<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, 1999
-------------------------------------------------
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 44,336,120 shares of common stock outstanding as of
November 5, 1999.
<PAGE>
TUBOSCOPE INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Part I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 1999 (unaudited) and December 31, 1998 2
Unaudited Consolidated Statements of Operations -
For the Three and Nine Months Ended September 30, 1999 and 1998 3
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements 5-10
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
Exhibit Index 17-18
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
1
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
A S S E T S (In thousands)
-----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 6,301 $ 8,735
Accounts receivable, net.............................................. 111,650 123,480
Inventory, net........................................................ 73,192 86,776
Prepaid expenses and other............................................ 8,985 11,477
---------- ---------
Total current assets................................................ 200,128 230,468
---------- ---------
Property and equipment:
Land, buildings and leasehold improvements............................ 89,341 90,041
Operating equipment and equipment leased to customers................. 258,498 248,554
Accumulated depreciation and amortization............................. (109,876) (96,769)
---------- ---------
Net property and equipment.......................................... 237,963 241,826
Identified intangibles, net............................................. 22,019 22,916
Goodwill, net........................................................... 215,019 213,816
Other assets, net....................................................... 3,112 3,146
---------- ---------
Total assets....................................................... $678,241 $712,172
========== =========
L I A B I L I T I E S A N D E Q U I T Y
-----------------------------------------
Current liabilities:
Accounts payable...................................................... $ 25,385 $ 29,914
Accrued liabilities................................................... 41,521 50,719
Income taxes payable.................................................. 5,131 4,430
Current portion of long-term debt and short-term borrowings........... 32,249 31,306
---------- ---------
Total current liabilities........................................... 104,286 116,369
Long-term debt.......................................................... 203,967 219,438
Pension liabilities..................................................... 9,396 9,688
Deferred taxes payable.................................................. 22,122 26,270
Other liabilities....................................................... 2,641 1,333
---------- ---------
Total liabilities................................................... 342,412 373,098
---------- ---------
Common stockholders' equity:
Common stock, $.01 par value, 60,000,000 shares authorized,
45,753,774 shares issued and 44,329,074 shares outstanding
(45,516,010 shares issued and 44,091,310 outstanding at
December 31, 1998)................................................... 458 455
Paid in capital....................................................... 311,820 309,691
Retained earnings..................................................... 49,423 52,100
Accumulated other comprehensive loss.................................. (10,542) (7,842)
Less: treasury stock at cost (1,424,700 shares)....................... (15,330) (15,330)
---------- ---------
Total common stockholders' equity................................... 335,829 339,074
---------- ---------
Total liabilities and equity........................................ $678,241 $712,172
========== =========
</TABLE>
2
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- -------- -------- --------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Revenue............................................. $95,916 $139,759 $283,839 $443,462
Costs and expenses:
Costs of services and products sold.............. 75,773 102,225 223,227 311,567
Goodwill amortization............................ 1,823 1,682 5,441 4,816
Selling, general and administration.............. 11,531 13,059 35,385 41,305
Research and engineering costs................... 2,794 3,225 8,516 9,811
------- -------- -------- --------
91,921 120,191 272,569 367,499
Operating profit.................................... 3,995 19,568 11,270 75,963
Other expense (income):
Interest expense................................. 4,487 4,441 13,549 13,410
Interest income.................................. (105) (165) (279) (449)
Foreign exchange................................. 564 198 (870) 515
Other, net....................................... 374 317 1,038 1,118
------- -------- -------- --------
Income (loss) before income taxes................... (1,325) 14,777 (2,168) 61,369
Provision for income taxes.......................... 182 5,541 509 23,013
------- -------- -------- --------
Net income (loss)................................... $(1,507) $ 9,236 $ (2,677) $ 38,356
======= ======== ======== ========
Earnings (loss) per common share:
Basic earnings (loss) per common share........... $ (0.03) $ 0.21 $ (0.06) $ 0.86
======= ======== ======== ========
Dilutive earnings (loss) per common share........ $ (0.03) $ 0.20 $ (0.06) $ 0.81
======= ======== ======== ========
Weighted average number of common shares
outstanding:
Basic............................................ 44,323,935 44,953,390 44,241,787 44,806,215
========== ========== ========== ==========
Dilutive......................................... 44,323,935 46,489,706 44,241,787 47,585,058
========== ========== ========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---------- -----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................................... $ (2,677) $ 38,356
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization......................................................... 25,816 22,586
Compensation related to employee 401(K) plan.......................................... 917 772
Provision for losses on accounts receivable........................................... 1,257 445
Provision for inventory reserve....................................................... 105 1,082
Provision (benefit) for deferred income taxes......................................... (3,879) 2,420
Changes in assets and liabilities, net of effects of acquired companies:
Accounts receivable............................................................... 10,038 8,877
Inventory......................................................................... 13,667 (15,648)
Prepaid expenses and other assets................................................. 2,273 1,995
Accounts payable and accrued liabilities.......................................... (15,243) (24,214)
Federal and foreign income taxes payable.......................................... 701 (3,254)
--------- ---------
Net cash provided by operating activities............................................. 32,975 33,417
--------- ---------
Cash flows used for investing activities:
Capital expenditures.................................................................... (7,524) (31,341)
Business acquisitions, net of cash acquired............................................. (11,031) (33,943)
Other.................................................................................. (1,997) 834
--------- ---------
Net cash used for investing activities................................................ (20,552) (64,450)
--------- ---------
Cash flows provided by financing activities:
Borrowings under financing agreements................................................... 37,215 164,110
Principal payments under financing agreements........................................... (52,444) (129,432)
Financing costs......................................................................... (775) (588)
Purchase of common stock................................................................ -- (9,812)
Proceeds from sale of common stock, net................................................. 1,147 2,234
--------- ---------
Net cash provided by (used for) financing activities.................................. (14,857) 26,512
--------- ---------
Net decrease in cash and cash equivalents................................................. (2,434) (4,521)
Cash and cash equivalents:
Beginning of period..................................................................... 8,735 12,593
--------- ---------
End of period........................................................................... $ 6,301 $ 8,072
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the nine month period for:
Interest.............................................................................. $ 17,480 $ 13,330
========== =========
Taxes................................................................................. $ 3,067 $ 22,892
========== =========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
TUBOSCOPE INC.
