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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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.)
10205 WESTHEIMER ROAD
HOUSTON, TEXAS 77042-3115
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 972-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
Rights to Purchase Series A Junior Participating New York Stock Exchange
Preferred Stock Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On February 25, 1998, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $3.9 billion.
On February 25, 1998, there were 54,692,709 shares of Common Stock
outstanding.
The information required by Part III of this report is incorporated by
reference from the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this report.
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WESTERN ATLAS INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
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Page
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Forward-Looking Information and Risk Factors......................................................... 1
PART I
Item 1: Business............................................................................... 5
Item 2: Properties............................................................................. 8
Item 3: Legal Proceedings...................................................................... 8
Item 4: Submission of Matters to a Vote of Security Holders.................................... 8
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters.............. 9
Item 6: Selected Financial Data................................................................ 10
Item 7: Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................. 11
Item 7A: Quantitative and Qualitative Market Risk Disclosures................................... 15
Item 8: Financial Statements and Supplementary Data............................................ 16
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................. 16
PART III
Item 10: Directors and Executive Officers of the Registrant..................................... 17
Item 11: Executive Compensation................................................................. 17
Item 12: Security Ownership of Certain Beneficial Owners and Management......................... 17
Item 13: Certain Relationships and Related Transactions......................................... 17
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 18
Signatures ....................................................................................... 21
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WESTERN ATLAS INC.
1997 ANNUAL REPORT ON FORM 10-K
FORWARD-LOOKING INFORMATION AND RISK FACTORS
This report of Western Atlas Inc. (the "Company" or "WAI") may include
forward-looking statements, including statements in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Item
1. Business," "Item 2. Properties," "Item 3. Legal Proceedings," and "Item 7A.
Quantitative and Qualitative Market Risk Disclosures," regarding estimated
future net revenue; planned capital expenditures (including the amount and
nature thereof); the Company's financial position, results of operations, and
cash flows; business strategy; and other plans and objectives for future
operations. Such statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this report, words
such as "anticipate," "believe," "estimate," "expect," "intend," "may," and
similar expressions, as they relate to the Company or its management, identify
forward-looking statements. Although the Company believes that the expectations
reflected in these forward-looking statements are reasonable, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized, or even if substantially realized, that they will have the
expected effects on its business or operations. Actual results could differ
materially from those contemplated by the forward-looking statements as a result
of certain factors, including but not limited to dependence upon oil and gas
industry spending, worldwide prices and demand for oil and gas, the presence of
competitors with greater financial and other resources, technological changes
and developments, operating risks inherent in the oilfield services industry,
operating risks related to oil and gas exploration and production activities,
regulatory uncertainties, worldwide political stability and economic conditions,
operating risks associated with international activity, and other factors set
forth among the risk factors noted below or in the description of the Company's
business in Item 1 of this report. All subsequent oral and written
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these factors. The Company
assumes no obligation to update any of these statements.
INDUSTRY CONDITIONS
Demand for the Company's services depends largely upon the level of spending by
oil and gas companies for exploration, production, development, and field
management activities. These activities depend in part on current and expected
oil and gas prices, the cost of exploring for, producing and delivering oil and
gas, the sale and expiration dates of leases and concessions for worldwide oil
and gas exploration, the discovery rate of new oil and gas reservoirs, domestic
and international political, regulatory, and economic conditions, and the
ability of oil and gas companies to obtain capital. In addition, a decrease in
oil and gas expenditures could result from such factors as unfavorable tax and
other legislation or uncertainty concerning national energy policies. Prices for
oil and gas are subject to wide fluctuations in response to relatively minor
changes in the supply of and demand for oil and gas, market uncertainty,
political conditions in the Middle East and other oil and gas producing regions
of the world, the foreign supply of oil and gas, and overall economic
conditions. Beginning in 1981, a sharp decline in oil and gas prices led to a
worldwide reduction in oil and gas activities. This decline resulted in a
significant reduction in the overall demand for oilfield services. Although
demand for oilfield services has increased over the past few years, no assurance
can be given that current levels of oil and gas activities will be maintained or
that demand for the Company's services will reflect the level of such
activities. Decreases in oil and gas activities could adversely affect the
demand for the Company's services and the Company's results of operations. Any
significant decline in oil and gas prices such as occurred in the 1980s could
cause the Company to alter its capital spending plans and adversely affect its
ability to maintain its competitive position. In late 1997, worldwide oil prices
declined approximately 20% from earlier levels. Thus far, the Company believes
that this decline has not had an adverse impact on its business. In the event,
however, that oil prices decline further or current pricing conditions continue
for an extended period of time, such events could have a material adverse impact
on the Company's revenue and profit.
RISKS INHERENT IN INTERNATIONAL OPERATIONS
Over two-thirds of the Company's revenue in 1997 and 1996 was derived from
operations outside the United States. As a result, the Company is subject to
certain risks inherent in doing business internationally. In addition to
unpredictable operating risks, such risks include the possibility of unfavorable
changes in tax or other laws, partial or total expropriation, the disruption of
operations from labor and political disturbances, trade embargoes or sanctions,
insurrection or war, the effect of partial local ownership requirements in
certain countries, currency exchange rate fluctuations, and restrictions on
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currency repatriation. Further, the ability of the Company to compete in
international markets may be adversely affected by import duties and fees,
foreign taxes, foreign governmental regulations that favor or require the
awarding of contracts to local contractors, or regulations requiring foreign
contractors to employ citizens of or purchase supplies from a particular
jurisdiction. In addition, United States law imposes a variety of trade
sanctions restricting the Company's ability to conduct business in restricted
countries. Discussions have occurred and may continue in the United States
Congress and Administration concerning further trade sanctions in markets that
may adversely impact the Company in the future.
To minimize currency risks, the Company generally denominates its contracts in
U.S. dollars or other currencies that it believes to be stable. When the
Company's operations require it to denominate contracts in currencies other than
such currencies, the Company attempts to structure such foreign
currency-denominated contracts so that foreign receipts do not exceed planned
in-country expenditures of performing such contracts. While the Company employs
certain policies intended to reduce the risk associated with exchange rate
fluctuations, there can be no assurance that such policies will be effective or
that fluctuations in the value of non-U.S. currencies will not materially affect
the Company's operating results in the future.
The Company also obtains insurance against war, expropriation, confiscation, and
nationalization when such insurance is available and when management considers
it advisable. Such coverage is not always available, and when available, is
sometimes subject to unilateral cancellation by the insuring companies on short
notice. In addition, the Company's international operations may be in part
dependent upon the projects of foreign government-owned oil and gas companies.
Significant changes in the policies of such foreign governments could reduce the
expenditures of such companies on these projects and result in an unfavorable
impact on the operating results of the Company.
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's operations are subject to a variety of foreign, federal, state and
local laws, and regulations, including laws and regulations relating to the
protection of human health and the environment. Violation of these laws and
regulations may result in civil and even criminal penalties. Currently, the
Company is required to invest financial and managerial resources to comply with
such laws, regulations, and related permit requirements in its operations and
anticipates that it will continue to do so in the future. The Company's seismic
data acquisition contracts typically require customers to obtain all necessary
permits. Conversely, the acquisition of multiclient seismic data may require the
Company to obtain required permits. Failure to obtain required permits in a
timely manner may result in crew downtime and operating losses. Although the
Company's cost of complying with governmental laws and regulations, including
environmental laws and regulations, has not been significant to date, there can
be no assurance that environmental or other laws and regulations will not change
in the future or that the Company will not incur significant costs related to
its compliance with such laws and regulations in the future performance of its
operations. The modification of existing laws or regulations or the adoption of
new laws or regulations curtailing oil and gas exploration or imposing more
stringent restrictions on seismic data acquisition operations could adversely
affect the Company.
UNCERTAINTY OF PROTECTION OF PATENTS, TRADEMARKS, SERVICE MARKS, COPYRIGHTS, AND
PROPRIETARY RIGHTS
The Company relies on a combination of patents, copyrights, trademarks, service
marks, trade secret protection, confidentiality agreements, and licensing
arrangements (collectively referred to as "intellectual property") to establish
and protect its proprietary rights. The Company's success will depend, in part,
on its ability to maintain and preserve its intellectual property and to operate
without infringing the intellectual property of third parties. Despite the
Company's efforts to safeguard and maintain these proprietary rights, there can
be no assurance that the Company will be successful or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies. In addition, the Company
could incur substantial costs in defending against suits brought against it by
others for infringement of intellectual property rights or in prosecuting suits
that the Company might bring against other parties to protect its intellectual
property rights.
CAPITAL STRUCTURE, CASH FLOW, AND ACQUISITIONS
As of December 31, 1997, the Company's consolidated indebtedness totaled
approximately $808 million and constituted approximately 48% of its total
capital. As demand grows for the Company's services, it is generally required to
spend significant amounts of capital for (i) research and technology; (ii)
property, plant and equipment; (iii) exploration and production related
expenditures; and (iv) acquisitions of multiclient seismic data. Management
expects that these expenditures will exceed the Company's cash flow from
operations through 1999. During this period, the Company
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expects to fund these capital needs from internal cash flows, additional
borrowings, and, possibly, through sales of debt and/or equity securities.
One of the Company's strategies is to grow externally by acquiring businesses
that (i) add new technologies and capabilities to its core businesses, (ii)
improve its presence in selected markets, (iii) complement its existing
businesses and (iv) allow the Company to enhance its participation in the
emerging life-of-field reservoir management opportunities. To the extent that
the Company is successful in this regard, it may be required to raise
substantial funds to finance such acquisitions. There can be no assurance that
the Company will be able to obtain any such financing or that, if available,
such financing will be on terms acceptable to the Company. Depending upon the
circumstances of particular acquisitions, the Company may fund any such
acquisitions through the issuance of common stock or other equity securities,
or, to the extent permitted by the Company's debt covenants, with additional
borrowed funds. There can be no assurance that attractive acquisitions will be
available to the Company at reasonable prices or that the Company will
successfully integrate the operations and assets of any acquired business with
its own or that the Company's management will be able to manage effectively the
increased size of the Company or operate a new line of business. Any inability
on the part of the Company to integrate and manage acquired businesses could
have a material adverse effect on the Company's results of operations and
financial condition. Acquisitions may result in potentially dilutive issuances
of equity securities, reduced operating margins, increased interest expense, or
increased financial leverage, any of which could have a material adverse effect
on the Company's operating results.
CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE
The Company's business is capital intensive. The development of seismic data
acquisition and logging equipment has been characterized by rapid technological
advancements in recent years. The Company expects this trend to continue. There
can be no assurance that manufacturers of seismic data acquisition equipment and
the Company's competitors, who, like the Company, manufacture their own logging
equipment, will not develop new systems that have competitive advantages over
systems now in use that either render the Company's current equipment obsolete
or require the Company to make significant capital expenditures to maintain its
competitive position. The Company intends to maintain and periodically upgrade
its equipment and other revenue-producing assets to maintain its competitive
position. If the Company is unable to access the capital necessary to meet the
aforementioned needs, it may have a material adverse effect upon the Company's
competitive position.
In addition, some of the Company's data processing or technological techniques
or procedures could be rendered obsolete by developments of a competitor which
could require the Company to make substantial research, technology, and software
expenditures to maintain its competitive position.
The Company's ability to compete is highly dependent upon, among other things,
its ability to provide products and services of a competitive quality.
Historically, significant technological changes have occurred in the Company's
businesses and the Company is dependent on its ability to keep pace with changes
and improvements in applicable technology. To the extent that the Company's
competitors develop new technology which is not available to the Company, the
Company's competitive position could be adversely affected.
INVESTMENT IN MULTICLIENT SEISMIC DATA
The Company has invested significant amounts in acquiring and processing
multiclient seismic data that is owned by the Company, and it expects to
continue doing so for the foreseeable future. Although the Company normally
obtains prefunding commitments for a portion of the cost of acquiring and
processing such surveys, future data licensing to multiple customers may not
fully recoup the Company's costs. Factors affecting the Company's ability to
recoup its costs include possible reduction in customer demand for multiclient
seismic data, and technological, regulatory, and other industry or general
economic developments, any of which could render all or portions of the
Company's library of multiclient seismic data obsolete or otherwise impair its
value. In addition, the timing of multiclient seismic data licensing typically
varies significantly from period to period compared to revenue from surveys
performed on an exclusive contract basis for a single customer.
COMPETITION
The Company operates in the highly competitive oilfield services industry. The
Company believes that it has three major competitors for its Western Geophysical
division and two major competitors for its Western Atlas Logging Services
division. Competitive factors include price, experience, availability,
technological expertise, performance, and reputation
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for dependability. Certain of the Company's major competitors have substantially
greater revenue than the Company or are subsidiaries or divisions of major
industrial enterprises having far greater financial and other resources than the
Company. Such resources may enable these competitors to maintain technological
and certain other advantages relating to costs that may provide them with an
advantage over the Company in bidding for contracts. There can be no assurance
that the Company will be able to compete successfully against competitors for
contracts to conduct its services. The Company also competes to attract and
retain qualified personnel in the oilfield services industry. There can be no
assurance that the Company will be able to attract or retain the qualified
personnel that it needs to conduct its services.
OPERATING RISKS; INSURANCE; HIGH FIXED COSTS
The Company's activities often involve operating under extreme environmental and
other hazardous conditions, and require that the Company establish its own
operational infrastructure in certain developing areas of the world. In
addition, certain of the Company's operations are subject to all of the
operating risks normally associated with the exploration and production of oil
and gas, including blowouts, cratering, and fire. Accordingly, the Company's
operations are subject to risks of loss to property and injury to persons due to
such conditions. Although the Company carries insurance against these risks in
amounts that it considers adequate, the Company may not be able to obtain
insurance against all risks in its business or for certain equipment located
from time to time in certain areas of the world. The occurrence of a single
significant event or a series of smaller, but still significant, events, for
which the Company is not fully insured, could have a material adverse effect on
the Company's financial position. Because of the high fixed costs involved in
the major components of the Company's business, downtime due to reduced demand,
weather interruptions, equipment failures, hazardous conditions, or other causes
can result in significant operating losses.
CONCENTRATION OF OWNERSHIP OF COMMON STOCK
As of December 31, 1997, approximately 69% of the Company's Common Stock was
owned by ten shareholders of record. Of these shareholders, Unitrin, Inc. held
23.2% of the Company's then outstanding Common Stock. Sales or attempted sales
of the Common Stock held by one or more of these entities could adversely affect
the value of the Company's equity securities.
DIVIDEND POLICY
The Company does not expect to pay dividends in the near future. The Company
expects to retain any earnings to finance the operations and expansion of the
Company's business. The dividend policy of the Company may be reviewed from time
to time and is set by the Company's board of directors at its sole discretion.
The payment of future dividends, if any, depends on the Company's operating
results, financial requirements and other factors deemed relevant from time to
time at the sole discretion of the Company's board of directors.
ANTITAKEOVER MATTERS
The Company's Restated Certificate of Incorporation, By-laws, and Share Purchase
Rights Plan and Delaware law include a number of provisions that may have the
effect of delaying, deferring, or preventing a change in the control or
management of the Company or encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with the Company's
board of directors rather than pursue non-negotiated takeover attempts. The
foregoing provisions may deter any potential unsolicited or unfriendly offers or
other efforts to obtain control of the Company and could deprive shareholders of
opportunities to realize a premium on their Common Stock.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Western Atlas Inc. (the "Company" or "WAI") is a leading supplier of oilfield
services and reservoir information technologies for the worldwide oil and gas
industry. It operates primarily through three divisions: Western Geophysical,
Western Atlas Logging Services, and E&P Services. The Company specializes in
land, marine and transition-zone seismic data acquisition and processing
services; well-logging and completion services; and reservoir characterization
and project management services. The Company's revenues have grown from
approximately $1.3 billion in 1995 to approximately $1.7 billion in 1997, an
increase of 29%. During this period, earnings before interest, taxes,
depreciation, depletion, and amortization ("EBITDA") grew from approximately
$408 million to approximately $570 million, an increase of 29%. For the year
ended December 31, 1997, the Company's international activity generated revenue
and operating profit of $1,129 million and $119 million, respectively. Domestic
activity produced revenue and operating profit of $529 million and $82 million,
respectively. See Note L of Notes to the Consolidated Financial Statements for
financial information by geographic area.
The Company, through its predecessors, has provided services to the oil and gas
industry since 1932 and was incorporated in Delaware as a wholly-owned
subsidiary of Litton Industries, Inc. ("Litton") in 1984. Later, the Company
became a publicly-traded company in March 1994, concurrent with the distribution
of its common stock, $1.00 par value (the "Common Stock"), to the shareholders
of Litton in a tax-free spin-off. On October 31, 1997, WAI distributed all of
the shares of UNOVA, Inc. ("UNOVA"), its then wholly-owned industrial automation
systems subsidiary, as a stock dividend to the Company's shareholders of record
on October 24, 1997, in a transaction structured as a tax-free spin-off (the
"Spin-off"). As a result of the Spin-off, UNOVA became an independent
publicly-traded company. See Notes B and K of Notes to the Consolidated
Financial Statements.
The Company's strategy is to maximize shareholder value by providing value-added
solutions for its customers, maintaining operational excellence, and pursuing
internal and external growth. The Company's reservoir information solutions
enable customers to more quickly locate hydrocarbons, mitigate exploration,
development, and production risks, and maximize returns. Western Atlas intends
to maintain and enhance its significant market positions in its core businesses
by continuing to invest substantial amounts of intellectual and financial
capital into new services, products, and technologies. In addition, the Company
strives to maintain the high standards of safety and environmental compliance
applicable to the Company's operations.
During 1997, the Company consummated four business acquisitions with respect to
the industrial automation systems operations that were spun off with UNOVA and
five acquisitions with respect to the Company's oilfield services business.
Information related to business acquisitions, investments, and dispositions is
set forth below in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note C of Notes to the Consolidated
Financial Statements.
The following information regarding the Company's business should be read in
conjunction with the information provided above under "Forward-Looking
Information and Risk Factors."
WESTERN GEOPHYSICAL
Western Geophysical ("WG") provides seismic data acquisition and processing
services to help evaluate the oil and gas producing potential of the earth's
sedimentary basins and locate productive zones. Seismic information reduces
field development and production costs by reducing turnaround time, lowering
drilling risks, and minimizing the number of wells necessary to explore and
develop reservoirs.
In October 1997, the Company acquired all of the outstanding shares of capital
stock of and merged GeoSignal, Inc., a seismic data processing company, and
Seismic Resources, Inc., a provider of multiclient seismic data, into the
Company in exchange for shares of Common Stock of the Company.
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WESTERN ATLAS LOGGING SERVICES
Western Atlas Logging Services ("WALS") provides a broad range of downhole
petrophysical and geophysical acquisition, processing, and analysis services to
measure rock and fluid properties of subsurface formations. New-generation
high-resolution logging instruments, coupled with faster data transmission
techniques, have provided for the transfer of larger amounts of data from the
borehole to the surface in less time. These new-generation tools, used in
combination with other logging instruments and sensors to obtain simultaneous
multiple measurements, have resulted in more accurate reservoir evaluation while
reducing logging turnaround time, and consequently lowering drilling costs and
risks.
In May 1997, the Company acquired Sungroup Energy Services Company, a Canadian
well-logging, production testing, and completion services provider.
Additionally, in December 1997, the Company acquired Heartland Kingfisher Inc.,
a Canadian well-logging company. ParaMagnetic Logging, Inc., a well-logging
research company, was acquired in October 1997 in exchange for shares of Common
Stock of the Company. These acquisitions are expected to provide growth
opportunities for the Company in the cased-hole logging and perforating markets.
E&P SERVICES
E&P Services ("E&PS") seeks clients and partners for oil and gas exploration and
production opportunities who will value the subsurface information technologies
which E&PS possesses to exploit the full potential of hydrocarbon bearing
properties. E&PS is organized into multidisciplinary project teams of
geophysicists, geologists, and reservoir engineers that offer a wide range of
experience in exploration and production techniques, including integrated
geoscience subsurface analysis, reservoir characterization, economic and risk
analysis, drilling recommendations, and project management and implementation.
E&PS was started in 1995 as a provider of value-added consulting services to
clients, typically on a fee basis. Thereafter, the division has continued
providing services to clients on a fee basis and is investing financial and
intellectual capital into client projects on a shared-risk and/or partnered
basis.
