<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-13086
WEATHERFORD INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 04-2515019
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 Post Oak Blvd., Suite 600, Houston, Texas 77027-3415
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 693-4000
--------------------------------------------------
(Registrant's telephone number, include area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Outstanding at May 5, 1999
- ---------------------------- --------------------------
Common Stock, par value $1.00 97,668,471
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ................................. $ 34,736 $ 40,201
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $19,857 and $19,764, Respectively .......... 367,298 400,886
Inventories ............................................... 522,157 484,822
Deferred Tax Asset ........................................ 54,996 55,003
Other Current Assets ...................................... 89,877 101,480
----------- -----------
1,069,064 1,082,392
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION ........................... 1,008,014 838,270
GOODWILL, NET ................................................... 837,704 811,034
OTHER ASSETS .................................................... 122,578 100,019
----------- -----------
$ 3,037,360 $ 2,831,715
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings ..................................... $ 204,923 $ 185,729
Current Portion of Long-Term Debt ......................... 20,508 19,346
Accounts Payable .......................................... 108,174 135,728
Accrued Salaries and Benefits ............................. 51,420 44,558
Current Tax Liability ..................................... 18,315 25,312
Other Accrued Liabilities ................................. 111,146 146,168
----------- -----------
514,486 556,841
----------- -----------
LONG-TERM DEBT .................................................. 230,111 229,663
MINORITY INTERESTS .............................................. 268,840 2,888
DEFERRED INCOME TAXES AND OTHER ................................. 140,180 145,943
5% CONVERTIBLE SUBORDINATED PREFERRED
EQUIVALENT DEBENTURES ..................................... 402,500 402,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $1 Par Value, Authorized 250,000 Shares,
Issued 107,949 Shares and 103,513 Shares, Respectively . 107,949 103,513
Capital in Excess of Par Value ............................ 1,122,694 1,052,899
Treasury Stock, at Cost ................................... (268,460) (193,328)
Retained Earnings ......................................... 609,723 607,185
Accumulated Other Comprehensive Loss ...................... (90,663) (76,389)
----------- -----------
1,481,243 1,493,880
----------- -----------
$ 3,037,360 $ 2,831,715
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
<PAGE> 3
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES ............................................... $ 353,834 $ 570,520
----------- -----------
COSTS AND EXPENSES:
Cost of Sales ..................................... 259,261 384,358
Selling, General and Administrative Attributable
to Segments ..................................... 72,180 68,683
Corporate General and Administrative .............. 5,822 8,228
Equity in Earnings of Unconsolidated Affiliates ... (454) (780)
----------- -----------
336,809 460,489
----------- -----------
OPERATING INCOME ....................................... 17,025 110,031
OTHER INCOME (EXPENSE):
Interest Income ................................... 1,521 648
Interest Expense .................................. (12,652) (12,011)
Other, Net ........................................ (854) (680)
----------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST ....... 5,040 97,988
PROVISION FOR INCOME TAXES ............................. 1,764 36,835
----------- -----------
INCOME BEFORE MINORITY INTEREST ........................ 3,276 61,153
MINORITY INTEREST EXPENSE, NET OF TAX .................. 738 10
----------- -----------
NET INCOME ............................................. $ 2,538 $ 61,143
=========== ===========
EARNINGS PER SHARE:
Basic ............................................. $ 0.03 $ 0.63
=========== ===========
Diluted ........................................... $ 0.03 $ 0.63
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ............................................. 97,315 96,761
=========== ===========
Diluted ........................................... 98,007 97,625
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE> 4
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................... $ 2,538 $ 61,143
Adjustments to Reconcile Net Income to Net Cash
Used by Operating Activities:
Depreciation and Amortization .............................. 46,256 41,940
Minority Interest Expense, Net of Tax ...................... 738 10
Deferred Income Tax Provision .............................. 3,363 2,627
Gain on Sales of Property, Plant and Equipment ............. (2,270) (3,473)
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired ................................... (18,586) (80,857)
----------- -----------
Net Cash Provided by Operating Activities ................ 32,039 21,390
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Short-Term Investment ............................ (11,924) --
Acquisition of Businesses, Net of Cash Acquired .............. (15,125) (78,056)
Capital Expenditures for Property, Plant and
Equipment .................................................. (32,772) (49,403)
Proceeds from Sales of Property, Plant and Equipment ......... 5,810 6,715
Other, Net ................................................... -- 3,928
----------- -----------
Net Cash Used by Investing Activities ...................... (54,011) (116,816)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Short-Term Debt, Net ........................... 19,194 109,395
Repayments on Long-Term Debt, Net ............................ (984) (9,637)
Proceeds from Exercise of Stock Options ...................... -- 2,208
Acquisition of Treasury Stock ................................ (1,170) (37,686)
Other, Net ................................................... 112 --
----------- -----------
Net Cash Provided by Financing Activities .................. 17,152 64,280
----------- -----------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH ........................... (645) (565)
NET DECREASE IN CASH AND CASH EQUIVALENTS .......................... (5,465) (31,711)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 40,201 74,211
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 34,736 $ 42,500
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid ................................................ $ 7,487 $ 7,288
Income Taxes Paid, Net of Refunds ............................ $ 10,741 $ 12,922
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE> 5
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Comprehensive Income (Loss):
Net Income......................................................... $ 2,538 $ 61,143
Cumulative Foreign Currency Translation Adjustment................. (14,274) (3,141)
------------ ------------
Total Comprehensive Income (Loss)....................................... $ (11,736) $ 58,002
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
<PAGE> 6
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated condensed financial statements included herein
have been prepared by Weatherford International, Inc. (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission. These
financial statements reflect all adjustments which the Company considers
necessary for the fair presentation of such financial statements for the interim
periods presented. Although the Company believes that the disclosures in these
financial statements are adequate to make the interim information presented not
misleading, certain information relating to the Company's organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted in this Form 10-Q pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1998 and notes thereto
included in the Company's Annual Report on Form 10-K. The results of operations
for the three month period ended March 31, 1999 are not necessarily indicative
of the results expected for the full year.
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 1999 classifications.
2. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ -----------
(in thousands)
<S> <C> <C>
Raw materials, components and supplies............ $ 253,769 $ 212,863
Work in process................................... 42,840 42,650
Finished goods.................................... 225,548 229,309
------------ -----------
$ 522,157 $ 484,822
============ ===========
</TABLE>
Work in process and finished goods inventories include the cost of
material, labor and plant overhead.
3. BUSINESS COMBINATIONS
In February 1999, the Company completed a joint venture with GE Capital
Corporation ("GE Capital") in which the Company's compression services
operations were combined with GE Capital's Global Compression Services
operations. The joint venture is known as Weatherford Global Compression. The
Company owns 64% of the joint venture and GE Capital owns 36%. The Company has
the right to acquire GE Capital's interest at anytime at a price equal to a
third party market-determined value that is not less than book value. GE Capital
also has the right to require the Company to purchase its interest at anytime
after February 2001 at a market-determined third party valuation as well as
request a public offering of its interest after that date, if the Company has
not purchased its interest by that time.
The valuation of net assets to be conveyed to the joint venture is subject
to adjustment pending the resolution of items which must be agreed to by the
Company and GE Capital. The Company believes the ultimate resolution will not
have a material impact on the assets acquired or the Company's results of
operations as a result of such revision.
On February 8, 1999, the Company completed the acquisition of Christiana
Companies, Inc. ("Christiana") for approximately 4.4 million shares of the
Company's common stock, $1.00 par value ("Common Stock") and $20.6 million cash.
In the acquisition, the Company acquired through Christiana (1) 4.4 million
shares of the Company's Common Stock, (2) cash, after distribution to the
Christiana shareholders, equal to the amount of Christiana's outstanding tax and
other liabilities and (3) a one-third interest in Total Logistic Control, a
refrigerated warehouse, trucking and logistics company. The 4.4 million shares
of Common Stock acquired are classified as treasury stock. Because the number of
shares of Common Stock issued in the Christiana acquisition approximated the
number of shares of Common Stock held by Christiana prior to the acquisition,
the Christiana acquisition had no material effect on the outstanding number of
shares of Common Stock or net equity of the Company.
