding Canada,
international oilfield service revenues increased 18% compared to an average rig
count increase of 2%. International revenue increases are primarily attributable
to increased volume of rental and service activity, some pricing improvement and
the introduction of downhole services into new markets.
Completion product revenues increased 31% to $186.6 million in 1997
compared to $139.4 million in 1996, excluding revenues of $76.9 million and
$157.8 million associated with disposed businesses in 1997 and 1996,
respectively. Cementation product sales increased 32% over 1996, primarily
reflecting increased U.S. drilling activity, increased market share and the
introduction of new products. Liner hanger sales and service revenues increased
66% in 1997 over 1996, which included the results of Nodeco AS and Aarbakke AS
(collectively, "Nodeco") from the date they were acquired in May 1996. Gas lift
product sales and service revenues remained consistent with 1996 levels.
Completion products operating income increased $15.7 million, or 67%, from 1996
to 1997, primarily as a result of the increased volume of cementation product
sales, operating efficiencies and the inclusion of the Nodeco operations for the
full year of 1997.
Cost of goods sold and services and rentals declined as a percentage of
revenues from 71.7% in 1996 to 66.1% in 1997, as a result of improved pricing in
certain areas and increased volume. Selling, general and administrative expenses
for 1997 as a percentage of revenues were 11.0% compared to 10.8% for 1996.
Artificial Lift and Compression Segment
The Company's artificial lift and compression segment reported revenues and
operating income of $428.4 million and $37.6 million, respectively, for 1997, up
from $305.3 million and $19.5 million, respectively, for 1996. These
improvements were primarily due to increased sales of artificial lift equipment
in the Canadian and South American markets, in particular for the Company's
progressing cavity pump product lines. Sales and operating income attributable
to artificial lift equipment were also materially benefited by acquisitions in
1997. During 1997,
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the acquisitions of Trico, BMW Monarch and BMW Pump and various small
acquisitions benefited 1997 revenues and operating income in this segment by
$64.9 million and $6.8 million, respectively.
Revenues from sales and rental of compression equipment increased 16% to
$178.9 million in 1997, compared to $154.5 million in 1996. Manufacturing and
packaging revenues increased 21% to $78.2 million in 1997 compared to 1996,
primarily as a result of a higher volume of packaged unit sales in Canada.
Compressor rental and service revenues improved 12% to $100.7 million compared
to 1996, reflecting the expansion and increased utilization of the Company's
compressor rental fleet, which comprised over 440,000 horsepower at December 31,
1997.
Cost of goods sold and services and rentals declined as a percentage of
revenues from 73.8% in 1996 to 71.5% in 1997, as a result of an improvement in
the segment's domestic cost structure and from the December 1997 acquisitions of
Trico, BMW Pump and BMW Monarch. Selling, general and administrative expenses
for 1997 as a percentage of revenues was 19.8% compared to 19.8% for 1996 in
spite of higher amortization and combination expenses. The Company will continue
in 1998 to focus on reducing selling, general and administrative expenses
through the integration of acquired operations.
During 1996, the Company began the construction of a new Canadian
manufacturing plant to produce continuous rods, which is expected to expand
capacity by over 150%. The continuous rod expansion was completed late in the
fourth quarter of 1997. The new Canadian plant will also manufacture rotors and
stators for its progressing cavity pumps pursuant to an exclusive license and
technology transfer arrangement with Netzsch providing for customary royalty on
sales of these products manufactured using this technology. Production of rotors
and stators at this facility commenced in March 1998.
Other
Corporate expenses as a percentage of revenues for 1997 were 1.9% as
compared to 2.7% for 1996. The percentage decrease from 1996 was primarily
attributable to the growth in 1997 revenues.
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 $2.6 million in 1997 compared to $2.1 million in 1996.
This increase was primarily attributable to increased drilling activity in Saudi
Arabia. The Company received cash dividends from its 50% or less-owned
affiliates totaling $1.3 million and $1.6 million in 1997 and 1996,
respectively.
Interest expense for 1997 was $43.3 million compared to $39.4 million for
1996. The increase in interest expense in 1997, as compared to 1996, reflects
the Company's increase in indebtedness during 1997 and the Company's $402.5
million principal amount of its 5% Convertible Subordinated Preferred Equivalent
Debentures due 2027 ("the Debentures") issued in November 1997. This increase in
interest expense was offset by repayments of indebtedness with cash provided
from the sale of non-core businesses. Interest expense for 1998 is expected to
increase from 1997 levels as a result of the November 1997 issuance of the
Debentures. The increase in 1998 will be partially offset due to the December
1997 acquisition of approximately $119.98 million principal amount of the Senior
Notes.
In 1997, the Company benefited from a one-time pre-tax gain of $3.4 million
relating to the sale by the Company of the Parker Drilling Company ("Parker")
common stock received in connection with the disposition of the Mallard
Division.
Other income, net, for 1997 was $0.6 million which primarily consisted of
gain on sales of fixed assets of $2.8 million offset by foreign currency losses
of $1.8 million due to the fluctuation of the U.S. dollar against the major
foreign currencies in which the Company conducts business. The net foreign
currency loss recorded in 1997 primarily resulted from the strengthening of the
U.S. dollar against European, Asian and Latin American currencies. Additionally,
the Company recorded foreign currency gains of $49,000 in 1996.
The income tax provision consists of taxes on foreign earnings, foreign
taxes withheld on certain remittances from international subsidiaries, U.S.
federal and state taxes, the recognition of general business tax credits
currently available to reduce U.S. federal income tax, and the recognition of
future taxable amounts. The Company's effective tax rate on income from
continuing operations for 1997 was approximately 35% as compared to 31% for
1996. The 1996 effective rate was favorably impacted by a $4.0 million tax
benefit resulting from the Company's $6.4 million settlement in October 1996
with the United States Internal Revenue Service (the "I.R.S.") in connection
with the dissolution in October 1990 of an oil and gas joint venture. The
Company also recorded in 1996 a tax charge of approximately $44.6 million
associated with the Company's gain on the sale of its Mallard Division.
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
General
Income from continuing operations for 1996 was $92.2 million on revenues of
$1,467.3 million, as compared to a loss from continuing operations for 1995 of
$8.3 million on revenues of $1,125.8 million. Revenues during 1996 increased
approximately 30% from 1995 as a result of various acquisitions and improved
market conditions. The increase in income from continuing operations for 1996
was primarily attributable to increased sales and margins of drill pipe and
other drilling products. During 1996, the acquisitions of Nodeco, Geremia,
Superior Tube Limited ("Superior"), Tubular Corporation of America ("TCA") and
ENERPRO International, Inc. ("ENERPRO"), in addition to various small 1996
acquisitions benefited 1996 revenues by $112.4 million and income from
continuing operations by $8.7 million. Revenues associated with disposed
businesses were $157.8 million and $174.9 million in 1996 and 1995,
respectively. Income from continuing operations associated with the disposed
businesses was $9.6 million in 1996 and a net loss of $1.7 million in 1995.
Net income for the year ended December 31, 1996, was $165.8 million
compared to net income of $0.4 million for the year ended December 31, 1995.
Included in net income for 1996 was a one-time gain, net of taxes of $44.6
million, of $66.9 million from the November 1996 sale by the Company of Mallard
Division for cash of approximately $306.9 million and 3.1 million shares of
Parker preferred stock that were subsequently converted into 3.1 million shares
of Parker common stock in December 1996 and sold in 1997. Also included in net
income for 1996 was income from discontinued operations, net of taxes, of $7.5
million related to the operations of the contract drilling division.
During the second quarter of 1995, Enterra Corporation, a corporation
previously merged with WII in 1995, ("Enterra") recorded unusual charges
totaling $28.3 million, 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. During the fourth
quarter of 1995, the Company recorded expenses of $59.9 million related to the
Enterra merger and the financial impact of management decisions related to the
future operations of the combined companies. These acquisition-related costs
primarily consisted of transaction costs, severance and termination agreements
with former officers and employees, facility closure costs primarily to
consolidate the oilfield services operations and administrative functions of
Enterra and the Company, and the reduction in recorded value of certain assets
that had diminished future value in the operations of the combined company.
The Company incurred research and development costs of $9.2 million in 1996
increased 42.0% over 1995. This increase primarily reflects the expansion of the
Company's operations and the development of new products for drilling products
to support high performance applications and for service equipment designs to
support the oilfield products and services businesses.
Of the Company's 1996 sales, 49%, 13%, 7%, 11% and 8%, respectively, were
attributable to sales in the U.S., Europe, Africa, Canada and Latin America,
respectively and for 1995 represented 50%, 12%, 7%, 15% and 7%, respectively.
U.S. sales for 1996 and 1995 included sales to U.S. distributors and other U.S.
companies for ultimate use outside the U.S.
Drilling Products Segment
Sales of drilling products in 1996 were $337.3 million compared to $149.5
million in 1995. Operating income associated with the drilling products segment
in 1996 was $42.6 million as compared to $14.4 million in 1995. Results in the
fourth quarter of 1996 include a $4.3 million charge attributable to the close
of the Company's Bastrop tool joint facility and relocation of its equipment to
other facilities. Results for 1996 reflected a 73% increase in sales of drill
pipe and a 27% increase in sales of premium tubulars. The increase in drill pipe
sales reflected an overall increase in demand for drill pipe and the Company's
June 1995 acquisition of Prideco, Inc. The increase in demand for drill pipe was
due to increased drilling activity, particularly offshore, and a continuing
decline in the supply of used drill pipe inventory, against which the Company
historically competed. The increase in sales of premium tubular products
reflected the acquisitions of ENERPRO, TCA and Superior and an increase in
demand associated with increased natural gas and deep offshore exploration and
production activity. During 1996, the acquisitions of ENERPRO, TCA, and Superior
benefited 1996 revenues by $66.8 million and operating income by $8.0 million.
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Cost of goods sold and services and rentals declined as a percentage of
revenues from 83.7% in 1995 to 81.3% in 1996, as a result of an improvement in
the segment's cost structure due to an increase in volume and the consolidation
of manufacturing processes. In the third and fourth quarters of 1996, the
Company implemented price increases on drill pipe, which the Company began to
receive as its 1996 backlog was filled. Price improvements, however, were
partially offset by an increase in the price of raw materials, particularly
"green" tubing, the primary material used by the Company in the production of
its tubular goods. Selling, general and administrative expenses for 1996 as a
percentage of revenues were 6.1% compared to 6.7% for 1995.
Completion and Oilfield Products and Services Segment
The Company's completion and oilfield products and services segment
reported revenues and operating income of $824.6 million and $146.3 million,
respectively, for 1996, up from $759.3 million and $5.1 million, respectively,
for 1995. Included in operating income for this segment were charges of $59.2
million in 1995, relating to the merger with Enterra Corporation. Excluding
these charges, operating income would have increased 128% in 1996 over 1995.
This improvement was primarily due to the increase in higher drilling levels,
the introduction of fishing and other downhole services into certain markets in
North and West Africa and Latin America in 1996, the introduction of new
cementation products and increased pricing on services and rentals. The 1996
segment revenues and operating income were also benefited by $30.3 million and
$4.5 million, respectively, from the Nodeco acquisition.
Revenues for the oilfield services increased 12% to $527.4 million in 1996
as compared to 1995. International service revenues increased 16% to $285.9
million, while U.S. service revenues increased 7% to $241.1 million. The
increase in international service revenues is primarily attributable to
increased activity in Canada, the North Sea, North and West Africa and Latin
America. The increase in Canada is consistent with the 17% increase in the
average drilling rig count over 1995. The average international drilling rig
count, excluding Canada, increased 5% over the prior year, which contributed to
the increase in international service revenues. International service revenues
also benefited from the introduction of fishing and other downhole services into
certain markets in North and West Africa and Latin America in 1996. U.S. service
revenues were positively impacted by an increase in the average 1996 U.S.
drilling rig count of 7% over 1995, as well as price increases announced by the
Company in August 1996 affecting most U.S. services and rentals. Excluding the
impact of the acquisition-related costs and other unusual charges in 1995,
operating income for oilfield services increased 27% to $93.6 million in 1996 as
compared to 1995. This increase is attributable to the increase in revenues
experienced in 1996, along with cost savings achieved from the higher levels of
activity and from efficiencies resulting from consolidating the operations of
the Company. These increases were partially offset by additional costs incurred
to introduce fishing and other downhole services into the markets discussed
above.
Completion product revenues, excluding revenues associated with disposed
businesses, increased 30% to $186.6 million in 1996 compared to 1995, reflecting
improved operating results from all manufacturing businesses. The Company
acquired the business and assets of Nodeco, a Norwegian liner hanger
manufacturer, in May 1996. The Nodeco operations contributed $18.4 million, or
16%, to the revenue increase. Cementation product sales improved significantly
over the prior year due to an increase in market share and the higher levels of
drilling activity worldwide. Excluding the impact of the acquisition-related
costs and other unusual charges discussed below, operating income increased over
800% to $23.4 million compared to 1995. Approximately $4.0 million of the
increase in operating income is attributable to the Nodeco operations. The
remaining increase is due to the increase in revenues, combined with
manufacturing efficiencies achieved as a result of the higher volume of product
sales.
