<PAGE> 1
UNITED STATES
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 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
( ) 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
<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 at December 31, 1996 and 1995 ............ 5
Statement of Changes in Net Assets Available
for Plan Benefits for the year ended December 31,
1996 .............................................. 7
Notes to financial statements ..................... 8
Supplementary Information:
Schedule 1 - Assets held for Investment Purposes .. 13
Schedule 2 - Reportable Transactions - Series ..... 14
Schedule 3 - Reportable Transactions - Single ..... 15
2
</TABLE>
<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 27, 1997
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 L.L.C.
Profit Sharing and Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the M-I Drilling Fluids L.L.C. Profit Sharing and Savings Plan (the
Plan) as of December 31, 1996 and 1995, and the related statement of changes in
net assets available for plan benefits for the year ended December 31, 1996.
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 of the Plan
as of December 31, 1996 and 1995, and the changes in its net assets available
for Plan benefits for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
Our audits were performed 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), schedule of reportable transactions -
series transactions (Schedule II) and schedule of reportable transactions -
single transactions (Schedule III) 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 to 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.
Houston, Texas
June 13, 1997
4
<PAGE> 5
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Participant-Directed
-----------------------------------------------------
Vanguard Smith
Investment International,
Contract Inc., Vanguard Vanguard
Trust Stock Wellington Windsor
Fund Fund Fund Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ -- $ -- $29,559,107 $ 8,751,899
Vanguard Investment Contract Trust 11,358,406 -- -- --
Smith International, Inc., common stock -- 4,107,039 -- --
Loans to participants -- -- -- --
----------- ----------- ----------- -----------
Total investments 11,358,406 4,107,039 29,559,107 8,751,899
Receivables-
Participant contributions 91,366 15,704 135,200 63,397
Company contributions 61,670 79,105 1,209,133 129,992
Loan repayments 32,754 4,648 30,899 21,524
----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $11,544,196 $ 4,206,496 $30,934,339 $ 8,966,812
=========== =========== =========== ===========
<CAPTION>
Participant-Directed
-----------------------------------------------------
Long- Vanguard
Term VMMR Index
Corporate Prime 500 Vanguard
Bond Portfolio Portfolio PRIMECAP
Fund Fund Fund Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ 929,778 $ 2,261,630 $ 1,804,269 $ 3,343,178
Vanguard Investment Contract Trust -- -- -- --
Smith International, Inc., common stock -- -- -- --
Loans to participants -- -- -- --
----------- ----------- ----------- -----------
Total investments 929,778 2,261,630 1,804,269 3,343,178
Receivables-
Participant contributions 7,905 13,217 12,550 25,978
Company contributions 7,927 8,549 57,181 90,489
Loan repayments 3,580 3,893 3,031 7,951
----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 949,190 $ 2,287,289 $ 1,877,031 $ 3,467,596
=========== =========== =========== ===========
<CAPTION>
International
Growth
Portfolio Loan
Fund Fund Total
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ 1,307,888 $ -- $47,957,749
Vanguard Investment Contract Trust -- -- 11,358,406
Smith International, Inc., common stock -- -- 4,107,039
Loans to participants -- 3,594,835 3,594,835
----------- ----------- -----------
Total investments 1,307,888 3,594,835 67,018,029
Receivables-
Participant contributions 9,279 -- 374,596
Company contributions 35,809 -- 1,679,855
Loan repayments 2,385 -- 110,665
----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 1,355,361 $ 3,594,835 $69,183,145
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Participant-Directed
------------------------------------------------------
Vanguard
Investment
Contract Smith
Trust Fund/ International,
Stable Inc., Vanguard Vanguard
Income Stock Wellington Windsor
Fund Fund Fund Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ -- $ -- $24,969,190 $ 6,258,281
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
Receivables-
Participant contributions 50,995 1,523 39,040 27,910
Company contributions 4,022 949 73,730 4,475
Loan repayments 15,963 483 12,056 9,263
Investment income 67,051 -- -- --
----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $11,075,402 $ 621,511 $25,094,016 $ 6,299,929
=========== =========== =========== ===========
<CAPTION>
Participant-Directed
------------------------------------------------------
Long- Vanguard
Term VMMR Index
Corporate Prime 500 Vanguard
Bond Portfolio Portfolio PRIMECAP
Fund Fund Fund Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ 1,050,045 $ 1,420,678 $ 622,891 $ 3,059,411
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 -- -- -- --
----------- ----------- ----------- -----------
Total investments 1,050,045 1,420,678 622,891 3,059,411
Receivables-
Participant contributions 4,430 5,825 3,038 10,145
Company contributions 446 380 1,751 4,574
Loan repayments 1,365 1,761 605 2,646
Investment income -- -- -- --
----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 1,056,286 $ 1,428,644 $ 628,285 $ 3,076,776
=========== =========== =========== ===========
