<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, 1999
( ) 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:
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
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> <C>
(a) Index to Financial Statements and Supplementary
Information:
Report of Independent Public Accountants.................... 4
Statements of Net Assets Available for Plan
Benefits at December 31, 1999 and 1998...................... 5
Statement of Changes in Net Assets Available
for Plan Benefits for the Year Ended December 31,
1999........................................................ 6
Notes to Financial Statements............................... 7
Supplementary Information:
Schedule I - Assets Held for Investment Purposes............ 12
Schedule II - Non-Exempt Transactions....................... 13
(b) Exhibits:
23.1 - Consent of Independent Public Accountants................... 16
</TABLE>
<PAGE> 3
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
Financial Statements
As of December 31, 1999
Together With Auditors' Report
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of the Smith International, Inc. 401(k)
Retirement Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Smith International, Inc. 401(k) Retirement Plan (the "Plan") as
of December 31, 1999 and 1998, and the related statement of changes in net
assets available for plan benefits for the year ended December 31, 1999. These
financial statements and the supplemental schedules referred to below are the
responsibility of the Administrative Committee. 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 auditing standards generally accepted
in the United States. 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 Administrative Committee, 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, 1999 and 1998, and the changes in net assets available for plan
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
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, 1999 (Schedule I) and non-exempt
transactions for the year ended December 31, 1999 (Schedule II) 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 supplemental schedules
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.
ARTHUR ANDERSEN LLP
Houston, Texas
June 19, 2000
<PAGE> 5
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS: 1999 1998
-------------------- -------------------
<S> <C> <C>
Cash, non-interest bearing $ -- $ 110,928
-------------------- -------------------
Investments, at fair value
Registered investment companies 139,364,657 115,161,114
Smith International, Inc. common stock 23,848,041 13,174,240
Common/collective trust 1,730,536 --
Loans to participants 8,739,968 8,927,383
-------------------- -------------------
Total investments 173,683,202 137,262,737
Receivables-
Company contributions 3,405,951 756,985
Participant contributions 311,034 140,866
Other 28,188 138,331
-------------------- -------------------
Total receivables 3,745,173 1,036,182
-------------------- -------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 177,428,375 $ 138,409,847
==================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1998 $138,409,847
ADDITIONS:
Income-
Interest income 788,949
Dividend income 8,505,269
Net appreciation in fair value of Company common stock 16,838,008
Net appreciation in fair value of registered investment companies 10,006,989
------------
Total income 36,139,215
------------
Contributions-
Company, net of forfeitures 8,251,797
Participant 8,773,486
Rollovers 899,456
------------
Total contributions 17,924,739
Transfer from other plan (Note 3) 7,159,676
------------
Total additions 61,223,630
------------
DEDUCTIONS:
Benefits paid to participants 22,081,852
Administrative expenses 123,250
------------
Total deductions 22,205,102
------------
NET ADDITIONS TO NET ASSETS AVAILABLE FOR PLAN BENEFITS 39,018,528
------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1999 $177,428,375
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 7
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT PLAN PROVISIONS:
The following description of the Smith International, Inc. 401(k)
Retirement Plan (the "Plan") provides only general information.
Participants should refer to the Plan document for a more complete
explanation of the Plan's provisions as the Plan document is
controlling at all times.
GENERAL
The Plan is a defined contribution plan of Smith International, Inc.
("Smith" or 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 is available to all employees who
meet certain eligibility requirements.
PLAN ADMINISTRATOR AND TRUSTEE
The Company is the plan administrator and sponsor of the Plan as
defined under ERISA. The Plan's operations are monitored by an
administrative committee (the "Administrative Committee") which is
comprised of participants of the Plan. Vanguard Fiduciary Trust
Company ("Vanguard" or "Trustee") is the trustee of all investments
held by the Plan.
ELIGIBILITY
Persons employed by the Company within the United States, citizens of
the United States employed abroad who are not covered by a collective
bargaining agreement, and employees covered by a collective bargaining
agreement which provides for participation in the Plan are eligible to
participate. Participation may commence upon the later of such eligible
employees' commencement date or the date on which such employees attain
the age of eighteen.
CONTRIBUTIONS
The Plan allows participants to contribute up to 12 percent of their
compensation to the Plan on a pretax basis. Prior to July 1, 1983,
participants' contributions were taxed prior to being contributed to
the Plan. The Company contributes to the account of each participant in
the Plan between two and six percent of each participants' compensation
based upon the age of the participant (the "Company Retirement
Contributions"). The Company will, in addition to the Company
Retirement Contributions, make mandatory matching contributions (the
"Company Matching Contribution") up to 1 1/2 percent of the
participants' compensation. In addition, discretionary contributions
(the "Company Discretionary Contribution") in excess of the 1 1/2
percent may be made at the discretion of the Company's Board of
Directors to the account of participants who are employed by the
Company at the end of the Plan year.