Notes to Unaudited Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 1999 and 1998
and as of December 31, 1998
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,
consisting of normal recurring accruals, 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 Company's 1998 audited consolidated financial statements and
accompanying notes included in the Company's 1998 Form 10-K, filed under the
Securities Exchange Act of 1934, as amended.
2. Inventory
At September 30, 1999 inventories consisted of the following (in thousands):
<TABLE>
<S> <C>
Components, subassemblies, and expendable parts.................. $48,659
Equipment under production....................................... 24,533
-------
$73,192
=======
</TABLE>
3. Senior Credit Agreement and Dividend Restrictions
The Company's Senior Credit Agreement restricts the Company from paying
dividends on its capital stock unless the total funded debt to capital ratio
(as defined in the Senior Credit Agreement) is less than or equal to 40%. The
Company's total funded debt to capital ratio (calculated as defined under the
Senior Credit Agreement) was 41.4% at September 30, 1999.
4. Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" which established new rules for the
reporting and display of comprehensive income. Comprehensive income is defined
by SFAS No. 130 as net income plus direct adjustments to shareholders' equity.
The cumulative translation adjustment of certain foreign entities is the only
such direct adjustment recorded by the Company. Comprehensive income for the
three and nine months ended September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1999 1998 1999 1998
------- -------- -------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Comprehensive income (loss):
Net income (loss).................... $(1,507) $9,236 $(2,677) $38,356
Cumulative translation adjustment.... 1,670 (291) (2,700) (2,886)
Total comprehensive income (loss).... $ 163 $8,945 $(5,377) $35,470
======== ====== ======= =======
</TABLE>
5
<PAGE>
TUBOSCOPE INC.
Notes to Consolidated Financial Statements (cont'd)
5. Business Segments
The Company is organized based on the products and services it offers. Under
this organizational structure, the Company offers four product lines: Tubular
Services, Solids Control Products & Services, Coiled Tubing & Wireline
Products, and Pipeline and Other Industrial Services. Each of the product
lines qualifies as a reportable segment.
Tubular Services: This segment provides internal coating products and
services, inspection and quality assurance services for tubular goods and
fiberglass tubulars. Additionally, Tubular Services includes the sale and
leasing of proprietary equipment used to inspect tubular products at steel
mills. This segment operates in the oilfield tubular markets of North
America, Latin America, Europe, Africa, the Middle East and the Far East.
Customers include major oil and gas companies, independent producers, national
oil companies, drilling contractors, oilfield supply stores and steel mills.
Solids Control Products & Services: This segment consists of the sale and
rental of technical equipment used in, and the provision of services related
to, the separation of drill cuttings (solids) from fluids used in the oil and
gas drilling processes. The Solids Control Products & Services business
serves the oilfield drilling markets of North America, Latin America, Europe,
Africa, the Middle East and the Far East. Customers include major oil and gas
companies, independent producers, national oil companies and drilling
contractors.
Coiled Tubing & Wireline Products: This segment consists of the sale of
highly-engineered coiled tubing equipment, related pressure control equipment,
pressure pumping, wireline equipment and related tools to companies engaged in
providing oil and gas well drilling, and completion and remediation services.
Customers include major oil and gas coiled tubing service companies, as well
as major oil companies and large independents.
Pipeline and Other Industrial Services: This segment provides technical
inspection services and quality assurance services for in-service pipelines
used to transport oil and gas. Additionally, the segment provides a wide
variety of technical industrial inspection, monitoring and quality assurance
services for the construction, operation and maintenance of major projects in
energy related industries. Customers include major pipeline operators and
national oil and gas companies.
The Company evaluates the performance of its operating segments at the
operating profit level which consists of income before interest expense
(income), other expense (income), nonrecurring items and income taxes.
Intersegment sales and transfers are not significant.
6
<PAGE>
Summarized information for the Company's reportable segments is contained in
the following table. Other revenue and operating profit (loss) include
revenue from insignificant operations, corporate expenses and certain goodwill
and identified intangible amortization not allocated to product lines.
<TABLE>
<CAPTION>
Solids Coiled Pipeline &
Control Tubing & Other
Tubular Products & Wireline Industrial
Services Services Products Services Other Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended
September 30, 1999
Revenue............. $115,133 $ 83,700 $57,341 $27,665 $ -- $283,839
Operating Profit.... 14,125 6,354 6,141 712 (16,062) 11,270
Nine Months Ended
September 30, 1998
Revenue............. $175,647 $135,168 $91,203 $41,444 $ -- $443,462
Operating Profit.... 43,611 26,181 17,710 6,416 (17,955) 75,963
</TABLE>
6. Alliance with Newpark Resources, Inc.; Termination of Merger
In November 1999, the Company and Newpark Resources, Inc. announced that they
had jointly elected to form operational alliances in key market areas rather
than proceed with the proposed merger which was agreed to in June 1999. The
Company expects to incur transaction costs of approximately $2.0 million in
the fourth quarter of 1999 related to the discontinued merger. The Company and
Newpark will each pay its own expenses in connection with the discontinued
merger.
7. $100.0 Million Senior Notes and Condensed Consolidating Financial Information
On February 25, 1998, the Company issued $100.0 million of 7.5% Senior Notes
due 2008 ("Notes"). The Notes are fully and unconditionally guaranteed, on a
joint and several basis, by certain wholly-owned subsidiaries of the Company
(collectively "Guarantor Subsidiaries" and individually "Guarantor"). Each of
the guarantees is an unsecured obligation of the Guarantor and ranks pari
passu with the guarantees provided by and the obligations of such Guarantor
Subsidiaries under the Credit Agreement and with all existing and future
unsecured indebtedness of such Guarantor for borrowed money that is not, by
its terms, expressly subordinated in right of payment to such guarantee. The
remaining net proceeds have been used to finance acquisitions, working capital
and general corporate purposes. The following condensed consolidating balance
sheet as of September 30, 1999 and related condensed consolidating statements
of operations and cash flows for the nine months ended September 30, 1999
should be read in conjunction with the notes to these consolidated financial
statements.
7
<PAGE>
TUBOSCOPE INC.
