<PAGE> 1
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________________________________
For the quarter ended March 31, 1994 Commission File Number 1-8514
SMITH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3822631
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16740 Hardy Street, Houston, Texas 77032
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (713) 443-3370
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
On March 31, 1994, the registrant had 39,317,402 shares of common stock
outstanding.
<PAGE> 2
SMITH INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by the Company without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of Management, all
adjustments necessary for a fair statement of the results of operations for the
three month periods ended March 31, 1994 and 1993 have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
2
<PAGE> 3
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31,
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(Unaudited)
(In thousands,
except per share data)
<S> <C> <C>
REVENUES..................................... $ 100,762 $ 49,954
COST AND EXPENSES:
Cost of Revenues........................... 65,181 32,780
Selling Expenses........................... 17,950 8,805
General and Administrative Expenses........ 7,270 5,062
--------- ---------
Total Costs and Expenses.............. 90,401 46,647
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
INTEREST AND TAXES......................... 10,361 3,307
INTEREST EXPENSE, net........................ 946 1,963
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST......... 9,415 1,344
INCOME TAX PROVISION......................... 884 17
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST.......................... 8,531 1,327
MINORITY INTEREST............................ 942 ---
--------- ---------
INCOME FROM CONTINUING OPERATIONS............ 7,589 1,327
INCOME FROM DISCONTINUED OPERATIONS (Note 4). --- 73,623
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 1)......................... --- (1,300)
--------- ---------
NET INCOME................................... 7,589 73,650
PREFERRED STOCK DIVIDENDS.................... --- (434)
--------- ---------
NET INCOME APPLICABLE TO COMMON STOCK........ $ 7,589 $ 73,216
========= =========
PRIMARY EARNINGS PER COMMON SHARE (Note 2):
Income from continuing operations.......... $ .20 $ .03
Income from discontinued operations........ --- 2.02
Cumulative effect of change in accounting
principle................................ --- (.04)
--------- ---------
Net income................................. $ .20 $ 2.01
========= =========
AVERAGE COMMON AND EQUIVALENT
SHARES OUTSTANDING......................... 38,791 36,295
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statments.
3
<PAGE> 4
SMITH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $ 14,108 $ 101,561
Receivables, less allowance of
$8,545 in 1994 and $4,995 in 1993
for doubtful accounts..................... 181,805 67,830
Inventories (Note 3)........................ 168,643 81,654
Prepaid expenses and other.................. 12,420 4,802
---------- -----------
Total current assets..................... 376,976 255,847
---------- -----------
RENTAL EQUIPMENT, net of accumulated
depreciation of $23,571 in 1994 and
$23,457 in 1993............................. 21,740 20,510
---------- -----------
PLANT AND EQUIPMENT:
Land........................................ 30,787 1,348
Buildings................................... 63,925 18,007
Machinery and equipment..................... 357,228 138,235
---------- -----------
451,940 157,590
Less--accumulated depreciation.............. 357,527 115,938
---------- -----------
Net plant and equipment..................... 94,413 41,652
---------- -----------
OTHER ASSETS ................................. 47,291 27,423
GOODWILL (Note 4)............................. 50,463 2,954
---------- -----------
TOTAL ASSETS.................................. $ 590,883 $ 348,386
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SMITH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
-------- --------
(Unaudited)
(in thousands,
except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
portion of long-term debt (Note 4)....... $ 12,812 $ 702
Accounts payable........................... 50,478 24,763
Accrued payroll and severance related costs 18,963 10,923
Income taxes payable....................... 15,100 9,484
Other...................................... 56,361 34,098
-------- --------
Total current liabilities............. 153,714 79,970
-------- --------
LONG-TERM DEBT (Note 4)...................... 119,500 46,000
-------- --------
DEFERRED INCOME TAXES........................ 4,514 4,563
-------- --------
OTHER LONG-TERM LIABILITIES.................. 16,772 3,387
-------- --------
MINORITY INTERESTS (Note 4).................. 74,700 ---
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Common stock:
Authorized-60,000,000 shares, $1 par
value; issued and outstanding-
39,317,402 shares in 1994 and
39,311,447 in 1993................... 39,317 39,311
Common stock warrants
Class A warrants: outstanding-225,520
in 1994 and 1993....................... --- ---
Class B warrants: outstanding-1,872,205
in 1994 and 1993....................... --- ---
Class C warrants: outstanding-451,357
in 1994 and 1993....................... 7,278 7,278
