<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 June 30, 1997
---------------------
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 INC.
-----------------------------------------------------------------
(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 43,645,135 shares of common stock outstanding
as of June 30, 1997.
<PAGE>
TUBOSCOPE INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 (unaudited) and December 31, 1996 2
Unaudited Consolidated Statements of Operations -
For the Three and Six Months Ended June 30, 1997 and 1996 3
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1997 and 1996 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 6-9
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
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 INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
(Unaudited)
(In thousands)
A S S E T S
-----------
Current assets:
Cash and cash equivalents......................... $ 11,947 $ 10,407
Accounts receivable, net.......................... 123,304 96,083
Inventory, net.................................... 61,941 47,170
Deferred income taxes............................. 1,315 776
Prepaid expenses and other........................ 15,068 11,797
-------- --------
Total current assets............................ 213,575 166,233
-------- --------
Property and equipment:
Land, buildings and leasehold improvements........ 74,110 73,499
Operating equipment and equipment leased
to customers..................................... 180,163 167,440
Accumulated depreciation and amortization......... (66,339) (59,559)
-------- --------
Net property and equipment...................... 187,934 181,380
Identified intangibles, net......................... 22,273 22,583
Goodwill, net....................................... 164,748 132,125
Other assets, net................................... 2,857 2,844
-------- --------
Total assets.................................... $591,387 $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.................................. $ 37,762 $ 28,896
Accrued liabilities............................... 56,370 41,554
Income taxes payable.............................. 8,823 4,876
Current portion of long-term debt and short-
term borrowings.................................. 25,162 16,514
-------- --------
Total current liabilities....................... 128,117 91,840
Long-term debt...................................... 168,365 168,229
Pension liabilities................................. 9,513 9,846
Deferred taxes payable.............................. 20,292 15,364
Other liabilities................................... 3,265 984
-------- --------
Total liabilities............................... 329,552 286,263
-------- --------
Common stockholders' equity:
Common stock, $.01 par value, 60,000,000
shares authorized, 43,645,135 shares
issued and outstanding (41,612,495 at
December 31, 1996).............................. 436 416
Paid-in capital.................................. 286,358 261,932
Retained earnings (deficit)...................... (21,404) (42,949)
Cumulative translation adjustment................ (3,555) (497)
-------- --------
Total common stockholders' equity.............. 261,835 218,902
-------- --------
Total liabilities and equity................... $591,387 $505,165
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(in thousands, except share and per share data)
Revenue.............................................................. $ 125,995 $ 94,643 $ 231,496 $ 141,661
Costs and expenses:
Costs of services and products sold................................ 84,278 66,144 156,852 101,315
Goodwill amortization.............................................. 1,207 671 2,314 863
Selling, general, and administration............................... 12,845 10,784 24,017 15,785
Research and engineering costs..................................... 2,511 928 4,986 1,765
Write-off of long-term assets...................................... -- -- -- 63,061
Drexel transaction costs........................................... -- 11,206 -- 11,206
---------- ---------- ---------- ----------
100,841 89,733 188,169 193,995
Operating profit (loss).............................................. 25,154 4,910 43,327 (52,334)
Other expense (income):
Interest expense................................................... 3,567 3,415 7,090 6,010
Interest income.................................................... (90) (100) (123) (131)
Foreign exchange................................................... 185 (190) 317 (345)
Other, net......................................................... 776 314 1,231 824
---------- ---------- ---------- ----------
Income (loss) before income taxes.................................... 20,716 1,471 34,812 (58,692)
Provision (benefit) for income taxes................................. 7,769 2,658 13,267 (1,916)
---------- ---------- ---------- ----------
Net income (loss).................................................... 12,947 (1,187) 21,545 (56,776)
Dividends applicable to redeemable preferred stock................... -- (175) -- --
---------- ---------- ---------- ----------
Net income (loss) applicable to common stock........................ $ 12,947 ($1,012) $ 21,545 ($56,776)
========== ========== ========== ==========
Earnings (loss) per common share..................................... $0.28 ($0.02) $0.48 ($1.86)
===== ====== ===== ======
Weighted average number of common shares outstanding................. 45,656,477 42,191,793 44,910,425 30,475,362