MARKET AND CUSTOMERS
The market for the Company's products and services is the worldwide oil and gas
industry. The Company has hundreds of customers consisting primarily of oil and
gas exploration and production companies, including large integrated oil and gas
entities, smaller independent companies, and government organizations. The
customer base is diversified with no single customer representing greater than
ten percent of the Company's revenue. The Company's top five customers
constitute approximately 21% of the Company's revenue.
Demand for the Company's services depends upon the level of spending by oil and
gas companies for exploration, production, development, and field management
activities. These activities depend in part on current and expected oil and gas
prices, the cost of exploring for, producing and delivering oil and gas, the
sale and expiration dates of leases and concessions for oil and gas exploration,
the discovery rate of new oil and gas reservoirs, domestic and international
political, regulatory and economic conditions, and the ability of oil and gas
companies to obtain capital. In addition, a decrease in oil and gas expenditures
could result from such factors as unfavorable tax and other legislation or
uncertainty concerning national energy policies. Prices for oil and gas are
subject to wide fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty, political conditions
in the Middle East and other oil producing regions of the world, the foreign
supply of oil and gas, and overall economic conditions. A further decline in oil
and gas prices or the continuation of current pricing conditions for an extended
period of time could cause the Company's customers to alter their spending plans
and result in a significant reduction in the demand for the Company's services.
See "Forward-Looking Information and Risk Factors" above.
COMPETITION
Competition in the seismic services market ranges from a few larger companies
with a broad spectrum of services, to smaller companies targeting narrow market
segments. Major competitors to WG in the seismic market are: Geco-Prakla (a
division of Schlumberger Limited), Compagnie Generale de Geophysique, and
Petroleum Geo-Services ASA. The Company believes WG is the largest participant
in this market, measured by revenue. In addition, there are numerous smaller
competitors. Competition in the oilfield logging services market ranges from a
few larger companies with a broad spectrum of services, to numerous smaller
companies targeting narrow market segments. The Company's largest competitors in
this market include Schlumberger Limited and Halliburton Company. The Company
believes WALS has
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the second largest revenue share of this market. The Company believes seismic
and logging projects are won primarily on the basis of price, technology,
quality, service, turnaround time, and availability of personnel and equipment.
METHODS OF DISTRIBUTION
The Company principally markets its products and services directly to its
customers on a global basis.
RAW MATERIALS
WALS' manufacturing operations design, develop, and manufacture most of the
proprietary tools and instruments used by WALS to provide its services. A wide
variety of raw materials are used in the manufacture of these products which are
obtained from a variety of suppliers. No single supplier provides ten percent or
more of the Company's raw materials. The Company believes that it could make
satisfactory alternative arrangements in the event of interruption in the supply
of such materials.
INTELLECTUAL PROPERTY
The Company owns significant intellectual property relating to its products and
services that have been secured over a period of years. This intellectual
property has been of value in the growth of the Company's business and are
expected to be of value in the future. However, the Company's business generally
is not dependent upon the protection of any single item or small number of items
of intellectual property and would not be materially affected by the expiration
or termination of any single item or small number of items of intellectual
property.
RESEARCH AND TECHNOLOGY
Direct expenditures on research and technology ("R&D") activities amounted to
$59.2 million, $54.8 million, and $59.8 million in the years ended December 31,
1997, 1996, and 1995, respectively.
SEASONALITY AND BACKLOGS
Although the Company's operations in any particular geographic area may be
affected by seasonal factors, the global nature of its operations tends to
reduce overall seasonal effects. Because the Company's revenue is predominantly
service related, the Company does not consider backlog to be a significant
measure of future sales.
ENVIRONMENTAL MATTERS
During the fiscal year ended December 31, 1997, the amounts incurred in
compliance with laws and regulations pertaining to environmental standards did
not have a material effect upon the Company's cash flows or earnings.
EMPLOYEES
As of December 31, 1997, the Company had approximately 10,600 full-time
employees, including approximately 6,000 with WG, approximately 4,200 with WALS,
and approximately 100 with E&PS.
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ITEM 2. PROPERTIES
The Company owns or leases real property, including manufacturing facilities,
administrative offices and research and development facilities, which cover
approximately 751 acres of land and approximately 4,525,000 square feet of
buildings, consisting of (i) 641 acres and 2,759,000 square feet located in the
United States, and (ii) 110 acres and 1,766,000 square feet located primarily in
Canada and the United Kingdom. The Company owns its administrative headquarters
located in Houston, Texas.
The Company owns eight superseismic vessels each having a significant unit
value. In addition, the Company owns or leases other property, including
vessels, trucks, heavy machinery, other vehicles, seismic equipment, logging
units, logging tools, data processing equipment, and oil and gas properties.
With respect to leased property, no significant lease is scheduled to terminate
in the near future and the Company believes comparable properties are readily
available should any lease expire without renewal. The Company believes that
all of its properties are generally well maintained and adequate for their
intended use.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, it is the opinion of
the Company's General Counsel that the ultimate resolution of these proceedings
will not have a material adverse effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1997.
8
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is listed on The New York Stock Exchange and The
Pacific Stock Exchange under the symbol "WAI." At February 25, 1998, there were
approximately 21,200 shareholders of record of the Company's Common Stock.
The following table sets forth, for the periods indicated, the high and low
sales prices per share for the Company's Common Stock on the NYSE composite
tape, adjusted to reflect the Spin-off.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE RANGE
-------------------------------
HIGH LOW
------------- --------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter $ 58 63/64 $ 45 7/8
Second Quarter 57 45/64 45 3/32
Third Quarter 71 51/64 56 43/64
Fourth Quarter 81 1/2 63 7/8
YEAR ENDED DECEMBER 31, 1996
First Quarter $ 48 33/64 $ 39 1/32
Second Quarter 51 1/4 43 17/32
Third Quarter 49 7/8 42 1/4
Fourth Quarter 57 7/32 48 33/64
</TABLE>
The Company has not paid any cash dividends to its shareholders. The Company
expects that, for the foreseeable future, any earnings will be retained for the
development of the Company's business and, accordingly, no cash dividends are
expected to be declared on the Common Stock. At December 31, 1997, 54,587,518
shares of Common Stock and no shares of preferred stock were issued and
outstanding. In October 1997, the Company acquired all of the outstanding shares
of common stock of GeoSignal, Inc. and Seismic Resources, Inc. from their
respective common shareholders in exchange for a total of 255,394 shares of the
Company's Common Stock, and all of the assets of Paramagnetic Logging, Inc. in
exchange for a total of 56,682 shares of the Company's Common Stock. The Company
relied upon Section 4(2) of the Securities Act of 1933, as amended, in order to
issue such shares of Common Stock. See "Item 1. Business" and Note C of Notes to
the Consolidated Financial Statements included herein.
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
---------------------------------------------------------- DECEMBER 31, JULY 31,
1997 1996 1995 1994 1993 (a) 1993 (a)
------------ --------------- -------------- ------------- ------------- ------------
(in millions, except per share and employee data)
<S> <C> <C> <C> <C> <C> <C>
Operating results:
Revenue $ 1,658.2 $ 1,418.1 $ 1,282.9 $ 1,194.5 $ 495.2 $ 1,161.7
========== ========== ========== ========== ========== ==========
Earnings (loss) from continuing
operations $ 91.8 $ 69.9 $ 61.4 $ 39.7 $ (190.6) $ 40.8
Earnings (loss) from discontinued
operations (b) (154.9) 55.8 38.4 38.0 7.3 33.1
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before cumulative
effect of a change in accounting
principle (63.1) 125.7 99.8 77.7 (183.3) 73.9
Cumulative effect of a change in
accounting principle (c) -- -- -- -- -- (1.1)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ (63.1) $ 125.7 $ 99.8 $ 77.7 $ (183.3) $ 72.8
========== ========== ========== ========== ========== ==========
Common share data - diluted (d):
Earnings (loss) per share from
continuing operations $ 1.65 $ 1.29 $ 1.14 $ .82 $ (4.18) $ .87
Earnings (loss) per share from
discontinued operations (b) (2.78) 1.03 .72 .78 .16 .70
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) per share before
cumulative effect of a change in
accounting principle (1.13) 2.32 1.86 1.60 (4.02) 1.57
Cumulative effect of a change in
accounting principle (c) -- -- -- -- -- (.02)
---------- ---------- ---------- ---------- ---------- ----------
Total $ (1.13) $ 2.32 $ 1.86 $ 1.60 $ (4.02) $ 1.55
========== ========== ========== ========== ========== ==========
Shares used to compute earnings
(loss) per share (d) 55.6 54.3 53.8 48.5 45.6 47.0
Financial position at period end:
Total assets $ 2,330.7 $ 2,499.2 $ 2,268.6 $ 2,141.6 $ 2,007.5 $ 1,756.7
Long-term debt $ 701.5 $ 450.6 $ 496.9 $ 490.0 $ 694.4 $ 172.4
Working capital $ 114.2 $ 775.0 $ 827.5 $ 729.0 $ 752.4 $ 714.7
Current ratio 1.2 2.9 3.8 3.3 3.5 5.1
Other selected information:
EBITDA (e) $ 569.6 $ 456.7 $ 408.5 $ 341.3 $ 86.7 $ 313.0
Research and technology
expenditures $ 59.2 $ 54.8 $ 59.8 $ 59.1 $ 28.2 $ 61.7
Depreciation, depletion, and
amortization (f) $ 368.9 $ 309.2 $ 273.6 $ 232.6 $ 87.7 $ 185.2
Capital expenditures $ 430.0 $ 279.6 $ 171.1 $ 146.7 $ 111.8 $ 130.2
Cost of multiclient seismic
data acquired $ 275.1 $ 195.9 $ 152.3 $ 114.2 $ 38.3 $ 27.0
Number of employees at period end 10,600 9,100 8,500 8,900 7,800 8,800
</TABLE>
Footnotes
(a) WAI became a publicly-traded company in March 1994, concurrent with the
distribution of its Common Stock to the shareholders of Litton. The
Company's fiscal year-end was changed from July 31 to December 31 in 1993.
Interest expense, income taxes, and certain general and administrative
corporate costs incurred by Litton were allocated to the Company for
periods presented prior to January 1, 1994.
(Notes continued on following page)
10
<PAGE> 13
(b) On October 31, 1997, the shares of common stock of UNOVA were distributed
to the Company's shareholders. UNOVA's operations through October 31, 1997
are reported in the Company's financial statements as discontinued
operations. Accordingly, the accounts of UNOVA's operations were
reclassified as earnings from discontinued operations. Corporate general
and administrative costs of the Company were not allocated to UNOVA for any
of the periods presented. Management estimates, however, that approximately
85% of corporate general and administrative costs attributable to the
periods presented were attributable to UNOVA. Furthermore, Spin-off-related
costs of $8.35 million were charged to continuing operations during the
second quarter of 1997.
(c) The provisions of SFAS No. 106, Employer's Accounting for Postretirement
Benefits Other Than Pensions, were adopted in fiscal year 1993. Immediate
recognition of the transition liability was elected. All amounts pertain to
continuing operations.
(d) The number of shares of Common Stock outstanding prior to 1994 was based on
the weighted-average number of shares of Litton common stock outstanding
for fiscal 1993.
(e) "EBITDA" means earnings before interest, taxes, depreciation, depletion,
amortization, and non-recurring items and should not be considered as an
alternative to net income or any other generally accepted accounting
principles measure of performance as an indicator of the Company's
operating performance or as a measure of liquidity. The Company believes
EBITDA is a widely accepted financial indicator of a company's ability to
service debt.
(f) During the fourth quarter of 1997, the Company extended the estimated
useful lives of certain assets. This change in accounting estimate resulted
in an increase in the Company's earnings from continuing operations of $2.8
million or $0.05 diluted earnings per share for 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations ("MD&A") should be read in conjunction with information provided
above under "Forward-Looking Information and Risk Factors," and with the
Company's Consolidated Financial Statements included herein for the years ended
December 31, 1997, 1996, and 1995 and the related notes thereto.
OVERVIEW
As described under "Item 1. Business - Introduction" and "Item 6. Selected
Financial Data," on October 31, 1997, the Company effected the Spin-off of its
industrial automation business. The operations of UNOVA were reported in the
Company's Consolidated Financial Statements as discontinued operations.
Accordingly, the accounts of these operations have been reclassified as earnings
from discontinued operations. See Note B of Notes to Consolidated Financial
Statements.
RESULTS OF CONTINUING OPERATIONS
The Company's continuing operations discussed herein reflect the Company's
ongoing oilfield service-related businesses only. All references to earnings per
share are on a diluted basis unless specified otherwise.
1997 COMPARED TO 1996
Net earnings from continuing operations totaled $91.8 million, or $1.65 per
share, for the year ended December 31, 1997, an increase of 31% compared to 1996
net earnings of $69.9 million, or $1.29 per share. Excluding the impact of
certain costs relating to the Spin-off which are required to be included in
general and administrative expense, pro forma net earnings from continuing
operations totaled $106.7 million, or $1.92 per share, for 1997 and $86.1
million, or $1.59 per share, for 1996. See "Discontinued Operations" below for
an analysis of segment results prior to the Spin-off.
Total revenue for 1997 was $1,658.2 million, an increase of 17% over 1996
revenue of $1,418.1 million. Businesses acquired in 1997 contributed
approximately $26.6 million of the revenue improvement. Approximately 68% of the
Company's consolidated revenue was derived from international activities in
1997, compared to 70% in 1996. Consolidated international revenue increased 15%
in 1997 over 1996.
11
<PAGE> 14
Operating profit from continuing operations was $200.6 million in 1997 compared
to $147.4 million in 1996. Excluding the impact of certain costs relating to the
Spin-off which are required to be included in general and administrative
expense, pro forma operating profit from continuing operations totaled $217.1
million for 1997 and $174.4 million for 1996. See "Discontinued Operations"
below for a discussion of the Spin-off. Approximately 60% of the Company's
consolidated operating profit was derived from international activities in 1997,
compared to 56% in 1996.
WESTERN GEOPHYSICAL - WG's 1997 revenue increased 17% and operating profit
increased 31% in 1997 compared to the prior year period. In addition to
improvements in the overall seismic market, seismic operations were favorably
impacted by the expansion of the ocean-bottom cable market, the emergence of the
4-D seismic market, the Company's proprietary development of new solid-streamer
technology for its marine seismic vessels, and advancements in data processing
technology.
WALS - WALS' revenue increased 17% and operating profit increased 36% in 1997
compared to the prior year. During 1997, WALS benefited from several long-term
contracts derived from the success of the Company's new logging technologies. In
addition, WALS focused on geographic expansion opportunities during 1997
primarily in Latin America, the Middle East, Southeast Asia, and Africa.
E&PS - During 1996 and 1997, E&PS did not have a portfolio of developed
prospects generating income. As a result, during 1996 and 1997, E&PS continued
to realize operating losses, including full cost ceiling impairments of $12.5
million in 1997 and $7.0 million in 1996, related to E&PS projects. The Company
is continuing to invest capital to develop this division and expects E&PS to
become profitable during 1998.
1996 COMPARED TO 1995
Net earnings from continuing operations totaled $69.9 million, or $1.29 per
share, for the year ended December 31, 1996, an increase of 14% compared to 1995
net earnings of $61.4 million, or $1.14 per share. Excluding the impact of
certain costs relating to the Spin-off which are required to be included in
general and administrative expense, pro forma net earnings from continuing
operations totaled $86.1 million, or $1.59 per share, for 1996 and $75.9
million, or $1.41 per share, for 1995. See "Discontinued Operations" below for a
discussion of the Spin-off.
Total revenue for 1996 was $1,418.1 million, an increase of 11% over 1995
revenue of $1,282.9 million. Approximately 70% of the Company's consolidated
revenue was derived from international activities in 1996, compared to 68% in
1995. Consolidated international revenue increased 13% in 1996 over 1995.
Operating profit was $147.4 million in 1996 compared to $134.9 million in 1995.
Excluding the impact of certain costs relating to the Spin-off which are
required to be included in general and administrative expense, pro forma
operating profit of continuing operations totaled $174.4 million for 1996 and
$159.1 million for 1995. Approximately 56% of the Company's consolidated
operating profit was derived from international activities in 1996, compared to
64% in 1995.
WESTERN GEOPHYSICAl - WG revenue for 1996 increased 15% and operating profit
increased 14% over the prior year. Seismic operations benefited from a number of
highly successful multiclient geophysical surveys, the expansion of its
ocean-bottom cable acquisition and processing technology, and its growth in the
global land market.
WALS - WALS began to realize the benefits of introducing its new-generation
tools in 1996 with slightly higher revenue and operating profit than in 1995.
Revenue increased 6% over 1995 revenue. Operating profit increased 2% in 1996
compared to the prior year.
E&PS - During 1995 and 1996, the Company built the infrastructure necessary to
participate with clients on exploration and production projects in the U.S. and
internationally. Although revenue increased in 1996 compared to 1995, E&PS had
operating losses in both 1996 and 1995. The operating loss in 1996 was due in
part to full cost ceiling impairments of $7.0 million.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative ("G&A") expense decreased as a percent of sales from
5.1% in 1996 to 4.0% in 1997. Actual expenditures in 1997 were $66.8 million
compared to $72.0 million in 1996. G&A expenses were consistent from 1995 to
1996. Excluding the impact of certain costs relating to the Spin-off which are
required to be included in general and administrative expense, pro forma G&A
totaled $50.3 million, $45.1 million and $47.6 million for the years ended
12
<PAGE> 15
December 31, 1997, 1996, and 1995, respectively. See "Discontinued Operations"
for a discussion of the Spin-off charges and allocated corporate and
administrative costs.
RESEARCH AND TECHNOLOGY
R&D expense increased 8% in 1997 to $59.2 million compared to $54.8 million in
1996. For the year ended December 31, 1996, research and technology expense
decreased $5.0 million, or 8%, compared to 1995.
DEPRECIATION, DEPLETION, AND AMORTIZATION
Depreciation, depletion, and amortization expense for the year ended December
31, 1997 increased $59.7 million, or 19%, over 1996. Expense increased $35.7
million, or 13%, from 1995 to 1996. Increased capital spending in both years
raised the depreciable asset bases for equipment and multiclient seismic data
resulting in the higher depreciation, depletion, and amortization expense.
During the fourth quarter of 1997, the Company extended the estimated useful
lives of certain assets to more closely reflect management's current estimate of
their expected lives. The effect of this change in accounting estimate resulted
in an increase in the Company's earnings from continuing operations of $2.8
million or $0.05 earnings per share, for 1997. Based on the Company's fixed
assets owned at December 31, 1997, the impact on future earnings is estimated to
be an increase of $8.5 million in 1998 and $3.9 million in 1999.
INTEREST EXPENSE
Interest expense in 1997 increased $10.5 million from 1996 due to higher average
debt levels. Interest expense in 1996 was slightly lower than 1995 as slightly
higher average debt balances were offset by a slightly lower weighted average
interest rate.
INCOME TAXES
The effective income tax rate for continuing operations in 1997 was 39.3% as
compared to 40.0% in 1996 and 40.5% in 1995. The effective rates differ from the
federal statutory rates in all years due primarily to taxes on foreign
operations, the nondeductibility of goodwill amortization, and nondeductible
meals and entertainment expense.
DISCONTINUED OPERATIONS
Discontinued operations consist of the Company's industrial automation systems
business, UNOVA, up to the date of the Spin-off. Corporate general and
administrative costs of the Company were not allocated to UNOVA for any of the
periods presented. Management, however, estimates that approximately 85% of the
corporate general and administrative costs prior to the Spin-off were
attributable to UNOVA. Furthermore, Spin-off related costs of $8.35 million were
charged to continuing operations during the second quarter of 1997. Interest
expense attributable to UNOVA and therefore reclassified to discontinued
operations in the Company's Consolidated Statements of Operations totaled $17.2
million, $11.5 million, and $12.2 million for the years ended December 31, 1997,
1996, and 1995, respectively. Interest income attributable to UNOVA of $2.7
million, $4.4 million, and $2.8 million for the years ended December 31, 1997,
1996, and 1995, respectively, has also been reclassified to discontinued
operations. See Note B of Notes to the Consolidated Financial Statements
included herein for further information.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
OVERVIEW
The Company ended 1997 with cash and cash equivalents of $33.5 million compared
with $16.3 million in 1996 and $13.2 million in 1995. During 1997, the Company
used approximately $206.9 million more cash than it generated from operations.