Notes to Consolidated Financial Statements (cont'd)
7. Condensed Consolidating Financial Information (cont'd)
Balance Sheet
<TABLE>
<CAPTION>
September 30, 1999
Non-
Tuboscope Guarantor Guarantor
Inc Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......... $ -- $ 409 $ 5,892 $ -- $ 6,301
Accounts receivable, net.......... 185,577 46,930 264,500 (385,357) 111,650
Inventory, net.................... -- 42,978 30,214 -- 73,192
Prepaid expenses and other........ 1,694 4,986 2,305 -- 8,985
-------- -------- -------- ----------- --------
Total current assets........... 187,271 95,303 302,911 (385,357) 200,128
Investment in subsidiaries.......... 373,853 299,569 -- (673,422) --
Property and equipment, net......... -- 156,738 81,225 -- 237,963
Identified intangibles, net......... -- 22,019 -- -- 22,019
Goodwill, net....................... -- 106,458 108,561 -- 215,019
Other assets, net................... -- 475 2,637 -- 3,112
-------- -------- -------- ----------- --------
Total assets................... $561,124 $680,562 $495,334 $(1,058,779) $678,241
======== ======== ======== =========== ========
LIABILITIES AND EQUITY
- ----------------------
Current liabilities:
Accounts payable.................. $ -- $250,177 $160,565 $ (385,357) $ 25,385
Accrued liabilities............... 2,771 20,717 18,033 -- 41,521
Income taxes payable.............. -- (96) 5,227 -- 5,131
Current portion of long-term
debt........................... 26,000 3,974 2,275 -- 32,249
-------- --------- -------- ----------- --------
Total current liabilities...... 28,771 274,772 186,100 (385,357) 104,286
Long term debt...................... 196,524 6,470 973 -- 203,967
Pension liabilities................. -- -- 9,396 -- 9,396
Deferred taxes payable.............. -- 12,280 9,842 -- 22,122
Other liabilities................... -- -- 2,641 -- 2,641
-------- -------- -------- ----------- --------
Total liabilities.............. 225,295 293,522 208,952 (385,357) 342,412
Common stockholders' equity:
Common stock...................... 458 -- -- -- 458
Paid in capital................... 311,820 304,196 187,615 (491,811) 311,820
Retained earnings................. 49,423 82,844 109,309 (192,153) 49,423
Cumulative translation
adjustment...................... (10,542) -- (10,542) 10,542 (10,542)
Treasury Stock.................... (15,330) -- -- -- (15,330)
-------- -------- -------- ----------- --------
Total common stockholders'
equity....................... 335,829 387,040 286,382 (673,422) 335,829
-------- -------- -------- ----------- --------
Total liabilities and equity... $561,124 $680,562 $495,334 $(1,058,779) $678,241
======== ========= ======== =========== ========
</TABLE>
8
<PAGE>
TUBOSCOPE INC.
Notes to Consolidated Financial Statements (cont'd)
7. Condensed Consolidating Financial Information (cont'd)
Statement of Operations
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
Non-
Tuboscope Guarantor Guarantor
Inc Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue............................. $ -- $137,310 $172,837 $(26,308) $283,839
Operating costs..................... -- 146,548 146,416 (20,395) 272,569
-------- --------- --------- --------- --------
Operating profit (loss)............. -- (9,238) 26,421 (5,913) 11,270
Other expense (income).............. -- 4,633 1,169 (5,913) (111)
Interest expense.................... 12,716 340 493 -- 13,549
-------- -------- -------- -------- --------
Income (loss) before taxes.......... (12,716) (14,211) 24,759 -- (2,168)
Provision for taxes................. -- (1,891) 2,400 -- 509
Equity in net income of
subsidiaries ...................... 10,039 22,359 -- (32,398) --
-------- -------- --------- --------- --------
Net income (loss)................... $ (2,677) $ 10,039 $ 22,359 $(32,398) $ (2,677)
======== ======== ======== ======== ========
</TABLE>
9
<PAGE>
TUBOSCOPE INC,
Notes to Consolidated Financial Statements (cont'd)
7. Condensed Consolidating Financial Information(cont'd)
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
Non-
Tuboscope Guarantor Guarantor
Inc Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities............................... $ 9,564 $ 20,024 $ 3,387 $ -- $ 32,975
Net cash used for investing activities:
Capital expenditures..................... -- (3,238) (4,286) -- (7,524)
Business acquisitions.................... -- (11,031) -- -- (11,031)
Other.................................... -- -- (1,997) -- (1,997)
-------- -------- ------- -------- --------
Net cash used for investing activities.. -- (14,269) (6,283) -- (20,552)
Cash flows used for financing
activities:
Net payments under financing agreements.. (10,711) (3,474) (1,044) -- (15,229)
Net proceeds from sale of common stock... 1,147 -- -- -- 1,147
Financing costs.......................... -- (775) -- -- (775)
-------- -------- ------- -------- --------
Net cash used for financing
activities............................ (9,564) (4,249) (1,044) -- (14,857)
-------- -------- ------- -------- --------
Net increase (decrease) in cash and
cash equivalents......................... -- 1,506 (3,940) -- (2,434)
Cash and cash equivalents:
Beginning of period...................... -- (1,097) 9,832 -- 8,735
-------- -------- ------- -------- --------
End of period............................ $ -- $ 409 $ 5,892 $ -- $ 6,301
======== ======== ======= ======== ========
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
General Operating Environment Overview:
The Company's financial results for the third quarter of 1999 continued to be
adversely affected by the depressed oil and gas industry as indicated by the
worldwide rig activity which declined 15% and 28% in the third quarter and first
nine months of 1999, respectively, compared to the same periods of 1998. The
worldwide rig activity for the third quarter of 1999 did, however, increase
sequentially (19% over the second quarter of 1999) for the first time in six
quarters.
The increase in rig activity for the third quarter over the second quarter of
1999 was precipitated by an increase in oil and gas prices. The price of West
Texas Intermediate Oil, which was as high as an average of $20.03 per barrel in
the fourth quarter of 1997, declined throughout 1998 and into the first quarter
of 1999 (reaching decade lows of $12.95 per barrel and $12.97 per barrel in the
fourth quarter of 1998 and first quarter of 1999, respectively). West Texas
Intermediate Oil prices began to recover in the second quarter of 1999,
finishing with average prices of $17.64 per barrel and $21.68 per barrel in the
second quarter and third quarter of 1999, respectively. This recent recovery in
oil prices is primarily the result of an agreement between certain major oil
producers to limit worldwide oil production. There can be no assurances that
these producers will comply with the self-imposed limitations on oil production
or that the improvement in oil prices will stabilize or continue. The recent
improvement in West Texas Intermediate Crude Oil prices did not have a
significant impact on overall financial results for the third quarter of 1999.
