<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
--------------------------------------------
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 0-18312
-----------------------------------
TUBOSCOPE VETCO INTERNATIONAL CORPORATION
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0252850
------------------------------ -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2835 Holmes Road, Houston, Texas 77051
-------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(713) 799-5100
------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
--------------------------------------------------------------------------
(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 Registrant had 18,466,763 shares of common stock outstanding as of
September 30, 1994.
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TUBOSCOPE VETCO INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C>
Consolidated Balance Sheets -
September 30, 1994 (unaudited) and December 31, 1993 2
Unaudited Consolidated Statements of Operations -
For the Three and Nine Months Ended September 30, 1994 and 1993 3
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1994 and 1993 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7-9
</TABLE>
Part II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
Exhibit Index 12-15
Appendix A - Financial Data Schedule 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
1
<PAGE>
TUBOSCOPE VETCO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
-------------- -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
A S S E T S
-----------
Current assets:
Cash and cash equivalents $ 5,712 $ 2,492
Accounts receivable, net 48,526 51,037
Inventory, net 10,232 10,573
Deferred federal income taxes 1,963 2,138
Prepaid expenses and other 7,729 6,075
-------- --------
Total current assets 74,162 72,315
-------- --------
Property and equipment:
Land, buildings and leasehold improvements 91,550 82,938
Operating equipment 92,788 95,292
Equipment leased to customers 3,686 2,346
Accumulated depreciation and amortization (41,270) (32,193)
-------- --------
Net property and equipment 146,754 148,383
Identified intangibles, net 32,652 35,150
Goodwill, net 48,465 49,096
Other assets, net 6,031 5,164
-------- --------
Total assets $308,064 $310,108
======== ========
L I A B I L I T I E S A N D E Q U I T Y
-----------------------------------------
Current liabilities:
Accounts payable $ 14,342 $ 19,219
Accrued liabilities 16,866 19,924
Federal and foreign income taxes payable 2,628 2,966
Current portion of long-term debt and short-term borrowings 7,034 24,927
-------- --------
Total current liabilities 40,870 67,036
Long-term debt 120,833 101,489
Pension liabilities 10,891 9,980
Deferred taxes payable 12,685 12,070
Other liabilities 2,637 4,102
-------- --------
Total liabilities 187,916 194,677
-------- --------
Redeemable Series A Convertible Preferred Stock, $.01 par value, 5,000,000 shares
authorized, 100,000 shares issued and outstanding ($10,175,000 aggregate
liquidation preference at September 30, 1994) 10,175 10,175
-------- --------
Common stockholders' equity:
Common stock, $.01 par value, 35,000,000 shares authorized, 18,466,763 shares
issued and outstanding (18,410,053 at December 31, 1993) 184 184
Paid-in capital 115,805 115,668
Retained deficit (4,747) (8,293)
Cumulative translation adjustment (1,269) (2,303)
-------- --------
Total common stockholders' equity 109,973 105,256
-------- --------
Commitments and contingencies
-------- --------
Total liabilities and equity $308,064 $310,108
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
2
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TUBOSCOPE VETCO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Sale of services $ 44,506 $ 45,151 $ 128,590 $ 126,560
Sale of products 4,085 2,871 9,213 4,815
Rental income 862 755 2,420 2,403
----------- ----------- ----------- -----------
49,453 48,777 140,223 133,778
----------- ----------- ----------- -----------
Costs and expenses:
Cost of services sold 33,389 34,397 97,544 97,048
Cost of products sold 2,307 1,503 5,114 2,188
Goodwill amortization 300 294 894 882
Selling, general, and administrative 5,318 8,758 16,464 20,217
Research and engineering costs 682 773 2,235 2,714
Restructuring costs - 13,256 - 13,256
----------- ----------- ----------- -----------
41,996 58,981 122,251 136,305
----------- ----------- ----------- -----------
Operating profit (loss) 7,457 (10,204) 17,972 (2,527)
Other expense (income):
Interest expense 3,169 2,808 8,992 7,877
Interest income (37) (79) (201) (365)
Foreign exchange 130 207 114 290
Other, net 472 710 1,392 1,732
----------- ----------- ----------- -----------
Income (loss) before income taxes and extraordinary item 3,723 (13,850) 7,675 (12,061)
Provision (benefit) for income taxes 1,489 (2,725) 2,840 (2,099)
----------- ----------- ----------- -----------
Net income (loss) before extraordinary item 2,234 (11,125) 4,835 (9,962)
Extraordinary item related to early retirement of
debt, net of income tax benefit of $411,000 in 1994
and $2,421,000 in 1993 - - (764) (4,497)
