<PAGE> 1
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
______________________
August 8, 1994
(Date of earliest event reported)
SMITH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-8514 95-3822631
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization)
16740 HARDY STREET
Houston, Texas 77032
(Present address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code -- 713-443-3370
________________________________________________________________________________
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This Amendment No. 2 (this "Amendment") to the Current Report on Form
8-K/A Amendment No. 1 filed with the Securities and Exchange Commission on May
13, 1994 (the "Report"), amends only the Unaudited Pro Forma Financial
Statements of the Report.
<PAGE> 3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma statement of income (loss) from
continuing operations for the year ended December 31, 1993 presents the
acquisitions of M-I and A-Z/Grant and Lindsey as though the acquisitions were
effective January 1, 1993. The unaudited pro forma statement of income (loss)
from continuing operations gives effect to the acquisitions under the purchase
method of accounting and the assumptions included in the accompanying unaudited
notes to pro forma financial statements. The unaudited pro forma statement of
income (loss) from continuing operations reflects the amortization of estimated
goodwill, reduced depreciation expense related to the estimated write-down of
fixed assets and rental tools of A-Z/Grant and Lindsey, estimated adjustments
to interest and taxes and other anticipated cost savings.
The following unaudited pro forma balance sheet as of December 31,
1993 presents the acquisition of M-I as if the acquisition had occurred at
December 31, 1993. The unaudited pro forma balance sheet reflects the
acquisition under the purchase method of accounting and the assumptions
included in the accompanying unaudited notes to pro forma financial statements.
The unaudited pro forma balance sheet reflects only those adjustments relating
to the acquisition of M-I, the consolidation of the Company's 64% interest in
M-I and certain estimated asset and liability valuation adjustments anticipated
to result from the Company's allocation of the purchase price to the accounts
of M-I at February 28, 1994.
The tentative purchase price allocation of A-Z/Grant and Lindsey is
included in the historical balance sheet of the Company at December 31, 1993 in
the following unaudited pro forma balance sheet. A-Z/Grant and Lindsey were
acquired by the Company on December 22, 1993 for $19.0 million plus estimated
additional consolidation and transition costs of $5.4 million. The tentative
allocation of purchase price of A-Z/Grant and Lindsey is based on their
historical accounts judmentally adjusted for reductions in inventory, rental
tools and fixed assets to reflect these assets at their overall estimated fair
market value.
Management has not fully evaluated all of the consequences of the
acquisitions of both M-I and A-Z/Grant and Lindsey including assessing the fair
market value of the assets acquired and the total amount of costs that may be
necessary to reorganize their operations. The Company's current estimate of
the excess of the purchase price over net assets acquired in the acquisition of
M-I totaling $53.8 million has been reflected as goodwill in the unaudited pro
forma balance sheet. Upon completion of these evaluations during 1994, any
additional asset and liability adjustments and the adjusted excess purchase
price over net assets acquired will be recorded as revisions to goodwill in
accordance with purchase accounting rules and principles. The Company does not
currently expect any goodwill to result from the acquisition of A-Z/Grant and
Lindsey. However should any excess purchase price arise from assessing the
fair market values of the A-Z/Grant and Lindsey assets, it will be recorded as
goodwill in accordance with purchase accounting rules and principles.
The unaudited pro forma financial statements are not intended to be
indicative of the results that would have occurred if the acquisitions had been
effective as of the dates indicated or that may be obtained in the future. The
unaudited pro forma financial statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto of the Company included in
the Company's Form 10-K for the year ended December 31, 1993.
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SMITH INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF
INCOME (LOSS) FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
--------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------------------- --------------------------------------
ADJUSTMENTS
-----------------------
A-Z/GRANT A-Z/GRANT
SMITH & LINDSEY M-I & LINDSEY M-I COMBINED
------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $220,712 $31,576 $404,312 $656,600
Cost of Revenues 138,170 23,936 275,676 (776) (a) 437,606
600 (b)
-------- ------- -------- ------- --------
Gross Margin 82,542 7,640 128,636 176 218,994
Operating Expenses:
Selling Expenses 41,997 5,115 91,882 (515) (c) 138,479
G & A Expenses 21,970 2,415 17,825 (815) (c) 40,795
(600) (d)
Equity in Joint
Ventures and Other
Income, net --- --- (5,292) 1,345 (g) (3,772)
175 (h)
-------- ------- -------- ------- ------- --------
Total Operating
Expenses 63,967 7,530 104,415 (1,930) 1,520 175,502
-------- ------- -------- ------- ------- --------
Income from Continuing
Operations Before
Litigation Settlement,
Interest and Taxes 18,575 110 24,221 2,106 (1,520) 43,492
Litigation Settlement 19,900 --- --- 19,900
Interest Expense
(Income), net 2,202 --- (628) 760 (e) 4,800 (i) 10,434
3,300 (j)
-------- ------- -------- ------- ------- --------
Income (Loss) From
Continuing Operations
Before Income Taxes (3,527) 110 24,849 1,346 (9,620) 13,158
Income Tax Provision 468 --- 4,812 29 (f) 64 (k) 5,373
-------- ------- -------- ------- ------- --------
Income (Loss) From
Continuing Operations
Before Minority
Interest (3,995) 110 20,037 1,317 (9,684) 7,785
Minority Interest --- --- 7,213 7,213
-------- ------- -------- ------- ------- --------
Income (Loss) From
Continuing Operations ($3,995)(l) $ 110 $ 12,824 $ 1,317 $(9,684) $ 572 (l)
======== ======= ======== ======= ======= ========
Average Common and
Equivalent Shares
Outstanding 37,775 37,775
======== ========
Income (Loss) from
Continuing Operations
Per Common Share ($0.13)(l) ($0.01)(l)
======== ========
</TABLE>
See accompanying unaudited notes to pro forma financial statements.
