<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________to__________
Commission File Number 1-8514
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
P.O. BOX 42842
HOUSTON, TX 77242-2842
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Smith International, Inc.
16740 Hardy Street
Houston, Texas 77032
1
<PAGE> 2
The following financial statements and exhibits are filed as a part of this
annual report:
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
------------
<S> <C>
(a) Index to Financial Statements and Supplementary
Information
Report of Independent Public Accountants .......... 4
Statements of Net Assets Available for Plan
Benefits, with Fund information at December
31, 1995 and 1994 ................................. 5
Statements of Changes in Net Assets Available
for Plan Benefits, with Fund information for
the year ended December 31, 1995 .................. 7
Notes to financial statements ..................... 8
Supplementary Information:
Schedule 1 - Assets held for Investment Purposes .. 13
Schedule 2 - Reportable Transactions .............. 14
</TABLE>
2
<PAGE> 3
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 26, 1996
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
By: M-I Drilling Fluids, L.L.C.
By: /s/ Geri D. Wilde
---------------------
Geri D. Wilde,
Assistant Treasurer
3
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Employee Benefits Committee of
M-I Drilling Fluids Company
Profit Sharing and Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of M-I Drilling Fluids Company Profit Sharing and Savings Plan (the
Plan) as of December 31, 1995 and 1994, and the related statement of changes in
net assets available for plan benefits for the year ended December 31, 1995.
These financial statements and the schedules referred to below are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Plan's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for Plan benefits as of
December 31, 1995 and 1994, and the changes in its net assets available for
Plan benefits for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets
held for investment purposes (Schedule I) and schedule of reportable
transactions (Schedule II) are presented for purposes of additional analysis
and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The fund information in the statements of net assets
available for plan benefits and the statement of changes in net assets
available for Plan benefits is presented for purposes of additional analysis
rather than present the net assets available for Plan benefits and changes
in net assets available for Plan benefits of each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ ARTHUR ANDERSEN
Houston, Texas
June 14, 1996
4
<PAGE> 5
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Participant-Directed
-------------------------------------------------------------------
Smith Long-
International, Term
Stable Inc., Corporate
Income Stock Wellington Windsor Bond
Fund Fund Fund Fund Fund
----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ - $ - $ 24,969,190 $ 6,258,281 $ 1,050,045
Investment contracts-
Providential Life Insurance Company
Guaranteed Investment Contract 5,199,547 - - - -
Vanguard Investment Contract Trust 5,737,824 - - - -
Fidelity Institutional Cash Portfolio Money Market Fund #57 - - - - -
Smith International, Inc., common stock - 618,556 - - -
Loans to participants - - - - -
------------ --------- ------------ ----------- ------------
Total investments 10,937,371 618,556 24,969,190 6,258,281 1,050,045
Receivables-
Participant contributions 50,995 1,523 39,040 27,910 4,430
Company contributions 4,022 949 73,730 4,475 446
Loan repayments 15,963 483 12,056 9,263 1,365
Investment income 67,051 - - - -
------------ --------- ------------ ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 11,075,402 $ 621,511 $ 25,094,016 $ 6,299,929 $ 1,056,286
============ ========= ============ =========== ===========
<CAPTION>
Participant-Directed
-----------------------------------------------------------------
Index
Money 500 International
Market Portfolio PRIMECAP Growth Loan
Fund Fund Fund Fund Fund
----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ 1,420,678 $ 622,891 $ 3,059,411 $ 554,106 $ -
Investment contracts-
Providential Life Insurance Company
Guaranteed Investment Contract - - - - -
Vanguard Investment Contract Trust - - - - -
Fidelity Institutional Cash Portfolio Money Market Fund #57 - - - - -
Smith International, Inc., common stock - - - - -
Loans to participants - - - - 3,037,481
----------- --------- ----------- --------- -----------
Total investments 1,420,678 622,891 3,059,411 554,106 3,037,481
Receivables-
Participant contributions 5,825 3,038 10,145 2,239 -
Company contributions 380 1,751 4,574 1,296 -
Loan repayments 1,761 605 2,646 352 -