Cost of goods sold and services and rentals declined as a percentage of
revenues from 73.3% in 1995 to 71.7% in 1996, as a result of the 1996
acquisition, cost savings achieved from the higher levels of activity and from
efficiencies resulting from consolidating the operations of the Company. These
increases were partially offset by additional costs incurred to introduce
fishing and other downhole services into the markets discussed above. Selling,
general and administrative expenses for 1996 as a percentage of revenues were
10.8% compared to 14.7% for 1995.
Artificial Lift and Compression Products Segment
Revenues and operating income at the Company's artificial lift and
compression products segment were $305.3 million and $19.5 million,
respectively, for 1996, compared to $217.0 million and $16.3 million,
respectively, for 1995. As described above, the production equipment segment
recorded a charge of $1.5 million in the fourth quarter
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of 1996 associated with the consolidation of two packer manufacturing facilities
improved market conditions and the effects of acquisitions. During 1996, the
acquisitions of Geremia, in addition to various small 1996 acquisitions,
benefited 1996 revenues by $15.3 million and operating income by $1.6 million.
Revenues from sales and rentals of compression products and services
increased 64% to $154.5 million in 1996 as compared to 1995, primarily as a
result of the acquisition of the natural gas compression business and assets of
Energy Industries, Inc. and Zapata Energy Industries, L.P. (collectively,
"Energy Industries") in December 1995. This increase was offset by a weaker
market for sales of gas compressor packages, which resulted in a lower volume of
manufacturing and packaging sales as well as lower prices for packaged
compressors. Operating income attributable to compression products and services
increased only slightly over 1995 due to the weaker market, inefficiencies
incurred in consolidating the packaging operations of Energy Industries into the
Company's existing gas compression business, and amortization of goodwill
arising from the Energy Industries acquisition.
Other
Corporate expenses as a percentage of revenues for 1996 were 2.7% as
compared to 2.1% for 1995. The percentage decrease in 1996 was primarily
attributable to the growth in revenues from the Company's drilling products
segment.
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 $2.1 million in 1996 compared to $1.5 million in 1995.
This increase was primarily attributable to increased drilling activity in Saudi
Arabia. The Company received cash dividends from its 50% or less-owned
affiliates totaling $1.6 million and $1.7 million in 1996 and 1995,
respectively.
Interest expense for 1996 of $39.4 million was comparable to $33.5 million
for 1995.
Other expense, net, was $1.2 million in 1996 which primarily represents
various financing costs of the Company. The 1995 other income, net, of $6.1
million consists of a gain on sale of assets.
The Company's effective tax rate on income from continuing operations for
1996 was approximately 31%. The effective rate was favorably impacted by a $4.0
million tax benefit in the fourth quarter of 1996 resulting from the Company's
$6.4 million settlement in October 1996 with the United States I.R.S. in
connection with the dissolution in October 1990 of an oil and gas joint venture.
The Company also recorded a tax charge of approximately $44.6 million associated
with the Company's gain on the sale of its Mallard Division in November 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings per Share,
which replaces primary earnings per share with basic earnings per share and
requires dual presentation of basic and diluted earnings per share. The Company
adopted SFAS No. 128 in the fourth quarter of fiscal 1997. Historical earnings
per share data has been restated to reflect the adoption of SFAS No. 128.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for the reporting of comprehensive income and its
components in a full set of general-purpose financial statements and is
effective for years beginning after December 15, 1997. The Company adopted SFAS
No. 130 in the first quarter of 1998. Had SFAS No. 130 been adopted as of
December 31, 1997, the primary adjustments and reclassifications to reflect net
income on a comprehensive income basis for the years presented would have
consisted of foreign currency translation adjustments and the effect of
unrealized and realized gains on marketable securities.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and
Related Information. SFAS No. 131, effective for years beginning after December
15, 1997, requires segment information to be reported on a basis consistent with
that used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company will adopt SFAS No. 131 in 1998
which is not expected to change the manner the Company reports segment
information and related disclosures.
In 1998, the FASB issued Statement of Accounting Standards No. 132 ("SFAS
No. 132"), Employers' Disclosures About Pensions and Other Postretirement
Benefits. SFAS No. 132 standardizes disclosure requirements for
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<PAGE> 13
pensions and other postretirement benefits. SFAS No. 132 will be effective for
years beginning after December 15, 1997. Had the Company adopted SFAS No. 132 as
of December 31, 1997, it would have had no material impact on the consolidated
financial statements of the Company.
In June 1998, the FASB issued Statement of Accounting Standards No. 133
("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
is effective for years beginning after June 15, 1999. The Company is currently
evaluating the impact of SFAS No. 133 on its consolidated condensed financial
statements.
In October 1998, the FASB issued Statement of Accounting Standards No. 134
("SFAS No. 134"), Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
SFAS No. 134 is not applicable to the Company and has no impact on its
consolidated condensed financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash equivalents of $74.2
million compared to $257.0 million at December 31, 1996. The reduction in cash
and cash equivalents since December 31, 1996, was primarily attributable to the
acquisition of the Senior Notes pursuant to the Tender Offer for $119.98
million, the use of approximately $321.5 million in cash to acquire new
businesses, the reduction of bank debt of $96.0 million and tax payments of
approximately $62.8 million relating to the 1996 sale of the Mallard Division.
The reduction in cash was partially offset by the net proceeds of $390.9 million
relating to the sale of the Debentures in November 1997 and $68.8 million cash
proceeds generated from the 1997 divestitures of CRC-Evans, TEST and Cranes. At
December 31, 1997, the Company had outstanding $24.2 million in borrowings under
its working capital facilities compared to $2.9 million at December 31, 1996. In
addition, the Company had outstanding approximately $27.9 million and $28.1
million in letters of credit at December 31, 1997 and December 31, 1996,
respectively.
In April 1997, the Company sold its investment in Parker common stock
pursuant to a public offering effected by Parker. The net proceeds received by
the Company were approximately $23.4 million.
In November 1997, the Company completed a private placement of $402.5
million principal amount of the Debentures. The net proceeds from the Debentures
were $390.9 million. The Debentures bear interest at an annual rate of 5% and
are convertible into Common Stock at a price of $80 per share. The Debentures
are redeemable by the Company at any time on or after November 4, 2000, at
redemption prices provided for in the indenture related to the Debentures, and
are subordinated in right of payment of principal and interest to the prior
payment in full of certain existing and future senior indebtedness of the
Company. The Company also has the right to defer payments of interest on the
Debentures by extending the quarterly interest payment period on the Debentures
for up to 20 consecutive quarters at anytime when the Company is not in default
in the payment of interest.
In December 1997, WII purchased 289,200 shares of its common stock in the
open market for approximately $11.9 million and in February 1998 purchased an
additional 1,040,300 shares of its common stock for approximately $37.4 million.
On May 27, 1998, the Company amended its credit facility to consolidate
EVI's and WII's then existing credit facilities into a single facility. The new
credit facility provides for borrowings of up to an aggregate of $250.0 million,
consisting of a $200.0 million U.S. credit facility and a $50.0 million Canadian
credit facility and terminated both of EVI's and WII's working capital
facilities. Borrowings under the new credit facility bear interest at a variable
rate based on prime or LIBOR and are unsecured. In addition, the Company's
credit facility contains customary affirmative and negative covenants, including
debt incurrence tests, interest coverage ratio, negative pledges and certain
dispositions of assets.
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. Changes in the value of the U.S. dollar relative to these foreign
currencies affect the weighted average currency exchange rates used to translate
the statements of income of the Company's international subsidiaries into U.S.
dollars. The impact of exchange rate fluctuations during the year ended 1997,
1996 and 1995 did not have a material effect on reported amounts of revenues or
net income. The increase in the value of the U.S.
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dollar against most major currencies during 1997 caused the cumulative
translation adjustment, a reduction in stockholders' equity, to increase by
$27.0 million.
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 $5.2 million during the year ended December 31, 1997.
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's current sources of capital are its current cash, cash
generated from operations and borrowings under its working capital line of
credit. The Company believes that the current reserves of cash and short-term
investments, access to its existing credit line and internally generated cash
from operations are sufficient to finance the projected cash requirements of its
current and future operations. The Company is continually reviewing acquisitions
in its markets. Depending upon the size, nature and timing of an acquisition,
the Company could require additional capital in the form of either debt, equity
or a combination of both.
Substantially all of the Company's customers are engaged in the energy
industry. 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.
CAPITAL EXPENDITURES
Capital expenditures for property, plant and equipment by the Company
during the year ended December 31, 1997, totaled approximately $213.0 million
and primarily related to drill pipe and tubing, fishing tools, tubular service
equipment, compression rental equipment and plant expansions in Canada. In 1997,
the Company completed the expansion of the Veracruz, Mexico tool joint
manufacturing facility, and the Company recorded the obligation of $16.3 million
under its lease to reflect the terms thereof.
YEAR 2000 ISSUE
The Year 2000 issue is the risk that information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields will be unable to correctly process the Year
2000 date change. If not identified and corrected prior to the Year 2000,
failures could occur in the software, hardware, equipment and products of the
Company and its suppliers, vendors and customers that could result in
interruptions of the Company's business. Any of such failures could have a
material impact on the Company.
In response to the Year 2000 issue, the Company has prepared and
implemented a plan ("Year 2000 Plan") to assess and remediate significant Year
2000 issues in the Company's (i) information technology systems ("IT"),
including computer software and hardware, and (ii) non-information technology
systems utilizing date-sensitive software or computer chips ("Non-IT"),
including products, facilities, equipment and other infrastructures. The
Company's management information systems department ("MIS Department"), together
with other of the Company's technical and engineering employees and outside
consultants, are responsible for the implementation and execution of the Year
2000 Plan.
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The Company's Year 2000 Plan is a comprehensive, multi-step process
covering the Company's IT and Non-IT systems. The primary phases of the Year
2000 Plan are: (1) assessing and analyzing the Company's systems to identify
those that are not Year 2000 ready; (2) preparing cost and resource estimates to
repair, remediate or replace all systems that are not Year 2000 ready; (3)
developing a Company-wide, detailed strategy to coordinate the repair or
replacement of all systems that are not Year 2000 ready; (4) implementing the
strategy to make all systems Year 2000 ready; and (5) verifying, testing and
auditing the Year 2000 readiness of all systems.
As of the end of the third quarter of 1998, the first phase of the Year
2000 Plan was substantially complete with respect to the assessment of the
Company's IT systems. The Company currently expects that the first phase for
assessment of both IT and Non-IT systems will be completed by the end of 1998.
Work is also underway in the second and third phases of the Year 2000 Plan. The
Company anticipates that the second phase will be completed by the end of 1998,
the third phase will be completed by the end of the first quarter of 1999, the
fourth phase will be completed by end of the second quarter of 1999 and the
fifth and final phase will be completed by the end of the third quarter of 1999.
Any unexpected delays or problems that prevent the Company from completing all
phases of the Year 2000 Plan in a timely manner could have a material adverse
impact on the Company.
As part of the Year 2000 Plan, the Company is currently installing Year
2000 ready business application systems and expects that these installations
will be complete by the end of the second quarter of 1999. The Company has
retained outside consultants to assist the Company with the installation of the
new software and with the assessment of the Year 2000 readiness of the Company's
IT systems. The Company expects to retain additional consultants to assess and
analyze the Year 2000 readiness of its Non-IT systems and to assist the Company
in the remediation and testing phases of the Year 2000 Plan.
In addition to the Company's assessment and review of its own systems, the
Company has begun communications with its third-party contractors, such as
vendors, service providers and customers, for the purpose of evaluating their
readiness for the Year 2000 and determining the extent to which the Company may
be affected by the remediation of their systems, software, applications and
products. The Company expects to further review and evaluate the Year 2000
programs of its significant third-party contractors. However, there can be no
guarantee that the IT and Non-IT systems of third-party contractors of the
Company will be Year 2000 ready or that the failure of any such party to have
Year 2000 ready systems would not result in interruptions in the Company's
business which could have a material adverse impact on the Company.
In connection with the implementation and completion of the Year 2000 Plan,
the Company currently estimates that it will incur pretax expenditures of
approximately $7.6 million and approximately 66% of these expenditures are
expected to be incurred during 1998. The Company has incurred $4.1 million of
such expenditures through September 30, 1998, of which, approximately $3.8
million has been incurred in connection with the replacement of the Company's
business application software and approximately $0.3 million has been incurred
in connection with the replacement of certain IT hardware systems. The Company
intends to continue to fund the Year 2000 Plan expenditures with working capital
and third-party lease financing. Based upon information currently available,
management believes that expenditures associated with achieving Year 2000
compliance will not have a material impact on the operating results of the
Company. However, any unanticipated problems relating to the Year 2000 issue
that result in materially increased expenditures could have a material adverse
impact on the Company.
The expenditures associated with the Year 2000 Plan represent approximately
18% and 9% of the Company's MIS Department's budget for each of fiscal years
1998 and 1999, respectively. Various other IT projects that are not related to
the Year 2000 issue have been deferred due to the Year 2000 efforts. The effects
of these delays are not expected to have a material impact on the Company.