6
<PAGE> 7
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On May 27, 1998, the Company (formerly known as EVI, Inc. ("EVI"))
completed a merger (the "Merger") with Weatherford Enterra, Inc. ("WII"),
merging WII with and into the Company pursuant to a tax free merger in which the
stockholders of WII received 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 were issued in the Merger. In addition, as of May 27, 1998,
approximately 1.4 million shares of Common Stock were 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, prior year
amounts 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 for the three months ended March 31, 1998. Merger adjustments include
the elimination of intercompany revenues of $3.1 million and cost of sales of
$2.2 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
----------------------
(in thousands)
<S> <C>
Operating Revenues:
EVI.............................................. $ 313,900
WII.............................................. 259,729
Merger adjustments............................... (3,109)
---------------------
Combined............................................ $ 570,520
======================
Net Income:
EVI.............................................. $ 31,277
WII.............................................. 30,487
Merger adjustments............................... (621)
---------------------
Combined............................................ $ 61,143
=====================
</TABLE>
The Company has also effected various other acquisitions during the three
months ended March 31, 1999 for total consideration of approximately $15.1
million.
The acquisitions discussed above, with the exception of WII, were accounted
for using the purchase method of accounting. Results of operations for
acquisitions accounted for as purchases are included in the accompanying
consolidated condensed financial statements since the date of acquisition. With
respect to the business combination accounted for as a pooling of interests, the
consolidated condensed financial statements have been restated for all periods
presented as if the companies had been combined since inception. Acquisitions
accounted for as purchases are not material individually or in the aggregate
with same year acquisitions; therefore, pro forma information is not provided.
4. 1998 SPECIAL CHARGE
The Company incurred a $75.0 million charge in the fourth quarter of 1998
related to the decline in the Company's markets. Over $63.0 million of these
charges had been utilized as of March 31, 1999. The Company expects the
remainder of the charges to be fully expended by the second quarter of 1999 in
connection with planned activities and that no adjustments or reversals to the
remaining accrued special charges will be necessary.
7
<PAGE> 8
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following chart summarizes the December 31, 1998 balance of accruals
established in the fourth quarter of 1998 and the utilization of these accruals
during the first quarter of 1999.
<TABLE>
<CAPTION>
BALANCE AS OF BALANCE AS OF
DECEMBER 31, MARCH 31,
1998 UTILIZED 1999
------------- ----------- ------------
(in thousands)
<S> <C> <C> <C>
Severance and Related Costs (a)............ $ 7,611 $ 3,490 $ 4,121
Facility Closures (b)...................... 12,829 7,150 5,679
Corporate Related Expenses (c)............. 3,120 1,475 1,645
------------- ----------- ------------
Total .................................. $ 23,560 $ 12,115 $ 11,445
============= =========== ============
</TABLE>
(a) The severance and related costs included in the fourth quarter charges were
$7.6 million for 1,000 employees to be terminated in the first half
of 1999, in accordance with the announced plan. During the first quarter of
1999, approximately 600 employees were terminated with associated costs of
$3.5 million.
(b) The facility and plant closures of $12.8 million were accrued in the fourth
quarter of 1998 for the consolidation and closure of 100 service,
manufacturing and administrative facilities in response to declining market
conditions in the fourth quarter. During the first quarter of 1999,
approximately 65 facilities were closed with associated costs of $7.2
million.
(c) The corporate related expenses of $3.1 million recorded in the fourth
quarter were primarily for the consolidation of technology centers, the
relocation of corporate offices and the related lease obligations to align
the corporate cost structure in light of current conditions. During the
first quarter of 1999, $1.5 million was expended related to the relocation
of corporate offices.
5. SHORT-TERM DEBT
The Company's unsecured credit agreement 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. Amounts outstanding under
the facility accrue interest at a variable rate based on either LIBOR or the
U.S. prime rate. A commitment fee ranging from 0.09% to 0.20% per annum,
depending on the senior unsecured credit ratings assigned by Standard and Poor's
and Moody's Investor Service to the Company, is payable quarterly on the unused
portion of the facility. The facility contains customary affirmative and
negative covenants, including a maximum debt to capitalization ratio, a minimum
interest coverage ratio, a limitation on liens, and a limitation on asset
dispositions.
6. CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT
The functional currency for certain 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 accumulated other comprehensive loss, a separate
component of stockholders' equity. Currency transaction gains and losses are
reflected in income for the period.
The net decline in the cumulative foreign currency translation adjustment
from December 31, 1998 to March 31, 1999 was $14.3 million which primarily
reflects the financial impact of the devaluation of Latin American currencies as
compared to the U.S. dollar.
8
<PAGE> 9
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
7. REVENUES AND COST OF SALES
The following presents the Company's revenues and costs by products and
services and rentals:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------
1999 1998
------------- -------------
(in thousands)
<S> <C> <C>
REVENUES:
Products........................................................... $ 205,384 $ 360,456
Services and Rentals............................................... 148,450 210,064
------------- -------------
Total Revenues................................................... $ 353,834 $ 570,520
============= =============
COSTS AND EXPENSES:
Cost of Products................................................... $ 156,708 $ 251,252
Cost of Services and Rentals....................................... 102,553 133,106
------------- -------------
Total Costs and Expenses......................................... $ 259,261 $ 384,358
============= =============
</TABLE>
8. EARNINGS PER SHARE
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 and restricted stock plans. The
effect of the Company's 5% Convertible Subordinated Preferred Equivalent
Debentures due 2027 (the "Debentures") on diluted earnings per share is
anti-dilutive and thus is not included in the calculation.
The following reconciles basic and diluted weighted average shares
outstanding:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------
1999 1998
------------- -------------
(in thousands)
<S> <C> <C>
Basic weighted average shares outstanding............................... 97,315 96,761
Dilutive effect of stock option and restricted stock plans.............. 692 864
------------- -------------
Diluted weighted average shares outstanding............................. 98,007 97,625
============= =============
</TABLE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes investing activities relating to acquisitions and
the joint venture:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------------
1999 1998
------------- -------------
(in thousands)
<S> <C> <C>
Fair value of assets, net of cash acquired............................. $ 262,622 $ 63,489
Goodwill............................................................... 30,386 94,430
Total liabilities...................................................... (277,883) (48,968)
Common stock issued.................................................... -- (30,895)
------------- -------------
Cash consideration, net of cash acquired............................... $ 15,125 $ 78,056
============= =============
</TABLE>
9
<PAGE> 10
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
10. SEGMENT INFORMATION
Business Segments
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
operates in virtually every oil and gas exploration and production region in the
world. The Company defines its business segments into four separate groups:
completion and oilfield services, artificial lift systems, compression services,
and drilling products.
The Company's completion and oilfield services segment provides fishing and
downhole services, well installation services, well completion systems and
equipment rental.
The Company's artificial lift systems segment designs, manufactures, sells
and services a complete line of artificial lift equipment, including progressing
cavity pumps, reciprocating rod lift equipment, gas lift equipment, electrical
submersible pumps and hydraulic lift equipment.
The Company's compression services segment manufactures, packages, rents
and sells parts and services for gas compressor units over a broad horsepower
range.
The Company's drilling products segment manufactures drill stem products,
premium engineered connections, premium tubulars and marine and subsea
connectors and related accessories.
Financial information by industry segment for each of the three months
ended March 31, 1999 and 1998, is summarized below.
<TABLE>
<CAPTION>
COMPLETION ARTIFICIAL
AND OILFIELD LIFT COMPRESSION DRILLING
SERVICES SYSTEMS SERVICES PRODUCTS CORPORATE TOTAL
------------ ------------ ------------ ----------- ----------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues from unaffiliated
customers...................... $ 165,287 $ 57,471 $ 42,583 $ 88,493 $ -- $ 353,834
EBITDA (a)....................... 43,313 3,991 12,584 8,852 (5,459) 63,281
Depreciation and amortization.... 26,283 4,835 7,568 7,207 363 46,256
Operating income (loss).......... 17,030 (844) 5,016 1,645 (5,822) 17,025
Total assets..................... 998,893 585,813 665,676 703,723 83,255 3,037,360
Capital expenditures for
property, plant, and
equipment.................... 14,964 1,621 11,580 3,703 904 32,772
1998
Revenues from unaffiliated
customers...................... $ 229,762 $ 107,129 $ 43,001 $190,628 $ -- $ 570,520
EBITDA (a)....................... 79,573 16,886 10,765 52,311 (7,564) 151,971
Depreciation and amortization.... 22,622 4,930 6,092 7,632 664 41,940
Operating income (loss).......... 56,951 11,956 4,673 44,679 (8,228) 110,031
Total assets..................... 1,003,885 654,397 470,271 746,753 34,139 2,909,445
Capital expenditures for
property, plant, and
equipment.................... 24,778 8,616 8,301 7,568 140 49,403
</TABLE>
(a) The Company evaluates performance and allocates resources based on
EBITDA, which is calculated as operating income adding back depreciation
and amortization. Calculations of EBITDA should not be viewed as a
substitute to calculations under GAAP, in particular operating income and
net income. In addition, EBITDA calculations by one company may not be
comparable to another company.