Investment income - - - - -
----------- --------- ----------- --------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 1,428,644 $ 628,285 $ 3,076,776 $ 557,993 $ 3,037,481
=========== ========= =========== ========= ===========
<CAPTION>
Company-
Directed
Fund Total
--------- -----------
<S> <C> <C>
ASSETS:
Investments-
Registered investment companies $ - $ 37,934,602
Investment contracts-
Providential Life Insurance Company
Guaranteed Investment Contract - 5,199,547
Vanguard Investment Contract Trust - 5,737,824
Fidelity Institutional Cash Portfolio Money Market Fund #57 76,081 76,081
Smith International, Inc., common stock - 618,556
Loans to participants - 3,037,481
-------- ------------
Total investments 76,081 $ 52,604,091
Receivables-
Participant contributions - 145,145
Company contributions - 91,623
Loan repayments - 44,494
Investment income - 67,051
-------- ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 76,081 $ 52,952,404
======== ============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Participant-Directed
---------------------------------------------------------------
Smith Long-
International, Term
Stable Inc., Corporate
Income Stock Wellington Windsor Bond
Fund Fund Fund Fund Fund
--------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments -
Registered investment companies $ 577,703 $ - $ 18,842,869 $ 4,274,097 $ 786,780
Investment contracts-
Providential Life Insurance Company
Guaranteed Investment Contract 4,797,495 - - -
Vanguard Investment Contract Trust 3,775,943 - - - -
Diversified Investors Guaranteed Investment Contract 882,690 - - - -
Fidelity Institutional Cash Portfolio Money Market Fund #59 - - - - -
Smith International, Inc., common stock - 667,083 - - -
Loans to participants - - - - -
------------ --------- ------------ ----------- ---------
Total investments 10,033,831 667,083 18,842,869 4,274,097 786,780
Receivables-
Participant contributions 59,248 425 29,172 30,297 5,244
Company contributions 1,688 395 77,628 2,120 217
Loan repayments 15,181 85 9,307 7,460 1,817
------------ --------- ------------ ----------- ---------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 10,109,948 $ 667,988 $ 18,958,976 $ 4,313,974 $ 794,058
============ ========= ============ =========== =========
<CAPTION>
Participant-Directed
----------------------------------------------------------
Index
Money 500 International
Market Portfolio PRIMECAP Growth Loan
Fund Fund Fund Fund Fund
------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments -
Registered investment companies $ 980,890 $ 70,865 $ 419,651 $ 306,299 $ -
Investment contracts-
Providential Life Insurance Company
Guaranteed Investment Contract - - - - -
Vanguard Investment Contract Trust - - - - -
Diversified Investors Guaranteed Investment Contract - - - - -
Fidelity Institutional Cash Portfolio Money Market Fund #59 - - - - -
Smith International, Inc., common stock - - - - -
Loans to participants - - - - 2,219,404
--------- -------- --------- --------- -----------
Total investments 980,890 70,865 419,651 306,299 2,219,404
Receivables-
Participant contributions 6,652 550 1,273 1,182 -
Company contributions 177 219 1,021 688 -
Loan repayments 2,004 219 310 331 -
--------- -------- --------- --------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 989,723 $ 71,853 $ 422,255 $ 308,500 $ 2,219,404
========= ======== ========= ========= ===========
<CAPTION>
Company-
Directed
Fund Total
-------- -----------
<S> <C> <C>
ASSETS:
Investments -
Registered investment companies $ - $ 26,259,154
Investment contracts-
Providential Life Insurance Company
Guaranteed Investment Contract - 4,797,495
Vanguard Investment Contract Trust - 3,775,943
Diversified Investors Guaranteed Investment Contract - 882,690
Fidelity Institutional Cash Portfolio Money Market Fund #59 100,115 100,115
Smith International, Inc., common stock - 667,083
Loans to participants - 2,219,404
--------- ------------
Total investments 100,115 38,701,884
Receivables-
Participant contributions - 134,043
Company contributions - 84,153
Loan repayments - 36,714
--------- ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 100,115 $ 38,956,794
========= ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND
INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Participant-Directed
--------------------------------------------------------------------------------
Smith Long-
International, Term
Stable Inc., Corporate Money
Income Stock Wellington Windsor Bond Market
Fund Fund Fund Fund Fund Fund
------------ --------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT DECEMBER 31, 1994 $ 10,109,948 $ 667,988 $ 18,958,976 $ 4,313,974 $ 794,058 $ 989,723
PLAN ADDITIONS:
Investment income-
Interest 779,877 - - - 64,789 62,603
Dividends - - 1,222,755 701,606 - -
