<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number
1-8514
Smith International, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3822631
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
16740 HARDY STREET
HOUSTON, TEXAS 77032
(Address of principal executive offices) (Zip Code)
(281) 443-3370
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the Registrant's common stock as of
August 8, 1997 was 40,288,103.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Operations -
For the Three and Six Months Ended June 30, 1997 and 1996....................... 1
Consolidated Balance Sheets -
As of June 30, 1997 and December 31, 1996....................................... 2
Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1997 and 1996................................. 3
Notes to Consolidated Financial Statements.......................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................ 8
PART II: OTHER INFORMATION
ITEMS 1 - 6...................................................................................... 12
SIGNATURES............................................................................................ 13
</TABLE>
<PAGE> 3
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES ............................ $383,163 $270,272 $740,647 $509,092
COSTS AND EXPENSES:
Costs of Revenues ................. 249,969 179,949 486,188 337,860
Selling Expenses .................. 61,679 44,858 117,966 86,684
General and Administrative Expenses 19,445 15,131 39,398 29,164
-------- -------- -------- --------
Total Costs and Expenses ..... 331,093 239,938 643,552 453,708
-------- -------- -------- --------
INCOME BEFORE INTEREST AND TAXES .... 52,070 30,334 97,095 55,384
INTEREST EXPENSE, NET ............... 6,013 3,764 11,247 6,803
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS ................ 46,057 26,570 85,848 48,581
INCOME TAX PROVISION ................ 12,102 5,779 22,069 10,794
-------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS .... 33,955 20,791 63,779 37,787
MINORITY INTERESTS .................. 10,026 5,810 18,737 9,858
-------- -------- -------- --------
NET INCOME .......................... $ 23,929 $ 14,981 $ 45,042 $ 27,929
======== ======== ======== ========
EARNINGS PER SHARE .................. $ 0.60 $ 0.38 $ 1.12 $ 0.70
======== ======== ======== ========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ..... 40,125 39,851 40,100 39,814
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
SMITH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 24,265 $ 25,540
Receivables, net ........................................................... 384,885 309,062
Inventories, net ........................................................... 319,600 295,041
Deferred tax assets, net ................................................... 8,780 8,979
Prepaid expenses and other ................................................. 20,413 26,655
-------------- --------------
Total current assets ..................................................... 757,943 665,277
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, NET ........................................... 234,600 205,251
OTHER ASSETS ................................................................. 44,174 43,257
GOODWILL, NET ................................................................ 188,499 160,797
-------------- --------------
TOTAL ASSETS ................................................................. $ 1,225,216 $ 1,074,582
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt ................ $ 80,852 $ 74,983
Accounts payable ........................................................... 104,329 106,962
Accrued payroll costs ...................................................... 50,103 42,836
Income taxes payable ....................................................... 10,936 19,706
Other ...................................................................... 72,718 56,014
-------------- --------------
Total current liabilities .............................................. 318,938 300,501
-------------- --------------
LONG-TERM DEBT ............................................................... 291,896 228,443
OTHER LONG-TERM LIABILITIES .................................................. 27,025 22,361
MINORITY INTERESTS ........................................................... 174,002 154,741
SHAREHOLDERS' EQUITY:
Preferred Stock, $1 par value; 5,000 shares authorized; no shares
issued or outstanding in 1997 or 1996 .................................... -- --
Common Stock, $1 par value; 60,000 shares authorized; 40,281 shares
issued and outstanding in 1997 (40,157 in 1996) .......................... 40,281 40,157
Additional paid-in capital ................................................. 281,677 278,955
Retained earnings .......................................................... 107,524 62,482
Cumulative translation adjustments ......................................... (8,425) (5,356)
Less - treasury securities, at cost; 656 common shares in 1997 and 1996 .... (7,702) (7,702)
-------------- --------------
Total shareholders' equity ............................................. 413,355 368,536
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................... $ 1,225,216 $ 1,074,582
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................................... $ 45,042 $ 27,929
Adjustments to reconcile net income to net cash provided
by (used in) operating activities, excluding the net effects of acquisitions:
Depreciation and amortization ................................................... 21,632 14,058
Minority interests .............................................................. 18,737 9,858
Provision for losses on receivables ............................................. 643 570
Gain on disposal of property, plant and equipment ............................... (1,176) (1,261)
Foreign currency translation losses ............................................. 112 54
Changes in operating assets and liabilities:
Receivables ..................................................................... (72,160) (28,684)
Inventories, net ................................................................ (21,550) (28,317)
Accounts payable ................................................................ (4,958) 6,458
Other current assets and liabilities ............................................ 7,235 (2,383)
Other non-current assets and liabilities ........................................ 6,203 2,788
------------ ------------
Net cash provided by (used in) operating activities ................................. (240) 1,070
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired ..................................... (47,330) (68,351)
Property, plant and equipment additions ............................................. (34,118) (31,149)
Proceeds from disposal of property, plant and equipment ............................. 3,191 6,698
------------ ------------
Net cash used in investing activities ............................................... (78,257) (92,802)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ............................................ 83,318 107,790
Repayments of long-term debt ........................................................ (14,935) (10,000)
Net increase (decrease) in short-term borrowings .................................... 6,408 (2,433)
Proceeds from exercise of stock options ............................................. 1,298 1,916
Contributions from minority interest partner, net ................................... 1,188 --
------------ ------------
Net cash provided by financing activities ........................................... 77,277 97,273
------------ ------------
Effect of exchange rate changes on cash ............................................. (55) (86)
------------ ------------
Increase (decrease) in cash and cash equivalents .................................... (1,275) 5,455
Cash and cash equivalents at beginning of period .................................... 25,540 14,845
------------ ------------
Cash and cash equivalents at end of period .......................................... $ 24,265 $ 20,300
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest .............................................................. $ 11,138 $ 7,212
Cash paid for income taxes .......................................................... $ 14,490 $ 4,419
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
SMITH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Smith
International, Inc. and subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the audited financial statements
and accompanying notes included in the Company's 1996 Annual Report on Form
10-K.
