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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18312
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TUBOSCOPE INC.
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(Exact name of registrant as specified in its charter)
Delaware 76-0252850
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2835 Holmes Road, Houston, Texas 77051
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(Address of principal executive offices) (Zip Code)
(713) 799-5100
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(Registrant's telephone number, including area code)
None
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(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
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The Registrant had 44,187,480 shares of common stock outstanding as of
September 30, 1997.
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TUBOSCOPE INC.
INDEX
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION
Page No.
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Item 1. Financial Statements:
<S> <C>
Consolidated Balance Sheets -
September 30, 1997 (unaudited) and December 31, 1996 2
Unaudited Consolidated Statements of Operations -
For the Three and Nine Months Ended September 30, 1997 and 1996 3
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1997 and 1996 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
Part II - OTHER INFORMATION
Page No.
---------
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>
TUBOSCOPE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
(Unaudited)
(In thousands)
A S S E T S
-----------
Current assets:
Cash and cash equivalents................................................................... $ 13,585 $ 10,407
Accounts receivable, net.................................................................... 133,221 96,083
Inventory, net.............................................................................. 68,646 47,170
Deferred income taxes....................................................................... 1,400 776
Prepaid expenses and other.................................................................. 15,097 11,797
-------- --------
Total current assets...................................................................... 231,949 166,233
-------- --------
Property and equipment:
Land, buildings and leasehold improvements.................................................. 77,847 73,499
Operating equipment and equipment leased to customers....................................... 199,244 167,440
Accumulated depreciation and amortization................................................... (75,697) (59,559)
-------- --------
Net property and equipment................................................................ 201,394 181,380
Identified intangibles, net................................................................... 22,835 22,583
Goodwill, net................................................................................. 186,322 132,125
Other assets, net............................................................................. 2,694 2,844
-------- --------
Total assets.............................................................................. $645,194 $505,165
======== ========
L I A B I L I T I E S A N D E Q U I T Y
-----------------------------------------
Current liabilities:
Accounts payable............................................................................ $ 43,815 $ 28,896
Accrued liabilities......................................................................... 65,248 41,554
Income taxes payable........................................................................ 9,813 4,876
Current portion of long-term debt and short-term borrowings................................. 32,751 16,514
-------- --------
Total current liabilities............................................................... 151,627 91,840
Long-term debt................................................................................ 176,393 168,229
Pension liabilities........................................................................... 9,502 9,846
Deferred taxes payable........................................................................ 23,108 15,364
Other liabilities............................................................................. 1,915 984
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Total liabilities....................................................................... 362,545 286,263
-------- --------
Common stockholders' equity:
Common stock, $.01 par value, 60,000,000 shares authorized, 44,187,480 shares
issued and outstanding (41,612,495 at December 31, 1996).................................. 442 416
Paid-in capital............................................................................. 293,559 261,932
Retained earnings (deficit)................................................................. (6,366) (42,949)
Cumulative translation adjustment........................................................... (4,986) (497)
-------- --------
Total common stockholders' equity....................................................... 282,649 218,902
-------- --------
Total liabilities and equity............................................................ $645,194 $505,165
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
2
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TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------------
1997 1996 1997 1996
------------ ------------ -------------- ---------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Revenue $ 141,411 $ 94,672 $ 372,907 $ 236,333
Costs and expenses:
Costs of services and products sold.................. 95,925 66,537 252,777 167,852
Goodwill amortization................................ 1,424 828 3,738 1,691
