<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following tables set forth certain unaudited pro forma condensed
combined financial information for the combined company giving effect to the
merger of Varco International, Inc., a California corporation ("Varco"), with
and into Tuboscope Inc. ("Tuboscope"), a Delaware corporation (currently known
as Varco International, Inc., a Delaware corporation). The information
presented is derived from, should be read in conjunction with, and is qualified
in its entirety by reference to, the separate historical financial statements
and the notes thereto of Tuboscope and Varco contained in each companies' Annual
Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.
The unaudited pro forma condensed combined balance sheet was prepared using
the historical balance sheets of Tuboscope and Varco as of March 31, 2000. The
fiscal year ends of Varco and Tuboscope are both December 31. The unaudited pro
forma condensed combined statements of operations for the three months ended
March 31, 2000 and 1999, and each of the three years in the period ended
December 31, 1999 were prepared using the historical statements of operations of
Tuboscope and Varco for the periods ended March 31, 2000 and 1999, and years
ended December 31, 1999, 1998 and 1997.
The unaudited pro forma condensed combined financial information is
included for comparative purposes only and does not purport to be indicative of
the results of operations or financial position that actually would have been
obtained if the merger had been effected at the dates indicated or of the
financial position or results of operations that may be obtained in the future.
F-1
<PAGE>
VARCO INTERNATIONAL, INC.,
a Delaware corporation
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2000
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------- ---------------------------------
Varco Tuboscope Adjustments Combined
---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $107,704 $ 6,543 $(25,000)(B) $ 89,247
Accounts receivable, net............................. 114,470 120,933 -- 235,403
Inventory, net....................................... 64,280 69,314 -- 133,594
Prepaid expenses and other........................... 14,486 13,358 1,300 (B) 29,144
-------- -------- -------- ----------
Total current assets................................ 300,940 210,148 (23,700) 487,388
Property and equipment, net........................... 95,241 238,700 -- 333,941
Identified intangibles................................ -- 21,349 -- 21,349
Goodwill, net......................................... 31,856 208,240 -- 240,096
Other assets, net..................................... 29,328 2,984 -- 32,312
-------- -------- -------- ----------
Total assets........................................ $457,365 $681,421 $(23,700) $1,115,086
======== ======== ======== ==========
Liabilities and Equity
Current liabilities:
Accounts payable..................................... $ 25,926 $ 34,107 $ -- $ 60,033
Accrued liabilities.................................. 42,349 42,953 -- 85,302
Income taxes payable................................. 4,639 4,660 -- 9,299
Current portion of long-term debt.................... -- 33,150 -- 33,150
-------- -------- -------- ----------
Total current liabilities........................... 72,914 114,870 -- 187,784
Long-term debt........................................ -- 198,325 -- 198,325
Pension liabilities and post-retirement obligations... 6,977 8,658 -- 15,635
Deferred taxes payable................................ -- 21,848 (2,200)(B) 19,648
Other liabilities..................................... 8,909 953 -- 9,862
-------- -------- -------- ----------
Total liabilities................................... 88,800 344,654 (2,200) 431,254
Common stockholders' equity:
Common stock......................................... 55,928 462 (55,461)(A) 929
Paid in capital...................................... 108,126 315,194 55,461 (A) 478,781
Retained earnings.................................... 204,584 47,709 (21,500)(B) 230,793
Accumulated other comprehensive income............... (73) (11,268) -- (11,341)
Less: treasury stock................................ -- (15,330) -- (15,330)
-------- -------- -------- ----------
Total common stockholders' equity................... 368,565 336,767 (21,500) 683,832
-------- -------- -------- ----------
Total liabilities and equity........................ $457,365 $681,421 $(23,700) $1,115,086
======== ======== ======== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-2
<PAGE>
VARCO INTERNATIONAL, INC.,
a Delaware corporation
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------------
Varco Tuboscope Adjustments Combined
----------- ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue:
Sales................................................ $ 73,395 $ 37,852 -- $ 111,247