The unaudited consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the interim periods. All
significant intercompany balances and transactions have been eliminated in the
accompanying financial statements. Results for the interim periods are not
necessarily indicative of results for the year.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2) ACQUISITIONS
On April 16, 1997 the Company acquired all of the interest in Tri-Tech
Fishing Services, L.L.C., a supplier of fishing and other downhole remedial
products and services to the U.S. Gulf Coast region. On May 1, 1997, M-I
Drilling Fluids L.L.C. ("M-I"), acquired the assets of Branath Oilfield
Services, Inc., a supplier of solids control equipment to the Canadian oil and
gas industry. The Company also acquired certain other assets and operations
during 1997. The 1997 acquisitions were purchased in exchange for total
consideration of $52.3 million, which includes cash payments and amounts of
contingent consideration, if any, determinable at the date of acquisition. The
purchase price related to the above acquisitions was financed with borrowings
against available lines of credit.
The above acquisitions have been recorded using the purchase method of
accounting and, accordingly, the acquired operations have been included in the
results of operations since their respective acquisition dates. The purchase
price was allocated to the net assets acquired based upon their estimated fair
market values at the dates of acquisition. The excess of the purchase price
over the estimated fair value of the net assets acquired amounted to
approximately $29.4 million, which has been recorded as goodwill.
The balances included in the Consolidated Balance Sheets related to
these acquisitions are based upon preliminary information and are subject to
change when additional information concerning final asset and liability
valuations is obtained. Material changes in the preliminary allocations are not
anticipated by management.
The unaudited pro forma supplemental information for the six months
ended June 30, 1996 and 1997, is presented below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
---------------------
1997 1996
-------- --------
(unaudited)
<S> <C> <C>
Revenues ................................. $751,376 $594,053
Net income ............................... $ 45,879 $ 28,842
Earnings per share ....................... $ 1.14 $ 0.72
</TABLE>
4
<PAGE> 7
The unaudited pro forma supplemental information is based on
historical information and does not include estimated cost savings; therefore,
it does not purport to be indicative of the results of operations had the
combinations been in effect at the dates indicated or of future results for the
combined entities.
The following schedule summarizes investing activities related to
current year acquisitions included in the Consolidated Statements of Cash Flows
for the six months ended June 30, 1997:
<TABLE>
<S> <C>
Fair value of assets, net of cash acquired............... $ 31,442
Goodwill recorded........................................ 29,398
Less: Total liabilities assumed......................... (13,510)
--------
Acquisition of businesses, net of cash acquired.......... $ 47,330
========
</TABLE>
3) EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents include the number of shares issuable upon
exercise of stock options, less the number of shares that could have been
repurchased with the exercise proceeds using the treasury stock method.
The number of shares used in the computation was determined as follows
(in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding ......... 39,581 39,329 39,561 39,313
Common stock equivalents .............................. 544 522 539 501
-------- -------- -------- --------
Average common and common equivalent
shares outstanding ................................. 40,125 39,851 40,100 39,814
======== ======== ======== ========
</TABLE>
4) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for substantially all U.S.