========== ========== ========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net income (loss)...................................... $ 21,545 ($56,776)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 11,605 6,960
Provision for losses on accounts receivable.......... 650 36
Provision for losses on inventory.................... 500 --
Provision (benefit) for deferred income taxes........ 4,401 (6,578)
Compensation related to employee 401(K) plan......... 197 126
Write-off of long term assets....................... -- 63,061
Changes in current assets and liabilities, net of
effects of acquired companies:
Accounts receivable................................ (24,436) (12,434)
Inventory.......................................... (14,130) 485
Prepaid expenses and other assets.................. (4,283) (2,119)
Accounts payable and accrued liabilities........... 7,781 7,842
Federal and foreign income taxes payable........... 3,705 (1,033)
Pension liabilities................................ (333) (727)
-------- --------
Net cash provided by (used in) operating activities.... 7,202 (1,157)
-------- --------
Cash flows used in investing activities:
Capital expenditures................................... (12,092) (7,771)
Net assets of acquired companies, net of cash acquired. (400) (19,005)
Other.................................................. (644) (1,292)
-------- --------
Net cash used in investing activities................ (13,136) (28,068)
-------- --------
Cash flows provided by financing activities:
Borrowings under financing agreements.................. 13,000 4,800
Principal payments under financing agreements.......... (9,412) (6,152)
Dividends paid on Redeemable Series A Convertible
Preferred Stock....................................... -- (175)
Net cash received in Drexel Merger..................... -- 2,101
Net cash received in FGS Acquisition................... 1,734 --
Proceeds from sale of Common Stock and warrants....... 2,152 30,609
-------- --------
Net cash provided by financing activities............ 7,474 31,183
-------- --------
Net increase in cash and cash equivalents................ 1,540 1,958
Cash and cash equivalents:
Beginning of period.................................... 10,407 9,394
-------- --------
End of period.......................................... $ 11,947 $ 11,352
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the six month period for:
Interest, net........................................ $ 5,775 $ 5,791
======== ========
Taxes................................................ $ 5,614 $ 5,775
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
TUBOSCOPE INC.
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 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 June 30, 1997 inventories consist of the following (in thousands):
Components, subassemblies, and expendable parts....... $ 33,413
Equipment under production............................ 28,528
-------
$ 61,941
========
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 June 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 has been accrued at
June 30, 1997.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
- ---------------------
Revenue. Revenue was approximately $126.0 million and $231.5 million for the
second quarter and first half of 1997, respectively, representing increases of
$31.4 million (33%) and $89.8 million (63%) from the same periods of 1996,
respectively. The increases were primarily due to seven 1996 acquisitions and
one acquisition which was completed in the first quarter of 1997, and 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 half of 1997 compared
to 1996 as evidenced by increases in the U.S. rig activity (22% increase), U.S.
workover activity (10% increase), Canada rig activity (33% increase), and
international rig activity (3% increase). On a pro forma basis for the effects
of the Drexel Merger, revenue was up $54.2 million (31%) in the first six months
of 1997 compared to the first half of 1996.
Revenue from the Company's Tubular Services, comprised of Inspection, Coating,
and Mill Systems and Sales was approximately $55.0 million and $98.4 million
for the three and six months ending June 30, 1997, respectively. These results
represented increases of $8.2 million (18%) and $11.8 million (14%) over the
prior year periods, respectively. The increase in Tubular Services revenue was
mainly due to significant increases in North America and European Coating
operations and the acquisition of FGS which was completed on March 7, 1997.
Inspection revenue was up slightly from the second quarter of 1996 as increases
in North America inspection operations were offset by lower international
inspection revenue, primarily related to the recently closed Italy and Japan
operations.
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 other Solids Control related businesses in 1996. 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, earned revenue of $34.1 million and $67.3 million in the second
quarter and first half of 1997, respectively. On a pro forma basis for the
Drexel Merger, Solids Control revenue was up $23.8 million (55%) for the first
six months of 1997 compared to the same period in 1996. Second quarter 1997
revenue was up $11.0 million (48%) over the same period of 1996. The increase
in the second quarter and pro forma first half of 1997 was due to the 1996
acquisitions and increased drilling activity in Canada and the U.S. gulf coast
which, along with improved Latin America operations in Venezuela, Argentina, and
Colombia, resulted in an increase in rental revenue. In addition, solids
control equipment sales were up due to increased demand as a result of the
higher activity levels.