<CAPTION>
Participant-Directed
------------------------------------------------------
International
Growth Company-
Portfolio Loan Directed
Fund Fund Fund Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments-
Registered investment companies $ 554,106 $ -- $ -- $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 -- 3,037,481
----------- ----------- ----------- -----------
Total investments 554,106 3,037,481 76,081 52,604,091
Receivables-
Participant contributions 2,239 -- -- 145,145
Company contributions 1,296 -- -- 91,623
Loan repayments 352 -- -- 44,494
Investment income -- -- -- 67,051
----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 557,993 $ 3,037,481 $ 76,081 $52,952,404
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Participant-Directed
-----------------------------------------------------------
Vanguard
Investment Smith
Contract Trust International,
Fund/Stable Inc., Vanguard Vanguard
Income Stock Wellington Windsor
Fund Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1995
$ 11,075,402 $ 621,511 $ 25,094,016 $ 6,299,929
------------ ------------ ------------ ------------
PLAN ADDITIONS:
Interest and dividends 655,430 -- 2,303,839 832,143
Net realized gain (loss) on sale of investments -- 891,183 206,943 142,933
Net unrealized appreciation (depreciation) of investments -- 792,270 1,589,620 764,941
------------ ------------ ------------ ------------
655,430 1,683,453 4,100,402 1,740,017
------------ ------------ ------------ ------------
Contributions-
Company 153,278 130,650 3,168,236 274,743
Participants 1,294,202 133,767 1,885,136 926,034
------------ ------------ ------------ ------------
1,447,480 264,417 5,053,372 1,200,777
------------ ------------ ------------ ------------
Total additions 2,102,910 1,947,870 9,153,774 2,940,794
------------ ------------ ------------ ------------
PLAN DEDUCTIONS:
Benefits paid to participants 429,860 4,547 1,314,637 321,347
Administrative expenses -- -- -- --
INTERFUND TRANSFERS, net (1,204,256) 1,641,662 (1,998,814) 47,436
------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1996
$ 11,544,196 $ 4,206,496 $ 30,934,339 $ 8,966,812
============ ============ ============ ============
<CAPTION>
Participant-Directed
-----------------------------------------------------------
Long- Vanguard
Term VMMR Index
Corporate Prime 500 Vanguard
Bond Portfolio Portfolio PRIMECAP
Fund Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1995
$ 1,056,286 $ 1,428,644 $ 628,285 $ 3,076,776
------------ ------------ ------------ ------------
PLAN ADDITIONS:
Interest and dividends 83,575 95,357 34,294 104,144
Net realized gain (loss) on sale of investments (26,767) -- 21,035 69,821
Net unrealized appreciation (depreciation) of investments (51,961) -- 209,023 350,987
------------ ------------ ------------ ------------
4,847 95,357 264,352 524,952
------------ ------------ ------------ ------------
Contributions-
Company 19,767 17,774 121,281 217,315
Participants 115,505 167,961 157,041 348,746
------------ ------------ ------------ ------------
135,272 185,735 278,322 566,061
------------ ------------ ------------ ------------
Total additions 140,119 281,092 542,674 1,091,013
------------ ------------ ------------ ------------
PLAN DEDUCTIONS:
Benefits paid to participants 113,483 15,200 55,512 83,478
Administrative expenses -- 15,544 -- --
INTERFUND TRANSFERS, net (133,732) 608,297 761,584 (616,715)
------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1996
$ 949,190 $ 2,287,289 $ 1,877,031 $ 3,467,596
============ ============ ============ ============
<CAPTION>
Participant-Directed
-----------------------------------------------------------
International
Growth Company-
Portfolio Loan Directed
Fund Fund Fund Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1995
$ 557,993 $ 3,037,481 $ 76,081 $ 52,952,404
------------ ------------ ------------ ------------
PLAN ADDITIONS:
Interest and dividends 55,747 249,080 2,171 4,415,780
Net realized gain (loss) on sale of investments 15,062 -- -- 1,320,210
Net unrealized appreciation (depreciation) of investments 56,938 -- -- 3,711,818
------------ ------------ ------------ ------------
127,747 249,080 2,171 9,447,808
------------ ------------ ------------ ------------
Contributions-
Company 77,766 -- -- 4,180,810
Participants 106,870 -- -- 5,135,262
------------ ------------ ------------ ------------
184,636 -- -- 9,316,072
------------ ------------ ------------ ------------
Total additions 312,383 249,080 2,171 18,763,880
------------ ------------ ------------ ------------
PLAN DEDUCTIONS:
Benefits paid to participants 47,236 132,295 -- 2,517,595
Administrative expenses -- -- -- 15,544
INTERFUND TRANSFERS, net 532,221 440,569 (78,252) --
------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1996
$ 1,355,361 $ 3,594,835 $ -- $ 69,183,145
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE> 8
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
PLAN PROVISIONS:
The following description of the M-I Drilling Fluids L.L.C. 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 L.L.C. Employee Benefits Committee (the Committee). Vanguard Fiduciary
Trust Company (the Trustee) serves as Trustee of the Plan. 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 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
1996, 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 $9,500 during 1996 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 a 100 percent matching contribution
of the first 1-1/2 percent of a participant's voluntary contribution (the
Matching Contribution).
