<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, 1995 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, 1995 THE REGISTRANT HAD 39,576,905 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 months ended March 31, 1995 and 1994 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>
1995 1994
-------- --------
(Unaudited)
(In thousands,
except per share data)
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $ 199,603 $ 100,762
COST AND EXPENSES:
Cost of Revenues . . . . . . . . . . . . . . . . . . . . . 134,067 65,181
Selling Expenses . . . . . . . . . . . . . . . . . . . . . 34,648 17,950
General and Administrative Expenses . . . . . . . . . . . . 11,440 7,270
-------- --------
Total Costs and Expenses . . . . . . . . . . . . . . . 180,155 90,401
-------- --------
EARNINGS BEFORE INTEREST AND TAXES . . . . . . . . . . . . . 19,448 10,361
INTEREST EXPENSE, net . . . . . . . . . . . . . . . . . . . . 2,894 946
-------- -------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . 16,554 9,415
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . 2,559 884
-------- -------
INCOME BEFORE MINORITY INTERESTS . . . . . . . . . . . . . . 13,995 8,531
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . 3,190 942
-------- -------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,805 $ 7,589
======== =======
EARNINGS PER COMMON SHARE (Note 2) . . . . . . . . . . . . . $ .28 $ .20
======== =======
AVERAGE COMMON AND EQUIVALENT SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . 39,033 38,791
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SMITH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 7,589 $ 8,145
Receivables, less allowance of
$8,783 in 1995 and $8,679 in 1994
for doubtful accounts . . . . . . . . . . . . . . . . . 198,533 201,053
Inventories (Note 3) . . . . . . . . . . . . . . . . . . 210,431 201,104
Deferred tax assets, net . . . . . . . . . . . . . . . . 1,771 2,161
Prepaid expenses and other . . . . . . . . . . . . . . . 12,759 9,133
---------- -----------
Total current assets . . . . . . . . . . . . . . . . . 431,083 421,596
---------- -----------
PLANT AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . 16,736 17,079
Buildings . . . . . . . . . . . . . . . . . . . . . . . . 28,848 29,065
Machinery and equipment . . . . . . . . . . . . . . . . . 224,016 220,953
---------- -----------
269,600 267,097
Less--accumulated depreciation . . . . . . . . . . . . . 148,580 149,388
---------- -----------
Net plant and equipment . . . . . . . . . . . . . . . . . 121,020 117,709
---------- -----------
OTHER ASSETS, including assets held for
sale of $7,956 in 1995 and $8,726 in 1994 . . . . . . . . 39,388 41,446
GOODWILL (Note 4) . . . . . . . . . . . . . . . . . . . . . 40,427 39,029
---------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 631,918 $ 619,780
========== ===========
</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,
1995 1994
---------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current
portion of long-term debt (Note 4) . . . . . . . . . . . $ 30,551 $ 15,852
Accounts payable . . . . . . . . . . . . . . . . . . . . . 56,393 67,873
Accrued payroll and severance related costs . . . . . . . . 23,055 28,232
Income taxes payable . . . . . . . . . . . . . . . . . . . 7,125 6,579
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 50,591 45,711
---------- ----------
Total current liabilities . . . . . . . . . . . . . . 167,715 164,247
---------- ----------
LONG-TERM DEBT (Note 4) . . . . . . . . . . . . . . . . . . . 111,100 115,000
---------- ----------
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . 16,361 17,097
---------- ----------
MINORITY INTERESTS (Note 4) . . . . . . . . . . . . . . . . . 71,814 70,315
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Common stock -
Authorized-60,000,000 shares, $1 par
value; issued and outstanding-
39,576,905 shares in 1995 and
39,432,833 in 1994 . . . . . . . . . . . . . . . . . 39,577 39,433
Common stock warrants -
Class A warrants: outstanding - none in 1995;
202,434 in 1994 (Note 5) . . . . . . . . . . . . . . --- ---
Class B warrants: outstanding - none in 1995;
1,871,400 in 1994 (Note 5) . . . . . . . . . . . . . . --- ---
Class C warrants: outstanding-451,357
in 1995 and 1994 . . . . . . . . . . . . . . . . . . . 7,278 7,278
Additional paid-in capital . . . . . . . . . . . . . . . . 273,527 272,483
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (36,749) (47,554)
Cumulative translation adjustment . . . . . . . . . . . . . (4,791) (4,605)
Less-treasury securities, at cost (628,583
common shares and 451,357 Class C
warrants in 1995 and 1994) . . . . . . . . . . . . . . . (13,914) (13,914)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . 264,928 253,121