----------- ----------- ----------- -----------
Net income (loss) 2,234 (11,125) 4,071 (14,459)
Dividends applicable to redeemable preferred stock 175 175 525 525
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock $ 2,059 ($11,300) $ 3,546 ($14,984)
=========== =========== =========== ===========
Earnings (loss) per common share:
Income before extraordinary item and after
deduction of preferred stock dividends $0.11 ($0.61) $0.23 ($0.57)
Extraordinary item - - ($0.04) ($0.25)
----------- ----------- ----------- -----------
Net income (loss) $0.11 ($0.61) $0.19 ($0.82)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 18,449,385 18,423,630 18,436,331 18,332,668
=========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
3
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TUBOSCOPE VETCO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) $ 4,071 $(14,459)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 10,670 10,412
Provision for losses on accounts receivable 63 777
Provision for losses on inventory -- 50
Provision (benefit) for deferred income taxes 790 (6,196)
Employee savings plan expense funded by issuance of Common stock 137 --
Write-off of unamortized debt fees 1,176 2,319
Write-off of fixed assets -- 3,033
Deferred gain on interest swap agreement -- (680)
Changes in assets and liabilities, net of effects of
acquired companies:
Decrease (increase) in accounts receivable 2,448 (5,420)
Decrease in inventory 341 222
Increase in prepaid expenses and other assets (1,683) (2,214)
Increase (decrease) in accounts payable and accrued liabilities (7,935) 15,414
Decrease in federal and foreign income taxes payable (338) (2,548)
Increase (decrease) in other non current liabilities (1,465) 2,428
-------- --------
Net cash provided by operating activities 8,275 3,138
-------- --------
Cash flows used in investing activities:
Capital expenditures (4,299) (5,839)
Net assets of acquired companies, net of cash acquired (182) (811)
Payments on Aberdeen facility -- (6,419)
Other (118) (2,521)
-------- --------
Net cash used in investing activities (4,599) (15,590)
-------- --------
Cash flows provided by financing activities:
Borrowings under financing agreements 65,554 93,956
Principal payments under financing agreements (64,098) (81,490)
Fees associated with Senior Credit Agreement (1,387) --
S-3 filing cost -- (2,357)
Proceeds from sale of Common stock -- 22
Dividends paid on Redeemable Series A Convertible Preferred Stock (525) (525)
-------- --------
Net cash provided by financing activities (456) 9,606
-------- --------
Net increase (decrease) in cash and cash equivalents 3,220 (2,846)
Cash and cash equivalents:
Beginning of period 2,492 5,313
-------- --------
End of period $ 5,712 $ 2,467
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the nine month period for:
Interest $ 6,469 $ 5,539
======== ========
Taxes $ 3,191 $ 4,533
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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TUBOSCOPE VETCO INTERNATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
AND AS OF DECEMBER 31, 1993
1. ORGANIZATION AND BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
The accompanying unaudited consolidated financial statements of the Company and
its wholly-owned subsidiaries have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information in
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to these rules and regulations. The unaudited consolidated
financial statements included in this report reflect all the adjustments which
the Company considers necessary for a fair presentation of the results of
operations for the interim periods covered and for the financial condition of
the Company at the date of the interim balance sheet. Results for the interim
periods are not necessarily indicative of results for the year.
The financial statements included in this report should be read in conjunction
with the audited financial statements and accompanying notes included in the
Company's 1993 Form 10-K, filed under the Securities Exchange Act of 1934
(Commission File No. 0-18312).
2. INVENTORY
At September 30, 1994 inventories consist of the following (in thousands):
Components, subassemblies, and expendable parts. . . . . . . . . $ 7,586
Equipment under production . . . . . . . . . . . . . . . . . . . 2,646
-------
$10,232
=======
3. $75 MILLION 10.75% SENIOR SUBORDINATED NOTES
In April 1993, Tuboscope Vetco International Inc. (TVI), pursuant to a
registration statement on Form S-3 filed with the Securities and Exchange
Commission, sold $75 million of 10.75% Senior Subordinated Notes (Notes). Net
proceeds (after $1.8 million of underwriter fees) of $73.2 million were
received. Substantially all of the net proceeds from the sale of the Notes were
used to redeem all of the outstanding $65.7 million of TVI's 14% Senior
Subordinated Debentures at 107% of their principal amount in May 1993. An
after-tax extraordinary loss of approximately $4.5 million was recognized in the
second quarter of 1993 as a result of this redemption.