Selling, general, and administration................. 13,424 10,807 37,440 26,592
Research and engineering costs....................... 2,858 995 7,844 2,760
Write-off of long-term assets........................ -- -- -- 63,061
Drexel transaction costs............................. -- 100 -- 11,306
----------- ----------- ----------- -----------
113,631 79,267 301,799 273,262
----------- ----------- ----------- -----------
Operating profit (loss)................................ 27,780 15,405 71,108 (36,929)
Other expense (income):
Interest expense..................................... 3,608 3,574 10,698 9,584
Interest income...................................... (75) (38) (198) (169)
Foreign exchange..................................... 163 284 480 (61)
Other, net........................................... 15 377 1,246 1,201
----------- ----------- ----------- -----------
Income (loss) before income taxes...................... 24,069 11,208 58,882 (47,484)
Provision for income taxes............................ 9,032 4,412 22,299 2,496
----------- ----------- ----------- -----------
Net income (loss)...................................... $ 15,037 $ 6,796 $ 36,583 $ (49,980)
=========== =========== =========== ===========
Earnings (loss) per common share....................... $ 0.32 $ 0.16 $ 0.80 $ (1.44)
=========== =========== =========== ===========
Weighted average number of common shares outstanding... 46,972,954 42,799,896 45,597,934 34,630,042
=========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
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TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
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<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net income (loss)................................................... $ 36,583 ($49,980)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 18,904 12,095
Provision for losses on accounts receivable...................... 1,964 336
Provision for inventory reserve................................... 1,750 --
Provision for deferred income taxes............................... 9,192 (7,742)
Employee savings plan expense funded by issuance of common stock.. 478 182
Write-off of long-term assets..................................... -- 63,061
Changes in assets and liabilities, net of effects of
acquired companies:
Accounts receivable....................................... (29,537) (5,681)
Inventory................................................. (18,767) (3,513)
Prepaid expenses and other assets......................... (4,798) (3,437)
Accounts payable, accrued liabilities, and other.......... 15,111 (2,196)
Federal and foreign income taxes payable.................. 3,307 2,408
Pension liabilities....................................... (334) (627)
-------- ---------
Net cash provided by operating activities......................... 33,853 4,906
-------- ---------
Cash flows used in investing activities:
Capital expenditures................................................ (21,722) (13,482)
Proceeds from sale/leaseback transaction............................ -- 2,973
Net assets of acquired companies, net of cash acquired.............. (30,625) (35,500)
Other............................................................... (2,067) (1,082)
-------- ---------
Net cash used in investing activities............................. (54,414) (47,091)
-------- ---------
Cash flows provided by financing activities:
Borrowings under financing agreements............................... 38,782 83,367
Principal payments under financing agreements....................... (21,249) (70,289)
Net cash received in Drexel Merger.................................. -- 2,101
Net cash received in FGS Acquisition................................ 1,734 --
Proceeds from sale of common stock and warrants..................... 4,472 30,914
Dividends paid on Redeemable Series A Convertible Preferred Stock... -- (175)
-------- ---------
Net cash provided by financing activities......................... 23,739 45,918
-------- ---------
Net increase in cash and cash equivalents............................. 3,178 3,733
Cash and cash equivalents:
Beginning of period................................................. 10,407 9,394
-------- ---------
End of period....................................................... $ 13,585 $ 13,127
======== =========
Supplemental disclosure of cash flow information:
Cash paid during the nine month period for:
Interest.......................................................... $ 9,052 $ 6,924
======== =========
Taxes............................................................. $ 9,834 $ 8,029
======== =========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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TUBOSCOPE INC.
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 1997 and 1996
and as of December 31, 1996
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 of 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 1996 Form 10-K, filed under the Securities
Exchange Act of 1934 (Commission File No. 0-18312).
2. Inventory
At September 30, 1997 inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Components, subassemblies, and expendable parts....... $ 38,479
Equipment under production............................ 30,167
--------
$ 68,646
</TABLE>
3. Senior Credit Agreement and Dividend Restrictions
The Company's Senior Credit Agreement restricts the Company from paying
dividends on its capital stock until all mandatory prepayments have been
made from excess cash flow (as defined in the Credit Agreement) and the
total funded debt to capital ratio (as defined in the Credit Agreement) is
not greater than 40%. The Company's total funded debt to capital ratio
(calculated as defined under the Credit Agreement) was 42.7% at September
30, 1997.