The recent improvements in North America rig activity (U.S. and Canada were up
23% and 144%, respectively, in the third quarter of 1999 compared to the second
quarter of 1999) have resulted in improved revenue and operating profits in
certain North American markets for Tubular Services and Solids Control
operations. These improved results have been offset to a large extent by
declining activity in Europe (mainly the North Sea), the Far East, the Middle
East, and Latin America.
Results of Operations
Three and Nine Months Ended September 30, 1999 and 1998
- -------------------------------------------------------
Revenue. Revenue was $95.9 million and $283.8 million for the third quarter and
first nine months of 1999, respectively, representing decreases of $43.8 million
(31%) and $159.6 million (36%), respectively, from the same periods of 1998.
The third quarter and first nine months 1999 results were adversely impacted by
the depressed oil and gas industry as indicated by the low worldwide rig
activity discussed above. The drop in third quarter and first nine months of
1999 rig activity was especially heavy in some of the Company's strongest
markets including the U.S. (19% and 35%), Europe (16% and 17%), Far East (24%
and 20%) and Latin America (20% and 28%).
Revenue from the Company's Tubular Services, comprised of Inspection, Coating,
and Mill Systems and Sales was $39.0 million and $115.1 million for the three
and nine months ending September 30, 1999, respectively. These results
represented decreases of $12.9 million (25%) and $60.5 million (34%),
respectively, compared to the prior year periods. The majority of the decline
was related to lower revenue in the U.S., Latin America, Far East and European
markets due to the low activity in these markets. The decline was slightly
offset by an increase in Canada inspection operations as the Canadian rig count
increased 24% in the third quarter of 1999 compared to the prior year quarter.
Solids Control revenue was $28.2 million and $83.7 million for the third quarter
and first nine months of 1999, representing decreases of $13.7 million (33%) and
$51.5 million (38%), respectively, compared to the same periods of 1998. Lower
drilling activity, pricing erosion, and lower levels of capital equipment sales
caused the decline, which affected operations worldwide - especially in the
U.S., Latin America, and Europe.
Coiled Tubing & Wireline Products revenue was $19.4 million and $57.3 million
for the three and nine months ending September 30, 1999, respectively. These
results represented decreases of $13.5 million (41%) and $33.9 million (37%),
respectively, compared to the same periods of 1998. The decrease was due to the
decline in spending by the Company's customers on new coiled tubing and wireline
units in response to the depressed
11
<PAGE>
oilfield market. The decline in Coiled Tubing & Wireline Products revenue was
partially offset by the acquisition of Eastern Oil Tools, Pte. Ltd. in June 1998
and Weston Oilfield Engineering Limited in December 1998. As of September 30,
1999, the Company's backlog of Coiled Tubing & Wireline Products was $15.9
million, a decline of 59% from $39.1 million at December 31, 1998.
Pipeline & Other Industrial Services revenue was $9.2 million and $27.7 million
for the three and nine months ended September 30, 1999, respectively. These
results represented decreases of $3.7 million (29%) and $13.8 million (33%),
respectively, compared to the same periods of 1998. These decreases were due to
lower industrial inspection revenue in Saudi Arabia and lower Pipeline
inspection revenue in Latin America.
Gross Profit. Gross profit was $18.3 million (19% of revenue) and $55.2 million
(19% of revenue) for the third quarter and first nine months of 1999 compared to
$35.9 million (26% of revenue) and $127.1 million (29% of revenue),
respectively, for the same periods of 1998. The decline in the 1999 gross
profit dollars and percentages was due to the lower revenue discussed above.
Selling, General, and Administrative Costs. Selling, general and administrative
costs were $11.5 million and $35.4 million in the third quarter and first nine
months of 1999, respectively, representing decreases of $1.5 million (12%) and
$5.9 million (14%) from the same periods of 1998. Lower selling, general, and
administrative costs were due to cost controls and reductions, which were
implemented in 1998 and continued in 1999 in response to market conditions.
Research and Engineering Costs. Research and engineering costs were $2.8
million and $8.5 million for the three and nine months ended September 30, 1999,
respectively, compared to $3.2 million and $9.8 million in the third quarter and
first nine months of 1998, respectively. The decline was due to the completion
of certain engineering projects in 1998 and cost control measures implemented in
1998 and continued in 1999.
Operating Profit. Operating profit was $4.0 million and $11.3 million in the
third quarter and first nine months of 1999, respectively, compared to operating
profit of $19.6 million and $76.0 million, respectively, in the same periods of
1998. The decrease in operating profit in 1999 was due to the factors discussed
above.
Interest Expense. Interest expense was $4.5 million and $13.5 million in the
three and nine months ended September 30, 1999, respectively, up slightly from
$4.4 million and $13.4 million in the same periods of 1998.
Other Expense (Income). Other expense (income), which includes interest income,
foreign exchange, minority interest, and other expense (income), resulted in net
other expense of $833,000 in the third quarter of 1999 and other income of
$111,000 in the first nine months of 1999. The third quarter of 1998 other
expense was $350,000 and the first nine months of 1998 other expense was $1.2
million. The third quarter 1999 other expense included foreign exchange losses
related to Far East and Latin American operations while the first half of 1999
benefited from foreign exchange gains as a result of stronger U.S. dollars and
related U.S. dollar receivables on the books of foreign subsidiaries. The first
nine months of 1999 results also included a $2.0 million insurance refund gain
related to former Italian operations and $2.4 million of non-recurring charges
in Venezuela.
Provision for Income Taxes. The Company had tax provisions of $182,000 and
$509,000 on pre-tax losses of $1.3 million and $2.2 million in the three and
nine months ended September 30, 1999, respectively. These provisions on the
pre-tax losses were due to the charges not allowed under domestic and foreign
jurisdictions related to goodwill amortization and foreign earnings subject to
tax rates differing from domestic rates.