inventories and by the first-in, first-out ("FIFO") method for all other
inventories. Inventory costs, consisting of materials, labor and factory
overhead, are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials ........................................ $ 28,383 $ 30,614
Work-in-process ...................................... 66,985 45,985
Finished goods ....................................... 240,222 233,139
----------- -----------
335,590 309,738
Reserves to state certain domestic inventories
($134,723 and $117,360 in 1997 and 1996,
respectively) on a LIFO basis .................... (15,990) (14,697)
----------- -----------
Inventories, net ..................................... $ 319,600 $ 295,041
=========== ===========
</TABLE>
5
<PAGE> 8
5) PROPERTY, PLANT AND EQUIPMENT, NET
Property, Plant and Equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Land .................................................. $ 17,898 $ 17,880
Buildings ............................................. 40,298 40,170
Machinery and equipment ............................... 345,220 305,491
----------- -----------
403,416 363,541
Less-accumulated depreciation ......................... (168,816) (158,290)
----------- -----------
Net property, plant and equipment ..................... $ 234,600 $ 205,251
=========== ===========
</TABLE>
6) DEBT
The following summarizes the Company's outstanding debt (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Current:
Short-term bank borrowings .......................... 50,100 49,178
Current portion of long-term debt ................... 30,752 25,805
----------- -----------
80,852 74,983
----------- -----------
Long-term:
Notes payable ....................................... 106,000 116,000
Bank revolvers payable .............................. 175,200 92,200
Term loans .......................................... 40,932 44,626
Other ............................................... 516 1,422
----------- -----------
322,648 254,248
Less current portion of long-term debt .............. (30,752) (25,805)
----------- -----------
Long-term debt ...................................... $ 291,896 $ 228,443
=========== ===========
</TABLE>
On April 8, 1997, the Company and M-I amended their revolving line of
credit agreements increasing the amounts available under the Company's and
M-I's U.S. lines from $120.0 million to $200.0 million. The new credit
agreements expire in March 2002 and carry generally the same terms and
covenants.
Principal payments of long-term debt on a calendar year basis are as
follows:
<TABLE>
<S> <C>
1998 ................................................................... $ 30,325
1999 ................................................................... 20,174
2000 ................................................................... 20,174
2001 ................................................................... 49,078
Thereafter ............................................................. 172,145
----------
$ 291,896
==========
</TABLE>
6
<PAGE> 9
7) RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per
Share" effective for fiscal periods ending after December 15, 1997. This
standard revises the method of computing weighted average shares used in the
earnings per share calculation.
The impact of adopting SFAS 128 is not expected to have a material
impact upon the Company's reported earnings per share amounts.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is provided to assist readers in
understanding the Company's financial performance during the periods presented
and significant trends which may impact the future performance of the Company.
It should be read in conjunction with the Consolidated Financial Statements of
the Company and the related notes thereto.
The Company's primary business is the manufacture and sale of premium
products and services to the oil and gas industry's exploration and production
sectors. The Company's business units provide products and engineering services
including drilling and completion fluid systems, solids-control equipment,
waste management services, three-cone drill bits, diamond drill bits, drilling
tools, underreamers, sidetracking systems and liner hangers.
The Company's worldwide operations are largely driven by the level of
exploration and production activity in major energy producing areas and the
depth and drilling conditions of these projects. The level of worldwide
drilling activity is influenced by the prices of oil and natural gas but may
also be affected by political actions and uncertainties, environmental
concerns, capital expenditure plans of exploration and production companies and
the overall level of global economic growth and activity.
RESULTS OF OPERATIONS
REVENUES
The Company operates through five business units which market the
products manufactured and provide services throughout the world. The following
table presents revenue and average rig count information for the periods shown.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------------- -------------------------------------
1997 1996 1997 1996
----------------------------------- -------------------------------------
Amount % Amount % Amount % Amount %
--------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues by Business Unit:
M-I - Fluids......................... $ 214,714 56 $ 157,235 58 $ 420,815 57 $ 290,934 57
M-I - SWACO.......................... 31,872 8 18,989 7 59,410 8 36,013 7
Smith Tool........................... 59,799 16 46,494 17 118,041 16 91,721 18
Smith Drilling & Completions......... 57,156 15 33,799 13 104,894 14 64,574 13
Smith Diamond Technology............. 19,622 5 13,755 5 37,487 5 25,850 5
---------- --- ----------- --- ----------- --- ----------- ---
Total........................ $ 383,163 100 $ 270,272 100 $ 740,647 100 $ 509,092 100
========== === =========== === =========== === =========== ===
Revenues by Area:
U.S.................................. $ 152,754 40 $ 116,760 43 $ 288,459 39 $ 212,142 42
Export............................... 24,948 6 17,451 7 45,208 6 30,572 6
Non-U.S.............................. 205,461 54 136,061 50 406,980 55 266,378 52
---------- --- ----------- --- ----------- --- ----------- ---
Total........................ $ 383,163 100 $ 270,272 100 $ 740,647 100 $ 509,092 100
========== === =========== === =========== === =========== ===
Average Active Rig Count:
U.S.................................. 934 760 895 734
Canada............................... 255 150 325 243
Non-North America.................... 812 794 808 787
---------- ----------- ----------- -----------
Total........................ 2,001 1,704 2,028 1,764
========== =========== =========== ===========
</TABLE>
8
<PAGE> 11
M-I - FLUIDS
M-I - Fluids, a division of M-I Drilling Fluids L.L.C. ("M-I"),
provides drilling fluid and completion fluid systems, engineering and technical
services to the oil and gas industry. M-I - Fluids revenues increased $57.5
million, or 37 percent, over the second quarter of 1996 and $129.9 million, or
45 percent, from the first six months of 1996. The majority of the revenue
growth over the prior year relates to the incremental revenues associated with
the Anchor Drilling Fluids A.S. ("Anchor") operations, which were acquired in
June 1996, and the increased level of deep-water drilling activity in the U.S.