10
<PAGE> 11
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Foreign Operations
Financial information by geographic segment for each of the three months
ended March 31, 1999 and 1998, is summarized below. Revenues are attributable to
countries based on the location of the entity selling products. Long-lived
assets are long-term assets excluding deferred tax assets of $16.8 million and
$19.7 million as of March 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
UNITED LATIN MIDDLE
STATES CANADA AMERICA EUROPE AFRICA EAST OTHER TOTAL
--------- -------- -------- -------- -------- --------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
Revenues from
unaffiliated customers........ $ 182,258 $ 44,688 $ 30,521 $ 38,645 $ 20,392 $ 11,921 $ 25,409 $ 353,834
Long-lived assets............... 1,185,838 309,007 200,979 138,195 35,692 20,690 61,113 1,951,514
1998
Revenues from
unaffiliated customers........ $ 303,676 $107,359 $ 51,010 $ 39,818 $ 20,931 $ 11,865 $ 35,861 $ 570,520
Long-lived assets............... 987,603 326,117 168,713 141,649 15,358 21,113 49,329 1,709,882
</TABLE>
11. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial 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.
12. SUBSEQUENT EVENTS
Acquisition
In April 1999, the Company entered into an agreement, subject to
regulatory approvals, to acquire a 50.01% interest in the Voest-Alpine Stahlrohr
Kindberg GmbH & Co KG ("VA") for approximately $30.0 million. VA produces high
quality seamless tubulars in Austria.
Sale and Leaseback of Equipment
The Company entered into a sale and leaseback arrangement in December
1998 where it was provided with the right to sell up to $200.0 million of
compression units through December 1999 and lease them back over a five year
period under an operating lease. As of December 31, 1998, the Company had sold
compressors under this arrangement, having an appraised value of $119.6 million,
and received cash of $100.0 million and a receivable of $19.6 million. The
obligations under this arrangement were assumed by the joint venture with GE
Capital. As of March 31, 1999, the joint venture had received an additional
$10.0 million in cash from this receivable. The receivable is classified in
other current assets on the accompanying Consolidated Condensed Balance Sheets
as the balance is due on demand.
In April 1999, the joint venture sold additional compressors under this
arrangement having an appraised value of approximately $80.0 million. Upon
receipt of the $80.0 million in cash, the joint venture will remit approximately
$56.0 million of the proceeds to GE Capital as part of the terms of the joint
venture (See Note 3).
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following is a discussion of our results of operations for the quarter
ended March 31, 1999, and March 31, 1998, and our current financial position.
This discussion should be read in conjunction with our financial statements that
are included with this report as well as our Annual Report on Form 10-K for the
year ended December 31, 1998, previously filed with the Securities and Exchange
Commission.
Our businesses are concentrated in the oilfield service and equipment
industry and are conducted through four separate segments: Completion and
Oilfield Services, Artificial Lift Systems, Compression Services and Drilling
Products. Our discussion of our results and financial condition includes various
forward-looking statements about our markets, the demand for our products and
services and our future results. These statements are based on certain
assumptions that we consider to be reasonable. For information about these
assumptions, you should refer to our Section entitled "Forward-Looking
Statements."
MARKET TRENDS AND OUTLOOK
The depressed market for oilfield products and services continued to decline
during the first quarter of 1999. The domestic and international rig count
remained at historical low levels and despite recent increases in oil and
natural gas prices, drilling and production activity has remained low. The
increase in oil prices has followed an agreement of the Organization of
Petroleum Exporting Countries to limit oil production. The increase in oil
prices has not yet resulted in any material increase in rig or drilling
activity.
The following chart sets forth certain historical statistics that are
reflective of the current market conditions in which we operate:
<TABLE>
<CAPTION>
HENRY HUB NORTH AMERICAN INTERNATIONAL
WTI OIL (1) GAS (2) RIG COUNT (3) RIG COUNT (3)
-------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
March 1999...................... $ 14.66 $ 2.48 724 613
March 1998...................... 15.02 2.48 1,322 806
</TABLE>
(1) Price per Barrel as of March 31 - Source: Applied Reasoning, Inc.
(2) Price per MM/BTU as of March 31 - Source: Oil World
(3) Average rig count for March - Source: Baker Hughes Rig Count
The reduction in drilling and production activity impacted our businesses
through lower revenues, pricing pressure and reduced margins. Contributing to
these conditions are the following trends:
o North American activity continued to decline as many of our customers
delayed spending due to uncertainties on oil prices and the impact of
consolidation efforts following recent mergers among the large oil
companies.
o Excess product and service capacity has placed pressure on prices and
margins as competitors have sought to maintain or gain market share
through price reductions. We estimate that pricing declined between
10% and 20% during the quarter, depending on the product or service.
o Cost reductions overall helped offset the impact of revenue declines.
o Our Artificial Lift Systems Division results were down significantly
from the first quarter of 1998 but slightly up from the fourth quarter
of 1998, reflecting what we believe is the beginning of a recovery in
this division.
o Our Compression Services Division benefited from our recent joint
venture with GE Capital's Global Compression unit.
o Our Drilling Products Division was adversely affected by the
continuing decline in its backlog for drill stem products and under
absorption at its manufacturing facilities.
Looking forward into the remainder of this year, we expect that second
quarter results will be flat or slightly down compared to the first quarter and
that the third and fourth quarters should reflect improvements over the
preceding quarters as drilling and production activity increases. The level of
this increase will be heavily dependent on whether oil and natural gas prices
can remain at or about their present levels and the impact it may have on the
customer spending. The improvements in the industry will also affect our
divisions at different times. Although we
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<PAGE> 13
believe that the activity levels in our industry are at or near their bottom,
the timing and extent of a recovery is difficult to predict and will be
dependent on many external factors.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED TO THE QUARTER ENDED MARCH 31, 1998
The following charts contain selected financial data comparing our results
for 1999 and 1998:
COMPARATIVE FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
--------------------------
1999 1998
----------- ----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues.......................................... $ 353,834 $ 570,520
Gross Profit...................................... 94,573 186,162
Gross Profit %.................................... 26.7% 32.6%
Selling, General and Administrative
Attributable to Segments........................ $ 72,180 $ 68,683
Corporate General and Administrative.............. 5,822 8,228
Operating Income.................................. 17,025 110,031
Interest Income................................... 1,521 648
Interest Expense.................................. 12,652 12,011
Net Income........................................ 2,538 61,143
EBITDA (a)........................................ 63,281 151,971
</TABLE>
Note (a): EBITDA is calculated by taking operating income and adding back
depreciation and amortization. We have included an EBITDA calculation here
because when we look at the performance of our businesses, we give consideration
to their EBITDA. Calculations of EBITDA should not be viewed as a substitute to
calculations under GAAP, in particular cash flows from operations, operating
income and net income. In addition, EBITDA calculations by one company may not
be comparable to another company.
SALES BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
REGION: (a)
U.S. .............................................. 51% 53%
Canada ............................................ 13% 19%
Europe ............................................ 11% 7%
Latin America....................................... 9% 9%
Africa ............................................ 6% 4%
Middle East......................................... 3% 2%
Other .............................................. 7% 6%
--------- ---------
Total........................................... 100% 100%
========= =========
</TABLE>
Note (a): Sales are based on the region of origination.
Our results for the first quarter of 1999 reflected the adverse market
conditions in which we are operating. These conditions had the following effects
on our results:
o Revenues for the first quarter of 1999 declined 38.0% compared to the
same period in 1998.
o Our first quarter 1999 revenues in North America were $184.1 million
less than they were in the first quarter of 1998. Operating income
dropped proportionately to the decline in revenues.
o A $93.0 million decline in the first quarter of 1999 operating income,
as compared to the first quarter of 1998 operating income of $110.0
million, reflected the significant decline in our industry.
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<PAGE> 14
o We have continued our cost reduction efforts to reduce operating costs
in response to a continued decline in market conditions.
o Our corporate expenses for the first quarter of 1999 were down $2.4
million as compared to the first quarter of 1998. The decrease from
1998 was primarily attributable to consolidation savings.
o Our effective tax rate on income from continuing operations for the
first quarter of 1999 was 35.0% as compared to 37.6% for the first
quarter of 1998.
1998 SPECIAL CHARGE
We incurred a $75.0 million charge in the fourth quarter of 1998 related to
the decline in our markets. Over $63.0 million of the charge had been utilized
as of March 31, 1999. We expect the remainder of the charges to be fully
expended by the second quarter of 1999 in connection with planned activities and
that no adjustments or reversals to the remaining accrued special charge will be
necessary.