4. Acquisition of Fiber Glass Systems, Inc.
On March 7, 1997, the Company acquired Fiber Glass Systems, Inc. ("FGS"), a
manufacturer of premium fiberglass tubulars used in corrosive oilfield
applications, for an aggregate purchase price of $32,671,283, which
aggregate purchase price includes consideration that may be received
pursuant to certain earnout provisions (relating to FGS' fiscal 1997
performance). The $32,671,283 aggregate purchase price includes (i)
1,689,542 shares of Common Stock of the Company valued at $13.00 per share
and $906,869 in cash and (ii) the right to receive up to an additional
726,316 shares of Common Stock of the Company and $355,260 in cash,
contingent upon the realization of such earnout provisions. The potential
earnout of $9,797,355 was accrued as part of the purchase price at
September 30, 1997.
5. Recent Acquisitions
The Company has continued its strategic plan of executing consolidating
acquisitions and adding related strategic products and services by recently
completing one equity investment and six acquisitions.
In June 1997, the Company acquired an equity investment in American Rodco,
Inc., a Houston based provider of sucker rod inspection and reclamation
services in the oilfield industry.
5
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In July 1997, the Company acquired the following entities:
South West Centrifuge, Inc., a Houston based provider of new and
refurbished centrifuges.
Gator Hawk, Inc. ("Gator Hawk"), a Houston based provider of external
hydrostatic testing of tubular connections in the United States.
Enaco Group, PLC, a UK based provider of solids control equipment, liner
hangers, and rented pumps to the North Sea market.
Fisher Fluids Processing Inc., a Canadian based provider of solids control
services.
In August 1997, the Company acquired Cut-Rite Tubular Services Ltd. ("Cut-
Rite"), an oilfield tubular inspection company in the Western Canadian market.
In September 1997, the Company acquired the tubular inspection division of
Proserve A/S, a Norwegian based oilfield tubular inspection company.
The combined purchase price for these acquisitions was approximately
$32,100,000 ($30,625,000 in cash and $1,475,000 in notes payable). In
addition, the Company assumed debt of approximately $300,000.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
- ---------------------
Revenue. Revenue was approximately $141.4 million and $372.9 million for the
third quarter and first nine months of 1997, respectively, representing
increases of $46.7 million (49%) and $136.6 million (58%) from the same periods
of 1996, respectively. The increases were primarily due to seven 1996
acquisitions and seven 1997 acquisitions, as well as increased activity levels
in several of the Company's markets. The most significant acquisition was the
merger with D.O.S. Ltd. ("Drexel") which was completed effective as of April 1,
1996, (the "Drexel Merger"). Oil and gas drilling and production activity
increased significantly in the first nine months of 1997 compared to 1996 as
evidenced by increases in the U.S. rig activity (22.3% increase), U.S. workover
activity (7.5% increase), Canada rig activity (37.4% increase), and
international rig activity (2.1% increase). On a pro forma basis for the
effects of the Drexel Merger, revenue was up $101 million (37%) in the first
nine months of 1997 compared to the same pro forma period in 1996.
Revenue from the Company's Tubular Services, comprised of Inspection, Coating,
and Mill Systems and Sales was approximately $60.2 million and $158.6 million
for the three and nine months ending September 30, 1997, respectively. These
results represented increases of $17.7 million (42%) and $29.5 million (23%)
over the prior year periods, respectively. The increases in Tubular Services
revenue was mainly due to significant increases in North America and European
Coating operations and the acquisition of FGS (manufacturer of premium
fiberglass tubulars) which was acquired on March 7, 1997. The fiberglass
manufacturing operation has increased its capacity since the acquisition due to
the expansion of a second manufacturing plant. Inspection revenue was also up
significantly in the third quarter of 1997 over 1996 due to the third quarter
1997 acquisition of Gator Hawk and Cut-Rite and stronger activity in the U.S.
market. In addition, the Company's international inspection activity was also
up in Europe, Latin America, and the Far East.
The Drexel Merger added the rental and sale of Solids Control equipment to the
Company's operations. In addition, the Company completed the acquisition of
four Solids Control related businesses in 1996 and three in the third quarter of
1997. Solids Control operations, which includes the rental and sale of
equipment used in the removal of rock cuttings and other solid contaminants from
the mud used in drilling operations, had revenue of $40.3 million and $107.6
million in the third quarter and first nine months of 1997, respectively. On a
pro forma basis for the Drexel Merger, Solids Control revenue was up $38.6
million (56%) for the first nine months of 1997 compared to the same period of
1996. Third quarter revenue was up $14.8 million (58%) over the same period of
1996. The increase in third quarter and pro forma first nine months of 1997
revenue was due to the acquisitions and increased drilling activity in Canada
and the U.S. gulf coast which resulted in an increase in rental revenue. Rental
revenue also increased due to improved Latin America operations. In addition,
solids control equipment sales were up due to increased demand related to the
higher activity levels.