Major expenditures included $430.0 million for capital expenditures, $275.1
million for acquisitions of multiclient seismic data, and $55.4 million for
business acquisitions. In addition, $66.7 million of cash was used to finance
working capital primarily for increases in accounts receivable. The Company
increased its net borrowings by $298.4 million primarily through its commercial
paper program. Shareholders' equity decreased $616.1 million due to the Spin-off
as offset by earnings during the year.
Total debt was $808.1 million as of December 31, 1997, compared to $503.6
million at December 31, 1996. Total debt constituted approximately 48% and 25%
of total capitalization at the end of 1997 and 1996, respectively. Debt
increased in
13
<PAGE> 16
1997 due primarily to acquisitions of industrial automation businesses made
before the Spin-off. The Company acquired Norand Corporation on March 3, 1997
for $280 million and United Barcode Industries on April 4, 1997 for $107
million. These companies were integrated into the Company's industrial
automation systems operations and included in the Spin-off. Both transactions
were funded using a combination of committed credit facilities, short-term
uncommitted credit lines, and excess cash.
The Company's existing long-term debt is rated A- by Standard & Poor's, A3 by
Moody's Investor Service and BBB+ by Duff and Phelps Credit Rating Co. The
Company's commercial paper currently has a rating of A2P2 by Standard and Poor's
and Moody's.
STRATEGY
During periods of growth, the Company has historically spent substantial amounts
for capital expenditures and acquisitions of multiclient seismic data in order
to remain competitive. The Company estimates that during 1998 it will spend
approximately $760 million for these purposes. The Company believes that its
current working capital resources, expected cash flow from operations, and
existing lines of credit will be sufficient to meet its 1998 needs for capital
expenditures and acquisitions of multiclient seismic data. In addition, the
Company seeks to acquire complementary businesses as part of its long-term
growth strategy. The Company's capital needs with respect to business
acquisitions may exceed the Company's resources discussed above. Moreover, there
is no assurance that the Company will be able to finance such business
acquisitions on terms it finds acceptable and, in the event of a downturn in
industry conditions, that the capital resources discussed above will be adequate
to meet the foregoing capital needs.
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which for the Company is effective in 1998. SFAS No. 130 establishes
standards for the reporting and displaying of comprehensive income and its
components. The Company will analyze SFAS No. 130 during 1998 to determine what,
if any, additional disclosures will be required thereunder.
The FASB issued in June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes new requirements on the
reporting of information about operating segments, products and services,
geographic areas, and major customers. In February 1998, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," was
issued which revises required disclosures about pensions and postretirement
benefit plans. SFAS No. 131 and 132 are effective for the Company starting in
1998. The Company will analyze these pronouncements during 1998 to determine
what, if any, additional disclosures will be required thereunder.
YEAR 2000
The Company is currently utilizing a combination of internal and external
resources to comprehensively identify and timely resolve the potential impact of
the year 2000 on the processing of date-sensitive information by the Company's
computerized information and support systems. The year 2000 problem is the
result of software that uses two digits (rather than four) to define the
applicable year. Any software or hardware that utilizes time-sensitive coding
may recognize a date using "00" as the year 1900 rather than the year 2000,
which could result in miscalculations or system failures. Based on preliminary
information, costs of addressing potential problems are not currently expected
to have a material adverse impact on the Company's financial position, results
of operations, or cash flows in future periods. If, however, the Company, its
customers, or vendors are unable to adequately resolve such processing issues in
a timely manner, the Company's operations and financial results may be adversely
affected.
14
<PAGE> 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
The Company is exposed to certain market risks, which are inherent in the
Company's financial instruments and arise from transactions entered into in the
normal course of business. The Company may enter into derivative financial
instrument transactions in order to manage or reduce market risk in connection
with specific foreign currency denominated transactions. The Company does not
enter into derivative financial instrument transactions for speculative
purposes. A discussion of the Company's primary market risk disclosure in
financial instruments is presented below and should be read in conjunction with
the previous discussions of risk factors and forward looking statements,
including the information set forth in "Forward-Looking Information and Risk
Factors" above.
LONG-TERM DEBT
The Company is subject to interest rate risk on its long-term fixed-interest
debt. Commercial paper borrowings and borrowings under revolving credit
facilities do not give rise to significant interest rate risk because these
borrowings have short maturities. In general, the fair market value of debt with
fixed interest rates will increase as interest rates fall, and the fair market
value will decrease as interest rates rise. This exposure to interest rate risk
is managed by borrowing money that has a variable interest rate or using
interest rate swaps to change fixed interest rate borrowings to variable
interest rate borrowings. Currently, the Company maintains a variable interest
rate mix between 40% and 50% of total borrowings. At December 31, 1997, the
Company's principal cash flows for its long-term debt obligations, which bear a
fixed rate of interest and are denominated in U.S. dollars, are $250 million due
in 2004 and $150 million due in 2024. The weighted-average interest rates by
expected maturity date are 8.0% and 8.6%, respectively, and the fair value of
such debt is $451.6 million. At December 31, 1997, the Company was not a party
to any interest swap agreements.
FOREIGN CURRENCY
The U.S. dollar is the functional currency for substantially all of the
Company's operations. For these operations, all gains and losses from currency
transactions are included in income currently. From time to time, the Company
enters into foreign currency forward contracts to hedge anticipated and firmly
committed foreign currency transactions. Foreign currency gains and losses for
such purchases are deferred as part of the basis of the assets. At December 31,
1997, the Company had foreign currency denominated commitments of $84 million to
purchase two seismic vessels in 1999. As a part of its efforts to minimize risk
associated with foreign currency fluctuations, the Company entered into forward
exchange contracts with notional amounts of $88.9 million at December 31, 1997,
to hedge these commitments. The counterparties to the Company's forward
contracts consist of major financial institutions. The credit ratings and
concentration of risk of these financial institutions are monitored on a
continuing basis and the Company believes no significant credit risk is present.
15
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Responsibility for Financial Reporting.......................................................F-1
Independent Auditors' Report..............................................................................F-2
Consolidated Statements of Income.........................................................................F-3
Consolidated Balance Sheets...............................................................................F-4
Consolidated Statements of Shareholders' Equity...........................................................F-5
Consolidated Statements of Cash Flows.....................................................................F-6
Notes to the Consolidated Financial Statements............................................................F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days of the end of the
fiscal year covered by this report (the "Western Atlas Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the
Western Atlas Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
Western Atlas Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the
Western Atlas Proxy Statement. See also Note K of Notes to the Consolidated
Financial Statements.
17
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
----
(a)(1) Consolidated Financial Statements F-1
(a)(2) Financial Statement Schedules *
Note: All schedules and notes specified under Regulation S-X are
omitted because they are either not applicable, not required, or
the information called for therein appears in the consolidated
financial statements or notes thereto.
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission during
the quarter ended December 31, 1997, a Current Report on Form 8-K dated
November 17, 1997 and a Form 8-K/A dated November 26, 1997 (Items 2 and
7), which reported the distribution of all the outstanding shares of
UNOVA, Inc. and presented unaudited pro forma financial statements to
reflect adjustments to historical financial statements after giving
effect to the Spin-off.
(c) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3.1 Restated Certificate of Incorporation of Western
Atlas Inc., filed herewith.
3.2 By-Laws of Western Atlas Inc., as amended, filed
herewith.
4.1 Indenture dated as of May 15, 1994 between Western
Atlas Inc. 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 Western
Atlas Inc. 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 Western
Atlas Inc. 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 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.
4.5 $400,000,000 Amended and Restated Credit Agreement
dated as of March 19, 1997, 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, CIBC Inc., The Chase Manhattan Bank, The
First National Bank of Chicago, NationsBank of Texas,
N.A., and Wells Fargo Bank, N.A. as Co-Agents, filed
as Exhibit 4.6 to the Company's March 31, 1997
Quarterly Report on Form 10-Q, and incorporated
herein by reference.
18
<PAGE> 21
4.6 Amendment No. 1 to the Amended and Restated Credit
Agreement dated as of June 30, 1997, 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, CIBC Inc., The Chase Manhattan
Bank, The First National Bank of Chicago, NationsBank
of Texas, N.A., and Wells Fargo Bank, N.A. as
Co-Agents, filed as Exhibit 4.7 to the Company's June
30, 1997 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.7 Amendment No. 2 to the Amended and Restated Credit
Agreement dated as of September 19, 1997, 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, CIBC Inc., The
Chase Manhattan Bank, The First National Bank of
Chicago, NationsBank of Texas, N.A., and Wells Fargo
Bank, N.A. as Co-Agents, filed as Exhibit 4.7 to the
Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
4.8 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.
10.1 Western Tax Agreement dated 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.
10.2* Change of Control Employment Agreement (form) dated
as of November 13, 1997, between Western Atlas Inc.,
and each of Orval F. Brannan, James E. Brasher,
William H. Flores, Thomas B. Hix, Jr., Gary E. Jones,
John R. Russell, and Richard C. White, filed
herewith.
10.3* 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.
10.4* Western Atlas International, Inc. Benefit
Restoration Plan (the "BR Plan") filed as Exhibit 100
to 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.
10.5* Amendment No. 1 to the BR Plan dated February 18,
1998, filed herewith.
10.6* Western Atlas Supplemental Retirement Plan, as
amended and restated on November 13, 1997 (the "SR
Plan"), filed herewith.
10.7* Amendment No. 1 to the SR Plan dated February 18,
1998, filed herewith.
10.8* 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.
10.9* 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.
10.10* 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.
10.11* 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.
19
<PAGE> 22
10.12* Western Atlas Inc. 1993 Stock Incentive Plan dated
as of December 20, 1994, 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.
10.13 Consulting Agreement dated as of August 1, 1996,
between Western Atlas Inc. and Joseph T. Casey
("Casey Consulting Agreement"), filed as Exhibit
10.21 to the Company's 1996 Annual Report on Form
10-K, and incorporated herein by reference.
10.14 Amendment No. 1 to Casey Consulting Agreement dated
October 1, 1997, filed herewith.
10.15 Distribution and Indemnity Agreement dated October
31, 1997, between Western Atlas Inc. and UNOVA, Inc.,
filed as Exhibit 10.18 to the Company's September 30,
1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.16 Tax Sharing Agreement dated October 31, 1997, between
Western Atlas Inc. and UNOVA, Inc., filed as Exhibit
10.19 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by
reference.
10.17 Intellectual Property Agreement dated October 31,
1997, between Western Atlas Inc. and UNOVA, Inc.,
filed as Exhibit 10.20 to the Company's September 30,
1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.18 Employee Benefits Agreement dated October 31, 1997,
between Western Atlas Inc. and UNOVA, Inc., filed as
Exhibit 10.21 to the Company's September 30, 1997
Quarterly Report on Form 10-Q, and incorporated
herein by reference.
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedules for the year ended December
31, 1997 (filed only electronically with the
Securities and Exchange Commission).
----------------
* Denotes management contract, compensatory plan or similar arrangements.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ William H. Flores
-----------------------------------------
William H. Flores
Senior Vice President and Chief Financial
Officer
March 6, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints James E. Brasher and Lourdes T. Hernandez and each of
them (with full power to each of them to act alone), his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities to sign on his or her behalf individually and in each capacity stated
below any amendment to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SIGNATURE TITLE DATE
--------- ----- ----
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ John R. Russell President and Chief Executive Officer and Director March 6, 1998
- ---------------------------- (Principal Executive Officer)
John R. Russell
- -------------------------------------------------------------------------------------------------------------
/s/ William H. Flores Senior Vice President and Chief Financial Officer March 6, 1998
- ---------------------------- (Principal Financial and Accounting Officer)
William H. Flores
- -------------------------------------------------------------------------------------------------------------
/s/ Paul Bancroft III Director March 6, 1998
- ----------------------------
Paul Bancroft III
- -------------------------------------------------------------------------------------------------------------
/s/ Alton J. Brann Director and March 6, 1998
- ---------------------------- Chairman of the Board
Alton J. Brann
- -------------------------------------------------------------------------------------------------------------
/s/ Joseph T. Casey Director March 6, 1998
- ----------------------------
Joseph T. Casey
- -------------------------------------------------------------------------------------------------------------
/s/ William C. Edwards Director March 6, 1998
- ----------------------------
William C. Edwards
- -------------------------------------------------------------------------------------------------------------
/s/ Claire W. Gargalli Director March 6, 1998
- ----------------------------
Claire W. Gargalli
- -------------------------------------------------------------------------------------------------------------
Director March 6, 1998
- ----------------------------
Orion L. Hoch
- -------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
WESTERN ATLAS INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Western Atlas Inc. and subsidiaries and
related financial information included in this Annual Report have been prepared
by the Company, whose management is responsible for their integrity. These
statements, which necessarily reflect estimates and judgments, have been
prepared in conformity with generally accepted accounting principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor the compliance with and the effectiveness of established procedures.
The consolidated financial statements have been audited by Deloitte & Touche
LLP, independent certified public accountants, whose report appears on page F-2.
The Audit and Compliance Committee of the Board of Directors, which consists
solely of directors who are not employees of the Company, meets periodically
with management, the independent auditors, and the Company's internal auditors
to review the scope of their activities and reports relating to internal
controls and financial reporting matters. The independent and internal auditors
have full and free access to the Audit and Compliance Committee and meet with
the Committee both with and without the presence of Company management.
/s/William H. Flores
William H. Flores
Senior Vice President and
Chief Financial Officer
February 18, 1998
F-1
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Western Atlas Inc.
We have audited the accompanying consolidated balance sheets of Western Atlas
Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Western Atlas Inc. and subsidiaries
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Houston, Texas
February 18, 1998
F-2
<PAGE> 26
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 1,658,150 $ 1,418,108 $ 1,282,927
----------- ----------- -----------
Costs and expenses:
Operating expenses 962,683 834,635 742,901
General and administrative 66,758 72,004 71,730
Research and technology 59,153 54,810 59,843
Depreciation, depletion, and amortization 368,937 309,213 273,550
----------- ----------- -----------
Total costs and expenses 1,457,531 1,270,662 1,148,024
----------- ----------- -----------
Operating profit 200,619 147,446 134,903
----------- ----------- -----------
Other income and expenses:
Spin-off related costs (8,350) -- --
Interest income 1,832 1,477 1,844
Interest expense (42,856) (32,386) (33,539)
----------- ----------- -----------
Total other income and expenses (49,374) (30,909) (31,695)
----------- ----------- -----------
Earnings from continuing operations before
taxes on income 151,245 116,537 103,208
Taxes on income (59,434) (46,615) (41,799)
----------- ----------- -----------
Earnings from continuing operations 91,811 69,922 61,409
Discontinued operations -- results of UNOVA,
Inc. distributed to shareholders (154,927) 55,743 38,430
----------- ----------- -----------
Net earnings (loss) $ (63,116) $ 125,665 $ 99,839
=========== =========== ===========
Basic net earnings (loss) per share:
Continuing operations $ 1.69 $ 1.31 $ 1.16
Discontinued operations (2.85) 1.04 .72
----------- ----------- -----------
Total earnings (loss) per share $ (1.16) $ 2.35 $ 1.88
=========== =========== ===========
Diluted net earnings (loss) per share:
Continuing operations $ 1.65 $ 1.29 $ 1.14
Discontinued operations (2.78) 1.03 .72
----------- ----------- -----------
Total earnings (loss) per share $ (1.13) $ 2.32 $ 1.86
=========== =========== ===========
Shares used in computing net earnings (loss) per share:
Basic 54,252 53,490 53,074
Diluted 55,613 54,271 53,755
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
WESTERN ATLAS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and number of shares)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,504 $ 16,296
Accounts receivable, less allowance for doubtful
accounts of $27,853 (1997) and $19,831 (1996) 445,420 360,935
Inventories 39,360 42,706
Deferred tax assets 34,841 43,049
Other current assets 39,366 35,158
Net assets of UNOVA, Inc. -- 574,508
Due from UNOVA, Inc. -- 109,574
----------- -----------
Total current assets 592,491 1,182,226
Property, plant, and equipment, net of accumulated depreciation
and depletion of $491,779 (1997) and $459,978 (1996) 926,382 692,252
Multiclient seismic data and other assets 479,654 325,238
Goodwill and other intangibles, net of accumulated amortization
of $38,778 (1997) and $30,141 (1996) 332,180 299,494
----------- -----------
Total assets $ 2,330,707 $ 2,499,210
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 260,627 $ 257,070
Payroll and related expenses 111,108 97,147
Notes payable and current portion of long-term debt 106,592 53,055
----------- -----------
Total current liabilities 478,327 407,272
----------- -----------
Long-term debt 701,530 450,589
----------- -----------
Deferred tax liabilities 11,157 8,435
----------- -----------
Deferred revenue and other long-term obligations 252,826 129,976
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- $1 par value; 25,000,000 shares authorized -- --
Common stock -- $1 par value; 150,000,000 shares authorized,
54,587,518 (1997) and 53,705,712 (1996) issued and outstanding 54,588 53,706
Additional paid-in capital 685,283 1,146,066
Retained earnings 150,502 291,458
Cumulative currency translation adjustments -- 12,482
Pension liability adjustments (3,506) --
Treasury stock, at cost -- 13,552 shares (1996) -- (774)
----------- -----------
Total shareholders' equity 886,867 1,502,938
----------- -----------
Total liabilities and shareholders' equity $ 2,330,707 $ 2,499,210
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 28
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCK, PAR VALUE:
Beginning of year $ 53,706 $ 53,235 $ 52,925
Stock options exercised 541 434 310
Shares issued for acquisitions 312 -- --
Shares issued under stock purchase plan 29 37 --
----------- ----------- -----------
End of year $ 54,588 $ 53,706 $ 53,235
=========== =========== ===========
ADDITIONAL PAID-IN CAPITAL:
Beginning of year $ 1,146,066 $ 1,129,417 $ 1,119,889
Stock options exercised 23,399 14,771 9,528
Spin-off of UNOVA, Inc. (513,112) -- --
Shares issued for acquisitions 27,067 -- --
Shares issued under stock purchase plan 1,863 1,878 --
----------- ----------- -----------
End of year $ 685,283 $ 1,146,066 $ 1,129,417
=========== =========== ===========
RETAINED EARNINGS:
Beginning of year $ 291,458 $ 165,793 $ 65,954
Net earnings (loss) (63,116) 125,665 99,839
Spin-off of UNOVA, Inc. (77,840) -- --
----------- ----------- -----------
End of year $ 150,502 $ 291,458 $ 165,793
=========== =========== ===========
CUMULATIVE TRANSLATION ADJUSTMENTS:
Beginning of year $ 12,482 $ 8,402 $ 9,557
Translation rate changes (3,699) 4,080 (1,155)
Spin-off of UNOVA, Inc. (8,783) -- --
----------- ----------- -----------
End of year $ -- $ 12,482 $ 8,402
=========== =========== ===========
PENSION LIABILITY ADJUSTMENTS:
Beginning of year $ -- $ -- $ --
Current year adjustment (3,506) -- --
----------- ----------- -----------
End of year $ (3,506) $ -- $ --
=========== =========== ===========
TREASURY STOCK, AT COST:
Beginning of year $ (774) $ -- $ --
Shares purchased (4,241) (774) --
Shares issued under stock purchase plan 5,015 -- --
----------- ----------- -----------
End of year $ -- $ (774) $ --
=========== =========== ===========
TOTAL SHAREHOLDERS' EQUITY, END OF YEAR $ 886,867 $ 1,502,938 $ 1,356,847
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 29
WESTERN ATLAS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 91,811 $ 69,922 $ 61,409
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating activities:
Depreciation, depletion, and amortization 368,937 309,213 273,550
Change in accounts receivable (79,363) (47,978) (42,665)
Change in inventories 4,825 (5,569) (11,551)
Change in other current assets (4,043) 31,681 (10,655)
Change in accounts payable and accrued liabilities (970) 49,332 (38,329)
Change in payroll and related expenses 13,961 10,367 5,644
Change in deferred revenue 122,132 39,501 18,494
Reimbursement for shutdown of certain acquired operations - - 20,000
Other operating activities 1,768 (6,852) 1,681
------------ ------------ -----------
Total from continuing operations 519,058 449,617 277,578
Net operating activities from discontinued operations 12,115 22,252 86,795
------------ ------------ -----------
Net cash provided by operating activities 531,173 471,869 364,373
------------ ------------ -----------
Cash flows from investing activities:
Capital expenditures (429,972) (279,553) (171,147)
Cost of multiclient seismic data acquired (275,055) (195,922) (152,336)
Proceeds from sale of businesses - 12,051 122,000
Acquisition of businesses, net of cash acquired (55,358) (890) (20,100)
Other investing activities 2,164 12,374 (6,371)
------------ ------------ -----------
Total from continuing operations (758,221) (451,940) (227,954)
Net investing activities of discontinued operations (406,319) 9,608 (25,249)
------------- ------------- -------------
Net cash (used in) investing activities (1,164,540) (442,332) (253,203)
------------ ------------ -----------
Cash flows from financing activities:
Payment from UNOVA, Inc. 109,574 2,855 352
Proceeds from issuance of common stock 23,940 16,346 9,838
Repayment of long-term obligations (71,275) (3,168) (38,833)
Proceeds from issuance of long-term debt 369,654 1,009 6,882
Other financing activities 8,327 1,016 (960)
------------ ------------ -----------
Total from continuing operations 440,220 18,058 (22,721)
Net financing activities of discontinued operations 210,355 (44,513) (88,139)
------------ ------------ -----------
Net cash provided by (used in) financing activities 650,575 (26,455) (110,860)
------------ ------------ -----------
Net increase in cash and cash equivalents 17,208 3,082 310
Cash and cash equivalents, beginning of year 16,296 13,214 12,904
------------- ------------- ------------
Cash and cash equivalents, end of year $ 33,504 $ 16,296 $ 13,214
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 52,951 $ 40,381 $ 40,550
Income taxes $ 52,665 $ 6,131 $ 67,095
Supplemental schedule of non-cash investing and financing activities:
Acquisitions of businesses --
Fair value of assets acquired $ 28,176 $ - $ -
Net cash acquired 2,528 - -
Liabilities assumed (3,325) - -
------------ ------------ -----------
Stock issued in connection with acquisitions $ 27,379 $ - $ -
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 30
WESTERN ATLAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Western Atlas Inc. ("WAI" or the "Company") is a leading
supplier of oilfield services and reservoir information technologies for the
worldwide oil and gas industry. The Company provides land, marine, and
transition-zone seismic data acquisition and processing services; well-logging
and completion services; and reservoir characterization and project management
services for a worldwide client base. The Company's principal customers are
private sector and government-owned oil and gas companies, and approximately 68%
of its revenue is generated by activities outside of the United States.