Services and rentals................................. 22,868 70,893 (1,233)(C) 92,528
----------- ----------- ----------- -----------
Total............................................... 96,263 108,745 (1,233) 203,775
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales........................................ 50,060 21,974 -- 72,034
Cost of services and rentals......................... 13,177 59,722 -- 72,899
Amortization of goodwill............................. -- 1,875 258 (D) 2,133
Selling, general and administrative.................. 18,810 11,847 (258)(D) 30,399
Research and engineering costs....................... 4,797 2,911 -- 7,708
----------- ----------- ----------- -----------
Total............................................... $ 86,844 $ 98,329 $ -- $ 185,173
----------- ----------- ----------- -----------
Operating profit...................................... 9,419 10,416 (1,233) 18,602
Other expense (income):
Interest expense..................................... 95 4,721 -- 4,816
Interest income...................................... -- (52) (1,233)(C) (1,285)
Foreign exchange losses.............................. -- 99 -- 99
Other................................................ -- 376 -- 376
----------- ----------- ----------- -----------
Income before income taxes............................ 9,324 5,272 -- 14,596
Provision for income taxes............................ 3,321 2,507 -- 5,828
----------- ----------- ----------- -----------
Net income............................................ $ 6,003 $ 2,765 $ -- $ 8,768
=========== =========== =========== ===========
Earnings per common share
Basic earnings per common share...................... $ 0.09 $ 0.06 -- $ 0.10
=========== =========== =========== ===========
Dilutive earnings per common share................... $ 0.09 $ 0.06 -- $ 0.09
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic............................................... 65,385,131 44,714,712 -- 91,301,618
=========== =========== =========== ===========
Dilutive............................................ 66,208,502 47,180,188 -- 94,353,746
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-3
<PAGE>
VARCO INTERNATIONAL, INC.,
a Delaware corporation
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------------
Varco Tuboscope Adjustments Combined
----------- ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue:
Sales................................................ $ 133,106 $ 31,611 -- $ 164,717
Services and rentals................................. 19,062 63,601 (285)(C) 82,378
----------- ----------- ----- -----------
Total............................................... 152,168 95,212 (285) 247,095
----------- ----------- ----- -----------
Costs and expenses:
Cost of sales........................................ 91,691 20,268 -- 111,959
Cost of services and rentals......................... 12,729 53,836 -- 66,565
Amortization of goodwill............................. -- 1,784 332 (D) 2,116
Selling, general and administrative.................. 21,847 12,338 (332)(D) 33,853
Research and engineering costs....................... 7,459 2,946 -- 10,405
----------- ----------- ----- -----------
Total............................................... 133,726 91,172 -- 224,898
----------- ----------- ----- -----------
Operating profit...................................... 18,442 4,040 (285) 22,197
Other expense (income):
Interest expense..................................... 297 4,492 -- 4,789
Interest income...................................... -- (85) (285)(C) (370)
Foreign exchange gains............................... -- (1,050) -- (1,050)
Other................................................ -- 174 -- 174
----------- ----------- ----- -----------
Income before income taxes............................ 18,145 509 -- 18,654
Provision for income taxes............................ 6,411 204 -- 6,615
----------- ----------- ----- -----------
Net income............................................ $ 11,734 $ 305 $ -- $ 12,039
=========== =========== ===== ===========
Earnings per common share:
Basic earnings per common share...................... $ 0.18 $ 0.01 -- $ 0.13
=========== =========== ===== ===========
Dilutive earnings per common share................... $ 0.18 $ 0.01 -- $ 0.13
=========== =========== ===== ===========
Weighted average number of common shares outstanding:
Basic............................................... 64,736,000 44,129,760 -- 90,254,160
=========== =========== ===== ===========
Dilutive............................................ 65,480,000 44,387,315 -- 91,041,815
=========== =========== ===== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-4
<PAGE>
VARCO INTERNATIONAL, INC.,
a Delaware corporation
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
December 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------------
