<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from_________ to _____________
Commission File Number 1-8514
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
M-I RETIREMENT PLAN
P.O. BOX 42842
HOUSTON, TX 77242-2842
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Smith International, Inc.
16740 Hardy Street
Houston, Texas 77032
<PAGE> 2
The following financial statements and exhibits are filed as a part of this
annual report:
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
------------
<S> <C>
(a) Index to Financial Statements and Supplementary Information:
Report of Independent Public Accountants....................................... 5
Statements of Net Assets Available for Plan
Benefits at December 31, 1998 and 1997......................................... 6
Statements of Changes in Net Assets Available
for Plan Benefits for the year ended December 31,
1998........................................................................... 8
Notes to financial statements.................................................. 9
Supplementary Information:
Schedule 1 - Assets held for Investment Purposes............................... 14
Schedule 2 - Reportable Transactions........................................... 15
Schedule 3 - Non-exempt Transactions........................................... 16
</TABLE>
2
<PAGE> 3
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 28, 1999
M-I RETIREMENT PLAN
By: M-I L.L.C.
By: /s/ Geri D. Wilde
--------------------------
Geri D. Wilde
Assistant Treasurer
3
<PAGE> 4
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
M-I PROFIT SHARING AND SAVINGS PLAN - FS--12/31/98
MI-PROFIT SHARING AND SAVINGS PLAN/MGR. CARPENTIER, A./CHARGE # SMI-046-63/
DRAFT - 06/28/99
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Employee Benefits Committee of
M-I L.L.C. Profit Sharing and Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the M-I L.L.C Profit Sharing and Savings Plan (the Plan) as of
December 31, 1998 and 1997, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 1998. These
financial statements and the supplemental schedules referred to below are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and supplemental schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Plan's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan
as of December 31, 1998 and 1997, and the changes in net assets available for
plan benefits for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes as of December 31, 1998 (Schedule I), reportable
transactions - series transactions for the year ended December 31, 1998
(Schedule II), and nonexempt transactions for the year ended December 31, 1998
(Schedule III), are presented for purposes of additional analysis and are not a
required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The fund information in the statements of net assets available for plan
benefits and the statement of changes in net assets available for plan benefits
is presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for plan
benefits of each fund. The supplemental schedules and fund information have
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Houston, Texas
June 23, 1999
<PAGE> 6
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Participant-Directed
------------------------------------------------------------------------
Vanguard Smith Long-
Retirement International, Term
Savings Inc., Vanguard Vanguard Corporate
Trust Stock Wellington Windsor Bond
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $ -- $ 51,011 $ -- $ -- $ --
Investments-
Registered investment companies -- -- 44,425,622 10,975,908 2,270,285
Vanguard Retirement Savings Trust 12,256,382 -- -- -- --
Smith International, Inc., common stock -- 6,072,225 -- -- --
Loans to participants -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total investments 12,256,382 6,123,236 44,425,622 10,975,908 2,270,285
Receivables-
Company contributions 10,248 18,214 205,930 17,793 2,602
Participant contributions 51,065 27,170 164,608 41,059 6,004
Loan repayments 26,597 8,587 46,014 15,721 3,381
------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 12,344,292 $ 6,177,207 $ 44,842,174 $ 11,050,481 $ 2,282,272
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Participant-Directed
---------------------------------------------------------
Vanguard
VMMR Index International
Prime 500 Vanguard Growth
Portfolio Portfolio PRIMECAP Portfolio
Fund Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash $ -- $ -- $ -- $ --
Investments-
Registered investment companies 4,190,277 6,664,306 8,412,323 1,215,373