---------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . . . . . . . . . . $ 631,918 $ 619,780
========== ==========
</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>
1995 1994
-------- --------
(unaudited)
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,805 $ 7,589
Adjustments to reconcile net income to net
cash provided by operating activities excluding the
net effects of the acquisitions of Baker Hughes
Treatment Services in 1995 and M-I Drilling Fluids
L.L.C. in 1994 (Note 4):
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 5,620 3,175
Provision for losses on accounts receivable . . . . . . . . . . . . . 233 660
Gain on disposal of fixed assets . . . . . . . . . . . . . . . . . . (930) (311)
Foreign currency translation . . . . . . . . . . . . . . . . . . . . 606 625
Change in receivables . . . . . . . . . . . . . . . . . . . . . . . . 2,276 (5,189)
Change in inventories . . . . . . . . . . . . . . . . . . . . . . . . (9,358) 1,144
Change in accounts payable . . . . . . . . . . . . . . . . . . . . . (11,967) (10,660)
Changes in other current assets and liabilities . . . . . . . . . . . (3,752) (3,374)
Changes in other noncurrent assets and
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,595 1,218
-------- --------
Net cash provided by (used in) operating activities . . . . . . . . . . . 128 (5,123)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition Baker Hughes Treatment Services (Note 4) . . . . . . . . . . (5,131) ---
Acquisition of M-I Drilling Fluids Company (Note 4) . . . . . . . . . . . --- (160,000)
Fixed asset additions . . . . . . . . . . . . . . . . . . . . . . . . . . (8,902) (5,784)
Proceeds from disposal of fixed assets . . . . . . . . . . . . . . . . . 3,090 978
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . (10,943) (164,806)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . --- 83,500
Increase in short-term borrowings, net . . . . . . . . . . . . . . . . . 14,762 428
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . (3,958) ---
Proceeds from exercise of stock options and
warrants (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,188 37
Distributions to minority interests, net . . . . . . . . . . . . . . . . (1,800) (1,422)
-------- --------
Net cash provided by financing activities . . . . . . . . . . . . . . . . 10,192 82,543
-------- --------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . 67 (67)
-------- --------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . (556) (87,453)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 8,145 101,561
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 7,589 $ 14,108
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,143 $ 568
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . 846 663
</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, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK WARRANTS
------------------ --------------------- ADDITIONAL ACCUM- CUMULATIVE
NUMBER NUMBER PAID-IN ULATED TRANSLATION
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- ------ --------- ------ --------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 . . . 39,432,833 $39,433 2,525,191 $7,278 $272,483 $(47,554) $(4,605)
EXERCISE OF EMPLOYEE STOCK
OPTIONS . . . . . . . . . . . . 500 1 --- --- 3 --- ---
EXERCISE OF COMMON STOCK
WARRANTS . . . . . . . . . . . 143,572 143 (143,572) --- 1,041 --- ---
EXPIRATION OF COMMON STOCK
WARRANTS . . . . . . . . . . . --- --- (1,930,262) --- --- --- ---
NET INCOME . . . . . . . . . . . --- --- --- --- --- 10,805 ---
TRANSLATION ADJUSTMENT FOR THE
PERIOD . . . . . . . . . . . . --- --- --- --- --- --- (186)
---------- ------ --------- ------ -------- -------- -------
BALANCE, MARCH 31, 1995 . . . . . 39,576,905 $39,577 451,357 $7,278 $273,527 $(36,749) $(4,791)
========== ====== ========= ====== ======== ======== =======
</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, 1994 . . . (628,583) $(6,636) (451,357) (7,278)
EXERCISE OF EMPLOYEE STOCK
OPTIONS . . . . . . . . . . . . --- --- --- ---
EXERCISE OF COMMON STOCK
WARRANTS . . . . . . . . . . . --- --- --- ---
EXPIRATION OF COMMON STOCK
WARRANTS . . . . . . . . . . . --- --- --- ---
NET INCOME . . . . . . . . . . . --- --- --- ---
TRANSLATION ADJUSTMENT FOR THE
PERIOD . . . . . . . . . . . . --- --- --- ---
------- ------- ------- -------
BALANCE, MARCH 31, 1995 . . . . . (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 as of and for the three months
ended March 31, 1995 and 1994 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, 1994. There are no significant changes in the content
of those notes except as discussed below.