Until the Company has completed the assessment phase of its Year 2000 Plan,
the Company is unable to predict the most likely worst case Year 2000 scenario
or to estimate any lost revenues due to Year 2000 issues. The Company is
currently preparing a contingency plan in response to Year 2000 problems. The
Company expects to complete its contingency plan by the end of the first quarter
of 1999. However, there can be no assurance that any contingency plan developed
by the Company will be sufficient to alleviate or remediate any significant Year
2000 problems that the Company may experience.
The above discussion of the Company's efforts and management's expectations
relating to the risks and uncertainties associated with the Year 2000 issues and
the Company's Year 2000 Plan contain forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. These statements involve
predictions and expectations concerning the Company's ability to achieve Year
2000 compliance, the amount of costs and expenses of the Company related to the
Year 2000 issue and the effect the Year 2000 issue may have on the business
15
<PAGE> 16
and results of operations of the Company. Certain risks and uncertainties may
cause actual results to be materially different from the projected or expected
results, the overall effect of which may have a materially adverse impact on the
Company. These risks and uncertainties include, but are not limited to,
unanticipated problems and costs identified in all phases of the Year 2000 Plan,
the ability of the Company to successfully implement the Year 2000 Plan in a
timely manner and the ability of the Company's suppliers, vendors and customers
to make their systems and products Year 2000 compliant.
CHRISTIANA AND GULFMARK MERGERS
The Company has entered into an amended merger agreement (the "Merger
Agreement") with Christiana Companies, Inc. ("Christiana") and C2, Inc.,
Wisconsin corporations, pursuant to which the Company would acquire Christiana
through a merger of a subsidiary of the Company with and into Christiana (the
"Merger"). Under the terms of the Merger, the Christiana shareholders will be
entitled to receive shares of the Company's Common Stock and cash in exchange
for their shares of Christiana common stock.
The number of shares of the Company's Common Stock that will be issued to
the Christiana shareholders in the Merger will be equal to the number of shares
of the Company's Common Stock held by Christiana at the time of the Merger
divided by the number of outstanding shares of Christiana common stock.
Christiana currently holds approximately 4.4 million shares of the Company's
Common Stock. In addition, under the terms of the Merger Agreement, Christiana
is required to expend up to $5.0 million to purchase additional shares of the
Company's Common Stock if necessary to allow for the Merger to qualify as a tax
free reorganization. The amount of cash that will be payable to the Christiana
shareholders in the Merger will be equal to the amount of cash held by
Christiana in excess of its accrued unpaid taxes, the value of certain tax
benefits and fixed liabilities at the time of the Merger divided by the number
of outstanding shares of Christiana common stock at the time of the Merger.
Prior to the Merger, Christiana is required to sell two-thirds of its
interest in Total Logistic Control ("Logistic"), a wholly owned subsidiary of
Christiana, to C2, Inc. for approximately $10.7 million. Following the Logistic
sale, the remaining assets of Christiana will consist of shares of the Company's
Common Stock and a one-third interest in Logistic. It is anticipated that
Christiana will have no material debt as of the consummation of the Merger, but
will have various tax liabilities which will be paid with the remaining cash
balance in Christiana after the Merger. Because the number of shares of Common
Stock issuable in the Merger approximates the number of shares of Common Stock
currently held by Christiana, the Merger, if consummated, would be expected to
have no material effect on the outstanding number of shares of Common Stock or
equity of the Company.
The Merger is subject to various conditions, including approval by the
stockholders of the Company and Christiana and the receipt of an opinion by its
tax advisors to the effect that the shareholders of Christiana will not
recognize gain or loss for federal income tax purposes on their receipt of
shares of Common Stock in exchange for their shares of Christiana common stock.
On May 1, 1997, the Company acquired GulfMark International, Inc.
("GulfMark") pursuant to a merger in which approximately 4.4 million shares of
Common Stock were issued to the stockholders of GulfMark. Prior to the merger,
GulfMark effected a spin-off to its stockholders of its marine transportation
services business. The retained assets of GulfMark that were acquired by the
Company in the transaction consisted of approximately 4.4 million shares of
Common Stock, an erosion control business and certain other miscellaneous
assets. Because the number of shares of Common Stock issued in the GulfMark
acquisition approximated the number of shares of Common Stock held by GulfMark
prior to the acquisition, the GulfMark acquisition had no material effect on the
outstanding number of shares of Common Stock or equity of the Company. The
shares of Common Stock received pursuant to this transaction are classified as
"Treasury Stock, at Cost" in the accompanying Consolidated Balance Sheet.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
sales of drill pipe and other products and services provided by the Company,
earnings, margins, production levels and costs, expected savings from
acquisitions and plant expansions, demand for products, 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 management orally or in writing including, but not limited to,
this Management's Discussion and Analysis of Financial Condition and Results of
Operations section and other sections of the Company's filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 and
the Securities Act of 1933.
16
<PAGE> 17
Actual results and trends in the future may differ materially depending on
a variety of factors including, but not limited to, whether and for how long the
current pricing trend for oil will continue and the effect thereof on the demand
and price of the Company's products, changes in the price of oil and gas,
changes in the domestic and international rig count, global trade policies,
domestic and international drilling activities, actual demand for the Company's
drill stem products, the impact of the economic downturn in Southeast Asia and
the former Soviet Union on the worldwide economies and associated demand for
oil, world-wide political stability and economic growth, including currency
fluctuations, government export and import policies, technological advances
involving the Company's products, the Company's successful execution of internal
operating plans and manufacturing consolidations and restructurings, performance
issues with key suppliers and subcontractors, the ability of the Company to
maintain price increases and market shares, raw material costs changes,
collective bargaining labor disputes, regulatory uncertainties and legal
proceedings. Future results will also be dependent upon the ability of the
Company to successfully integrate the operations of WII with the Company, as
well as its ability to continue to identify and complete successful acquisitions
at acceptable prices, integrate those acquisitions with the Company's other
operations and penetrate existing and new markets.
17
<PAGE> 18
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants............................... 19
Consolidated Balance Sheets - December 31, 1997 and 1996............ 20
Consolidated Statements of Income, for each of the three years
in the period ended December 31, 1997............................. 21
Consolidated Statements of Stockholders' Equity, for each of
the three years in the period ended December 31, 1997............. 22
Consolidated Statements of Cash Flows, for each of the three
years in the period ended December 31, 1997....................... 23
Notes to Consolidated Financial Statements.......................... 24
Financial Statement Schedule:
II. Valuation and Qualifying Accounts and Allowances.............. 46
</TABLE>
All other schedules are omitted because they are not required or because the
required information is included in the financial statements or notes thereto.
18
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Weatherford International, Inc.:
We have audited the accompanying consolidated balance sheets of Weatherford
International, Inc. (formerly EVI Weatherford, Inc.) (a Delaware corporation)
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements and the schedule referred to below reflect a restatement of the
Company's previously reported amounts for the merger with Weatherford Enterra,
Inc., see Note 1. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Weatherford International, Inc. and subsidiaries as of December 31, 1997 and
1996 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedule listed in Part II - Item 8 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. The Financial Statement Schedule has
been subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
June 15, 1998
19
<PAGE> 20
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ........................................... $ 74,211 $ 256,995
Accounts Receivable, Net of Allowance for Uncollectible Accounts
of $23,473 in 1997 and $16,824 in 1996 ............................ 524,929 389,633
Inventories ......................................................... 455,811 320,933
Deferred Tax Asset .................................................. 44,904 47,733
Other Current Assets ................................................ 34,221 46,486
----------- -----------
1,134,076 1,061,780
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property .................................. 228,178 172,192
Rental and Service Equipment ........................................ 1,010,065 1,017,866
Machinery and Equipment ............................................. 393,317 283,758
----------- -----------
1,631,560 1,473,816
Less: Accumulated Depreciation ..................................... 764,747 741,804
----------- -----------
866,813 732,012
----------- -----------
GOODWILL, NET ............................................................ 668,475 390,252
OTHER ASSETS ............................................................. 68,546 59,589
=========== ===========
$ 2,737,910 $ 2,243,633
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings ............................................... $ 24,243 $ 4,451
Current Portion of Long-Term Debt ................................... 13,178 28,130
Accounts Payable .................................................... 218,810 144,161
Accrued Salaries and Benefits ....................................... 63,656 41,702
Current Tax Liability ............................................... 44,317 99,343
Other Accrued Liabilities ........................................... 138,965 122,754
----------- -----------
503,169 440,541
----------- -----------
LONG-TERM DEBT ........................................................... 252,322 417,976
DEFERRED INCOME TAXES AND OTHER .......................................... 121,370 92,412
5% CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT
DEBENTURES .......................................................... 402,500 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $1 Par Value, Authorized 250,000 Shares, Issued
101,958 Shares in 1997 and 95,493 Shares in 1996 .................. 101,958 95,493
Capital in Excess of Par Value ...................................... 1,018,024 854,055
Treasury Stock, at Cost ............................................. (165,287) (3,405)
Retained Earnings ................................................... 542,348 355,660
Cumulative Foreign Currency Translation Adjustment .................. (38,494) (11,480)
Unrealized Gain on Marketable Securities ............................ -- 2,381
----------- -----------
1,458,549 1,292,704
=========== ===========
$ 2,737,910 $ 2,243,633
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 21
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Products ............................................... $ 1,097,823 $ 704,350 $ 513,039
Service and Rentals .................................... 871,266 762,920 612,764
----------- ----------- -----------
1,969,089 1,467,270 1,125,803
COSTS AND EXPENSES:
Cost of Products ....................................... 790,314 542,181 388,061
Cost of Service and Rentals ............................ 580,812 548,633 443,170
Selling, General and Administrative Attributable to
Segments ............................................. 226,737 170,129 172,050
Corporate General and Administrative ................... 37,816 39,304 23,697
Equity in Earnings of Unconsolidated Affiliates ........ (2,582) (2,078) (1,477)
Acquisition-Related Costs and Unusual Charges .......... -- -- 88,182
----------- ----------- -----------
1,633,097 1,298,169 1,113,683
----------- ----------- -----------
OPERATING INCOME ............................................ 335,992 169,101 12,120
OTHER INCOME (EXPENSE):
Interest Income ........................................ 8,329 4,168 2,249
Interest Expense ....................................... (43,273) (39,368) (33,504)
Gain on Sale of Marketable Securities .................. 3,352 -- --
Other, Net ............................................. 561 (1,227) 6,160
----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................................. 304,961 132,674 (12,975)
PROVISION (BENEFIT) FOR INCOME TAXES ........................ 108,188 40,513 (4,707)
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS ........................... 196,773 92,161 (8,268)
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAXES ........................................... -- 7,468 8,709
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF TAXES ........................................... -- 66,924 --
EXTRAORDINARY CHARGE, NET OF TAXES .......................... (9,010) (731) --
----------- ----------- -----------
NET INCOME .................................................. $ 187,763 $ 165,822 $ 441
=========== =========== ===========
BASIC EARNINGS PER SHARE:
Income From Continuing Operations ...................... $ 2.04 $ 1.03 $ (0.10)
Income From Discontinued Operations .................... -- 0.08 0.11
Gain on Disposal of Discontinued Operations ............ -- 0.75 --
Extraordinary Charge ................................... (0.09) (0.01) --
----------- ----------- -----------
Net Income Per Share ................................... $ 1.95 $ 1.85 $ 0.01
=========== =========== ===========
Basic Weighted Average Shares Outstanding .............. 96,052 89,842 77,595
=========== =========== ===========
DILUTED EARNINGS PER SHARE:
Income From Continuing Operations ...................... $ 2.01 $ 1.01 $ (0.10)
Income From Discontinued Operations .................... -- 0.08 0.11
Gain on Disposal of Discontinued Operations ............ -- 0.74 --
Extraordinary Charge ................................... (0.09) (0.01) --
=========== =========== ===========
Net Income Per Share ................................... $ 1.92 $ 1.82 $ 0.01
=========== =========== ===========
Diluted Weighted Average Shares Outstanding ............ 97,562 90,981 77,595
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 22
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN UNREALIZED
COMMON STOCK CAPITAL IN CURRENCY TREASURY STOCK GAIN ON TOTAL
------------------- EXCESS OF RETAINED TRANSLATION ------------------- MARKETABLE STOCKHOLDERS'
SHARES $1 PAR PAR EARNINGS ADJUSTMENT SHARES AMOUNT SECURITIES EQUITY
--------- --------- ---------- -------- ----------- -------- --------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994,
as Previously Reported..... 25,508 $ 25,508 $ 42,388 $ 48,856 $ (4,536) (188) $ (1,303) $ -- $ 110,913
Adjustment for Pooling of
Interests.................. 48,048 48,048 550,754 140,541 (4,168) (48) (801) -- 734,374
--------- --------- ---------- -------- ----------- -------- --------- ---------- -------------