Vanguard Retirement Savings Trust -- -- -- --
Smith International, Inc., common stock -- -- -- --
Loans to participants -- -- -- --
------------ ------------ ------------ ------------
Total investments 4,190,277 6,664,306 8,412,323 1,215,373
Receivables-
Company contributions 3,619 16,780 19,141 3,969
Participant contributions 10,730 24,172 26,829 6,045
Loan repayments 4,577 8,600 11,393 1,990
------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 4,209,203 $ 6,713,858 $ 8,469,686 $ 1,227,377
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Loan
Fund Total
------------ ------------
ASSETS:
<S> <C> <C>
Cash $ -- $ 51,011
Investments-
Registered investment companies -- 78,154,094
Vanguard Retirement Savings Trust -- 12,256,382
Smith International, Inc., common stock -- 6,072,225
Loans to participants 4,873,121 4,873,121
------------ ------------
Total investments 4,873,121 101,406,833
Receivables-
Company contributions -- 298,296
Participant contributions -- 357,682
Loan repayments -- 126,860
------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 4,873,121 $102,189,671
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 7
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Participant-Directed
--------------------------------------------------------------------
Vanguard Smith Long-
Retirement International, Term
Savings Inc., Vanguard Vanguard Corporate
Trust Stock Wellington Windsor Bond
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $ -- $ 158,612 $ -- $ -- $ --
Investments-
Registered investment companies -- -- 37,254,803 12,392,408 1,311,898
Vanguard Retirement Savings Trust 10,372,200 -- -- -- --
Smith International, Inc., common stock -- 9,444,629 -- -- --
Loans to participants -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total investments 10,372,200 9,603,241 37,254,803 12,392,408 1,311,898
Receivables-
Company contributions 74,379 125,490 1,478,273 190,708 12,272
Participant contributions 124,072 45,869 300,053 111,483 11,067
Loan repayments 43,843 11,424 56,590 35,792 4,308
------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 10,614,494 $ 9,786,024 $ 39,089,719 $ 12,730,391 $ 1,339,545
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Participant-Directed
------------------------------------------------------
Vanguard
VMMR Index International
Prime 500 Vanguard Growth
Portfolio Portfolio PRIMECAP Portfolio
Fund Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash $ -- $ -- $ -- $ --
Investments-
Registered investment companies 2,072,422 3,454,438 6,477,037 1,032,719
Vanguard Retirement Savings Trust -- -- -- --
Smith International, Inc., common stock -- -- -- --
Loans to participants -- -- -- --
------------ ------------ ------------ ------------
Total investments 2,072,422 3,454,438 6,477,037 1,032,719
Receivables-
Company contributions 17,118 95,197 162,438 36,811
Participant contributions 21,084 34,491 57,019 13,680
Loan repayments 7,285 6,605 15,192 2,888
------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 2,117,909 $ 3,590,731 $ 6,711,686 $ 1,086,098
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Loan
Fund Total
------------ ------------
ASSETS:
<S> <C> <C>
Cash $ -- $ 158,612
Investments-
Registered investment companies -- 63,995,725
Vanguard Retirement Savings Trust -- 10,372,200
Smith International, Inc., common stock -- 9,444,629
Loans to participants 4,404,522 4,404,522
------------ ------------
Total investments 4,404,522 88,375,688
Receivables-
Company contributions -- 2,192,686
Participant contributions -- 718,818
Loan repayments -- 183,927
------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 4,404,522 $ 91,471,119
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 8
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Participant-Directed
--------------------------------------------------------------------
Vanguard Smith
Retirement International,
Savings Inc., Vanguard Vanguard
Trust Stock Wellington Windsor
Fund Fund Fund Fund
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1997 $ 10,614,494 $ 9,786,024 $ 39,089,719 $ 12,730,391
-------------- -------------- -------------- --------------
PLAN ADDITIONS:
Interest and dividends 661,725 568 4,793,733 974,276
Net realized gain (loss) on sale of investments -- (139,493) 336,363 (121,211)
Net unrealized appreciation (depreciation) of investments -- (4,040,335) (553,936) (911,713)
-------------- -------------- -------------- --------------
661,725 (4,179,260) 4,576,160 (58,648)
-------------- -------------- -------------- --------------