2) EARNINGS PER SHARE
Earnings per common and common equivalent share has been computed on
the basis of the weighted average number of common and common equivalent shares
outstanding during the three months ended March 31, 1995 and 1994. Earnings
per share assuming full dilution is substantially the same as primary earnings
per share as presented for the three months ended March 31, 1995 and 1994.
3) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
($000 omitted)
<S> <C> <C>
Raw Materials . . . . . . . . . . . . . . . . . . $ 26,370 $ 24,338
Work in Process . . . . . . . . . . . . . . . . . 36,879 31,805
Finished Goods . . . . . . . . . . . . . . . . . 157,941 155,420
--------- ---------
221,190 211,563
Less: reserve to state certain
domestic inventories($97,224 in
1995 and $94,339 in 1994) on a
LIFO basis . . . . . . . . . . . . . . . . . . . (10,759) (10,459)
--------- ---------
$ 210,431 $ 201,104
========= =========
</TABLE>
4) ACQUISITIONS
Acquisition of M-I Drilling Fluids L.L.C.
Effective February 28, 1994, the Company acquired a 64% interest in
M-I Drilling Fluids L.L.C. (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 borrowing $80 million. This acquisition was
accounted for as a purchase. The Company recorded approximately $37.3 million
of goodwill upon purchase of the 64% interest in M-I.
8
<PAGE> 9
Acquisition of Supradiamant
On July 1, 1994, the Company acquired Supradiamant, S.A.
(Supradiamant) from Societe Industrielle de Combustible Nucleaire for
approximately $6.3 million in cash. Supradiamant is a leading manufacturer of
ultrahard materials, polycrystalline diamond and cubic boron nitride. This
acquisition was accounted for as a purchase.
Acquisition of Baker Hughes Treatment Services
Effective January 1, 1995, M-I (through its Swaco Geolograph division)
acquired Baker Hughes Treatment Services (BHTS) from Baker Hughes, Inc. for
approximately $5.1 million in cash. BHTS is a leading supplier of waste
minimization, product recovery services, water treatment, downhole injection
and reserve pit remediation services to the oilfield industry. This
acquisition was accounted for as a purchase.
The historical balance sheets of the Company at March 31, 1995 and
December 31, 1994 include the historical accounts of Supradiamant and certain
purchase accounting adjustments on an estimated basis. In addition, the
historical balance sheet of the Company at March 31, 1995 includes the
historical accounts of BHTS and certain purchase accounting adjustments on an
estimated basis. Management has not fully evaluated all of the consequences of
the acquisitions of Supradiamant and BHTS including assessing the fair market
value of the tangible assets acquired and liabilities incurred or assumed.
Upon completion of these evaluations during 1995, 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, 1995 and 1994 assuming the acquisitions of
M-I, Supradiamant and BHTS had been made on January 1, 1995 and 1994 are as
follows (dollars in millions except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
Unaudited pro forma revenues.................. $ 199.6 $ 180.8
======== =========
Unaudited pro forma income from
continuing operations....................... $ 10.8 $ 6.2
======== =========
Unaudited pro forma income from
continuing operations per common share...... $ 0.28 $ 0.16
======== =========
</TABLE>
5) CLASS A AND CLASS B WARRANTS
On February 28, 1995, the Company's Class A Warrants and Class B
Warrants expired in accordance with the terms of the respective warrant
agreements. During 1995, prior to expiration, 143,449 Class A warrants and 123
Class B Warrants were exercised and converted into 143,572 shares of the
Company's common stock. The Company received approximately $1.1 million in
connection with the exercise and conversion of these warrants.
9
<PAGE> 10
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 Company has
recently acquired businesses which enabled the Company to pursue its strategic
growth objective and expand its product and services offerings to its
customers. On February 28, 1994, the Company acquired a 64% majority interest
in M-I Drilling Fluids L.L.C. (M-I), an acknowledged world leader in drilling
fluid systems, from Dresser Industries, Inc. On July 1, 1994, the Company
acquired Supradiamant, S.A. (Supradiamant), a leading manufacturer of diamond
products, to strengthen the Company's Megadiamond product line. Effective
January 1, 1995, the Company acquired Baker Hughes Treatment Services (BHTS) as
an expansion of the Swaco Geolograph division of M-I Drilling Fluids L.L.C.