The following chart summarizes the December 31, 1998 balance of accruals
established in the fourth quarter of 1998 and the utilization of these accruals
during the first quarter of 1999:
<TABLE>
<CAPTION>
BALANCE AS OF BALANCE AS OF
DECEMBER 31, MARCH 31,
1998 UTILIZED 1999
------------- ----------- ------------
(in thousands)
<S> <C> <C> <C>
Severance and Related Costs (a)............ $ 7,611 $ 3,490 $ 4,121
Facility Closures (b)...................... 12,829 7,150 5,679
Corporate Related Expenses (c)............. 3,120 1,475 1,645
------------- ----------- ------------
Total .................................. $ 23,560 $ 12,115 $ 11,445
============= =========== ============
</TABLE>
(a) The severance and related costs included in the fourth quarter charges were
$7.6 million for approximately 1,000 employees to be terminated in
the first half of 1999, in accordance with our announced plan. During the
first quarter of 1999, approximately 600 employees were terminated with
associated costs of $3.5 million.
(b) The facility and plant closures of $12.8 million were accrued in the fourth
quarter of 1998 for the consolidation and closure of approximately 100
service, manufacturing and administrative facilities in response to
declining market conditions. During the first quarter of 1999,
approximately 65 facilities were closed with associated costs of $7.2
million.
(c) The corporate related expenses of $3.1 million recorded in the fourth
quarter were primarily for the consolidation of technology centers,
the relocation of corporate offices and the related lease obligations
to align our corporate cost structure in light of current conditions.
During the first quarter of 1999, $1.5 million was expended related
to the relocation of corporate offices.
SEGMENT RESULTS
COMPLETION AND OILFIELD SERVICES
Our Completion and Oilfield Services Division continues to experience
reductions in revenue, operating income and margins as the rig count declines
and demand for its products and services drop. This division's North American
operations continue to be the most adversely affected by the downturn. We
believe that the U.S. revenue declines in this division have generally bottomed
out. In most of our international markets, we are experiencing pricing pressures
due to soft demand.
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<PAGE> 15
The following chart sets forth additional data regarding the results of
our Completion and Oilfield Services Division for the first quarter of 1999 and
1998:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
-----------------------------
1999 1998
----------- -----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues.......................................... $ 165,287 $ 229,762
Gross Profit...................................... 48,242 82,315
Gross Profit %.................................... 29.2% 35.8%
Selling, General and Administrative............... $ 31,666 $ 26,144
Operating Income.................................. 17,030 56,951
EBITDA............................................ 43,313 79,573
</TABLE>
Material items affecting the results of our Completion and Oilfield
Services Division for the first quarter of 1999 compared to 1998 were:
o Our North American revenues for the first quarter of 1999
declined by 47.2% as compared to 1998 due to an average rig count
reduction of 41.2%.
o Our international revenues, excluding Canada, decreased by 3.8%
in the first quarter of 1999 to $97.5 million. The most
significant revenue decrease occurred in the Latin American
market which declined 16.2% compared to the first quarter of
1998.
o Gross profit percentage declined in the first quarter of 1999 by
6.6% due to revenue and pricing declines.
o Selling, general and administrative expenses increased as a
percentage of revenues from 11.4% in the first quarter of 1998 to
19.2% in the first quarter of 1999. The increase primarily
reflects a lower revenue base.
o Operating income declined in the first quarter of 1999 to $17.0
million from $57.0 million in the first quarter of 1998 primarily
due to reduced revenues associated with industry conditions and
resulting operational inefficiencies attributable to lower
operating levels.
o Approximately $4.7 million of the special charge that was accrued
in the fourth quarter of 1998 was realized in the first quarter
of 1999.
ARTIFICIAL LIFT SYSTEMS
Our Artificial Lift Systems Division results for the first quarter of
1999 compared to the first quarter of 1998, were down significantly due to a
substantial reduction in demand for our artificial lift products following the
downturn in the industry. This decline was most pronounced in North America
where our first quarter 1998 sales in the region represented approximately 82.0%
of the division's total revenue.
Operating results from our Artificial Lift Systems Division are heavily
dependent on oil production activity. Late in the first quarter, our Artificial
Lift Systems Division began to see the revenue declines that were experienced
throughout 1998 reverse with the recent increases in oil prices. We expect the
results from this division to continue to improve during the year, in particular
from sales outside North America, as the products from this division are
marketed through our international distribution network. The level of
improvement in this division will depend on our clients' reaction to higher oil
prices and the strength of the recovery.
15
<PAGE> 16
The following chart sets forth additional data regarding the results of
our Artificial Lift Systems Division for the first quarter of 1999 and 1998:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
-----------------------------
1999 1998
----------- -----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues........................................ $ 57,471 $ 107,129
Gross Profit.................................... 21,395 38,191
Gross Profit %.................................. 37.2% 35.6%
Selling, General and Administrative............. $ 22,239 $ 26,235
Operating Income (Loss)......................... (844) 11,956
EBITDA.......................................... 3,991 16,886
</TABLE>
Material items affecting the results of our Artificial Lift Systems
Division as reflected above for the first quarter of 1999 compared to the first
quarter of 1998 were:
o The first quarter of 1999 experienced a decline in revenues of
46.4% compared to the first quarter of 1998 due to the industry
downturn.
o Gross profit declined to $21.4 million in the first quarter of
1999 from $38.2 million in first quarter of 1998 due to a lower
revenue base and pricing declines.
o Selling, general and administrative expenses declined by $4.0
million in the first quarter of 1999 as compared to 1998 due to
the cost reduction efforts. Selling, general and administrative
expenses increased as a percentage of revenues from 24.5% in the
first quarter of 1998 to 38.7% in the first quarter of 1999. The
increase was primarily a result of a lower revenue base.
o The operating loss of $0.8 million for the first quarter of 1999
is a result of the sharp decline in revenues and higher average
costs associated with low industry levels.
o Cost reductions implemented in 1998 in this division benefited
operating income and EBITDA in the first quarter of 1999 compared
to the fourth quarter of 1998.
o Approximately $5.4 million of the special charge that was accrued
in the fourth quarter of 1998 was realized in the first quarter
of 1999.
COMPRESSION SERVICES
Our Compression Services Division results for the first quarter of 1999
reflected improved margins, operating income and cash flow on essentially flat
revenues. The improvements were primarily attributable to a better revenue mix
and costs savings from the joint venture entered into with GE Capital in
February 1999. The joint venture has allowed this division to (1) diversify its
compression fleet and revenue base, (2) increase its gross profit, operating
income and cash flow for the division through consolidation savings and (3)
expand its geographic market presence.
Demand for our compression services in the first quarter of 1999 was down
for smaller horsepower compressor units, which are primarily dependent on North
American activity and are subject to commodity price volatility, and slightly up
for larger horsepower units. We expect that demand for smaller units will
increase during the year as natural gas prices increase. We are also actively
pursuing new long-term service contracts for many of the larger horsepower units
acquired by us in the joint venture as well as domestic and international field
management opportunities.
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<PAGE> 17
The following chart sets forth additional data regarding the results of
our Compression Services Division for 1999 and 1998:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
----------------------------
1999 1998
----------- -----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues......................................... $ 42,583 $ 43,001
Gross Profit..................................... 12,029 9,816
Gross Profit %................................... 28.2% 22.8%
Selling, General and Administrative.............. $ 7,013 $ 5,143
Operating Income................................. 5,016 4,673
EBITDA........................................... 12,584 10,765
Minority Interest Before Taxes................... 1,494 --
</TABLE>
Material items affecting the results of our Compression Services Division
for 1999 compared to 1998 were:
o The GE Capital joint venture added approximately $8.6 million in
revenues to the division for the first quarter of 1999. Our total
owned horsepower increased to over 850,000 horsepower making
our fleet the second largest fleet in the industry.
o Gross profit as a percentage of revenues increased due to
improved product and sales mix.
o The increase in selling, general and administrative expenses for
the first quarter of 1999 compared to 1998 primarily reflects
additional staff associated with our joint venture.
o Operating income benefited from improved margins and the joint
venture with GE Capital.
DRILLING PRODUCTS
Our Drilling Products Division continued to be severely impacted by the
decline in worldwide drilling activity in 1998 and 1999. Revenues for the first
quarter of 1999 were down by more than 50% from the high level recorded in the
first quarter of 1998. This division's backlog of drill stem products is being
replaced at diminishing rates. At March 31, 1999, the backlog in drill stem
products was $46.5 million compared to the backlog of $89.9 million at December
31, 1998.