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses for each reporting period. Actual results could differ from
those estimates.
Principles of Consolidation. The consolidated financial statements include those
of the Company, its subsidiaries, and companies in which WAI has a controlling
interest (see Note B.) The equity method is used to account for investments in
companies over which WAI has influence but not a controlling interest. All
material intercompany transactions are eliminated in consolidation.
Earnings Per Share. In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." The new standard simplifies the computation of earnings
per share ("EPS") and increases comparability to international accounting
standards. Under SFAS No. 128, "Primary" EPS is replaced by "Basic" EPS, which
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. "Diluted" EPS, which is computed similarly to the former "Fully Diluted"
EPS, reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The Company was required to adopt the new standard in its year-end 1997
financial statements. As a result, the Company's reported earnings per share for
1996 and 1995 were restated. The effect of this accounting change on previously
reported EPS data is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Primary EPS as originally reported $ 2.31 $ 1.85
Effect of SFAS No. 128 0.04 0.03
-------- --------
Basic EPS as restated $ 2.35 $ 1.88
======== ========
Fully diluted EPS as originally reported $ 2.30 $ 1.85
Effect of SFAS No. 128 0.02 0.01
-------- --------
Diluted EPS as restated $ 2.32 $ 1.86
======== ========
</TABLE>
Cash Equivalents. The Company considers securities purchased within three months
of their date of maturity to be cash equivalents.
Inventories. Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Revenue Recognition. Revenue is recognized when products are shipped or as
services are performed.
Multiclient Seismic Data. Costs incurred in the creation of Company-owned
multiclient seismic data, included in multiclient seismic data and other assets,
are capitalized and amortized over the estimated revenue that the Company
expects to realize from the licensing of such data. Advances received from
customers in payment for specific contracts are included in deferred revenue.
F-7
<PAGE> 31
Research and Technology. Research and technology costs are charged to expense as
incurred. Worldwide expenditures on research and technology activities amounted
to $59.2 million, $54.8 million, and $59.8 million, in the years ended December
31, 1997, 1996, and 1995, respectively.
Property, Plant, and Equipment. Investment in property, plant, and equipment is
stated at cost. Depreciation, computed generally by the straight-line method for
financial reporting purposes, is provided over the estimated useful lives of the
related assets. During the fourth quarter of 1997, the Company extended the
estimated useful lives of certain assets to more closely reflect management's
current estimate of their expected lives. The effect of this change in
accounting estimate resulted in an increase in the Company's earnings from
continuing operations of $2.8 million or $0.05 basic earnings per share, for
1997. The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under this method, the Company capitalizes all
acquisition, exploration, and development costs incurred for the purpose of
finding oil and gas reserves. The Company computes the provision for
depreciation, depletion, and amortization ("DD&A") of oil and gas properties on
a quarterly basis using the unit-of-production method based upon production and
estimates of proved reserve quantities. The full cost accounting rules of the
Securities and Exchange Commission include a reserve value ceiling test which
requires a write-down if the ceiling is exceeded. The Company had write-downs of
$12.5 million and $7.0 million during 1997 and 1996, respectively, due to
ceiling test limitations.
Income Taxes. The Company measures tax assets and liabilities based on a balance
sheet approach. Tax assets and liabilities are stated at the tax rate in effect
when the estimated assets and liabilities will be realized. See Note H for
further discussion.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and trade receivables. The Company places its cash and cash
equivalents with high-quality financial institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
geographically spreading the trade credit risk.
Translation of Foreign Currencies. Financial statements of foreign subsidiaries
are translated into U.S. dollars based on the functional currency of each
business unit. For units whose local currency is the functional currency, asset
and liability accounts are translated at rates in effect at the balance sheet
date, and revenue and expense accounts are translated at rates approximating the
actual rates on the dates of the transactions. Translation adjustments are
included as a separate component of shareholders' equity. For units that have
the U.S. dollar as the functional currency, inventories, cost of sales,
property, plant, and equipment and related depreciation are translated at
historical rates. Other asset and liability accounts are translated at rates in
effect at the balance sheet date, and revenue and expenses (excluding cost of
sales and depreciation) are translated at rates approximating the actual rates
on the dates of the transactions. Translation adjustments are reflected in the
Consolidated Statements of Income. At December 31, 1997, the U.S. dollar was the
functional currency for substantially all of the Company's foreign operations.
Goodwill and Other Intangibles. For financial statement purposes, goodwill is
generally amortized using the straight-line method over its estimated useful
life, not exceeding 40 years. The Company assesses the recoverability of
goodwill at the end of each fiscal year or more often as circumstances warrant.
Factors considered in evaluating recoverability include management's plan with
respect to the operations to which the goodwill relates, particularly the
historical earnings and projected undiscounted cash flows of such operations.
Dividends. No cash dividends were paid on Common Stock in the years ended
December 31, 1997, 1996, and 1995.
Environmental Costs. Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable.
Reclassifications. Certain prior year amounts have been reclassified to conform
to the current year presentation.
New Accounting Standards. In 1997, the FASB issued SFAS No.130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 is effective for the Company
beginning in 1998 and is expected to impact the Company's reporting of the
excess of additional pension liability over recognized prior service cost.
Currently, these items are included as components of Shareholders' Equity.
F-8
<PAGE> 32
Also during 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes new requirements on
the reporting of information about operating segments, products and services,
geographic areas, and major customers. In February 1998, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," was
issued which revises required disclosures relating to pensions and
postretirement benefit plans. SFAS No. 131 and 132 are effective for the Company
beginning in 1998. The Company will analyze these pronouncements during 1998 to
determine what, if any, additional disclosures will be required thereunder.
NOTE B: DISCONTINUED OPERATIONS
On May 4, 1997, the Company's Board of Directors approved, in principle, a plan
to distribute (the "Spin-off") to WAI shareholders all of the outstanding common
stock of UNOVA, Inc. ("UNOVA"), a wholly owned subsidiary of WAI. UNOVA was
subsequently organized to own and conduct all of WAI's industrial automation
systems operations, which include its automated data collection and
manufacturing systems businesses. Pursuant to the Spin-off, on October 31, 1997
each WAI shareholder of record on October 24, 1997 received an equivalent number
of shares of UNOVA common stock. The distribution of such stock was structured
to be tax-free to WAI and its shareholders. Concurrent with the Spin-off, UNOVA
repaid WAI for intercompany indebtedness totaling $230 million. WAI used the
funds to repay certain short-term borrowings.
In connection with the Spin-off, the Consolidated Financial Statements of WAI
and related notes thereto were restated to present the operations of UNOVA as
discontinued. Income (loss) from discontinued operations included interest
expense allocated on the basis of debt levels assumed in the Spin-off. Corporate
general and administrative costs of the Company were not allocated to UNOVA for
any of the periods presented.
Discontinued operations of UNOVA for the ten months ended October 31, 1997 and
the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
(in millions)
<S> <C> <C> <C>
Net revenue $ 1,201.1 $ 1,164.7 $ 942.9
Allocated interest expense 17.2 11.5 12.2
Allocated interest income 2.7 4.4 2.8
Income (loss) before income taxes $ (122.7) $ 92.9 $ 64.6
Provision for income taxes 32.2 37.2 26.2
----------- ----------- -----------
Total discontinued operations, net of income taxes $ (154.9) $ 55.7 $ 38.4
=========== =========== ===========
</TABLE>
Net assets of UNOVA as of October 31, 1997, the distribution date, and December
31, 1996 are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1997 1996
---------- -----------
(in thousands)
<S> <C> <C>
Current assets $ 752,633 $ 695,791
Noncurrent assets 586,886 378,002
----------- -----------
Total assets 1,339,519 1,073,793
----------- -----------
Current liabilities (652,230) (429,770)
Noncurrent liabilities (87,554) (69,515)
----------- -----------
Total liabilities (739,784) (499,285)
----------- -----------
Net assets of UNOVA $ 599,735 $ 574,508
=========== ===========
</TABLE>
Assuming the Spin-off had occurred on January 1, 1997, the pro forma effect on
the Company's earnings from continuing operations is the reduction of general
and administrative expenses of $9.9 million, net of tax, and Spin-off related
costs of $5.0 million, net of tax. These amounts would result in an increase of
$.28 in basic earnings per share on a pro forma basis.
F-9
<PAGE> 33
NOTE C: BUSINESS ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS
Acquisitions and Investments. The Company made several acquisitions and
investments during the year ended December 31, 1997. In May 1997, the Company
acquired Sungroup Energy Services Company, a Canadian well-logging, production
testing, and completion services provider. During the fourth quarter of 1997,
the Company completed the following acquisitions: Geosignal, Inc., a seismic
data processing company; Seismic Resources, Inc., a provider of nonexclusive
seismic surveys; and ParaMagnetic Logging, Inc., a well-logging research
company. These acquisitions were made using Company common stock. Also in the
fourth quarter of 1997, the Company used cash to purchase Heartland Kingfisher
Inc., a Canadian well-logging company. In 1995, the Company used cash to
purchase 50% of PetroAlliance Services Company, Ltd., which offers seismic,
well-logging, and integrated project services to local and international oil
companies operating in the former Soviet Union.
The purchase method of accounting was used to record all of these acquisitions.
Their results of operations are included in the Consolidated Statements of
Income from the acquisition dates. These acquisitions and several smaller
acquisitions in 1995 and 1996 are integral to the Company's goals, though not
material in the aggregate to the Company's consolidated financial statements in
any one year.
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. These companies were integrated
into the Company's industrial automation systems operations and included in the
Spin-off. Both transactions were funded using a combination of committed credit
facilities, short-term uncommitted credit lines and excess cash. The purchase
method of accounting was used to record these acquisitions and, accordingly, the
acquisition costs (approximately $280 million and $107 million for Norand and
UBI, respectively) were allocated to the net assets acquired based upon their
relative fair values. Such allocation assigned $203 million to in-process
research and development activities, which was expensed in accordance with FASB
Interpretation No. 4 during the second quarter.
The Company also acquired the remaining 51% of Honsberg, a German machine tool
maker, in the second quarter of 1997. The original 49% of Honsberg was acquired
during 1995. In September 1997, the Company acquired the stamping, engineering,
and prototyping division of Modern Prototype Company. These companies were also
included in the Spin-off.
Dispositions. The assets of the Company's seismic equipment manufacturing
operations were sold during the second quarter of 1995 for approximately $122
million in cash. As part of the sales agreement, the Company entered into a
commitment to purchase from the buyer $350 million of seismic and related
equipment. The remaining equipment purchase commitment is approximately $67
million as of December 31, 1997. The excess of the sales price over the net book
value of the assets sold was deferred and is amortized as the Company purchases
equipment from the buyer.
F-10
<PAGE> 34
NOTE D: LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
Long-term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Commercial paper $ 135,250 $ -
Short-term notes payable, weighted average
interest rate of 6.25% (1997) and 10.58% 220,557 3,602
(1996)
7.875% notes due 2004 250,000 250,000
8.55% debentures due 2024 150,000 150,000
5.65% notes due 1997 and 1998 48,461 96,921
Other, principally notes payable in installments
through 2002 with a weighted average interest
rate of 7.56% at December 31, 1997 3,854 3,121
------------ ------------
808,122 503,644
Less current portion 106,592 53,055
------------ ------------
Long-term debt $ 701,530 $ 450,589
============ ============
</TABLE>
In July 1997, the Company commenced a short-term commercial paper ("CP") program
providing for the issuance of up to $400 million in aggregate maturity value of
commercial paper at any given time. As of December 31, 1997, outstanding
commercial paper borrowings totaled $135.3 million and interest rates on such
borrowings ranged from 5.9% to 6.25% with an effective weighted average interest
rate of 6.05%. The CP program is secured by committed credit facilities with a
group of banks that provide for $400 million in long-term committed credit
reduced by the amount outstanding under the CP program. No amounts were
outstanding under the long-term committed credit facilities at December 31, 1997
except those committed in support of the CP program. At December 31, 1997, $300
million in commercial paper and short-term obligations was reclassified as
long-term debt as the Company has the ability and intent to refinance such
obligations on a long-term basis utilizing existing credit facilities.
The Company maintains off-balance-sheet guarantees and letter-of-credit
agreements. At December 31, 1997, the face values of these agreements totaled
$156 million of which $84 million was related to contracts to build two seismic
vessels. (See "Financial Instruments" below and Note K: "Litigation, Commitments
and Contingencies.") The remaining $72 million of credit arrangements are
generally related to guarantees of future performance on contracts.
At December 31, 1997, the Company was in compliance with its various debt
covenants, which relate to the Company's incurrence of debt, mergers,
consolidations, and sale of assets and require the Company to satisfy certain
ratios related to tangible net worth, debt-to-equity and interest coverage.
Aggregate Maturities of Debt
Notes payable and long-term obligations at December 31, 1997 mature as follows,
in thousands of dollars:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1998 $106,592
1999 830
2000 300
2001 300
2002 300,100
Thereafter 400,000
--------
$808,122
========
</TABLE>
F-11
<PAGE> 35
Financial Instruments
The Company uses forward contracts for the purpose of reducing its exposure to
adverse fluctuations in foreign exchange and interest rates. While these hedging
instruments are subject to fluctuations in value, such fluctuations are
generally offset by the value of the underlying exposure being hedged. The
Company is not a party to leveraged derivatives and does not hold or issue
financial instruments for speculative purposes.
Foreign Currency Management - From time to time, the Company enters into foreign
currency forward contracts to hedge anticipated and firmly committed foreign
currency transactions. At December 31, 1997, the Company had entered into
foreign currency forward contracts with notional amounts of $88.9 million to
primarily hedge the commitment to purchase two seismic vessels in 1999. The
notional amounts are used to express the volume of these transactions and do not
represent exposure to loss. The carrying value of the contracts was not
significant. The fair value of the contracts, based on year-end quoted rates for
purchasing contracts with similar terms and maturity dates, approximated
carrying value and was also not significant. Foreign currency gains and losses
for such purchases are deferred as part of the basis of the assets. The
counterparties to the Company's forward contracts are major financial
institutions. The credit ratings and concentration of risk of these financial
institutions are monitored on a continuing basis and, in management's opinion,
present no significant credit risk to the Company.
Interest Rate Management - The Company periodically enters into various
financial instruments to manage its interest rate exposure. At December 31,
1997, the Company did not have any outstanding interest rate swap agreements.
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 33,504 $ 33,504 $ 16,296 $ 16,296
Long-term debt:
Commercial paper 135,250 135,250 - -
Short-term notes payable 220,557 220,557 3,602 3,602
7.875% notes due 2004 250,000 270,200 250,000 265,234
8.55% debentures due 2024 150,000 181,375 150,000 170,170
5.65% notes due 1997 and 1998 48,461 48,461 96,921 96,630
Other debt 3,854 3,854 3,121 3,121
</TABLE>
The following methods and assumptions were used to estimate the fair value of
the financial instruments summarized in the table above. The carrying values of
accounts receivable, accounts payable, and payrolls and related expenses
included in the accompanying Consolidated Balance Sheets approximated market
value at December 31, 1997 and 1996.
Cash and cash equivalents - The carrying amounts approximated fair value due to
the short maturity of these instruments.
Long-term debt - The fair values of the 7.875% notes and the 8.55% debentures
were based on the quoted market price for similar issues. The carrying amount of
the commercial paper, short-term notes payable, and other debt approximated fair
value due to the short maturities and because the interest rates were reflective
of market rates.
F-12
<PAGE> 36
NOTE E: ACCOUNTS RECEIVABLE AND INVENTORIES
Following are the details of accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
(in thousands)
<S> <C> <C>
Trade receivables $ 440,748 $ 344,367
Notes receivable (see Note J) 4,672 16,568
------------- -------------
Total $ 445,420 $ 360,935
============= =============
</TABLE>
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
(in thousands)
<S> <C> <C>
Raw materials $ 19,084 $ 20,377
Work in progress 16,032 15,730
Finished goods 4,244 6,599
------------- -------------
Total $ 39,360 $ 42,706
============= =============
</TABLE>
NOTE F: PROPERTY, PLANT, AND EQUIPMENT
Investment in property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ---------
(in thousands)
<S> <C> <C>
Land $ 34,193 $ 35,340
Buildings 142,973 131,087
Machinery and equipment 1,130,594 952,730
Investment in E&P projects, full cost method 110,401 33,073
Less accumulated depreciation and depletion (491,779) (459,978)
---------- ---------
Total $ 926,382 $ 692,252
========== =========
</TABLE>
The net book value of assets utilized under capital leases was not material at
December 31, 1997 and 1996.
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
Buildings 10 - 45 years
Land improvements and building improvements 2 - 10 years
Machinery and equipment 2 - 20 years
F-13
<PAGE> 37
As of December 31, 1997, minimum rental commitments under noncancellable
operating leases are set forth in the table below, in thousands:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998 $ 8,177
1999 6,517
2000 4,021
2001 1,222
2002 569
Thereafter 4,209
----------
$ 24,715
==========
</TABLE>
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $111.7 million, $73.1
million, and $75.4 million, for the years ended December 31, 1997, 1996, and
1995, respectively. The minimum future rentals receivable under subleases and
the contingent rental expenses were not significant.
NOTE G: SHAREHOLDERS' EQUITY
The following table presents shares used in the computation of earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- ------------
(in thousands)
<S> <C> <C> <C>
Weighted average common shares outstanding
(net of treasury shares) 54,252 53,490 53,074
Additional potentially dilutive securities
(equivalent in common stock) 1,361 781 681
------------- ------------- ------------
Total 55,613 54,271 53,755
============= ============= ============
</TABLE>
Stock Option Plans
The Company has a stock option plan, which provides for the grant of incentive
awards to officers and other key employees. Incentive awards are granted in the
form of stock options at a price equal to the fair market value of the Company's
common stock on the date of grant, at terms not exceeding 10 years. The Company
also has a directors' stock option plan that provides for the grant of stock
options to the Company's nonemployee directors. Under this plan, stock options
are granted annually at the fair market value of the Company's common stock on
the date of grant at terms not exceeding 10 years. The number of options so
granted annually is fixed by the plan. Options granted under the directors'
stock option plan become fully exercisable on the first anniversary of their
grant. Under these plans, there were a total of 1,818,390 and 1,098,528 shares
subject to options which were exercisable as of December 31, 1997 and 1996,
respectively, and 1,142,464 shares available for grant as of December 31, 1997.