Varco Tuboscope Adjustments Combined
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Revenue:
Sales................................................ $ 568,024 $ 140,563 $ -- $ 708,587
Services and rentals................................. 24,728 244,911 (2,378)(C) 267,261
----------- ----------- ------- -----------
Total............................................... 592,752 385,474 (2,378) 975,848
----------- ----------- ------- -----------
Costs and expenses:
Cost of sales........................................ 407,645 83,836 -- 491,481
Cost of services and rentals......................... 7,808 217,628 -- 225,436
Amortization of goodwill............................. -- 7,266 1,165 (D) 8,431
Selling, general and administrative.................. 85,266 46,534 (1,165)(D) 130,635
Research and engineering costs....................... 28,782 11,367 -- 40,149
Transaction costs, severance and write-offs.......... 4,560 7,808 -- 12,368
----------- ----------- ------- -----------
Total............................................... 534,061 374,439 -- 908,500
----------- ----------- ------- -----------
Operating profit...................................... 58,691 11,035 (2,378) 67,348
Other expense (income):
Interest expense..................................... 745 18,181 -- 18,926
Interest income...................................... -- (316) (2,378)(C) (2,694)
Foreign exchange gains............................... -- (473) -- (473)
Other................................................ -- 1,527 -- 1,527
----------- ----------- ------- -----------
Income (loss) before income taxes..................... 57,946 (7,884) -- 50,062
Provision (benefit) for income taxes.................. 20,981 (728) -- 20,253
----------- ----------- ------- -----------
Net income (loss)..................................... $ 36,965 $ (7,156) $ -- $ 29,809
=========== =========== ======= ===========
Earnings (loss) per common share:
Basic earnings (loss) per common share............... $ 0.57 $ (0.16) $ -- $ 0.33
=========== =========== ======= ===========
Dilutive earnings (loss) per common share............ $ 0.56 $ (0.16) $ -- $ 0.32
=========== =========== ======= ===========
Weighted average number of common shares outstanding:
Basic............................................... 65,046,000 44,314,495 $ -- 90,659,770
=========== =========== ======= ===========
Dilutive............................................ 65,879,000 44,314,495 $ -- 92,693,264
=========== =========== ======= ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-5
<PAGE>
VARCO INTERNATIONAL, INC.,
a Delaware corporation
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
December 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------------
Varco Tuboscope Adjustments Combined
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Revenue:
Sales................................................ $ 699,966 238,091 $ -- $ 938,057
Services and rentals................................. 41,013 329,610 (999)(C) 369,624
----------- ----------- ------- -----------
Total............................................... 740,979 567,701 (999) 1,307,681
----------- ----------- ------- -----------
Costs and expenses:
Cost of sales........................................ 484,165 141,708 -- 625,873
Cost of services and rentals......................... 11,688 264,993 -- 276,681
Amortization of goodwill............................. -- 6,647 1,119 (D) 7,766
Selling, general and administrative.................. 109,079 54,534 (1,119)(D) 162,494
Research and engineering costs....................... 34,567 12,738 -- 47,305
Transaction costs, severance and write-offs.......... 8,500 -- -- 8,500
----------- ----------- ------- -----------
Total............................................... 647,999 480,620 -- 1,128,619
----------- ----------- ------- -----------
Operating profit...................................... 92,980 87,081 (999) 179,062
Other expense (income):
Interest expense..................................... 1,823 18,122 -- 19,945
Interest income...................................... -- (601) (999)(C) (1,600)
Foreign exchange losses.............................. -- 848 -- 848
Other................................................ -- 1,601 -- 1,601
----------- ----------- ------- -----------
Income before income taxes............................ 91,157 67,111 -- 158,268
Provision for income taxes............................ 30,819 25,166 -- 55,985
----------- ----------- ------- -----------
Net income............................................ $ 60,338 $ 41,945 $ -- $ 102,283
=========== =========== ======= ===========
Earnings per common share:
Basic earnings per common share...................... $ 0.94 $ 0.94 $ -- $ 1.13
=========== =========== ======= ===========
Dilutive earnings per common share................... $ 0.92 $ 0.89 $ -- $ 1.09