Contributions-
Company 121,875 201,807 2,742,743 283,342
Participants 1,216,671 408,385 3,267,422 1,270,542
Rollovers -- 185,275 761,349 11,111
-------------- -------------- -------------- --------------
1,338,546 795,467 6,771,514 1,564,995
-------------- -------------- -------------- --------------
Total additions 2,000,271 (3,383,793) 11,347,674 1,506,347
-------------- -------------- -------------- --------------
PLAN DEDUCTIONS:
Benefits paid to participants 1,288,647 297,617 2,689,283 853,030
INTERFUND TRANSFERS, net 1,018,174 72,593 (2,905,936) (2,333,227)
-------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1998 $ 12,344,292 $ 6,177,207 $ 44,842,174 $ 11,050,481
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Participant-Directed
-----------------------------------------------------------------
Long- Vanguard
Term VMMR Index
Corporate Prime 500 Vanguard
Bond Portfolio Portfolio PRIMECAP
Fund Fund Fund Fund
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1997 $ 1,339,545 $ 2,117,909 $ 3,590,731 $ 6,711,686
-------------- -------------- -------------- --------------
PLAN ADDITIONS:
Interest and dividends 143,987 148,166 91,125 325,374
Net realized gain (loss) on sale of investments 6,918 -- 109,397 79,834
Net unrealized appreciation (depreciation) of investments 3,144 -- 1,068,239 1,202,907
-------------- -------------- -------------- --------------
154,049 148,166 1,268,761 1,608,115
-------------- -------------- -------------- --------------
Contributions-
Company 24,498 39,392 188,125 261,293
Participants 269,318 213,943 428,939 604,181
Rollovers -- 44,495 28,300 43,935
-------------- -------------- -------------- --------------
293,816 297,830 645,364 909,409
-------------- -------------- -------------- --------------
Total additions 447,865 445,996 1,914,125 2,517,524
-------------- -------------- -------------- --------------
PLAN DEDUCTIONS:
Benefits paid to participants 98,567 635,287 229,990 284,189
INTERFUND TRANSFERS, net 593,429 2,280,585 1,438,992 (475,335)
-------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1998 $ 2,282,272 $ 4,209,203 $ 6,713,858 $ 8,469,686
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Participant-
Directed
--------------
International
Growth
Portfolio Loan
Fund Fund Total
-------------- -------------- --------------
<S> <C> <C> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1997 $ 1,086,098 $ 4,404,522 $ 91,471,119
-------------- -------------- --------------
PLAN ADDITIONS:
Interest and dividends 24,393 319,759 7,483,106
Net realized gain (loss) on sale of investments 25,362 -- 297,170
Net unrealized appreciation (depreciation) of investments 117,899 -- (3,113,795)
-------------- -------------- --------------
167,654 319,759 4,666,481
-------------- -------------- --------------
Contributions-
Company 56,853 -- 3,919,928
Participants 130,979 -- 7,810,380
Rollovers 4,036 -- 1,078,501
-------------- -------------- --------------
191,868 -- 12,808,809
-------------- -------------- --------------
Total additions 359,522 319,759 17,475,290
-------------- -------------- --------------
PLAN DEDUCTIONS:
Benefits paid to participants 49,959 330,169 6,756,738
INTERFUND TRANSFERS, net (168,284) 479,009 --
-------------- -------------- --------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1998 $ 1,227,377 $ 4,873,121 $ 102,189,671
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 9
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
PLAN PROVISIONS:
The following description of the M-I L.L.C. Profit Sharing and Savings Plan
(the Plan), formerly known as the M-I Drilling Fluids L.L.C. Profit Sharing and
Savings Plan, provides only general information. Participants should refer to
the Plan document for a more complete explanation of the Plan's provisions as
the Plan document is controlling at all times.
General
The Plan is a defined contribution plan of M-I L.L.C. (the Company). During
1998, Smith International, Inc. (Smith), obtained 100 percent ownership in the
Company. The Plan is operated for the sole benefit of the employees of the
Company and their beneficiaries and is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended (ERISA). The Plan
became effective on March 1, 1987, and is available to all employees who meet
certain eligibility requirements.
Administration
The Company is the plan administrator of the Plan, as defined under ERISA.
Vanguard Fiduciary Trust Company is the trustee of all investments held by the
Plan. Expenses incident to the administration of the Plan and trust may be paid
by the Company or by the Plan.