Additional paid-in capital................. 271,613 271,582
Accumulated deficit........................ (75,844) (83,433)
Cumulative translation adjustment.......... (6,767) (6,358)
Less-treasury securities, at cost (628,583
common shares and 451,357 Class C
warrants in 1994 and 1993)............... (13,914) (13,914)
-------- --------
Total shareholders' equity............ 221,683 214,466
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY..... $590,883 $348,386
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1994 1993
-------- --------
(unaudited)
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations................ $ 7,589 $ 27
Adjustments to reconcile net income to net cash
provided by operating activities excluding the
net effects of the acquisition of M-I Drilling
Fluids Company:
Depreciation and amortization.................... 3,175 5,573
Provision for losses on accounts receivable...... 660 250
Gain on disposal of fixed assets................. (311) (737)
Foreign currency translation..................... 625 29
Change in receivables............................ (5,189) (1,774)
Change in inventories............................ 1,144 748
Change in accounts payable....................... (10,660) (2,527)
Changes in other current assets and liabilities.. (3,374) 10,507
Changes in other noncurrent assets and
liabilities.................................... (204) (1,673)
-------- --------
Subtotal.................................... (6,545) 10,423
Net results of discontinued operations............... --- (6,483)
-------- --------
Net cash provided by (used in) operating activities.. (6,545) 3,940
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of M-I Drilling Fluids Company (Note 4).. (160,000) ---
Proceeds from sale of DDS business (Note 4).......... --- 247,703
Expenses paid related to DDS sale.................... --- (17,858)
Fixed asset additions................................ (5,784) (5,103)
Proceeds from disposal of other fixed assets......... 978 2,941
-------- --------
Net cash provided by (used in) investing activities.. (164,806) 227,683
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 83,500 ---
Net increase (decrease) in short-term borrowing...... 428 (31,787)
Repayment of long-term debt.......................... --- (57,182)
Proceeds from exercise of stock options and warrants. 37 2
Dividends on preferred stock......................... --- (434)
-------- --------
Net cash provided by (used in) financing activities.. 83,965 (89,401)
-------- --------
Effect of exchange rate changes on cash.............. (67) (96)
-------- --------
Increase (decrease) in cash and cash equivalents..... (87,453) 142,126
Cash and cash equivalents at beginning of period..... 101,561 16,249
-------- --------
Cash and cash equivalents at end of period........... $ 14,108 $158,375
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ 568 $ 918
Cash paid for income taxes........................... 663 284
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Common Stock Warrants
----------------------- --------------------------
Number Number
of shares Amount of shares Amount
---------- ------- ---------- ------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1993................... 39,311,447 $39,311 2,549,082 $7,278
Exercise of employee stock options........... 5,955 6 --- ---
Net income................................... --- --- --- ---
Translation adjustment for the period........ --- --- --- ---
---------- ------- --------- ------
Balance, March 31, 1994...................... 39,317,402 $39,317 2,549,082 $7,278
========== ======= ========= ======
</TABLE>
<TABLE>
<CAPTION>
Additional Accum- Cumulative
Paid-in ulated Translation
Capital Deficit Adjustment
---------- --------- -----------
(In thousands, except share data)
<S> <C> <C> <C>
Balance, December 31, 1993................... $271,582 $(83,433) $(6,358)
Exercise of employee stock options........... 31 --- ---
Net income................................... --- 7,589 ---
Translation adjustment for the period........ --- --- (409)
-------- -------- -------
Balance, March 31, 1994...................... $271,613 $(75,844) $(6,767)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Treasury Securities
-----------------------------------------------------------
Number of Number of
Common Shares Amount Warrants Amount
------------- -------- --------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1993................... (628,583) $(6,636) (451,357) $(7,278)
Exercise of employee stock options........... --- --- --- ---
Net income................................... --- --- --- ---
Translation adjustment for the period........ --- --- --- ---
-------- ------- -------- -------
Balance, March 31, 1994...................... (628,583) $(6,636) (451,357) $(7,278)
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
SMITH INTERNATIONAL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All data with respect to the three months
ended March 31, 1994 and 1993 is unaudited.)
1) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reference is hereby made to the Notes to Consolidated Financial
Statements contained in the financial statements filed on Form 10-K for the year
ended December 31, 1993. There are no significant changes in the content of
those notes except as discussed below.
