<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, 1998
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 10, 1998 was 48,785,688.
<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, 1998 and 1997........................... 1
Consolidated Balance Sheets -
As of June 30, 1998 and December 31, 1997........................................... 2
Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1998 and 1997..................................... 3
Notes to Consolidated Financial Statements.............................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................ 9
PART II: OTHER INFORMATION
ITEMS 1 - 6.......................................................................................... 15
SIGNATURES................................................................................................ 16
</TABLE>
<PAGE> 3
SMITH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
REVENUES ........................................ $ 557,749 $ 527,867 $ 1,136,682 $ 1,018,222
COSTS AND EXPENSES:
Costs of Revenues ............................. 384,873 369,639 781,960 716,206
Selling Expenses .............................. 86,480 77,971 173,030 148,621
General and Administrative Expenses ........... 20,397 21,177 42,601 43,375
Merger and Restructuring Costs ................ 55,000 -- 55,000 --
------------ ------------ ------------ ------------
Total Costs and Expenses ................. 546,750 468,787 1,052,591 908,202
------------ ------------ ------------ ------------
EARNINGS BEFORE INTEREST AND TAXES .............. 10,999 59,080 84,091 110,020
INTEREST EXPENSE, NET ........................... 9,813 6,992 18,926 12,880
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS ............................ 1,186 52,088 65,165 97,140
INCOME TAX PROVISION ............................ 2,322 13,929 21,636 25,472
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS ......... (1,136) 38,159 43,529 71,668
MINORITY INTERESTS .............................. 6,356 10,026 17,444 18,737
------------ ------------ ------------ ------------
NET INCOME (LOSS) ............................... $ (7,492) $ 28,133 $ 26,085 $ 52,931
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE:
Basic ......................................... $ (0.16) $ 0.59 $ 0.55 $ 1.12
============ ============ ============ ============
Diluted ....................................... $ (0.16) $ 0.59 $ 0.54 $ 1.10
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ......................................... 47,793 47,481 47,683 47,460
Diluted ....................................... 47,793 48,025 48,155 48,000
</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,
1998 1997
------------ ------------
(Restated)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 34,403 $ 37,109
Receivables, net ........................................................ 500,354 510,984
Inventories, net ........................................................ 519,048 467,963
Deferred tax assets, net ................................................ 41,357 27,329
Prepaid expenses and other .............................................. 41,740 29,968
------------ ------------
Total current assets .................................................. 1,136,902 1,073,353
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET ........................................ 354,246 312,663
OTHER ASSETS .............................................................. 94,911 76,898
GOODWILL, NET ............................................................. 259,289 209,585
------------ ------------
TOTAL ASSETS .............................................................. $ 1,845,348 $ 1,672,499
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt ............. $ 87,313 $ 91,523
Accounts payable ........................................................ 190,915 204,771
Accrued payroll costs ................................................... 54,381 56,152
Accrued merger and restructuring costs .................................. 42,322 --
Income taxes payable .................................................... 39,957 27,003
Other ................................................................... 82,002 93,923
------------ ------------
Total current liabilities ........................................... 496,890 473,372
------------ ------------
LONG-TERM DEBT ............................................................ 435,327 371,579
OTHER LONG-TERM LIABILITIES ............................................... 45,776 48,798
MINORITY INTERESTS ........................................................ 242,983 206,705
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; 48,785 shares
issued and outstanding in 1998 (48,216 in 1997, as restated) .......... 48,785 48,216
Additional paid-in capital .............................................. 322,919 296,222
Retained earnings ....................................................... 272,801 246,809
Cumulative translation adjustments ...................................... (12,431) (11,500)
Less - treasury securities, at cost; 656 common shares in 1998 and 1997 . (7,702) (7,702)
------------ ------------
Total shareholders' equity .......................................... 624,372 572,045
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $ 1,845,348 $ 1,672,499
============ ============
</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,
------------------------------
1998 1997
------------ ------------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 26,085 $ 52,931
Adjustments to reconcile net income to net cash provided
by (used in) operating activities, excluding the net effects of acquisitions:
Depreciation and amortization .............................................. 34,020 26,179
Minority interests ......................................................... 17,444 18,737
Provision for losses on receivables ........................................ 1,326 1,230
Gain on disposal of property, plant and equipment .......................... (4,130) (3,931)
Foreign currency translation losses ........................................ 253 112
Reserve for merger and restructuring costs, net of tax benefit ............. 37,217 --
Changes in operating assets and liabilities:
Receivables ................................................................ 7,966 (75,305)
Inventories, net ........................................................... (48,937) (25,367)
Accounts payable ........................................................... (16,747) (12,236)
Other current assets and liabilities ....................................... (21,983) 5,560
Other non-current assets and liabilities ................................... (19,470) 3,350
------------ ------------
Net cash provided by (used in) operating activities 13,044 (8,740)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired ................................ (19,313) (47,330)
Property, plant and equipment additions ........................................ (67,382) (43,926)
Proceeds from disposal of property, plant and equipment ........................ 7,893 6,894
------------ ------------
Net cash used in investing activities .......................................... (78,802) (84,362)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ....................................... 84,263 91,818
Repayments of long-term debt ................................................... (20,008) (14,935)
Net increase (decrease) in short-term borrowings ............................... (4,210) 6,301
Proceeds from exercise of stock options ........................................ 378 1,298
Contributions from minority interest partner, net .............................. 2,712 1,188
Other .......................................................................... -- (344)
------------ ------------
Net cash provided by financing activities ...................................... 63,135 85,326
------------ ------------
Effect of exchange rate changes on cash (83) (175)
------------ ------------
Decrease in cash and cash equivalents .......................................... (2,706) (7,951)
Cash and cash equivalents at beginning of period, as restated .................. 37,109 35,318
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 34,403 $ 27,367
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ......................................................... $ 20,286 $ 12,719
Cash paid for income taxes ..................................................... $ 21,636 $ 18,625
</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 (the
"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 1997 Annual Report on Form 10-K
and other current filings with the Commission.
The consolidated financial statements for the periods ended June 30,
1997 and as of December 31, 1997 have been restated to include the accounts of
Wilson Industries, Inc. ("Wilson"). On April 30, 1998, the Company acquired all
of the equity interests in Wilson in a transaction accounted for as a pooling of
interests.
The unaudited consolidated financial statements reflect all adjustments
(consisting of normal recurring adjustments and pooling 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 30, 1998, the Company merged with Wilson, a Houston, Texas
based company which primarily provides products and services to the
international petroleum and petrochemical industries. In connection with the
merger, the Company issued a total of 7.9 million of its shares in exchange for
all of the outstanding shares of common stock of Wilson. The transaction has
been accounted for as a pooling of interests and, accordingly, the financial
statements for the periods preceding the acquisition have been restated to
include the accounts of Wilson. No adjustments were necessary in order to
conform the accounting policies of Wilson except for certain reclassification
entries.