Coiled Tubing and Pressure Control Products, which were also acquired as part of
the Drexel Merger, contributed revenue of $24.4 million and $61.8 million in
the third quarter and first nine months of 1997. During September 1996, the
Company enhanced its Coiled Tubing and Pressure Control Products operations
through the purchase of S.S.R. (International) Ltd. and Pressure Control
Engineering ("SSR/PCE"). Coiled Tubing and Pressure Control Products include
the sale of coiled tubing units, wire line units, downhole tools and blowout
preventors used in oilfield workover, drilling and production operations. On a
pro forma basis for the Drexel Merger, Coiled Tubing and Pressure Control
Products revenue was up $16.5 million (36%) in the first nine months of 1997 due
to the acquisition of SSR/PCE and an increase in coiled tubing unit sales from
the Company's Hydra Rig operation. Third quarter revenue was up $9.4 million
(62%) over the same period of 1996. An increase in the Company's Hydra Rig
operation led the third quarter increase, especially in the Russia market. In
addition, a full quarter's operation from SSR/PCE (which was acquired in
September 1996) also accounted for a significant portion of the increase.
Pipeline and Other Industrial Services revenue was $16.4 million and $44.8
million for the third quarter and first nine months of 1997, respectively,
representing increase of $4.9 million (42%) and $16.4 million (58%),
respectively, over the same period of 1996. The improvement was mainly due to a
strong North America and Latin America market, the September 1996 acquisition of
Vetco Pipeline Services, Inc., and the successful commercial introduction of
"Tru-Res" (high resolution pipeline inspection unit). In addition, Other
Industrial Services revenue advanced due to increases in Middle East operations.
Gross Profit. Gross profit was approximately $44.1 million (31% of revenue)
and $116.4 million (31% of revenue) for the third quarter and first nine months
of 1997 compared to $27.3 million (29% of revenue) and $66.8 million (28% of
revenue) for the same periods of 1996. The 1996 and 1997 acquisitions accounted
for approximately half of the improvement in gross profit with the remaining
increase coming from internal growth in the Tubular Services, Solids Control,
Coiled Tubing and Pressure Control, and Pipeline product lines as market
conditions in several geographic regions remained favorable for each of these
product lines. The improvement in gross profit percentage
7
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was related to greater revenue from high profit margin product lines, including
Coating, Solids Control, and Pipeline, and lower costs as a result of savings
achieved through the consolidation of several worldwide operating locations and
some price increases.
Selling, General and Administrative Costs. Selling, general and administrative
costs were $13.4 million and $37.4 million in the third quarter and first nine
months 1997, increases of $2.6 million and $10.8 million over the same periods
of 1996, respectively. The increase was due primarily to the 1996 and 1997
acquisitions. As a percent of revenue, selling, general and administrative
costs were 9.4% and 10.0% for the third quarter and first nine months of 1997,
respectively, down from 11.4% and 11.3% from the same periods of 1996,
respectively. Compared to the second quarter of 1997, the third quarter 1997
selling, general and administrative costs was up $.6 million (5%) mainly as a
result of the third quarter 1997 acquisitions.
Research and Engineering Costs. Research and engineering costs were $2.9
million and $7.8 million for the third quarter and first nine months of 1997,
respectively, an increase of $1.9 million and $5.1 million over 1996 levels.
The increase was due primarily to research and engineering projects associated
with the Drexel operations and the other acquisitions completed in 1996 and
1997. The major portion of costs currently incurred is related to the Solids
Control innovations associated with screens, shakers, and centrifuges, the
Company's Tru Res "High Resolution" pipeline tools, and continuing efforts
related to Tubular Services and Coiled Tubing products.