Net Income (Loss). Net income (loss) for the third quarter and first nine
months of 1999 was a net loss of $1.5 million and $2.7 million, respectively,
compared to the third quarter and first nine months of 1998 net income of $9.2
million and $38.4 million, respectively. The decline in the 1999 periods was
due to the factors discussed above.
12
<PAGE>
Financial Condition and Liquidity
September 30, 1999
For the nine months ended September 30, 1999, cash provided by operating
activities was $33.0 million compared to $33.4 million for the nine months ended
September 30, 1998. Cash was provided by operations through a net loss of $2.7
million plus non-cash charges of $25.8 million, a decrease in accounts
receivable of $10.0 million, and a decrease in inventory of $13.7 million. These
items were offset to some extent during the first nine months of 1999 by a
reduction in accounts payable and accrued liabilities of $15.2 million. The
decrease in accounts receivable was due to 23% ($28.3 million) lower revenue in
the third quarter of 1999 compared to the fourth quarter of 1998. Inventory
declined by $13.7 million due to lower activity and concentrated efforts to
reduce inventory levels. Accounts payable and accrued liabilities were down due
to lower activity and 1999 severance payments.
For the nine months ended September 30, 1999, the Company used $20.6 million of
cash for investing activities compared to $64.5 million for the same period of
1998. Cash used for investing activities mainly consisted of capital
expenditures and business acquisitions. Capital expenditures of $7.5 million
for the first nine months of 1999 were primarily related to the Company's new
thermal drill-cuttings desorption unit in Colombia and additional "high-
resolution" Pipeline inspection tools. Business acquisitions of $11.0 million
were related to the acquisitions of Geo-Ray Oilfield Inspection Ltd. (a Canadian
based inspection company), Manufacturas Rowi, C.A. (a Venezuelan based solids
control company), Energy Environmental LLC (a U.S. Gulf Coast based oilfield
waste management operator), the assets of a Norwegian inspection operation, and
costs associated with the Newpark merger.
For the nine months ended September 30, 1999, the Company used $14.9 million of
cash for financing activities compared to cash generated from financing
activities of $26.5 million in the same period of 1998. The main use of cash
for financing activities was for the reduction of outstanding debt.
Current and long-term debt was $236.2 million at September 30, 1999, a decrease
of $14.5 million from the $250.7 million outstanding at December 31, 1998. The
decrease in debt was due to cash flow from operations plus the collection of
accounts receivable exceeding capital spending, acquisitions, and the reduction
in accounts payable and accrued liabilities. The Company's outstanding debt at
September 30, 1999 consisted of $100.0 million of Notes, $75.6 million of term
loans due under the Company's Senior Credit Agreement, $48.1 million due under
the Company's $100.0 million revolving credit facility, and $12.5 million of
other debt.
At September 30, 1999, the Company had outstanding letters of credit of $6.1
million. The available facility on the Company's $100.0 million revolving
credit facility and $5 million swingline facility was $47.6 million and $3.2
million, respectively, at September 30, 1999.
Forward Looking Statements
This Quarterly Report on Form 10Q 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 growth through
acquisitions and other factors discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 under the caption "Factors Affecting
Future Operating Results."
Year 2000
General
The Year 2000 (Y2K) issue is the result of computer programs being written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failure or
13
<PAGE>
miscalculations causing disruptions to various activities and operations. The
Company has assessed how it may be impacted by the Y2K issue and has formulated
and commenced implementation of a comprehensive plan to address all known
aspects of the issue.
The Plan
The Company has completed an evaluation of the effects the Y2K problem could
have on the products and services the Company provides, the processing
capabilities of the Company's computers and other internal information systems,
as well as non-informational systems which affect the Company's operational
capabilities. Based on the hardware and software changes made to date, and the
planned changes expected to be made prior to December 31, 1999, the Company is
expected to have addressed all material internal issues concerning the Y2K issue
before January 1, 2000.
In addition, the Company is in the process of evaluating the Y2K compliance
capabilities of major customers and suppliers. The majority of the Company's
major customers and suppliers have been contacted regarding the Y2K issue. The
Company anticipates this evaluation process will be in effect for the remainder
of 1999 and will include follow-up telephone interviews and on-site meetings as
considered necessary in the circumstances. The Company is not currently aware
of any customer or supplier circumstances that may have a material adverse
impact on the Company. The Company will be looking for alternative suppliers
where circumstances warrant.
Cost
The Company's estimate of the total cost for Y2K compliance is approximately
$750,000, of which approximately $420,000 has been incurred through September
30, 1999. The majority of these costs are being expensed as incurred and are not
expected to have a material impact on the Company's results of operations or
financial position.
Risks
The Company believes that the Y2K issue will not pose significant operational
problems for the Company. However, if all Y2K problems are not identified or
corrected in a timely manner, there can be no assurance that the Y2K issue will
not have a material adverse impact on the Company's results of operations or
adversely affect the Company's relationships with customers, suppliers, or other
parties. In addition, there can be no assurance that outside third parties,
including customers, suppliers, utility and governmental entities, will be in
compliance with all Y2K issues. The Company believes that the most likely worst
case Y2K scenario, if one were to occur, would be the inability of third party
suppliers such as utility providers, telecommunication companies, and other
critical suppliers to continue providing their products and services. The
failure of these third party suppliers to provide on-going services could have a
material adverse impact on the Company's results of operations.
Contingency Plan
The Company is considering contingency plans relating to key third parties.
These include identifying alternative suppliers and working with major customers
that may be affected by Year 2000 issues.
The foregoing analysis contains forward-looking information. See cautionary
statement regarding "Forward Looking Statements" in the Management's Discussion
and Analysis section.