Eligibility
An employee may participate in the Plan on the first day of the first month
following the date of hire.
Compensation
Compensation, as defined in the Plan, includes the cash compensation that is
paid by the Company to the participants during the Plan year for services
performed and is included in the employee's gross income under the Internal
Revenue Code (the Code), including regular or base salary, wages, commissions,
overtime, bonuses, nondeferred incentive awards and foreign service allowance,
as such compensation items are reported on the employee's Form W-2 for the
calendar year. Compensation shall exclude benefits paid or credited under the
Plan or any other deferred compensation plan maintained by the Company.
Contributions
Participants may elect to contribute voluntarily, in 1/2 percent increments,
from 1/2 percent to 12 percent of their compensation (except, for participants
whose annual compensation, as defined by the Plan, exceeds $80,000, the
elective contribution is from 1/2 percent to 10 percent), subject to a maximum
amount of $10,000 during 1998 under Section 402(g) of the Code.
<PAGE> 10
-2-
At its discretion, the Company may provide contributions to the Plan for each
participant equal to 3 percent of the participant's compensation during the
Plan year (the Basic Contribution). The Company may also provide a 100 percent
matching contribution of the first 1-1/2 percent of a participant's voluntary
contribution (the Matching Contribution).
In addition, with respect to each Plan year, the Company may contribute to the
Plan (from the Company's net income or any accumulated earnings and profits)
profit-sharing contributions (the Profit-Sharing Contribution) in such amounts,
if any, as determined by the Company and approved and ratified by the Company's
board of directors.
Basic and Matching Contributions made by the Company were approximately
$3,900,000 for the year ended December 31, 1998.
Vesting
Participants are immediately vested in their voluntary contributions and the
net earnings thereon. Participants will vest annually in the Company's
contributions in 20 percent increments commencing with their first year of
service. Participants, or their beneficiaries, as appropriate, may also become
fully vested in the Company's contributions in the event of the participant's
death, termination of employment by reason of total or permanent disability or
retirement from the Company upon reaching the normal retirement age of 65.
Investment Options
At December 31, 1998 and 1997, the Plan's investments are held in a trust fund
administered by Vanguard Fiduciary Trust Company.
Participants have the option of independently investing their contributions and
the Company's basic, matching and profit-sharing contributions in any of the
following Vanguard Funds and/or the common stock of Smith International, Inc.:
Vanguard Retirement Savings Trust Fund--Investments are made primarily in a
pool of investment contracts issued by insurance companies and banks selected
by the Trustee. This investment was formerly known as the Investment Contract
Trust Fund. See Note 3 for further information regarding valuation of the
underlying investments.
Smith International, Inc., Stock Fund--Investments are in the common stock of
Smith International, Inc., purchased on the open market.
Investments in the Smith International, Inc. Common Stock Fund are assigned
units of participation. The unit value is determined based upon the fair market
value of the underlying net assets, which consist of Smith common stock and
temporary investments. The total units of the Smith International, Inc. Common
Stock Fund assigned to participants as of December 31, 1998 and 1997, were
2,653,508 units and 1,733,218 units, respectively.
Vanguard Wellington Fund--Investments are made in a combination of common
stocks and fixed income securities with the objective of conservation of
principal and reasonable current income.
Vanguard Windsor Fund--Investments are made in a portfolio of common stocks
with the primary objective of long-term growth of capital and income and a
secondary objective of providing current income.
Long-Term Corporate Bond Fund--Investments are made in a portfolio of bonds
with the objective of obtaining a high level of income while preserving
capital.
<PAGE> 11
-3-
VMMR Prime Portfolio Fund--Investments are made in high-quality money market
instruments which mature in one year or less, including negotiable certificates
of deposit, banker's acceptances issued by major U.S. banks, commercial paper
and short-term corporate obligations with the objective of preservation of
capital and liquidity.
Vanguard Index 500 Portfolio Fund--Investments are made in a portfolio of
publicly traded stocks with the objective of providing the price and yield
performance represented by the Standard and Poor's 500 Composite Stock Price
Index.