Write-Off of Long-Term Assets. The first quarter 1996 write-off of long-term
assets of $63.1 million included a writedown of approximately $50.8 million
associated with the Company's adoption of SFAS No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and
a decision by management to sell certain assets, primarily as a result of the
Drexel Merger, which resulted in additional write-downs of approximately $12.3
million. There were no similar write-offs in the first nine months of 1997.
Drexel Transaction Costs. The 1996 Drexel transaction costs of $11.3 million
included executive severance costs of $6.4 million associated with former
officers of the Company and consolidation costs of $4.9 million related
primarily to the consolidation of Tuboscope overhead facilities and personnel in
EAME, (Europe, Africa, and Middle East), and the consolidation of certain
operating locations in North America.
Operating Profit. Operating profit was $27.8 million and $71.1 million in the
third quarter and first nine months of 1997 compared to an operating profit of
$15.4 million in the third quarter of 1996 and an operating loss of $36.9
million for the nine months ending September 1996. Excluding the Drexel
transaction costs and the write-off of long-lived assets, operating profit would
have been $15.5 million and $37.4 million in the third quarter and first nine
months of 1996, respectively. The improvement in operating profit was due
mainly to the 1996 and 1997 acquisitions, the operating profit associated with
the additional revenue related to the increased activity level and market share
gains, consolidation savings and minor price increases.
Interest Expense. Interest expense was $3.6 million and $10.7 million in the
three and nine months ended September 30, 1997, respectively, even with the
third quarter of 1996 and up $1.1 million over the first nine months of 1996.
The increase in interest expense for the first nine months of 1997 was due to an
increase in debt as a result of the 1996 and 1997 acquisitions. This increase
was offset somewhat by lower effective interest rates on the outstanding debt
balances as a result of the Company's retirement of its $75 million 10 3/4%
Senior Subordinated Notes. Proceeds from the Company's Senior Term Loan
Facility were used to retire the Senior Subordinated Debt during the fourth
quarter of 1996. In addition, the Company entered into four interest rate swap
transactions in 1996 which effectively hedges $90 million of the Company's
variable interest rate debt - see detailed discussion in Note 7 to the 1996
Consolidated Financial Statements. Also, in May 1997 the Company purchased a
$40 million interest swap agreement which provides protection if interest rates
are greater than 7.77%.
Other Expense (Income). Other expense (income), which includes interest income,
foreign exchange, and other expense (net), resulted in a net expense of $0.1
million and $1.5 million for the three and nine months ending September 30,
1997, respectively, compared to a net expense of $0.6 million and $1.0 million
in the same periods of 1996. Net other expense increased in the first nine
months of 1997 primarily as a result of slight foreign exchange losses in the
first nine months of 1997 compared to foreign exchange gains in 1996.
Provision for Income Taxes. The effective tax rate for the first nine months of
1997 was 37.9%. The Company's effective tax rate is higher than the domestic
rate of 35% due to charges not allowable under domestic and foreign
jurisdictions related to goodwill amortization and foreign earnings subject to
tax rates differing from the domestic rate.
Net Income. The third quarter and first nine months 1997 net income was $15.0
million and $36.6 million, respectively, compared to the third quarter 1996 net
income of $6.8 million and first nine months 1996 net loss of $50.0 million.
The improvement is due to the factors discussed above.
8
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Financial Condition and Liquidity
- ---------------------------------
For the nine months ended September 30, 1997, the Company provided $33.9 million
of cash from operations compared to $4.9 million in the same period of 1996.
Significant uses of cash from operations during the first nine months of 1997
principally related to a $29.5 million increase in accounts receivable, a $18.8
million increase in inventory, and a $4.8 million increase in prepaid expenses
and other assets. These increases in assets were all net of the effects of the
1997 acquisitions. The increase in accounts receivable was primarily the result
of greater revenue in several operations and a slight increase in days sales
outstanding at September 30, 1997 compared to December 31, 1996. Inventory
increased as a result of growing manufacturing operations in several product
lines as work-in-process was up $16.7 million due to equipment orders for third
party sales and internal operations. Prepaid expenses were up due to an
increase in on-going jobs associated with the Pipeline operations and greater
prepaid insurance costs. These increases were offset in part by an increase in
accounts payable and accrued liabilities of $15.1 million (net of effects of
1997 acquisitions) primarily as a result of increases in accrued worker's
compensation and general liability insurance, accrued interest, and trade
accounts payable.