Coiled Tubing and Pressure Control Products, which were also acquired as part
of the Drexel Merger, contributed revenue of $20.7 million and $37.4 million in
the second quarter and first half 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 $7.1 million (24%) in the first six months of 1997 due to the acquisition of
SSR/PCE. Second quarter revenue was up $5.6 million (37%) over the same period
of 1996 as a result of the SSR/PCE acquisition and greater coiled tubing unit
sales.
Pipeline and Other Industrial Services revenue was $16.3 million and $28.4
million for the second quarter and first six months of 1997, respectively,
representing an increase of $6.6 million (68%) and $11.5 million (68%),
respectively, over the same period of 1996. The increase was due to greater
revenue from the Company's pipeline inspections operations as a result of large
contracts in Mexico and Argentina. U.S. operations were also strong in the
second quarter of 1997. In addition, the Company completed the acquisition of
Vetco Pipeline Services, Inc. in September 1996.
Gross Profit. Gross profit was approximately $40.5 million (32% of revenue)
and $72.3 million (31% of revenue) for the second quarter and first half of 1997
compared to $27.8 million (29% of revenue) and $39.5 million (28% of revenue)
for the same periods of 1996. The 1996 and 1997 acquisitions accounted for the
majority of the increase in gross profit. The improvement in gross profit
percentage was related to greater revenue from high profit margin product lines,
including Pipeline, Coating and Solids Control, and lower costs as a result of
savings achieved through the consolidation of several worldwide operating
locations and certain minor price increases.
Selling, General and Administrative Costs. Selling, general and administrative
costs were $12.8 million and $24.0 million in the second quarter and first half
of 1997, increases of $2.1 million and $8.2 million over the same periods of
1996, respectively. The increase was
6
<PAGE>
due to the eight acquisitions made in 1997 and 1996. Compared to the first
quarter of 1997, the second quarter 1997 selling, general and administrative
costs was up $1.7 million (15%) due mainly to overhead costs associated with the
operation of FGS and 1997 bonus accruals.
Research and Engineering Costs. Research and engineering costs were $2.5
million and $5.0 million for the second quarter and first half of 1997,
respectively. The increase was due primarily to research and engineering costs
associated with the Drexel operations and the other acquisitions completed in
1996 and 1997. The major portion of costs currently incurred is related to
Solids Control innovations associated with screens and shakers, Solids Control
industrial operations, the Company's Tru Res "High Resolution" pipeline tools,
and continuing engineering efforts related to 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 of
$12.3 million. There were no similar write-offs in the first half of 1997.
Drexel Transaction Costs. The second quarter 1996 Drexel transaction costs of
$11.2 million included executive severance costs of $6.4 million associated with
former officers of the Company and consolidation costs of $4.8 million related
primarily to the consolidation of Tuboscope overhead facilities and personnel in
EAME, and the consolidation of certain operating locations in North America.
Operating Profit. Operating profit was $25.2 million and $43.3 million in the
second quarter and first half of 1997 compared to an operating profit of $4.9
million in the second quarter of 1996 and an operating loss of $52.3 million in
the first six months of 1996. Excluding the Drexel transaction costs and the
write-off of long-lived assets, operating profit would have been $16.1 million
and $21.9 million in the second quarter and first half 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. Operating profit for the fourth quarter of
1996 (excluding the write-off of assets) and first quarter of 1997 was $17.9
million and $18.2 million, respectively. The second quarter 1997 improvement
over fourth quarter 1996 and first quarter 1997 results was due primarily to
greater operating profit from Solids Control, Coating and Pipeline operations.
Interest Expense. Interest expense was $3.6 million and $7.1 million in the
three and six months ended June 30, 1997, respectively, an increase of $.2
million and $1.1 million over the same periods of 1996. The increase in
interest expense was due to an increase in debt as a result of the 1996 and 1997
acquisitions, offset to some degree by lower effective interest rates on the
outstanding debt balance as a result of the Company's retirement of its $75
million 10 3/4% Senior Subordinated Notes with proceeds from its Senior Term
Loan Facility during the fourth quarter of 1996.