The Notes are unconditionally guaranteed by the Company. The Notes are general
unsecured obligations of TVI subordinated to all existing and future senior
indebtedness of TVI.
4. SENIOR CREDIT AGREEMENT
On June 30, 1994, the Company's subsidiaries, TVI, CTI Inspection Services,
Inc. (CTI), and Tuboscope Vetco Capital Corp (TVCC), entered into a new credit
agreement with a group of participating lenders. The agreement included
$23,000,000 in term loan facilities, a $35,000,000 revolving credit facility,
and a $1,000,000 letter of credit facility. These obligations are guaranteed by
the Company and secured by substantially all of the assets of TVI, CTI, TVCC,
Tuboscope Pipeline Services Inc., and Tube-Kote Inc., and the stock of certain
subsidiaries. Proceeds from the new loans were used principally to retire the
debt balances outstanding under the previous senior credit agreement.
The available amount under the revolving credit facility is determined using
the borrowing base, as defined, but not to exceed the maximum commitment of
$35,000,000. The revolving credit agreement expires June 30, 1997. The term
loan facility requires increasing quarterly installments with the initial
payment of $500,000 beginning September 30, 1994 and the final payment due June
30, 2001.
The credit agreement provides for the borrowers to elect interest at a
base rate or a Eurodollar rate, as defined. Interest on the base rate loans
accrue at base rate to base rate plus 1.5%, based on a ratio of total funded
debt to earnings before interest, taxes, extraordinary gains and losses, and
depreciation and amortization. Interest on Eurodollar rate loans accrue at
LIBOR plus 1.0% to LIBOR plus 2.5%, based on a ratio of total funded debt to
earnings before interest, taxes, extraordinary gains and losses, and
depreciation and amortization. Interest is payable on a quarterly basis. The
credit agreement requires an
5
<PAGE>
interest rate cap agreement be maintained beginning no later than six months
from the initial borrowing date for at least $15,000,000 of the term loans and
to maintain such protection for a period of not less than three years.
An after-tax extraordinary loss of $764,000 was incurred in the second quarter
of 1994 as a result of the early retirement of debt under the previous senior
credit agreement and related write-off of unamortized debt fees.
5. 1994 AND 1993 ACQUISITIONS
On October 7, 1994, TVI acquired all the manufacturing and inspection equipment
and inventory of NDT Systems, Inc. and certain related companies, (NDT), for
$4,000,000. NDT manufactures and sells equipment used in the inspection of oil
country tubular goods and provides oilfield inspection services in the United
Kingdom.
In the first quarter of 1993, the Company acquired certain tubular inspection
assets of DJ Inspection Services, Inc. (DJ) headquartered in Houston, Texas for
approximately $600,000 in cash and the assumption of approximately $1,850,000 in
lease obligations payable over five years. In addition, in April 1993 the
Company acquired all of the outstanding capital stock of CTI, an above ground
storage tank inspection business headquartered in Northern California for stock
of the Company worth approximately $1.9 million and $200,000 in cash. Similar
to that used by the Company in its Oilfield Services Inspection Services, CTI
uses electromagnetic flux and ultrasonic technology in its inspection process.
6. DIVIDEND RESTRICTIONS
TVI's senior credit agreement and the Notes restrict the ability of TVI to
dividend or otherwise make distributions to the Company. The terms of the
Company's Series A Convertible Preferred Stock restrict the ability of the
Company to pay dividends on its Common Stock.
7. INSURANCE SETTLEMENT
Subsequent to September 30, 1994, the Company reached an agreement to settle an
outstanding insurance claim for $1,600,000. After providing for legal costs and
income taxes, the Company expects the settlement to increase net income in the
fourth quarter by approximately $900,000.