These acquisitions complement the Company's existing core products forming
a more complete package of expendable products to the oil and gas
drilling and production industry.
FIRST QUARTER OF 1995 COMPARED TO FIRST QUARTER OF 1994
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------------------
1995 1994
-------------------- ----------------------
Amount % Amount %
------- ---- ------- ----
(dollars in millions)
<S> <C> <C> <C> <C>
Breakdown by Business Unit:
M-I Drilling Fluids . . . . . . . . . . . . . . $ 122.4 61% $ 37.4 37%
Smith Drill Bits . . . . . . . . . . . . . . . . 42.6 22 37.6 38
Smith Drilling and Completion
Services . . . . . . . . . . . . . . . . . . 26.2 13 20.6 20
Smith Diamond . . . . . . . . . . . . . . . . . 8.4 4 5.2 5
------- ---- ------- ----
Total . . . . . . . . . . . . . . . $ 199.6 100% $ 100.8 100%
======= ==== ======= ====
Breakdown by Areas:
United States . . . . . . . . . . . . . . . . . . $ 82.3 41% $ 45.1 45%
Export . . . . . . . . . . . . . . . . . . . . . 11.3 6 10.5 10
International operations . . . . . . . . . . . . 106.0 53 45.2 45
------- ---- ------- ----
Total . . . . . . . . . . . . . . . $ 199.6 100% $ 100.8 100%
======= ==== ======= ====
Average Active Rig Count:
United States . . . . . . . . . . . . . . . . . . 709 759
Canada . . . . . . . . . . . . . . . . . . . . . 330 298
International (excluding Canada) . . . . . . . . 750 750
----- -----
Total . . . . . . . . . . . . . . . 1,789 1,807
===== =====
</TABLE>
10
<PAGE> 11
M-I DRILLING FLUIDS
M-I was acquired by the Company on February 28, 1994. M-I Drilling
Fluids revenues increased $85.0 million from $37.4 million in the first quarter
of 1994 to $122.4 million in the first quarter of 1995 due primarily to an
additional two months of revenues reported in the first quarter of 1995. In
addition, revenues increased approximately $9.6 million or 8.5% over the same
period in 1994 due primarily to revenues associated with the acquisition of
BHTS and higher sales volume in the United States, Latin America, Germany and
Australia.
SMITH DRILL BITS
Drill Bits revenues are generated from the sale of three-cone drill
bits and mining bits. Three-cone drill bit revenues increased $4.7 million or
14.1% from $33.4 million in the first quarter of 1994 to $38.1 million in the
first quarter of 1995 due primarily to higher sales volume in the United
States, Latin America, Canada and Italy. Mining bit revenues increased $0.3
million or 7.7% from $4.2 million in the first quarter of 1994 to $4.5 million
in the first quarter of 1995 due primarily to higher sales to metal and iron
ore producers in Australia and Canada.
SMITH DRILLING AND COMPLETION SERVICES
Drilling and Completion Services revenues increased $5.6 million or
27.2% from $20.6 million in the first quarter of 1994 to $26.2 million in the
first quarter of 1995. The increase was primarily due to higher drilling
activity in Latin America and Canada. In addition, sales volumes increased in
the United States, the Middle East and Italy.
SMITH DIAMOND
Smith Diamond revenues increased by $3.2 million or 63.7% from $5.2
million in the first quarter of 1994 to $8.4 million in the first quarter of
1995 primarily due to revenues reported by Supradiamant, which was acquired in
July 1994, and higher sales in the Middle East, the United Sates and Mexico.
