<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12430
WESTERN ATLAS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3899675
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 NORTH CRESCENT DRIVE
BEVERLY HILLS, CALIFORNIA 90210-4867
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 888-2500
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 [ ]
On April 30, 1996 there were 53,420,073 shares of Common Stock outstanding.
Page 1 of 14
<PAGE>
WESTERN ATLAS INC.
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations
Three months ended March 31, 1996 and
March 31, 1995 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and
March 31, 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 8
Signature 14
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Sales and Service Revenues $ 549,456 $ 505,890
-------------- --------------
Costs and Expenses
Cost of sales (exclusive of depreciation
and amortization shown below) 378,289 340,315
Selling, general and administrative 71,021 71,179
Depreciation and amortization 53,576 50,698
Interest - net 8,764 11,448
-------------- --------------
Total 511,650 473,640
-------------- --------------
Earnings before Taxes on Income 37,806 32,250
Taxes on Income (15,122) (13,061)
-------------- --------------
Net Earnings $ 22,684 $ 19,189
-------------- --------------
-------------- --------------
Earnings Per Share $ 0.42 $ 0.36
-------------- --------------
-------------- --------------
Shares used in computing earnings per share 54,245,052 53,703,701
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
WESTERN ATLAS INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and marketable securities $ 131,491 $ 116,715
Accounts receivable 594,428 612,336
Inventories less progress billings 157,397 150,855
Deferred tax assets 115,958 117,189
Other prepaid expenses 40,061 39,385
------------- -------------
Total Current Assets 1,039,335 1,036,480
------------- -------------
Property, Plant and Equipment - at cost 1,363,286 1,336,813
Less accumulated depreciation (639,269) (613,165)
------------- -------------
Property, Plant and Equipment, Net 724,017 723,648
------------- -------------
Goodwill and Other Intangibles, Net 458,826 462,873
------------- -------------
Geophysical Data and Other Assets 261,319 266,211
------------- -------------
Total Assets $ 2,483,497 $ 2,489,212
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable $ 376,034 $ 380,569
Payrolls and related expenses 98,591 137,739
Notes payable and current portion of
long-term obligations 33,840 24,106
------------- -------------
Total Current Liabilities 508,465 542,414
------------- -------------
Long-term Obligations 534,787 535,034
------------- -------------
Deferred Taxes and Other Long-term Liabilities 55,617 54,917
------------- -------------
Shareholders' Investment
Common stock 53,389 53,235
Additional paid-in capital 1,134,598 1,129,417
Retained earnings 188,477 165,793
Cumulative currency translation adjustment 8,164 8,402
------------- -------------
Total Shareholders' Investment 1,384,628 1,356,847
------------- -------------
Total Liabilities and Shareholders' Investment $ 2,483,497 $ 2,489,212
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash and Cash Equivalents at Beginning of Period $ 116,715 $ 42,094
----------- ----------
Cash Was Provided by (Used for)
Operating Activities
Net earnings 22,684 19,189
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 53,576 50,698
Change in accrued pensions (21,479) (19,400)
Change in accounts receivable 17,508 55,808
Change in inventories (6,542) (15,978)
Change in accounts payable (10,035) (43,193)
Change in payrolls and related expenses (18,169) (8,460)
Other operating activities (2,409) 5,328
----------- ----------
Cash provided by operating activities 35,134 43,992
----------- ----------
Investing Activities
Purchase of capital assets (49,082) (46,397)
Other investing activities 14,213 (6,972)
----------- ----------
Cash used for investing activities (34,869) (53,369)
----------- ----------
Financing Activities
Short-term obligations, net 9,931 35,725
Repayment of long-term obligations - (20,083)
Other financing activities 4,580 9,616
----------- ----------
Cash provided by financing activities 14,511 25,258
----------- ----------
Resulting in Increase in Cash and Cash Equivalents 14,776 15,881
----------- ----------
Cash and Cash Equivalents at End of Period $ 131,491 $ 57,975
----------- ----------
----------- ----------
Supplemental disclosure of cash flow information
Interest paid $ 3,488 $ 5,138
Income taxes (refunded) paid $ (1,704) $ 9,334
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
1. The amounts included in this report are unaudited; however in the opinion
of management, all adjustments necessary for a fair statement of results
for the stated periods have been included. These adjustments are of a
normal recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
It is suggested that these consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto
included in the Company's 1995 Annual Report on Form 10-K. The results
of operations for the three months ended March 31, 1996 are not
necessarily indicative of operating results for the entire year.
