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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 31, 1998
Date of Report
(Date of earliest event reported)
SMITH INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1-8514 95-3822631
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
</TABLE>
16740 Hardy Street
Houston, Texas
(Address of principal executive offices)
77032
(Zip Code)
(281) 443-3370
(Registrant's telephone number, including area code)
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ITEM 2. Acquisition or Disposition of Assets
On August 31, 1998, Smith International, Inc. (the "Company")
acquired the remaining 36 percent interest in M-I L.L.C.
("M-I") not owned by the Company pursuant to a Purchase and
Sale Agreement dated August 20, 1998 (the "Agreement"). The
Agreement is by and between Halliburton Energy Services, Inc.
("Halliburton"), MIHC, Inc. (together with Halliburton, the
"Sellers"), the Company, M-I Purchase Corp. ("MIPC"), Smith
International Acquisition Corp. (together with the Company and
MIPC, the "Purchasers") and M-I. Prior to the transaction,
the Company owned a 64 percent interest in M-I which was
acquired in February 1994. In connection with the
acquisition, the Company issued a $265.0 million non-interest
bearing Promissory Note to the Sellers which is payable 240
days after the Closing Date.
A copy of the press release announcing the closing of the
acquisition is filed as Exhibit 99.1 and is hereby
incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
The operating results of M-I have been consolidated and
reflected as part of the Company's previously filed financial
statements. Accordingly, separate financial statements of the
acquired business are not required.
(b) Pro Forma financial information.
In accordance with Item 7(b)(2) of the Form 8-K requirements,
the following Pro Forma information of the Company is attached
as a part of this report:
Pro Forma Condensed Statement of Operations for the year ended
December 31, 1997.
Pro Forma Condensed Statement of Operations for the six months
ended June 30, 1998.
Pro Forma Condensed Balance Sheet as of June 30, 1998.
Notes to Pro Forma Condensed Financial Statements.
(c) Exhibits.
2.1 Purchase and Sale Agreement dated August 20, 1998
between Halliburton Energy Services, Inc., MIHC,
Inc., Smith International, Inc., Smith International
Acquisition Corp., M-I Purchase Corp. and M-I L.L.C.*
99.1 Press Release issued by Registrant dated August 31,
1998.*
99.2 Press Release issued by Registrant dated October 19,
1998 announcing its third quarter earnings for the
1998 fiscal year.
* Previously filed.
<PAGE> 3
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, hereunto duly authorized.
SMITH INTERNATIONAL, INC.
Dated: November 11, 1998 By: /s/ NEAL S. SUTTON
----------------- ---------------------------------------
Neal S. Sutton,
Senior Vice President - Administration,
General Counsel and Secretary
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SMITH INTERNATIONAL, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following Pro Forma Condensed Balance Sheet as of June 30, 1998
and Pro Forma Condensed Statements of Operations for the year ended December
31, 1997 and for the six months ended June 30, 1998 have been prepared to give
effect to the acquisition of the remaining 36 percent interest in M-I L.L.C.
from Halliburton Company (the "Acquisition").
The Pro Forma Condensed Statements of Operations are presented as if
the transaction had occurred on January 1, 1997, whereas the Pro Forma
Condensed Balance Sheet assumes the Acquisition occurred on June 30, 1998. The
pro forma information is based upon the historical financial statements, giving
effect to the Acquisition under the purchase method of accounting and the
assumptions included in the accompanying Notes to Pro Forma Condensed Financial
Statements.
The Pro Forma Condensed Financial Statements are prepared in accordance
with the Securities and Exchange Commission regulations and may not be
indicative of the results which would have occurred or which may occur in the
future. The pro forma adjustments are based upon available information and
certain assumptions management believes are reasonable under the circumstances.
The Pro Forma Condensed Financial Statements should be read in conjunction with
the restated audited financial statements of the Company included in the filing
on Form 8-K dated August 31, 1998. These financial statements have been
restated to reflect the merger with Wilson Industries, Inc. which has been
accounted for as a pooling of interests.