Balance at December 31, 1994.. 73,556 73,556 593,142 189,397 (8,704) (236) (2,104) -- 845,287
Net Income.................... -- -- -- 441 -- -- -- -- 441
Shares Issued in Connection
with Acquisition........... 4,510 4,510 30,765 -- -- -- -- -- 35,275
Shares Issued Under Employee
Benefit Plans.............. 8 8 180 -- -- -- -- -- 188
Options Exercised............. 511 511 8,485 -- -- 10 (60) -- 8,936
Issuance of Common Stock...... 6,900 6,900 65,748 -- -- -- -- -- 72,648
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan. -- -- -- -- -- (39) (358) -- (358)
Foreign Currency
Translation Adjustment..... -- -- -- -- (4,080) -- -- -- (4,080)
--------- --------- ---------- -------- ----------- -------- --------- ---------- -------------
Balance at December 31, 1995.. 85,485 85,485 698,320 189,838 (12,784) (265) (2,522) -- 958,337
Net Income.................... -- -- -- 165,822 -- -- -- -- 165,822
Shares Issued in Connection
with Acquisitions.......... 2,339 2,339 48,395 -- -- -- -- -- 50,734
Shares Issued Under Employee
Benefit Plans.............. 29 29 1,342 -- -- 20 419 -- 1,790
Options Exercised............. 740 740 12,038 -- -- (8) (394) -- 12,384
Issuance of Common Stock...... 6,900 6,900 93,960 -- -- -- -- -- 100,860
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan. -- -- -- -- -- (44) (908) -- (908)
Foreign Currency
Translation Adjustment..... -- -- -- -- 1,304 -- -- -- 1,304
Unrealized Gain on
Marketable Securities...... -- -- -- -- -- -- -- 2,381 2,381
--------- --------- ---------- -------- ----------- -------- --------- ---------- -------------
Balance at December 31, 1996.. 95,493 95,493 854,055 355,660 (11,480) (297) (3,405) 2,381 1,292,704
Net Income.................... -- -- -- 187,763 -- -- -- -- 187,763
Effect of Immaterial Pooling.. 946 946 (717) (1,075) -- -- -- -- (846)
Replacement Shares (Shares
Acquired) from GulfMark
Merger..................... 4,471 4,471 142,788 -- -- (4,471) (147,259) -- --
Shares Issued Under Employee
Benefit Plans.............. 11 11 464 -- -- -- -- -- 475
Options Exercised............. 1,037 1,037 12,635 -- -- (5) (247) -- 13,425
Tax Benefit Associated with
Options Exercised.......... -- -- 8,799 -- -- -- -- -- 8,799
Purchase of Treasury Stock.... -- -- -- -- -- (275) (11,860) -- (11,860)
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan. -- -- -- -- -- (48) (2,516) -- (2,516)
Foreign Currency
Translation Adjustment..... -- -- -- -- (27,014) -- -- -- (27,014)
Realized Gain on Sale of
Marketable Securities...... -- -- -- -- -- -- -- (2,381) (2,381)
--------- --------- ---------- -------- ----------- -------- --------- ---------- -------------
Balance at December 31, 1997.. 101,958 $ 101,958 $1,018,024 $542,348 $ (38,494) (5,096) $(165,287) $ -- $ 1,458,549
========= ========= ========== ======== =========== ======== ========= ========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 23
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (in thousands)
Net Income .......................................................... $ 187,763 $ 165,822 $ 441
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Non-cash Portion of Acquisition-related Costs and Other
Unusual Charges ................................................. -- -- 66,196
Depreciation and Amortization ..................................... 142,931 121,830 108,060
Net Income from Discontinued Operations ........................... -- (7,468) (8,709)
Gain on Disposal of Discontinued Operations, Net .................. -- (66,924) --
Gain on Sale of Assets, Net ....................................... (20,056) (14,058) (12,503)
Extraordinary Charge on Prepayment of Debt, Net ................... 9,010 731 --
Deferred Income Tax Provision (Benefit) from Continuing
Operations ...................................................... 35,459 4,138 (18,672)
Provision for Uncollectible Accounts Receivable ................... 13,248 4,608 6,751
Change in Assets and Liabilities, Net of Effects of Businesses
Acquired:
Accounts Receivable ............................................. (113,009) (63,562) (6,326)
Inventories ..................................................... (108,837) (24,680) (45,679)
Other Current Assets ............................................ (2,742) 1,547 (11,082)
Accounts Payable ................................................ 37,135 33,064 (29,262)
Payment of Deferred Loan Costs .................................. -- (4,820) (892)
Accrued Salaries and Benefits and Other ......................... (10,710) (10,123) (10,246)
Other Assets .................................................... (5,031) (2,697) 1,661
Other, Net ...................................................... (13,019) (17,437) 10,911
--------- --------- ---------
Net Cash Provided by Continuing Operations .................... 152,142 119,971 50,649
Net Cash Provided by Discontinued Operations .................. -- 8,294 10,745
--------- --------- ---------
Net Cash Provided by Operating Activities ..................... 152,142 128,265 61,394
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired ..................... (321,477) (80,077) (147,331)
Capital Expenditures for Property, Plant and Equipment .............. (212,992) (172,725) (120,934)
Proceeds from Sales of Businesses ................................... 68,798 326,016 9,493
Proceeds from Sales of Property, Plant and Equipment ................ 30,431 20,215 31,137
Acquisitions and Capital Expenditures of Discontinued Operations .... -- (63,136) (22,884)
Income Taxes Paid on Disposal of Discontinued Operations ............ (62,808) -- --
Proceeds From Sale of Marketable Securities ......................... 23,352 -- --
Other, Net .......................................................... (6,384) (15,388) (9,245)
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities ................ (481,080) 14,905 (259,764)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Long-term Debt, Net ..................................... 390,911 197,824 --
Issuance of Common Stock, Net ....................................... -- 100,860 72,648
Purchase of Treasury Stock .......................................... (14,376) (908) (358)
Tender of Senior Notes .............................................. (119,980) -- --
Proceeds from Stock Option Exercises ................................ 16,352 14,148 6,924
Termination Costs on Retirement of Debt ............................. (10,752) (1,125) --
Borrowings (Repayments) Under Revolving Lines of Credit, Net ........ 21,319 (121,656) (17,616)
Borrowings (Repayments) on Term Debt, Net ........................... (126,425) (115,761) 130,462
Other Financing Activities, Net ..................................... (10,111) 4,978 (713)
--------- --------- ---------
Net Cash Provided by Financing Activities ....................... 146,938 78,360 191,347
--------- --------- ---------
Effect of Exchange Rate on Cash ..................................... (784) (220) 4,347
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... (182,784) 221,310 (2,676)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................... 256,995 35,685 38,361
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................. $ 74,211 $ 256,995 $ 35,685
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 24
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On May 27, 1998, EVI, Inc. ("EVI") completed a merger with Weatherford
Enterra, Inc. ("WII") and changed its name to EVI Weatherford, Inc. (together
with its subsidiaries, the "Company") (See Note 2). The merger was accounted for
as a pooling of interests; accordingly, the accompanying financial statements
have been restated to include the results of WII for all periods presented.
Certain reclassifications of prior year balances have been made to conform such
amounts to corresponding 1997 classifications.
NAME CHANGE
At the Company's annual stockholders meeting on September 21, 1998, the
stockholders of the Company approved a name change from EVI Weatherford, Inc. to
Weatherford International, Inc. The Company's common stock, $1.00 par value
("Common Stock"), is listed on the New York Stock Exchange with a new stock
symbol of "WFT".
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Weatherford
International, Inc. and all majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
The Company accounts for its 50% or less-owned affiliates using the equity
method.
NATURE OF OPERATIONS
The Company is a leading manufacturer and supplier of oilfield equipment
and services, providing downhole tubular running services and rental tools,
artificial lift, gas compression and completion system products to the oil and
gas industry throughout the world.
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.
INVENTORIES
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
MARKETABLE SECURITIES
Investments in marketable securities are accounted for in accordance with
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115") and
accordingly, these investments are recorded at their fair market value with
unrealized gains or losses recorded as a separate component of stockholders'
equity. The Company has classified these investments in Other Current Assets as
available for sale with any other than temporary decline in fair value of
securities charged to earnings. In April 1997, the Company sold its marketable
securities, comprised of approximately 3.1 million shares of Parker Drilling
Company ("Parker") common stock, pursuant to a public offering effected by
Parker. As a result, the Company received net proceeds of approximately $23.4
million and recognized a pre-tax gain of approximately $3.4 million.
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 as necessary whenever
24
<PAGE> 25
events or circumstances indicate that carrying amounts may not be recoverable.
The useful lives of the major classes of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
LIFE
----------------
<S> <C>
Buildings and other property .... 5 - 45 years
Rental and service equipment .... 3 - 15 years
Machinery and equipment ......... 3 - 20 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 reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of any applicable assets may not
be recoverable. In assessing recoverability of such assets, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Management believes that there have
been no events or circumstances which warrant revision to the remaining useful
life or which affect the recoverability of goodwill. The 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 $15.0 million, $10.8 million and $8.4 million for 1997, 1996 and
1995, respectively. Accumulated amortization for goodwill at December 31, 1997
and 1996 was $30.1 million and $17.7 million, respectively.
STOCK-BASED COMPENSATION
The intrinsic value method of accounting is used for stock-based employee
compensation whereby no compensation expense is recognized when the exercise
price of an employee stock option is equal to the market price of the Company's
Common Stock on the grant date. See Note 9 for pro forma information required
under Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
Accounting for Stock-Based Compensation.
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 using the exchange rates in effect at the
balance sheet date and the resulting translation adjustments are included as a
separate component of stockholders' 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
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. 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, 1997 and 1996, the
Company had contracts maturing within the next 60 days to sell $36.8 million and
$50.9 million, respectively, in Norwegian kroner, U.K. pounds sterling, Canadian
dollars and Dutch guilders. Had such respective contracts matured on December
31, 1997 and 1996, the Company's required cash outlay would have been minimal.
25
<PAGE> 26
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING FOR INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
Accounting for Income Taxes, 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.
The Company does not provide federal income taxes on the undistributed
earnings of certain of its foreign subsidiaries because it believes these
amounts are permanently invested outside the United States. The cumulative
amount of such undistributed earnings on which federal taxes have not been
provided was $173.5 million at December 31, 1997. If these foreign earnings were
to be ultimately remitted, certain foreign withholding taxes would be payable
and U.S. federal income taxes payable at that time would be reduced by foreign
tax credits generated by the repatriation.
REVENUE RECOGNITION
The Company recognizes revenue as products are shipped or accepted by the
customer and when service and rentals are provided. Proceeds from customers for
the cost of oilfield rental equipment that is damaged or lost downhole are
reflected as revenues.
EARNINGS PER SHARE
In 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128 which replaces primary earnings per share with basic earnings per share and
requires dual presentation of basic and diluted earnings per share. The Company
adopted SFAS No. 128 in the fourth quarter of fiscal 1997. All historical
earnings per share data included herein has been restated to reflect the
adoption of SFAS No. 128.
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year adjusted
for the dilutive effect of the incremental shares that would have been
outstanding under the Company's stock option plans (see Note 9). The effect of
the 5% Convertible Subordinated Preferred Equivalent Debentures (the
"Debentures") on diluted earnings per share is anti-dilutive and, thus, has no
impact.
The following reconciles basic and diluted weighted average shares:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Basic weighted average number of
shares outstanding ........................... 96,052 89,842 77,595
Dilutive effect of stock option plans .......... 1,510 1,139 --
------ ------ ------
Dilutive weighted average number of
shares outstanding ........................... 97,562 90,981 77,595
====== ====== ======
</TABLE>
FUTURE REPORTING REQUIREMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for the reporting of comprehensive income and its
components in a full set of general-purpose financial statements and is
effective for years beginning after December 15, 1997. The Company will adopt
SFAS No. 130 in the first quarter of 1998. Had SFAS No. 130 been adopted as of
December 31, 1997, the primary adjustments and reclassifications to reflect net
income on a comprehensive income basis for the years presented would have
consisted of foreign currency translation adjustments and the effect of
unrealized and realized gains on marketable securities.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and
Related Information. SFAS No. 131, effective for years beginning after December
31, 1997, requires segment information to be reported on a basis consistent with
that used internally
26
<PAGE> 27
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for evaluating segment performance and deciding how to allocate resources to
segments. The Company will adopt SFAS No. 131 in 1998 which is not expected to
change the manner the Company reports segment information and related
disclosures.
In 1998 the FASB issued Statement of Accounting Standards No. 132 ("SFAS
No. 132"), Employers' Disclosures About Pensions and Other Postretirement
Benefits. SFAS No. 132 standardizes disclosure requirements for pensions and
other postretirement benefits. SFAS No. 132 will be effective for years
beginning after December 15, 1997. Had the Company adopted SFAS No. 132 as of
December 31, 1997, it would have had no impact on the consolidated financial
statements of the Company.
In June 1998, the FASB issued Statement of Accounting Standards No. 133
("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
is effective for years beginning after June 15, 1999. The Company is currently
evaluating the impact of SFAS No. 133 on its consolidated condensed financial
statements.
In October 1998, the FASB issued Statement of Accounting Standards No. 134
("SFAS No. 134"), Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
SFAS No. 134 is not applicable to the Company and has no impact on its
consolidated condensed financial statements.