Realized gain on sale of investments - 436,724 449,494 178,523 25,854 -
Unrealized appreciation of investments - 212,558 4,392,343 436,344 123,768 -
------------ --------- ------------ ----------- ----------- -----------
779,877 649,282 6,064,592 1,316,473 214,411 62,603
------------ --------- ------------ ----------- ----------- -----------
Contributions-
Company 97,129 30,117 1,861,722 92,101 9,940 6,767
Participants 1,433,354 44,803 1,098,641 756,649 130,227 157,098
------------ --------- ------------ ----------- ----------- -----------
1,530,483 74,920 2,960,363 848,750 140,167 163,865
------------ --------- ------------ ----------- ----------- -----------
Total additions 2,310,360 724,202 9,024,955 2,165,223 354,578 226,468
------------ --------- ------------ ----------- ----------- -----------
PLAN DEDUCTIONS:
Benefits paid to participants 612,160 3,255 980,766 195,782 30,883 61,931
Administrative expenses - - - - - -
INTERFUND TRANSFERS, net (732,746) (767,424) (1,909,149) 16,514 (61,467) 274,384
------------ --------- ------------ ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT DECEMBER 31, 1995 $ 11,075,402 $ 621,511 $ 25,094,016 $ 6,299,929 $ 1,056,286 $ 1,428,644
============ ========= ============ =========== =========== ===========
<CAPTION>
Participant-Directed
-----------------------------------------------
Index
500 International Company-
Portfolio PRIMECAP Growth Loan Directed
Fund Fund Fund Fund Fund Total
--------- ----------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT DECEMBER 31, 1994 $ 71,853 $ 422,255 $ 308,500 $ 2,219,404 $100,115 $38,956,794
PLAN ADDITIONS:
Investment income-
Interest - - - 187,590 3,147 1,098,006
Dividends 11,791 80,974 15,676 - - 2,032,802
Realized gain on sale of investments 15,494 52,812 6,188 - - 1,165,089
Unrealized appreciation of investments 74,535 288,657 39,790 - - 5,567,995
--------- ----------- --------- ----------- -------- ------------
101,820 422,443 61,654 187,590 3,147 9,863,892
--------- ----------- --------- ----------- -------- ------------
Contributions-
Company 25,322 80,864 25,462 - - 2,229,424
Participants 60,794 220,653 54,383 - - 3,956,602
--------- ----------- --------- ----------- -------- ------------
86,116 301,517 79,845 - - 6,186,026
--------- ----------- --------- ----------- -------- ------------
Total additions 187,936 723,960 141,499 187,590 3,147 16,049,918
--------- ----------- --------- ----------- -------- ------------
PLAN DEDUCTIONS:
Benefits paid to participants 17,144 22,185 673 102,348 - 2,027,127
Administrative expenses - - - - 27,181 27,181
INTERFUND TRANSFERS, net 385,640 1,952,746 108,667 732,835 - -
--------- ----------- --------- ----------- -------- ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT DECEMBER 31, 1995 $ 628,285 $ 3,076,776 $ 557,993 $ 3,037,481 $ 76,081 $ 52,952,404
========= =========== ========= =========== ======== ============
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE> 8
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
PLAN PROVISIONS:
The following description of the M-I Drilling Fluids Company Profit Sharing and
Savings Plan (the Plan) provides only general information. Participants should
refer to the Plan document for a more complete explanation of the Plan's
provisions as the Plan document is controlling at all times.
General
The Plan is a defined contribution plan of M-I Drilling Fluids L.L.C. (the
Company). Smith International, Inc., has a 64 percent majority ownership and
Halliburton Company has a 36 percent minority ownership in the Company. The
Plan is operated for the sole benefit of the employees of the Company and their
beneficiaries and is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). The Plan became effective on March 1,
1987, and is available to all employees who meet certain eligibility
requirements.
Administration
The fiduciary responsibilities of the Plan are performed by the M-I Drilling
Fluids Company Employee Benefits Committee (the Committee). In 1993, Texas
Commerce Bank, N.A. (the Former Trustee), was appointed as the trustee of the
Plan. On July 27, 1994, Vanguard Fiduciary Trust Company (the Trustee) was
appointed Trustee of the Plan effective October 1, 1994. The responsibilities
of the Trustee are to invest Plan assets in accordance with guidelines set
forth by the Committee and to make disbursements from Plan assets as directed
by the Committee. Expenses incident to the administration of the Plan and
trust may be paid by the Company or by the Plan.
Eligibility
An employee may participate in the Plan on the first day of the first month
following the date on which the employee has attained one year of active
service (as defined by the Plan) with the Company. Effective January 1, 1996,
an employee may participate in the Plan on the first day of the first month
following the date of hire.