The revenues and net income (loss) amounts included in the accompanying
Statements of Operations are disclosed in the following table with Wilson's
amounts for the periods prior to the merger presented separately (in thousands)
(unaudited):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues:
Company .............................................. $ 507,964 $ 383,163 $ 931,405 $ 740,647
Wilson ............................................... 49,785 144,704 205,277 277,575
------------ ------------ ------------ ------------
Combined ........................................... 557,749 527,867 1,136,682 1,018,222
============ ============ ============ ============
Net Income (Loss):
Company .............................................. (8,331) 23,929 20,430 45,042
Wilson ............................................... 839 4,204 5,655 7,889
------------ ------------ ------------ ------------
Combined ........................................... (7,492) 28,133 26,085 52,931
============ ============ ============ ============
</TABLE>
4
<PAGE> 7
On May 27, 1998, the Company acquired all of the outstanding shares of
Safeguard Disposal Systems, Inc. ("Safeguard"), a company engaged in the rental
of vacuum and collection systems used in the oil and gas industry. The Company
issued stock and cash consideration totaling $36.7 million in exchange for the
equity interests of Safeguard and M-I acquired other Safeguard-related assets
for $4.8 million. Subsequent to the acquisition date, the Company contributed a
portion of the Safeguard assets to M-I in exchange for a $16.6 million minority
interest partner contribution, which is included in Minority Interests in the
accompanying Balance Sheet. In addition to these acquisitions, the Company has
acquired other operations during the current year. The current year acquisitions
were purchased in exchange for cash consideration of $19.3 million, consisting
of cash payments and contingent consideration under earn-out arrangements, which
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
$52.6 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, 1998 and 1997 is presented below (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenues .................................................. $ 1,146,978 $ 1,061,714
Net income ................................................ $ 26,774 $ 56,016
Earnings per share:
Basic ................................................... $ 0.56 $ 1.18
Diluted ................................................. $ 0.56 $ 1.17
</TABLE>
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, 1998:
<TABLE>
<S> <C>
Fair value of assets, net of cash acquired ................ $ 24,780
Goodwill recorded ......................................... 52,605
Less: Total liabilities assumed .......................... (15,012)
Less: Minority interest partner's contribution ........... (16,560)
Less: Common stock issued for consideration .............. (26,500)
----------
Acquisition of businesses, net of cash acquired ........... $ 19,313
==========
</TABLE>
3) EARNINGS PER SHARE
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share", which requires dual
presentation of basic and diluted earnings per share ("EPS") data. Basic EPS is
computed using the weighted average number of common shares outstanding during
the period. Diluted EPS gives effect to the potential dilution of earnings which
could have occurred if additional shares were issued for stock option exercises
under the treasury stock method.
5
<PAGE> 8
For purposes of the earnings per share calculation, the 7.9 million
shares issued in connection with the Wilson acquisition have been treated as if
they had been issued and outstanding for all periods presented.
The following schedule reconciles the income and shares used in the
basic and diluted EPS computations (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
BASIC EPS (Restated) (Restated)
<S> <C> <C> <C> <C>
Net income (loss) ................... $ (7,492) $ 28,133 $ 26,085 $ 52,931
============ ============ ============ ============
Weighted average number of common
shares outstanding ................ 47,793 47,481 47,683 47,460
------------ ------------ ------------ ------------
Basic earnings (loss) per share ..... $ (0.16) $ 0.59 $ 0.55 $ 1.12
============ ============ ============ ============
DILUTED EPS
Net income (loss) ................... $ (7,492) $ 28,133 $ 26,085 $ 52,931
============ ============ ============ ============
Weighted average number of common
shares outstanding ................ 47,793 47,481 47,683 47,460
Dilutive effect of stock options .... -- 544 472 540
------------ ------------ ------------ ------------
47,793 48,025 48,155 48,000
------------ ------------ ------------ ------------
Diluted earnings (loss) per share ... $ (0.16) $ 0.59 $ 0.54 $ 1.10
============ ============ ============ ============
</TABLE>
4) COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income", which requires
companies to display comprehensive income and its components in the financial
statements. Comprehensive income (loss), which encompasses net income and
currency translation adjustments, is as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss)............................................... $ (7,492) $ 28,133 $ 26,085 $ 52,931
Currency translation adjustments, net of tax ................... 380 (535) (653) (2,264)
---------- ---------- ---------- ----------
Comprehensive income (loss)..................................... $ (7,112) $ 27,598 $ 25,432 $ 50,667
========== ========== ========== ==========
</TABLE>
6
<PAGE> 9
5) MERGER AND RESTRUCTURING COSTS
The accompanying financial statements include a $55 million charge
related to the acquisition and integration of the Wilson operations and various
restructuring efforts. A deferred tax benefit associated with the merger and
restructuring charge was also recorded during the period and totaled $14
million.
In connection with the Wilson acquisition, the Company recorded merger
costs of approximately $30 million which consisted of transaction costs,
including accounting, legal and investment banking costs, and amounts to
consolidate and integrate the existing Wilson operations. The consolidation and
integration portion of the charge consists of severance costs for Wilson
personnel, including payments under "change of control" agreements,
consolidation and relocation of existing Wilson manufacturing operations and the
write-down of assets which are impaired or have no future value.
Additionally, in order to lower costs and remain competitive in the
current economic environment, management committed to several initiatives during
the quarter to restructure its worldwide operations. The restructuring efforts
will be completed by the end of the fourth quarter and total approximately $25
million. A significant portion of this amount relates to the closure of the
Company's Supradiamant France facility and relocation of the manufacturing
operations. The charge also includes amounts related to the combination of the
Smith Tool and Smith Diamond Technology business units and the elimination of
duplicate sales and management cost structures throughout the world. The
remainder of the charge relates to management's evaluation of the current
business conditions in the oil and gas industry and includes costs to reduce the
workforce to appropriate levels and write-down assets which are impaired or have
no future value. The above restructuring efforts will result in the reduction of
10 to 12 percent of the Company's combined workforce.
The majority of the charge has or will result in cash expenditures,
except for amounts related to the write-off of recorded assets, which
approximate $19 million.
6) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out ("FIFO") method for the majority of the
Company's inventories. The remaining inventories are costed under the last-in,
first-out ("LIFO") or average cost methods. Inventory costs, consisting of
materials, labor and factory overhead, are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Restated)
<S> <C> <C>
Raw materials .................................................. $ 43,680 $ 35,845
Work-in-process ................................................ 90,047 79,080
Products purchased for resale .................................. 85,957 91,159
Finished goods ................................................. 322,657 284,753
------------ ------------
542,341 490,837
Reserves to state certain domestic inventories
($201,654 and $191,448 in 1998 and restated 1997,
respectively) on a LIFO basis .............................. (23,293) (22,874)
------------ ------------
Inventories, net ............................................... $ 519,048 $ 467,963
============ ============
</TABLE>
7
<PAGE> 10
7) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Restated)
<S> <C> <C>
Land ................................................................ $ 24,228 $ 24,219
Buildings ........................................................... 61,399 57,015
Machinery and equipment ............................................. 535,668 478,973
------------ ------------
621,295 560,207
Less-accumulated depreciation........................................ (267,049) (247,544)
------------ ------------
Net property, plant and equipment ................................... $ 354,246 $ 312,663
============ ============
</TABLE>
8
<PAGE> 11
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.
On April 30, 1998, the Company acquired all of the outstanding stock of Wilson
Industries, Inc. ("Wilson") in a transaction accounted for as a pooling of
interests. Accordingly, the accompanying financial information gives effect to
the acquisition for all periods presented. The following discussion 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 supply of premium products and
services to the oil and gas exploration, production and petrochemical
industries. The Company provides a comprehensive line of
technologically-advanced products and engineering services, including drilling
and completion fluid systems, solids-control equipment, waste-management
services, three-cone drill bits, diamond drill bits, fishing services, drilling
tools, underreamers, sidetracking systems and liner hangers. The Company also
operates an extensive network of supply branches through which it markets pipes,
valves, fittings and other capital and expendable maintenance products.
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. Drilling activity levels are
primarily influenced by the price 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.
The results for the second quarter of 1998 were impacted by a decline
in North American drilling activity which decreased 27 percent from the average
activity levels experienced in the first quarter. Although the long-term outlook
for exploration and production activity is favorable based upon expected growth
in worldwide energy consumption, several factors have, and may continue to,
impact activity levels on a short-term basis. A significant portion of the North
American rig count decrease relates to lower Canadian activity levels associated
with the annual spring break-up. However, the continuing decline in average
crude oil prices, which have decreased 26 percent from average 1997
levels, have negatively impacted U.S. land-based drilling activity as evidenced
by the 11 percent decline in the average U.S. rig count from the first quarter
of 1998. If crude oil prices remain at or below current levels for a prolonged
period of time, management believes demand for products and services could
continue to be impacted in North American and certain other markets.
Additionally, several countries in which the Company operates, including
Venezuela and Nigeria, are experiencing increased economic and political
instability. If the current environment continues, demand for products and
services may be impacted in those markets.
9
<PAGE> 12
RESULTS OF OPERATIONS
REVENUES
The Company operates through five business units which market products
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 For the Six Months
Ended June 30, Ended June 30,
---------------------------------------- ----------------------------------------
1998 1997 1998 1997
---------------------------------------- ----------------------------------------
Amount % Amount % Amount % Amount %
-------------------- ------------------- ----------------------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues by Business Unit:
M-I - Fluids .................... $ 225,241 40 $ 214,714 41 $ 455,469 40 $ 420,815 41
M-I - SWACO ..................... 36,496 7 31,872 6 73,189 7 59,410 6
Wilson Supply ................... 127,620 23 129,568 24 264,223 23 249,381 25
Smith Bits ...................... 80,292 14 79,421 15 171,179 15 155,528 15
Smith Drilling & Completions .... 88,100 16 72,292 14 172,622 15 133,088 13
---------- --- ---------- --- ---------- --- ---------- ---
Total ................... $ 557,749 100 $ 527,867 100 $1,136,682 100 $1,018,222 100
========== === ========== === ========== === ========== ===
Revenues by Area:
U.S. ............................ $ 272,785 49 $ 277,891 53 $ 565,214 50 $ 531,062 52
Export .......................... 46,946 8 39,750 7 91,424 8 71,957 7
Non-U.S ......................... 238,018 43 210,226 40 480,044 42 415,203 41
---------- --- ---------- --- ---------- --- ---------- ---
Total ................... $ 557,749 100 $ 527,867 100 $1,136,682 100 $1,018,222 100
========== === ========== === ========== === ========== ===
Average Active Rig Count:
U.S. ............................ 864 934 913 895
Canada .......................... 173 255 314 325
Non-North America ............... 797 812 805 808
---------- ---------- ---------- ----------
Total ................... 1,834 2,001 2,032 2,028
========== ========== ========== ==========
</TABLE>
M-I-FLUIDS
M-I-Fluids, a division of M-I 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 $10.5 million, or 5 percent, over
the second quarter of 1997 and $34.7 million, or 8 percent, from the first six
months of 1997. Incremental revenues from acquisitions combined with higher
demand for workover and completion fluids accounted for the revenue growth over
the prior year. The revenue growth for the six month period related to increased
demand in certain Latin American markets and, to a lesser extent, revenues from
acquisitions.
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 $4.6 million and $13.8 million from the
second quarter and first six months of 1997, respectively. Incremental revenues
from three operations acquired in the last 12 months accounted for the majority
of the quarter-to-quarter growth. For the six month period, SWACO revenues
benefited from the addition of acquired operations and increased demand for
fluid processing equipment and services.
10
<PAGE> 13
WILSON SUPPLY
Wilson Supply markets pipe, valves and other capital and expendable
maintenance products to the petroleum and petrochemical industries primarily
through an extensive network of U.S. supply branches. Supply's revenues
decreased $1.9 million, or 2 percent, over the second quarter of 1997 and
increased $14.8 million, or 6 percent, over the first six months of 1997. The
revenue decrease for the three month period relates to lower tubular sales
associated with the decline in U.S. drilling activity. Wilson Supply reported
increased branch sales over the first half of 1997 as higher activity levels
contributed to the year-over-year growth.
SMITH BITS
Smith Bits manufactures and sells three-cone and diamond bits primarily
for use in the oil and gas industry. The unit's MegaDiamond and Supradiamant
subsidiaries manufacture polycrystalline diamond and cubic boron nitride
materials which are used in drill bits and in other specialized cutting tools.
In July 1998, the Company consolidated the previously separate Smith Tool and
Smith Diamond Technology business units and formed Smith Bits. Smith Bits
revenues increased $0.9 million from the second quarter of 1997 and $15.7
million from the first six months of 1997. Second quarter revenues were
comparable with the prior year as the impact of increased unit sales of diamond
bits and larger size units was partially offset by lower demand for mining bits.
On a geographic basis, lower activity levels in the U.S. attributable to the
decline in oil prices adversely impacted revenues; however, increased tender
sales in the Eastern Hemisphere offset the U.S. revenue decrease. For the six
month period, increased unit sales of Magnum(TM) and Trucut premium bits
combined with higher demand for larger size diamond bits contributed to the
revenue growth.