F-14
<PAGE> 38
The following table summarizes the shares outstanding under the Company's stock
option plans:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994 2,751,993 $ 25.87
Granted 580,500 42.89
Exercised (310,839) 18.74
Canceled (154,270) 36.13
-----------
OUTSTANDING AT DECEMBER 31, 1995 2,867,384 29.54
Granted 614,600 58.03
Exercised (441,327) 17.64
Canceled (74,005) 39.47
-----------
OUTSTANDING AT DECEMBER 31, 1996 2,966,652 36.96
Prior to the Spin-off --
Granted 1,349,879 62.37
Exercised (466,910) 28.92
Canceled (35,736) 51.10
After the Spin-off --
Spin-off adjustment 884,290 N/A
Exercised (77,325) 15.66
Canceled (895) 29.38
-----------
OUTSTANDING AT DECEMBER 31, 1997 4,619,955 38.37
===========
</TABLE>
In connection with the Spin-off, all employee and director options outstanding
immediately prior to the Spin-off were adjusted by increasing the number of
shares subject to the option and decreasing the exercise price per share so as
to preserve the difference between the aggregate exercise price of the option
and the aggregate market value of the shares subject to the option. Grants in
1997 include options to acquire 484,379 common shares with a weighted average
exercise price of $39.42 which were acquired in the acquisition of Norand.
Outstanding stock option data as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ---------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF REMAINING EXERCISE OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
- ------------------------ ------- ---------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.65 to $10.99 191,060 2.37 years $ 9.85 191,060 $ 9.85
12.31 to 20.22 447,065 3.98 15.69 445,810 15.69
21.02 to 29.98 710,734 5.69 23.77 513,754 23.23
30.06 to 37.86 1,355,265 7.12 34.41 467,536 34.24
40.10 to 47.73 804,566 8.38 46.51 190,525 46.41
49.01 to 58.78 71,638 8.80 51.60 8,879 51.49
60.95 to 69.65 1,039,627 9.53 61.29 826 66.76
</TABLE>
The fair value of stock options granted during 1997 and 1996 were $26.3 million
and $12.8 million, respectively. The fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants in 1997 and 1996,
respectively: risk-free interest rates of 6.3% and 6.4%, expected life of five
years for both years; and expected volatility of 33% and 26%, determined from
historical stock price fluctuations. There is no assurance that the assumptions
used in determining the fair values of stock options will prove true in the
future. The actual value of the options depends on several factors, including
the actual market price of the common stock on the date of exercise. Changes in
any of these factors as well as fluctuations in the market price of the
Company's common stock will cause the actual value of these options to vary from
the theoretical value indicated above.
F-15
<PAGE> 39
Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan, the Company is authorized to sell
up to 2.5 million shares of common stock to eligible full-time employees of WAI
and participating subsidiaries. At each semi-annual offering period, employees
can choose to have up to 8% of their annual earnings withheld to purchase the
Company's common stock up to a maximum amount of $21,250 per calendar year. The
purchase price of the stock is 85% of the lower of its beginning-of-period or
end-of-period market price. The Company sold 95,129 and 36,975 shares under the
Plan in 1997 and 1996, respectively, with approximately 20% of eligible
employees participating each year. The weighted-average fair value of purchase
rights granted in 1997 and 1996 was $1,687,000 and $471,800, respectively. The
fair value of the stock purchase rights was determined using the same method and
parameters for stock option grants described above, except for the use of an
expected life equal to the purchase window period. As previously noted, the
actual value of purchase rights may vary from the theoretical value determined
using the Black-Scholes option pricing model.
Pro Forma Compensation Disclosure
The Company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation cost is
recognized for stock option awards or grants of stock purchase rights. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's pro forma net income
and basic earnings per share for 1997, 1996, and 1995 would have been:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------- -------------
(in thousands, except EPS)
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Earnings from continuing operations $ 91,811 $ 88,141
Earnings (loss) from discontinued operations (154,927) (158,294)
------------- --------------
Net earnings (loss) $ (63,116) $ (70,153)
============= ==============
Basic earnings (loss) per share:
Continuing operations $ 1.69 $ 1.63
Discontinued operations (2.85) (2.92)
------------- --------------
Total earnings (loss) per share $ (1.16) $ (1.29)
============= ==============
YEAR ENDED DECEMBER 31, 1996:
Earnings from continuing operations $ 69,922 $ 68,475
Earnings from discontinued operations 55,743 54,358
------------- --------------
Net earnings $ 125,665 $ 122,833
============= ==============
Basic earnings per share:
Continuing operations $ 1.31 $ 1.28
Discontinued operations 1.04 1.02
------------- --------------
Total earnings per share $ 2.35 $ 2.30
============= ==============
YEAR ENDED DECEMBER 31, 1995:
Earnings from continuing operations $ 61,409 $ 60,855
Earnings from discontinued operations 38,430 37,965
------------- --------------
Net earnings $ 99,839 $ 98,820
============= ==============
Basic earnings per share:
Continuing operations $ 1.16 $ 1.15
Discontinued operations 0.72 0.71
------------- --------------
Total earnings per share $ 1.88 $ 1.86
============= ==============
</TABLE>
The actual pro forma impact on net income and earnings per share may differ from
the theoretical valuation determined using the Black-Scholes option pricing
model due to factors previously noted. Further, the SFAS No. 123 method of
accounting was not applied to options granted prior to January 1, 1995,
therefore, the resulting pro forma compensation cost may not be representative
of that to be expected in future years.
F-16
<PAGE> 40
Shareholder Rights Plan
On August 17, 1994, the Company's Board of Directors adopted a Share Purchase
Rights Plan and, in accordance with such Plan, declared a dividend of one
preferred share purchase right for each outstanding share of Company common
stock, payable August 31, 1994 to shareholders of record on that date. In the
event that a party acquires more than 15% of the Company's then outstanding
Common Stock, the Plan will cause substantial dilution to a party that attempts
to acquire the Company in a manner or on terms not approved by the Board of
Directors, except pursuant to an offer conditioned on a substantial number of
rights being acquired.
The rights, which do not have voting rights and are not entitled to dividends
until such time as they become exercisable, expire on August 2004.
NOTE H: TAXES ON INCOME
The components of taxes on income from continuing operations consist of the
following provisions (benefits):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Currently payable:
U.S. taxes $ 8,132 $ 2,672 $ 7,003
International taxes 48,385 45,578 43,588
Deferred:
U.S. taxes 2,917 (1,635) (8,792)
--------- --------- --------
$ 59,434 $ 46,615 $ 41,799
========= ========= ========
</TABLE>
Deferred tax assets and liabilities result from the effect of transactions that
are recognized in different periods for financial and tax reporting purposes.
The primary components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
------ ---------- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Accrued liabilities $12,934 $ -- $21,623 $ --
Receivables and inventory 8,421 -- 7,908 --
Research and development credit
carryover 6,555 -- -- --
Noncompete agreements -- 8,071 -- 5,956
Postretirement benefits 1,244 -- 934 --
Pensions 3,103 -- 1,317 --
Depreciation, depletion, and
amortization 1,495 -- 6,053 --
Other items 1,089 3,086 5,214 2,479
------- ------- ------- -------
$34,841 $11,157 $43,049 $ 8,435
======= ======= ======= =======
</TABLE>
F-17
<PAGE> 41
The following is a reconciliation of income taxes at the U.S. statutory rate of
35% to the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ -----------
(in thousands)
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 52,936 $ 40,788 $ 36,123
State income taxes, net of federal benefit 1,654 (450) (1,605)
Amortization of non-deductible goodwill 1,578 1,624 1,409
Foreign earnings taxed at other than U.S.
statutory rate 1,529 1,266 (1,089)
Non-deductible meals and entertainment 2,083 2,048 1,662
Other items (346) 1,339 5,299
----------- ----------- -----------
$ 59,434 $ 46,615 $ 41,799
=========== =========== ===========
</TABLE>
NOTE I: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Pension Benefits
The Company has retirement and pension plans that cover most of its regular,
full-time employees. Most of the Company's U.S. employees are covered by a
defined contribution plan. The Company contributes an amount based on its
consolidated pretax earnings in accordance with the provisions of such plan.
This plan includes a voluntary savings feature that is intended to qualify under
Section 401(k) of the Internal Revenue Code and is designed to enhance the
retirement programs of participating employees. Under this feature, the Company
matches up to 67% of a certain portion of participants' contributions.
Certain subsidiaries of the Company also have retirement and savings plans for
eligible employees located outside the United States. The pension liabilities
and their related costs are computed in accordance with the laws of the
individual nations and appropriate actuarial practices.
The Company has a defined benefit retirement plan for its directors whereby
retired directors are paid an amount equal to active directors for a specified
period of time after retirement. In the event of a change in control in the
Company, directors receive a lump sum distribution of these payments.
U.S. Pension Plans
A summary of the components of net periodic pension cost for the U.S. defined
benefit plans and defined contribution plans for the years ended December 31,
1997, 1996, and 1995, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Defined benefit plans:
Service cost - benefits earned during the period $ 54 $ - $ -
Interest cost on projected benefit obligation 537 337 271
Net amortization and deferral 314 38 (175)
------------- ------------ ------------
Net periodic pension cost 905 375 96
Defined contribution plans 39,033 32,792 30,421
------------- ------------ ------------
Net periodic pension cost $ 39,938 $ 33,167 $ 30,517
============= ============ ============
</TABLE>
F-18
<PAGE> 42
Actuarial assumptions for the Company's U.S. defined benefit plans included an
expected long-term rate of return on plan assets of 8.00% and 9.25% for fiscal
years 1997 and 1996, respectively. The weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation was
7.0% and 7.5% at December 31, 1997 and 1996, respectively. The rate increase in
future compensation levels was 5% at December 31, 1997 and 1996. Pursuant to the
provisions of SFAS No. 87, "Employers' Accounting for Pensions," the Company
recorded in other noncurrent liabilities an additional minimum pension liability
adjustment of $5.4 million as of December 31, 1997. This additional liability
represented the amount by which the accumulated benefit obligation exceeded the
accrued amounts previously recorded. As there were no previously unrecognized
prior service costs at December 31, 1997, the full amount of the adjustment, net
of the related deferred tax benefit, was recorded as a reduction of
stockholders' equity of $3.5 million.
The following table sets forth the amounts recognized in the Company's balance
sheet at December 31, 1997 and 1996 for the Company's U.S. defined benefit
plans. All of the plans are unfunded.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (10,095) $ (4,928)
============ ============
Accumulated benefit obligation $ (10,095) $ (4,928)
============ ============
Projected benefit obligation $ (11,024) $ (7,082)
Unrecognized net transition asset - (108)
Unrecognized net loss 6,323 2,262
------------ ------------
Accrued pension liability (4,701) (4,928)
Adjustment required to recognize minimum liability (5,394) -
------------ ------------
Pension cost liability $ (10,095) $ (4,928)
============ ============
</TABLE>
Non-U.S. Pension Plans
For the principal non-U.S. pension plans located in the United Kingdom, the
weighted-average discount rate used was approximately 8.5% at December 31, 1997.
The rate of increase in future compensation used was approximately 5.5% and the
rate of return on assets was 9.0% at December 31, 1997.
Pension costs for non-U.S. plans were not material for any of the periods
presented herein. The actuarial present value of projected benefits at December
31, 1997 was $25.8 million compared with net assets available for benefits of
$33.2 million.
Other Postretirement Benefits
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans. These
benefit plans are unfunded.
The net periodic postretirement benefit costs were not material for any of the
periods presented herein. The accumulated benefit obligation at December 31,
1997 was $6.1 million, of which $1.9 million was attributable to retirees and
$4.2 million to other active plan participants. The accumulated benefit
obligation for continuing operations at December 31, 1996 was $3.8 million, of
which $1.4 million was attributable to retirees and $2.4 million was
attributable to active plan participants.
Actuarial assumptions used to measure the accumulated benefit obligation include
a discount rate of 7.0% and 7.5% at December 31, 1997 and 1996, respectively.
The assumed health care cost trend rate for fiscal 1997 was 11.0% and is
projected to decrease over 20 years to 5.4%. The effect of a
one-percentage-point increase in the assumed health care cost trend rate on the
service cost and interest cost components of the net periodic postretirement
benefit cost is not material. A one-percentage-point increase in the assumed
health care cost trend rate on the accumulated benefit obligation results in an
increase of approximately $0.3 million.
F-19
<PAGE> 43
NOTE J: LITIGATION, COMMITMENTS, AND CONTINGENCIES
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of its business. In the opinion of the Company's
General Counsel, the ultimate resolution of currently pending proceedings will
not have a material adverse effect on the Company's financial statements.
NOTE K: RELATED PARTY TRANSACTIONS
For the purpose of governing certain relationships between UNOVA and the Company
after the Spin-off, UNOVA and the Company entered into various agreements
described below:
(i) Distribution and Indemnity Agreement - UNOVA and the Company
entered into a Distribution and Indemnity Agreement providing
for, among other things, the principal corporate transactions
required to effect the Spin-off and certain other agreements
governing the relationship between UNOVA and the Company with
respect to the Spin-off.
(ii) Tax-Sharing Agreement - As part of the Spin-off, UNOVA and the
Company entered into a Tax Sharing Agreement which provides,
among other things, for the allocation between the parties of
federal, state, local, and foreign tax liabilities for all
periods through the Spin-off date.
(iii) Benefits Agreement - UNOVA and the Company entered into an
Employee Benefits Agreement providing for the treatment of
employee benefit matters and other compensation arrangements
for certain former and current employees of UNOVA and its
subsidiaries.
(iv) Intellectual Property Agreement - UNOVA and the Company
entered into an Intellectual Property Agreement providing for
the transfer of ownership of intellectual property without
charge from Western Atlas to UNOVA and its subsidiaries, and
to provide UNOVA and its subsidiaries the rights to use the
Western Atlas name for a period of six months after the
Spin-off without charge.
The Chairman of the Company's board of directors serves as the Chairman and
Chief Executive Officer of UNOVA. In addition, one of the Company's other
directors is also a member of the board of directors of UNOVA.
Included in accounts receivable are notes due from the Company's unconsolidated
subsidiaries of $9.9 million and $15.9 million at December 31, 1997 and 1996,
respectively. Such amounts are partially collateralized by certain fixed assets
of such subsidiaries and bear interest at 10% to 18%. Accounts payable includes
$0.3 million and $1.6 million due to related parties at December 31, 1997 and
1996, respectively.
NOTE L: OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
YEAR ENDED UNITED LATIN AFRICA AND
DECEMBER 31, STATES EUROPE AMERICA MIDDLE EAST OTHER TOTAL
------------ ------ ------ ------- ----------- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue 1997 $ 529 $ 303 $ 294 $ 337 $ 195 $ 1,658
1996 432 286 209 322 169 1,418
1995 414 251 204 276 138 1,283
Operating profit 1997 $ 82 $ 8 $ 47 $ 34 $ 30 $ 201
1996 64 11 29 28 15 147
1995 49 12 28 25 21 135
Identifiable assets at 1997 $ 1,287 $ 343 $ 163 $ 334 $ 204 $ 2,331
year end 1996 1,693 255 153 284 114 2,499
1995 1,721 170 86 210 82 2,269
</TABLE>
F-20
<PAGE> 44
NOTE M: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
----------- ---------- ---------- ---------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
1997
Revenue $ 380.0 $ 418.5 $ 420.2 $ 439.5 $ 1,658.2
Gross profit 71.1 83.8 93.7 97.4 346.0
Net earnings (loss) from:
Continuing operations $ 16.1 $ 16.6 $ 27.3 $ 31.8 $ 91.8
Discontinued operations 14.7 (186.5) 14.1 2.8 (154.9)
----------- ---------- ---------- ---------- ----------
Net earnings (loss) $ 30.8 $ (169.9) $ 41.4 $ 34.6 $ (63.1)
=========== ========== ========== ========== ==========
Basic earnings (loss) per share from:
Continuing operations $ 0.30 $ 0.31 $ 0.50 $ 0.58 $ 1.69
Discontinued operations 0.28 (3.46) 0.27 0.06 (2.85)
----------- ---------- ---------- ---------- ----------
Total $ 0.58 $ (3.15) $ 0.77 $ 0.64 $ (1.16)
=========== ========== ========== ========== ==========
Diluted earnings (loss) per share from:
Continuing operations $ 0.29 $ 0.30 $ 0.49 $ 0.57 $ 1.65
Discontinued operations 0.28 (3.37) 0.26 0.05 (2.78)
----------- ---------- ---------- ---------- ----------
Total $ 0.57 $ (3.07) $ 0.75 $ 0.62 $ (1.13)
=========== ========== ========== ========== ==========
Common stock market prices:
High $ 58 63/64 $ 57 45/64 $ 71 51/64 $ 81 1/2 -
Low 45 7/8 45 3/32 56 43/64 63 7/8 -
1996
Revenue $ 309.0 $ 362.4 $ 362.6 $ 384.1 $ 1,418.1
Gross profit 56.5 70.8 80.2 77.4 284.9
Net earnings from:
Continuing operations $ 11.4 $ 17.6 $ 22.1 $ 18.8 $ 69.9
Discontinued operations 11.3 12.3 14.4 17.8 55.8
----------- ---------- ---------- ---------- ----------
Net earnings $ 22.7 $ 29.9 $ 36.5 $ 36.6 $ 125.7
=========== ========== ========== ========== ==========
Basic earnings per share from:
Continuing operations $ 0.22 $ 0.33 $ 0.41 $ 0.35 $ 1.31
Discontinued operations 0.21 0.23 0.27 0.33 1.04
----------- ---------- ---------- ---------- ----------
Total $ 0.43 $ 0.56 $ 0.68 $ 0.68 $ 2.35
=========== ========== ========== ========== ==========
Diluted earnings per share from:
Continuing operations $ 0.21 $ 0.33 $ 0.41 $ 0.34 $ 1.29
Discontinued operations 0.21 0.23 0.26 0.33 1.03
----------- ---------- ---------- ---------- ----------
Total $ 0.42 $ 0.56 $ 0.67 $ 0.67 $ 2.32
=========== ========== ========== ========== ==========
Common stock market prices:
High $ 48 33/64 $ 51 1/4 $ 49 7/8 $ 57 7/32 -
Low 39 1/32 43 17/32 42 1/4 48 33/64 -
</TABLE>
As of February 25, 1998 there were approximately 21,200 holders of record of the
Company's common stock.
F-21
<PAGE> 45
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3.1 Restated Certificate of Incorporation of Western
Atlas Inc., filed herewith.
3.2 By-Laws of Western Atlas Inc., as amended, filed
herewith.
4.1 Indenture dated as of May 15, 1994 between Western
Atlas Inc. 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 Western
Atlas Inc. 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 Western
Atlas Inc. 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 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.
4.5 $400,000,000 Amended and Restated Credit Agreement
dated as of March 19, 1997, 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, CIBC Inc., The Chase Manhattan Bank, The
First National Bank of Chicago, NationsBank of Texas,
N.A., and Wells Fargo Bank, N.A. as Co-Agents, filed
as Exhibit 4.6 to the Company's March 31, 1997
Quarterly Report on Form 10-Q, and incorporated
herein by reference.
<PAGE> 46
4.6 Amendment No. 1 to the Amended and Restated Credit
Agreement dated as of June 30, 1997, 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, CIBC Inc., The Chase Manhattan
Bank, The First National Bank of Chicago, NationsBank
of Texas, N.A., and Wells Fargo Bank, N.A. as
Co-Agents, filed as Exhibit 4.7 to the Company's June
30, 1997 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.7 Amendment No. 2 to the Amended and Restated Credit
Agreement dated as of September 19, 1997, 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, CIBC Inc., The
Chase Manhattan Bank, The First National Bank of
Chicago, NationsBank of Texas, N.A., and Wells Fargo
Bank, N.A. as Co-Agents, filed as Exhibit 4.7 to the
Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
4.8 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.