Quantitative & Qualitative Disclosure About Market Risk
The Company does not believe it has a material exposure to market risk. The
Company manages its exposure to interest rate changes by using a combination of
fixed rate debt and interest rate swap agreements for almost all variable rate
debt. At September 30, 1999, the Company had $236.2 million of outstanding
debt. Fixed rate debt included $100.0 million of Senior Notes at a fixed
interest rate of 7 1/2%. An additional $90.0 million of outstanding variable
rate debt was effectively converted to fixed rate debt through the use of
interest rate swap agreements and $40.0 million of variable rate debt was
protected through the use of a collar agreement. With respect to foreign
currency fluctuations, the Company uses natural hedges to minimize the effect of
rate fluctuations. When natural hedges are not sufficient, generally it is the
Company's policy to enter into forward foreign exchange contracts to hedge
significant transactions for periods consistent with the underlying risk. The
Company had no forward foreign exchange contracts outstanding at September 30,
1999. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about August 3, 1999, a stockholder of Newpark Resources, Inc., Jason
Golz, filed a purported class action complaint in United States District Court,
Eastern District of Louisiana, against Newpark Resources, Inc. ("Newpark"); the
Board of Directors of Newpark; Tuboscope; SCF-IV, L.P., a limited partnership
the general partner of which is SCF Partners, L.P.; and L.E. Simmons, a
principal of SCF Partners, L.P. Mr. Simmons is the Chairman of Tuboscope. The
complaint alleges, among other things, that Tuboscope breached its purported
fiduciary duties as a major stockholder to the Newpark public stockholders by
negotiating an unfair and inadequate price to be paid to Newpark stockholders,
encouraging the Newpark Board of Directors to recommend the proposed merger and
improperly placing undue pressure on Newpark and its public stockholders to
approve the merger. The complaint seeks an injunction against the proposed
merger of Newpark and Tuboscope, compensatory damages and/or recissory damages.
Tuboscope does not currently own any shares of Newpark stock. However, SCF-IV,
L.P. owns 150,000 shares of Newpark's Series A Cumulative Perpetual Preferred
Stock and holds a warrant to purchase 2,400,000 shares of Newpark common stock
(approximately 3% of the outstanding shares of Newpark common stock). The case
has been administratively dismissed by the Court to allow for continued
settlement discussions between plaintiffs and defendants.
Tuboscope believes that this complaint is without merit and will aggressively
defend against the suit. In light of the recent termination of the merger
agreement between Tuboscope and Newpark, Tuboscope believes that the case will
not proceed further.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits -- Reference is hereby made to the Exhibit Index commencing
on page 17.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
15
<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 INC.
--------------
(Registrant)
Date: November 12, 1999 /s/ Joseph C. Winkler
- --------------------------- ---------------------------------------------
Joseph C. Winkler
Executive Vice President,
Chief Financial Officer and Treasurer
(Duly Authorized Officer, Principal
Financial and Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
- ----------- --------------------------------------------------------------------------------- ---------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of June 24, 1999 between the Company (Note 22)
and Newpark Resources, Inc.
2.2 Agreement dated as of June 24, 1999 among the Company, Newpark Resources, Inc. (Note 22)
and SCF-IV, L.P.
3.1 Amended and Restated Bylaws. (Note 2)
3.2 Restated Certificate of Incorporation, dated March 12, 1990. (Note 7)
3.3 Certificate of Amendment to Restated Certificate of Incorporation dated May 12, (Note 8)
1992.
3.4 Certificate of Amendment to Restated Certificate of Incorporation dated May 10, (Note 10)
1994.
3.5 Certificate of Amendment to Restated Certificate of Incorporation dated April 24, (Note 17)
1996.
3.6 Certificate of Amendment to Restated Certificate of Incorporation dated June 3, (Note 18)
1997.
4.1 Registration Rights Agreement dated May 13, 1988 among the Company, (Note 1)
Brentwood Associates, Hub Associates IV, L.P. and the investors listed therein.
4.2 Purchase Agreement dated as of October 1, 1991 between the Company (Note 3)
and Baker Hughes Incorporated regarding certain registration rights.
4.3 Exchange Agreement, dated as of January 3, 1996, among the Company (Note 11)
and Baker Hughes Incorporated.
4.4 Registration Rights Agreement dated April 24, 1996 among the Company, (Note 15)
SCF III, L.P., D.O.S. Partners L.P., Panmell (Holdings), Ltd. and Zink
Industries Limited.
4.5 Registration Rights Agreement dated March 7, 1997 among the Company and (Note 16)
certain stockholders of Fiber Glass Systems, Inc.
4.6 Warrant for the Purchase of Shares of Common Stock Expiring December 31, 2000 (Note 15)
between the Company and SCF III, L.P. regarding 2,533,000 shares, dated January
3, 1996.
4.7 Warrant for the Purchase of Shares of Common stock expiring December 31, 2000 (Note 11)
between the Company and Baker Hughes Incorporated regarding 1,250,000 shares,
dated January 3, 1996.
4.8 Indenture, dated as February 25, 1998, between the Company, the Guarantors (Note 19)
named therein and The Bank of New York Trust Company of Florida as trustee,
relating to $100,000,000 aggregate principal amount of 7 1/2% Senior Notes due
2008 Specimen Certificate of 71/2% Senior Notes due 2008 (the "Private Notes");
and Specimen Certificate at 7 1/2% Senior Notes due 2008 (the "Exchange Notes").
10.1 Amended and Restated Secured Credit Agreement, dated as of February 9, 1998, (Note 19)
between Tuboscope Inc., and Chase Bank of Texas, National Association, ABN
Amro Bank N.V., Houston Agency, and the other Lenders Party Thereto, and ABN
Amro Bank N.V., Houston Agency as Administrative Agent (includes form of
Guarantee).
10.1.1 Form of Amendment No. 1 to Amended and Restated Secured Credit Agreement (Note 21)
dated as of March 29, 1999.
10.1.2 Form of Reaffirmation of Guarantee relating to Amended and Restated Secured
Credit Agreement dated as of March 29, 1999.
10.3 Deferred Compensation Plan dated November 14, 1994; Amendment thereto dated (Note 20)
May 11, 1998.
10.4 Employee Qualified Stock Purchase Plan; and First Amendment to Employee (Note 6)
Qualified Stock Purchase Plan dated March 10, 1994.
10.5 1996 Equity Participation Plan; Form of Non-qualified Stock Option Agreement (Note 13)
for Employees and Consultants; Form of Non-qualified Stock Option Agreement
for Independent Directors.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
- ----------- --------------------------------------------------------------------------------- ---------
<S> <C> <C>
10.6 DOS Ltd. 1993 Stock Option Plan; Form of D.O.S. Ltd. Non Statutory Stock (Note 14)
Option Agreement.