During the first quarter of 1993, the Company adopted two new
accounting pronouncements: Statement of Financial Accounting Standard (SFAS)
No. 106 "Employees' Accounting for Postretirement Benefits other than Pensions"
and SFAS No. 109 "Accounting for Income Taxes". As a result of adopting SFAS
No. 106, the Company recorded the total outstanding liability related to such
retiree benefits of $1.3 million as the cumulative effect of a change in
accounting principle. In connection with the adoption of SFAS No. 109, the
Company elected not to restate prior years' consolidated financial statements
and has determined that the cumulative effect of the change in accounting for
income taxes was insignificant.
Certain reclassifications have been made to the 1993 consolidated
financial statements and notes in order to be consistent with current year
presentation.
2) EARNINGS PER SHARE
Earnings per common and equivalent share has been computed on the basis
of the weighted average number of common and equivalent shares outstanding
during the three month periods ended March 31, 1994 and 1993 after deducting
preferred dividends for the three months ended March 31, 1993. Earnings per
share assuming full dilution is substantially the same as primary earnings per
share as presented for the three months ended March 31, 1994 and 1993 except
that the income from discontinued operations and net income for the first
quarter of 1993 are both $1.89 per common share.
3) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
-------- ------------
($000 omitted)
<S> <C> <C>
Raw Materials................... $ 21,287 $ 10,965
Work in Process................. 29,442 13,105
Finished Goods.................. 129,062 68,732
-------- --------
179,791 92,802
Less: reserve to state certain
domestic inventories ($72,876
in 1994 and $70,597 in 1993)
on a LIFO basis................ (11,148) (11,148)
-------- --------
$168,643 $ 81,654
======== ========
</TABLE>
8
<PAGE> 9
4) DISPOSITIONS AND ACQUISITIONS
Sale of Directional Drilling Business
On March 29, 1993, the Company sold its directional drilling systems and
services (DDS) business and certain of its subsidiaries and other affiliates to
Halliburton Company (Halliburton) for 6,857,000 shares of Halliburton common
stock. In April 1993, the Halliburton common stock was sold for approximately
$247.7 million. As a result, the Company recorded income from discontinued
operations during the first quarter of 1993 of $73.6 million including the gain
from the sale of the DDS business of $80.1 million. This gain includes
provisions for various fees, expenses and taxes related to the DDS sale. The DDS
business reported revenues of approximately $36.3 million in the first quarter
of 1993. The Company used a portion of the proceeds of the DDS sale to repay
$102.6 million of the Company's debt and acquire additional businesses as
discussed below.
Acquisitions of A-Z/Grant and Lindsey
On December 22, 1993, the Company acquired the product line assets of
A-Z International, Grant Oilfield Tools and Lindsey Completion Systems
(A-Z/Grant and Lindsey) from Masex Energy Services Group, Inc. for $19.0 million
in cash. A-Z/Grant and Lindsey is a leading provider of downhole tools,
remedial services and liner hangers to the oil and gas industry. This
acquisition was accounted for as a purchase.
The historical balance sheets of the Company at March 31, 1994 and
December 31, 1993 includes the historical accounts of A-Z/Grant and Lindsey and
certain purchase accounting adjustments on an estimated basis. Management has
not fully evaluated all of the consequences of the acquisition of 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 consolidate the operations of
A-Z/Grant and Lindsey with the Company. Upon completion of these evaluations
during 1994, any additional adjustments will be recorded and the excess purchase
price over net assets acquired, if any, will be recorded as goodwill in
accordance with purchase accounting rules and principles.
Acquisition of M-I Drilling Fluids Company
Effective February 28, 1994, the Company acquired a 64% interest in M-I
Drilling Fluids Company (M-I) from Dresser Industries, Inc. (Dresser) for $160
million. M-I was owned 64% by Dresser and 36% by Halliburton prior to the
acquisition. M-I is a leading provider of drilling fluids and systems to the
oil and gas drilling industry. The Company purchased the 64% interest in M-I
using $80 million of its cash and issuing a note payable to Dresser for $80
million due on August 28, 1994. This acquisition is accounted for as a
purchase.
The Company refinanced the Dresser note payable in March 1994 with a $40
million term loan from two of 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.