10.1 Western Tax Agreement dated 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.
10.2* Change of Control Employment Agreement (form) dated
as of November 13, 1997, between Western Atlas Inc.,
and each of Orval F. Brannan, James E. Brasher,
William H. Flores, Thomas B. Hix, Jr., Gary E. Jones,
John R. Russell, and Richard C. White, filed
herewith.
10.3* 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.
10.4* Western Atlas International, Inc. Benefit
Restoration Plan (the "BR Plan") filed as Exhibit 100
to 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.
10.5* Amendment No. 1 to the BR Plan dated February 18,
1998, filed herewith.
10.6* Western Atlas Supplemental Retirement Plan, as
amended and restated on November 13, 1997 (the "SR
Plan"), filed herewith.
10.7* Amendment No. 1 to the SR Plan dated February 18,
1998, filed herewith.
10.8* 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.
10.9* 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.
10.10* 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.
10.11* Western Atlas Inc. 1995 Incentive Compensation Plan
(the "IC Plan"), filed as Exhibit 10.24 to the
Company's 1994 Annual Report on Form 10-K, and
incorporated herein by reference.
<PAGE> 47
10.12* Western Atlas Inc. 1993 Stock Incentive Plan dated
as of December 20, 1994, 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.
10.13 Consulting Agreement dated as of August 1, 1996,
between Western Atlas Inc. and Joseph T. Casey
("Casey Consulting Agreement"), filed as Exhibit
10.21 to the Company's 1996 Annual Report on Form
10-K, and incorporated herein by reference.
10.14 Amendment No. 1 to Casey Consulting Agreement dated
October 1, 1997, filed herewith.
10.15 Distribution and Indemnity Agreement dated October
31, 1997, between Western Atlas Inc. and UNOVA, Inc.,
filed as Exhibit 10.18 to the Company's September 30,
1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.16 Tax Sharing Agreement dated October 31, 1997, between
Western Atlas Inc. and UNOVA, Inc., filed as Exhibit
10.19 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by
reference.
10.17 Intellectual Property Agreement dated October 31,
1997, between Western Atlas Inc. and UNOVA, Inc.,
filed as Exhibit 10.20 to the Company's September 30,
1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.18 Employee Benefits Agreement dated October 31, 1997,
between Western Atlas Inc. and UNOVA, Inc., filed as
Exhibit 10.21 to the Company's September 30, 1997
Quarterly Report on Form 10-Q, and incorporated
herein by reference.
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedules for the year ended December
31, 1997 (filed only electronically with the
Securities and Exchange Commission).
----------------
* Denotes management contract, compensatory plan or similar arrangements.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
WESTERN ATLAS INC.
1. The name of the Corporation (which is hereinafter referred to as the
Corporation) is "Western Atlas Inc."
2. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on February 13, 1984, under the
name Litton Datamedics, Inc.
3. This Restated Certificate of Incorporation has been duly proposed by
resolutions adopted and declared advisable by the Board of Directors of the
Corporation, duly adopted by the sole stockholder of the Corporation and duly
executed and acknowledged by the officers of the Corporation in accordance with
the provisions of Sections 103, 242 and 245 of the General Corporation Law of
the State of Delaware.
4. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is Western Atlas Inc.
SECOND: The registered office of the Corporation is located at 32
Loockerman Square, Suite L-100, in the City of Dover, in the County of Kent, in
the State of Delaware. The name of its registered agent is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted
is: To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: Shares, Classes, Preferences and Rights of Stock.
Section 1. Authorized Shares
The total number of shares of capital stock which the Corporation shall
have authority to issue is 175,000,000 shares consisting of:
(a) 150,000,000 shares of Common Stock having a par value of $1.00
per share; and
(b) 25,000,000 shares of Preferred Stock having a par value of
$1.00 per share.
<PAGE> 2
Effective upon the filing of this Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware, each issued share of
Common Stock, par value $1.00 per share, of the Corporation is changed and
reclassified into 45,816.16 shares of Common Stock, par value $1.00 per share,
of the Corporation.
Section 2. Preferred Stock -- General
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the
issuance of shares of Preferred Stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter referred
to as a "Preferred Stock Designation"), to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations and restrictions thereof. The authority of
the Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the designation of the series, which may be by distinguishing
number, letter or title;
(b) the number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease (but not below the
number of shares thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series;
(d) the dates at which dividends, if any, shall be payable;
(e) the redemption rights and price or prices, if any, for shares
of the series;
(f) the terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(g) the amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation;
(h) whether the shares of the series shall be convertible into
shares of any other class or series, or any other security, of the
Corporation or any other corporation, and, if so, the specification of
such other class or series or such other security, the conversion price
or prices or rate or rates, any adjustments thereof, the date or dates as
of which such shares shall be convertible and all other terms and
conditions upon which such conversion may be made;
2
<PAGE> 3
(i) restrictions on the issuance of shares of the same series or
of any other class or series; and
(j) the voting rights, if any, of the holders of shares of the
series.
The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Each share of Common Stock shall be equal to
each other share of Common Stock. The holders of shares of Common Stock shall
be entitled to one vote for each such share upon all proposals presented to the
stockholders on which the holders of Common Stock are entitled to vote.
Except as may be provided in this Certificate of Incorporation or in a
Preferred Stock Designation, the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes, and holders of
Preferred Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of any
such holders is required pursuant to any Preferred Stock Designation.
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
Section 1. Directors
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock, as provided herein or in any Preferred
Stock Designation, to elect additional directors under specific circumstances,
the number of directors of the Corporation shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors that the Corporation would have if
there were no vacancies, but shall not be less than three. Election of
directors need not be by ballot unless the By-laws so provide.
The directors, other than those who may be elected by the holders of any
series of Preferred Stock or any other series or class of stock, as provided
herein or in any Preferred Stock Designation shall be divided into three
classes, as nearly equal in number as possible. One class of directors shall
be initially elected for a term expiring
3
<PAGE> 4
at the annual meeting of stockholders to be held in 1995, another class shall
be initially elected for a term expiring at the annual meeting of stockholders
to be held in 1996, and another class shall be initially elected for a term
expiring at the annual meeting of stockholders to be held in 1997. Members of
each class shall hold office until their successors are elected and shall have
qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at
that meeting shall be elected by a plurality vote of all votes cast at such
meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock, as provided herein or in any Preferred
Stock Designation, to elect additional directors under specific circumstances,
any director may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding capital stock of the Corporation entitled
to vote generally in the election of directors (the "Voting Stock"), voting
together as a single class.
Section 2. Power to Amend By-laws
The By-laws may be altered or repealed and new By-laws may be adopted (1)
at any annual or special meeting of stockholders if notice of the proposed
alteration, repeal or adoption of the new By-law or By-laws be contained in the
notice of such special meeting by the affirmative vote of a majority of the
stock issued and outstanding and entitled to vote thereat, provided, however,
that any proposed alteration or repeal of, or the adoption of any By-law
inconsistent with, Section 1, 3 or 4 of Article III of the By-laws by the
stockholders shall require the affirmative vote of at least 80 percent of the
stock issued and outstanding and entitled to vote thereat, or (2) by the
affirmative vote of a majority of the members present at any regular meeting of
the Board of Directors, or at any special meeting of the Board of Directors, if
notice of the proposed alteration, repeal or new By-law or By-laws to be made,
be contained in the notice of such special meeting.
Section 3. Stockholders' Action -- Only By Meeting; Special Meetings
Any action required or permitted to be taken by the stockholders shall be
taken only at an annual or special meeting of such stockholders and not by
consent in writing. Special meetings of the stockholders for any purpose or
purposes shall be called only upon a request in writing therefor, stating the
purpose or purposes thereof, delivered to the Chairman of the Board, the
President, or the Secretary, signed by a majority of the directors, or by
resolution of the Board of Directors or the Executive Committee thereof.
4
<PAGE> 5
SIXTH: Elimination of Certain Liability of Directors and
Indemnification.
Section 1. Elimination of Certain Liability of Directors
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Neither the amendment nor repeal of Section 1 of
this Article SIXTH shall eliminate or reduce the effect of Section 1 of this
Article SIXTH in respect of any matter occurring, or any cause of action, suit
or claim that, but for Section 1 of this Article SIXTH would accrue or arise,
prior to such amendment or repeal. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article SIXTH to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended from time to time.
Section 2. Indemnification and Insurance
(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans maintained or sponsored by the Corporation,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said Law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, excise taxes pursuant to the Employee Retirement Income Security Act of
1974 or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of
5
<PAGE> 6
Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
this Restated Certificate of Incorporation, by- law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or any person serving at the request of the Corporation as a
director, officer, employee or agent of
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another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by the Corporation, against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
SEVENTH: The Corporation reserves the right to amend, change, or repeal
any provision contained in the Certificate of Incorporation in the manner now
or hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors, and officers are subject to this reserved power.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend or repeal Article FIFTH or adopt any
provision inconsistent therewith or to amend or repeal this Article SEVENTH.
IN WITNESS WHEREOF, said Western Atlas Inc. has caused this Restated
Certificate of Incorporation to be signed by its Chairman of the Board and
attested by its Secretary this 17th day of March, 1994.
WESTERN ATLAS INC.
By:
---------------------------------
Chairman of the Board
Attest:
--------------------------
Secretary
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EXHIBIT 3.2
BY-LAWS
OF
WESTERN ATLAS INC.
----------------------
ARTICLE 1
OFFICES
SECTION 1. PRINCIPAL OFFICE. - The principal office shall be
established and maintained at the office of The Prentice-Hall Corporation
System, Inc., in the City of Dover, in the County of Kent, in the State of
Delaware, and said corporation shall be the resident agent of this Corporation
in charge thereof.
SECTION 2. OTHER OFFICES. - The Corporation may have other offices,
either within or outside of the State of Delaware, at such place or places as
the Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. - The annual meeting and all other
meetings of the stockholders shall be held at such place as shall be fixed by
resolution of the Board of Directors and stated in the notice of the meeting.
SECTION 2. ANNUAL ELECTION OF DIRECTORS. - The annual meeting of
stockholders for the election of directors and the transaction of other
business shall be held in each year commencing after December 31, 1994, on such
date and at such time as may be fixed by resolution of the Board of Directors.
SECTION 3. VOTING. - All elections for directors shall be decided by
plurality votes. All other questions submitted to the stockholders shall be
decided by the affirmative vote of a majority of the votes cast with respect
thereto, except as otherwise provided by the Certificate of Incorporation or
the General Corporation Law of the State of Delaware (the "DGCL").
SECTION 4. QUORUM. - Except as otherwise required by law, by the
Certificate of Incorporation or by these By- laws, the presence, in person or
by proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meetings, a majority in interest
of the stockholders entitled to vote thereat, present in person or by proxy,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until the requisite amount of stock entitled
to vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed, but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS. - Special meetings of the stockholders
for any purpose or purposes shall be called only upon a request in writing
therefor, stating the purpose or purposes thereof, delivered to the Chairman of
the Board, the President, or the Secretary, signed by a majority of the
directors, or by resolution of the Board of Directors or the Executive
Committee thereof. No business other than that stated in the notice shall be
transacted at any special meeting.
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SECTION 6. NOTICE OF MEETINGS. - Written or printed notice, stating
the place and time of the meeting and the general nature of the business to be
considered, shall be given by the Secretary to each stockholder entitled to
vote thereat, at such stockholders' address as it appears on the stock transfer
books of the Corporation, at least ten days but not more than 60 days before
the meeting.
SECTION 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meeting of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving notice
provided for in this By-law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By- law.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1)
of Section 7 of this By-law, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 70th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than 20
days before or more than 70 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 70th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of Section 7 of this By-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least 80 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-law shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public announcement
is first made by the Corporation.
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(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant
to the Corporation's notice of meeting (a) by or at the direction of the Board
of Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving notice
provided for in this By-law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-law. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this By-law shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day prior to
such special meeting and not later than the close of business on the later of
the 70th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this By- law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this By-law and, if any
proposed nomination or business is not in compliance with this By-law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-law. Nothing in this By-law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 8. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. - Subject to the
rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
SECTION 9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS -
The Board of Directors by resolution shall appoint, or authorize an officer of
the Corporation to appoint, one or more inspectors, which inspector or
inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents or
representatives of the
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Corporation, to act at the meeting and make a written report thereof. One or
more persons may be designated as alternate inspector(s) to replace any
inspector who fails to act. If no inspector or alternate has been appointed to
act, or if all inspectors or alternates who have been appointed are unable to
act, at a meeting of stockholders, the chairman of the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector(s) shall have the duties prescribed
by the DGCL.
The chairman or secretary of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at the meeting.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors shall be fixed
from time to time by resolution of the Board of Directors but shall be not less
than seven nor more than fifteen.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock, shall be
divided into three classes, as nearly equal in number as possible. One class
of directors shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 1995, another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1996, and another class shall be initially elected for a term expiring at the
annual meeting of stockholders to be held in 1997. Members of each class shall
hold office until their successors are elected and qualified. At each
succeeding annual meeting of the stockholders of the Corporation, the
successors of the class of directors whose term expires at that meeting shall
be elected by a plurality vote of all votes cast at such meeting to hold office
for a term expiring at the annual meeting of stockholders held in the third
year following the year of their election.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS. - The Chairman of the
Board of Directors shall be elected by the Board of Directors. He or an acting
chairman shall preside at the meetings of the Board of Directors and he or any
director or officer of the Corporation designated by him shall preside at all
meetings of the stockholders of the Corporation. He shall perform such other
duties and services as shall be assigned to him by the Board of Directors.
SECTION 3. RESIGNATION. - Any member of the Board of Directors or of
any committee thereof may resign at any time. Such resignation shall be made
in writing and shall take effect at the time specified therein, and if no time
be specified, at the time of its receipt by the Chairman of the Board or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
SECTION 4. VACANCIES. - Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock, as set forth
in the Certificate of Incorporation, to elect additional directors under
specific circumstances, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
directors' successors shall have been duly elected and qualified. No decrease
in the number of authorized directors shall shorten the term of any incumbent
director.
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SECTION 5. REMOVAL. - Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock to elect
additional directors under specific circumstances, any director may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of the ten outstanding
capital stock of the Corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class.
SECTION 6. POWERS. - The Board of Directors shall exercise all of the
powers of Corporation except such as are by law, or by the Certificate of
Incorporation of the Corporation, or by these By-laws conferred upon or
reserved to the stockholders.
SECTION 7. EXECUTIVE COMMITTEE. - The Board of Directors shall elect
from among its membership an Executive Committee to consist of three members.
Between the meetings of the Board of Directors and while such Board is not in
session, the Executive Committee shall have all the powers and exercise all the
duties of the Board of Directors to the fullest extent permitted by the DGCL,
including but not limited to the power to authorize the issuance of the stock
of the Corporation, to declare a dividend on any class of stock of the
Corporation and to adopt a certificate of ownership and merger pursuant to
Section 253 of the DGCL. The Executive Committee shall report all of its
actions to the Board of Directors, and its powers herein created shall be
subject to such limitation as may be imposed by the Board of Directors, acting
at any regular meeting or at any special meeting for which notice of such
action has been given. The meetings of the Executive Committee shall be called
by the Secretary of the Corporation, from time to time, at the direction and
upon the request of any member of the Executive Committee. Notice of such
meeting shall in each instance be given to each member of the Committee at his
or her last known business address, at least one day before the meeting, either
orally or in writing, delivered personally or by mail or telegraph. The
Chairman of the Executive Committee, unless otherwise provided by resolution or
resolutions of the Board of Directors, shall be elected by a majority of the
members of the Executive Committee, and whenever any change shall be made in
the membership of any such Committee, a new Chairman shall be elected in the
same manner. The Committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors when required.
SECTION 8. OTHER COMMITTEES. - The Board of Directors may by
resolution or resolutions, passed by a majority of the whole Board, designate
one or more additional committees, each committee to consist of two or more of
the directors of the Corporation which, to the extent provided in said
resolution or resolutions or in these By-laws, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation and may have power to authorize the seal of the Corporation
to be affixed to all papers which may require it. In addition to the regular
members of each committee, the Board may designate one or more alternate
members who may replace any absent or disqualified member at any meeting of the
committee. In the event of the absence or disqualification of any member of
such committee, or committees, at a time when the Board is not in session, the
members of the committee present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Such committee or committees
shall have such name or names as may be stated in these By- laws or as may be
determined from time to time by resolution adopted by the Board of Directors.
The Chairman of each such committee, unless otherwise provided by the Board of
Directors in such resolution or resolutions designating such committee, shall
be elected by a majority of the members of each such committee and whenever any
change shall be made in the membership of any such committee, a new Chairman
shall be elected in the same manner. The committees shall keep regular minutes
of their proceedings and report the same to the Board when required.
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SECTION 9. MEETINGS. - The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of stockholders,
or the time and place of such meeting may be fixed by consent in writing of all
the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by the Board of
Directors.
Special meetings of the Board may be called (i) by the Chairman of the
Board, (ii) by the Vice Chairman of the Board, (iii) by the President, or (iv)
by the Secretary on the written request of the Chairman of the Board or
directors constituting a majority of the Board upon notice to each directors
and shall be held at such place or places as may be determined by the
directors, or as shall be stated in the call of the meeting.
Members of the Board of Directors or any committee designated by such
Board, may, with the consent of the Chairman of the Board, the Vice Chairman of
the Board or the President, participate in a meeting of such Board or committee
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all the members of the Board or committee, as the case may be, consent thereto
in writing, and the writings are filed with the minutes of proceedings of the
Board, governing body, or committee.
SECTION 10. QUORUM. - One-third of the directors, but not less than
four, shall constitute a quorum for the transaction of business. If at any
meeting of the Board there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by
announcement at the meeting which shall be so adjourned.
SECTION 11. COMPENSATION. - Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board a fixed annual fee and a fixed fee for attendance at
each meeting of the Board or any committee thereof shall be established. In
addition, a fixed annual or other fee may be paid for specified services to the
Board, including service as chairman of a committee of the Board. Expenses of
attendance at any such meeting may be reimbursed. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 12. ADVISORY DIRECTORS. - The Board of Directors may elect
one or more advisory directors who shall have such powers and shall perform
such duties as the directors shall assign to them. Advisory directors shall,
upon election, serve until the next annual meeting of stockholders.
Advisory directors shall receive notices of all meetings of the Board
of Directors in the same manner and at the same time as the directors. They
shall attend said meetings referred to in said notices in an advisory capacity,
but will not cast a vote or be counted to determine a quorum. Any advisory
directors may be removed either with or without cause, by a majority of the
directors at the time in office, at any regular or special meeting of the Board
of Directors.
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Advisory directors shall not receive any stated salary for their
services as advisory directors, but by resolution of the Board of Directors a
fixed annual fee and/or a fixed fee for attendance at each meeting of the Board
or any committee thereof shall be established. Expenses of attendance at any
such meeting may be reimbursed. Nothing herein contained shall be construed to
preclude any advisory director from serving the Corporation in any other
capacity as an officer, agent or otherwise and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the Corporation shall be a
President, Chief Executive Officer, a Secretary, a Treasurer, and, if deemed
necessary, expedient, or desirable by the Board of Directors, one or more Chief
Operating Officers, one or more Vice Presidents (one or more of whom may be
designated Executive or Senior Vice President), one or more Assistant
Secretaries, and one or more Assistant Treasurers. The Board of Directors
shall also designate the Chairman of the Board or the President as the Chief
Executive Officer of the Corporation unless prohibited by Section 2 of Article
III. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him or her, no officer other than the President need be a
director. Except as may be limited by law, any number of offices may be held
by the same person, as the directors may determine.
Unless otherwise provided for in the resolution choosing him or her,
each officer shall be chosen for a term that shall continue until the meeting
of the Board of Directors following the next annual meeting of stockholders and
until his or her successor shall have been chosen and qualified.
All officers of the Corporation shall have such authority and perform
such duties as shall be prescribed in the By-laws or in the resolutions of the
Board of Directors designating and choosing such officers and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. Any officer may be
removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors. The
Chief Executive Officer may appoint key executives to the position of staff
vice president. Such staff vice presidents shall not be corporate officers and
shall exercise such powers and perform such duties as are assigned to them by
the Chief Executive Officer or the President, if any, or by any other officer
of the Corporation designated for such purpose by the Chief Executive Officer
or President.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - Certificates of stock, numbered
and with the seal of the Corporation affixed, signed by the Chairman of the
Board of Directors, the Vice Chairman of the Board, the President or Vice
President, and the Treasurer or an Assistant Treasurer, or Secretary or an
Assistant Secretary, shall be issued to each stockholder certifying the number
of shares owned by such stockholder in the Corporation. When such certificates
are signed by either (1) a transfer agent other than the Corporation or its
employee or (2) a registrar other than the Corporation or its employee, the
signatures of such officers of the Corporation may be facsimiles.