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
$15.8 million, or 22 percent, over the second quarter of 1997 and $39.5 million,
or 30 percent, from the first six months of 1997. The majority of the
quarter-to-quarter increase is attributable to increased activity levels in
certain Latin American markets and the impact of incremental revenues from
acquisitions. For the six month period, revenues benefited from incremental
revenues from acquisitions and higher demand for remedial products and services
in the U.S. and Latin America.
11
<PAGE> 14
For the periods indicated, the following table summarizes the results
of the Company and presents these results as a percentage of total revenues:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------------- -----------------------------------------
1998 1997 1998 1997
-------------------------------------- ----------------------------------------
Amount % Amount % Amount % Amount %
-------------------------------------- ---------------------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 557,749 100 $ 527,867 100 $1,136,682 100 $1,018,222 100
---------- ---------- ---------- ----------
Gross profit ...................... 172,876 31 158,228 30 354,722 31 302,016 30
Operating expenses ................ 161,877 29 99,148 19 270,631 24 191,996 19
---------- -- ---------- -- ---------- -- ---------- ---
Income before interest and taxes .. 10,999 2 59,080 11 84,091 7 110,020 11
Interest expense, net ............. 9,813 2 6,992 1 18,926 1 12,880 1
---------- -- ---------- -- ---------- -- ---------- ---
Income before income taxes and
minority interests ............... 1,186 -- 52,088 10 65,165 6 97,140 10
Income tax provision .............. 2,322 N/A 13,929 3 21,636 2 25,472 3
---------- --- ---------- --- ---------- -- ---------- ---
Income (loss) before minority
interests ......................... (1,136) N/A 38,159 7 43,529 4 71,668 7
Minority interests ................ 6,356 N/A 10,026 2 17,444 2 18,737 2
---------- --- ---------- --- ---------- -- ---------- ---
Net income (loss) ................. $ (7,492) N/A $ 28,133 5 $ 26,085 2 $ 52,931 5
========== === ========== == ========== == ========== ===
</TABLE>
Total revenues increased $29.9 million, or 6 percent, from the prior
year quarter and $118.5 million, or 12 percent, over the first six months of
1997. Over half of the revenue increase from the second quarter of 1997 related
to incremental revenues from acquisitions completed in the last twelve months.
On a geographic basis, the quarter-to- quarter revenue increase was reported in
Latin America and Europe/Africa and related to acquisitions and market
penetration. Revenues in North America decreased slightly from the prior year
quarter as the impact of lower activity levels was partially offset by
incremental revenues from acquisitions. The lower U.S. activity levels resulted
in the Company's U.S. revenues decreasing from 53 percent of total revenues in
the second quarter of 1997 to 49 percent in the second quarter of 1998. For the
six month period, the Company experienced growth across all business units and
geographic areas. Over half of the revenue increase was reported in the U.S. and
Latin America which benefited from acquisitions, market penetration and growth
in the Wilson Supply operations.
Gross profit as a percentage of revenues increased from 30 percent in
the second quarter and first six months of the prior year to 31 percent in both
periods of 1998. The improvement in gross profit margins resulted from price
increases enacted during the last half of 1997 and efficiencies associated with
the higher volumes.
Operating expenses, consisting of selling expenses, general and
administrative expenses and merger and restructuring costs, increased $62.7
million over the second quarter of 1997 and $78.6 million from the first half of
1997. The majority of the dollar variance relates to the merger and
restructuring charge of $55.0 million recorded in the second quarter of 1998 for
costs associated with the acquisition and integration of the Wilson operations
and restructuring efforts. Increased variable costs associated with acquired
operations and changes in compensation and benefit programs in the last half of
1997 to maintain industry-competitive levels also contributed to the increase
over the prior year periods.
Based upon an evaluation of the current economic conditions in the oil and
gas industry, management committed to several restructuring initiatives in the
second quarter to lower costs and remain competitive in the current environment.
The $25 million of restructuring costs included in the merger and restructuring
charge relates primarily to the closure and relocation of a manufacturing
facility, combination of two separate business units and elimination of the
duplicate cost structure, reduction of personnel to appropriate levels to
correspond with expected demand and the write-off of
12
<PAGE> 15
assets which, due to current industry and economic conditions, are impaired or
have no future value. Management anticipates the restructuring efforts, which
will be completed by the fourth quarter, will result in reduced employee-related
costs with the effect of the reductions realized beginning in the third quarter
of 1998. Additionally, although headcount reductions associated with the
relocation of the manufacturing facility are expected to result in lower
employee-related costs, increased efficiencies are expected to result from the
combination of the previously separate manufacturing operations. At June 30,
1998, the remaining reserve for restructuring expenditures approximated $16.6
million of which $8.6 million is expected to result in additional cash outlays
in the last half of the fiscal year.
Net interest expense, which represents interest expense less interest
income, increased $2.8 million from the second quarter of 1997 and $6.0 million
over the reported amounts for the first half of 1997. 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 effective tax rate for the first six months of 1998 approximated 33
percent, which is higher than the 26 percent reported in the comparable period
of the prior year and lower than the U.S. statutory rate. The rate exceeded the
effective rate for the first half of 1997 as the prior year benefited from U.S.
net operating loss carryforwards, which were fully utilized during 1997. The
inclusion of non-deductible costs in the merger and restructuring charge also
contributed to the increase in the effective rate. The effective tax rate was
lower than the statutory rate due to the method of recording the minority
interest partner's U.S. earnings. The effective rate is expected to remain below
the statutory rate as the Company properly consolidates the pretax income
related to the minority interest partner's share of U.S. partnership earnings
but excludes the related tax provision.
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.
Minority interests decreased $3.7 million and $1.3 million from the second
quarter and first half of 1997, respectively. The primary reason for the
decrease related to the recognition of M-I's portion of the merger and
restructuring charge which approximated $3.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $2.7 million during the period and
equaled $34.4 million at June 30, 1998. The Company's operations generated $13.0
million of cash flows in the first six months of 1998 which is $24.4 million
higher than the restated amounts required in the comparable period of the prior
year. The change from the first six months of 1997 was due to lower growth in
receivables which was partially offset by higher inventory and operating asset
levels associated with the operations. Cash flows from operations were not
sufficient to fund acquisitions and capital expenditure requirements resulting
in increased borrowings under available facilities.
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. Various revolving line of credit facilities, which are
available for operating and financing needs, had additional borrowing capacity
of $ 97 million at June 30, 1998. 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 of the existing operations for the foreseeable future.
The Company has and continues to conduct negotiations with Halliburton
Company ("Halliburton") on the possible purchase of Halliburton's 36 percent
ownership interest in M-I. Regulatory authorities may require the disposition of
Halliburton's ownership interest in M-I in connection with Halliburton's
proposed merger with Dresser Industries. If the Company and Halliburton are able
to negotiate acceptable terms and conditions related to the purchase of the
minority interest ownership, the transaction will require the use of debt and/or
equity financing. The potential transaction may also require future cash outlays
to combine and consolidate the previously separate operations. There are no
assurances as to whether any transaction will be agreed to by the parties or
ultimately consummated.