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 (the Profit-Sharing Contribution) in such amounts,
if any, as determined by the Committee and approved and ratified by the
Company's board of directors.
Basic, Matching and Profit-Sharing Contributions were $4.2 million for the year
ended December 31, 1996. Basic and Matching Contributions were $2.2 million for
the year ended December 31, 1995. There were no Profit-Sharing Contributions in
1995.
Vesting
Participants are immediately vested in their voluntary contributions and the
net earnings thereon. Participants will vest annually in the Company's
contributions in 20 percent increments commencing with their first year of
service. 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.
Investment Options
At December 31, 1996 and 1995, 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):
Vanguard Investment Contract Trust Fund--Investments are made primarily in a
pool of investment contracts issued by insurance companies and banks selected
by the Trustee. See Note 4 for further information regarding valuation of these
investments. This investment election replaced the Stable Income Fund in 1995.
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 primary objective of long-term growth of capital and income and a
secondary objective of providing current income.
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.
VMMR Prime Portfolio 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.
International Growth Portfolio 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. All amounts were transferred out of the
fund prior to the Plan's year-end.
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.
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 $- and
$28,083 at December 31, 1996 and 1995, 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. Forfeitures are applied first to
reinstate the participant's previously forfeited amounts when the participant
is reemployed by the Company within five years. Any remaining forfeitures are
used to reduce subsequent employer contributions or offset Plan expenses. Net
assets available for Plan benefits as of December 31, 1996 and 1995, includes
forfeited amounts of $80,216 and $146,731, respectively, which are held in the
VMMR Prime Portfolio Fund. Forfeitures of $15,544 and $27,181 were used to pay
certain administrative expenses in 1996 and 1995, respectively. Forfeitures of
$100,000 and $- were used to reduce employer contributions in 1996 and 1995,
respectively.
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. Pursuant to Department of Labor
regulations, the realized gain or loss on the sale of Plan assets, and
unrealized appreciation or depreciation of the Plan assets, are based on the
value of those assets at the beginning of the Plan year or at the time of
purchase if acquired during the current year.
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. INVESTMENT CONTRACTS:
Statement of Position 94-4, "Reporting of Investment Contracts Held by Health
and Welfare Benefit Plans and Defined Contribution Pension Plan" (SOP 94-4),
requires that fully benefit-responsive investment contracts be 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.
The Plan is 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. On January 1, 1996, all
investments previously held under contract with the Provident Life Insurance
Company (the Provident Contract) were transferred to the Trust. The average
blended yield of the Trust's investments as of December 31, 1996 and 1995, was
6.07 percent and 6.25 percent, respectively. The total return of the Trust was
6.07 percent for the year ended December 31, 1996. The fair value of the
investments in the Trust as of December 31, 1996 and 1995, was $11,490,454 and
$5,737,824, respectively, which approximates contract value.
Under the terms of 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 year ended
December 31, 1995. The stated interest rate of the Provident Contract was 9.19
percent as of December 31, 1995.
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, 1996, the benefits payable to participants totaled $-. The
following is a reconciliation of net assets available for Plan benefits per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
1996 1995
------------- ---------
<S> <C> <C>
Net assets available for Plan benefits per the financial statements $ 67,743,809 $ 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 $ 67,743,809 $ 52,924,321
============ ============
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for 1996:
<TABLE>
<S> <C>
Benefits paid to participants per the financial statements $ 2,517,595
Less- Prior-year amounts payable to participants at end of year (28,083)
Add- Current amounts payable to participants at end of year --
------------
Benefits paid to participants per the Form 5500 $ 2,489,512
============
</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, 1996, but not yet paid as of that date.