For the nine months ended September 30, 1997, the Company used $54.4 million of
cash in investing activities compared to a usage of $47.1 million in 1996.
Capital spending of $21.7 million was principally related to the Company's
Solids Control operations in the growing Canadian and Latin American regions
and Tubular Services operations in North America.
For the nine months ended September 30, 1997, the Company's financing activities
provided $23.7 million of cash. Net borrowings of $17.5 million, proceeds of
$4.5 million from the sale of common stock, and net cash proceeds of $1.7
million received in the acquisition of FGS accounted for the cash generated from
financing activities.
Current and long-term debt was $209.1 million at September 30, 1997, an increase
of $24.4 million from the $184.7 million outstanding at December 31, 1996. Debt
assumed in the acquisition of FGS of $5.2 million and net borrowings of $27.2
million on the Company's senior term debt, offset by the retirement and payments
on various debt instruments, accounted for the increase. The Company's
outstanding debt at September 30, 1997 consisted of $130.0 million of term loans
due under the Company's Senior Credit Agreement, $58.0 million due under the
Company's $100 million revolving credit facility , $4.6 million assumed in the
acquisition of FGS, $5.0 million of convertible notes related to the acquisition
of Gauthier Brothers, $0.7 million due under the Company's swingline facility,
and other debt of $10.8 million.
At September 30, 1997, the Company had outstanding letters of credit amounting
to approximately $5.3 million. The available facility on the Company's $100
million revolving credit facility and $5 million swingline facility was $37.9
million and $3.1 million, respectively, at September 30, 1997.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings
Per Common Share". This statement required earnings per common share be
reported for basic and dilutive earnings per share. The statement is effective
for periods ending after December 15, 1997. The Company's basic and dilutive
earnings per share for the three and nine months ending September 30, 1997
calculated under the SFAS No. 128 is $0.34 and $0.32 per share, and $0.84 and
$0.80 per share, respectively.
Forward Looking Statements
- --------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The forward looking statements are those that
do not state historical facts and are inherently subject to risk and
uncertainties. The forward-looking statements contained herein are based on
current expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among others, the cyclical
nature of the oilfield services industry, risks associated with the Company's
significant foreign operations, compliance with environmental laws, risks
associated with growth through the acquisitions and other factors discussed in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
under the caption "Factors Affecting Future Operating Results."
9
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Item 6. Exhibits and reports on 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, 1997.
10
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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 11, 1997 /s/ Joseph C. Winkler
- -------------------------------------- ----------------------------------
Joseph C. Winkler
Executive Vice President, Chief
Financial Officer
and Treasurer (Duly Authorized
Officer, Principal Financial
and Accounting Officer)
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
- -------------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
2(a) Agreement and Plan of Merger, dated as of January 3, 1996, among (Note 12)
Tuboscope Vetco International Corporation, Grow Acquisition Limited
and D.O.S. Ltd.
2(b) Share Purchase Agreement dated as of May 31, 1996 between TVI (Note 15)
Wadeco Inc., J & S Hokanson Investments Ltd., John Hokanson,
Douglass Bell, Robert Russell, Richard Rutherford and Wadeco
Oilfield Services Ltd.
2(c) Stock Purchase and Sale Agreement dated as of September 6, 1996 by (Note 16)
and among Tuboscope Pipeline Services, Inc., Vetco Pipeline Services,
Inc., Rauma USA, Inc. and Rauma Corporation
2(d) Addendum No. 1 to Stock Purchase and Sale Agreement dated as of (Note 16)
September 20, 1996 by and among Tuboscope Pipeline Services, Inc.,
Vetco Pipeline Services, Inc., Rauma USA, Inc. and Rauma
Corporation
2(e) Addendum No. 2 to Stock Purchase and Sale Agreement dated as of (Note 16)
September 20, 1996 by and among Tuboscope Pipeline Services, Inc.,
Vetco Pipeline Services, Inc., Rauma USA, Inc. and Rauma
Corporation
3(a) Restated Certificate of Incorporation, dated March 12, 1990. (Note 7)
3(b) Amended and Restated Bylaws. (Note 2)
3(c) Certificate of Designation of Series A Convertible Preferred Stock, (Note 3)
dated October 22, 1991.