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SMITH INTERNATIONAL, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(Dollars in thousands, except per share data)
(Unaudited)
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<CAPTION>
Smith Pro Forma
Historical Adjustments(1) Pro Forma
---------- -------------- -----------
<S> <C> <C> <C>
Total revenues...................................... $2,167,952 $ - $2,167,952
Costs and Expenses:
Cost of sales..................................... 1,515,353 - 1,515,353
Selling, General and Administrative............... 403,653 1,025 (a) 404,678
---------- -------- ----------
Total costs and expenses...................... 1,919,006 1,025 1,920,031
---------- -------- ----------
Income before interest and taxes.................... 248,946 (1,025) 247,921
Interest, net....................................... 28,991 19,875 (b) 48,866
---------- -------- ----------
Income before income taxes and minority interests... 219,955 (20,900) 199,055
Income tax provision................................ 59,109 (7,315)(c) 62,532
10,738 (d)
Minority interests.................................. 39,517 (37,437)(e) 2,080
---------- -------- ----------
Net income.......................................... $ 121,329 $ 13,114 $ 134,443
========== ======== ==========
Earnings per share:
Basic............................................. $ 2.55 $ 2.83
========== ==========
Diluted........................................... $ 2.52 $ 2.80
========== ==========
Weighted average shares outstanding:
Basic............................................. 47,504 47,504
Diluted........................................... 48,083 48,083
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements.
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SMITH INTERNATIONAL, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998
(Dollars in thousands, except per share data)
(Unaudited)
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<CAPTION>
Smith Pro Forma
Historical Adjustments(1) Pro Forma
---------- -------------- -----------
<S> <C> <C> <C>
Total revenues...................................... $1,136,682 $ - $1,136,682
Costs and Expenses:
Cost of sales..................................... 781,960 - 781,960
Selling, General and Administrative............... 215,631 513 (a) 216,144
Merger and Restructuring Costs.................... 55,000 - 55,000
---------- -------- ----------
Total costs and expenses...................... 1,052,591 513 1,053,104
---------- -------- ----------
Income before interest and taxes.................... 84,091 (513) 83,578
Interest, net....................................... 18,926 9,938 (b) 28,864
---------- -------- ----------
Income before income taxes and minority interests... 65,165 (10,451) 54,714
Income tax provision................................ 21,636 (3,658)(c) 23,007
5,029 (d)
Minority interests.................................. 17,444 (16,155)(e) 1,289
---------- -------- ----------
Net income.......................................... $ 26,085 $ 4,333 $ 30,418
========== ======== ==========
Earnings per share:
Basic............................................. $ 0.55 $ 0.64
========== ==========
Diluted........................................... $ 0.54 $ 0.63
========== ==========
Weighted average shares outstanding:
Basic............................................. 47,683 47,683
Diluted........................................... 48,155 48,155
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements.
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SMITH INTERNATIONAL, INC.
PRO FORMA CONDENSED BALANCE SHEET
As of June 30, 1998
(In thousands)
(Unaudited)
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<CAPTION>
As Pro Forma
Restated Adjustments(2) Pro Forma
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<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................. $ 34,403 $ - $ 34,403
Receivables, net........................... 500,354 - 500,354
Inventories, net........................... 519,048 - 519,048
Other current assets....................... 83,097 - 83,097
---------- --------- ----------
Total current assets................... 1,136,902 - 1,136,902
Property and equipment, net.................. 354,246 - 354,246
Goodwill..................................... 259,289 41,012 (a) 300,301
Other long-term assets....................... 94,911 - 94,911
---------- --------- ----------
Total assets................................. $1,845,348 $ 41,012 $1,886,360
========== ========= ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt.......... $ 87,313 $ 254,774 (b) $ 342,087
Accounts payable........................... 190,915 - 190,915
Other current liabilities.................. 218,662 20,000 (c) 238,662
---------- --------- ----------
Total current liabilities.............. 496,890 274,774 771,664
Long-term debt............................... 435,327 - 435,327
Minority interests........................... 242,983 (233,762)(d) 9,221
Other long-term liabilities.................. 45,776 - 45,776
Shareholders' equity:
Common stock............................... 48,785 - 48,785
Paid-in capital............................ 322,919 - 322,919
Retained earnings.......................... 272,801 - 272,801
Cumulative translation adjustment.......... (12,431) - (12,431)
Treasury securities........................ (7,702) - (7,702)
---------- --------- ----------
Total shareholders' equity............. 624,372 - 624,372
---------- --------- ----------
Total liabilities and shareholders' equity... $1,845,348 $ 41,012 $1,886,360
========== ========= ==========
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements.
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NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE (1) PRO FORMA ADJUSTMENTS TO THE CONDENSED STATEMENTS OF OPERATIONS
(a) To amortize goodwill recorded in connection with the Acquisition over
the expected useful life of 40 years.
(b) To record interest expense calculated on the face value of the note
payable assuming no principal reduction.
(c) To record the tax benefit associated with the pro forma adjustments
using the U.S. federal statutory rate.
(d) To reflect the U.S. tax provision associated with the minority
partner's share of U.S. partnership earnings previously recorded in
the minority partner's financial statements.
(e) To eliminate the minority interest expense associated with the
minority partner's ownership interest in M-I.