The outlook for this division will be dependent on the timing of a
worldwide drilling recovery. Improvements in the demand for drill stem products
will likely lag any recovery in drilling activity by three to six months due to
existing customer inventory levels. Pending a recovery in drilling activity,
sales of drill stem products will be primarily limited to specialty products.
We recently entered into an agreement, subject to various regulatory
approvals, to purchase a 50.01% ownership interest in Voest-Alpine Stahlrohr
Kindberg KmbH & Co KG in Austria. Voest-Alpine owns a tubular mill in Austria
with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the U.S. We also
expect to enter into a long-term supply contract with the Voest-Alpine's mill on
desirable terms at the time of our investment. The impact of this investment and
supply contract should benefit our Drilling Products Division as the market
recovers by providing us with a reliable and economical source of raw materials
from a controlled affiliate, as well as a 50% profit participation in
Voest-Alpine's business.
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<PAGE> 18
The following chart sets forth additional data regarding the results of
our Drilling Products Division for the first quarter of 1999 and 1998:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
----------------------------
1999 1998
----------- ----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues........................................ $ 88,493 $ 190,628
Gross Profit.................................... 12,907 55,840
Gross Profit %.................................. 14.6% 29.3%
Selling, General and Administrative............. $ 11,262 $ 11,161
Operating Income................................ 1,645 44,679
EBITDA.......................................... 8,852 52,311
</TABLE>
Material items affecting the results of our Drilling Products Division
for the first quarter of 1999 compared to 1998 were:
o Sales of drill stem products are currently down by approximately
50% from the record level of sales recorded in the first quarter
of 1998.
o Sales of premium tubular products and connections were $32.0
million in the first quarter of 1999 compared to $80.1 million in
the first quarter of 1998 and $34.0 million in the fourth quarter
of 1998.
o The decrease in revenues for the first quarter of 1999 reflects
the overall decline in drilling activity.
o Premium tubular revenues declined in the first quarter of 1999
due to a decrease in demand as distributors' inventories fell in
light of prevailing market conditions.
o Gross profit, gross profit percentages and operating income
declined due to lower sales volume and high fixed costs
associated with the manufacturing operations.
o Operating income was down 96.3% and EBITDA was down 83.1% for the
first quarter of 1999 compared to the first quarter of 1998 due
to substantially lower sales and higher average costs.
o During the first quarter of 1999, we reduced the headcount in
this division by more than 330 people.
LIQUIDITY AND CAPITAL RESOURCES
Our current sources of capital are current cash, cash generated from
operations and borrowings under bank lines of credit. We believe that the
current reserves of cash and short-term investments, access to our existing
credit line and internally generated cash from operations are sufficient to
finance the projected cash requirements of our current and future operations. We
are continually reviewing acquisitions in our markets. Depending upon the size,
nature and timing of an acquisition, we may need additional capital in the form
of either debt, equity or a combination of both.
The following chart contains information regarding our capital resources and
borrowings and exposures as of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ -------------
(in thousands)
<S> <C> <C>
Cash and Cash Equivalents........................... $ 34,736 $ 40,201
Borrowings from Revolving Credit Facilities......... 109,923 117,279
Letters of Credit Outstanding....................... 26,214 29,937
Cumulative Foreign Currency Translation
Adjustment........................................ (90,663) (76,389)
International Assets Hedged (U.S. Dollar
Equivalent)....................................... 34,447 33,365
</TABLE>
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<PAGE> 19
The reduction in our cash and cash equivalents since December 31, 1998, was
primarily attributable to the acquisition of new businesses for approximately
$15.1 million in cash, the purchase of short-term investments of $11.9 million,
and capital expenditures for property, plant and equipment of $32.8 million,
offset by net borrowing on short-term debt of $19.2 million, and cash flow from
operations of $32.0 million.
REVIEW OF GRANT PRIDECO OPTIONS
In light of market conditions, our recently announced proposed investment
in Voest-Alpine and other future opportunities for our Grant Prideco Drilling
Products division, we are currently reviewing our options for this division,
including the desirability and feasibility of a spin-off of this division from
the rest of our company. Although we believe that the Drilling Products Division
is an important part of our company, its capital requirements and acquisition
and growth opportunities are very different from the remainder of Weatherford.
Many of these opportunities would not be feasible within the Weatherford group.
We expect this review will be completed by the third quarter of 1999, at which
time a decision will be made. Pending that decision, the Drilling Products
Division will continue to operate as a separate business division of our
company.
BANKING FACILITIES
In May 1998, we put in place a five-year unsecured revolving credit
facility that allows us to borrow up to $250.0 million at any time. The facility
consists of a $200.0 million U.S. credit facility and a $50.0 million Canadian
credit facility. Borrowings under this facility bear interest at a variable rate
based on the U.S. prime rate or LIBOR. Our credit facility contains customary
affirmative and negative covenants, including a maximum debt to capitalization
ratio, a minimum interest coverage ratio, a limitation on liens and a limitation
on asset dispositions.
CONVERTIBLE SUBORDINATED DEBENTURES
In November 1997, we completed a private placement of $402.5 million
principal amount of our 5% Convertible Subordinated Preferred Equivalent
Debentures due 2027. 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. We have the right to redeem the
Debentures at any time on or after November 4, 2000, at redemption prices
provided for in the indenture agreement, and are subordinated in right of
payment of principal and interest to the prior payment in full of certain
existing and future senior indebtedness. We also have 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 any time
when we are not in default in the payment of interest.
7 1/4% SENIOR NOTES DUE 2006
We have outstanding $200.0 million of publicly-traded 7 1/4% Senior Notes
due May 15, 2006. Interest on the 7 1/4% Senior Notes is payable semi-annually
on May 15 and November 15 of each year.
COMPRESSION FINANCING
Our Compression Services Division entered into a sale and leaseback
arrangement in December 1998 where it was provided with the right to sell up to
$200.0 million of compression units through December 1999 and lease them back
over a five year period under an operating lease. As of December 31, 1998, our
Compression Services Division had sold compressors under this arrangement,
having an appraised value of $119.6 million, and received cash of $100.0 million
and a receivable of $19.6 million. The obligations under this arrangement were
assumed by the joint venture with GE Capital. As of March 31, 1999, the joint
venture had received an additional $10.0 million from this receivable. The
remaining receivable balance of $9.6 million is classified in other current
assets on the accompanying Consolidated Condensed Balance Sheets as the balance
is due on demand.
In April 1999, the joint venture sold additional compressors under this
arrangement having an appraised value of approximately $80.0 million. Upon
receipt of the $80.0 million in cash, the joint venture will remit approximately
$56.0 million of the proceeds to GE Capital as part of the terms of the joint
venture.
CAPITAL EXPENDITURES
Our capital expenditures for property, plant and equipment during the first
quarter of 1999 were $32.8 million and primarily related to fishing tools,
tubular service equipment, and compression rental equipment. Much of the
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<PAGE> 20
1999 capital expenditures related to projects initiated at the end of 1998.
Capital expenditures for 1999 are expected to be approximately $72.0 million.
Our compression operations are, by their nature, capital intensive and
require substantial investments in compressor units. These capital investments
have historically been financed through existing cash and internally generated
cash flow. We expect that future capital investments by our compression division
will be financed by our compression joint venture through debt, sale and
leaseback arrangements and other similar financing structures that are repaid
from the cash flows generated from the compressor units over the projected term
of rental of the equipment.
ACQUISITIONS AND JOINT VENTURE
Our company has grown substantially over the years through selective
acquisitions and combinations. In the first quarter of 1999, we completed four
acquisitions for our Completion and Oilfield Services Division which consisted
of cash plus assumed debt of $15.1 million.
In February 1999, we completed a joint venture with GE Capital Corporation
in which we combined our compression services operations with GE Capital's
Global Compression's services operations. The joint venture, which is known as
Weatherford Global Compression, is the world's second largest provider of
natural gas contract compression services and owns or manages over 4,000
compression units worldwide having approximately 850,000 horse power. The pro
forma combined 1998 revenues, operating income and EBITDA for the joint venture
was $256.9 million, $7.3 million and $52.1 million, respectively. We own 64% of
the joint venture and GE Capital owns 36%. We have the right to acquire GE
Capital's interest at anytime at a price equal to a third party market
determined value that is not less than book value. GE Capital also has the right
to require us to purchase its interest at any time after February 2001 at a
third party market determined value as well as request a public offering of its
interest after that date if we have not purchased its interest by that time.
The valuation of net assets to be conveyed to the joint venture is subject
to adjustment pending the resolution of items which must be agreed to by the
Company and GE Capital. The Company believes the ultimate resolution will not
have a material impact on the assets acquired or the Company's results of
operations as a result of such revision.