3(d) Certificate of Amendment to Restated Certificate of Incorporation (Note 10)
dated May 12, 1992.
3(e) Certificate of Amendment to Restated Certificate of Incorporation (Note 11)
dated May 10, 1994.
3(f) Certificate of Amendment to Restated Certificate of Incorporation (Note 21)
dated April 24, 1996
3(g) Certificate of Amendment to Restated Certificate of Incorporation (Note 22)
dated June 3, 1997
4(a) Stockholders' Agreement, dated May 13, 1988, between the Company, (Note 1)
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) Indenture (including the form of Note), dated as of April 1, 1993, (Note 4)
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.
</TABLE>
12
<PAGE>
<TABLE>
Exhibit No. Description Note No.
- -------------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
4(c) Supplemental Indenture dated as of December 18, 1996, among (Note 19)
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) 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(e) 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(f) 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(g) Secured Credit Agreement, dated August 2, 1996, between Tuboscope (Note 14)
Vetco International Inc., and Drexel Holdings, Inc., and The Chase
Manhattan Bank, N.A., ABN Amro Bank N.V., Houston Agency, and
the other Lenders Party Hereto, and ABN Amro Bank N.V., Houston
Agency as Administrative Agent.
10(a) Savings Investment Plan, dated May 13, 1988, as amended by (Note 1)
First Amendment to Savings Investment Plan.
10(b) Second, Third and Fourth Amendments to Savings Investment Plan. (Note 4)
10(c) Fifth, Sixth and Seventh Amendments to Savings Investment Plan. (Note 8)
10(d) Supplementary Agreement Fixed Rental Scheme, dated May 19, 1989, (Note 1)
between Jurong Town Corporation and AMF Far East Pte. Ltd.
10(e) Description of Life Insurance Plan. (Note 1)
10(f) Amended and Restated Stock Option Plan for Key Employees of (Note 5)
Tuboscope Vetco International Corporation.
10(g) Form of Revised Incentive Stock Option Agreement. (Note 5)
10(h) Form of Revised Non-Qualified Stock Option Agreement. (Note 5)
10(i) Stock Option Plan for Non-Employee Directors of Tuboscope Vetco (Note 6)
International Corporation.
10(j) Amendment to Stock Option Plan for Non-Employee Directors of (Note 6)
Tuboscope Vetco International Corporation.
10(k) Form of Non-Qualified Stock Option Agreement. (Note 6)
</TABLE>
13
<PAGE>
<TABLE>
Exhibit No. Description Note No.
- -------------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
10(l) Employee Qualified Stock Purchase Plan. (Note 8)
10(m) Purchase Agreement, dated as of September 30, 1991, between the (Note 3)
Company and BHI relating to the Vetco Services Acquisition.
10(o) Technology Transfer Agreement, dated as of October 29, 1991, (Note 3)
between Tuboscope Inc. and BHI.
10(p) Lease Agreement with respect to Celle, Germany facility. (Note 3)
10(q) Building Agreement for Land at Jurong, dated May 5, 1983, between (Note 3)
Jurong Town Corporation and Vetco International, Inc.
10(r) Lease between J.G.B. Properties Limited and Vetco Inspection GmbH. (Note 3)
10(s) Eighth and Ninth Amendment to Savings Investment Plan. (Note 9)
10(t) Subscription Agreement, dated as of January 3, 1996, by and between (Note 12)
Tuboscope Vetco International Corporation and SCF-III, L.P.
10(u) Exchange Agreement, dated as of January 3, 1996, among Tuboscope (Note 13)
Vetco International Corporation and Baker Hughes Incorporated.
10(v) Voting Agreement, dated as of January 3, 1996, among Tuboscope (Note 12)
Vetco International Corporation, D.O.S. Ltd., D.O.S. Partners, L.P.,
Panmell (Holdings), Ltd. And Zink Industries Limited.