Vanguard PRIMECAP Fund--Investments are made principally in a portfolio of
common stocks with the objective of long-term growth of capital.
International Growth Portfolio Fund--Investments are made in common stocks of
companies based outside of the United States with the objective of long-term
capital growth.
Contributions may be invested in one fund or divided among two or more funds.
Participants may transfer some or all of the balances out of any fund into one
or any combination of the other funds at any time.
Payment of Benefits
A participant may elect to receive benefit payments by any one of the several
methods provided by the Plan upon termination of service or retirement.
The Plan also provides for hardship distributions to participants with
immediate and significant financial needs, subject to authorization by the
Company. Such distributions are limited to the vested amount then credited to
such participant's account.
Termination of the Plan
The Company presently intends to continue the Plan indefinitely. However, the
Company reserves the right to discontinue the Plan at any time and for any
reason. In the event of termination, partial termination or discontinuance of
contributions under the Plan, participants will be credited with a fully vested
interest in their respective Company contributions.
Loans
Participants who have participated in the Plan for a minimum of one year may
borrow from their accounts no more than once annually, subject to terms
specified by the Company. Participants may not take out loans that, in the
aggregate, exceed $50,000 or 50 percent of the member's vested interest in his
or her account. These loans bear annual rates of interest commensurate with the
prevailing interest rate charged on similar commercial loans had the loan been
made under similar circumstances by a lending institution.
Forfeitures
In the event that a participant terminates employment with the Company, the
participant's vested balances are distributed with a participant's election or
if the participant has an account balance less than $5,000. Forfeitures are
applied first to reinstate the participant's previously forfeited amounts when
the participant is reemployed by the Company within five years. Any remaining
forfeitures are used to reduce subsequent employer contributions or offset Plan
expenses. Net assets available for plan benefits as of December 31, 1998 and
1997, includes forfeited amounts of $311,628 and $68,542, respectively, which
are held in the VMMR Prime Portfolio Fund. Forfeitures of $62,269 were used to
offset all plan expenses in 1998. Forfeitures of $100,000 were used to reduce
employer contributions in 1998.
<PAGE> 12
-4-
2. ACQUISITIONS:
During 1998, the Company acquired Safeguard Disposal Systems, Inc. (Safeguard).
In December 1998, the Safeguard Disposal Systems, Inc. 401(k) Retirement Plan
(the Safeguard Plan) merged with and into the Plan, replacing in entirety the
provisions of the Safeguard Plan. Former Safeguard employees were admitted to
the Company's Plan fully vested.
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Basis of Accounting
The accounts of the Plan are maintained on the cash basis of accounting. For
financial reporting purposes, however, the financial statements have been
prepared on the accrual basis of accounting using information provided by the
Trustee.
Investment Valuation
The Plan's investments are held by the Trustee. The Trustee has provided
certified statements which are the basis for recording the transactions of the
Plan. Plan investments are stated at fair value, as determined by the Trustee
primarily by reference to published market data, except for the Vanguard
Retirement Savings Trust which is stated at contract value. Pursuant to
Department of Labor regulations, the realized gain or loss on the sale of Plan
assets, and unrealized appreciation or depreciation of the Plan assets, are
based on the value of those assets at the beginning of the Plan year or at the
time of purchase if acquired during the current year.
Participant Account Valuation
The Plan provides that each fund's income shall be allocated daily to the
individual participant in the proportion that the individual participant's
account balance in such fund bears to the total balance of that fund, after
reducing the participant's account by any distributions from the account on a
daily basis.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the administrator to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of changes in net
assets during the reporting period. Actual results could differ from those
estimates.
4. FEDERAL INCOME TAX STATUS:
The Plan obtained its latest determination letter on September 11, 1995, in
which the Internal Revenue Service stated that the Plan, as then designed, was
in compliance with the applicable requirements of the Code. The Plan has been
amended since receiving the determination letter. However, the Company and the
Plan's tax counsel believe that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Code. Therefore,
they believe that the Plan was qualified and the related trust was tax-exempt
as of the financial statement date.