8. SUMMARIZED FINANCIAL INFORMATION OF REGISTRANT (TVI)
The following is summarized balance sheet information for TVI as of
September 30, 1994 and December 31, 1993 and summarized statements of operation
for TVI for the nine months ended September 30, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
SUMMARIZED BALANCE SHEETS
September 30, December 31,
ASSETS 1994 1993
------ ------------- -------------
<S> <C> <C>
Current assets............................................. $ 73,787 $ 77,637
Noncurrent assets.......................................... 224,394 228,926
-------- --------
Total assets............................................. $298,181 $306,563
======== ========
LIABILITIES AND EQUITY
----------------------
Current liabilities........................................ $ 38,367 $ 64,771
Noncurrent liabilities..................................... 139,312 126,046
Stockholders' equity....................................... 120,502 115,746
-------- --------
Total liabilities and equity............................. $298,181 $306,563
======== ========
Nine Months Ended
SUMMARIZED STATEMENTS OF OPERATION September 30,
-------------
1994 1993
-------- -------
Revenue.................................................... $137,855 $132,125
======== ========
Operating profit (loss).................................... $ 18,525 $ (2,239)
======== ========
Income (loss) before income taxes and extraordinary item... $ 8,055 $(11,722)
======== ========
Net income (loss).......................................... $ 4,451 $(14,272)
======== ========
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
RESULTS OF OPERATIONS
- ---------------------
Revenue. Revenue was approximately $49.5 million and $140.2 million for the
third quarter and first nine months of 1994, respectively, increases of 1% and
5% over the same periods of 1993.
Revenue from the Company's Oilfield Services, comprised of Inspection and
Coating, was approximately $36.4 million and $103.8 million for the third
quarter and nine months ending September 30, 1994. These results represented
increases of $4.1 million (or 13%) and $9.9 million (or 11%) compared to the
third quarter and first nine months of 1993, respectively. Inspection revenue
for the third quarter of 1994 was up $2.6 million (or 12%) due to a $2.0 million
(or 18%) increase in International Inspection revenue and a $535,000 (or 5%)
increase in North America Inspection revenue. International Inspection revenue
increased due to $4.0 million in Algerian equipment sales. Excluding the
Algerian equipment sales, International Inspection revenue would have declined
$2.0 million (or 17%) mainly due to lower European and Japan inspection
activity, as evidenced by a 7% decrease in the average international rig count
during the third quarter of 1994 compared to the third quarter of 1993, and
lower steel mill activity. North America Inspection revenue increased due to a
3% increase in the average North America rig count, primarily in Canada.
Coating revenue for the third quarter of 1994 was up $1.5 million (or 15%) due
to a $1.1 million (or 37%) increase in International Coating revenue and a
$405,000 (or 6%) increase in North America Coating revenue. International
Coating revenue increased due to the start-up of the Company's Aberdeen Coating
facility in the third quarter of 1993 and improved market conditions in the
North Sea and Far East. North America Coating revenue increased as a result of
greater revenue from the Company's Canadian Coating operation in Nisku,
increased activity in Louisiana related to an increase in gas wells, and greater
drill pipe coating revenue in Houston.
Industrial Inspection revenue was $4.5 million and $12.9 million for the third
quarter and first nine months of 1994, a decline of $852,000 (or 16%) and $2.2
million, (or 15%) respectively, compared to the same periods in 1993. The third
quarter and year-to-date decline was primarily due to lower activity in the
Middle East associated with reduced work and delayed projects in Saudi Arabia.
The Company expects the decline in Middle East activity to continue in the
fourth quarter of 1994.
Pipeline Services revenue was $5.4 million and $13.7 million in the third
quarter and first nine months of 1994, down $343,000 (or 6%) and $694,000 (or
5%) from the third quarter and first nine months of 1993. The third quarter
decline was due to a decrease in revenue from Middle East operations compared to
the third quarter of 1993. Pipeline services revenue for the fourth quarter of
1994 is expected to be greater than each of the first three quarters of 1994 and
the fourth quarter of 1993. Pipeline revenue is usually highest in the fourth
quarter and current backlog orders are higher than normal.
Mill System and Sales revenue was $1.0 million and $5.1 million for third
quarter and nine months ended September 30, 1994, respectively, compared to $3.7
million and $7.2 million in the same periods of 1993. During the third quarter
of 1993, the Company completed the sale and shipment of a Mill unit to Romania
for $2.4 million. There were no similar mill sales in 1994.