12
<PAGE> 13
SCHEDULE I
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Current
Identity of Issue Description of Investment Cost Value
- -------------------------------------------- --------------------------------------- ------------- -------------
<S> <C> <C> <C>
Vanguard Fiduciary Trust Company* Vanguard Investment Contract Trust Fund $ 11,358,406 $ 11,358,406
Smith International, Inc.* Smith International, Inc., Stock Fund 3,184,822 4,107,039
Vanguard Group of Investment Companies* Vanguard Wellington Fund 24,581,049 29,559,107
Vanguard Group of Investment Companies* Vanguard Windsor Fund 7,892,649 8,751,899
Vanguard Group of Investment Companies* Long-Term Corporate Bond Fund 899,784 929,778
Vanguard Group of Investment Companies* VMMR Prime Portfolio Fund 2,261,630 2,261,630
Vanguard Group of Investment Companies* Vanguard Index 500 Portfolio Fund 1,535,845 1,804,269
Vanguard Group of Investment Companies* Vanguard PRIMECAP Fund 2,802,764 3,343,178
Vanguard Group of Investment Companies* International Growth Portfolio Fund 1,222,443 1,307,888
M-I Drilling Fluids Company Profit Sharing and
Savings Plan* Loans receivables from participants
(highest and lowest interest rates
are 5.83% and 9.0%) 3,594,835 3,594,835
------------- --------------
$ 59,334,227 $ 67,018,029
============= =============
</TABLE>
*Identified party in interest.
The foregoing notes are an integral part of this schedule.
13
<PAGE> 14
SCHEDULE II
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS - SERIES TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Purchase Selling
Identity of Party Involved Description of Asset Price(a) Price(b)
- ---------------------------------------- ----------------------------------------- ------------- ------------
<S> <C> <C> <C>
Vanguard Group of Investment Companies Vanguard Wellington Fund $ 8,568,148 $ -
- 5,774,794
Vanguard Group of Investment Companies Vanguard Windsor Fund 4,464,957 -
- 2,879,213
Vanguard Group of Investment Companies VMMR Prime Portfolio Fund 5,378,825 -
- 4,537,873
Vanguard Fiduciary Trust Company Vanguard Investment Contract Trust 10,010,391 -
- 4,389,809
Smith International, Inc. Smith International, Inc., Stock Fund 9,945,428 -
- 8,140,398
<CAPTION>
Current Value
of Asset
Cost of on Transaction
Identity of Party Involved Asset Date Net Gain
- ---------------------------------------- ------------- ----------------- --------
<S> <C> <C> <C>
Vanguard Group of Investment Companies $ 8,568,148 $ 8,568,148 $ -
4,967,870 5,774,794 806,924
Vanguard Group of Investment Companies 4,464,957 4,464,957 -
2,729,721 2,879,213 149,492
Vanguard Group of Investment Companies 5,378,825 5,378,825 -
4,537,873 4,537,873 -
Vanguard Fiduciary Trust Company 10,010,391 10,010,391 -
4,389,809 4,389,809 -
Smith International, Inc. 9,945,428 9,945,428 -
7,171,124 8,140,398 969,274
</TABLE>
(a)Purchase price includes transaction expenses.
(b)Selling price is net of transaction expenses.
NOTE: This schedule includes cumulative transactions involving the same
investment activity which, in the aggregate, amounts to more than 5
percent of net assets available for Plan benefits as of January 1,
1996.
14
<PAGE> 15
SCHEDULE III
M-I DRILLING FLUIDS L.L.C.
PROFIT SHARING AND SAVINGS PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS - SINGLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Identity of Party Involved Description of Asset
- ------------------------------------------------------ ----------------------------------------------
<S> <C>
Vanguard Fiduciary Trust Company Vanguard Investment Contract Trust
<CAPTION>
Current Value
of Asset
Purchase Selling Cost of on Transaction
Identity of Party Involved Price(a) Price Asset Date Net Gain
- ------------------------------------------------------ ------------ -------- ------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Vanguard Fiduciary Trust Company $ 5,199,547 $- $ 5,199,547 $ 5,199,547 $ -
</TABLE>
(a)Purchase price includes transaction expenses.
NOTE: This schedule includes individual transactions which are more than 5
percent of net assets available for Plan benefits as of
January 1, 1996.
15