2. The components of inventory balances are summarized below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process $152,509 $145,885
Finished goods 27,413 26,398
Less progress billings (22,525) (21,428)
-------- --------
Net inventories $157,397 $150,855
-------- --------
-------- --------
</TABLE>
3. Net interest expense is composed of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
-------------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense $10,959 $12,426
Interest income (2,195) (978)
-------- --------
Interest - net $ 8,764 $11,448
-------- --------
-------- --------
</TABLE>
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<PAGE>
WESTERN ATLAS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported higher sales, net earnings and operating profit for the
three months ended March 31, 1996 compared with the three months ended March 31,
1995. Segment sales and operating profit were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1996 1995
------------- -------------
<S> <C> <C>
SALES AND SERVICE REVENUES
Oilfield Services $305,174 $293,191
Industrial Automation Systems 244,282 212,699
-------- --------
Total sales and service revenues $549,456 $505,890
-------- --------
-------- --------
OPERATING PROFIT
Oilfield Services $ 32,162 $ 31,012
Industrial Automation Systems 20,535 18,057
-------- --------
Total operating profit $ 52,697 $ 49,069
-------- --------
-------- --------
</TABLE>
The oilfield services business reported higher sales and operating profit in the
current three months compared with the corresponding prior period. Overall
operating margins were comparable to those of the corresponding prior period,
even while the Company continues to invest in its new E&P Services division.
The industrial automation systems operations reported higher sales and operating
profits for the three months compared with the corresponding prior period.
Intermec, the Company's automated data collection division, benefited from the
success of new product introductions and higher first quarter sales under its
five-year purchasing agreement with the U.S. government. Sales and operating
profits of the Company's Manufacturing Systems Group improved over the
corresponding prior period in both European and North American markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and marketable securities of $131.5 million at March 31,
1996, compared with $116.7 million at December 31, 1995. The cash and
marketable securities balance is expected to decrease during the second quarter
of 1996 as a result of anticipated working capital needs, due primarily to an
increase in sales backlog of the Manufacturing Systems Group. The Company
expects that cash flow from operations, along with available borrowing capacity,
will provide the flexibility to meet strategic objectives and the ability to
meet working capital requirements. The Company currently has unused credit
facilities with a group of banks which permit the borrowing of up to $400
million.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K: No reports on Form 8-K have been filed by the
Registrant during the quarter ended March 31, 1996.
(b) See Exhibit Index included herein on page 9.
-8-
<PAGE>
WESTERN ATLAS INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- - ------------- ----------------------
<C> <S>
2.1 Stock Purchase Agreement dated December 7, 1993, among Western
Atlas Inc., Western Atlas International, Inc., Western Research
Holdings, Inc., Litton Industries, Inc. and Dresser Industries,
Inc. (Filed as Exhibit 10M to Amendment No. 1, filed with the
Commission on December 13, 1993 ("Amendment No. 1") to the
Company's Registration Statement on Form 10 No. 1-12430 filed
with the Commission on October 12, 1993 and incorporated herein
by reference.)
2.2 Agreement dated as of January 13, 1994, between Western Atlas
International, Inc. and Halliburton Company (Filed as Exhibit
10S to Amendment No. 2, filed with the Commission on January 19,
1994 ("Amendment No. 2"), to the Company's Registration
Statement on Form 10 No. 1-12430 filed with the Commission on
October 12, 1993 and incorporated herein by reference.)
4.1 Indenture dated as of May 15, 1994 between the Company and
The Bank of New York, Trustee, providing for the issuance of
securities in series, filed as exhibit 4.4 to the Company's June
30, 1994 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
4.2 Form of 8.55% Debentures due 2024 issued by the Company under
such indenture, filed as exhibit 4.5 to the Company's June 30,
1994 Quarterly Report on Form 10-Q, and incorporated herein by
reference.
4.3 Form of 7-7/8% Notes due 2004 issued by the Company under such
indenture, filed as exhibit 4.6 to the Company's June 30, 1994
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
4.4 Other instruments defining the rights of holders of other
long-term debt of the Company are not filed as exhibits because
the amount of debt authorized under any such instrument does not
exceed 10% of the total assets of the Company and its
consolidated subsidiaries. The Company hereby undertakes to
furnish a copy of any such instrument to the Commission upon
request.