Other revenue was $2.2 million and $4.7 million for the third quarter and first
nine months of 1994, compared to $1.6 million and $3.2 million, respectively, in
the same periods last year. Other revenue included $745,000 and $2.4 million
from the Company's tank inspection business for the three month and nine months
ended September 30, 1994. This revenue resulted from the acquisition of CTI
Inspection Services Inc. (CTI), which occurred in the second quarter of 1993.
CTI Inspection Services revenue was $936,000 in the third quarter of 1993. The
main reason for the increase in other revenue was due to Environmental Services
revenue in Alaska during the third quarter of 1994, with no corresponding
revenue in 1993.
Gross Margin and Gross Profit. Gross profit was approximately $13.5 million
(27.2%) and $36.7 million (26.2%) for the third quarter and first nine months of
1994, respectively, compared to $12.6 million (25.8%) and $33.7 million (25.1%)
for the third quarter and first nine months of 1993, respectively. The quarter
and year-to-date improvement in gross profit was due to greater revenue and to
cost savings as a result of the restructuring plan implemented in the third
quarter of 1993. Gross margins (defined as revenue minus variable expense) were
45.0% for the third quarter of 1994 compared to 45.6% for the same period of
1993. The decline in gross margin percentage was due to cost increases related
to a change in blasting material used by the Company's coating operations, lower
margins on Algerian equipment sales, and higher costs associated with Pipeline
work in the Middle East.
7
<PAGE>
Selling, General and Administrative Costs. Selling, general and administrative
expense was approximately $5.3 and $16.5 million for the three and nine months
ended September 30, 1994. These results represented decreases of $3.4 million
and $3.8 million, respectively, compared to the same periods of 1993. The third
quarter and first nine months of 1993 included bad debt reserves of $934,000 and
litigation costs of $1.4 million. Excluding these items, selling, general and
administrative expense decreased $1.1 million and $1.4 million for the third
quarter and first nine months of 1994, respectively. The decrease was due
primarily to cost reductions achieved through the restructuring plan implemented
during the third quarter of 1993.
Research and Engineering Costs. Research and engineering costs were $682,000
and $2.2 million for the third quarter and first nine months of 1994, a decrease
of $91,000 and $479,000 respectively, compared to the same periods in 1993. The
year-to-date decrease was mainly due to work performed during the second quarter
of 1994 by the Mill engineering group on manufacturing projects associated with
the sale or lease of the Rotary UT unit as compared to research and engineering
expense projects in the second quarter of 1993, and cost reductions implemented
in the third quarter of 1993.
Restructuring Costs. The Company incurred $13.3 million of restructuring costs
in the third quarter of 1993 in response to a decline in international drilling
activity and heavy discounting in the domestic markets. Restructuring costs
were principally related to the Company's international operations as
international overhead personnel was reduced significantly. The Company also
accrued for costs associated with consolidating certain international and
domestic facilities. North America headcount (fixed costs personnel) was also
reduced as part of the restructure.
Operating Profit. Operating profit was $7.5 million and $18.0 million for the
three and nine months ended September 30, 1994 compared to operating losses of
$10.2 million and $2.5 million, respectively, for the same periods of 1993.
Operating profit improvement was mainly related to the 1993 restructuring costs,
a decline in fixed costs (both from operations and selling, general, and
administrative costs) associated with the third quarter 1993 restructuring plan,
and an increase in revenue primarily associated with the Algerian equipment
sale.
Interest Expense. Interest expense was $3.2 million and $9.0 million for the
third quarter and first nine months of 1994, increases of $361,000 and $1.1
million compared to the same periods of 1993. The increase was mainly due to
greater debt associated with the completion of financing for the Aberdeen
inspection and coating facility in the first quarter of 1994.
Other Expense (Income). Other expense was $472,000 and $1.4 million for the
three and nine months ended September 30, 1994, decreases of $238,000 and
$340,000 compared to the three and nine months ended September 30, 1993. The
decrease was mainly associated with lower debt fee amortization associated with
the Company's senior debt.
Provision for Income Taxes. The Company's effective tax rate for the third
quarter and first nine months of 1994 was 40% and 37%, respectively. The
increase in the third quarter rate relates to greater earnings in high tax
jurisdictions, particularly Canada and Germany.
Extraordinary Item, Net of Income Tax Effect. On June 30, 1994, refinancing of
TVI's senior secured term loan and revolving credit facility was completed. The
refinancing and related early retirement of existing senior debt resulted in an
extraordinary after-tax charge of $764,000 associated with the write-off of
unamortized debt fees in the second quarter of 1994.