=========== =========== ======= ===========
Weighted average number of common shares outstanding:
Basic............................................... 64,451,000 44,686,631 $ -- 90,607,969
=========== =========== ======= ===========
Dilutive............................................ 65,594,000 46,912,536 $ -- 93,648,261
=========== =========== ======= ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-6
<PAGE>
VARCO INTERNATIONAL, INC.,
a Delaware corporation
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------------
Varco Tuboscope Adjustments Combined
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Revenue:
Sales................................................ $ 500,067 $ 189,892 $ -- $ 689,959
Services and rentals................................. 45,722 335,339 (702)(C) 380,359
----------- ----------- ------- -----------
Total............................................... 545,789 525,231 (702) 1,070,318
----------- ----------- ------- -----------
Costs and expenses:
Cost of sales........................................ 334,729 120,460 -- 455,189
Cost of services and rentals......................... 13,199 236,510 -- 249,709
Amortization of goodwill............................. -- 5,281 1,113 (D) 6,394
Selling, general, and administrative................. 96,398 51,475 (1,113)(D) 146,760
Research and engineering costs....................... 21,084 10,580 -- 31,664
----------- ----------- ------- -----------
Total............................................... 465,410 424,306 -- 889,716
----------- ----------- ------- -----------
Operating profit...................................... 80,379 100,925 (702) 180,602
Other expense (income):
Interest expense..................................... 3,683 14,456 -- 18,139
Interest income...................................... -- (331) (702)(C) (1,033)
Foreign exchange gains............................... -- 69 -- 69
Other................................................ -- 1,782 -- 1,782
----------- ----------- ------- -----------
Income before income taxes............................ 76,696 84,949 -- 161,645
Provision for income taxes............................ 26,821 31,845 -- 58,666
----------- ----------- ------- -----------
Net income............................................ $ 49,875 $ 53,104 $ -- $ 102,979
=========== =========== ======= ===========
Earnings per common share:
Basic earnings per common share...................... $ 0.78 $ 1.22 $ -- $ 1.16
=========== =========== ======= ===========
Dilutive earnings per common share................... $ 0.76 $ 1.14 $ -- $ 1.10
=========== =========== ======= ===========
Weighted average number of common shares outstanding:
Basic............................................... 63,650,000 43,574,458 $ -- 88,926,083
=========== =========== ======= ===========
Dilutive............................................ 65,201,000 46,946,432 $ -- 93,402,145
=========== =========== ======= ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements were
prepared for comparative purposes only and do not purport to indicate what would
have occurred had Varco and Tuboscope been merged at the beginning of the
periods presented, or what results may be in the future.
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the
conversion of each outstanding share of Varco common stock into 0.7125 shares of
Tuboscope common stock at the date and for the periods presented and reflects
the following pro forma adjustments:
(A) To reflect the assumed issuance of 46,711,616 shares of Tuboscope
common stock at an exchange ratio of 0.7125.
(B) To reflect nonrecurring charges of approximately $21.5 million which
will be expensed in connection with the merger, net of related tax
benefits of $3.5 million. The nonrecurring charges are primarily
related to transaction costs and employee benefit costs associated
with the merger. Such expenses are not reflected in the Unaudited Pro
Forma Condensed Combined Statement of Operations.
The Unaudited Pro Forma Condensed Combined Statements of Operations were
prepared to reflect the following reclassifications to give pro forma effect to
the merger:
(C) To reclassify interest income of Varco to conform financial
presentations.
(D) To reclassify goodwill amortizations of Varco to conform financial
presentations.
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects
consolidated cash holdings of $89.2 million. Management intends to pay off
outstanding debt with excess cash that would have approximated $75.0 million at
March 31, 2000. If the $75.0 million of excess cash had been reclassified
against outstanding debt at March 31, 2000, the combined debt to equity ratio
would have been 22.9% and outstanding debt would have been reduced to $156.5
million. The remaining debt includes $100 million of 7 1/2% senior notes due
2008.
F-8