We also completed in February 1999, our acquisition of Christiana
Companies, Inc. for approximately 4.4 million shares of Common Stock and $20.6
million cash. In the acquisition we acquired through Christiana (1) 4.4 million
shares of our Common Stock, (2) cash, after distribution to the Christiana
shareholders, equal to the amount of Christiana's outstanding tax and other
liabilities and (3) a one-third interest in Total Logistic Control, a
refrigerated warehouse, trucking and logistics company. We acquired Christiana
because it gave us a unique opportunity to own an interest in TLC for
essentially no consideration.
We recently entered into an agreement, subject to various regulatory
approvals to purchase a 50.01% ownership interest in Voest-Alpine Stahlrohr
Kindberg KmgH & Co KG in Austria. Voest-Alpine owns a tubular mill in Austria
with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the U.S. We also
expect to enter into a long-term supply contract with the Voest-Alpine's mill on
desirable terms at the time of our investment. The impact of this investment and
supply contract should benefit our Drilling Products Division as the market
recovers by providing us with a reliable and economical source of raw materials
from a controlled affiliate, as well as a 50% profit participation in
Voest-Alpine's business.
Our 1999 acquisitions were accounted for using the purchase method of
accounting. The results of operations of all such acquisitions are included in
the Consolidated Condensed Statements of Income from their dates of acquisition.
The 1999 acquisitions were not material individually nor in the aggregate.
Some of our acquisitions have resulted in substantial goodwill associated
with their operations, including goodwill of approximately $30.4 million
relating to our acquisitions in the first quarter of 1999. The amortization
expense for goodwill and other intangibles during the first quarter of 1999 was
$6.8 million.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 provides a
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<PAGE> 21
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. We are currently evaluating the impact of SFAS
No. 133 on our consolidated financial statements.
YEAR 2000 MATTERS
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 our software, hardware, equipment and products and those
of our suppliers, vendors and customers that could result in interruptions in
our business. Any failure could have a material impact on us.
In response to the Year 2000 issue, we have prepared and implemented a plan
("Year 2000 Plan") to assess and remediate significant Year 2000 issues in our:
o information technology systems ("IT"), including computer software and
hardware
o non-information technology systems utilizing date-sensitive software
or computer chips ("Non-IT"), including products, facilities,
equipment and other infrastructures.
Our management information systems department ("MIS Department"), together
with our technical and engineering employees and outside consultants, are
responsible for the implementation and execution of the Year 2000 Plan. Our Year
2000 Plan is a comprehensive, multi-step process covering our IT and Non-IT
systems. The primary phases of the Year 2000 Plan are:
(1) assessing and analyzing our 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
(5) verifying, testing and auditing the Year 2000 readiness of all
systems.
As of the end of 1998, the first phase of the Year 2000 Plan was completed
with respect to the assessment of our IT and Non-IT systems. The second phase
was also completed by the end of 1998. The third phase will be completed by the
end of the second quarter of 1999, the fourth phase 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 us from completing all phases of the Year 2000
Plan in a timely manner could have a material adverse impact on us.
As part of the Year 2000 Plan, we are currently installing Year 2000 ready
business application systems and expect that these installations will be
complete by the end of the third quarter of 1999. We have retained outside
consultants to assist us with the installation of the new software and with the
assessment of the Year 2000 readiness of our IT systems. We expect to retain
additional consultants to assist us in the remediation and testing phases of the
Year 2000 Plan.
In addition to our assessment and review of our own systems, we have begun
communications with our 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 we may be affected by the
remediation of their systems, software, applications and products. We expect to
further review and evaluate the Year 2000 programs of our significant
third-party contractors. However, there can be no guarantee that our IT and
Non-IT systems of third-party contractors 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 our business which could have a material adverse impact on us.
In connection with the implementation and completion of the Year 2000 Plan,
we currently expect to incur pretax expenditures of approximately $11.2 million.
Since January 1998 we have incurred $9.5 million of such expenditures through
March 31, 1999, of which, approximately $7.3 million has been incurred in
connection with the replacement of our business application software and
approximately $2.2 million has been incurred in connection with the replacement
of certain IT hardware systems. We intend to continue to fund the Year 2000 Plan
expenditures with working capital and third-party lease financing. Based upon
information currently available, we believe that expenditures associated with
achieving Year 2000 compliance will not have a material impact on
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operating results. However, any unanticipated problems relating to the Year 2000
issue that result in materially increased expenditures could have a material
adverse impact on us.
The 1999 expenditures associated with the Year 2000 Plan represent
approximately 15% of our 1999 MIS Department's budget. 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.
We are unable to predict the most likely worst case Year 2000 scenario. We
are preparing a contingency plan in response to Year 2000 worst case scenario
and we estimate no lost revenues due to Year 2000 issues. However, there can be
no assurance that any contingency plan developed by us will be sufficient to
alleviate or remediate any significant Year 2000 problems that we may
experience.
The above discussion of our efforts and expectations relating to the risks
and uncertainties associated with the Year 2000 issues and our 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 our ability to achieve Year 2000 compliance, the amount
of costs and expenses related to the Year 2000 issue and the effect the Year
2000 issue may have on business and results of operations. 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 us. These risks and uncertainties include, but are not limited
to, unanticipated problems and costs identified in all phases of the Year 2000
Plan, our ability to successfully implement the Year 2000 Plan in a timely
manner and the ability of our suppliers, vendors and customers to make their
systems and products Year 2000 compliant.
EXPOSURES
Industry Exposure
Substantially all of our customers are engaged in the energy industry. This
concentration of customers may impact our overall exposure to credit risk,
either positively or negatively, in that customers may be similarly affected by
changes in economic and industry conditions. Many of our customers have slowed
the payment of their accounts in light of current industry conditions and others
have experienced greater financial difficulties in meeting their payment terms.
We perform ongoing credit evaluations of our customers and do not generally
require collateral in support of our trade receivables. We maintain reserves for
potential credit losses, and actual losses have historically been within our
expectations.
Litigation and Environmental Exposure
In the ordinary course of business, we become the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses and
we are subject to various self-retentions and deductibles with respect to our
insurance. Although we are subject to various ongoing items of litigation, we do
not believe that any of the items of litigation that we are currently subject to
will result in any material uninsured losses to us. It is, however, possible
that an unexpected judgment could be rendered against us in cases in which we
could be uninsured and beyond the amounts that we currently have reserved or
anticipate incurring for that matter.
We are also subject to various federal, state and local laws and
regulations relating to the energy industry in general and the environment in
particular. Environmental laws have in recent years become more stringent and
have generally sought to impose greater liability on a larger number of
potentially responsible parties. While we are not currently aware of any
situation involving an environmental claim that would likely have a material
adverse effect on our business, it is always possible that an environmental
claim with respect to one or more of our current businesses or a business or
property that one of our predecessors owned or used could arise that could
involve the expenditure of a material amount of funds.
International Exposure
Like most multinational oilfield service companies, we have 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
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<PAGE> 23
Independent States, that are inherently subject to risks of war, political
disruption, civil disturbance and policies that may:
o disrupt oil and gas exploration and production activities;
o restrict the movement of funds;
o lead to U.S. government or international sanctions; and
o 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,
parts of the Middle East, the Asia-Pacific region and Latin America, have been
subjected to political disruption which has negatively impacted results of
operations following such events.
Currency Exposure
A single European currency ("the Euro") was introduced on January 1, 1999,
at which time the conversion rates between legacy currencies and the Euro were
set for 11 participating member countries. However, the legacy currencies in
those countries will continue to be used as legal tender through January 1,
2002. Thereafter, the legacy currencies will be canceled, and the Euro bills and
coins will be used in the 11 participating countries. We are currently
evaluating the effect of the Euro on our consolidated financial statements and
our business operations; however, we do not foresee that the transition to the
Euro will have a significant impact.
Approximately 50.5% of our net assets are located outside the United States
and are carried on our books in local currencies. Changes in those currencies in
relation to the U.S. dollar result in translation adjustments which are
reflected as accumulated other comprehensive loss in the stockholders' equity on
our balance sheet. In the first quarter of 1999, we recorded a $14.3 million
adjustment to our equity account primarily due to the impact of the decline in
Latin American currencies against the U.S. dollar.
FORWARD-LOOKING STATEMENTS
This report and our other filings with the Securities and Exchange Commission
and public releases contain statements relating to our future results, including
certain projections and business trends. We believe these statements constitute
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995.
Certain risks and uncertainties may cause actual results to be materially
different from projected results contained in forward-looking statements in this
report and in our other disclosures. These risks and uncertainties include, but
are not limited to, the following:
A Further Downturn in Market Conditions Could Affect Projected Results.