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SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representative, to give the Corporation a bond, in such sum as
they may direct to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificate or the
issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - Upon surrender to the Corporation of
a certificate for shares, properly endorsed, the Corporation shall issue a new
certificate to the transferee, cancel the old certificate, and record the
transaction on its books. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes, and the Corporation shall not be bound to recognize
any equitable or other claim thereto on the part of any other person.
SECTION 4. REGULATIONS. - The Board of Directors may make such rules
and regulations as it may deem expedient concerning the issue, transfer, and
registration of certificates of stock of the Corporation.
SECTION 5. RECORD DATE. - The Board of Directors may fix in advance a
date, not more than 60 days nor less than 10 preceding any action, including
the date of the payment of any dividend or the date of the allotment of rights
or the date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the determination of the stockholders
entitled to notice of, and to vote at, any meeting of stockholders, or entitled
to receive payment of any such dividends or to any such allotment of rights or
to exercise the rights in respect of any such change, conversion or exchange of
capital stock, or for the purpose of any lawful action, and in such case such
stockholders only as shall be stockholders of record on the date so fixed shall
be entitled to such notice of, and to vote at such meeting, or to receive
payment of such dividend or to receive allotment of rights or to exercise such
rights as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
SECTION 6. DIVIDENDS. - Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the Corporation.
SECTION 7. SEAL. - The corporate seal shall be circular in form and
shall contain the name of the Corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 8. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is
required by these By-laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in a post office box in a sealed
post-paid wrapper or by transmittal by telex or facsimile, addressed to the
person entitled thereto at his or her last known post office address or telex
or facsimile number, and such notice shall be deemed to have been given on the
day of such mailing or transmission. Stockholders not entitled to vote shall
not be entitled to receive notice of any meetings except as otherwise provided
by statute.
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Whenever any notice is required to be given under the provisions of
any law, or under the provisions of the Certificate of Incorporation of the
Corporation or these By-laws, waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VI
AMENDMENTS
These By-laws may be altered or repealed and new By-laws may be
adopted (1) at any annual or special meeting of stockholders if notice of the
proposed alteration, repeal or adoption of the new By-law or By-laws be
contained in the notice of such special meeting by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat,
provided, however, that any proposed alteration or repeal of or the adoption of
any By-law inconsistent with, Section 1, 3 or 4 of Article III hereof by the
stockholders shall require the affirmative vote of at least 80% of the stock
issued and outstanding and entitled to vote thereat, or (2) by the affirmative
vote of a majority of the members present at any regular meeting of the Board
of Directors, or at any special meeting of the Board of Directors, if notice of
the proposed alternation, repeal or new By-law or By-laws to be made, be
contained in the notice of such special meeting.
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EXHIBIT 10.2
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between WESTERN ATLAS INC., a Delaware corporation
(the "Company"), and _________________________ dated as of the 13th day of
November, 1997.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
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2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity, or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 30% or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions of stock shall not constitute a Change of Control: (i)
any acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company, or
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii), and (iii) of subsection (c) of this Section 2;
or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger, or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination, and (iii) at
least a
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majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles, and reporting requirements),
authority, duties, and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised, and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a violation
of this Agreement for the Executive to (A) serve on corporate, civic, or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements, or teach at educational institutions, and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company
in accordance with this Agreement. It is expressly understood and agreed that
to the extent that any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the
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Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling, or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus in cash at least equal to the maximum amount
of the bonus or award the Executive could earn for the fiscal year during which
the Effective Date occurs under any plan or arrangement in which the Executive
participates or is eligible to participate and assuming: (1) the attainment of
any performance goals or similar criterion applicable to the Executive to the
extent necessary for the Executive to qualify to receive the maximum award; and
(2) the Executive's employment by the Company for the full fiscal year (the
"Annual Bonus"). Each such Annual Bonus plus unpaid but due amounts from prior
awards shall be paid in accordance with the terms of the applicable plan but in
no event later than the last day of the Employment Period.
(iii) Incentive, Savings, and Retirement Plans.
During the Employment Period, the Executive shall be entitled to participate in
all incentive (including stock option or similar incentive plans), savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies, and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies, and programs as in effect at any time during
the 120-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies, and programs provided by the Company and
its affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death, and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies, and programs
provide the Executive with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies, and programs in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
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(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices, and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, if applicable, tax and financial planning services, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs, and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs, and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 3Oth day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the
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Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles, and reporting requirements), authority, duties, or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties, or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial, and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
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(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11 (c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated, and (iii) if
the Date of Termination (as defined below) is other than the date of receipt of
such notice, specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.
6. Obligations of the Company Upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
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(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Annual Bonus, and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon), any awards under the Performance Award Plan or any
comparable or successor plan and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (1),
(2), and (3) shall be hereinafter referred to as the "Accrued Obligations");
and
B. the amount equal to the product of (1)
three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the
Annual Bonus, or if higher, any bonus paid with respect to any fiscal year
during the Employment Period; and
C. with regard to the Company's retirement
plans, the amount equal to the sum of (1) 15% of the amount payable pursuant to
Section 6(a)(i)B, and (2) utilizing actuarial assumptions no less favorable to
the Executive than those in effect immediately prior to the Effective Date, an
amount equal to the excess of (i) the actuarial equivalent present value of the
benefit under the Company's Supplemental Retirement Plan (the "SRPlan") which
the Executive would receive if as of the Date of Termination three years were
added to both the Executive's age and the Executive's years of service with the
Company, assuming for this purpose that the Executive's benefit under the
SRPlan if fully vested and that the Executive's compensation during the
three-year period ending on the Date of Termination was equal to that required
for the three-year Employment Period by Section 4(b)(i) and Section 4(b)(ii),
over (ii) the actuarial equivalent present value of the Executive's actual
benefit (paid or payable), if any, under the SRPlan as of the Date of
Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, practice, policy, or program, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices, and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility (in addition, if the Executive is
eligible for "COBRA" continuation health coverage under Section 4980B of the
Code, or any successor provision, such coverage shall commence upon the end of
such three-year (or longer) period). For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits pursuant to such
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plans, practices, programs, and policies, the Executive shall be considered to
have remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his or her sole
discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy, or practice or contract or agreement
of the Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices,
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices, and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other
peer executives of the Company and its affiliated companies and their families.
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(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period or if the
Executive voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his or her Annual Base Salary through the Date of Termination,
(y) the amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
practice, policy, or program provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice, or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, practice, policy, or program or contract
or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right, or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses which the Executive may reasonably incur as
a result of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to
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<PAGE> 11
such taxes), including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity, or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
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<PAGE> 12
(iii) cooperate with the Company in good faith in
order effectively to contest such
claim, and
(iv) permit the Company to participate in any
Proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 9(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any of its
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<PAGE> 13
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge, or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
-------------------------
-------------------------
-------------------------
If to the Company: Western Atlas Inc.
Attention: General Counsel
10205 Westheimer Road
Houston, Texas 77042
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<PAGE> 14
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local, or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is
"at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
EXECUTIVE:
-------------------------------------
WESTERN ATLAS INC.
By
----------------------------------
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<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 1 TO THE
WESTERN ATLAS INTERNATIONAL, INC.
BENEFIT RESTORATION PLAN
Pursuant to the provisions of Section 4.1 thereof, the Western Atlas
International, Inc. Benefit Restoration Plan made effective as of January 1,
1991 (the "Plan"), is hereby amended in the following respects only:
FIRST: Section 1.1 of the Plan is hereby amended to add a new
paragraph (l) at the end thereof to read as follows:
(l) "Change of Control" means:
(i) An acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended [the
"Exchange Act"] (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 30 percent or more of either (1) the then outstanding
shares of common stock of Western Atlas Inc. [the
"Corporation"] (the "Outstanding Corporation Common Stock")
or (2) the combined voting power of the then outstanding
voting securities of the Corporation entitled to vote
generally in the election of directors (the "Outstanding
Corporation Voting Securities"); excluding, however, the
following acquisitions of Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities: (A) any
acquisition directly from the Corporation other than an
acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself
acquired directly from the Corporation; (B) any acquisition
by the Corporation; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by
the Corporation or any corporation controlled by the
Corporation; or (D) any acquisition by any Person pursuant to
a transaction which complies with clauses (1), (2), and (3)
of paragraph (iii) of this Section; or
(ii) Individuals who, as of the effective date
hereof constitute the Board of Directors of the Corporation
(the "Incumbent Board"), cease for any reason to constitute
at least a majority of the Board of Directors of the
Corporation; provided, however, that any individual who
becomes a member of the Board of Directors of the Corporation
subsequent to the effective date hereof whose election, or
nomination for election by the Corporation's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but provided further that any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of the
Corporation shall not be so considered as a member of the
Incumbent Board; or;
<PAGE> 2
(iii) The approval by the shareholders of the
Corporation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation ("Business Combination"), or if
consummation of such Business Combination is subject, at the
time of such approval by shareholders, to the consent of any
government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation);
excluding, however, such Business Combination pursuant to
which: (1) all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities immediately prior to such
Business Combination, will beneficially own, directly or
indirectly, more than 60 percent of, respectively, the
outstanding shares of common stock and the combined voting
power of the outstanding voting securities entitled to vote
generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly
or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities,
as the case may be; (2) no Person (other than any employee
benefit plan (or related trust) sponsored or maintained by
the Corporation or any corporation controlled by the
Corporation or such corporation resulting from such Business
Combination) will beneficially own, directly or indirectly,
30 percent or more of, respectively, the outstanding shares
of common stock of the corporation resulting from such
Business Combination or the combined voting power of the
outstanding voting securities of such corporation entitled to
vote generally in the election of directors except to the
extent that such ownership existed with respect to the
Corporation prior to the Business Combination; and (3) at
least a majority of the members of the board of directors of
the corporation resulting from such Business Combination will
have been members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board of Directors of the Corporation, providing for such
Business Combination; or
(iv) Approval by the shareholders of the Corporation
of a complete liquidation or dissolution of the Corporation.
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<PAGE> 3
SECOND: Article III of the Plan is hereby amended to add a new
Section at the end thereof to read as follows:
Section 3.5 Change of Control Provisions. Any provision of
this Plan to the contrary notwithstanding:
(a) Upon a Change of Control and thereafter, the
amounts credited to a Participant's Matching Account and
Profit Sharing Account shall be deemed to be fully vested and
non-forfeitable regardless of whether such Participant is
fully vested in the amounts credited to his or her Matching
Contribution Account or Employer Contribution Account under
the Profit Sharing Plan.
(b) If a Participant is a party to a Change of
Control Employment Agreement with Western Atlas Inc., and
during the Employment Period (within the meaning of such
Agreement) such Participant's employment covered by such
Agreement is terminated other than for Cause or Disability
(within the meanings of such Agreement) or such Participant
terminates such employment for Good Reason (within the
meaning of such Agreement), (i) an amount equal to any amount
thereafter forfeited by such Participant under the Profit
Sharing Plan shall be paid by the Company to such Participant
in cash within sixty days following such forfeiture, and (ii)
if such Participant is not eligible for an allocation of the
employer's contribution, if any, to be made to the Profit
Sharing Plan for the year in which such termination of
employment occurs, then within sixty days following such
termination, the Company shall pay to such Participant an
amount in cash equal to 15% of such Participant's
Compensation (within the meaning of the Profit Sharing Plan)
for such year.
(c) If a Participant is a participant in the Western
Atlas Inc. Executive Severance Plan and becomes entitled to
receive Separation Benefits (within the meaning of such
Executive Severance Plan) thereunder, (i) an amount equal to
any amount thereafter forfeited by such Participant under the
Profit Sharing Plan shall be distributed by the Company to
such Participant in cash within sixty days following the date
of such forfeiture, and (ii) if such Participant is not
eligible for an allocation of the employer's contribution, if
any, to be made to the Profit Sharing Plan for the year in
which such termination of employment occurs, then within
sixty days following such termination, the Company shall pay
to such Participant an amount in cash equal to 15% of such
Participant's Compensation (within the meaning of the Profit
Sharing Plan) for such year.
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<PAGE> 4
IN WITNESS WHEREOF, this Amendment has been executed as of the 18th
day of February, 1998, to be effective as of January 1, 1998.
WESTERN ATLAS INTERNATIONAL INC.
By: /s/ William H. Flores
--------------------------------
Title: Senior Vice President
--------------------------------
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<PAGE> 1
EXHIBIT 10.6
WESTERN ATLAS SUPPLEMENTAL RETIREMENT PLAN
THIS SUPPLEMENTAL RETIREMENT PLAN, made and executed by WESTERN ATLAS
INTERNATIONAL, INC., a Delaware corporation (the "Company"),
WITNESSETH THAT:
WHEREAS, effective April 1, 1983, Western Geophysical Company of
America established for the benefit of certain of its key employees a
supplemental retirement plan known as the Western Geophysical Supplemental
Retirement Plan (the "Western Geo Plan"); and
WHEREAS, pursuant to an agreement between Litton Industries, Inc. and
Dresser Industries, Inc., effective as of May 1, 1987, certain employees covered
by the Western Geo Plan were transferred to and became employees of the Company,
and the Company adopted and assumed all of the obligations of the sponsoring
employer under the Western Geo Plan and changed the name of the Western Geo Plan
to the Western Atlas Supplemental Retirement Plan; and
WHEREAS, the Company now desires to make certain changes to the
provisions of the Western Atlas Supplemental Retirement Plan as adopted
effective as of May 1, 1987;
NOW, THEREFORE, in consideration of the premises and pursuant to the
provisions of Section 13 thereof, the Western Atlas Supplemental Retirement Plan
as adopted by the Company effective as of May 1, 1987, is hereby amended by
restatement in its entirety effective as of November 13, 1997, to read as
follows:
Section 1 - Purpose
The Plan is designed to provide retirement benefits to selected key
employees of the Company and to encourage their continued employment with the
Company until retirement.
Section 2 - Eligibility
The President may recommend to the Committee which key employees, if
any, of the Company shall be selected as Participants in the Plan. The Committee
shall determine which of the key employees of the Company shall be designated as
Participants. The total number of Active Participants shall not exceed 20 at any
time. No key employee of the Company shall have any right to participate in the
Plan other than through his designation by the Committee as specified herein.
<PAGE> 2
Section 3 - Participation
A key employee shall commence active participation in the Plan upon (1)
his designation by the Committee as a Participant in accordance with Section 2
hereof and (2) his filing with the President his agreement that he will not,
during the period of his employment with the Company or during any period
thereafter, without the prior written consent of the President become engaged
in, or act in any employment or consultant capacity, for any governmental or
private enterprise which is, or becomes, directly or indirectly competitive with
the Company or products (or services) in which it then deals or proposes to
deal. Once he becomes a Participant in the Plan, the key employee continues as
an Active Participant until his Termination of Employment other than by Total
Disability.
Section 4 - Normal Retirement Benefits
(a) The Normal Retirement Benefit shall be an annual amount determined
in accordance with the applicable provisions of this subsection (a):
(i) If a Participant's employment with the Company is
terminated on or after age 65 and following at least 25 Years of Service, his
Normal Retirement Benefit shall be 55% of his Final Average Compensation.
(ii) If, with the consent of the Committee, a Participant's
employment with the Company is terminated on or after age 55 and following at
least 15 Years of Service, his Normal Retirement Benefit shall be his Final
Average Compensation times the percentage factor determined from Exhibit A at
the time of his termination of employment.
(iii) Except as provided in Section 6, no Normal Retirement
Benefit shall be paid under the Plan to any Participant if his employment with
the Company terminates prior to age 55 for any reason.
(b) The Normal Retirement Benefit determined in accordance with
subsection (a) above shall be reduced by:
(i) Twelve times his primary insurance amount determined under
the Social Security Act on his 65th birthday or, if earlier, the reduced primary
insurance amount determined on the date as of which his retirement benefits
under this Plan commence;
(ii) Annual retirement benefits available to the Participant
under any public retirement program of a foreign country (including any
subdivision thereof), which program is comparable to the United States social
security system, and computed on the basis of the maximum single life benefits
available to him if he elected to retire under said program on his 65th birthday
or, if earlier, on the date as of which his retirement benefits under this Plan
commence; and
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<PAGE> 3
(iii) The annual benefits to be received or which could have
been received by the Participant under the Company's Retirement/Profit Sharing
Plan or any other plan sponsored by the Company, which plan is either intended
to qualify under Section 401 of the Internal Revenue Code or, although not
intended to qualify, is designed to provide retirement benefits. Such benefits
shall be computed in accordance with the Actuarial Factors as an annual single
life annuity on the Participant's 65th birthday, or, if earlier, on the date as
of which his retirement benefits under this Plan commence.
Section 5 - Payment of Normal Retirement Benefits
(a) The payment of a Participant's Normal Retirement Benefit shall
commence on the first day of the month following the month in which all the
conditions described below are met:
(i) The Participant's termination of employment has occurred
other than by death;
(ii) (a) The Participant has attained at least the age of 65,
or
(b) The Participant has attained at least the age of 55
and has retired from the Company with the written consent of the Committee;
(iii) The Participant has entered into a consulting agreement
with the Company substantially in the form of Exhibit B attached hereto, or the
Company has expressly declined to enter such agreement. The compensation fixed
in such agreement shall be reasonable and any dispute relative thereto shall be
submitted to binding arbitration;
(iv) The Participant has filed with the Committee a completed
written election on a form furnished by the Committee to receive said benefits;
and
(v) The Participant's written election specifies that payment
is to be made in one of the four following forms:
(1) Single Life Annuity - The Participant shall receive a monthly
benefit equal to 1/12 of his annual Normal Retirement Benefit for life with all
payments ceasing upon the death of the Participant.
(2) Joint and Survivor Annuity - The Participant shall receive a
monthly benefit for life reduced from the benefit provided in (1) above and the
same reduced monthly benefit or a lesser amount shall be paid after his death to
and during the life of the person who was his spouse at the time the first
payment was made under this paragraph. The amount of the reduced benefits shall
be determined in accordance with the Actuarial Factors.
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<PAGE> 4
(3) Ten-Year Certain Annuity - The Participant shall receive a monthly
benefit for life reduced from the benefit provided in (1) above. If the
Participant does not live to receive 120 monthly payments, the balance of the
120 monthly payments shall be continued to his designated beneficiary. The
amount of the reduced retirement benefit shall be determined in accordance with
the Actuarial Factors. The class of beneficiaries which can be designated shall
be limited to the Participant's spouse, his children, or his estate.
(4) Fifteen-Year Only Annuity - The Participant shall receive a monthly
benefit for 180 months reduced from the benefit provided in (1) above. If the
Participant does not live to receive 180 monthly payments, the balance of the
180 monthly payments shall be continued to his designated beneficiary. The
amount of the reduced retirement benefit shall be determined in accordance with
the Actuarial Factors. The class of beneficiaries which can be designated shall
be limited to the Participant's spouse, his children, or his estate.
(b) In the event the Participant retired with the written consent of
the Committee and elects to commence payment on his Normal Retirement Benefit
prior to age 65, such benefit shall be reduced according to the Actuarial
Factors and appropriate adjustment shall be made in the computation of the
offsets under subsection 4(b) above.
(c) No benefits shall be payable hereunder to a Participant who dies
prior to commencement of payments provided herein, except, and to the extent,
provided in Section 7 hereof.
(d) An election of one of the four forms of benefits above is
irrevocable after receipt of the first payment. The designated beneficiary in
(3) or (4) of subsection 5(a)(v) above may be changed at any time prior to the
death of the Participant. In the event the written election specifies none of
the four forms, the Participant shall be automatically deemed to have elected a
Single Life Annuity.
(e) Payments hereunder shall commence as soon as administratively
feasible after satisfaction of the five conditions described above and shall be
effective as of the first day of the month following the satisfaction of said
conditions.