Compensation
Compensation, as defined in the Plan, includes the cash compensation that is
paid by the Company to the participants during the Plan year for services
performed and is currently includible in the employee's gross income under the
Internal Revenue Code (the Code), including regular or base salary, wages,
commissions, overtime, bonuses, nondeferred incentive awards and foreign
service allowance, as such compensation items are reported on the employee's
Form W-2 for the calendar year. Compensation shall exclude benefits paid or
credited under the Plan or any other deferred compensation plan maintained by
the Company. The maximum amount of compensation considered by the Plan during
1995, as limited by the Code, was $150,000.
8
<PAGE> 9
Contributions
Participants may elect to contribute voluntarily, in 1/2 percent increments,
from 1/2 percent to 12 percent of their compensation (except, for participants
whose annual compensation, as defined by the Plan, exceeds $54,000, the
elective contribution is from 1/2 percent to 10 percent), subject to a maximum
amount of $9,240 during 1995 under Section 402(g) of the Code.
At the discretion of the Employee Benefits Committee (the Committee), the
Company may provide contributions to the Plan for each participant equal to 3
percent of the participant's compensation during the Plan year (the Basic
Contribution). The Company may also provide additional contributions of 1.5
percent of that participant's compensation during the Plan year (the Matching
Contribution). Basic and Matching Contributions were provided to each
participant for the years ended December 31, 1995 and 1994, respectively.
In addition, with respect to each Plan year, the Company may contribute to the
Plan (from the Company's net income or any accumulated earnings and profits)
profit-sharing contributions in such amounts, if any, as determined by the
Committee and approved and ratified by the Company's board of directors. For
the years ended December 31, 1995 and 1994, the Company did not approve or
provide a profit-sharing contribution to the Plan.
Vesting
Participants are immediately vested in their voluntary contributions and the
net earnings thereon. Participants vest annually in the Company's
contributions in 20 percent increments commencing with the third year of
membership service, as defined in the Plan. Participants, or their
beneficiaries, as appropriate, may also become fully vested in the Company's
contributions in the event of the participant's death, termination of
employment by reason of total or permanent disability or retirement from the
Company upon reaching the normal retirement age of 65. Effective January 1,
1996, participants will vest annually in the Company's contributions in 20
percent increments commencing with their first year of service.
Investment Options
At December 31, 1995 and 1994, the Plan's investments are held in a trust fund
administered by Vanguard Fiduciary Trust Company. Plan investments included in
the statements of net assets available for plan benefits, with fund
information, are stated at their fair value as of the statement date.
Participants have the option of investing their contributions and the Company's
matching contributions in any of the following Vanguard Funds and/or the common
stock of Smith International, Inc. (the majority owner of the Company):
Stable Income Fund--Investments are made in money deposit contracts with
various insurance companies and shares of the Vanguard Investment Contract
Trust. These investments provide guaranteed rates of return and are recorded
at contract value. See Note 4 for further information regarding valuation of
these investments.
Smith International, Inc., Stock Fund--Investments are in the common stock of
Smith International, Inc., purchased on the open market.
Vanguard Wellington Fund--Investments are made in a combination of common
stocks and fixed income securities with the objective of conservation of
principal and reasonable current income.
9
<PAGE> 10
Vanguard Windsor Fund--Investments are made in a portfolio of common stocks
with the objective of long-term growth of capital and income and a secondary
objective of providing current income.
Vanguard Long-Term Corporate Bond Fund--Investments are made in a portfolio of
bonds with the objective of obtaining a high level of income while preserving
capital.
Vanguard Money Market Fund--Investments are made in high-quality money market
instruments which mature in one year or less, including negotiable certificates
of deposit, banker's acceptances issued by major U.S. banks, commercial paper
and short-term corporate obligations with the objective of preservation of
capital and liquidity.
Vanguard Index 500 Portfolio Fund--Investments are made in a portfolio of
publicly traded stocks with the objective of providing the price and yield
performance represented by the Standard and Poor's 500 Composite Stock Price
Index.
Vanguard PRIMECAP Fund--Investments are made principally in a portfolio of
common stocks with the objective of long-term growth of capital.
Vanguard International Growth Fund--Investments are made in common stocks of
companies based outside of the United States with the objective of long-term
capital growth.
Company-Directed Fund--These investments represent amounts held by the former
trustee at year-end awaiting the payment of the Plan's administrative expense
on transfer to participant's accounts.