Gulf Coast area.
M-I - SWACO
M-I - SWACO, a division of M-I, manufactures and markets equipment and
services for solids control, pressure control, rig instrumentation and waste
management. M-I - SWACO revenues increased $12.9 million and $23.4 million from
the second quarter and first six months of 1996, respectively. Increased market
share in Latin America coupled with higher drilling activity in the U.S.,
Canada and Latin America contributed the majority of the revenue variance.
SMITH TOOL
Smith Tool manufactures and sells three-cone bits for use in the oil
and gas industry and in mining applications. Smith Tool revenues increased
$13.3 million from the second quarter of 1996 and $26.3 million from the first
six months of 1996. Increased unit sales and a favorable shift in the sales mix
toward premium bits accounted for the revenue growth over the prior year
periods. On a geographic basis, revenue growth in the U.S. and Canada, related
to higher rig activity, account for the majority of the increase from the
second quarter of 1996. Increased North America revenues, attributable to
higher activity levels, and higher Europe/Africa revenues, related to the
introduction of the new Magnum(TM) Bit line in the North Sea area, accounted for
the majority of the growth over the first half of 1996.
SMITH DRILLING & COMPLETIONS
Smith Drilling & Completions manufactures and markets products and
services used in the oil and gas industry for drilling, workover, well
completion and well re-entry. Smith Drilling & Completions' revenues increased
$23.4 million, or 69 percent, over the second quarter of 1996 and $40.3
million, or 62 percent, from the first six months of 1996. The increase is
attributable to the incremental revenues associated with The Red Baron (Oil
Tools Rental) Ltd.'s ("Red Baron") and the Tri-Tech Fishing Services, L.L.C.'s
operations, which were acquired in October 1996 and April 1997, respectively.
Higher levels of re-entry drilling activity in the U.S. Gulf Coast area also
contributed to the growth over the prior year.
SMITH DIAMOND TECHNOLOGY
Smith Diamond Technology manufactures and markets shear bits featuring
cutters made of polycrystalline diamond ("PDC") or natural diamond at its
GeoDiamond division. Smith Diamond Technology also manufactures PDC and cubic
boron nitride at its MegaDiamond and SupraDiamant subsidiaries. These ultrahard
materials are used in the Company's three-cone and diamond drill bits and in
other specialized cutting tools. Smith Diamond Technology revenues increased
$5.9 million, or 43 percent, over the second quarter of 1996 and $11.6 million,
or 45 percent, from the first six months of 1996. Higher unit sales in Latin
America, Europe/Africa and the Far East related to increased market
penetration, higher activity levels and continued expansion into new markets,
account for the year-over-year revenue growth.
For the periods indicated, the following table summarizes the results
of the Company and presents these results as a percentage of total revenues:
9
<PAGE> 12
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
1997 1996 1997 1996
------------------------------------ ------------------------------------
Amount % Amount % Amount % Amount %
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 383,163 100 $270,272 100 $ 740,647 100 $ 509,092 100
--------- --- -------- --- --------- --- --------- ---
Gross profit........................ 133,194 35 90,323 33 254,459 34 171,232 34
Operating expenses.................. 81,124 21 59,989 22 157,364 21 115,848 23
--------- --- -------- --- --------- --- --------- ---
Income before interest and taxes.... 52,070 14 30,334 11 97,095 13 55,384 11
Interest expense, net............... 6,013 2 3,764 1 11,247 2 6,803 2
--------- --- -------- --- --------- --- --------- ---
Income before income taxes and
minority interests................. 46,057 12 26,570 10 85,848 11 48,581 9
Income tax provision................ 12,102 3 5,779 2 22,069 3 10,794 2
--------- --- -------- --- --------- --- --------- ---
Income before minority interests.... 33,955 9 20,791 8 63,779 8 37,787 7
Minority interests.................. 10,026 3 5,810 2 18,737 2 9,858 2
--------- --- -------- --- --------- --- --------- ---
Net income.......................... $ 23,929 6 $ 14,981 6 $ 45,042 6 $ 27,929 5
========= === ======== === ========= === ========= ===
</TABLE>
Total revenues increased $112.9 million, or 42 percent, from the prior
year quarter and $231.6 million, or 45 percent, over the first six months of
1996 as the Company experienced growth across all business units and geographic
areas. Increased drilling activity levels, particularly deepwater and re-entry
activity in the Gulf Coast area, and the addition of acquired operations
contributed the majority of the variance. The impact of the Anchor and Red
Baron acquisitions, which had significant operations in the Eastern Hemisphere,
resulted in the Company's revenues outside the U.S. increasing from 58 percent
of total revenues for the first six months of 1996 to 61 percent of total
revenues for the first six months of 1997.