13
<PAGE> 16
Aside from the potential transaction discussed above, management
continues to evaluate opportunities to acquire products or businesses
complimentary to the Company's operations. These acquisitions, if they arise,
may involve the use of cash or, depending upon the size and terms of the
acquisition, may require debt or equity financing.
This document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 concerning the Company's
outlook for its operations, which are subject to certain risks, uncertainties
and assumptions. These forward-looking statements are identified by the use of
terms and phrases such as "expects", "believes", and similar terms and phrases.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those expected, estimated or projected.
NEW ACCOUNTING AND REGULATORY PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities" effective for fiscal periods
beginning after June 15, 1999. This standard establishes accounting and
reporting standards requiring that every derivative instrument be recorded and
measured at its fair value. The Statement requires that changes in fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met.
The impact of adopting SFAS 133 has not yet been quantified but is not
expected to have a material impact upon the Company's financial condition or
results of operations.
YEAR 2000
The Company continues to identify, evaluate and implement modifications
to its business systems in order to achieve Year 2000 date conversion
compliance. The following supplements the Year 2000 disclosure included in the
Company's 1997 Annual Report on Form 10-K.
The Company's business systems are comprised of a mix of off-the-shelf
and internally-developed systems that vary greatly in size, complexity and
technical architecture. The Year 2000 task force has defined five separate
categories for review and has finalized the identification of the critical and
non-critical components within these groups. The necessary changes in computer
instructional code continue to be made by upgrading the off-the-shelf software
in which the application was created. Year 2000 compliance for the majority of
the Company's enterprise applications was achieved with the Oracle 10.7
implementation in the first quarter of 1998. The Company continues to install
new applications and upgrade existing ones in order to bring applications for
international locations into compliance. The Company currently believes all
significant business systems will be Year 2000 compliant by mid-1999 with the
majority of these in compliance by the end of 1998.
During the second quarter of 1998, the Company communicated with
suppliers, financial institutions and others with whom it does business to
address conversion-related issues and is currently reviewing the responses
received. The Company still has not yet determined the complete status of Year
2000 compliance of its suppliers and financial institutions or what additional
costs, if any might be required by the Company. Management continues to believe
that non-compliance by the Company's suppliers are insignificant but failure of
its financial institutions could have a material effect on the Company's
financial position or results of operations.
14
<PAGE> 17
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 22, 1998, shareholders of
the Company elected directors and ratified various agenda items by the votes
shown below.
<TABLE>
<CAPTION>
Agenda Item For Withheld Abstain
- ------------ ------------ ------------ ------------
<S> <C> <C> <C>
Election of directors:
James R. Gibbs ......................... 32,819,915 396,478 --
Jerry W. Neely ......................... 32,733,569 482,824 --
</TABLE>
<TABLE>
<CAPTION>
Agenda Items For Against Abstain Non-Vote
- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratify auditors ............................. 32,971,533 170,589 74,271 --
Approve amendment of 1989 long-term
incentive compensation plan ............... 24,647,723 3,146,460 114,855 5,307,355
Approve amendment of Directors Retirement
Plan ...................................... 25,465,032 2,315,756 128,250 5,307,355
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3)(ii) Bylaws
3.1 Restated Bylaws of Smith International, Inc. (a Delaware
Corporation)
(27) Financial Data Schedules
27.1 Financial Data Schedule for the six month period ended
June 30, 1998
27.2 Restated Financial Data Schedule for the six months period
ended June 30, 1997.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated April 30, 1998,
reporting under "Item 2. Acquisition or Disposition of Assets" and
"Item 7. Financial Statements and Exhibits" required disclosure
related to the Wilson Industries, Inc. acquisition. Additionally,
a press release announcing the Registrant's first quarter earnings
was reported under "Item 5. Other Events".
15
<PAGE> 18
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 13, 1998 By: /s/ Douglas L. Rock
----------------------------- --------------------------------------
Douglas L. Rock
Chairman of the Board, Chief Executive
Officer, President and Chief Operating
Officer
Date: August 13, 1998 By: /s/ John J. Kennedy
----------------------------- --------------------------------------
John J. Kennedy
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
16
<PAGE> 19
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- ----------------
3.1 Restated Bylaws of Smith International, Inc.
(A Delaware Corporation)
27.1 Financial Data Schedule for the six month period
ended June 30, 1998.
27.2 Financial Data Schedule for the six month period
ended June 30, 1997.
<PAGE> 1
- --------------------------------------------------------------------------------
RESTATED
BYLAWS
OF
SMITH INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PAGE
<S> <C> <C> <C>
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF ST0CKHOLDERS . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . 2
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . 3
Section 4. Notice of Meetings . . . . . . . . . . . . . . . . . . . 3
Section 5. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 6. Voting . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Action Without Meeting . . . . . . . . . . . . . . . . . 4
Section 8. List of Stockholders Entitled to Vote . . . . . . . . . . 4
Section 9. Stock Ledger . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1. General Powers . . . . . . . . . . . . . . . . . . . . 5
Section 2. Number and Election of Directors . . . . . . . . . . . . 5
Section 3. Vacancies and Newly Created Directorships . . . . . . . . 6
Section 4. Place of Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 5. Regular Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . 7
Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. Participation in Meetings by
Conference Telephone . . . . . . . . . . . . . . 8
Section 9. Fees and Compensation . . . . . . . . . . . . . . . . . . 8
Section 10. Action Without Meeting . . . . . . . . . . . . . . . . . 8
Section 11. Rights of Inspection . . . . . . . . . . . . . . . . . . 8
Section 12. Committees . . . . . . . . . . . . . . . . . . . . . . . 9
Section 13. Interested Directors . . . . . . . . . . . . . . . . . . 9
Section 14. Entire Board of Directors . . . . . . . . . . . . . . . . 10
Section 15. Nomination of Directors . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. General . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3. Removal and Resignation . . . . . . . . . . . . . . . . . 11
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5. Chairman of the Board of Directors . . . . . . . . . . . 12
Section 6. Chief Executive Officer . . . . . . . . . . . . . . . . . 12
Section 7. President . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . 13
Section 9. Secretary . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 10. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 11. Assistant Secretaries . . . . . . . . . . . . . . . . . . 15
Section 12. Assistant Treasurers . . . . . . . . . . . . . . . . . . 15
Section 13. Other Officers . . . . . . . . . . . . . . . . . . . . . 15
Section 14. Voting Securities Owned by the Corporation . . . . . . . 16
ARTICLE V STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1. Form of Certificates . . . . . . . . . . . . . . . . . . 16
Section 2. Signatures . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3 Lost Certificates . . . . . . . . . . . . . . . . . . . 17
Section 4. Transfers . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6. Beneficial Owners . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. Notices . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Waivers of Notice . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Disbursements . . . . . . . . . . . . . . . . . . . . . . 19
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 1. Power to Indemnify in Actions,
Suits or Proceedings Other than
those by or in the Right of the
Corporation . . . . . . . . . . . . . . . . . . . . . 19
Section 2. Power to Indemnify in Actions,
Suits or Proceedings by or in
the Right of the Corporation . . . . . . . . . . . . . 20
Section 3. Authorization of Indemnification . . . . . . . . . . . . 20
Section 4. Good Faith Defined . . . . . . . . . . . . . . . . . . . 21
Section 5. Indemnification by a Court . . . . . . . . . . . . . . . 21
Section 6. Expenses Payable in Advance . . . . . . . . . . . . . . . 22
Section 7. Non-exclusivity and Survival
of Indemnification . . . . . . . . . . . . . . . . . 22
Section 8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9. Meaning of "Corporation" for
Purposes of Article VIII . . . . . . . . . . . . . . 23
Section 10. Meaning of "Other Enterprises" for
the Purposes of Article III . . . . . . . . . . . . . 23
Section 11. Savings Provision . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . . . . . . 24
Section 1. Amendments . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
SMITH INTERNATIONAL, INC.