Contributions may be invested in one fund or divided among two or more funds.
Participants may transfer some or all of the balances out of any fund into one
or any combination of the other funds at any time.
Effective October 1, 1994, the Plan began to offer the above investment options
to the participants, and a transfer from the former investments to the above
investment options was implemented by the Plan.
Payment of Benefits
A participant may elect to receive benefit payments by any one of the several
methods provided by the Plan upon termination of service or retirement.
The Plan also provides for hardship distributions to participants with
immediate and significant financial needs, subject to authorization by the
Committee. Such distributions are limited to the vested amount then credited
to such participant's account.
Plan assets allocated to accounts of participants who have withdrawn from
participation in the earnings and operations of the Plan amounted to $28,083
and $50,000 at December 31, 1995 and 1994, respectively.
Termination of the Plan
The Company presently intends to continue the Plan indefinitely. However, the
Company reserves the right to discontinue the Plan at any time and for any
reason by resolution of the Committee. In the event of termination, partial
termination or discontinuance of contributions under the Plan, participants
will be credited with a fully vested interest in their respective Company
contributions.
10
<PAGE> 11
Loans
Participants who have participated in the Plan for a minimum of one year may
borrow from their accounts no more than once annually, subject to terms
specified by the Committee. Participants may not take out loans that, in the
aggregate, exceed $50,000 or 50 percent of the member's vested interest in his
or her account. These loans bear annual rates of interest commensurate with
the prevailing interest rate charged on similar commercial loans had the loan
been made under similar circumstances by a lending institution.
Forfeitures
In the event that a participant terminates employment with the Company, the
participant's vested balances are distributed. Any nonvested employer
contributions shall be forfeited on the date the participant incurs a period of
five consecutive one-year periods of severance. Forfeitures are applied first
to reinstate the participant's previously forfeited amounts when the
participant is reemployed by the Company within the above five-year period.
Any remaining forfeitures are used to reduce subsequent employer contributions
or offset Plan expenses. Net assets available for Plan benefits as of December
31, 1995 and 1994, includes forfeited amounts of $146,731 and $100,115,
respectively. Forfeitures of $27,181 and $15,502 were used to pay certain
administrative expenses in 1995 and 1994, respectively. There were no
forfeitures used to reduce employer contributions in 1995 or 1994.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Basis of Accounting
The accounts of the Plan are maintained on the cash basis of accounting. For
financial reporting purposes, however, the financial statements have been
prepared on the accrual basis of accounting using information provided by the
trustee.
Investment Valuation
The Plan's investments are held by the trustee. The trustee has provided
certified statements which are the basis for recording the transactions of the
Plan. Plan investments are stated at fair value, as determined by the trustee
primarily by reference to published market data, except for the Provident Life
Insurance Company investment contract and the Vanguard Investment Contract
Trust which are stated at contract value.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the administrator to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of changes in net
assets during the reporting period. Actual results could differ from those
estimates.
3. FEDERAL INCOME TAX STATUS:
The Plan obtained its latest determination letter on September 11, 1995, in
which the Internal Revenue Service stated that the Plan, as then designed, was
in compliance with the applicable requirements of the Code. The Plan has been
amended since receiving the determination letter. However, the Committee and
the Plan's tax counsel believe that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Code.
Therefore, they believe that the Plan was qualified and the related trust was
tax-exempt as of the financial statement date.
11
<PAGE> 12
4. NEW ACCOUNTING PRONOUNCEMENT:
Effective January 1, 1995, the Plan adopted Statement of Position 94-4 (SOP
94-4) "Reporting of Investment Contracts Held by Health and Welfare Benefit
Plans and Defined Contribution Pension Plans." The adoption of SOP 94-4 has no
financial statement impact. Under SOP 94-4, fully benefit-responsive
investment contracts are valued at contract value which represents the
principal balance of the contracts plus accrued interest at the stated contract
rate, less payments received and contract charges by the insurance company.
Under the terms of the Plan's investment contract with Provident Life Insurance
Company (the Provident Contract), the credited interest rate is determined
based upon the insurance company's applicable rate schedule. The average yield
of the Provident Contract was 9.19 percent for the years ended December 31,
1995 and 1994. The stated interest rate of the Provident Contract was 9.19
percent for each of the years ended December 31, 1995 and 1994. The fair value
of the investments held under the Provident Contract as of December 31, 1995,
was $5,199,547, which approximates contract value.