On April 16, 1993, TVI completed its registration and sale of $75 million of
10.75% Senior Subordinated Notes (Notes) due 2003. Substantially all of the net
proceeds from the sale of the Notes were used to redeem all of the $65.7 million
of 14% Senior Subordinated Debentures due 1998, which were called at 107% of the
principal balance on May 3, 1993. An extraordinary after tax charge of $4.5
million was recognized in the second quarter of 1993 due to the write-off of
fees and the call premium associated with the retirement of the $65.7 million
14% debentures.
Net Income (Loss). Net income was $2.2 million and $4.8 million for the third
quarter and first nine months of September 30, 1994 compared to a net loss of
$11.1 million and $14.5 million, respectively, in the same periods of 1993. The
increase is attributable to the items discussed above.
8
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Working capital was approximately $33.4 million at September 30, 1994, an
increase of $28.1 million from $5.3 million at December 31, 1993. The increase
in working capital was mainly due to refinancing of TVI's Senior secured term
loan and revolving credit facility in the second quarter of 1994. Primarily as
a result of the refinancing, the current portion of long-term debt was reduced
by $17.9 million, from $24.9 million at December 31, 1993 to $7.0 million at
September 30, 1994. Working capital was also up due to a $3.2 million increase
in cash, $1.6 million increase in prepaid expenses, and a $7.9 million decrease
in accounts payable and accrued liabilities. The components of the increase in
cash are detailed in the consolidated statements of cash flows. The increase in
prepaid expense was mainly due to an increase in prepaid insurance. Accounts
and accrued liabilities decreased mainly as a result of severance payments in
the first nine months of 1994, and a reduction in bank overdrafts. These
increases in working capital accounts were partially offset by a $2.5 million
decrease in accounts receivable. Accounts receivable declined primarily due to
improved collection results as days sales outstanding declined during the first
nine months of 1994.
Current and long-term debt was $127.9 million at September 30, 1994, an increase
of $1.5 million from December 31, 1993. The $1.5 million increase was due
primarily to the financing of the Company's Aberdeen facility with a lender for
$7.5 million payable through February 1, 1999, offset by a net decrease in the
revolving line of credit of $4,000,000. The Company's outstanding debt at
September 30, 1994 consisted of approximately $75.0 million of 10.75%
Subordinated Notes, $23.0 million of term loans with the senior lenders, $16.0
million due under the revolving line of credit facility, $2.0 million of
industrial revenue bonds, $2.5 million of notes related to the acquisition of
SOS, $1.1 million of capitalized lease obligations associated with the D J
acquisition, $6.8 million in notes related to the Aberdeen facility, and
approximately $1.5 million of other outstanding debt. There was approximately
$16.9 million of funds available for borrowing at September 30, 1994 under the
revolving line of credit facility. Approximately $3.1 million of this revolving
line of credit was used for outstanding letters of credit at September 30,1994.
The Company made capital expenditures of $4.3 million for the first nine months
of 1994, compared to $5.8 million in the first nine months of 1993. The
Company's planned 1994 capital spending is expected to approximate $6.5 million.
Other. The credit agreement and indenture contain various covenants that limit
the ability of the Company, TVI, and certain subsidiaries to, among other
things, pay dividends, purchase capital stock, incur additional indebtedness,
dispose of assets and transact with affiliates. TVI is also required to
maintain, on a consolidated basis, certain minimum financial ratios, as set
forth in the agreements. In addition to the covenants and financial ratios
mentioned above, the credit agreement contains certain events of default.
Management believes it is in compliance with all covenants in the credit
agreement and indenture.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and reports of Form 8-K
(a) Exhibits -- Reference is hereby made to the Exhibit Index
commencing on page 12.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
10
<PAGE>
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.
TUBOSCOPE VETCO
INTERNATIONAL CORPORATION
-------------------------
(Registrant)
Date: November 10, 1994 /s/ Ronald L. Koons
---------------------- -------------------------------
Ronald L. Koons
Executive Vice President,
Chief Financial Officer
and Treasurer (Duly Authorized
Officer, Principal Financial
and Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
*4(a) Stockholders' Agreement, dated May 13, 1988, between the
Company, Brentwood, Hub, the Management Investors, the Other
Investors, and the Institutional Investors, including the Common
Stock Registration Rights Agreement attached thereto as Exhibit A.