9
<PAGE> 10
The historical balance sheet of the Company at March 31, 1994 includes
the historical accounts of M-I and certain purchase accounting adjustments on
an estimated basis. 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 these evaluations during
1994, any additional adjustments will be recorded and the excess purchase price
over net assets acquired, if any, will be recorded as goodwill in accordance
with purchase accounting rules and principles.
The summarized unaudited pro forma results from continuing operations
for the three months ended March 31, 1994 and 1993 assuming the acquisitions of
A-Z/Grant and Lindsey and M-I had been made on January 1, 1994 and 1993 are as
follows (dollars in millions except per share amounts):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Unaudited pro forma revenues............. $176.1 $149.0
====== ======
Unaudited pro forma income (loss) from
continuing operations.................. $ 6.2 $ (1.1)
====== ======
Unaudited pro forma income (loss) from
continuing operations per common share. $ 0.16 $(0.04)
====== ======
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Smith International, Inc. manufactures and markets a wide range of
products and services used in the drilling of oil and gas wells. The Company
historically has provided technologically advanced drill bits and drilling and
completion products and services to the oil and gas industry.
The decline in worldwide oil and gas drilling activity which occurred in
1992 caused the Company to reassess its future strategy from both a business
portfolio and financial flexibility standpoint. Management concluded that the
sale of the Company's directional drilling systems and services (DDS) business
was in the best long-term interest of the Company's shareholders. This
conclusion resulted in the sale of the DDS business to Halliburton Company in
March 1993 for $247.7 million in cash.
The proceeds of the DDS sale have enabled the Company to pursue its
strategic growth objective and reduce its debt burden. The Company used $102.6
million of the cash proceeds to repay debt of the Company. In addition several
key acquisitions have been accomplished as part of the Company's strategic
program. The purchase of the product line assets of A-Z International, Grant
Oil Tools, and Lindsey Completion Systems in December 1993 will enhance the
Company's Smith Drilling and Completion Services division. On February 28,
1994, the Company acquired a 64% majority interest in M-I Drilling Fluids
Company, an acknowledged world leader in drilling fluid systems, from Dresser
Industries, Inc. These acquisitions complement the Company's existing core
products in forming one of the more complete packages of expendable products to
the oil and gas drilling and production industry.
11
<PAGE> 12
FIRST QUARTER OF 1994 COMPARED TO FIRST QUARTER OF 1993
RESULTS OF OPERATIONS
REVENUES
The products manufactured and the services provided by the Company fall
into three product and service groups that are marketed throughout the world.
The following table sets forth the amounts and percentages of revenues by major
product group and area, as well as average rig count data:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------
1994 1993
--------------- ----------------
Amount % Amount %
------- --- ------- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Breakdown by Product Group:
Drill Bits.......................... $ 42.8 43% $ 38.3 77%
Drilling Fluids..................... 37.4 37 -- --
Drilling and Completion Services.... 20.6 20 11.7 23
------- --- ------- ---
Total...................... $ 100.8 100% $ 50.0 100%
======= === ======= ===
Breakdown by Areas:
Domestic............................ $ 45.1 45% $ 21.1 42%
Export.............................. 10.5 10 5.7 11
International operations............ 45.2 45 23.2 47
------- --- ------- ---
Total...................... $ 100.8 100% $ 50.0 100%
======= === ======= ===
Average Active Rig Count:
Domestic............................ 759 757
Canada.............................. 298 183
International (excluding Canada).... 750 773
------- -------
Total...................... 1,807 1,713
</TABLE> ======= =======
DRILL BITS
Drill bit revenues are generated from the sale of petroleum drill bits
and mining bits. Petroleum drill bit revenues increased $4.4 million or 12.9%
from $34.2 million in the first quarter of 1993 to $38.6 million in the first
quarter of 1994 due primarily to higher sales in Canada resulting from the
increase in drilling activity, improved pricing in the United States and
increased sales in the Middle East and Far East. These increases were partially
offset by reduced sales in Europe/Africa due to lower drilling activity and
reduced sales into the former Soviet Union. Mining bit revenues increased $0.1
million or 2.4% from $4.1 million in the first quarter of 1993 to $4.2 million
in the first quarter of 1994 due to higher sales in Australia.
DRILLING FLUIDS
Drilling Fluids revenues represents one month's operations related to
the recently acquired M-I Drilling Fluids business.