10(w) Voting Agreement, dated as of January 3, 1996, among D.O.S. Ltd., (Note 12)
Brentwood Associates IV, L.P. and Baker Hughes Incorporated.
10(x) Form of Amended and Restated Executive Agreement. (Note 13)
10(y) Master Lease Agreement, dated December 18, 1995, between the (Note 13)
Company and Heller Financial Leasing, Inc.
10(z) 1996 Equity Participation Plan. (Note 17)
10(aa) D.O.S. Ltd. 1993 Stock Option Plan. (Note 18)
10(bb) Agreement and Plan of Merger dated as of March 7, 1997 by and (Note 20)
among Tuboscope Vetco International Corporation, FGS Acquisition
Corp. and Fiber Glass Systems Inc.
27 Financial Data. Exhibit 27
</TABLE>
- --------------------------------------
Note 1 Previously filed by the Registrant in Registration No. 33-31102 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 2 Previously filed by the Registrant in Registration No. 33-33248 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 3 Previously filed by the Registrant in File No. 33-43525 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 4 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>
Note 5 Previously filed by the Registrant in Registration No. 33-72150 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 6 Previously filed by the Registrant in Registration No. 33-72072 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 7 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.
Note 8 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.
Note 9 Previously filed in the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 and incorporated by reference herein pursuant to
Rule 12b-32 of the Exchange Act.
Note 10 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 11 Previously filed in the Company's Proxy Statement for the 1994 Annual
Meeting of Stockholders and incorporated by reference herein pursuant
to Rule 12b-32 of the Exchange Act.
Note 12 Previously filed in the Company's Current Report on Form 8-K filed on
January 16, 1996 and incorporated by reference herein pursuant to Rule
12b-32 of the Exchange Act.
Note 13 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 14 Previously filed in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 and incorporated by reference herein
pursuant to Rule 12b-32 of the Exchange Act.
Note 15 Previously filed in the Company's Current Report on Form 8-K filed on
June 14, 1996, as amended by Amendment No. 1 on Form 8-K/A filed on
August 2, 1996, and incorporated by reference herein pursuant to Rule
12b-32 of the Exchange Act.
Note 16 Previously filed in the Company's Current Report on Form 8-K filed on
October 7, 1996, as amended by Amendment No. 1 filed on November 12,
1996, and incorporated by reference herein pursuant to Rule 12b-32 of
the Exchange Act.
Note 17 Previously filed by the Company in Registration No. 333-05233 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 18 Previously filed by the Company in Registration No. 333-05237 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 19 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and incorporated by reference
herein pursuant to rule 12b-32 of the Exchange Act.
Note 20 Previously filed in the Company's current report on Form 8-K filed on
March 19, 1997, as amended by Amendment No. 1 filed on May 7, 1997, and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 21 Previously filed by the Company as Appendix E in Registration No. 333-
01869 and incorporated by reference herein pursuant to Rule 12b-32 of
the Exchange Act.
Note 22 Previously filed in the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders and incorporated by reference herein pursuant
to Rule 12b-32 of the Exchange Act.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXTRACTED FROM FORM 10-Q FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,585
<SECURITIES> 0
<RECEIVABLES> 133,221
<ALLOWANCES> 3,729
<INVENTORY> 68,646
<CURRENT-ASSETS> 231,949
<PP&E> 277,091
<DEPRECIATION> 75,697
<TOTAL-ASSETS> 645,194
<CURRENT-LIABILITIES> 151,627
<BONDS> 176,393
0
0
<COMMON> 442
<OTHER-SE> 282,207
<TOTAL-LIABILITY-AND-EQUITY> 645,194
<SALES> 132,972
<TOTAL-REVENUES> 372,907
<CGS> 81,410
<TOTAL-COSTS> 252,777
<OTHER-EXPENSES> 3,738
<LOSS-PROVISION> 1,964
<INTEREST-EXPENSE> 10,698
<INCOME-PRETAX> 58,882
<INCOME-TAX> 22,299
<INCOME-CONTINUING> 36,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,583
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