Any unexpected material changes in oil and gas prices or other market
trends would likely affect the forward-looking information contained in
this report. Our estimates as to future results and industry trends make
assumptions regarding the future prices of oil and gas and their effect on
the demand and pricing of our products and services. In analyzing the
market and its impact on us for 1999, we have made the following
assumptions:
o The recent increase in the price of oil will not have an
immediate favorable impact on our businesses.
o Average natural gas prices for 1999 will remain at or near their
current levels.
o World demand for oil will be up only marginally or flat.
o North American and international rig counts will remain at their
current low levels.
o Future growth in the industry will be dependent on technological
advances that can reduce the costs of exploration and production,
and technological improvements in tools used for re-entry,
thru-tubing and extended reach drilling as well as artificial
lift technologies will be important to our future.
These assumptions are based on various macro economic factors, and actual
market conditions could vary materially from those assumed.
A Continuation of the Low Rig Count Could Adversely Affect the Demand
for Our Products and Services. Our operations were materially affected by
the decline in the rig count during 1998 and 1999 to date. Although the
North American and international rig counts are at historical or near
historical lows, a continuation of the
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<PAGE> 24
rig count at its current level for a prolonged period of time would
adversely affect our results as demand for oil related products and
services would continue to fall because of the uncertainty relating to the
future prices. In addition, any further material declines in the current
worldwide rig count or drilling activity would likely further reduce the
demand for our drilling products and services. Our forward-looking
statements regarding our drilling products assume there will not be any
further material declines in the worldwide rig count, in particular the
foreign rig count.
Projected Cost Savings Could Be Insufficient. During 1998 and 1999 to
date, we implemented a number of programs intended to reduce costs and
align our cost structure with the current market environment. Our
forward-looking statements regarding cost savings and their impact on our
business assume these measures will generate the savings expected. However,
if the markets continue to decline, additional actions may be necessary to
achieve the desired savings.
Weatherford's Success is Dependent upon Technological Advances. Our
ability to succeed with our long-term growth strategy is dependent on the
technological competitiveness of our product and service offerings. A
central aspect of our growth strategy is to enhance the technology of our
products and services, to expand the markets for many of our products
through the leverage of our worldwide infrastructure and to enter new
markets and expand in existing markets with technologically advanced
value-added products. Our forward-looking statements have assumed only a
small amount of near-term growth from these new products and services.
Unexpected Year 2000 Problems Could Have an Adverse Financial Impact.
We have not fully determined the impact of Year 2000 on our systems and
products. It is possible that unexpected problems associated with the Year
2000 could arise during the implementation of our Year 2000 program that
could have a material adverse effect on our business, financial condition
and results of operations. We are currently in the assessment and initial
implementation phases of our Year 2000 program and expect it to be
completed by the fourth quarter of 1999.
Economic Downturn in Asia and South America Could Adversely Affect
Demand for Products and Services. The economic downturn in Asia has begun
to affect the economies in other regions of the world, including South
America and the Former Soviet Union. To date, the economies in the United
States and Europe have not been materially affected. If the United States
or European economies were to begin to decline or if the economies of South
America or Asia were to experience further material problems, the demand
and price for oil and gas and our products and services could fall further
and adversely affect our revenues and income. We have assumed that a
worldwide recession will not occur as a result of the economic downturn in
Asia and South America. A material decline in the Chinese economy or
devaluation of its currency could cause further deterioration to the Asian
and world economies.
Currency Fluctuations Could Have a Material Adverse Financial Impact. A
material decline in currency rates in our markets could affect our future
results as well as affect the carrying values of our assets. World
currencies have been subject to much volatility. Our forward-looking
statements assume no material impact from changes in currencies because our
financial position is generally dollar based or hedged. For those revenues
denominated in local currency the effect of foreign currency fluctuations
is largely mitigated because local expenses are denominated in the same
currency.
Changes in Global Trade Policies Could Adversely Impact Operations.
Changes in global trade policies in our markets could impact our operations
in these markets. We have assumed that there will be no material changes in
global trading policies.
Unexpected Litigation and Legal Disputes Could Have a Material Adverse
Financial Impact. If we experience unexpected litigation or unexpected
results in our existing litigation having a material effect on results, the
accuracy of the forward-looking statements would be affected. Our
forward-looking statements assume that there will be no such unexpected
litigation or results.
Finally, our future results will depend upon various other risks and
uncertainties, including, but not limited to, those detailed in our other
filings with the Securities and Exchange Commission. For additional information
regarding risks and uncertainties, see our other current year filings with the
Commission under the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended. We will generally update our assumptions in
our filings as circumstances require.
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<PAGE> 25
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's special meeting of stockholders held on February 8, 1999,
the stockholders of the Company approved (1) the acquisition by merger of
Christiana Companies, Inc. ("Christiana") and (2) the postponement or
adjournment of the special meeting to solicit additional votes if there were not
sufficient votes to approve the acquisition of Christiana. The acquisition of
Christiana is pursuant to an Amended and Restated Agreement and Plan of Merger
dated as of October 14, 1998, as amended, among the Company, Christiana, C2,
Inc. and Christiana Acquisition, Inc. The company completed the acquisition of
Christiana in exchange for (i) 4,399,742 shares of the Company's Common Stock
and (ii) approximately $20.0 million in cash. There were no broker non-votes.
The following sets forth the results of the voting:
<TABLE>
<CAPTION>
Withheld/
For Against Abstained
-------------- ---------------- ---------------
<S> <C> <C> <C>
Acquisition of Christiana.................. 64,576,294 5,089,133 216,786
Postponement or Adjournment................ 51,261,575 18,455,730 164,908
</TABLE>
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<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Employment Agreement dated as of March 1, 1999, between Weatherford
International, Inc. and Bruce F. Longaker, Jr.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
1) Current Report on Form 8-K dated February 4, 1999, announcing the
completed formation of a joint venture between the Company and General
Electric Capital Corporation, a New York corporation, into which both
contributed their gas compression business and related assets and
operations.
2) Current Report on Form 8-K dated February 18, 1999, announcing the (i)
the Company's earnings for the year and quarter ended December 31,
1998, and (ii) the completion of the acquisition of Christiana
Companies, Inc. following the approval of the acquisition by the
stockholders of the Company at a special meeting.
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<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Weatherford International, Inc.
By: /s/ Bruce F. Longaker, Jr.
-----------------------------------------
Bruce F. Longaker, Jr.
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
By: /s/ Frances R. Powell
-----------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: May 14, 1999
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C>
10.1 Employment Agreement dated as of March 1, 1999, between Weatherford
International, Inc. and Bruce F. Longaker, Jr.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between Weatherford
International, Inc., a Delaware corporation (the "Company"), and Bruce F.
Longaker, Jr. (the "Executive"), dated March 1, 1999.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has previously
determined that it is in the best interests of the Company and its stockholders
to retain the Executive and to induce the employment of the Executive for the
long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the Executive
during the term hereof and the Board and the Executive expect that the Executive
will be retained for at least the three year period contemplated herein; and
WHEREAS, to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an affiliated
company will continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company or an affiliate subject to the
terms and conditions of this Agreement, during the Employment Period (as defined
below).
(b) The "Employment Period" shall mean the period commencing on the
Effective Date (as defined below) and ending on the third anniversary of the
date hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Employment Period shall be
automatically extended so as to terminate three year(s) after such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Employment Period shall not be so extended. The
Effective Date shall be April 1, 1999.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements, authority,
duties and responsibilities) shall be Senior Vice President - Chief
Financial Officer or other executive officer and (B) the Executive's
services shall be performed primarily at the Company's principal executive
offices in Houston, Texas or other locations less than 35 miles from such
location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall
not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking
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<PAGE> 2
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary of $250,000.00 ("Annual Base
Salary"), which shall be paid at a monthly rate. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months
after the last salary increase awarded to the Executive prior to the date
hereof and thereafter at least annually; provided, however, that a salary
increase shall not necessarily be awarded as a result of such review. Any
increase in Annual Base Salary may not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall
not be reduced after any such increase. The term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. The Executive shall be eligible for an annual
bonus (the "Annual Bonus") for each fiscal year ending during the
Employment Period on the same basis as other executive officers under the
Company's executive officer annual incentive program. Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal
year next following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such Annual Bonus
pursuant to a Company sponsored deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to the Executive's peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities,
to the extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect on the date hereof. As
used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the
Company. Effective as of the date hereof, the Executive is granted an
option to purchase 100,000 shares of Common Stock, $1.00 par value, at
$18.125 per share under the terms of the Company's 1998 Employee Stock
Option Plan.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible to participate in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with benefits which
are less favorable, in the aggregate, than such plans, practices, policies
and programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive on the date hereof.
