<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:
M-I L.L.C. PROFIT SHARING AND SAVINGS 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>
Page
------------
<S> <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
(b) Exhibits:
23.1 - Consent of Independent Public Accountants......................................... 15
</TABLE>
<PAGE> 3
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
Financial Statements
As of December 31, 1999
Together With Auditors' Report
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative 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, 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 schedule referred to below are the
responsibility of the Administrative Committee. Our responsibility is to express
an opinion on these financial statements and supplemental schedule 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 schedule of assets held
for investment purposes as of December 31, 1999 (Schedule I) is presented for
purposes of additional analysis and is not a required part of the basic
financial statements but is 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 schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
June 21, 2000
<PAGE> 5
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS:
Cash, non-interest bearing $ -- $ 51,011
------------ ------------
Investments, at fair value
Registered investment companies 87,480,328 78,154,094
Common/collective trust 14,955,905 12,256,382
Smith International, Inc. common stock 7,515,884 6,072,225
Loans to participants 4,722,553 4,873,121
------------ ------------
Total investments 114,674,670 101,355,822
------------ ------------
Receivables-
Company contributions 866,042 298,296
Participant contributions 266,601 357,682
Other 14,053 126,860
------------ ------------
Total receivables
1,146,696 782,838
------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $115,821,366 $102,189,671
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
M-I L.L.C. PROFIT SHARING AND SAVINGS 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 $102,189,671
ADDITIONS:
Income-
Interest income 1,145,258
Dividend income 6,799,418
Net appreciation in fair value of common stock 5,731,568
Net appreciation in fair value of registered investment companies 2,792,539
------------
Total income 16,468,783
------------
Contributions-
Company, net of forfeitures 3,291,298
Participants 6,169,131
Rollovers 719,800
------------
Total contributions 10,180,229
------------
Total additions 26,649,012
------------
DEDUCTIONS:
Benefits paid to participants 12,986,003
Administrative expenses
31,314
------------
Total deductions 13,017,317
------------
NET ADDITIONS TO NET ASSETS AVAILABLE FOR
PLAN BENEFITS 13,631,695
------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS AT DECEMBER 31, 1999 $115,821,366
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 7
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. In July 1999, Smith transferred a 40 percent interest in the Company to
Schlumberger Limited. 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.
Administration 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 the "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. An employee may
participate in the Plan on the first day of the first month following the date
of hire. There is no minimum age requirement under the Plan.
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 of 1986, as amended, (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 $54,000, the elective
contribution is from 1/2 percent to 10 percent), subject to a maximum amount of
$10,000 during 1999 under Section 402(g) of the Code.
<PAGE> 8
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"). For 1999, the Company made a Basic
Contribution equal to 3 percent of the participant's compensation during the
Plan year and a Matching Contribution equal to 100 percent of the first 1 1/2
percent of a participants' voluntary 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. For 1999, the Company made a Profit Sharing
Contribution equal to one percent of the participant's compensation during the
Plan year, not to exceed the participant's contribution amount.
Vesting
Participants are immediately vested in their 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.
The Plan has certain provisions, which provide for service credit for vesting
and eligibility purposes for all employees who directly transfer employment
between Smith and the Company.
Investment Options
At December 31, 1999 and 1998, the Plan's investments are held in a trust fund
administered by Vanguard Fiduciary Trust Company.
Participants have the option of investing their contributions and the Company's
Basic, Matching and Profit-Sharing Contributions among one or all of the seven
registered investment companies and a common/collective trust offered by the
Vanguard Group of Investment Companies (the "Vanguard Funds") and the common
stock of Smith International, Inc.
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.
Loans
Participants 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.
<PAGE> 9
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 re-employed 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, 1999 and
1998, include forfeited amounts of $93,451 and $311,628, respectively, which are
invested in the VMMR Prime Portfolio Fund. Forfeitures of $31,314 were used to
offset all plan expenses in 1999. Forfeitures of $967,981 were used to reduce
employer contributions in 1999.
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 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.