The Plan is also invested in the Vanguard Investment Contract Trust (the Trust)
which provides for the collective investment of the assets of tax-exempt
pension and profit-sharing plan trusts primarily in a pool of investment
contracts issued by insurance companies and banks. The average aggregate yield
of the Trust's investments for the year ended December 31, 1995, was 6.25
percent. The fair value of the investments in the Trust as of December 31,
1995, was $5,737,824, which approximates contract value.
5. RECONCILIATION TO FORM 5500:
Benefits payable to participants are included in net assets available for Plan
benefits and are not reflected as a liability in the financial statements. As
of December 31, 1995, the benefits payable to participants totaled $28,083.
The following is a reconciliation of net assets available for Plan benefits per
the financial statements to the Form 5500 as of December 31, 1995:
<TABLE>
<S> <C>
Net assets available for Plan benefits per the financial statements $52,952,404
Less- Current amounts payable to participants at end of year 28,083
-----------
Net assets available for Plan benefits per the Form 5500 $52,924,321
===========
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31, 1995:
<TABLE>
<S> <C>
Benefits paid to participants per the financial statements $2,027,127
Add- Current amounts payable to participants at end of year 28,083
----------
Benefits paid to participants per the Form 5500 $2,055,210
==========
</TABLE>
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31, 1995, but not yet paid as of that date. The prior-year Form 5500
did not reflect any distribution payable to withdrawing participants.
12
<PAGE> 13
SCHEDULE I
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Identity of Issue Description of Investment Cost Value
- --------------------------------------- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Vanguard Group of Investment Companies* Vanguard Wellington Fund $20,957,064 $24,969,190
Vanguard Group of Investment Companies* Vanguard Windsor Fund 6,156,646 6,258,281
Vanguard Group of Investment Companies* Vanguard Long-Term Corporate Bond Fund 927,742 1,050,045
Vanguard Group of Investment Companies* Money Market Fund 1,420,678 1,420,678
Vanguard Group of Investment Companies* Vanguard Index 500 Portfolio Fund 548,575 622,891
Vanguard Group of Investment Companies* Vanguard PRIMECAP Fund 2,774,982 3,059,411
Vanguard Group of Investment Companies* Vanguard International Growth Fund 517,023 554,106
Provident National Assurance Company Guaranteed Investment Contract, maturing December 31, 1995, 9.19% 5,199,547 5,199,547
Vanguard Fiduciary Trust Company* Vanguard Investment Contract Trust 5,737,824 5,737,824
Fidelity Investments Institutional Cash Portfolio Money Market Fund #57 76,081 76,081
Smith International, Inc.* Common stock 409,060 618,556
M-I Drilling Fluids Company Profit Loans receivables from participants (highest and lowest interest
Sharing and Savings Plan* rates are 5.0% and 10.5%) 3,037,481 3,037,481
----------- -----------
$47,762,703 $52,604,091
=========== ===========
</TABLE>
*Identified party in interest.
The foregoing notes are an integral part of this schedule.
13
<PAGE> 14
M-I DRILLING FLUIDS COMPANY
PROFIT SHARING AND SAVINGS PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
Current Value
of Asset on
Purchase Selling Cost of Transaction
Identity of Party Involved Description of Asset Price Price Asset Date Net Gain
- -------------------------------------- --------------------------------- ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Vanguard Group of Investment Companies Vanguard Wellington Fund $5,997,893 $ - $5,997,893 $5,997,893 $ -
- 4,713,409 4,263,915 4,713,409 449,494
Vanguard Group of Investment Companies Vanguard Windsor Fund 3,036,200 - 3,036,200 3,036,200 -
- 1,666,882 1,488,359 1,666,882 178,523
Vanguard Group of Investment Companies Money Market Fund 1,419,609 - 1,419,609 1,419,609 -
- 979,822 979,822 979,822 -
Vanguard Group of Investment Companies Vanguard PRIMECAP Fund 2,873,722 - 2,873,722 2,873,722 -
- 575,431 522,619 575,431 52,812
Vanguard Fiduciary Trust Company Vanguard Investment Contract Trust 4,609,313 - 4,609,313 4,609,313 -
- 3,705,772 3,705,772 3,705,772 -
Smith International, Inc. Common stock 2,019,331 - 2,019,331 2,019,331 -
- 2,717,140 2,280,416 2,717,140 436,724
</TABLE>
The foregoing notes are an integral part of this schedule.
14