A DELAWARE CORPORATION
(hereinafter called the "Corporation")
ARTICLE 1
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be Corporation Trust Center, 1209 Orange Street, in the city
of Wilmington, County of New Castle, State of Delaware, and the name of the
Corporation's registered agent at that address is The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or the Secretary in the order
of precedence listed and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
1
<PAGE> 6
**Section 2. Annual Meeting. The annual meetings of stockholders
for the election of directors and such other business as may properly be
brought before the meeting shall be held on such date and at such time and
place or places, within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Except as provided in Section 15 of Article III hereof, to be
properly brought before an annual meeting, business must be (i) specified in
the notice of the meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) brought before the meeting by or at
the direction of the Board of Directors pursuant to a vote of not less than a
majority of the entire Board of Directors, or (iii) otherwise properly brought
before an annual meeting by a stockholder. For business to be properly brought
before the annual meeting by a stockholder, the stockholder must (i) be a
record or beneficial owner of at least one percent or $1,000 in market value of
securities entitled to be voted on the proposal at the meeting and have held
such securities for at least one year, and (ii) have given proper and timely
notice thereof in writing to the Secretary of the Corporation as specified
herein. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not later
than the date that corresponds to 120 days prior to the date the Corporation's
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (i) a description of the proposal desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business and any other stockholders known by
such stockholder to be supporting such proposal, (iii) the class and number of
shares of the stock that are held of record, beneficially owned, and
represented by proxy on the date of such stockholder notice and on the record
date of the meeting (if such date shall have been made publicly available) by
the stockholder and by any other stockholders known by such stockholder to be
supporting such proposal on such dates, (iv) any financial interest of the
stockholder in such proposal, and (v) all
__________________________________
(*)Section 2, ARTICLE II, amended 4-13-87
(*)Section 2, ARTICLE II, amended 4-22-98
2
<PAGE> 7
other information that would be required to be filed with the Securities and
Exchange Commission if, with respect to any such item of business, such
stockholder or stockholders were a participant in a solicitation subject to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Notwithstanding the foregoing, the Corporation may exclude any
stockholder proposal which otherwise complies with this Section 2 of Article II
if the Corporation is allowed to exclude such proposal from its proxy statement
and form of proxy pursuant to Rule 14a-8(c) promulgated under the Exchange Act.
No business shall be conducted at any annual meeting of stockholders except in
accordance with this Section 2 of Article II and the chairman of any annual
meeting of stockholders may refuse to permit any business to be brought before
such annual meeting without compliance with the foregoing procedures.
Section 3. Special Meetings. Special meetings of the
stockholders of the Corporation for any purpose or purposes may be called at
any time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President or the Secretary or by any two other officers
of the Corporation. Special meetings of stockholders of the Corporation may
not be called by any other person or persons.
Section 4. Notice of Meetings. Except as otherwise required
by law, notice of each meeting of stockholders, whether annual or special,
shall be given not less than ten days nor more than sixty days before the date
on which the meeting is to be held to each stockholder of record entitled to
vote thereat. Such notice shall state the place, date and hour of the meeting,
and in the case of special meeting, the purpose or purposes for which the
meeting is called. Notice of any meeting of stockholders shall not be required
to be given to any stockholder who shall attend such meeting in person or by
proxy, except a stockholder who shall attend such meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened, and if any
stockholder shall in writing waive notice of any meeting of the stockholders,
whether prior to or after such meeting, notice thereof need not be given to
him. Notice of any adjourned meeting of the stockholders shall not be required
to be given except where expressly required by law.
3
<PAGE> 8
Section 5. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed.
Section 6. Voting. Except as otherwise required by law or the
Certificate of Incorporation, any question brought before any meeting of
stockholders at which a quorum is present shall be decided by the vote of the
holders of a majority of the stock represented and entitled to vote thereat.
Except as otherwise provided by the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock of the Corporation entitled to
vote thereat held by such stockholder. Such votes may be cast in person or by
proxy, but no proxy shall be voted on or after three years from its date,
unless such proxy provides for a longer period. The vote for the election of
directors, and upon the direction of the presiding officer of the meeting, the
vote on any other question before the meeting, shall be by written ballot.
Section 7. Action Without Meeting. Except as otherwise required
by the Certificate of Incorporation, any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken only upon
the vote of the stockholders at an annual or special meeting duly noticed and
called as provided in these Bylaws, and may not be taken by a written consent
of the stockholders pursuant to the General Corporation Law of the State of
Delaware.
Section 8. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting,
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arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 9. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
Section 1. General Powers. Except as otherwise required by law
or the Certificate of Incorporation, the business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors of the Corporation.
*Section 2. Number and Election of Directors. The number of
directors of the corporation shall be fixed in the manner provided in the
Certificate of Incorporation. Except as otherwise provided in Section 3 of
this Article III, the directors shall be elected at the annual meeting of the
stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy and entitled to vote on the
election of directors. The election of directors is subject to any provisions
contained in the Certificate of Incorporation relating thereto including any
provisions for a classified Board of Directors. Any director may resign at any
time effective upon giving written notice to the Chairman of the Board, the
Chief
__________________________________
(*)Section 2, ARTICLE III, amended 4-26-95
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Executive Officer, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation.
Section 3. Vacancies and Newly Created Directorship. Except as
otherwise required by the Certificate of Incorporation, any vacancy in the
Board of Directors of the Corporation resulting from any increase in the number
of directors and any other vacancy occurring in the Board of Directors may be
filled by the Board of Directors acting by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director, and any
director so elected to fill a vacancy shall hold office until such director's
successor is duly elected and qualified, or until such director resigns or is
removed, for a term that shall coincide with the term of the class to which
such director shall have been elected. In no event will a decrease in the
number of directors shorten the term of any incumbent director.