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 Vanguard
Retirement Savings Trust which is stated at contract value.
The Vanguard Retirement Savings Trust is a common/collective trust investing
primarily in guaranteed investment contracts ("GICS"). The GICS are fully
benefit responsive and are recorded at contract value, which approximates fair
value. Contract value is determined based on contributions made under the
contract plus interest earned at the contract's rate less funds used to pay
investment fees and withdrawals. The effective yield of the collective trust
fund was 5.49 percent for the year ended December 31, 1999.
Investment Income
Net appreciation or depreciation in fair value of registered investment
companies and net appreciation or depreciation in fair value of common stock in
the Statement of Changes in Net Assets Available for Plan Benefits includes the
realized gains or losses on the sale of investments and unrealized appreciation
or depreciation in the fair value of investments.
<PAGE> 10
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.
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.
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. 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 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.
4. RISKS AND UNCERTAINTIES:
The Plan provides for various investments in common stock, registered investment
companies, 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.
5. PARTY-IN-INTEREST TRANSACTIONS:
The Plan invests in shares of common stock of Smith. As Smith is the parent
company of the sponsor, these transactions qualify as party-in-interest
transactions. In addition, the Plan invests in shares of registered investment
companies and a common/collective trust fund managed by Vanguard. As Vanguard is
the Trustee of the Plan, these transactions qualify as party-in-interest
transactions.
<PAGE> 11
6. 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>
Vanguard Wellington Fund $40,721,352 $44,425,622
Vanguard PRIMECAP Fund 16,514,452 8,412,323
Vanguard Retirement Savings Trust 14,955,905 12,256,382
Vanguard Windsor Fund 10,588,516 10,975,908
Vanguard Index 500 Portfolio Fund 10,154,427 6,664,307
Smith International, Inc. Common Stock 7,515,884 6,072,225
VMMR Prime Portfolio Fund 5,971,759 4,190,277
</TABLE>
7. SUBSEQUENT EVENT:
Effective January 1, 2000, the Plan was amended to allow participants to
contribute voluntarily up to 15 percent of their compensation, subject to
certain limitations.
<PAGE> 12
Schedule I
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number of Shares
or
Identity of Issue Description of Investment Principal Amount Cost Current Value
----------------- ------------------------- ---------------- ---- -------------
<S> <C> <C> <C> <C>
*Vanguard Group of Investment Companies VMMR Prime Portfolio Fund 5,971,759 (a) $5,971,759
*Vanguard Group of Investment Companies Vanguard PRIMECAP Fund 266,062 (a) 16,514,452
*Vanguard Group of Investment Companies Vanguard Wellington Fund 1,456,415 (a) 40,721,352
*Vanguard Group of Investment Companies International Growth Portfolio Fund 90,786 (a) 2,041,783
*Smith International, Inc. Smith International, Inc. 151,263 (a) 7,515,884
Common Stock
*Vanguard Group of Investment Companies Vanguard Windsor Fund 697,991 (a) 10,588,516
*Vanguard Group of Investment Companies Long-Term Corporate Bond Fund 183,482 (a) 1,488,039
*Vanguard Group of Investment Companies Vanguard Index 500 Portfolio Fund 75,035 (a) 10,154,427
*Vanguard Group of Investment Companies Vanguard Retirement Savings Trust 14,955,905 (a) 14,955,905
*Smith International, Inc Loans Receivable from Participants $4,722,553 (a) 4,722,553
401 (k) Retirement Plan (Highest and lowest interest rates
are 10.05% and 5.83%) ------------
Total assets held for investment purposes $114,674,670
============
</TABLE>
* Identified as a party
in interest
(a) Cost omitted for participant - directed investments.
<PAGE> 13
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
M-I L.L.C. PROFIT SHARING AND SAVINGS PLAN
By: Administrative Committee for the
M-I L.L.C. Profit Sharing and Savings Plan
By: /s/ Geri D. Wilde
Geri D. Wilde
Assistant Treasurer
<PAGE> 14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
23.1 Consent of Independent Public Accountants