Gross profit increased $42.9 million and $83.2 million from the second
quarter and first six months of 1996, respectively. The increase in gross
profit over the second quarter of 1996 resulted in a 2 percentage point
improvement in the Company's gross profit margin over the same period. The
variance over the prior year quarter is attributable to the favorable impact of
acquired operations and certain price increases enacted during the year.
Operating expenses, consisting of selling expenses and general and
administrative expenses, increased $21.1 million over the second quarter of
1996 and $41.5 million from the first half of 1996; however, as a percentage of
revenues, operating expenses for the six month period experienced a 2
percentage point improvement over the first half of 1996. The dollar variance
over the first six months of 1996, relates primarily to increased variable
costs attributable to the higher level of revenues. Incremental costs
associated with the acquired operations, for which immaterial amounts were
included in the first half of 1996, also contributed to the year-over-year
dollar variance.
Net interest expense, which represents interest expense less interest
income, increased $2.2 million and $4.4 million from the second quarter and
first half of 1996, respectively. The increase relates to the higher level of
borrowings to fund business acquisitions and finance general working capital
needs, which increased as a result of the revenue growth experienced by the
Company.
The Company's effective tax rate for the second quarter and first six
months of 1997 approximated 26 percent, which is higher than the rate for the
comparable periods in the prior year and lower than the U.S. statutory rate.
The effective rate increase over the prior year relates primarily to increased
profitability in tax jurisdictions with higher statutory rates. The effective
rate was lower than the statutory rate, due primarily to the utilization of
U.S. net operating loss carryforwards and alternative minimum tax credits.
Minority interests represent the share of M-I's profits associated
with the 36 percent minority partner's interest in those operations and, to a
lesser extent, minority interests in investments in other joint ventures held
by M-I.
10
<PAGE> 13
Minority interests increased $4.2 million and $8.9 million from the second
quarter and first half of 1996 due to the increased profitability of the M-I
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at June 30, 1997.
Working capital at June 30, 1997 increased $74.2 million, or 20 percent, from
December 31, 1996.
The Company's primary internal source of liquidity is cash flow
generated from operations. External sources of liquidity include debt and, if
needed, equity financing. The Company has U.S. and non-U.S. borrowing
facilities for operating and financing needs. During 1997, the Company and M-I
have amended their revolving line of credit agreements increasing available
borrowing capacity to $200.0 million. At June 30, 1997, the Company had
approximately $24.0 million of funds available under its $200.0 million and
other long-term revolving line of credit facilities. Additionally, the Company
has approximately $40.0 million of non-U.S. short-term borrowing facilities
with various banks which had available borrowing capacity of $20.5 million. The
Company believes funds generated from operations, cash on hand and amounts
available under existing credit facilities will be sufficient to finance
capital expenditures and other working capital needs for the foreseeable
future.
The Company has completed several acquisitions during the periods
presented and management intends to continue evaluating opportunities to
acquire products or businesses complementary to the Company's operations. These
acquisitions, if they arise, may involve the use of cash or, depending on the
size and terms of the acquisition, may require debt or equity financing.
11
<PAGE> 14
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
At the Annual Meeting of Shareholders on April 23, 1997, shareholders of
the Company elected directors and ratified the appointment of auditors by the
votes shown below.
<TABLE>
<CAPTION>
Agenda Item For Withheld Abstain
- ----------- ---------- ---------- ----------
<S> <C> <C> <C>
Election of directors:
Benjamin F. Bailar ............................... 35,972,863 586,324 --
Douglas L. Rock .................................. 35,971,225 587,962 --
H. Moak Rollins .................................. 35,963,533 595,654 --
</TABLE>
<TABLE>
<CAPTION>
Agenda Item For Withheld Abstain
- ----------- ---------- ---------- ----------
<S> <C> <C> <C>
Ratify auditors .................................. 36,408,703 114,951 35,533
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts
10.1 Agreement and First Amendment to Loan Agreement dated
April 8, 1997, by and among Smith International, Inc., as
Borrower; Texas Commerce Bank, as Agent and as a Bank, and
ABN Amro Bank N.V., Houston Agency and Den Norske Bank AS,
as Co-Agents and as Banks, and other banks now or hereafter
parties hereto.