10.7 Amended and Restated Stock Option Plan for Key Employees of Tuboscope (Note 4)
Vetco International Corporation; Form of Revised Incentive Stock Option
Agreement; and Form of Revised Non-Qualified Stock Option Agreement.
10.8 Stock Option Plan for Non-Employee Directors; Amendment to Stock Option (Note 5)
Plan for Non-Employee Directors; and Form of Stock Option Agreement.
10.9 Master Leasing Agreement, dated December 18, 1995 between the Company and (Note 11)
Heller Financial Leasing, Inc.
10.10 Termination and Release Agreement dated as of November 10, 1999 between
Newpark Resources, Inc. and the Company.
21 Subsidiaries (Note 21)
27 Financial Data
</TABLE>
Note 1 Incorporated by reference to the Company's Registration Statement on
Form S-1 (No.33-31102).
Note 2 Incorporated by reference to the Company's Registration Statement on
Form S-1 (No.33-33248).
Note 3 Incorporated by reference to the Company's Registration Statement on
Form S-1 (No.33-43525).
Note 4 Incorporated by reference to the Company's Registration Statement on
Form S-8 (No.33-72150).
Note 5 Incorporated by reference to the Company's Registration Statement on
Form S-8 (No.33-72072).
Note 6 Incorporated by reference to the Company's Registration Statement on
Form S-8 (No.33-54337).
Note 7 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
Note 8 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.
Note 9 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
Note 10 Incorporated by reference to the Company's Proxy Statement for the
1994 Annual Meeting of Stockholders.
Note 11 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
Note 12 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year Ended December 31, 1997.
Note 13 Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 333-05233).
Note 14 Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 333-05237).
Note 15 Incorporated by reference to the Company's Current Report on Form 8-K
filed on January 16, 1996.
Note 16 Incorporated by reference to the Company's Current Report on 8-K
Filed on March 19, 1997, as amended
by Amendment No. 1 filed on May 7, 1997.
Note 17 Incorporated by reference to Appendix E in the Company's Registration
Statement on Form S-4 (No. 333-01869).
Note 18 Incorporated by reference to the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders.
Note 19 Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-51115).
Note 20 Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
Note 21 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
Note 22 Incorporated by reference to the Company's Current Report on Form 8-K
filed on June 29, 1999.
18
<PAGE>
EXHIBIT 10.10
TERMINATION AND RELEASE AGREEMENT
THIS TERMINATION AND RELEASE AGREEMENT (the "Agreement") is made and
entered into this 10th day of November, 1999, by and between Tuboscope Inc., a
Delaware corporation ("Tuboscope"), and Newpark Resources, Inc., a Delaware
corporation ("Newpark," and collectively with Tuboscope, the "Parties").
WITNESSETH:
WHEREAS, the Parties entered into that certain Agreement and Plan of
Merger, dated as of June 24, 1999 (the "Merger Agreement," and capitalized terms
not otherwise defined herein shall have the meaning ascribed to them in the
Merger Agreement);
WHEREAS, in connection with the negotiations surrounding the Merger
Agreement, the Parties entered into a Confidentiality Agreement dated June 4,
1999; and
WHEREAS, the Parties hereto wish to terminate the Merger Agreement, and
release their respective rights, claims, obligations and liabilities in
connection therewith, and the board of directors of each Party has approved such
termination and authorized such Party to enter into this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements herein set
forth, the Parties agree as follows:
1. TERMINATION OF MERGER AGREEMENT. Effective immediately, each of
-------------------------------
Tuboscope and Newpark abandon the Merger and mutually terminate the Merger
Agreement pursuant to Section 8.01(a) thereof (including any provisions which
would survive termination pursuant to the terms of the Merger Agreement).
Notwithstanding anything to the contrary contained in the Merger Agreement,
except as provided herein, no Released Party (as defined herein) shall have any
liability or obligation under the Merger Agreement, including without
limitation, as a result of any action or failure to act in connection with the
Merger Agreement.
2. NON-DISPARAGEMENT; SURVIVAL OF CONFIDENTIALITY AGREEMENT.
--------------------------------------------------------
(a) Each Party agrees that it will not, and will cause its respective
subsidiaries, directors, officers and employees not to, and will use its best
efforts to cause its financial advisors, consultants and affiliated entities not
to, make any public statements or any statements reasonably calculated to become
public (orally, in writing, electronically or otherwise), or instigate, assist
or participate in making any such statement, which would or may reasonably be
considered to disparage the other Party or its business or operations, any of
the other Party's corporate predecessors, subsidiaries or affiliates or their
respective businesses or operations, or any of the other Party's present and
former officers, partners, directors, employees, agents, stockholders or
representatives, in their capacity as such. From and after the date hereof,
except as otherwise agreed by the
<PAGE>
Parties, no Party shall make any public statements or any statements reasonably
calculated to become public regarding, and in response to inquiries from the
media, analysts, investors and other third parties each Party agrees not to
comment on, (i) the business or prospects of the other Party or (ii) the reasons
for the abandonment of the Merger and mutual termination of the Merger
Agreement, except as provided in the form of joint press release attached hereto
as Exhibit A or as otherwise required by law upon the advice of counsel, which
---------
shall be confirmed in writing. For purposes of this Agreement, a statement made
by, or authorized by or made under the direction of, an officer or director of a
Party, or a representative of such Party's media relations or investor relations
departments, to the media, analysts, investment community or a significant
shareholder of a Party will be conclusively presumed to be "reasonably
calculated to become public" and any other statement which actually becomes
public will be subject to a rebuttable presumption that it was "reasonably
calculated to become public" at the time it was made.
(b) The Confidentiality Agreement shall remain in full force and effect in
accordance with its terms.
3. EXPENSES. No Party shall pay a termination fee to, or expense of, the
--------
other Party under the Merger Agreement or in connection with the proposed
Merger, including without limitation any termination fee or expense provided for
in Sections 8.03(b)-(g) of the Merger Agreement. Each Party shall bear its own
costs and expenses heretofore or hereafter incurred by each Party in connection
with or relating to this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby, including the proposed Merger.