2. ACQUISITIONS
On May 27, 1998, EVI completed a merger with WII and changed its name to
EVI Weatherford, Inc., merging WII with and into EVI pursuant to an expected tax
free merger (the "Merger") in which the stockholders of WII receive 0.95 of a
share of the Company's Common Stock in exchange for each outstanding share of
WII common stock. Based on the number of shares of WII common stock outstanding
as of May 27, 1998, approximately 48.9 million shares will be issued in the
Merger. In addition, approximately 1.4 million shares of Common Stock have been
reserved for issuance by the Company for outstanding options under WII's
compensation and benefit plans. The Merger was accounted for as a pooling of
interests; accordingly, the accompanying financial statements have been restated
to include the results of WII for all periods presented.
The separate results of EVI and WII and the combined company were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Operating Revenues
EVI ............................... $ 892,264 $ 478,020 $ 271,675
WII ............................... 1,083,965 994,468 858,907
Merger adjustments ................ (7,140) (5,218) (4,779)
----------- ----------- -----------
Combined .......................... $ 1,969,089 $ 1,467,270 $ 1,125,803
=========== =========== ===========
Extraordinary Charge, Net of Taxes
EVI ............................... $ 9,010 $ 731 $ --
WII ............................... -- -- --
----------- ----------- -----------
Combined .......................... $ 9,010 $ 731 $ --
=========== =========== ===========
Net Income (Loss)
EVI ............................... $ 74,685 $ 98,166 $ 11,311
WII ............................... 112,900 70,073 (10,558)
Merger adjustments ................ 178 (2,417) (312)
----------- ----------- -----------
Combined .......................... $ 187,763 $ 165,822 $ 441
=========== =========== ===========
</TABLE>
27
<PAGE> 28
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Merger adjustments include the elimination of intercompany revenues of $7.1
million, $5.2 million and $4.8 million, respectively, and cost of sales of $5.7
million, $4.2 million and $4.3 million, respectively, for the years ended
December 31, 1997, 1996 and 1995. Merger adjustments for the years ended
December 31, 1997 and 1996 also include the elimination of expenses of $1.7
million and a gain of $2.7 million, respectively, recorded by WII on the sale of
Arrow Completion Systems, Inc. to EVI in December 1996.
On December 3, 1997, the Company completed the acquisition of all of the
outstanding shares of BMW Monarch (Lloydminster) Ltd. ("BMW Monarch") and BMW
Pump, Inc. ("BMW Pump") for aggregate consideration of approximately $96.8
million in cash, including a final working capital adjustment, and $14.3 million
in assumed debt. BMW Pump is a Canadian-based manufacturer of progressing cavity
pumps and BMW Monarch is a Canadian supplier of progressing cavity pumps as well
as other production related oilfield products.
On December 2, 1997, the Company completed the acquisition of all of the
capital stock of Trico Industries, Inc., ("Trico") in exchange for $105.0
million in cash and the assumption of $8.7 million of debt. Trico is a
Texas-based manufacturer and distributor of sub-surface reciprocating pumps,
sucker rods, accessories and hydraulic lift systems.
On August 25, 1997, the Company completed the acquisition of XLS Holding,
Inc. ("XL") in a transaction accounted for as a pooling of interests. XL
designs, manufactures and markets high performance connectors for marine
applications such as conductors, risers and offshore structural components. In
connection with the acquisition, the Company issued approximately 0.9 million
shares of Common Stock in exchange for all of the equity interests of XL. As the
effect of this business combination is not significant, prior period financial
statements were not restated.
On May 1, 1997, the Company acquired GulfMark International, Inc.
("GulfMark") pursuant to a merger in which approximately 4.4 million shares of
Common Stock were issued to the stockholders of GulfMark. Prior to the merger,
GulfMark effected a spin-off to its stockholders of its marine transportation
services business. The retained assets of GulfMark that were acquired by the
Company in this transaction consisted of approximately 4.4 million shares of
Common Stock, an erosion control company and certain other miscellaneous assets.
The 4.4 million shares of Common Stock acquired are classified as "Treasury
Stock, at Cost" on the accompanying consolidated balance sheet. Because the
number of shares of Common Stock issued in the GulfMark acquisition approximated
the number of shares of Common Stock held by GulfMark prior to the acquisition,
the GulfMark acquisition had no material effect on the outstanding number of
shares of Common Stock or equity of the Company.
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA"), a
manufacturer of premium couplings and premium accessories, for approximately
$44.1 million in cash and $19.7 million of assumed debt.
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"). Nodeco designs, manufactures, sells and rents oil and gas well
completion products primarily consisting of liner hanger equipment and related
services, as well as pump packers. The Company paid cash of approximately $14.4
million and issued 0.7 million shares of its Common Stock.
On December 15, 1995, the Company acquired substantially all of the assets
of the natural gas compression business of Energy Industries, Inc. and Zapata
Energy Industries, L.P. (collectively, "Energy Industries") for approximately
$130.0 million in cash. Energy Industries was engaged in the business of
fabricating, selling, installing, renting and servicing natural gas compressor
units used in the oil and gas industry.
On October 5, 1995, the Company completed a merger with Enterra Corporation
("Enterra"), a worldwide provider of specialized services and products to the
oil and gas industry through its oilfield, pipeline and gas compression services
businesses. The Company issued approximately 22.5 million shares of Common Stock
in exchange for all the outstanding shares of Enterra common stock. The merger
was accounted for as a pooling of interests. In connection with the Enterra
merger, the Company recorded acquisition-related costs totaling $59.9 million.
The Company has also effected various other 1997, 1996 and 1995
acquisitions for a total consideration of approximately $82.2 million, $61.6
million and $13.2 million, respectively.
28
<PAGE> 29
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquisitions discussed above, with the exception of WII, XL and
Enterra, were accounted for using the purchase method of accounting. The results
of operations of all such acquisitions are included in the Consolidated
Statements of Income from their respective dates of acquisition. The 1997 and
1996 acquisitions are not material individually nor in the aggregate for each
applicable year, therefore pro forma information is not presented.
3. CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Other current assets at December 31, 1997 and
1996 included cash of approximately $3.4 million and $1.7 million, respectively,
which was restricted as a result of exchange controls in certain foreign
countries or cash collateral requirements for performance bonds, letters of
credit and customs bonds.
Cash paid during the years ended December 31, 1997, 1996, and 1995 for
interest and income taxes (net of refunds) was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Interest paid .................................... $ 43,389 $ 28,068 $ 29,650
Income taxes paid, net of refunds ................ 121,302 21,367 19,270
</TABLE>
During the years ended December 31, 1997, 1996 and 1995 there were noncash
investing activities of $24.4 million, $1.7 million and $3.6 million,
respectively, relating to capital leases.
The following summarizes investing activities relating to acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Fair value of assets, net of cash acquired ....... $ 212,731 $ 109,565 $ 149,196
Goodwill ......................................... 306,648 95,688 71,852
Total liabilities ................................ (197,902) (74,442) (38,442)
Common Stock issued .............................. -- (50,734) (35,275)
--------- --------- ---------
Cash consideration, net of cash acquired ......... $ 321,477 $ 80,077 $ 147,331
========= ========= =========
</TABLE>
During the year ended December 31, 1997, there were noncash financing
activities of $8.8 million relating to tax benefits received from the exercise
of nonqualified stock options. These benefits were recorded as a reduction of
income taxes payable and an increase to additional paid-in capital.
4. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Raw materials, components and supplies ........ $238,349 $167,415
Work in process ............................... 66,402 47,791
Finished goods ................................ 151,060 105,727
-------- --------
$455,811 $320,933
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
29
<PAGE> 30
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PLANT CLOSURES
The Company adopted a plan to close its Bastrop, Texas tool joint
manufacturing facility and to combine its two packer facilities through the
closure of one facility in Arlington, Texas in the fourth quarter of 1996. In
connection with these decisions, the Company incurred a charge of $5.8 million
associated with these closures. Of this charge, $4.3 million related to the tool
joint facility closure and relocation of equipment from this facility and $1.5
million related to the consolidation of its packer facilities and the closure of
one of the plants. The Company incurred $3.8 million in 1996 for costs
associated with these actions during 1996, including costs relating to the
relocation of equipment at its Bastrop facility to other facilities. The Company
also accrued $2.0 million as part of the $5.8 million charge for exit costs that
it expected to be incurred in 1997 relating to the closure of its Bastrop and
Arlington facilities. Such costs included $0.8 million for severance and
termination costs, $0.9 million for the reduction in the carrying value of its
Bastrop facility in light of the intended plan of disposition of the facility
and $0.3 million for the termination of the Arlington lease. Approximately 400
employees were affected by these closures. The closure of both the Bastrop and
Arlington facilities had been substantially completed by June 1997.
6. ACQUISITION-RELATED AND OTHER UNUSUAL CHARGES
During the second quarter of 1995, management of Enterra made certain
strategic decisions which resulted in $28.3 million of unusual charges. Such
charges included a $10.0 million writedown to fair value, based on management's
estimation of net sales price, related to three businesses to be sold. The
remaining second quarter unusual charges of $18.2 million consisted primarily of
asset writedowns related to certain excess facilities, equipment and
inventories, as well as estimated costs in connection with the closure of
certain pipeline businesses and the consolidation of certain oilfield service
administrative and operating facilities. This restructuring resulted in
reduction of approximately 120 employees.
During the fourth quarter of 1995, the Company recorded expenses of $59.9
million related to the merger with Enterra and the financial impact of
management decisions related to the future operations of the combined company.
The acquisition-related costs primarily consisted of transaction costs,
severance and termination agreements with former officers and employees,
facility closure costs primarily to consolidate the oilfield service operations
and administrative functions (reducing approximately 600 employees), and the
reduction in recorded value of certain assets that had diminished future value
in the operations of the combined company.
A summary of the 1995 acquisition-related costs and other unusual charges
follows (in thousands):
<TABLE>
<S> <C>
Enterra merger transaction-related costs......... $ 18,800
Severance and termination costs.................. 12,488
Facility closure and consolidation costs......... 20,943
Writedowns of assets to be sold.................. 12,281
Other asset writedowns........................... 21,972
Other............................................ 1,698
---------
$ 88,182
=========
</TABLE>
7. DISCONTINUED OPERATIONS AND DISPOSITIONS
On November 11, 1996, the Company completed the sale of its contract
drilling segment which was comprised of the Mallard Bay contract drilling
division ("Mallard Division") to Parker, in exchange for cash of approximately
$306.9 million and approximately 3.1 million shares of Parker common stock
valued by the Company at approximately $20.0 million. The Company reported a net
gain on the disposal of the Mallard Division of $66.9 million, net of taxes of
$44.6 million.
The results of operations for the Mallard Division are reflected in the
accompanying Consolidated Statements of Income as "Discontinued Operations, Net
of Taxes". Condensed results of the Mallard Division discontinued operations
were as follows:
30
<PAGE> 31
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ELEVEN
MONTHS ENDED YEAR ENDED
NOVEMBER 11, DECEMBER 31,
1996 1995
------------ ------------
(in thousands)
<S> <C> <C>
Revenues........................ $ 81,310 $ 79,912
------------ ------------
Income before income taxes...... 11,490 14,029
Provision for income taxes...... 4,022 5,320
------------ ------------
Net income...................... $ 7,468 $ 8,709
============ ============
</TABLE>
During 1997, 1996 and 1995, the Company also sold certain non-core
businesses. Such businesses included CRC-Evans Pipeline International, Inc.,
Total Engineering Services Team, Inc. and several others. Cash proceeds from
these transactions totaled $68.8 million, $19.2 million and $9.5 million in
1997, 1996 and 1995, respectively, and were primarily used to repay bank debt.
8. DEBT
SHORT-TERM BORROWINGS AND REVOLVING CREDIT FACILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Revolving credit facilities ................................. $ 24,243 $ 2,924
Other ....................................................... -- 1,527
======== ========
$ 24,243 $ 4,451
======== ========
Weighted average interest rate on short-term borrowings
outstanding during the year ............................... 6.57% 6.98%
Average borrowings during the year .......................... $ 39,674 $ 69,378
Maximum borrowings outstanding during the year .............. $ 47,688 $120,000
</TABLE>
In June 1996, the Company entered into a $120.0 million working capital
facility and terminated the Company's prior U.S. working capital facility which
resulted in an extraordinary charge of approximately $0.7 million, net of taxes
of $0.4 million. Borrowings under this facility accrued interest at a variable
rate based on prime or LIBOR, 8.75% at December 31, 1997, and are due on demand.
At December 31, 1997, no debt was outstanding on this facility, however,
approximately $5.5 million had been used to support outstanding letters of
credit.
In October 1997, the Company amended its $200.0 million revolving credit
facility, reducing interest rates and fees and improving other terms and
conditions. Amounts outstanding under this 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 Company's 7 1/4% Senior Notes.
The facility contains customary affirmative and negative covenants relating to
working capital, earnings and net worth. At December 31, 1997, no debt was
outstanding on this 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 $13.1 million of such letters of credit and bid and performance bonds
outstanding at December 31, 1997.
In August 1997, the Company entered into a Canadian line of credit
agreement which provides for up to $31.5 million ($45.0 million Canadian). The
facility contains customary affirmative and negative covenants relating to
working capital, earnings and net worth. Borrowings accrued interest at a
variable rate, approximately 5.46% at December 31, 1997 and were due on demand.