10.2 Agreement and First Amendment to Loan Agreement dated
April 8, 1997, by and among M-I Drilling Fluids, L.L.C., as
Borrower; Texas Commerce National Association, as an agent
and as a Bank, and ABN Amro Bank N.V., Houston Agency and
Den Norske Bank AS, as Co-Agents and as Banks, and the other
banks now or hereafter parties hereto.
(27) Financial Data Schedule
27.1 Financial Data Schedule
(a) Reports on Form 8-K
None.
12
<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
Date: August 14, 1997 By: /s/ Douglas L. Rock
------------------------- ----------------------------------------
Douglas L. Rock
Chairman of the Board, Chief Executive
Officer, President and Chief Operating
Officer
Date: August 14, 1997 By: /s/ John J. Kennedy
------------------------- ----------------------------------------
John J. Kennedy
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
(10) Material Contracts
10.1 Agreement and First Amendment to Loan
Agreement dated April 8, 1997, by and among Smith International,
Inc., as Borrower; Texas Commerce Bank, as Agent and as a Bank, and
ABN Amro Bank N.V., Houston Agency and Den Norske Bank AS, as
Co-Agents and as Banks, and other banks now or hereafter parties
hereto.
10.2 Agreement and First Amendment to Loan Agreement dated April 8,
1997, by and among M-I Drilling Fluids, L.L.C., as Borrower; Texas
Commerce National Association, as an agent and as a Bank, and ABN Amro
Bank N.V., Houston Agency and Den Norske Bank AS, as Co-Agents and as
Banks, and the other banks now or hereafter parties hereto.
(27) Financial Data Schedule
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT ("First Amendment") dated as of
April 8, 1997 (the "First Amendment Effective Date") is made and entered
into by and among SMITH INTERNATIONAL, INC. (the "Borrower"), a Delaware
corporation, the banking institutions (each, together with its successors and
assigns, a "Bank" and collectively, the "Banks") from time to time a party to
the Loan Agreement (as hereinafter defined), as amended by this First
Amendment, ABN AMRO BANK N.V., HOUSTON AGENCY and DEN NORSKE BANK AS, as
Co-Agents (in such capacity, together with their successors in such capacity,
collectively called the "Co-Agents") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION ("TCB"), a national banking association, as agent for the Banks (in
such capacity, together with its successors in such capacity, the "Agent").
RECITALS:
WHEREAS, the Borrower, the Banks, the Co-Agents, and the Agent are
parties to a Loan Agreement dated as of April 4, 1996 (the "Loan Agreement");
and
WHEREAS, the Borrower, the Banks, the Co-Agents, and the Agent have
agreed, on the terms and conditions herein set forth, that the Loan Agreement
be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Terms used herein which are defined in
the Loan Agreement shall have the same meanings when used herein unless
otherwise provided herein.
Section 2. Amendments to the Loan Agreement. On and after the
First Amendment Effective Date, the Loan Agreement shall be amended as follows:
(a) The definition of "Maturity Date" contained in Section 1.1 of
the Loan Agreement is hereby amended to read in its entirety as follows:
Maturity Date shall mean the maturity of the Notes, March 31,
2002, as the same may hereafter be accelerated pursuant to the
provisions of any of the Loan Documents.
(b) The definition of "Revolving Loan Commitment" contained in
Section 1.1 of the Loan Agreement is hereby amended to read in its entirety as
follows:
Revolving Loan Commitment shall mean, as to any Bank,
the obligation, if any, of such Bank to make Revolving Loans
to the Borrower and incur Letter of Credit Liabilities in an
aggregate principal amount up to (but not exceeding) the
amount, if any, set forth
<PAGE> 2
opposite such Bank's name on the following table (as the same
may be reduced from time to time pursuant to Section 2.3
hereof or altered pursuant to Assignment and Acceptances
executed in accordance with the Loan Agreement), and
aggregating, as to all Banks, $120,000,000:
<TABLE>
<CAPTION>
Bank Revolving Loan
---- Commitment
---------------
<S> <C>
Texas Commerce Bank $21,176,470.59
National Association
ABN AMRO Bank N.V., $17,647,058.83
Houston Agency
Den Norske Bank AS $17,647,058.83
Bank of America Illinois $15,882,352.94
Wells Fargo Bank (Texas),
National Association $15,882,352.94
Union Bank of California N.A. $10,588,235.29
The Bank of New York $10,588,235.29
Corestates Bank, N.A. $10,588,235.29
</TABLE>
(c) Section 7.3(a) of the Loan Loan Agreement is hereby amended to
read in its entirety as follows:
(a) Debt to Total Capitalization Ratio - a Debt
to Total Capitalization Ratio of not greater than (1) 40% for
the period commencing on the Effective Date through and
including March 31, 1999 and (2) 35% at all times thereafter.