For 1999, a Company Discretionary Contribution was made at a rate of 50
percent of participant voluntary contributions less Company matching
contributions, subject to certain limitations.
<PAGE> 8
VESTING
Participants are fully vested in their contributions and related
earnings and vest in Company contributions and related earnings at the
rate of 20 percent for each year of service. Upon death, judicial
declaration of incompetence, or normal or disability retirement,
participants become fully vested in Company contributions and related
earnings and all vested balances are distributed.
The Plan has certain provisions, which provide for service credit for
vesting and eligibility purposes for all employees who directly
transfer employment between M-I L.L.C., a majority-owned subsidiary of
the Company and Smith.
COMPENSATION
Compensation, as defined in the Plan, includes all cash compensation
paid by the Company to participants excluding payments made in
connection with termination of employment, any compensation deferred
under the Company's management incentive plan, and cost-of-living and
any other extraordinary payments made to expatriates.
INVESTMENT OPTIONS
Participants have the option of investing their contributions and the
Company's Retirement, Matching and Discretionary Contributions among
one or all of the seven registered investment companies offered by the
Vanguard Group of Investment Companies (the "Vanguard Funds") and the
Company's common stock.
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.
The Dreyfus-Certus Stable Value Fund, received in conjunction with the
plan-to-plan transfer of certain former CECo Holding Company employees'
account balances into the Plan (see Note 3), is not available for
current investment by participants. In the 2000 Plan year, monies
invested in the Dreyfus-Certus Stable Value Fund will be transferred to
the VMMR Prime Portfolio Fund or one or more of the available
investment options at the direction of the participants.
ADMINISTRATIVE EXPENSES
The Plan is responsible for its administrative expenses. However, in
1999, the Company elected to pay administrative expenses from the
forfeitures of the Plan. In the future, the Company may elect to
discontinue paying such expenses.
TERMINATION OF THE PLAN
The Company intends for the Plan to be permanent; however, in the event
of permanent discontinuance of contributions or termination of the
Plan, the total balances of all participants shall become fully vested.
<PAGE> 9
LOANS
The Plan permits participants to borrow the lesser of $50,000 or 50
percent of their vested account balances in the Plan. These loans bear
interest at prime plus one percent and are repaid through payroll
withholdings over a period not to exceed five years, except for
qualifying loans to purchase a primary residence which may be repaid
over an extended repayment period.
WITHDRAWALS AND FORFEITURES
A participant may elect to receive benefit payments through any one of
the several methods provided by the Plan upon termination or
retirement. Participants can withdraw their pre-July 1, 1983
contributions in cash without being suspended from making additional
contributions to the Plan.
Upon termination of employment with the Company, any unvested Company
contributions and related earnings/losses are forfeited if participants
do not return to the Company within 60 months of their termination.
During 1999, forfeitures of $636,370 were used to reduce the Company's
contributions. Forfeitures available at December 31, 1999 and 1998
totaled $62,523 and $111,484, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The accounts of the Plan are maintained on the cash basis of
accounting. For financial reporting purposes, however, the financial
statements have been prepared on the accrual basis of accounting.
INVESTMENT VALUATION
Plan investments are stated at fair value, as determined by the Trustee
primarily by reference to published market data, except for the
common/collective trust. The common/collective trust is valued by the
issuer based upon the market value of the underlying assets of the
common/collective trust.
INVESTMENT INCOME
Net appreciation or depreciation in fair value of registered investment
companies and net appreciation or depreciation in fair value of Company
common stock in the statement of changes in net assets available for
plan benefits include realized gains or losses on the sale of the
investments and unrealized appreciation or depreciation in the fair
value of the investments.
ADOPTION OF SOP 99-3
The Plan has adopted the AICPA Statement of Position ("SOP") 99-3,
"Accounting for and Reporting of Certain Defined Contribution Benefit
Plan Investments and Other Disclosure Matters," which eliminates the
requirement for a defined contribution plan to disclose
participant-directed investment programs. During 1999, the Plan adopted
SOP 99-3, and as such, the 1998 financial statements have been
reclassified to eliminate the participant-directed fund investment
program disclosures.
<PAGE> 10
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the
Administrative Committee to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of changes in net assets
during the reporting period. Actual results could differ from those
estimates.
3. TRANSFER FROM OTHER PLAN:
Effective May 28, 1999, Smith acquired the distribution operations of
CECo Holding Company ("CE") and as a result, certain employees of CE
and its subsidiaries who participated in the Continental Emcso Company
Retirement Savings Plan (the "CE Plan") became employees of Smith
effective May 28, 1999 and eligible to participate in the Plan. During
1999, the CE Plan transferred the participant account balances through
a plan-to-plan transfer into the Plan. The applicable CE Plan assets
were liquidated and invested in the closest available investment option
under the Plan, as determined by the Administrative Committee, except
for the Dreyfus-Certus Stable Value Fund, which was transferred
in-kind. The effected employees were 100 percent vested in the amounts
transferred to the Plan.