NOTE (2) PRO FORMA ADJUSTMENTS TO THE CONDENSED BALANCE SHEET
(a) To record the purchase price in excess of the fair value of the
minority partner's ownership interest in M-I as goodwill.
(b) To record the discounted value of the non-interest bearing note
payable to the minority interest partner.
(c) To record the accrual of transaction and other acquisition-related
costs incurred in connection with the Acquisition.
(d) To record the reduction of the minority partner's ownership interest
in the net assets of M-I.
<PAGE> 9
INDEX TO EXHIBITS
Exhibit
No. Description
--- --------------
2.1 Purchase and Sale Agreement dated August 20, 1998
between Halliburton Energy Services, Inc., MIHC,
Inc., Smith International, Inc., Smith International
Acquisition Corp., M-I Purchase Corp. and M-I L.L.C.*
99.1 Press Release issued by Registrant dated August 31,
1998.*
99.2 Press Release issued by Registrant dated October 19,
1998 announcing its third quarter earnings for the
1998 fiscal year.
* Previously filed.
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PRESS RELEASE
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SMITH INTERNATIONAL, INC.
P.O. BOX 60068
HOUSTON, TX 77205-0068
WEBSITE ADDRESS: smith-intl.com
For Release
Monday, October 19, 1998
Contact: John J. Kennedy
Chief Financial Officer
(281) 443-3370
SMITH INTERNATIONAL, INC. REPORTS
THIRD QUARTER EARNINGS
HOUSTON, Texas (October 19, 1998)... Smith International, Inc. (NYSE, PSE:
SII) today announced third quarter earnings of $24.1 million, or 50 cents per
share on a diluted basis, compared with net income of $32.4 million, or 67
cents per share on a diluted basis, in the third quarter of 1997. The Company
reported revenues of $520.2 million for the third quarter of 1998, a 7 percent
decrease over the revenues for the third quarter of 1997. The average
worldwide oil and gas drilling rig count declined by 21 percent over the same
period. The revenue decline resulted from lower U.S. drilling activity and the
impact of weather disturbances in the Gulf of Mexico.
In the U.S. Gulf Coast area, Hurricanes Earl and Georges and Tropical Storms
Hermine and Frances resulted in interruptions in drilling and producing
activities during all or part of twenty-six days during the quarter. U.S.
revenues declined by 21 percent from the third quarter of 1997 as a result of
the weather problems and the lower U.S. rig count. Revenues grew in the
quarter compared to the prior year quarter in Europe/Africa, Latin America and
the Middle East, partially offsetting the impact of the weakness in U.S.
drilling activity.
For the nine months ended September 30, 1998, the Company reported net
income of $50.1 million, or $1.04 per share on a diluted basis, on revenues of
$1,656.9 million.
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Excluding the after-tax impact of the merger and restructuring charge recorded
in the second quarter, net earnings for the first nine months of 1998 were
$87.4 million or $1.81 per share on a diluted basis. Earnings for the
comparable period of the prior year, which have been restated for the Wilson
acquisition, were $85.3 million, or $1.78 per share on a diluted basis, on
revenues of $1,580.1 million.
Revenues for the M-I Fluids unit decreased 3 percent to $209.4 million. The
revenue decline over the third quarter of the prior year was primarily due to
the impact of weather-related disturbances on U.S. drilling activity in the
Gulf of Mexico. Revenues also declined in Venezuela as a result of a 43
percent decline in drilling activity from the prior year quarter.
M-I SWACO reported revenues of $39.2 million, a 15 percent increase over the
third quarter of 1997. Revenues from the addition of the Safeguard and DSR
operations accounted for the quarter-to-quarter growth. Excluding
acquisitions, revenues declined by 7 percent compared to the prior year
quarter, primarily as a result of lower Venezuelan and Canadian activity
levels. M-I SWACO revenues were also impacted by the weather-related
disturbances in the Gulf of Mexico.
Smith Bits' revenues were $71.8 million for the third quarter, a 16 percent
decrease over the comparable period of the prior year. Petroleum three-cone
bit revenues for the quarter were impacted by the 28 percent decrease in North
American drilling activity. Strong demand for larger size diamond bits
resulted in an increase of 8 percent in diamond bit revenues over the prior
year quarter.
Smith Drilling & Completions increased revenues to $82.8 million, a 5
percent increase over the third quarter of 1997. Acquired operations accounted
for the growth as revenues excluding acquisitions were comparable with the
third quarter of 1997. Increased Middle East and Latin American revenues
offset the decline in the U.S.
<PAGE> 3
Wilson Supply revenues were $117.1 million for the third quarter, a 21
percent decrease over the comparable period of the prior year. Lower branch
and tubular sales, due to the previously discussed decrease in U.S. drilling
activity, accounted for the quarter-to-quarter decline.