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<PAGE> 3
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits (including, without limitation,
financial planning services and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies in effect for the Executive on the date hereof.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act, or failure to act, on the part
of the Executive shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
of a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
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<PAGE> 4
(c) Good Reason. The Executive's employment may be terminated by the
Executive during the Employment Period for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 2(a) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 2(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 2(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required for the performance of the
Executive's position, it being understood that travel will be a necessary
part of the job;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
9(c) of this Agreement.
For purposes of this Section 3(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the Employment
Period by the Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 10(b) of the Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by the Company
for Cause, or by the Executive for Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein, as the case may
be;
(ii) if the Executive's employment is terminated by the Company
other than for Cause, death or Disability, the Date of Termination shall be
the date on which the Company notifies the Executive of such termination;
and
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<PAGE> 5
(iii) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, death or Disability, or the Executive shall terminate
employment for Good Reason:
(i) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the highest Annual
Bonus received by the Executive over the preceding three year period
(provided that for the first three years of this Agreement, the Annual
Bonus for purposes of this Section shall be not less than 50% of the
Executive's Annual Base Salary) and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less
than 12 full months or during which the Executive was employed for
less than 12 full months), for the most recently completed fiscal year
during the Employment, if any (such higher amount being referred to as
the "Highest Annual Bonus"), and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest or
earnings thereon), and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in
clauses (1), (2) and (3) shall be hereinafter referred to as the
"Accrued Obligations"), and
(B) an amount equal to three times the sum of (i) the then
current Annual Base Salary of the Executive and (ii) the Highest
Annual Bonus, and
(C) an amount equal to the total of the employer matching
contributions credited to the Executive under the Company's 401(k)
Savings Plan (the "401(k) Plan") or any other deferred compensation
plan during the 12-month period immediately preceding the month of the
Executive's Date of Termination multiplied by three, such amount to be
grossed up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals the
amount first described above.
(ii) For a period of three years from the Executive's Date of
Termination (the "Remaining Contract Term") or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or the Executive's
family equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section
2(b)(iv) of this Agreement if the Executive's employment had not been
terminated; provided, however, that with respect to any of such plans,
programs, practices or policies requiring an employee contribution, the
Executive shall continue to pay the monthly employee contribution for same,
and provided further, that if the Executive becomes reemployed by another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility;
5
<PAGE> 6
(iii) The Company shall, at its sole expense as incurred, provide
the Executive with outplacement services, the scope and provider of which
shall be selected by the Executive in his sole discretion;
(iv) With respect to all options to purchase Common Stock held by
the Executive pursuant to a Company stock option plan on or prior to the
Date of Termination, irrespective of whether such options are then
exercisable, the Executive shall have the right, during the 60-day period
after the Date of Termination, to elect to surrender all or part of such
options in exchange for a cash payment by the Company to the Executive in
an amount equal the number of shares of Common Stock subject to the
Executive's option multiplied by the difference between (x) and (y) where
(x) equals the purchase price per share covered by the option and (y)
equals the highest reported sale price of a share of Common Stock in any
transaction reported on the New York Stock Exchange during the 60-day
period prior to and including the Executive's Date of Termination. Such
cash payments shall be made within 30 days after the date of the
Executive's election; provided, however, that if the Executive's Date of
Termination is within six months after the date of grant of a particular
option held by the Executive and the Executive is subject to Section 16(b)
of the Securities Exchange Act of 1934, as amended, any cash payments
related thereto shall be made on the date which is six months and one day
after the date of grant of such option to the extent necessary to prevent
the imposition of the disgorgement provisions under Section 16(b).
Notwithstanding the foregoing, if any right granted pursuant to the
foregoing would make any change of control transaction ineligible for
pooling of interests accounting treatment under APB No. 16 that but for
this Section 4(a)(iv) would otherwise be eligible for such accounting
treatment, the Executive shall receive shares of Common Stock with a Fair
Market Value equal to the cash that would otherwise be payable hereunder in
substitution for the cash, provided that any such shares of Common Stock so
granted to the Executive shall be registered under the Securities Act of
1933, as amended; any options outstanding as of the Date of Termination and
not then exercisable shall become fully exercisable as of the Executive's
Date of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares of
Common Stock) as provided above, such options shall remain exercisable for
one year after the Executive's Date of Termination or until the stated
expiration of the stated term thereof, whichever is shorter; restrictions
applicable to any shares of Common Stock granted to the Executive by the
Company shall lapse, as of the date of the Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and other
memberships which the Company was providing for the Executive's use at the
time Notice of Termination is given shall, to the extent possible, be
transferred and assigned to the Executive at no cost to the Executive
(other than income taxes owed), the cost of transfer, if any, to be borne
by the Company;
(vi) The Company shall either transfer to the Executive ownership
and title to the Executive's company car at no cost to the Executive (other
than income taxes owed) or, if the Executive receives a monthly car
allowance in lieu of a Company car, pay the Executive a lump sum in cash
within 30 days after the Executive's Date of Termination equal to the
Executive's annual car allowance multiplied by three;
(vii) All benefits under the EDC and the 401(k) Plan and any
other similar plans, including any stock options held by the Executive, not
already vested shall be 100% vested, to the extent such vesting is
permitted under the Code (as defined below);
(viii) To the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits"); and
6
<PAGE> 7
(ix) The foregoing payments are intended to compensate the
Executive for a breach of the Company's obligations and place Executive in
substantially the same position had the employment of the Executive not
been so terminated as a result of a breach by the Company.
(b) Death. If Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiaries, as applicable, in a lump sum in cash within
30 days after the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days after the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, without limitation, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable benefits generally provided by the Company and its
affiliated companies to the Executive's disabled peer executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's employment
is terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits provided under this
Agreement or such other agreement, whichever one, in its entirety, the Executive
chooses, but not both agreements, and when the Executive has made such election,
the other agreement shall be superseded in its entirety and shall be of no
further force and effect. The Executive also agrees that to
7
<PAGE> 8
the extent he or she may be eligible for any severance pay or similar benefit
under any laws providing for severance or termination benefits, such other
severance pay or similar benefit shall be coordinated with the benefits owed
hereunder, such that the Executive shall not receive duplicate benefits.
6. Payments.
(a) No Rights of Offset. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expense which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in connection
with or contingent upon a change of control of the Company, anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 7(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination shall be made by Arthur
Andersen LLP or, as provided below, such other certified public accounting firm
as may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days after the receipt of notice from the Executive
8
<PAGE> 9
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the
event the IRS seeks higher payment. Such notification shall be given as soon as
practicable, but no later than ten business days after the Executive is informed
in writing of such claim, and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claims; provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such costs and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 7(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such
contest to determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance;
9
<PAGE> 10
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issues raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 7(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
8. Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated companies,
provided that it shall not apply to information which is or shall become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement), information that is developed by the
Executive independently of such information, or knowledge or data or information
that is disclosed to the Executive by a third party under no obligation of
confidentiality to the Company. After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 8 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT
OF LAWS. The captions of this Agreement are not part of the provisions
10
<PAGE> 11
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Bruce F. Longaker, Jr.
Weatherford International, Inc.
515 Post Oak Blvd.
Houston, Texas 77027
If to the Company: Weatherford International, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: Bernard J. Duroc-Danner
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ Bruce F. Longaker, Jr.
----------------------------------------
Bruce F. Longaker, Jr.
WEATHERFORD INTERNATIONAL, INC.
By: /s/ Curtis W. Huff
------------------------------------
Name: Curtis W. Huff
----------------------------------
Title: Senior Vice President
---------------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated condensed balance sheets and consolidated condensed statements
of income and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 34,736
<SECURITIES> 0
<RECEIVABLES> 387,155
<ALLOWANCES> 19,857
<INVENTORY> 522,157
<CURRENT-ASSETS> 1,069,064
<PP&E> 1,008,014
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 3,037,360
<CURRENT-LIABILITIES> 514,486
<BONDS> 632,611
0
0
<COMMON> 107,949
<OTHER-SE> 1,373,294
<TOTAL-LIABILITY-AND-EQUITY> 3,037,360
<SALES> 205,384
<TOTAL-REVENUES> 353,834
<CGS> 156,708
<TOTAL-COSTS> 259,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,652
<INCOME-PRETAX> 5,040
<INCOME-TAX> 1,764
<INCOME-CONTINUING> 2,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,538
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
<FN>
<F1>This amount is not disclosed in the financial statements and thus a value of
zero has been shown for purposes of this financial data schedule.
</FN>
</TABLE>