(c) Section 7.3(c) of the Loan Loan Agreement is hereby amended to
read in its entirety as follows:
(c) Tangible Net Worth - Tangible Net Worth of
not less than (1) for the period commencing on January 1, 1997
through and including March 31, 1997, $265,000,000 and (2) for
each fiscal quarter thereafter, the minimum Tangible Net Worth
required during the immediately preceding fiscal quarter plus
50% of the Net Income (if positive) of the Borrower for the
immediately preceding fiscal quarter plus 100% of any increase
in Tangible Net Worth during such fiscal quarter resulting
from any merger, sale or issuance of equity.
<PAGE> 3
Section 3. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Loan Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Loan Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of
the Loan Agreement, the Notes, and any other Loan Documents or any other
documents or instruments executed in connection with any of the foregoing are
and shall remain in full force and effect. In the event of a conflict between
this First Amendment and any of the foregoing documents, the terms of this
First Amendment shall be controlling.
Section 4. Payment of Expenses. The Borrower agrees, whether or not
the transactions hereby contemplated shall be consummated, to reimburse and
save the Co-Agents, the Agent and the Bank(s) harmless from and against
liability for the payment of all reasonable substantiated out-of-pocket costs
and expenses arising in connection with the preparation, execution, delivery,
amendment, modification, waiver and enforcement of, or the preservation of any
rights under this First Amendment, including, without limitation, the
reasonable fees and expenses of any local or other counsel for the Agent, and
all stamp taxes (including interest and penalties, if any), recording taxes and
fees, filing taxes and fees, and other charges which may be payable in respect
of, or in respect of any modification of, the Loan Agreement and the other Loan
Documents. The provisions of this Section shall survive the termination of the
Loan Agreement and the repayment of the Loans.
Section 5. Governing Law. This First Amendment and the rights and
obligations of the parties hereunder and under the Loan Agreement shall be
construed in accordance with and be governed by the laws of the State of Texas
and the United States of America.
Section 6. Descriptive Headings, etc. The descriptive headings of
the several Sections of this First Amendment are inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 7. Entire Agreement. This First Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this First Amendment.
Section 8. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and
all of such counterparts shall together constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Borrower and the Agent.
Section 9. Amended Definitions. As used in the Loan Agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and
<PAGE> 4
subsequent to the First Amendment Effective Date the term (i) "Agreement" shall
mean the Loan Agreement as amended by this First Amendment, and (ii) references
to any and all other Loan Documents shall mean such documents as amended as
contemplated hereby.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02
THIS FIRST AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF
THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective duly authorized
offices as of the date first above written.
SMITH INTERNATIONAL, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 5
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as the Agent and as a Bank
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 6
ABN AMRO BANK N.V., HOUSTON AGENCY,
as Co-Agent and as a Bank
By: ABN AMRO North America, Inc.,
as agent
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 7
DEN NORSKE BANK AS,
as Co-Agent and as a Bank
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 8
BANK OF AMERICA
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 9
WELLS FARGO BANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 10
UNION BANK OF CALIFORNIA N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 11
BANK OF NEW YORK
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 12
CORESTATES BANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT ("First Amendment") dated as of
April 8, 1997 (the "First Amendment Effective Date") is made and entered
into by and among M-I DRILLING FLUIDS, L.L.C. (the "Borrower"), a Delaware
limited liability company, the banking institutions (each, together with its
successors and assigns, a "Bank" and collectively, the "Banks") from time to
time a party to the Loan Agreement (as hereinafter defined), as amended by this
First Amendment,ABN AMRO BANK N.V., HOUSTON AGENCY and DEN NORSKE BANK AS, as
Co-Agents (in such capacity, together with their successors in such capacity,
collectively called the "Co-Agents") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION ("TCB"), a national banking association, as agent for the Banks (in
such capacity, together with its successors in such capacity, the "Agent").
RECITALS:
WHEREAS, the Borrower, the Banks, the Co-Agents and the Agent are
parties to a Loan Agreement dated as of April 4, 1996 (the "Loan Agreement");
and
WHEREAS, the Borrower, the Banks, the Co-Agents and the Agent have
agreed, on the terms and conditions herein set forth, that the Loan Agreement
be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Terms used herein which are defined in
the Loan Agreement shall have the same meanings when used herein unless
otherwise provided herein.
Section 2. Amendments to the Loan Agreement. On and after the
First Amendment Effective Date, , the Loan Agreement shall be amended as
follows:
(a) The definition of "Maturity Date" contained in Section 1.1 of
the Loan Agreement is hereby amended to read in its entirety as follows:
Maturity Date shall mean the maturity of the Notes, March 31,
2002, as the same may hereafter be accelerated pursuant to the
provisions of any of the Loan Documents.