*4(b) Purchase Agreement, dated May 13, 1988, between the Company,
Tuboscope Acquisition Corporation and the purchasers named on
the execution pages thereto.
****4(c) Indenture (including the form of Note), dated as of April 1, 1993,
among Tuboscope Vetco International Inc., the Company and
Norwest Bank Minnesota, National Association, as Trustee,
regarding the 10 3/4% Senior Subordinated Notes due 2003 of
Tuboscope Vetco International Inc.
****4(d) Underwriting Agreement, dated April 8, 1993, among Tuboscope
Vetco International Inc., the Company and the Underwriters.
4(e) Various documentation relating to $1,000,000 Alaska Industrial
Revenue Bond financing. (Not filed herewith pursuant to Item
601(b)(4)(iii) of Regulation S-K. The Company hereby agrees to
furnish copies of relevant documentation to the Securities and
Exchange Commission upon request).
4(f) Various documentation relating to $1,000,000 Wyoming Industrial
Revenue Bond financing. (Not filed herewith pursuant to Item
601(b)(4)(iii) of Regulation S-K. The Company hereby agrees to
furnish copies of relevant documentation to the Securities and
Exchange Commission upon request).
**4(g) Plan of Recapitalization.
4(h) Various promissory notes in the aggregate principal amount of
$4,000,000 relating to the acquisition of Sound Optics Systems,
Inc., dba South Optical Systems, Inc. (Not filed herewith pursuant
to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby
agrees to furnish copies of the relevant documentation to the
Securities and Exchange Commission upon request).
***4(i) Purchase Agreement, dated as of September 30, 1991, between the
Company and BHI Hughes Incorporated relating to Vetco Services
Acquisition.
*****4(j) Secured Credit Agreement, dated June 30, 1994, between
**** Tuboscope Vetco International Inc., CTI Inspection Services Inc.,
Tuboscope Vetco Capital Corp, Tuboscope Vetco International
Corporation and ABN AMRO Bank, N.V., as Agent.
*10(a) Form of Employment Agreement, dated May 13, 1988, between
Tuboscope Inc., the Company and William V. Larkin and
E. Wayne Overman.
*10(b) Savings Investment Plan, dated May 13, 1988, as amended by
First Amendment to Savings Investment Plan.
****10(c) Second, Third and Fourth Amendments to Savings Investment Plan.
</TABLE>
12
<PAGE>
<TABLE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- -------
<C> <S> <C>
****10(d) Fifth, Sixth and Seventh Amendments to Savings Investment Plan.
****
*10(e) Lease Agreement, dated July 1, 1981, between C.M. Thibodaux
Company, Ltd. and AMF Tuboscope, Inc.
*10(f) Lease Agreement between Sam J. Siracusa, John Siracusa, Jr.,
Elizabeth Ann Siracusa, Louis Anthony Siracusa, Philomena
Siracusa Archer, Catherine Agnes Siracusa, Maria Josette Siracusa,
Julie Ann Siracusa, the Succession of Joseph C. Siracusa and AMF
Tuboscope, Inc., as amended by letter agreement among the same
parties, dated June 14, 1989.
*10(g) Agreement to Purchase, Sell and Sublease, dated June 9, 1980,
between Alaska International Construction, Inc. and AMF
Tuboscope, Inc., as amended by letter agreement, dated June 12,
1980 between the same parties.
*10(h) Lease Agreement, dated June 10, 1977, between Batinorest and
A.M.F. France.
*10(i) Supplementary Agreement Fixed Rental Scheme, dated May 19,
1989, between Jurong Town Corporation and AMF Far East Pte.
Ltd.
*10(j) Lease, dated December 13, 1984, between Barclays Nominees
(KWS) Limited and AMF International Limited, as amended by
Transfer of Whole Agreement, dated November 20, 1987, between
AMF International Limited and Tuboscope Limited.
*10(k) Description of Life Insurance Plan.
*****10(l) Amended and Restated Stock Option Plan for Key Employees of
Tuboscope Vetco International Corporation.
*****10(m) Form of Revised Incentive Stock Option Agreement.
*****10(n) Form of Revised Non-Qualified Stock Option Agreement.
******10(o) Stock Option Plan for Non-Employee Directors of Tuboscope Vetco
International Corporation.
******10(p) Amendment to Stock Option Plan for Non-Employee Directors of
Tuboscope Vetco International Corporation.