4. FEDERAL INCOME TAX STATUS:
The Plan obtained its latest determination letter on March 5, 1996, in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code of 1986, as amended (the "Code"). The Plan has
been amended since receiving the determination letter. However, the
Administrative Committee believes that the Plan is currently designed
and being operated in compliance with the applicable requirements of
the Code. Therefore, the Administrative Committee believes that the
Plan was qualified and the related trust was tax-exempt as of the
financial statement date.
5. RISKS AND UNCERTAINTIES:
The Plan provides for various investments in registered investment
companies, common stock, and a common/collective trust. 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.
6. PARTY-IN-INTEREST TRANSACTIONS:
The Plan invests in shares of common stock of the Company. As the
Company is the Plan's administrator and sponsor, these transactions
qualify as party-in-interest transactions. In addition, the Plan
invests in shares of registered investment companies managed by
Vanguard. As Vanguard is the Trustee of the Plan, these transactions
qualify as party-in-interest transactions.
<PAGE> 11
7. INVESTMENTS:
Individual investments which exceed five percent of net assets
available for Plan benefits as of December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ------------------------
<S> <C> <C>
VMMR Prime Portfolio Fund $34,167,857 $28,655,784
Vanguard PRIMECAP Fund 33,949,311 22,896,280
Vanguard Index 500 Portfolio Fund 26,603,908 19,226,409
Vanguard Wellington Fund 24,308,035 24,447,925
Smith International, Inc. Common Stock 23,848,041 13,174,240
Vanguard Windsor Fund 12,170,004 12,534,678
Participant Loans 8,739,968 8,927,383
</TABLE>
8. NON-EXEMPT TRANSACTIONS:
For the year ended December 31, 1999, due to system delays, a contribution
was not remitted to the Plan 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,
this transaction represents a non-exempt transaction between the Company
and the Plan as identified in Schedule II.
9. SUBSEQUENT EVENT:
In January 2000, the Company acquired Texas Mill Supply and Manufacturing,
Inc. The impact of this transaction on the Plan has not been determined.
<PAGE> 12
SCHEDULE I
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SHARES
IDENTITY OR CURRENT
OF ISSUE DESCRIPTION PRINCIPAL AMOUNT COST VALUE
--------------------------------------- ------------------------------------------------- ---------------- ---- -----------
<S> <C> <C> <C> <C>
*Vanguard Group of Investment Companies VMMR Prime Portfolio Fund 34,167,857 (a) $34,167,857
*Vanguard Group of Investment Companies Vanguard PRIMECAP Fund 546,952 (a) 33,949,311
*Vanguard Group of Investment Companies Vanguard Wellington Fund 896,386 (a) 24,308,035
*Vanguard Group of Investment Companies International Growth Portfolio Fund 245,545 (a) 5,522,310
*Smith International, Inc. Smith International, Inc. Common Stock 479,961 (a) 23,848,041
*Vanguard Group of Investment Companies Vanguard Windsor Fund 802,242 (a) 12,170,004
*Vanguard Group of Investment Companies Long-Term Corporate Bond Fund 325,923 (a) 2,643,232
*Vanguard Group of Investment Companies Vanguard Index 500 Portfolio Fund 196,585 (a) 26,603,908
*Dreyfus-Certus Dreyfus-Certus Stable Value Fund 1,730,536 (a) 1,730,536
*Smith International, Inc Loans Receivable from Participants $8,739,968 (a) 8,739,968
401(k) Retirement Plan (Highest and lowest interest rates are 12.0%
and 7.0%) ------------
Total assets held for investment purposes $173,683,202
============
</TABLE>
---------------
*Identified party in interest
(a) Cost omitted for participant - directed investments.
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SCHEDULE II
SMITH INTERNATIONAL, INC. 401(k) RETIREMENT PLAN
SCHEDULE OF NON-EXEMPT TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
RELATIONSHIP TO PLAN DESCRIPTION OF TRANSACTIONS INCLUDING INTEREST
IDENTITY OF EMPLOYER OR OTHER MATURITY DATE, RATE OF INTEREST, AMOUNT INCURRED
PARTY INVOLVED PARTY IN INTEREST COLLATERAL AND MATURITY VALUE LOANED ON LOAN
---------------------------- ------------------------- ---------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Smith International, Inc. 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 January 29, 1999 $350,766 $262
contributions, due February 22, 1999,
received February 23, 1999, Interest
at 27.298% per annum.
</TABLE>
NOTE: The above interest amounts were subsequently remitted to the Plan by the
Employer.
<PAGE> 14
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 26, 2000
SMITH INTERNATIONAL, INC.
401(k) RETIREMENT PLAN
By: Administrative Committee for
the Smith International, Inc.
Retirement Plan
By: /s/ Neal S. Sutton
Neal S. Sutton, Member
By: /s/ Vivian M. Cline
Vivian M. Cline, Member
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
23.1 Consent of Independent Public Accountants