At December 31, 1997, the Company had $24.2 million outstanding under this
facility.
31
<PAGE> 32
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In February 1998, the Company entered into a new $250.0 million working
capital facility, consisting of a $200.0 million U.S. and a $50.0 million
Canadian credit facilities, and terminated both the $120.0 million U.S.
and $31.5 million Canadian working capital facilities.
In May 1998, the Company amended the $250.0 million revolving credit
facility and terminated its $200.0 million revolving credit facility (See Note
15).
LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Debentures with an effective interest rate of 5%, due 2027 ............ $402,500 $ --
======== ========
Senior Notes with an effective interest rate of 7.25% , due 2006 ...... $200,000 $200,000
Senior Notes with an effective interest rate of 10.25%, due 2004 ...... 20 120,000
Bank term loan ........................................................ -- 95,950
Industrial Revenue Bonds with variable interest rates, 3.85%
and 4.46% at December 31, 1997, due 2002 ............................ 10,840 2,810
Foreign bank debt, denominated in foreign currencies .................. 8,152 11,231
Capital lease obligations under various agreements .................... 28,376 9,256
Other ................................................................. 18,112 6,859
-------- --------
265,500 446,106
Less: amounts due in one year ........................................ 13,178 28,130
======== ========
Long-term debt ........................................................ $252,322 $417,976
======== ========
</TABLE>
The following is a summary of scheduled long-term debt maturities by year
(in thousands):
<TABLE>
<S> <C>
1998.................... $ 13,178
1999.................... 15,488
2000.................... 8,432
2001.................... 5,322
2002.................... 13,036
Thereafter.............. 612,544
-------------
$ 668,000
=============
</TABLE>
In November 1997, the Company completed a private placement of $402.5
million principal amount of 5% Convertible Subordinated Preferred Equivalent
Debentures (the "Debentures"). The net proceeds from the Debentures were $390.9
million. The Debentures are convertible at a price of $80 per share of Common
Stock. The Debentures are redeemable by the Company at any time on or after
November 4, 2000, at redemption prices described therein, and are subordinated
in right of payment of principal and interest to the prior payment in full of
certain existing and future senior indebtedness of the Company. The Company also
has the right to defer payments of interest on the Debentures by extending the
quarterly interest payment period on the Debentures for up to 20 consecutive
quarters at anytime when the Company is not in default in the payment of
interest. As evidenced by market transactions, the estimated fair value of the
Debentures was $368.8 million as of December 31, 1997.
The Company has outstanding $200.0 million of 7 1/4% Senior Notes due May
15, 2006 (the "7 1/4% Senior Notes"). The 7 1/4% Senior Notes are unsecured
obligations of the Company. Interest on the 7 1/4% Senior Notes is payable
semi-annually on May 15 and November 15 of each year. Based on the borrowing
rates available to the Company, the fair value of the 7 1/4% Senior Notes
approximates the carrying value at December 31, 1997 and 1996.
In December 1997, the Company completed a cash tender offer and consent
solicitation (the "Tender Offer") relating to the Company's outstanding $120.0
million 10 1/4% Senior Notes due 2004 (the "Senior Notes"). An
32
<PAGE> 33
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
aggregate of $119.98 million principal amount of the Senior Notes were validly
tendered by the Company pursuant to the Tender Offer. The prepayment of the
Senior Notes resulted in an extraordinary charge, net of taxes of $5.6 million,
of $9.0 million, or $0.09 per basic share, for the year ended December 31, 1997.
The extraordinary charge consists of prepayment fees, other professional fees
and the write off of unamortized debt issuance costs. At December 31, 1996, the
estimated fair value of the Senior Notes was $126.0 million.
In connection with the Company's acquisition of Enterra on October 5, 1995,
and Trico on December 2, 1997, the Company assumed $3.5 million and $8.7 million
of Variable Rate Demand Industrial Development Revenue Refunding Bonds (the
"Bonds"), respectively. Contract terms require principal and interest payments
to maturity, occurring in December 2002. In connection with the Bonds, the
Company has letters of credit of $11.7 million.
Upon the completion of the expansion of the Veracruz, Mexico tool joint
manufacturing facility, the Company recorded the obligation of $16.3 million
under its lease to reflect the terms thereof.
9. STOCKHOLDERS' EQUITY
AUTHORIZED SHARES
In May 1998, the Company's Restated Certificate of Incorporation was
amended and restated to increase the authorized number of shares of Common Stock
from 80.0 million to 250.0 million.
PREFERRED STOCK
The Company is authorized to issue up to 3.0 million shares of $1.00 par
value preferred stock. As of December 31, 1997, none had been issued.
STOCK SPLIT
At the Company's annual stockholders meeting on May 6, 1997, the
stockholders approved a two-for-one split of the Common Stock, through a stock
dividend and related amendment to the Company's Restated Certificate of
Incorporation that increased the number of authorized shares of Common Stock
from 40.0 million shares to 80.0 million shares. As a result of the stock split,
all stock and per share data contained herein have been restated to reflect the
effect of the two-for-one stock split.
PUBLIC STOCK OFFERINGS
On July 25, 1996, the Company completed a public offering of 6.9 million
shares of Common Stock. The net proceeds of this offering were approximately
$100.9 million. The Company also completed a public offering early in the fourth
quarter of 1995, of 6.9 million shares of Common Stock. The net proceeds of that
offering were approximately $72.6 million.
STOCK REPURCHASE PLAN
In December 1997, the WII Board of Directors instituted a stock repurchase
program under which up to $100.0 million of WII common stock could be purchased
in open market transactions or in privately negotiated transactions. Pursuant to
this program, WII purchased approximately 0.3 million shares of its common stock
in December 1997. During 1998, WII purchased approximately 1.0 million shares of
its common stock. In connection with the WII Merger, the stock repurchase
program has been discontinued.
10. STOCK-BASED COMPENSATION
STOCK OPTION PLANS
In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non-qualified stock option plan. The plan
expired in May 1991.
33
<PAGE> 34
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has a number of stock option plans pursuant to which officers
and other key employees may be granted options to purchase shares of Common
Stock at fair market value on the date of grant. The Company maintains a
Non-Employee Director Stock Option Plan ("Director Plan"), a non-qualified stock
option plan. Under the Director Plan, options to purchase up to 1.0 million
shares may be granted to non-employee directors of the Company. Options to
purchase 10,000 shares of Common Stock are automatically granted to each
non-employee director on the date of their initial election and their
reelection. At December 31, 1997, approximately 0.6 million shares were
available for granting of such options. WII had a similar plan, pursuant to
which the non-employee directors of WII received options exercisable six months
after the date of grant.
The Company also has in effect a 1992 Employee Stock Option Plan ("ESO
Plan"). Under the ESO Plan, options to purchase up to an aggregate of 2.0
million shares of Common Stock may be granted to officers and key employees of
the Company (including directors who are also key employees) and its
subsidiaries. At December 31, 1997, approximately 0.3 million were available for
granting of such options.
Stock options vest after one to five years and expire after ten years from
the date of grant. Information about the above stock option plans, including
predecessor plans, for the three years ended December 31, 1997, is set forth
below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER RANGE OF EXERCISE
OF EXERCISE PRICE
SHARES PRICES PER SHARE
---------- ------------------ ---------
<S> <C> <C> <C>
Options outstanding, December 31, 1994 ......... 2,265,653 $ 1.35 -- $ 23.47 $ 10.74
Granted ................................... 1,215,457 6.98 -- 24.70 17.46
Exercised ................................. (419,031) 1.35 -- 21.93 12.23
Terminated ................................ (403,184) 11.16 -- 20.24 16.18
Options outstanding, December 31, 1995 ......... 2,658,895 4.69 -- 24.70 12.39
Granted ................................... 882,218 13.07 -- 33.73 19.19
Exercised ................................. (597,121) 5.75 -- 21.92 12.41
Terminated ................................ (358,128) 17.58 -- 29.98 20.83
----------
Options outstanding, December 31, 1996 ......... 2,585,864 4.69 -- 33.73 13.61
Granted ................................... 741,613 27.81 -- 32.19 29.05
Exercised ................................. (903,898) 4.69 -- 33.73 11.36
Terminated ................................ (47,908) 11.49 -- 29.98 24.72
---------- ---------
Options outstanding, December 31, 1997 ......... 2,375,671 4.69 -- 32.19 $ 19.08
========== =========
Options exercisable as of December 31, 1997 .... 948,906 4.69 -- 14.63 $ 13.28
========== =========
</TABLE>
The 2.3 million options outstanding at December 31, 1997, have a range of
weighted average remaining contractual lives of 5.1 to 7.6 years. The 0.9
million options exercisable at December 31, 1997, have a range of weighted
average remaining contractual lives of 4.0 to 7.5 years. The range of weighted
average fair value of the options granted in 1997, 1996 and 1995 are from $12.96
to $17.49 and from $8.89 to $14.46 and from $5.24 to $8.53, respectively.
In addition to the options in the above table, the Company granted options
in 1995 and prior years to former directors, employees of acquired companies and
to a former officer of WII covered by separate agreements and not covered in an
option plan. At December 31, 1997, approximately 0.1 million shares were
outstanding and exercisable at a weighted average exercise price of $24.46. The
Company also has a stock bonus plan (the "Bonus Plan"), whereby officers and
certain key employees may be granted shares of Common Stock. At December 31,
1997, substantially all options were granted, exercised or terminated. During
1997 and 1996, the Company recognized compensation expense with respect to the
Bonus Plan of $0.1 million and $0.7 million, respectively. The Company granted
no shares under the Bonus Plan in 1995.
Prior to 1992, the Company granted stock appreciation rights ("SARs") in
connection with options. At December 31, 1997, approximately 16,000 SARs were
outstanding at an average price of $10.41. The SAR Plan was amended in 1992 to
provide that no additional grants would be made. During 1997, 1996 and 1995, the
Company recognized compensation expense of approximately $0.7 million, $0.2
million and $0.1 million, respectively.
34
<PAGE> 35
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA COMPENSATION EXPENSE
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its stock options under the fair value method as provided therein. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5.1% to 6.9%; expected lives of four to
seven years; expected volatility of 42% to 52% and no expected dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair value-based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS No. 123, only the effects of awards granted after January 1,
1995 are considered in the pro forma calculation.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
---------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (in thousands)...... $ 187,763 $ 183,281 $ 165,822 $ 162,933 $ 441 $ (1,259)
Basic earnings per share....... 1.95 1.91 1.85 1.81 0.01 (0.02)
Diluted earnings per share..... 1.92 1.88 1.82 1.79 0.01 (0.02)
</TABLE>
RESTRICTED STOCK PLANS
WII had a restricted stock plan for certain officers of WII (the
"Restricted Plan") and a restricted stock plan for non-employee directors of WII
(the "Director Restricted Plan"; collectively, the "Restricted Stock Plans"),
pursuant to which shares of Common Stock may be granted. Shares granted under
the Restricted Stock Plans are subject to certain restrictions on ownership and
transferability when granted. Restrictions applicable to shares granted under
the Restricted Plan lapse in part based on continued employment and in part
based on Company performance. Restrictions applicable to shares granted under
the Director Restricted Plan were removed in connection with the WII Merger and
the Plan terminated. The compensation related to the restricted stock grants is
deferred and amortized to expense on a straight-line basis over the period of
time the restrictions are in place, and the unamortized portion is classified as
a reduction of paid-in capital in the accompanying Consolidated Balance Sheets.
The following table provides a summary of activity related to the Restricted
Stock Plans:
<TABLE>
<CAPTION>
NON-EMPLOYEE
EMPLOYEE DIRECTOR
SHARES SHARES
------------ -------------
<S> <C> <C>
Restricted shares outstanding, December 31, 1994 ............. 51,140 --
Granted ................................................. 28,025 --
Terminated .............................................. (44,833) --
--------
Restricted shares outstanding, December 31, 1995 ............. 34,332 --
Granted ................................................. 29,450 --
Terminated .............................................. (35,848) --
--------
Restricted shares outstanding, December 31, 1996 ............. 27,934 --
Granted ................................................. 86,489 10,296
Terminated .............................................. (25,679) --
-------- --------
Restricted shares outstanding, December 31, 1997 ............. 88,744 10,296
======== ========
Shares available for future grant as of December 31, 1997 .... 36,476 227,204
======== ========
Compensation Expense (in thousands):
1997 $ 1,146 $ 120
1996 418 --
1995 392 --
Deferred Compensation at December 31 (in thousands):
1997 $ 3,095 $ 352
1996 1,445 --
</TABLE>
35
<PAGE> 36
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan (the "ESPP"), pursuant to
which eligible employees can purchase shares of Common Stock through payroll
deductions. The Company matches a specified percentage of the employee
contributions made to the ESPP. Company matching contributions totaled
approximately $162,000, $88,000 and $48,000 during 1997, 1996 and 1995,
respectively. There were approximately 51,015 shares available for future
purchases under the ESPP at December 31, 1997.