Other Expense (Income). Other expense (income), which includes interest income,
foreign exchange, and other expenses (net), resulted in a net expense of $0.9
million in the second three months of 1997 compared to a net expense of $0.1
million in the second quarter of 1996. Net other expense increased primarily as
a result of foreign exchange losses in the second quarter of 1997 compared to
foreign exchange gains in 1996.
Provision for Income Taxes. The effective tax rate for the first half of 1997
was 38%. 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 at rates
differing from the domestic rate.
Net Income. The second quarter and first half 1997 net income was $12.9
million and $21.5 million, respectively, compared to the second quarter and
first half 1996 net loss of $1.2 million and $56.8 million, respectively. The
improvement is due to the factors discussed above.
Financial Condition and Liquidity
- ---------------------------------
For the six months ended June 30, 1997, the Company provided $7.2 million of
cash from operations compared to using $1.2 million in the same period of 1996.
Significant uses of cash from operations during the first six months of 1997
principally related to a $24.4 million increase in accounts receivable, a $14.1
million increase in inventory, and a $4.3 million increase in prepaid expenses
and other assets. These increases in assets were all net of the effect of the
FGS acquisition. The increase in accounts receivable was primarily the result
of greater revenue in several operations and overall higher days sales
outstanding at June 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 $15.1 million due
7
<PAGE>
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
$7.8 million primarily as a result of increases in accrued worker's compensation
and general liability insurance, accrued interest and trade accounts payable. In
addition, current income taxes payable increased due to an increase in operating
profit.
For the six months ended June 30, 1997, the Company used $13.1 million of cash
from investing activities compared to a usage of $28.1 million in 1996.
Capital spending of $12.1 million was principally related to the Company's
Solids Control operations, and concentrated in the growing Canadian and Latin
American regions.
For the six months ended June 30, 1997, the Company's financing activities
provided $7.5 million of cash. Net borrowings of $3.3 million, proceeds of $2.2
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 $193.5 million at June 30, 1997, an increase of
$8.8 million from the $184.7 million outstanding at December 31, 1996. Debt
assumed in the acquisition of FGS of $5.2 million and borrowings of $12.5
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 June 30, 1997 consisted of $130.0 million of term loans due
under the Company's Senior Credit Agreement, $39.0 million due under the
Company's $100 million revolving credit facility, $5.2 million assumed in the
acquisition of FGS, $5.0 million of convertible notes related to the acquisition
of Gauthier Brothers, $3.0 million due under the Company's swingline facility,
$2.5 million related to the acquisition of SSR/PCE, and other debt of $8.8
million.
At June 30, 1997, the Company had outstanding letters of credit amounting to
approximately $5.0 million. The available facility on the Company's $100
million revolving credit facility and $5 million swingline facility was $57.0
million and $1.0 million, respectively, at June 30, 1997.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings
Per Common Share." This statement requires 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 six months ending June 30, 1997 calculated
under SFAS No. 128 is $0.30 and $0.28 per share, and $0.50 and $0.48 per share,
respectively.
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 four 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.
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., 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
equipment.
The combined purchase price for these acquisitions was approximately $25,666,000
($25,016,000 in cash and $650,000 in notes payable). In addition, the Company
assumed debt of approximately $300,000.
8
<PAGE>
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
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held May 19, 1997 for the following
purposes:
1. Proposal one: The election of the members of the Tuboscope Board of
Directors.
<TABLE>
<CAPTION>
Name For Against Broker Non-Votes
- ---- --- ------- ----------------
<S> <C> <C> <C>
Jerome R. Baier 41,272,846 95,240 3,196,193
John F. Lauletta 41,273,846 94,240
J. S. Dickson Leach 41,273,746 94,340
Eric L. Mattson 41,273,846 94,240
Martin R. Reid 41,268,204 99,882
L. E. Simmons 42,014,775 94,340
</TABLE>
2. Proposal Two: Approval of an Amendment to the Company's Certificate of
------------
Incorporation changing the name of the Company to Tuboscope Inc.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
- --- ------- ------- ----------------
<S> <C> <C> <C>
40,931,980 265,875 5,928 3,196,193
</TABLE>
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 June 30,
1997.