(b) The definition of "Loan Commitment" contained in Section 1.1
of the Loan Agreement is hereby amended to read in its entirety as follows:
Loan Commitment shall mean, as to any Bank, the obligation, if
any, of such Bank to make Loans to the Borrower and incur Letter of
Credit Liabilities in an aggregate principal amount up to (but not
exceeding) the amount, if any, set forth opposite such
<PAGE> 2
Bank's name on the following table (as the same may be reduced from
time to time pursuant to Section 2.3 hereof or altered pursuant to
Assignment and Acceptances executed in accordance with the Loan
Agreement), and aggregating, as to all Banks, $80,000,000:
<TABLE>
<CAPTION>
Loan
Bank Commitment
---- ---------------
<S> <C>
Texas Commerce Bank $14,117,647.07
National Association
ABN AMRO Bank N.V., $11,764,705.88
Houston Agency
Den Norske Bank AS $11,764,705.88
Bank of America Illinois $10,588,235.29
Wells Fargo Bank (Texas)
National Association $10,588,235.29
Union Bank of California N.A. $7,058,823.53
The Bank of New York $7,058,823.53
Corestates Bank, N.A. $7,058,823.53
</TABLE>
Section 3. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Loan Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Loan Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of
the Loan Agreement, the Notes, and any other Loan Documents or any other
documents or instruments executed in connection with any of the foregoing are
and shall remain in full force and effect. In the event of a conflict between
this First Amendment and any of the foregoing documents, the terms of this
First Amendment shall be controlling.
<PAGE> 3
Section 4. Payment of Expenses. The Borrower agrees, whether or not
the transactions hereby contemplated shall be consummated, to reimburse and
save the Co-Agents, the Agent and the Bank(s) harmless from and against
liability for the payment of all reasonable substantiated out-of-pocket costs
and expenses arising in connection with the preparation, execution, delivery
and enforcement of, or the preservation of any rights under this First
Amendment, including, without limitation, the reasonable fees and expenses of
any local or other counsel for the Agent, and all stamp taxes (including
interest and penalties, if any), recording taxes and fees, filing taxes and
fees, and other similar charges which may be payable in respect of, or in
respect of any modification of, the Loan Agreement and the other Loan
Documents. The provisions of this Section shall survive the termination of the
Loan Agreement and the repayment of the Loans.
Section 5. Governing Law. This First Amendment and the rights and
obligations of the parties hereunder and under the Loan Agreement shall be
construed in accordance with and be governed by the laws of the State of Texas
and the United States of America.
Section 6. Descriptive Headings, etc. The descriptive headings of
the several Sections of this First Amendment are inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 7. Entire Agreement. This First Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this First Amendment.
Section 8. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and
all of such counterparts shall together constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Borrower and the Agent.
Section 9. Amended Definitions. As used in the Loan Agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the First Amendment
Effective Date the term (i) "Agreement" shall mean the Loan Agreement as
amended by this First Amendment, and (ii) references to any and all other Loan
Documents shall mean such documents as amended as contemplated hereby.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective duly authorized
offices as of the date first above written.
M-I DRILLING FLUIDS, L.L.C.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 5
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as the Agent and as a Bank
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 6
ABN AMRO BANK N.V., HOUSTON AGENCY,
as Co-Agent and as a Bank
By: ABN AMRO North America, Inc.,
as agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 7
DEN NORSKE BANK AS,
as Co-Agent and as a Bank
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 8
BANK OF AMERICA
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 9
WELLS FARGO BANK, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 10
UNION BANK OF CALIFORNIA N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 11
BANK OF NEW YORK
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 12
CORESTATES BANK, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 24,265
<SECURITIES> 0
<RECEIVABLES> 391,669
<ALLOWANCES> 6,784
<INVENTORY> 319,600
<CURRENT-ASSETS> 757,943
<PP&E> 403,416
<DEPRECIATION> 168,816
<TOTAL-ASSETS> 1,225,216
<CURRENT-LIABILITIES> 318,938
<BONDS> 291,896
0
0
<COMMON> 40,281
<OTHER-SE> 373,074
<TOTAL-LIABILITY-AND-EQUITY> 1,225,216
<SALES> 740,647
<TOTAL-REVENUES> 740,647
<CGS> 486,188
<TOTAL-COSTS> 486,188
<OTHER-EXPENSES> 157,364
<LOSS-PROVISION> 643
<INTEREST-EXPENSE> 11,247
<INCOME-PRETAX> 85,848
<INCOME-TAX> 22,069
<INCOME-CONTINUING> 45,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,042
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