</TABLE>
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<PAGE>
INDEX TO EXHIBITS, (CONTINUED)
<TABLE>
<C> <S>
4.5 Rights Agreement, dated as of August 17, 1994 between Western
Atlas Inc. and Chemical Trust Company of California, as Rights
Agent, which includes the form of Certificate of Designations
setting forth the terms of the Series A Junior Participating
Preferred Stock, par value $1.00 per share, of Western Atlas
Inc., as Exhibit A; the form of Right Certificate, as Exhibit B;
and the Summary of Rights to Purchase Preferred Shares, as
Exhibit C, filed as Exhibit 4 to the Company's August 17, 1994
current report on Form 8-K, and incorporated herein by
reference. Pursuant to the Rights Agreement, printed Right
Certificates will not be mailed until as soon as practicable
after the earlier of the tenth day after the public announcement
that a person or group has acquired beneficial ownership of 15%
or more of the Common Shares or the tenth business day (or such
later date as may be determined by action of the Board of
Directors) after a person commences, or announces its intention
to commence, a tender offer or exchange offer the consummation
of which would result in the beneficial ownership by a person or
group of 15% of the Common Shares.
4.6 $400,000,000 Amended and Restated Credit Agreement dated as of
December 22, 1994, among Western Atlas Inc., the Banks listed
therein, and Morgan Guaranty Trust Company of New York as Agent,
and Bank of America National Trust and Savings Association, The
Bank of New York, Chemical Bank, CIBC Inc., Continental Bank,
N.A., NationsBank of Texas, N.A., Union Bank of Switzerland, Los
Angeles Branch, and Wells Fargo Bank, N.A. as Co-Agents, filed
as exhibit 4.9 to the Company's 1994 Annual Report on Form 10-K
and incorporated herein by reference.
10.1 Distribution and Indemnity Agreement dated March 17, 1994,
between Litton Industries, Inc. and Western Atlas Inc., filed as
Exhibit 10.1 to the Company's March 31, 1994 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.2 Tax Sharing Agreement entered into March 17, 1994, between
Litton Industries, Inc., and Western Atlas Inc., filed as
Exhibit 10.2 to the Company's March 31, 1994 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.3 Services and Support Agreement made as of March 17, 1994,
between Litton Industries, Inc., and Western Atlas Inc., filed
as Exhibit 10.3 to the Company's March 31, 1994 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
10.4 Employee Benefits Agreement dated as of March 17, 1994, between
Litton Industries, Inc., and Western Atlas Inc., filed as
Exhibit 10.4 to the Company's March 31, 1994 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.5 Intellectual Property Agreement dated March 17, 1994, between
Litton Industries, Inc., and Western Atlas Inc., filed as
Exhibit 10.5 to the Company's March 31, 1994 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
</TABLE>
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<PAGE>
INDEX TO EXHIBITS, (CONTINUED)
<TABLE>
<C> <S>
10.6 Data Processing Services Agreement entered into November 30,
1993, between Litton Computer Services and Western Atlas Inc.,
filed as Exhibit 10.6 to the Company's March 31, 1994 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.7 LINT Agreement made as of March 17, 1994, between Western Atlas
Inc., and Litton International, S.A., filed as Exhibit 10.7 to
the Company's March 31, 1994 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.8 Western Atlas International Agreement made as of March 17, 1994,
among Litton Industries, Inc., Western Research Holdings, Inc.,
and Western Atlas Inc., filed as Exhibit 10.8 to the Company's
March 31, 1994 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.9 Western Tax Agreement made as of March 17, 1994, between Litton
Industries, Inc., and Western Research Holdings, Inc., filed as
Exhibit 10.9 to the Company's March 31, 1994 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.10 Change in Control Employment Agreements dated as of March 17,
1994, between Western Atlas Inc., and each of Alton J. Brann,
Joseph T. Casey, John R. Russell and Norman L. Roberts, filed as
Exhibit 10.11 to the Company's March 31, 1994 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
10.11 Western Atlas Inc. Director Stock Option Plan, filed as Exhibit
10.12 to the Company's March 31, 1994 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.12 Western Atlas International, Inc. Benefit Restoration Plan
(Filed as Exhibit 100 to Amendment No. 2 and incorporated herein
by reference.)
10.13 Western Atlas International, Inc., Supplemental Retirement Plan
(Filed as Exhibit 10P to Amendment No. 1 and incorporated herein
by reference.)