Commenting on the results, Chairman and CEO, Doug Rock stated, "Given the
current market situation, we've moved quickly to adjust our cost structure.
Our annualized revenue per employee for the third quarter increased from the
second quarter of 1998 by three percent. Our strategy of providing consumable
products and services directly to the end user is allowing us to weather this
industry downturn."
Loren Carroll, Executive Vice President also noted that, "We are pleased
that our gross margin has remained flat with the third quarter of 1997.
Operating expenses decreased through the quarter as cost reduction measures
were implemented. Our working capital and capital expenditures declined from
prior quarter levels resulting in improved cash flow. Excluding the impact of
the second quarter charge, year-to-date operating cash flow, consisting of
earnings before interest, taxes and minority interest plus deprecation and
amortization, after reduction for the effect of minority interest, totaled
$206.1 million or $4.27 per share. Operating cash flow increased 16 percent
over the amount for the comparable period of the prior year."
Smith International, Inc. is a leading worldwide supplier of premium
products and services to the oil and gas exploration, production and
petrochemical industries through its five principal business units - M-I
Fluids, M-I SWACO, Smith Bits, Smith Drilling & Completions and Wilson Supply.
Unaudited financial highlights follow:
<PAGE> 4
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---------- --------- ------------ ----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . $ 520,209 $ 561,854 $1,656,891 $1,580,076
Costs and expenses:
Cost of revenues . . . . . . . . . . . 365,644 393,726 1,147,604 1,109,932
Selling expenses . . . . . . . . . . . 84,283 80,921 257,313 229,542
General and administrative expenses . . 18,313 21,795 60,914 65,170
Merger and restructuring costs . . . . - - 55,000 -
--------- --------- ---------- ----------
Total cost and expenses . . . . . . 468,240 496,442 1,520,831 1,404,644
--------- --------- ---------- ----------
Earnings before interest and taxes . . . 51,969 65,412 136,060 175,432
Interest expense, net . . . . . . . . . . 11,388 7,845 30,314 20,725
--------- --------- ---------- ----------
Income before income taxes and
minority interests . . . . . . . . . . 40,581 57,567 105,746 154,707
Income tax provision . . . . . . . . . . 12,515 15,639 34,151 41,111
--------- --------- ---------- ----------
Income before minority interests . . . . 28,066 41,928 71,595 113,596
Minority interests . . . . . . . . . . . 4,013 9,534 21,457 28,271
--------- --------- ---------- ----------
Net income . . . . . . . . . . . . . . . $ 24,053 $ 32,394 $ 50,138 $ 85,325
========= ========= ========== ==========
Earnings per share:
Basic . . . . . . . . . . . . . . . . $ 0.50 $ 0.68 $ 1.05 $ 1.80
========= ========= ========== ==========
Diluted . . . . . . . . . . . . . . . $ 0.50 $ 0.67 $ 1.04 $ 1.78
========= ========= ========== ==========
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . 48,129 47,537 47,833 47,486
Diluted . . . . . . . . . . . . . . . 48,411 48,133 48,258 48,058
OTHER DATA:
Depreciation and Amortization . . . . . . $ 17,676 $ 15,142 $ 51,696 $ 41,321
========= ========= ========== ==========
Capital Spending (a) . . . . . . . . . . $ 25,651 $ 34,426 $ 93,033 $ 78,352
========= ========= ========== ==========
</TABLE>
NOTE (a):
Capital spending is reported gross and not reduced for the proceeds arising on
lost-in-hole sales or sales of fixed asset equipment replaced. The net capital
spending was approximately $80.3 million for the first nine months of 1998.
Restated net capital spending for the first nine months of 1997 was $68.5
million.
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SMITH INTERNATIONAL, INC.
REVENUE ANALYSIS
($'S IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
------------------------------------------
1998 1997
------------ --------------
(RESTATED)
<S> <C> <C>
M-I FLUIDS $209,436 $215,120
M-I SWACO 39,185 34,089
SMITH BITS 71,769 85,224
SMITH DRILLING & COMPLETIONS 82,762 79,073
WILSON SUPPLY 117,057 148,348
----------- -----------
TOTAL $520,209 $561,854
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------------------
1998 1997
----------- ------------
(Restated)
<S> <C> <C>
M-I FLUIDS $664,905 $635,935
M-I SWACO 112,374 93,499
SMITH BITS 242,948 240,752
SMITH DRILLING & COMPLETIONS 255,384 212,161
WILSON SUPPLY 381,280 397,729
----------- -----------
TOTAL $1,656,891 $1,580,076
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</TABLE>