EXECUTIVE DEFERRED COMPENSATION PLAN
In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits under the
EDC Plan. The funds provided to such trust are invested by a trustee independent
of the Company primarily in Common Stock of the Company which is purchased by
the trustee on the open market. The assets of the trust are available to satisfy
the claims of all general creditors of the Company in the event of bankruptcy or
insolvency. Accordingly, the Common Stock held by the trust has been
consolidated for accounting purposes and is included in the accompanying
Consolidated Statements of Stockholders' Equity as "Treasury Stock, at Cost" and
reflected as such on the Consolidated Balance Sheets.
11. INCOME TAXES
The components of income (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Domestic.............................. $ 202,297 $ 71,354 $ (42,029)
Foreign............................... 102,664 61,320 29,054
========== ========== ===========
$ 304,961 $ 132,674 $ (12,975)
========== ========== ===========
</TABLE>
The Company's income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current .................................. (in thousands)
U.S. federal and state income taxes .... $ 39,623 $ 14,801 $ (2,791)
Foreign ................................ 33,106 21,574 16,756
-------- -------- --------
Total Current ........................ $ 72,729 $ 36,375 $ 13,965
-------- -------- --------
Deferred
U.S. federal ........................... $ 23,405 $ 2,410 $(23,836)
Foreign ................................ 12,054 1,728 5,164
-------- -------- --------
Total Deferred ....................... $ 35,459 $ 4,138 $(18,672)
-------- -------- --------
$108,188 $ 40,513 $ (4,707)
======== ======== ========
</TABLE>
36
<PAGE> 37
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total income tax provision (benefit) was recorded as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Income (loss) from continuing operations ....... $ 108,188 $ 40,513 $ (4,707)
Discontinued operations ........................ -- 4,022 5,320
Gain on disposal of discontinued operations .... -- 44,600 --
Extraordinary charge ........................... (5,640) (394) --
--------- --------- ---------
$ 102,548 $ 88,741 $ 613
========= ========= =========
</TABLE>
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing operations
before income taxes for the three years ended December 31, 1997 is analyzed
below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate .............................. 35.0% 35.0% 35.0%
Effect of state income tax (net) and Alternative Minimum Tax ... 0.3 3.1 (8.1)
Effect of non-deductible expenses .............................. 1.4 1.6 (41.8)
Utilization of net operating loss carryforward ................. (2.7) (7.3) 128.6
Effect of foreign income tax, net .............................. 2.7 -- (63.3)
Foreign losses benefited ....................................... -- (0.4) 1.2
Foreign Sales Corporation benefit .............................. (0.3) 0.2 0.6
Research and development credit benefit ........................ -- -- 1.5
Benefit of tax dispute settlement .............................. -- (2.9) --
Other .......................................................... (0.9) 1.2 (17.4)
====== ====== ======
35.5% 30.5% 36.3%
====== ====== ======
</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 in which the Company has
operations.
The change in the valuation allowance in 1997 and 1996 primarily relates to
the utilization of U.S. net operating losses ("NOL") and tax credit
carryforwards and management's assessment that future taxable income will be
sufficient to enable the Company to utilize remaining NOL and tax credit
carryforwards.
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>
DECEMBER 31,
----------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Domestic and foreign operating losses ........................... $ 15,709 $ 32,495
Accrued liabilities and reserves ................................ 44,122 56,402
Foreign taxes on unremitted foreign earnings .................... 16,985 7,443
Tax benefit transfer leases acquired ............................ 3,991 4,807
Other differences between financial and tax basis ............... 1,126 --
Valuation allowance ............................................. (4,716) (12,854)
-------- --------
Total deferred tax assets ......................................... $ 77,217 $ 88,293
-------- --------
Deferred tax liabilities:
Property and equipment .......................................... $(56,747) $(40,391)
Unremitted foreign earnings ..................................... (23,517) (7,971)
Differences between financial and tax basis of inventory ........ (12,010) (11,191)
Other differences between financial and tax basis ............... (4,593) (21,508)
-------- --------
Total deferred tax liability ...................................... (96,867) (81,061)
-------- --------
Net deferred tax asset (liability) ................................ $(19,650) $ 7,232
======== ========
</TABLE>
37
<PAGE> 38
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, the Company had $10.5 million of U.S. net operating
losses which were generated by certain subsidiaries prior to their acquisition.
The use of these pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code and is also restricted to the taxable
income of the subsidiaries generating the losses. These U.S. carryforwards, if
not utilized will expire between 1999 and 2009.
On October 11, 1996, the Company entered into a $3.9 million tax settlement
plus accrued interest of $2.5 million with the United States Internal Revenue
Service ("I.R.S.") relating to a dispute regarding the tax impact to the Company
upon the dissolution of an oil and gas joint venture in 1990. The tax liability
with respect to the dissolution had been previously provided for as a deferred
tax liability in the Company's consolidated financial statements. This
settlement resulted in the Company recognizing a $4.0 million tax benefit in
1996 due to the elimination of certain previously accrued deferred taxes that
will no longer be required to be paid as a result of this settlement.
12. RETIREMENT AND EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering certain U.S.
employees and international employees. Plan benefits are generally based on
years of service and average compensation levels. The Company's funding policy
is to contribute, at a minimum, the annual amount required under applicable
governmental regulations. With respect to certain international plans, the
Company has purchased irrevocable annuity contracts to settle certain benefit
obligations. Plan assets are invested primarily in equity and fixed income
mutual funds.
Pension expense related to the Company's defined benefit pension plans
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the period ......... $ 961 $ 1,248 $ 692
Interest cost on projected benefit obligation ........... 386 427 365
Actual return on plan assets ............................ (391) (466) (354)
Net amortization and deferral ........................... 48 213 115
-------- -------- --------
$ 1,004 $ 1,422 $ 818
======== ======== ========
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit pension plans and the assumptions used in computing such information:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ............................... $ 1,356 $ 1,257 $ 3,053 $ 2,933
======= ======= ======= =======
Accumulated benefit obligation .......................... $ 1,599 $ 1,902 $ 3,531 $ 3,388
======= ======= ======= =======
Projected benefit obligation ............................ $ 1,599 $ 2,026 $ 4,261 $ 4,192
Plan assets at fair value ............................... 1,487 1,383 2,553 2,194
------- ------- ------- -------
Projected benefit obligation in excess of
plan assets ........................................... (112) (643) (1,708) (1,998)
Unrecognized prior service cost ......................... (620) (637) 124 158
Unrecognized net (gain) loss ............................ 457 592 (758) (775)
Unrecognized transition obligation ...................... -- -- 81 125
------- ------- ------- -------
Unfunded accrued pension cost ........................... (275) (688) (2,261) (2,490)
Adjustment for minimum liability ........................ -- (9) -- --
======= ======= ======= =======
Pension liability ....................................... $ (275) $ (697) $(2,261) $(2,490)
======= ======= ======= =======
Assumed discount rates .................................. 7.25% 7.25% 6.0%-8.0% 6.5%-8.0%
Assumed rates of increase in compensation
levels ................................................ 4.0% 4.0% 3.7%-5.0% 3.7%-5.0%
Assumed expected long-term rate of return
on plan assets ........................................ 8.0% 8.0% 8.0% 8.0%
</TABLE>
38
<PAGE> 39
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also has defined contribution plans covering certain of its
employees. Expense related to these plans totaled $3.6 million, $3.7 million and
$4.7 million in 1997, 1996 and 1995, respectively.
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 consolidated financial position or its results of operations with or
without consideration of insurance coverage.
INSURANCE
The Company is partially self-insured for employee health insurance claims
and for workers' compensation claims for certain of its employees. 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.
14. COMMITMENTS
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 $27.9 million, $26.4
million and $22.3 million for the years ended December 31, 1997, 1996, and 1995,
respectively.
Future minimum rental commitments under these noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
1998 .......................... $ 19,260
1999 .......................... 18,543
2000 .......................... 10,595
2001 .......................... 7,707
2002 .......................... 5,829
Thereafter .................... 37,666
===========
$ 99,600
===========
</TABLE>
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with Oil Country Tubular, Ltd. ("OCTL") pursuant to which OCTL
manufactures drill pipe and premium tubulars for the Company on an exclusive
basis at OCTL's plant in India.
15. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $2.7 million, $2.2 million and $1.2
million during 1997, 1996 and 1995, respectively, with a law firm in which a
former director of the Company was a partner.
In 1997, the Company paid Lehman Brothers Inc., an affiliate of Lehman
Brothers Holdings Inc., a major stockholder of the Company, approximately $2.0
million for dealer management fees associated with the Tender Offer of the
Senior Notes and the Debenture offering. The Company incurred fees of
approximately $6.7 million associated with the Company's public offering and the
disposition of the Mallard Division in 1996, and underwriting fees of $4.0
million associated with its public offering in 1995. The fee arrangements
associated with these transactions were on terms standard in the industry.
16. SUBSEQUENT EVENTS
The Company has entered into an amended merger agreement (the "Merger
Agreement") with Christiana Companies, Inc. ("Christiana") and C2, Inc.,
Wisconsin corporations, pursuant to which the Company would acquire Christiana
through a merger of a subsidiary of the Company with and into Christiana (the
"Christiana Merger"). Under the terms
39
<PAGE> 40
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the Christiana Merger, the Christiana shareholders will be entitled to
receive shares of the Company's Common Stock and cash in exchange for their
shares of Christiana common stock.
The number of shares of the Company's Common Stock that will be issued to
the Christiana shareholders in the Christiana Merger will be equal to the number
of shares of the Company's Common Stock held by Christiana at the time of the
Christiana Merger divided by the number of outstanding shares of Christiana
common stock. Christiana currently holds approximately 3.9 million shares of the
Company's Common Stock. In addition, under the terms of the Merger Agreement,
Christiana is required to expend at least $10.0 million to purchase additional
shares of the Company's Common Stock. The amount of cash that will be payable to
the Christiana shareholders in the Christiana Merger will be equal to the amount
of cash held by Christiana in excess of its accrued unpaid taxes, the value of
certain tax benefits and fixed liabilities at the time of the Christiana Merger
divided by the number of outstanding shares of Christiana common stock at the
time of the Christiana Merger.
Prior to the Christiana Merger, Christiana is required to sell two-thirds
of its interest in Total Logistic Control ("Logistic"), a wholly owned
subsidiary of Christiana, to C2, Inc. for approximately $10.7 million. Following
the Logistic sale, the remaining assets of Christiana will consist of shares of
the Company's Common Stock and a one-third interest in Logistic. It is
anticipated that Christiana will have no material debt as of the consummation of
the Christiana Merger, but will have various tax liabilities which will be paid
with the remaining cash balance in Christiana after the Christiana Merger.
Because the number of shares of Common Stock issuable in the Christiana Merger
approximates the number of shares of Common Stock currently held by Christiana,
the Christiana Merger, if consummated, would be expected to have no material
effect on the outstanding number of shares of Common Stock or equity of the
Company.
The Christiana Merger is subject to various conditions, including approval
by the stockholders of the Company and Christiana and the receipt of an opinion
by its tax advisors to the effect that the shareholders of Christiana will not
recognize gain or loss for federal income tax purposes on their receipt of
shares of Common Stock in exchange for their shares of Christiana common stock.
On January 12, 1998, the Company completed the acquisition of the Houston
Well Screen group of companies ("HWS") from Van der Horst Limited, a Singapore
company, for a net purchase price of approximately $27.6 million in cash. The
HWS acquisition includes the purchase of Van der Horst USA Inc., which is the
holding company of Houston Well Screen Company and of Houston Well Screen Asia
Pte Ltd. which has operations in Singapore and Indonesia. HWS makes wedge-wire
screen products for use in oil and gas production and other applications.
On January 15, 1998, the Company completed the acquisition of Taro
Industries Limited ("Taro"), an Alberta corporation in which approximately 0.8
million shares of the Company's Common Stock have been issued to the
shareholders of Taro in exchange for their shares of Taro stock. Taro is a
Canadian provider of well automation, gas compression, and drilling equipment
distribution and will be integrated into the Company's production equipment
segment.
On February 19, 1998, the Company completed the acquisition of Ampscot
Equipment Ltd., an Alberta corporation ("Ampscot") for approximately $57.1
million in cash. Ampscot is a Canadian-based manufacturer of pumping units.
The Company has also effected various other acquisitions during the nine
months ended September 30, 1998 for total consideration of approximately $47.8
million.
In February 1998, the Company entered into a new credit agreement which
provides for borrowings of up to an aggregate of $250.0 million, consisting of a
$200.0 million U.S. credit facility and a $50.0 million Canadian credit facility
and terminated both the $120.0 million and $31.5 million Canadian working
capital facilities.
In May 1998, the Company amended its $250.0 million revolving credit
facility and terminated its $200.0 million revolving credit facility. Amounts
outstanding under the amended facility accrue interest at a variable rate based
on either prime or LIBOR and are secured by pledges of various stock of the
Company's domestic and foreign subsidiaries. In addition, certain of the
Company's domestic subsidiaries are guarantors of the facility. A commitment fee
ranging from 0.09% to 0.20% per annum, depending on the credit ratings assigned
to the 7 1/4%
40
<PAGE> 41
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Senior Notes, is payable quarterly on the unused portion of the facility. The
facility contains customary affirmative and negative covenants relating to
working capital, earnings and net worth.