4. GENERAL RELEASE AND WAIVER. Effective immediately, each of the Parties
--------------------------
and each of their respective predecessors, successors, subsidiaries and assigns
and any of the present and former officers, directors and employees of the
foregoing (each, a "Releasing Party"), in their capacity as such, hereby
covenants not to sue and forever releases and discharges the other Party (and
each of their respective directors, officers, representatives, advisors
(including but not limited to financial advisors), attorneys, accountants,
employees, agents, parents, subsidiaries, affiliated persons and entities,
predecessors, successors and assigns and heirs, executors and administrators and
all persons acting in concert with any such party) (each, a "Released Party")
from all manner of claims, actions, causes of action or suits, at law or in
equity, known or unknown, which each now has or hereafter can, shall or may have
by reason of any matter, cause or thing whatsoever relating to or arising out of
the Merger Agreement or the agreements or instruments ancillary thereto or the
transactions contemplated thereby, or any action or failure to act under the
Merger Agreement or in connection therewith, or in connection with the events
leading to the abandonment of the Merger and the mutual termination of the
Merger Agreement, excepting only any claim, action, cause of action or suit
arising (i) out of an undertaking or promise contained in this Agreement or any
agreement entered into between the parties subsequent to the date of this
Agreement, or (ii) by virtue of obligations under the Confidentiality Agreement,
or (iii) by virtue of
2
<PAGE>
transactions or dealings undertaken in the ordinary course of business and not
arising out of, or in connection with, the Merger Agreement and the transactions
contemplated thereby. Nothing in this Agreement or the Merger Agreement shall
in any way constitute an agreement by any party hereto to indemnify any other
party hereto against any third party claim.
5. GOVERNING LAW. This Agreement, and all matters relating hereto, shall
-------------
be governed by, and construed in accordance with the laws of the State of
Delaware without reference to the conflict of laws principles thereof.
6. ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement
----------------
constitute the entire agreement between the parties and supersede all prior
agreements and understandings, both written and oral, between the Parties, or
any of them, with respect to the subject matter hereof.
7. COOPERATION. Each Party agrees to cooperate with the other and to
-----------
take all action reasonably necessary to give full effect to the provisions and
intent of this Agreement, including, without limitation, any action necessary to
defend the validity and enforceability hereof. For such purpose, each Party will
bear its own costs and expenses incurred to take such action.
8. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified,
--------------------------
and supplemented only by a written document executed by the Parties which
specifically states that it is an amendment, modification or supplement to this
Agreement.
9. AUTHORIZATION. Each Party represents and warrants (i) this Agreement
-------------
has been duly and validly authorized, executed and delivered, and (ii) the
person executing this Agreement on its behalf is duly authorized and fully
competent to execute this Agreement on its behalf. In entering into this
Agreement, the undersigned represent that they have read all the terms hereof,
have discussed the terms with counsel and that such terms are fully understood
and voluntarily accepted.
10. CONSTRUCTION. This Agreement shall be construed without regard to
------------
the Party or Parties responsible for its preparation, and it shall be deemed to
have been prepared jointly by the Parties. Any ambiguity or uncertainty arising
herein shall not be interpreted or construed against any Party hereto.
11. NOTICES. Notices, requests, instructions or other documents to be
-------
given under this Agreement shall be in writing and shall be deemed given, (a)
when sent if sent by facsimile, provided that the facsimile is promptly
confirmed by telephone confirmation thereof to the intended recipient, (b) when
delivered, if delivered personally to the intended recipient, and (c) one
business day later, if sent by overnight delivery via a national courier
service, and in each case, addressed to a Party at the following address for
such Party:
3
<PAGE>
if to Tuboscope:
----------------
Tuboscope Inc.
2835 Holmes Road
Houston, Texas 77051
Attention: James F. Maroney, Esq.
Telecopy: (713) 799-5224
with a copy to:
Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, CA 92626
Attention: Patrick T. Seaver, Esq.
Telecopy: (714) 755-8290
if to Newpark:
-------------
Newpark Resources, Inc.
3850 North Causeway, Suite 1770
Metairie, Lousiana 70002
Attention: James D. Cole
Telecopy: (504) 833-9506
with a copy to:
Ervin, Cohen & Jessup LLP
9401 Wilshire Blvd., 9th Floor
Beverly Hills, CA 90212-2974
Attention: Bertram K. Massing, Esq.
Telecopy: (310) 859-2325
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
12. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same document.
4
<PAGE>
13. SEVERABILITY. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affect the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction, and if any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
14. ENFORCEMENT. The parties agree that in the event of a breach of any
-----------
provision of this Agreement irreparable damage would occur, the aggrieved party
would be without an adequate remedy at law, and damages would be difficult to
determine. The parties therefore agree that in the event of a breach of any
provision of this Agreement, the aggrieved party may elect to institute and
prosecute proceedings to enforce specific performance or to enjoin the
continuing breach of such provision. By seeking or obtaining such relief, the
aggrieved party will not be precluded from seeking or obtaining any other relief
to which it may be entitled at law or in equity. In the event of any dispute,
litigation or other adversary proceeding that may arise with respect to the
subject matter of this Agreement (including the Confidentiality Agreement), the
prevailing party will be entitled to receive from the other party reasonable
attorneys' fees, costs and expenses incurred in such dispute, litigation or
proceeding. The "prevailing party" means the party determined by the court or
arbitrator to have most nearly prevailed, even if such party did not prevail in
all matters, and not necessarily the party in whose favor a judgment is
rendered.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure
----------------------
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
TUBOSCOPE INC.
By: /s/ Joseph C. Winkler
--------------------------------------
Name: Joseph C. Winkler
Title: Executive Vice President and
Chief Financial Officer
NEWPARK RESOURCES, INC.
By: /s/ James D. Cole
--------------------------------------
Name: James D. Cole
Title: President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXTRACTED FROM FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,301
<SECURITIES> 0
<RECEIVABLES> 111,650
<ALLOWANCES> 4,627
<INVENTORY> 73,192
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0
0
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<OTHER-SE> 335,371
<TOTAL-LIABILITY-AND-EQUITY> 678,241
<SALES> 105,351
<TOTAL-REVENUES> 283,839
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<OTHER-EXPENSES> 5,441
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<INTEREST-EXPENSE> 13,549
<INCOME-PRETAX> (2,168)
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<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