Section 4. Place of Meetings. The Board of Directors may
hold its meetings, both regular and special, at such place or places, within or
without the State of Delaware, as the Board of Directors, the Chairman of the
Board or the Secretary may from time to time determine.
*Section 5. Regular Meetings.
(a) Immediately following each annual meeting of stockholders
the Board of Directors shall hold a regular meeting for the purpose of
organization, election of officers and the transaction of other business.
(b)(i) Other regular meetings of the Board of Directors shall
be held on such dates, at such places, and at such times as shall be determined
by the Board of Directors, by the Chief Executive Officer or by the Secretary,
and notice thereof may be given to each director prior to each regular meeting.
(ii) Notice given by the Chief Executive Officer or the
Secretary of regular meetings shall be given in the manner provided in
subsections (b) and (c) of Section 6 of this Article III of these Bylaws,
provided, that such notice shall be given at least four (4) days prior to the
time of the meeting.
__________________________________
(*)Section 5, ARTICLE III, amended 4-26-95
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Section 6. Special Meetings.
(a) Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President or the Secretary or
by a majority of the directors then in office.
(b) Notice of special meetings shall be given to each
director by a written notice mailed, postage prepaid, at least two days prior
to the special meeting, or by any electronic means producing a written record
of the notice transmitted at least one day prior to the meeting, or by such
shorter telephone or other notice as the person calling the meeting may deem
appropriate in the circumstances. Any such notice shall be addressed or
delivered to each director at such director's address as it is shown upon the
records of the Corporation or as may have been given to the Corporation by the
director for purposes of notice, or if such address is not shown on such
records or is not readily ascertainable, at the place in which the meetings of
the directors are regularly held.
(c) Notice by mail shall be deemed to have been given at
the time a written notice is deposited in the United States mails, postage
prepaid. Any other written notice shall be deemed to have been given at the
time it is personally delivered to the director or is delivered to a common
carrier for transmission, or actually transmitted by the person giving the
notice by electronic means, to the director. Oral notice shall be deemed to
have been given at the time it is communicated, in person or by telephone or
wireless, to the director or to a person at the address of the director as
shown on the records of the Corporation or at his office who the person giving
the notice has reason to believe will promptly communicate it to the director.
Section 7. Quorum. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business (except as otherwise provided in this
Section 7) and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
If the meeting is adjourned for more than 24 hours, notice of any adjournment
to another time or
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place, or both, shall be given prior to the time of the adjourned meeting to
the directors who were not present at the time of the adjournment. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
the required vote of the required quorum for such meeting.
Section 8. Participation in Meetings by Conference Telephone.
Members of the Board of Directors of the Corporation, or any committee
designated; by the Board of Directors, may participate in a meeting of the
Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this Section 8 shall constitute presence in person at such meeting.
Section 9. Fees and Compensation. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board of
Directors. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation therefore.
Section 10. Action Without Meeting. Except as otherwise required
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken by the Board of Directors at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board of Directors or committee.
Section 11. Rights of Inspection. Every director shall have
the right to examine the corporation's stock ledger, a list of its stockholders
and its other books and records for a purpose reasonably related to such
director's position as a director.
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*Section 12. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors
of the Corporation. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. Any committee, to the extent allowed by law and provided in the
resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation. Each committee shall keep regular
minutes and report to the Board of Directors when required. The Board of
Directors shall have the power to prescribe the manner in which proceedings of
any such committee shall be conducted. In the absence of any such
prescription, such committee shall have the power to prescribe the manner in
which its proceedings shall be conducted. Unless the Board of Directors or
such committee shall otherwise provide, the regular and special meetings and
other actions of any such committee shall be governed by the provisions of this
Article III applicable to meetings and actions of the Board of Directors.
*Section 13. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or
__________________________________
(*)Section 12, ARTICLE III, amended 4-26-95
(*)Section 13, ARTICLE III, amended 4-26-95
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the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 14. Entire Board of Directors. As used in these
Bylaws generally, the term "entire Board of Directors" means the total number
of directors which the Corporation would have if there were no vacancies.
*Section 15. Nomination of Directors. Nominations for the election
of directors may be made by the Board of Directors or by any stockholder
entitled to vote for the election of directors. Any stockholder entitled to
vote for the election of directors at a meeting of stockholders may nominate a
person or persons for election as directors only if written notice of such
stockholder's intention to make such nomination or nominations is given in
accordance with the procedures set forth in Section 2 of Article II hereof.
Each such notice shall set forth (i) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be
nominated; (ii) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (iv) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to
__________________________________
(*)Section 15, ARTICLE III, amended 4-13-87
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the proxy rules of the Securities and Exchange Commission had such nominee been
nominated, or intended to be nominated, by the Board of Directors, and (v) the
consent of each nominee to serve as a director of the Corporation if so
elected. The chairman of any meeting of stockholders, and the Board of
Directors, may refuse to recognize the nomination of any person not made in
compliance with the foregoing procedures.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chairman of the Board,
a Chief Executive Officer, a President, a Secretary and a Treasurer. The
Corporation may also have at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, a Controller, one or more Assistant Controllers and such officers
as may be elected or appointed in accordance with Section 2 of this Article IV.
Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these Bylaws. The
officers of the Corporation need not be stockholders of the Corporation, nor,
except in the case of the Chairman of the Board of Directors, need such
officers be directors of the Corporation.
Section 2. Election. The officers of the Corporation,
except such officers as may be elected or appointed in accordance with the
provisions of Section 4 or Section 11 of this Article IV, shall be chosen
annually by, and shall serve at the pleasure of, the Board of Directors, and
shall hold their respective offices until their resignation, removal or other
disqualification from service, or until their respective successors shall be
elected and qualified.
Section 3. Removal and Resignation.
(a) Any officer may be removed, either with or without
cause, by the Board of Directors at any time, or, except in the case of an
officer chosen by the Board of Directors, by any officer upon whom such power
of removal may be conferred by the Board of Directors. Any such
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removal shall be without prejudice to the rights, if any, of the officer under
any contract of employment of the officer.
(b) Any officer may resign at any time by giving written
notice to the Corporation, but without prejudice to the rights, if any, of the
Corporation under any contract to which the officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other reason shall be filled in
the manner prescribed in these Bylaws for regular election or appointment to
such office at any regular or special meeting of the Board of Directors or by
its unanimous written consent.