The Company recorded merger and other charges (the "Merger and Other
Charges") during the second quarter of 1998 aggregating approximately $120.0
million before taxes for merger expenses and other matters associated with the
consolidation and reorganization of the Company's operations and businesses in
light of the Merger and recent market conditions.
17. SEGMENT INFORMATION
BUSINESS SEGMENTS
Financial information by industry segment for each of the three years ended
December 31, 1997, is summarized below. Identifiable assets exclude net assets
relating to the Mallard Division of approximately $95.5 million at December 31,
1995. Corporate assets principally include cash and cash equivalents and tax
assets and liabilities.
<TABLE>
<CAPTION>
COMPLETION ARTIFICIAL
AND OILFIELD DRILLING LIFT AND
SERVICES PRODUCTS COMPRESSION CORPORATE TOTAL
------------- ------------ ------------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
1997
Sales to unaffiliated customers $ 929,001 $611,715 $428,373 $ -- $1,969,089
Operating income (loss)........ 215,412 120,830 37,566 (37,816) 335,992
Identifiable assets............ 919,198 674,388 1,064,612 79,712 2,737,910
Depreciation and amortization.. 84,882 23,610 30,591 3,848 142,931
Capital expenditures and other
acquisitions of property,
plant, and equipment....... 124,402 107,071 90,351 2,970 324,794
1996
Sales to unaffiliated customers $ 824,639 $ 337,312 $305,319 $ -- $1,467,270
Operating income (loss)........ 146,332 42,573 19,500 (39,304) 169,101
Identifiable assets............ 952,445 386,245 614,584 290,359 2,243,633
Depreciation and amortization.. 80,582 11,046 29,419 783 121,830
Capital expenditures and other
acquisitions of property,
plant, and equipment....... 121,024 62,008 55,503 68 238,603
</TABLE>
41
<PAGE> 42
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
1995
Sales to unaffiliated customers $ 759,309 $ 149,462 $217,032 $ -- $1,125,803
Acquisition-related costs and
other unusual charges........ 59,171 -- -- 29,011 88,182
Operating income (loss)........ 5,116 14,425 16,276 (23,697) 12,120
Identifiable assets............ 916,831 218,201 406,953 73,092 1,615,077
Depreciation and amortization.. 79,381 7,170 19,690 1,819 108,060
Capital expenditures and other
acquisitions of property,
plant, and equipment....... 93,863 25,422 24,559 160 144,004
</TABLE>
During 1996, the Company incurred a charge of $5.8 million associated with
plant closures. Of this charge, $4.3 million related to the closure of a tool
joint facility within the drilling products segment and $1.5 million related to
the closure of a packer facility within the completion and oilfield services
segment. Operating income for 1996 for the drilling products and completion and
oilfield services segments include accruals included within the $5.8 million
charge of $1.5 million and $0.5 million, respectively, for such plant closures.
MAJOR CUSTOMERS AND CREDIT RISK
Substantially all of the Company's customers are engaged in the energy industry.
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, 1996 and 1995, there was no individual customer who accounted for
10% of consolidated revenues.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's equipment and services are used in approximately 84 countries
by U.S. customers operating abroad and by foreign customers. Sales of equipment
and services outside the United States accounted for 52%, 53% and 52% of total
revenues in 1997, 1996 and 1995, respectively, based upon the ultimate
destination in which equipment or services were sold, shipped or provided to the
customer by the Company.
Financial information by geographic segment for each of the three years
ended December 31, 1997, is summarized below. Intergeographic revenues are
accounted for at prices that approximate arm's length market prices. Certain
prior year balances have been restated to conform with current year
presentation.
<TABLE>
<CAPTION>
FOREIGN
-----------------------------------------------------
UNITED LATIN
STATES CANADA AMERICA EUROPE AFRICA OTHER ELIMINATIONS TOTAL
------------ ---------- ----------- ---------- --------- --------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Operating revenues from
unaffiliated customers.. $1,205,633 $257,478 $ 118,762 $ 149,223 $ 70,037 $ 167,956 $ -- $1,969,089
Transfers between
geographic areas........ 46,868 11,664 52,092 19,917 5,601 1,901 (138,043) --
------------ ---------- ----------- ---------- --------- --------- ------------ -----------
Total revenues............ 1,252,501 269,142 170,854 169,140 75,638 169,857 (138,043) 1,969,089
Operating income ......... 237,919 38,298 9,844 31,123 18,240 13,446 (12,878) 335,992
Identifiable assets....... 1,529,432 410,475 303,118 188,133 63,677 174,835 68,240 2,737,910
Export sales of U.S.
companies............... -- 26,293 38,280 28,414 16,229 69,923 -- 179,139
</TABLE>
42
<PAGE> 43
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Operating revenues from
unaffiliated customers ...$ 928,956 $ 143,610 $ 74,109 $ 148,094 $ 72,457 $ 100,044 $ -- $1,467,270
Transfers between
geographic areas ......... 29,856 566 12,505 9,848 5,452 1,860 (60,087) --
---------- ---------- ---------- ---------- ---------- --------- ---------- ----------
Total revenues ............. 958,812 144,176 86,614 157,942 77,909 101,904 (60,087) 1,467,270
Operating income ........... 102,992 19,264 11,823 18,526 17,773 6,681 (7,958) 169,101
Identifiable assets ........ 1,458,554 159,000 189,689 201,137 67,856 116,206 51,191 2,243,633
Export sales of U.S. .......
companies ................ -- 14,309 36,296 43,924 30,206 80,385 -- 205,120
1995
Operating revenues from
unaffiliated customers ...$ 691,983 $ 144,066 $ 49,521 $ 110,065 $ 57,450 $ 72,718 $ -- $1,125,803
Transfers between
geographic areas ......... 14,631 167 14,973 6,049 -- 1,879 (37,699) --
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total revenues ............. 706,614 144,233 64,494 116,114 57,450 74,597 (37,699) 1,125,803
Acquisition-related costs
and other unusual
charges ................ 43,276 2,850 259 4,302 624 7,860 29,011 88,182
Operating income ........... 13,416 15,694 9,642 2,027 15,389 (5,836) (38,212) 12,120
Identifiable assets ........ 1,074,720 103,565 86,748 141,673 40,299 103,756 64,316 1,615,077
Export sales of U.S. .......
companies ................ -- 21,711 25,394 28,977 19,605 32,781 -- 128,468
</TABLE>
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1997 and 1996.
<TABLE>
<CAPTION>
1ST QTR. (1) 2ND QTR. (1) 3RD QTR. (1) 4TH QTR. TOTAL
------------ ------------- ------------- ------------ -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1997
Revenues ........................ $ 431,253 $ 476,999 $ 509,718 $ 551,119 $ 1,969,089
Gross Profit .................... 124,262 139,813 158,264 175,624 597,963
SG&A ............................ 57,783 64,651 66,683 75,436 264,553
Operating Income ................ 66,988 75,705 92,283 101,016 335,992
Interest Expense ................ (10,545) (10,603) (10,125) (12,000) (43,273)
Income from Continuing
Operations ................... 37,903 45,741 53,726 59,403 196,773
Net Income ...................... 37,903 45,741 53,726 50,393 187,763
Depreciation and Amortization .... 34,023 35,744 36,203 36,961 142,931
Basic EPS:
Income from Continuing
Operations ................... $ 0.40 $ 0.48 $ 0.56 $ 0.61 $ 2.04
Net Income ..................... 0.40 0.48 0.56 0.52 1.95
Diluted EPS:
Income from Continuing
Operations ................... 0.39 0.47 0.55 0.60 2.01
Net Income .................... 0.39 0.47 0.55 0.51 1.92
1996
Revenues ........................ $ 308,685 $ 332,110 $ 392,060 $ 434,415 $ 1,467,270
Gross Profit .................... 79,385 85,125 104,056 107,890 376,456
SG&A ............................ 48,537 49,707 52,361 58,828 209,433
Operating Income ................ 31,349 36,273 52,148 49,331 169,101
Interest Expense ................ (8,900) (9,757) (10,322) (10,389) (39,368)
</TABLE>
43
<PAGE> 44
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Income from Continuing
Operations..................... 15,182 18,017 26,586 32,376 92,161
Net Income....................... 16,782 (3) 19,034 (3)(4) 29,428 (3) 100,578 (3)(5) 165,822
Depreciation and Amortization.... 28,712 29,382 30,867 32,869 121,830
Basic EPS:
Income from Continuing
Operations................... $ 0.18 $ 0.21 $ 0.29 $ 0.34 $ 1.03
Net Income..................... 0.20 (3) 0.22 (3)(4) 0.32 (3) 1.05 (3)(5) 1.85
Diluted EPS:
Income from Continuing
Operations................... 0.18 0.21 0.28 0.34 1.01
Net Income..................... 0.20 (3) 0.22 (3)(4) 0.31 (3) 1.04 (3)(5) 1.82
</TABLE>
(1) The first, second and third quarters of 1997 quarterly financial data has
been restated from amounts previously reported in the Company's respective
Forms 10-Q to reclassify certain amounts to conform with prior periods'
presentation and to classify the Veracruz, Mexico facility as a capital
lease to reflect the current terms thereof.
(2) Includes the extraordinary charge, net of taxes, of approximately $9.0
million related to the repayment of the Senior Notes in the fourth quarter
of 1997.
(3) Includes income from discontinued operations, net of taxes, of
approximately $1.6 million, $1.7 million, $2.8 million and $1.3 million
recorded in the first, second, third and fourth quarters of 1996,
respectively.
(4) Includes the extraordinary charge, net of taxes, of approximately $0.7
million recorded in the second quarter of 1996.
(5) Includes the gain on disposal of discontinued operations, net of taxes, of
approximately $66.9 million recorded in the fourth quarter of 1996.
44
<PAGE> 45
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
45
<PAGE> 46
SCHEDULE II
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES COLLECTIONS DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for uncollectible accounts
receivable........................ $ 16,824 $ 13,248 $ 112 $ (6,711) $ 23,473
YEAR ENDED DECEMBER 31, 1996:
Allowance for uncollectible accounts
receivable........................ $ 16,304 $ 4,608 $ 4 $ (4,092) $ 16,824
YEAR ENDED DECEMBER 31, 1995
Allowance for uncollectible accounts
receivable........................ $ 11,791 $ 6,751 $ 92 $ (2,330) $ 16,304
</TABLE>
46
<PAGE> 47
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
4.1 Amended and Restated Credit Agreement dated as of May 27, 1998,
among EVI Weatherford, Inc., EVI Oil Tools Canada Ltd., Chase Bank
of Texas, National Association, as U.S. Administrative Agent, The
Bank of Nova Scotia, as Documentation Agent and Canadian Agent,
ABN AMRO Bank, N.V., as Syndication Agent, and the other Lenders
defined therein, including the forms of Notes (incorporated by
reference to Exhibit No. 4.1 to Form 8-K, File 1-13086, filed June
16, 1998).
23.1 Consent of Arthur Andersen LLP with respect to the restated
consolidated financial statements of Weatherford International,
Inc.
27.1 Financial Data Schedule (incorporated by reference to Exhibit No.
27.1 to Form 8-K, File 1-13086, filed June 16, 1998).
27.2 Financial Data Schedule (incorporated by reference to Exhibit No.
27.2 to Form 8-K, File 1-13086, filed June 16, 1998).
47
<PAGE> 48
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 hereunto duly authorized.
WEATHERFORD INTERNATIONAL, INC.
Dated: December 7, 1998
/s/ James G. Kiley
--------------------------------------------
James G. Kiley
Senior Vice President and Chief Financial
Officer
/s/ Frances R. Powell
--------------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
48
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
4.1 Amended and Restated Credit Agreement dated as of May 27, 1998,
among EVI Weatherford, Inc., EVI Oil Tools Canada Ltd., Chase Bank
of Texas, National Association, as U.S. Administrative Agent, The
Bank of Nova Scotia, as Documentation Agent and Canadian Agent,
ABN AMRO Bank, N.V., as Syndication Agent, and the other Lenders
defined therein, including the forms of Notes (incorporated by
reference to Exhibit No. 4.1 to Form 8-K, File 1-13086, filed June
16, 1998).
23.1 Consent of Arthur Andersen LLP with respect to the restated
consolidated financial statements of Weatherford International,
Inc.
27.1 Financial Data Schedule (incorporated by reference to Exhibit No.
27.1 to Form 8-K, File 1-13086, filed June 16, 1998).
27.2 Financial Data Schedule (incorporated by reference to Exhibit No.
27.2 to Form 8-K, File 1-13086, filed June 16, 1998).
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Current Report on Form 8-K/A of Weatherford International, Inc. (formerly EVI
Weatherford, Inc.) of our report dated June 15, 1998 on the consolidated
financial statements of Weatherford International, Inc. as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
and to the incorporation by reference of such report into Weatherfod
International, Inc.'s previously filed Registration Statement File Nos.
33-31662, 33-56384, 33-56386, 33-65790, 33-64349, 333-13531, 333-24133,
333-39587, 333-44345, 333-45207, 333-49527, 333-53633, 333-58741 and 333-65663.
ARTHUR ANDERSEN LLP
Houston, Texas
December 7, 1998