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: August 12, 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
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
- ----------- ----------- --------
<S> <C> <C>
2(a) Agreement and Plan of Merger, dated as of January 3, (Note 12)
1996, among Tuboscope Vetco International Corporation,
Grow Acquisition Limited and D.O.S. Ltd.
2(b) Share Purchase Agreement dated as of May 31, 1996 (Note 15)
between TVI 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 (Note 16)
6, 1996 by 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 (Note 16)
dated as of 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 (Note 16)
dated as of 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, (Note 7)
1990.
3(b) Amended and Restated Bylaws. (Note 2)
3(c) Certificate of Designation of Series A Convertible (Note 3)
Preferred Stock, dated October 22, 1991.
3(d) Certificate of Amendment to Restated Certificate of (Note 10)
Incorporation dated May 12, 1992.
3(e) Certificate of Amendment to Restated Certificate of (Note 11)
Incorporation dated May 10, 1994.
4(a) Stockholders' Agreement, dated May 13, 1988, between (Note 1)
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) Indenture (including the form of Note), dated as of (Note 4)
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(c) Supplemental Indenture dated as of December 18, 1996, (Note 19)
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>
<CAPTION>
Exhibit No. Description Note No.
- ----------- ----------- --------
<S> <C> <C>
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 (Note 14)
Tuboscope 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 (Note 1)
by First Amendment to Savings Investment Plan.
10(b) Second, Third and Fourth Amendments to Savings Investment (Note 4)
Plan.
10(c) Fifth, Sixth and Seventh Amendments to Savings Investment (Note 8)
Plan.
10(d) Supplementary Agreement Fixed Rental Scheme, dated May (Note 1)
19, 1989, 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 (Note 5)
of 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 (Note 6)
Tuboscope Vetco International Corporation.
10(j) Amendment to Stock Option Plan for Non-Employee (Note 6)
Directors of Tuboscope Vetco International Corporation.
10(k) Form of Non-Qualified Stock Option Agreement. (Note 6)
10(l) Employee Qualified Stock Purchase Plan. (Note 8)
10(m) Purchase Agreement, dated as of September 30, 1991, (Note 3)
between the Company and BHI relating to the Vetco
Services Acquisition.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
- ----------- ----------- --------
<S> <C> <C>
10(o) Technology Transfer Agreement, dated as of October 29, (Note 3)
1991, 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, (Note 3)
1983, between Jurong Town Corporation and Vetco
International, Inc.
10(r) Lease between J.G.B. Properties Limited and Vetco (Note 3)
Inspection GmbH.
10(s) Eighth and Ninth Amendment to Savings Investment Plan. (Note 9)
10(t) Subscription Agreement, dated as of January 3, 1996, by (Note 12)
and between Tuboscope Vetco International Corporation
and SCF-III, L.P.
10(u) Exchange Agreement, dated as of January 3, 1996, among (Note 13)
Tuboscope Vetco International Corporation and Baker
Hughes Incorporated.
10(v) Voting Agreement, dated as of January 3, 1996, among (Note 12)
Tuboscope 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 (Note 12)
D.O.S. Ltd., 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, (Note 13)
between the 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 (Note 20)
by and 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.
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.
14
<PAGE>
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.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXTRACTED FROM FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,947
<SECURITIES> 0
<RECEIVABLES> 123,304
<ALLOWANCES> 2,670
<INVENTORY> 61,941
<CURRENT-ASSETS> 213,575
<PP&E> 254,273
<DEPRECIATION> 66,339
<TOTAL-ASSETS> 591,387
<CURRENT-LIABILITIES> 128,117
<BONDS> 193,527
0
0
<COMMON> 436
<OTHER-SE> 261,399
<TOTAL-LIABILITY-AND-EQUITY> 591,387
<SALES> 86,067
<TOTAL-REVENUES> 231,496
<CGS> 49,914
<TOTAL-COSTS> 156,852
<OTHER-EXPENSES> 2,314
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 7,090
<INCOME-PRETAX> 34,812
<INCOME-TAX> 13,267
<INCOME-CONTINUING> 21,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,545
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