10.14 Supplemental Retirement Agreement between Western Atlas Inc. and
Alton J. Brann dated March 17, 1994, filed as Exhibit 10.16 to
the Company's March 31, 1994 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.15 Western Atlas Inc. Restoration Plan (Filed as Exhibit 10U to
Amendment No. 2 and incorporated herein by reference.)
10.16 Resolutions adopted by Board of Directors of Western Atlas Inc.
on March 17, 1994, with respect to Incentive Loan Program and
form of promissory note to evidence loans made thereunder, filed
as Exhibit 10.20 to the Company's March 31, 1994 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
</TABLE>
-11-
<PAGE>
INDEX TO EXHIBITS, (CONTINUED)
<TABLE>
<C> <S>
10.17 Western Atlas Inc. Deferred Compensation Plan for Directors,
filed as exhibit 10.22 to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference.
10.18 Western Atlas Inc. Individual Performance Award Plan, filed as
exhibit 10.23 to the Company's 1994 Annual Report on Form 10-K
and incorporated herein by reference.
10.19 Western Atlas Inc. 1995 Incentive Compensation Plan, filed as
exhibit 10.24 to the Company's 1994 Annual Report on Form 10-K
and incorporated herein by reference.
10.20 Change in Control Employment Agreements dated as of November 16,
1995, between Western Atlas Inc., and each of Orval F. Brannan
and Damir S. Skerl, filed as exhibit 10.20 to the Company's 1995
Annual Report on Form 10-K and incorporated herein by reference.
10.21 Western Atlas Inc. Supplemental Executive Retirement Plan, filed
as exhibit 10.21 to the Company's 1995 Annual Report on Form
10-K and incorporated herein by reference.
10.22 Employment Agreement dated as of December 9, 1995, between
Western Atlas Inc., and Clayton A. Williams, filed as exhibit
10.22 to the Company's 1995 Annual Report on Form 10-K and
incorporated herein by reference.
10.23 Western Atlas Inc. 1993 Stock Incentive Plan, as amended on
February 13, 1996, filed as exhibit 10.23 to the Company's 1995
Annual Report on Form 10-K and incorporated herein by reference.
11 Statement of Computation of Earnings per share included herein
as Exhibit 11 on page 13.
</TABLE>
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<PAGE>
EXHIBIT 11
WESTERN ATLAS INC.
PRIMARY EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
EARNINGS PER SHARE
Net earnings available for common shares and common stock equivalent shares
deemed to have a dilutive effect $ 22,684 $ 19,189
-------------- --------------
-------------- --------------
Primary earnings per share $ 0.42 $ 0.36
-------------- --------------
-------------- --------------
Fully diluted earnings per share $ 0.42 $ 0.36
-------------- --------------
-------------- --------------
SHARES USED IN PRIMARY EARNINGS PER SHARE COMPUTATION
Weighted average common shares outstanding 53,282,797 52,942,364
Common stock equivalents 962,255 761,337
-------------- --------------
Total common shares and common stock equivalent shares deemed to have a
dilutive effect 54,245,052 53,703,701
-------------- --------------
-------------- --------------
SHARES USED IN FULLY DILUTED EARNINGS PER SHARE COMPUTATION
Total common shares and common stock equivalent shares deemed to have a
dilutive effect 54,245,052 53,703,701
Additional potentially dilutive effect of stock options 101,811 74,736
-------------- --------------
Total 54,346,863 53,778,437
-------------- --------------
-------------- --------------
</TABLE>
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<PAGE>
SIGNATURE
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.
WESTERN ATLAS INC.
(Registrant)
By /s/ J. T. Casey
-----------------------------------
Joseph T. Casey
Vice Chairman and
Chief Financial Officer
May 8, 1996
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 131,491
<SECURITIES> 0
<RECEIVABLES> 594,428
<ALLOWANCES> 0
<INVENTORY> 157,397
<CURRENT-ASSETS> 1,039,335
<PP&E> 1,363,286
<DEPRECIATION> 639,269
<TOTAL-ASSETS> 2,483,497
<CURRENT-LIABILITIES> 508,465
<BONDS> 568,627
0
0
<COMMON> 53,389
<OTHER-SE> 1,331,239
<TOTAL-LIABILITY-AND-EQUITY> 2,483,497
<SALES> 0
<TOTAL-REVENUES> 549,456
<CGS> 0
<TOTAL-COSTS> 378,289
<OTHER-EXPENSES> 124,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,959
<INCOME-PRETAX> 37,806
<INCOME-TAX> 15,122
<INCOME-CONTINUING> 22,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,684
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