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SMITH INTERNATIONAL, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
---------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ------------------------------
SMITH M-I ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(m)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash
Equivalents $101,561 ($2,203) ($80,000) (n) $ 16,858
(2,500) (o)
Receivables 67,830 104,059 171,889
Inventory 81,654 80,535 (2,944) (r) 159,245
Prepaid Expense
& Other 4,802 6,088 10,890
-------- -------- -------- --------
Total Current Assets 255,847 188,479 (85,444) 358,882
-------- -------- -------- --------
Rental Tools, net 20,510 --- 20,510
Property, Plant and Equipment,
net 41,652 51,792 (320) (n) 93,124
Investments in Joint Ventures
and Unconsolidated
Subsidiaries 6,283 9,518 15,801
Investment in M-I Drilling --- --- 160,000 (n) ---
Fluids Co. (160,000) (p)
Goodwill 2,954 --- 41,317 (p) 56,763
10,692 (r)
1,800 (o)
Other Assets 21,140 14,520 700 (o) 34,440
(1,920) (r)
-------- -------- -------- --------
Total Assets $348,386 $264,309 $(33,175) $579,520
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term Borrowings
& Current Portion of
Long-term Debt $ 702 $ 1,091 $ 10,000 (n) $ 11,793
Accounts Payable 24,763 30,467 55,230
Accrued Payroll Costs 10,923 7,082 18,005
Income Taxes Payable 9,484 3,069 1,920 (r) 14,473
Other 34,098 17,653 3,588 (r) 55,339
-------- -------- -------- --------
Total Current Liabilities 79,970 59,362 15,508 154,840
-------- -------- -------- --------
Long-Term Debt 46,000 --- 70,000 (n) 116,000
Minority Interests --- 2,621 66,759 (q) 69,380
Other Long-term
Liabilities 7,950 16,884 24,834
Shareholders' Equity 214,466 185,442 (118,683) (p) 214,466
(66,759) (q)
-------- -------- -------- --------
Total Liabilities &
Shareholders' Equity $348,386 $264,309 ($33,175) $579,520
======== ======== ======== ========
</TABLE>
See accompanying unaudited notes to pro forma financial statements.
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SMITH INTERNATIONAL, INC.
UNAUDITED NOTES TO PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE STATED IN MILLIONS)
GENERAL NOTE: THE ACCOMPANYING UNAUDITED PRO FORMA FINANCIAL STATEMENTS AND
UNAUDITED NOTES THERETO HAVE BEEN REVISED TO REFLECT THE MOST CURRENT
INFORMATION AVAILABLE AS OF MAY 13, 1994 RELATED TO THE ACCOUNTS OF M-I AND
A-Z/GRANT AND LINDSEY.
STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS -
A-Z/GRANT & LINDSEY -
(a) To reduce depreciation expense as a result of purchase price
allocation adjustments recorded to certain assets of A-Z/Grant and
Lindsey as reported in the Company's December 31, 1993 historical
balance sheet. The Company reduced the value of rental tools by
$2,684, buildings by $1,826 and machinery and equipment by $3,023 to
their estimate fair market value. Using the estimated remaining
lives of the respective assets of 7 years, 20 years and 10 years,
respectively, depreciation expense is reduced by $776.
(b) To record additional spare parts usage to reflect the expensing of
repair parts when first used or sent to the field consistent with the
Smith accounting policy.
(c) To record estimated cost savings in selling and general and
administrative categories attributable to personnel terminations made
and the closing of administrative facilities which occurred upon
acquisition by the Company.
(d) To eliminate an annual corporate charge from the parent company of
A-Z/Grant & Lindsey that will not be charged by Smith.
(e) To reduce interest income at an interest rate of 4.0 percent as $19.0
million of the Company's cash which was used to fund the A- Z/Grant &
Lindsey acquisitions and, therefore, would not have been available to
earn interest income.
(f) To record additional income tax expense related to the earnings of
A-Z/Grant and Lindsey of $110 and the effects of the aforementioned
adjustments totaling $1,317 at the U.S. Alternative Minimum Tax Rate
of 2.0 percent. Additional taxes would not be required because of the
Company's net operating loss carryforward position.
M-I DRILLING FLUIDS CO. -
(g) To record annual amortization of estimated goodwill which will be
amortized over 40 years related to the acquisition of M-I totaling
$53,809. See notes (o), (p) and (r) below.