Section 5. Chairman of the Board of Directors. The
Chairman of the Board shall, if present, preside at all meetings of the Board
of Directors. The Chairman of the Board shall, in the absence or disability of
the Chief Executive Officer of the Corporation, perform all of the duties of
the Chief Executive Officer, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the Chief Executive Officer. The
Chairman of the Board shall also exercise and perform such other powers and
duties as may be from time to time assigned by these Bylaws or the Board or
Directors. Except where by law the signature of the Chief Executive officer or
the President is required, the Chairman of the Board shall possess the same
power as the Chief Executive Officer or the President to sign all contracts,
certificates and other instruments of the Corporation which may be authorized
by the Board of Directors.
*Section 6. Chief Executive Officer. Subject to such powers, if
any, as may be given by the Board of Directors to the Chairman of the Board,
the Chief Executive Officer shall be the general manager and chief executive
officer of the Corporation and shall have, subject to the control of the Board
of Directors, general supervision, direction and control of the business and
officers of the Corporation. The Chief Executive Officer shall preside at all
meetings of the
__________________________________
(*)Section 6, ARTICLE IV, amended 4-26-95
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stockholders, and in the absence of the Chairman of the Board, at all meetings
of the Board of Directors. The Chief Executive Officer has the general powers
and duties of management usually vested in the office of chief executive
officer and general manager of a corporation and such other powers and duties
as may be prescribed by these Bylaws or the Board of Directors. The Chief
Executive Officer shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors
or the Chief Executive Officer.
Section 7. President. Subject to such powers as may be
given by the Board of Directors to the Chairman of the Board and the Chief
Executive Officer, the President shall, in the absence of the Chairman of the
Board of Directors and the Chief Executive Officer, perform all of the duties
of the Chief Executive Officer, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the Chief Executive Officer.
The President shall also have such other powers and perform such other duties
as may be prescribed from time to time by law, these Bylaws or the Board of
Directors.
Section 8. Vice Presidents. In the absence of the
Chairman of the Board, the Chief Executive Officer and the President, the Vice
Presidents in order of their rank as fixed by the Board of Directors, or if not
ranked, the Vice President designated by the Board of Directors, shall perform
all the duties of the Chief Executive Officer, and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by these Bylaws or the Board of Directors.
Section 9. Secretary.
(a) The Secretary shall keep or cause to be kept, at the
principal executive office and such other place as the Board of Directors may
order, a book of minutes of all meetings of stockholders, the Board of
Directors and its committees, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice thereof given,
the names of
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those present at Board of Directors and committee meetings, the number of
shares present or represented at stockholders' meetings and the proceedings
thereof.
(b) The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the Corporation's transfer agent
or registrar, if one be appointed, a stock ledger or a duplicate stock ledger,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
(c) The Secretary shall give, or cause to be given,
notice of all the meetings of the stockholders and of the Board of Directors,
and if requested by the chairman thereof, of any committees thereof required by
these Bylaws or by law to be given.
(d) The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature.
(e) The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 10. Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the
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Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 11. Assistant Secretaries. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer, the President, and Vice President, if there be one or the Secretary,
and in the absence of the Secretary or in the event of his disability or
refusal to act, shall perform the duties of the Secretary, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 12. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, if
there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board Of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the Corporation.
Section 13. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to tine may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
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Section 14. Voting Securities Owned by the Corporation.
Powers of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the Chairman of the Board, the
Chief Executive Officer or the President and any such officer may, in the name
of and on behalf of the Corporation, take any such action as such officer may
deem advisable to vote in person or by proxy at any meeting of security holders
of any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board, the President or a Vice President
and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned
by him in the corporation.
Section 2. Signatures. Where a certificate is countersigned
by (i) a transfer agent other than the corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
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Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or
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interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
*Section 1. Notice. Unless otherwise provided by these Bylaws,
whenever written notice is required by law, the Certificate of Incorporation or
these Bylaws to be given to any director, member of a committee or stockholder,
such notice may be given by mail, addressed to such director, member of a
committee or stockholder, at his address as it appears on the records of the
Corporation (unless such person shall have filed with the Secretary of the
Corporation a written request that notices intended for such person be directed
to another address, in which case such notice shall be directed to such person
at the address designated in such request), with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mails. Written notice may also be given
personally or by telegram, telex, electronic facsimile or cable.
Section 2. Waivers of Notice. Whenever any notice is
required by law, the Certificate of Incorporation or these Bylaws to be given
to any director, member of a committee or stockholder, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the
__________________________________
(*)Section 1, ARTICLE VI, amended 4-26-95
18
<PAGE> 23
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for any proper purpose, and
the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall end at the close of business on December 31 of each such year.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
Other Than Those by or in the Might of the Corporation. Subject to Section
3 of this Article VIII, the Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with
19
<PAGE> 24
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believes to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
*Section 2. Power to Indemnify In Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court of Chancery or such other courts
shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made
__________________________________
(*)Section2, ARTICLE VIII, amended 9-30-87
20
<PAGE> 25
(i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust or other enterprise of which such person is or was serving at
the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis
of such indemnification by a
21
<PAGE> 26
court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of
this Article VIII, as the case may be. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application.
*Section 6. Expenses Payable in Advance. Expenses incurred
in defending or investigating a threatened or pending action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this Article VIII.
*Section 7. Non-exclusivity and Survival of Indemnification.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under any Bylaw,
agreement, contract, vote of stockholders or disinterested directors of
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of
the corporation that indemnification of the person specified in Section
1 and 2 of this Article VIII shall be made to the fullest extent permitted
by law. The provisions of this Article VIII shall not be deemed to preclude
the indemnification of any person who is not specified in Section 1 or 2 of
this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation law of the State of
Delaware, or otherwise. The indemnification provided by this Article VIII
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
__________________________________
(*)Section 6, ARTICLE VIII, amended 9-30-87
(*)Section 7, ARTICLE VIII, amended 9-30-87
22
<PAGE> 27
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
Section 9. Meaning of "Corporation" for Purposes of Article
VIII. For purposes of this Article VIII, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees
and agents, so that any person who is or was a director, officer, employee or
agent of such constituent Corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article VIII with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
*Section 10. Meaning of "Other Enterprises" for the Purposes of
Article VIII. For purposes of this Article VIII, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit
__________________________________
(*)Section 10, ARTICLE VIII, amended 9-30-87
23
<PAGE> 28
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
*Section 11. Savings Provision. If this Article VIII or any
portion hereof shall be invalidated on any ground by a court of competent
jurisdiction, the Corporation shall nevertheless indemnify each person who is
or was a director, officer, employee or agent, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise as to
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
action, suit or proceeding or action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
ARTICLE III that shall not have been invalidated.
ARTICLE IX
AMENDMENT OF BYLAWS
Section 1. Amendments. Unless otherwise provided by law or
the Certificate of Incorporation, the Bylaws of the Corporation shall not be
made, repealed, altered, amended or rescinded except as provided in the
Certificate of Incorporation.
__________________________________
(*)Section 11, ARTICLE VIII, added 4-26-95
24
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