<PAGE> 13
-5-
5. RISKS AND UNCERTAINTIES:
The Plan provides for various investments in common stocks, money market
instruments, fixed income securities, an investment trust and long-term
corporate bonds. Investment securities, in general, are exposed to various
risks, such as interest rate, credit and overall market volatility risk. Due to
the level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect the
amounts reported in the statements of net assets available for plan benefits,
as well as participant accounts.
6. INVESTMENT CONTRACTS:
Statement of Position (SOP) 94-4, "Reporting of Investment Contracts Held by
Health and Welfare Benefit Plans and Defined Contribution Pension Plan,"
requires that fully benefit-responsive investment contracts be valued at
contract value which represents the principal balance of the contracts plus
accrued interest at the stated contract rate, less payments received and
contract charges by the insurance company.
The Plan is invested in the Vanguard Retirement Savings Trust (the Trust) which
provides for the collective investment of the assets of tax-exempt pension and
profit-sharing plan trusts primarily in a pool of investment contracts issued
by insurance companies and banks. The average blended yield of the Trust's
investments as of December 31, 1998 and 1997, was 5.93 percent and 6.23
percent, respectively. The total return of the Trust as of December 31, 1998
and 1997, was 6.15 percent and 6.17 percent, respectively. Fully
benefit-responsive investment contracts are included in the financial
statements at contract value, which approximates fair value.
7. PLAN AMENDMENTS:
Effective January 1, 1998, the Plan sponsor amended the Plan in order to
provide service credit for vesting and eligibility purposes for all employees
who directly transfer employment between Smith and the Company.
8. NON-EXEMPT TRANSACTIONS:
For the year ended December 31, 1998, due to system delays, two contributions
were not remitted to the Plan trust by the Company within the time period
established by the Department of Labor. Subsequent to year-end, the Company
reimbursed the Plan for interest on the delayed contributions. As such, these
transactions represent non-exempt transactions between the Company and the
Plan as identified in Schedule III.
<PAGE> 14
SCHEDULE I
M-I L.L.C. PROFIT SHARING
AND SAVINGS PLAN
SCHEDULE OF ASSETS HELD
FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Current
Identity of Issue Description of Investment Cost Value
- ------------------------------------------- ------------------------------------------------ ------------ ---------------
<S> <C> <C> <C>
Vanguard Fiduciary Trust Company* Vanguard Retirement Savings Trust Fund $ 12,256,382 $ 12,256,382
Smith International, Inc.* Smith International, Inc., Stock Fund 9,675,609 6,072,225
Smith International, Inc. Cash, interest-bearing 51,011 51,011
Vanguard Group of Investment Companies* Vanguard Wellington Fund 38,812,465 44,425,622
Vanguard Group of Investment Companies* Vanguard Windsor Fund 11,465,101 10,975,908
Vanguard Group of Investment Companies* Long-Term Corporate Bond Fund 2,192,556 2,270,285
Vanguard Group of Investment Companies* VMMR Prime Portfolio Fund 4,190,277 4,190,277
Vanguard Group of Investment Companies* Vanguard Index 500 Portfolio Fund 4,969,352 6,664,306
Vanguard Group of Investment Companies* Vanguard PRIMECAP Fund 6,221,529 8,412,323
Vanguard Group of Investment Companies* International Growth Portfolio Fund 1,090,210 1,215,373
Loans receivables from participants (highest and
M-I L.L.C. Profit Sharing and Savings Plan* lowest interest rates are 0.07% and 10.05%) 4,873,121 4,873,121
------------ ---------------
$ 95,797,613 $ 101,406,833
============ ===============
</TABLE>
*Identified party in interest.