(h) To record annual amortization of estimated debt issuance costs of $700
which will be amortized over the 4 year life of the debt.
(i) To record interest expense at an interest rate of 6.0 percent on the
acquisition-related debt, as refinanced (see Note n below), assuming
no principal reduction.
(j) To reduce interest income at an interest rate of 4.0 percent as
approximately $82.5 million of the Company's cash was used to fund
$80.0 million of the M-I acquisition and $2.5 million of the related
estimated acquisition and debt issuance costs. This cash, therefore,
would not have been available to earn interest income.
(k) To record additional income tax expense related to M-I earnings of
$12,824 and the effects of the aforementioned M-I adjustments of
($9,684) at the U.S. Alternative Minimum Tax Rate of 2.0 percent.
Additional taxes would not be required because of the Company's net
operating loss carryforward position.
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SMITH INTERNATIONAL, INC.
UNAUDITED NOTES TO PRO FORMA FINANCIAL STATEMENTS - (CONTINUED)
OTHER -
(l) Income (loss) from continuing operations is presented excluding the
cumulative effect of a change in accounting principle. The Smith and
unaudited pro forma income (loss) from continuing operations of
($3,995) and $572, respectively, include the special charge for a
litigation settlement of $19,900 ($0.53 per common share). The Smith
and unaudited pro forma income from continuing operations excluding
the litigation settlement would increase to $15,905 and $20,472,
respectively, or $0.40 and $0.52 per common share, respectively. The
preferred stock dividends of $868 must be deducted from the applicable
income (loss) from continuing operations amounts in order to compute
these amounts per common share.
BALANCE SHEET -
(m) The historical balance sheet of the Company includes the historical
accounts of A-Z/Grant and Lindsey acquired by the Company on December
22, 1993 for $19.0 million plus estimated additional consolidation and
transition costs of $5.4 million. The tentative allocation of
purchase price was based upon the historical balance sheet of
A-Z/Grant and Lindsey judgmentally adjusted for reductions in both
inventories, rental tools and fixed assets to reflect these assets at
their overall estimated fair market value.
The tentative allocation of purchase price is recapped as follows:
<TABLE>
<S> <C>
Inventory $ 8,086
Rental Tools 10,299
Property,Plant & Equipment, net 5,505
Other Assets 510
Other Liabilities (5,400)
-------
Net Assets of A-Z/Grant & Lindsey $19,000
=======
</TABLE>
Management has not fully evaluated all of the consequences of the
acquisition of A-Z/Grant and Lindsey including completing the
appraisals of the assets acquired and assessing the total amount of
costs that may be necessary to consolidate the operations of A-Z/Grant
and Lindsey with the Company. Upon completion of these evaluations in
1994, any adjustments to the purchase price allocation adjustments will
be recorded. The Company does not expect any goodwill to result from
the acquisition of A-Z/Grant and Lindsey. However, should any excess
purchase price arise from the appraisals, it will be recorded as
goodwill in accordance with purchase accounting rules and principles.
(n) To record the purchase of the 64% interest in M-I using $80.0 million
in cash and issuing a note payable to Dresser of $80.0 million. The
Company refinanced the Dresser note payable in March 1994 with a $40
million term loan from its insurance company lenders and a $65 million
revolving line of credit from a bank group. The term loan bears
interest at a rate of 6.02 percent and is payable over a four year
period ending in January 1998. The revolving line of credit is due in
March 1997 and bears interest at a rate ranging from LIBOR + 3/4
percent to LIBOR +1 1/2 percent based upon the debt-to-total
capitalization of the Company. The Company has reflected $10.0 million
of debt as current portion of long-term debt and $70.0 million of debt
as long-term in accordance with the terms of the refinanced
acquisition debt.
(o) To record $1.8 million of estimated acquisition costs in connection
with the M-I acquisition and $0.7 million of debt issuance costs in
connection with the refinanced acquisition debt.
(p) To eliminate the investment in M-I of $160.0 million against the
Company's estimated portion of its equity in M-I of $118.7 million
with the remaining balance of $41.3 million reported tentatively as
goodwill.
<PAGE> 8
(q) To reclassify the minority interest ownership in M-I by Halliburton of
$66.8 million from shareholders' equity to minority interest.
(r) This preliminary allocation of the purchase price of the Company's
acquisition of M-I is based on the historical balance sheet of M-I
adjusted for these additional costs and other adjustments totaling
$10.7 million that are estimated to be required to fairly present the
acquired net assets of M-I. Management has not fully evaluated all of
the consequences of the acquisition of M-I including assessing the
fair market value of the assets acquired and the total amount of costs
that may be necessary to reorganize the operations of M-I. Upon
completion of a full evaluation of the Company's purchase price
allocation of M-I accounts, additional adjustments may become
necessary to the preliminary allocation of the purchase price. The
Company expects this evaluation process will be completed in 1994.
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 8th day of August, 1994.
SMITH INTERNATIONAL, INC.
(Registrant)
By: /s/ LOREN K. CARROLL
Loren K. Carroll
Executive Vice President
and Chief Financial Officer