******10(q) Form of Non-Qualified Stock Option Agreement.
****10(r) Employee Qualified Stock Purchase Plan.
****
*******10(s) Purchase Agreement, dated as of July 20, 1990, by and among Oil
and Gas Manufacturing Company, Inc., F.T. Glascock, Thomas C.
Glascock, J. David Glascock, Hutchison-Hayes International, Inc.,
John F. Joplin, William F. Joplin, Sound Optics Systems, Inc. dba
Sound Optical Systems, Inc. and Tuboscope Inc.
*******10(t) Form of Employment Agreement, dated July 23, 1990, between
Tuboscope Inc. and Thomas Glascock and William Glascock.
</TABLE>
13
<PAGE>
<TABLE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- -------
<C> <S> <C>
***10(u) Purchase Agreement, dated as of September 30, 1991, between the
Company and BHI relating to the Vetco Services Acquisition.
****10(v) Amended and Restated Employment Agreement dated June 23,
**** 1993, between the Company, Tuboscope Vetco International Inc.,
and Martin R. Reid.
***10(w) Technology Transfer Agreement, dated as of October 29, 1991,
between Tuboscope Inc. and BHI.
***10(x) Sublease, dated December 1, 1987, between McDermott
Incorporated and AMF Tuboscope, Inc. as amended by letter
agreement, dated November 10, 1989, between Tuboscope Inc. and
McDermott Incorporated.
***10(y) Letter agreement, dated March 5, 1990 amending the Agreement to
Purchase, Sell and Sublease dated June 9, 1980 between AMF
Tuboscope Inc. and Alaska International Construction, Inc. as
amended June 12, 1980.
***10(z) Employment Agreement, between Vetco Inspection GmbH an
Gerhard A. Hage.
***10(aa) Lease Agreement with respect to Celle, Germany facility.
***10(bb) Building Agreement for Land at Jurong, dated May 5, 1983,
between Jurong Town Corporation and Vetco International, Inc.
***10(cc) Lease Agreement, dated January 1, 1988, between Mohamed
Alhajri Est. and Vetco Saudi Company.
***10(dd) Lease Agreement, dated November 26, 1989, between
Mohammed F. Al-Hajri Est. and Vetco Saudi Arabia Ltd.
***10(ee) Lease between J.G.B. Properties Limited and Vetco Inspection
GmbH.
*****10(ff) Eighth and Ninth Amendment to Savings Investment Plan.
****
27 Financial Data 16
</TABLE>
* Previously filed by the Registrant in Registration No. 33-31102 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
** Previously filed by the Registrant in Registration No. 33-33248 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
*** Previously filed by the Registrant in File No. 33-43525 and incorporated by
reference herein pursuant to Rule 12b-32 of the Exchange Act.
**** Previously filed by the Registrant in Registration No. 33-56182 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
14
<PAGE>
***** Previously filed by the Registrant in Registration No. 33-72150 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
****** Previously filed by the Registrant in Registration No. 33-72072 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
******* Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 and incorporated by reference herein
pursuant to Rule 12b-32 of the Exchange Act.
**** Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and
**** incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
***** Previously filed in the Quarterly Report on Form 10Q for the quarter
ended June 30, 1994 and incorporated by reference **** herein pursuant
to Rule 12b-32 of the Exchange Act.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE EXTRACTED FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30,1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 5,712
<SECURITIES> 0
<RECEIVABLES> 49,397
<ALLOWANCES> 871
<INVENTORY> 10,232
<CURRENT-ASSETS> 74,287
<PP&E> 188,024
<DEPRECIATION> 41,270
<TOTAL-ASSETS> 308,189
<CURRENT-LIABILITIES> 40,870
<BONDS> 120,833
<COMMON> 184
10,175
0
<OTHER-SE> 109,789
<TOTAL-LIABILITY-AND-EQUITY> 308,189
<SALES> 9,213
<TOTAL-REVENUES> 140,223
<CGS> 5,114
<TOTAL-COSTS> 102,658
<OTHER-EXPENSES> 894
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 9,573
<INCOME-PRETAX> 7,675
<INCOME-TAX> 2,840
<INCOME-CONTINUING> 4,835
<DISCONTINUED> 0
<EXTRAORDINARY> (764)
<CHANGES> 0
<NET-INCOME> 4,071
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