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,
-------------------------------------------------------
1995 1994
--------------------- -------------------------
Amount % Amount %
------- ---- ------- -----
(dollars in millions)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $ 199.6 100% $ 100.8 100%
------- ---- ------- -----
Costs and Expenses:
Cost of revenues . . . . . . . . . . . . . . . . 134.1 67 65.2 65
Selling expenses . . . . . . . . . . . . . . . . 34.7 17 17.9 18
General and administrative expenses . . . . . . . 11.4 6 7.3 7
------- ---- ------- -----
Total costs and expenses . . . . . . . . . 180.2 90 90.4 90
------- ---- ------- -----
Earnings before interest and taxes . . . . . . . . 19.4 10 10.4 10
Interest expense, net . . . . . . . . . . . . . . . 2.9 2 1.0 1
------- ---- ------- -----
Income before taxes and minority
interests . . . . . . . . . . . . . . . . . . . . 16.5 8 9.4 9
Income tax provision. . . . . . . . . . . . . . . . 2.5 1 0.9 1
------- ---- ------- -----
Income before minority interests . . . . . . . . . 14.0 7 8.5 8
Minority interests . . . . . . . . . . . . . . . . 3.2 2 0.9 1
------- ---- ------- -----
Net income . . . . . . . . . . . . . . . . . . . . $ 10.8 5% $ 7.6 7%
======= ==== ======= =====
</TABLE>
11
<PAGE> 12
Total revenues increased by $98.8 million from $100.8 million in the
first quarter of 1994 to $199.6 million in the first quarter of 1995. The
increase primarily reflects the additional revenues related to the recently
acquired businesses: M-I, Supradiamant and BHTS. In addition, revenues
increased due to higher Drill Bits and Drilling and Completion Services sales
in Latin America, the United States, Canada and Italy and increased Smith
Diamond sales volumes in the Middle East, the United States and Mexico.
Gross profit increased by $29.9 million from $35.6 million in the
first quarter of 1994 to $65.5 million in the first quarter of 1995. The
increase was due primarily to the additional two months of M-I operations and
the acquisitions of Supradiamant and BHTS. In addition, the increase in gross
profit reflected higher sales volumes in Latin America, Canada and Italy and
lower operating costs in the Middle East.
Operating expenses, consisting of selling expenses and general and
administrative expenses, increased by $20.9 million from $25.2 million in 1994
to $46.1 million in 1995 due primarily to the additional expenses associated
with the recently acquired companies and increased variable costs related to
the higher revenue levels partially offset by higher foreign currency exchange
gains. Operating expenses as a percentage of revenues decreased from 25.0% in
1994 to 23.1% in 1995.
Interest expense increased by $1.5 million from $1.7 million in 1994
to $3.2 million in 1995 due primarily to higher debt levels to fund the
acquisitions of M-I, Supradiamant and BHTS and working capital requirements and
higher variable interest rates. Interest income decreased by $0.4 million from
$0.7 million in 1994 to $0.3 million in 1995 as a result of reduced short-term
investment funds as these funds were used in the acquisitions.
The tax provision increased by $1.6 million from $0.9 million in 1994
to $2.5 million in 1995. The tax provision increase primarily represents
foreign taxes on income principally related to the additional earnings of M-I.
Minority interests represents the share of M-I profits associated with
the 36% minority interest in the earnings of M-I and other minority interests
from investments in other joint ventures held by M-I. Minority interests
increased by $2.3 million from $0.9 million in 1994 to $3.2 million in 1995 due
to higher M-I earnings as a result of the additional two months of M-I
operations and losses from M-I investments in joint ventures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at March 31, 1995, totaled $7.6 million or
a decrease of $0.5 million from the Company's cash position at December 31,
1994. The Company's current ratio remained constant at 2.57 to 1.
On February 28, 1995, the Company's Class A Warrants and Class B
Warrants expired in accordance with the terms of the respective warrant
agreements. During 1995, prior to expiration, 143,449 Class A warrants and 123
Class B Warrants were exercised and converted into 143,572 shares of the
Company's common stock. The Company received approximately $1.1 million in
connection with the exercise and conversion of these warrants.
Effective January 1, 1995, M-I (through its Swaco Geolograph division)
acquired BHTS for $5.1 million by borrowing cash under its $20.0 million
revolving line credit with the Company's existing bank lenders. The revolving
line of credit expires in July 1996 and bears interest at LIBOR +5/8 percent.
M-I Drilling Fluids L.L.C. has borrowing capacity under this domestic line of
credit at March 31, 1995 of $3.7 million. The Company has guaranteed its
proportional 64% interest of the M-I Drilling Fluids L.L.C. line of credit or
approximately $12.8 million.
12
<PAGE> 13
The Company also had domestic and international borrowing facilities
for operating and financing needs. Under the Company's $65.0 million revolving
line of credit, the Company has borrowing capacity at March 31, 1995 of $19.9
million. The Company's international borrowing facilities total approximately
$15.7 million at March 31, 1995. The Company had borrowing capacity under its
international credit facilities at March 31, 1995 of approximately $11.5
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.
13
<PAGE> 14
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
None.
14
<PAGE> 15
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 12, 1995
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