<PAGE> 15
SCHEDULE II
M-I L.L.C. PROFIT SHARING
AND SAVINGS PLAN
SCHEDULE OF REPORTABLE
TRANSACTIONS - SERIES
TRANSACTIONS
FOR THE YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Purchase Selling
Identity of Party Involved Description of Asset Price(a) Price(b)
- -------------------------------------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
Vanguard Fiduciary Trust Company Vanguard Retirement Savings Trust $ 6,626,088 $ -
- 4,741,906
Smith International, Inc. Smith International, Inc., Stock Fund(c) 14,335,461 -
- 13,635,638
Vanguard Group of Investment Companies Vanguard Wellington Fund 17,511,591 -
- 10,123,199
Vanguard Group of Investment Companies Vanguard Windsor Fund 5,859,085 -
- 6,242,661
Vanguard Group of Investment Companies VMMR Prime Portfolio Fund 8,142,547 -
- 6,024,692
Vanguard Group of Investment Companies Vanguard Index Trust 500 Portfolio Fund 4,746,481 -
- 2,714,249
Vanguard Group of Investment Companies Vanguard PRIMECAP Fund 4,657,165 -
- 4,004,620
</TABLE>
<TABLE>
<CAPTION>
Current Value
of Asset
Cost of on Transaction Net Gain
Identity of Party Involved Description of Asset Asset Date (Loss)
- -------------------------------------- ---------------------------------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Vanguard Fiduciary Trust Company Vanguard Retirement Savings Trust $ 6,626,088 $ 6,626,088 $ -
4,741,906 4,741,906 -
Smith International, Inc. Smith International, Inc., Stock Fund(c) 14,335,461 14,335,461 -
13,864,532 13,635,638 (228,894)
Vanguard Group of Investment Companies Vanguard Wellington Fund 17,511,591 17,511,591 -
8,564,773 10,123,199 1,558,426
Vanguard Group of Investment Companies Vanguard Windsor Fund 5,859,085 5,859,085 -
6,195,488 6,242,661 47,173
Vanguard Group of Investment Companies VMMR Prime Portfolio Fund 8,142,547 8,142,547 -
6,024,692 6,024,692 -
Vanguard Group of Investment Companies Vanguard Index Trust 500 Portfolio Fund 4,746,481 4,746,481 -
2,458,747 2,714,249 255,502
Vanguard Group of Investment Companies Vanguard PRIMECAP Fund 4,657,165 4,657,165 -
3,638,338 4,004,620 366,282
</TABLE>
(a) Purchase price includes transaction expenses.
(b) Selling price is net of transaction expenses.
(c) Smith International, Inc., Common Stock Fund is reported on an
unitized basis.
NOTE: This schedule includes series transactions involving the same
investment activity which, in the aggregate, amounts to more than 5
percent of net assets available for Plan benefits as of January 1,
1998.
<PAGE> 16
'
SCHEDULE III
M-I L.L.C. PROFIT
SHARING AND SAVINGS PLAN
SCHEDULE OF NONEXEMPT
TRANSACTIONS
FOR THE YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Relationship to Plan Description of Transactions Including
Identity of Employer or Other Maturity Date, Rate of Interest,
Party Involved Party in Interest Collateral and Maturity Value
- --------------------- ---------------------- --------------------------------------------------------------------------------
<S> <C> <C>
M-I L.L.C. Employer Lending of monies from the Plan to the Employer (contributions not remitted
to the Plan in a timely manner) as follows:
Late payment of October 16, 1998, contributions, due within 15 working days
from the end of the month, received November 23, 1998, interest at 13.18%
per annum
Late payment of October 31, 1998, contributions, due within 15 working days
from the end of the month, received December 1, 1998, interest at 13.18%
per annum
</TABLE>
<TABLE>
<CAPTION>
Description of Transactions Including Interest
Maturity Date, Rate of Interest, Amount Incurred
Collateral and Maturity Value Loaned on Loan
- -------------------------------------------------------------------------------- ---------- --------
<S> <C> <C>
Lending of monies from the Plan to the Employer (contributions not remitted
to the Plan in a timely manner) as follows:
Late payment of October 16, 1998, contributions, due within 15 working days
from the end of the month, received November 23, 1998, interest at 13.18%
per annum $ 246,328 $ 267
Late payment of October 31, 1998, contributions, due within 15 working days
from the end of the month, received December 1, 1998, interest at 13.18%
per annum 239,122 950
--------
$ 1,217
========
</TABLE>
NOTE: The above interest amounts were subsequently remitted to the Plan by
the Employer.