12
<PAGE> 13
DRILLING AND COMPLETION SERVICES
Drilling and completion services revenues increased $8.9 million or
76.1% from $11.7 million in the first quarter of 1993 to $20.6 million in the
first quarter of 1994. The higher revenue levels were primarily due to the
acquisition of the A-Z/Grant and Lindsey product lines and increased sales
volumes in the United States and Colombia.
For the periods indicated, the following table summarizes certain
operating results of the Company and presents results as a percentage of total
revenues:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------
1994 1993
--------------- ---------------
Amount % Amount %
------- --- -------- ---
(dollars in millions)
<S> <C> <C> <C> <C>
Revenues............................ $100.8 100% $50.0 100%
------ --- ----- ---
Costs and Expenses:
Cost of revenues.................. 65.2 65 32.8 66
Selling expenses.................. 17.9 18 8.8 17
General and administrative
expenses........................ 7.3 7 5.1 10
------ --- ----- ---
Total costs and expenses...... 90.4 90 46.7 93
------ --- ----- ---
Income from continuing operations
before interest and taxes......... 10.4 10 3.3 7
Interest expense, net............... 1.0 1 2.0 4
------ --- ----- ---
Income from continuing operations
before taxes and minority
interest.......................... 9.4 9 1.3 3
Income tax provision................ 0.9 1 -- --
------ --- ------ ---
Income from continuing operations
before minority interest.......... 8.5 8 1.3 3
Minority interest................... 0.9 1 -- --
------ --- ----- ---
Income from continuing operations... $ 7.6 7% $ 1.3 3%
</TABLE> ====== === ===== ===
Total revenues increased by $50.8 million from $50.0 million in the
first quarter of 1993 to $100.8 million in the first quarter of 1994. The
increase primarily reflects the acquisitions of M-I and A-Z/Grant and Lindsey.
In addition, revenues increased due to higher Canadian drilling activity,
improved bit pricing in the United States and increased drilling and completion
services volume in the United States and Colombia. These factors were
partially offset by a decrease in revenues due to lower drilling activity in
the Europe/Africa region.
Gross profit increased by $18.4 million from $17.2 million in 1993 to
$35.6 million in 1994. The increase was due primarily to the acquisitions of
M-I and A-Z/Grant and Lindsey, higher volumes in Canada, improved bit pricing in
the U.S., and lower operating costs in the United States.
Selling expenses and general and administrative expense increased from
$13.9 million in 1993 to $25.2 million in 1994 due primarily to the additional
costs associated with the acquired companies and higher variable costs related
to the increased revenue levels partially offset by lower legal expenses.
Operating expenses as a percentage of revenues decreased from 27.8% in 1993 to
25.0% in 1994.
Interest expense decreased $1.0 million between periods due to reduced
interest expense resulting from reduced debt levels and increased interest
income from short-term investments.
The tax provision of $0.9 million in 1994 consists primarily of foreign
taxes on income.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at March 31, 1994, totalled $14.1 million or
a decrease of $87.5 million from the Company's cash position at December 31,
1993. The Company's current ratio also decreased to 2.45 to 1 at March 31, 1994
from 3.20 to 1 at December 31, 1993. The decrease in cash and the current ratio
was due primarily to the acquisition of the 64% interest in M-I Drilling Fluids
Company for $160 million using $80 million of its cash and issuing a note
payable to Dresser for $80 million.
The Company refinanced the Dresser note payable in March 1994 with a
$40 million term loan from two of 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 period ending in
January 1998. The revolving line of credit expires 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
borrowing capacity under its domestic line of credit at March 31, 1994 of
approximately $21.5 million.
The Company also has various international borrowing facilities
totalling approximately $7.0 million. The Company has borrowing capacity under
its international credit facilities at March 31, 1994 of approximately $4.2
million. The Company expects to be able to meet its ongoing working capital and
capital expenditure requirements from existing cash on hand, operating cash
flows and existing credit facilities.
14
<PAGE> 15
SMITH INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following report on Form 8-K was filed during the first quarter
of 1994:
Form 8-K dated March 2, 1994; Item 2.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITH INTERNATIONAL, INC.
(Registrant)
By: /s/ DOUGLAS L. ROCK
____________________________________
DOUGLAS L. ROCK
Chairman of the Board and
Chief Executive Officer
By: /S/ LOREN K. CARROLL
___________________________________
LOREN K. CARROLL
Executive Vice President and
Chief Financial Officer
Dated: May 13, 1994