Section 6 - Disability Benefits
In the event that a Participant's Total Disability occurred while
employed by the Company, he shall be entitled to receive a monthly disability
benefit equal to 40% of his Monthly Compensation, offset by the sum of: (a) all
amounts payable to such Participant by or on behalf of the Company on account of
such Total Disability (including, without limitation, amounts payable under a
Company-sponsored disability insurance plan or other benefit plan of the
Company, amounts payable as sick pay, amounts payable under so-called Workers
Compensation Acts or similar laws of a foreign government, but excluding lump
sum amounts for loss of a body organ or other body member, amounts paid for
medical expenses and amounts distributed under
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<PAGE> 5
the Company's Retirement/Profit Sharing Plan), calculated as if the Participant
had participated to the fullest extent possible in such plans and programs; and
(b) the Social Security (or comparable foreign government) disability benefits
payable to such Participant. For purposes of determining any offset under the
preceding sentence, any payments that are not made on a monthly basis shall be
converted to monthly payments under a methodology approved by the Committee. The
monthly disability benefit payments provided herein shall commence with the
fourth month of the Participant's Total Disability and shall be payable monthly
thereafter during the Participant's lifetime as long as such Total Disability
continues but not after he attains age 65, and in no event longer than the
number of full months the Participant was employed by the Company. Further,
after disability benefits have been paid to a Participant for twenty-four
consecutive months, future monthly disability payments shall be reduced by any
earned income (as defined in Section 911(d)(2) of the Internal Revenue Code) of
the Participant in such later months. The earned income of such later months
shall be conclusively presumed to equal the disability benefit otherwise payable
hereunder unless the Participant makes his federal, state, or other applicable
tax returns, books, records, and other financial information available to the
Company upon its request at such time and place the Company may specify. If a
Participant's Total Disability continues until he attains age 65, such
Participant shall be entitled to receive a Normal Retirement Benefit determined
on the basis of his Final Average Compensation as of the date his Total
Disability commenced and as if his period of Total Disability was an Employment
Period.
Section 7 - Death Benefits
(a) Death Before Age 65 - Active Participants Only
If an Active Participant dies, his spouse shall be entitled to receive
a monthly death benefit equal to 40% of his Monthly Compensation. The death
benefit shall only be payable for the lesser of (1) the number of full months
the Participant was employed by the Company or (2) the number of full months
between his date of death and the date on which he would have attained age 65.
The monthly death benefit shall be payable to the spouse to whom the Participant
was married on the date of his death. Any monthly death benefit described in
this paragraph that would be payable but for the fact that said spouse is not
living, shall be payable in an amount described below pro rata to living
Dependents of the Participant. The amount is the monthly death benefit otherwise
payable multiplied by a fraction (not greater than one), the numerator of which
is the number of living Dependents of the Participant and the denominator of
which is 3, where the appropriate fraction is determined each month as the
monthly death benefit becomes payable. The monthly death benefit otherwise
payable pursuant to this paragraph shall cease at such time as there is no
living person described above who is eligible to receive said benefit.
-5-
<PAGE> 6
(b) Death Prior to Receipt of Section 5 Payments - Active Participants
Only
In the event an Active Participant with at least 15 Years of Service
dies prior to the receipt of the first payment under Section 5 hereof, his
beneficiary shall be entitled to receive a portion, described below, of the
Normal Retirement Benefit which the Participant would have received, if any, on
the date of his death. The amount of the benefit shall commence and be computed
under Sections 4 and 5 assuming the Participant was living and elected payments
to start on the later of (1) the day before his death or (2) the day on which
Participant would have attained the age of 65, in which case the death of the
Participant will be deemed to have occurred on the following day. For purposes
of this Section, the beneficiary or beneficiaries of a Participant and a form of
payment permitted under Section 5(a)(v) shall be designated by such Participant
in writing on a form prescribed by and filed with the Company, and such
designation shall remain in effect until changed by the Participant by the
filing of a new beneficiary designation form with the Company. If a Participant
fails to so designate a beneficiary, or in the event all of the Participant's
designated beneficiaries are individuals who predecease such Participant, then
any amount payable under this Section with respect to the death of such
Participant shall be paid to such Participant's surviving spouse, if any, but if
none, to such Participant's estate. If a Participant fails to so designate a
form of payment permitted under Section 5(a)(v), then the benefit payable
pursuant to this Section shall be paid in the form of a Ten-Year Certain Annuity
under Section 5(a)(v)(3).
Section 8 - Forfeiture of Benefits
Notwithstanding any other provisions of this Plan, a Participant's
benefits under the Plan shall be forfeited if the Participant's employment with
the Company terminates for any reason, and at any time thereafter the
Participant becomes engaged in or employed by another enterprise which is
directly or indirectly competitive with the Company or products (or services) in
which it then deals or proposes to deal, or if the Participant violates the
agreements described in Section 3 or Section 5(a)(iii) or the terms of his
consulting agreement, if any, with the Company.
Section 9 - Funding of Plan Benefits
The Company shall not be required to establish any reserves of
corporate assets or to establish any trust fund with respect to the funding of
plan benefits provided herein. The benefits provided herein constitute unfunded
and unsecured general obligations of the Company and no Participant or
beneficiary shall have any rights to or interests in any particular assets of
the Company except to receive Plan benefits as they become due.
Section 10 - Non-alienation of Benefits
No right under the Plan shall be subject to anticipation, sale,
assignment, pledge, encumbrance or charge. If any Participant shall be
adjudicated bankrupt or attempt to anticipate, sell, assign, pledge, or encumber
any right hereunder, all rights of such Participant shall terminate and any
unpaid balance, or any part thereof may be held or applied for the benefit of
his legal representatives, spouse, children or other dependents, or any of them,
in such manner and in such proportions as the President may deem proper.
-6-
<PAGE> 7
Section 11 - Claim Procedures
All claims for benefits under the Plan shall be submitted in writing to
the President. The President shall review the claim when filed and advise the
Participant or beneficiary as to whether the claim is approved or denied. If the
claim is wholly or partially denied, the President shall furnish a written
denial within 90 days after receipt of the filed claim unless special
circumstances require an extension of time for processing the claim, in which
case the President shall furnish the written denial within 180 days after
receipt of the filed claim. The written denial shall contain (a) the specific
reason or reasons for denial; (b) specific reference to pertinent Plan
provisions on which the denial is based; (c) a description of any additional
information necessary for the Participant to perfect the claim and an
explanation of why such material or information is necessary; and (d)
appropriate information as to the steps to be taken if the Participant wishes to
appeal the denial of the claim. In the event the Participant is the President,
the Committee shall be substituted for "President" wherever it appears in this
Section.
The Participant or beneficiary may appeal the denial of the claim to
the Committee within 90 days after receipt of such decision. The appeal shall be
in writing addressed to the Committee and shall state the reason why it should
grant the appeal. The Committee shall conduct a full and fair review of the
claim and shall issue its decision within 60 days of the receipt of the appeal
unless there are special circumstances, in which case a decision shall be
rendered within 120 days of the receipt of the appeal.
The Committee's decision upon appeal, or the President's initial
decision if no appeal is taken, shall be final, conclusive and binding on all
parties.
Section 12 - Right to Terminate Employment
The selection of any key employee for participation in the Plan shall
not give such Participant any right to be retained in the employ of the Company
and such employment is terminable at will and without cause by the Company. The
right and power of the Company to dismiss or discharge any Participant is
specifically and unqualifiedly reserved.
Section 13 - Plan Amendment, Termination or Suspension
The Board of Directors of the Parent or the Committee, each acting in
its sole discretion, retains the power to amend, suspend, or terminate the Plan
in any manner or at any time. Unless otherwise expressly provided, an amendment,
suspension or termination shall only apply to Active Participants who are
accruing Years of Service on the day such action was taken by the Board of
Directors of the Parent or the Committee; provided however, that no such
amendment, suspension or termination shall, without a Participant's consent,
retroactively adversely affect his rights to receive the benefits in accordance
with the Plan to which he would have been entitled if he had retired from his
employment with the Company with the consent of the Committee on the day
immediately prior to said amendment, suspension or termination.
-7-
<PAGE> 8
Section 14 - Administration
This Plan shall be administered by the Committee. The Committee shall
have full power and authority to interpret and administer the Plan, to adopt
rules and regulations and to establish terms and conditions, not inconsistent
with the provisions of the Plan, for the administration and implementation of
the Plan.
Section 15 - Facility of Payment
The Company may make any payments required by this Plan when the payee
is incapacitated in the judgment of the Committee by reason of physical or
mental illness or infirmity: (a) to the payee directly; (b) to the guardian of
the payee's personal estate; (c) to the custodian of a minor payee serving under
the Uniform Gifts to Minors Act of Texas or any other state; or (d) in the event
an inter vivos or testamentary trust is then in existence for the benefit of any
such payee, the Company may make any such payments to the trustee or trustees of
any such trust. The Company may make the payment specified by this Agreement
without liability of anyone other than the specified payee. The Participant
hereby agrees, on behalf of himself, his heirs and assigns, to hold the Company
harmless from any liability for making payments as specified by this Agreement
unless and until the Company is served with citation or other process issuing
out of a court of competent jurisdiction in connection with a suit instituted by
someone for the purpose of recovering or establishing an interest in such
payments.
Section 16 - Rehired Key Employee
Except as provided in this Section, a Participant who terminates
employment with the Company and is subsequently rehired by the Company shall not
become eligible to resume active participation in the Plan and his Years of
Service after his rehire date shall not be counted in computing benefits based
on his former participation for any purposes of the Plan. If such Participant is
again designated an Active Participant by the Committee in accordance with
Section 2, the Committee in its discretion may in writing provide for the
Participant's period of employment with the Company prior to his rehire date or
for any period of such Participant's Total Disability to be aggregated with such
Participant's subsequent employment with the Company for the purposes of
computing Years of Service, Monthly Compensation and/or Final Average
Compensation. An individual who first becomes a Participant after his rehire
date shall not be permitted to count his Years of Service, Monthly Compensation
and Final Average Compensation for any previous Employment Period unless the
Committee specifies in writing the particular period which is to be counted.
-8-
<PAGE> 9
Section 17 - Severability
The invalidity or enforceability of any provision hereof shall in no
way affect the validity or enforceability of any other provision.
Section 18 - Binding Effect
This Plan shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and the Participant, his beneficiaries,
devisees, heirs, executors, administrators and legal representatives.
Section 19 - Entire Plan
This Plan is intended as a final expression of the undertaking by the
Company and is intended also as a complete and exclusive statement of the terms
of said undertaking. No modification of the Plan herein shall be effective
unless approved by the Board of Directors of the Parent or the Committee.
Section 20 - Definitions
(a) Active Participant - A key employee designated by the Committee for
participation in the Plan who has met the requirements of Section 3.
(b) Actuarial Factors - The "applicable mortality table" within the
meaning of section 417(e)(3) of the Internal Revenue Code of 1986, as amended,
and an annual rate of interest equal to the lesser of 7% or the "applicable
interest rate" within the meaning of section 417(e)(3) of said Code.
(c) Age - Any reference to a particular age shall mean the age of the
affected individual on his last birthday.
(d) Committee - The Compensation Committee of the Board of Directors of
the Parent or such other committee of the Board of Directors of the Parent as
determined by such Board.
(e) Company - Western Atlas International, Inc., a Delaware corporation
headquartered in Houston, Texas, or its successor.
(f) Construction - The masculine gender shall be deemed to include the
feminine gender and the singular the plural unless the context clearly indicates
otherwise.
(g) Dependent - A son or daughter who is
(i) under the age of 19, or
-9-
<PAGE> 10
(ii) under the age of 23 and a full-time student at an
accredited educational institution.
(h) Employment Period - The elapsed period of time of compensatory
service with the Company from the commencement of employment to the termination
of that particular employment.
(i) Final Average Compensation - The sum, divided by three, of:
(i) the base pay of the Participant over any consecutive 36
months of the 60-month period ending on the last day of the month in which his
termination of employment occurs, plus
(ii) any cash bonus paid to the Participant prior to
January 1, 1998, and during such 36 months, and
(iii) any performance-based cash bonus paid to the Participant
after December 31, 1997, and during such 36 months.
The 36 consecutive month period used to determine a Participant's Final Average
Compensation shall be the period which produces the highest such Final Average
Compensation.
(j) Key Employee - A highly-compensated individual employed by the
Company.
(k) Monthly Compensation - The sum, divided by twelve, of:
(i) the base pay of the Participant for the twelve months
preceding the date he became totally disabled or died, whichever is applicable,
plus
(ii) any cash bonus paid to the Participant prior to January
1, 1998, and during such period, plus
(iii) any performance-based cash bonus paid to the Participant
after December 31, 1997, and during such period.
(l) Participant - A key employee who was designated for participation
in the Plan pursuant to Section 2.
(m) President - The President of the Company.
(n) Plan - The Western Atlas Supplemental Retirement Plan.
(o) Parent - Western Atlas Inc. or its successor.
-10-
<PAGE> 11
(p) Termination of Employment - Occurs on that date when the common law
employment relationship between the Company and the individual ceases. A
termination of employment includes a leave of absence or a medical leave of
absence.
(q) Total Disability - The total and permanent incapacity of an Active
Participant to perform the usual duties of his employment with the Company as
determined by the Committee. Such incapacity shall be deemed to exist when
certified by a physician acceptable to the Committee.
(r) Years of Service - Each full twelve-month Employment Period
constitutes a Year of Service. If the Committee so directs, the designated
Employment Periods shall be aggregated in computing Years of Service. The
Committee may, in its discretion, credit a Participant who has at least 15 Years
of Service with additional Years of Service for periods during which, though not
an employee of the Company, he rendered valuable services as a full-time
employee to an affiliated corporation of the Company or for periods of time
subsequent to the Participant=s termination of employment during which periods
the Participant was subject to a written agreement with the Company to provide
consulting and advisory services. Years of Service do not include any period of
time during which the Participant violated the provisions of Section 3(2) above.
-11-
<PAGE> 12
WESTERN ATLAS INTERNATIONAL EXECUTIVE RETIREMENT PLAN
EXHIBIT A
YEARS OF SERVICE (1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
25 24 23 22 21 20 19 18 17 16 15
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Age(1) 65+ 55 52.5 50 47.5 45 42.5 40 37.5 35 32.5 30
64 52.5 50 47.5 45 42.5 40 37.5 35 32.5 30 27.5
63 50 47.5 45 42.5 40 37.5 35 32.5 30 27.5 25
62 47.5 45 42.5 40 37.5 35 32.5 30 27.5 25 22.5
61 45 42.5 40 37.5 35 32.5 30 27.5 25 22.5 20
60 42.5 40 37.5 35 32.5 30 27.5 25 22.5 20 17.5
59 40 37.5 35 32.5 30 27.5 25 22.5 20 17.5 15
58 37.5 35 32.5 30 27.5 25 22.5 20 17.5 15 12.5
57 35 32.5 30 27.5 25 22.5 20 17.5 15 12.5 10
56 32.5 30 27.5 25 22.5 20 17.5 15 12.5 10 7.5
55 30 27.5 25 22.5 20 17.5 15 12.5 10 7.5 5
---------
54 and prior -- -- -- -- -- -- -- -- -- -- --
</TABLE>
(1) Note: Both Age and Years of Service determined as of the date of
termination of employment with Western Atlas International, Inc.
-12-
<PAGE> 13
EXHIBIT B
CONSULTING AGREEMENT
THIS AGREEMENT, entered into this _____ day of __________, 19__,
between WESTERN ATLAS INTERNATIONAL, INC., (hereinafter referred to as "the
Company"), a Delaware corporation, and _______________________________________
(hereinafter referred to as ___________________________________):
WITNESSETH:
WHEREAS, _______________ desires to retire on _________________________
under the terms of the supplemental retirement plan of the Company; and
WHEREAS, in view of the fact that _________________________________ has
been associated with the Company since ________________________ and a key
employee in the accomplishment of its corporate purposes, the Company desires to
engage __________________ to act as an independent consultant for the Company:
NOW THEREFORE, in consideration of the premises and mutual covenants
and promises hereinafter contained, the parties hereto do hereby agree and
contract as follows:
1. ________________________________ agrees that he will serve the
Company as an independent consultant from ______________________ through
______________________, and thereafter until this agreement is terminated as
provided in paragraph 6 below, by rendering such advice and assistance to the
Company in connection with its business matters as the President of the Company
may reasonably request.
-13-
<PAGE> 14
2. The Company hereby engages __________________________ as an
independent consultant, and not as an employee, during such period and agrees to
compensate him therefore at a daily rate of $__________, payable in accordance
with the Company's payroll practices as in effect when services are performed.
___________________________ shall be available for the rendition of consulting
services at times and places mutually agreed upon during at least (_____) days
per year. For purposes of this agreement, travel days in the continental United
States shall not be counted or recompensed, while international travel days
shall.
3. The Company shall reimburse ___________________________ for any
reasonable expenses incurred in rendering services hereunder as an independent
consultant.
4. This agreement shall terminate in the event of____________________'s
death and may be terminated on or after _________________________ by the Company
at any time by thirty days written notice to ___________________________.
5. If because of temporary disability __________________________ shall
be unable to render consulting services as provided in this agreement, such
failure shall not constitute a breach of performance hereunder.
6. ____________________________ agrees that while this agreement is in
effect, he will not engage in offering his services as a consultant to others,
will not engage in any occupation requiring personal services in a business
which is, or becomes, competitive with that conducted by the Company or any of
its subsidiaries or affiliates, or serve on the Board of Directors of any
corporation engaged in any such business, except with the written consent of the
President. In the event that _________________________ engages in any such
activity without
-14-
<PAGE> 15
obtaining the written consent of the President of the Company, this agreement
shall terminate and any obligation to make payments to the participant or his
beneficiaries, which payments were in any part based on ______________________'s
agreement to perform this consulting agreement, such as payments under the
Western Atlas Supplemental Retirement Plan, shall forever cease.
7. This agreement shall be construed under and be governed by the laws
of the State of Texas.
WESTERN ATLAS INTERNATIONAL, INC.
By
------------------------------------
President
------------------------------------
-15-
<PAGE> 16
SUPPLEMENT A
WESTERN ATLAS INTERNATIONAL, INC.
RETIREMENT PLAN
MAY 1, 1987
Section 1 - Purpose
Certain current key employees of the Company who are designated as
participants in the Plan must be provided more guarantees than the Plan provides
to encourage their continued employment with the Company until retirement.
Section 2 - Eligibility and Participation
In addition to designating key employees of the Company as Participants
in the Plan, the Chief Operating Officer may designate on or before June 30,
1983, Plan Participants as Participants in this Supplement.
Section 3 - Benefits
The benefits provided by the supplement are those additional benefits,
if any, that would arise if Section 4 of the Plan contained as subsection (c)
thereof the following:
(c) In no event shall the Normal Retirement Benefit determined in
accordance with subsection (a) be reduced more than 60% by the reductions
described in (b) above; provided, however, that the limitation on reductions
provided herein shall not operate to increase the Participant's total retirement
income [the benefits described under subsection (a) plus the benefits referenced
in subsection (b)] to more than 65% of the Participant's Final Average
Compensation.
-16-
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NO. 1
TO THE
WESTERN ATLAS SUPPLEMENTAL RETIREMENT PLAN
Pursuant to the provisions of Section 13 thereof, the Western Atlas
Supplemental Retirement Plan as amended by restatement in its entirety effective
as of November 13, 1997 (the "Plan") is hereby further amended in the following
respects only:
The Plan is hereby amended to add a new Section 21 immediately
following Section 20 of the Plan to read as follows:
Section 21 - Special Change of Control Provisions
(a) Any provision of this Plan to the contrary notwithstanding, if a
Participant is a party to a Change of Control Employment Agreement with the
Parent (the "Agreement") or is a participant in the Western Atlas Inc. Executive
Severance Plan (the "ES Plan") and such Participant's employment terminates
under circumstances resulting in the payment of a lump sum amount to the
Participant pursuant to Section 6(a)(i) of the Agreement or the receipt of
Separation Benefits by such Participant under the ES Plan, then following such
termination of employment each benefit payable under the Plan to or with respect
to such Participant shall be determined and paid when otherwise due under the
Plan without regard to any provision of the Plan relating to eligibility for the
payment of such benefit that provides for or requires:
(i) the consent of the Committee;
(ii) the entering into of a consulting agreement with the
Company; or
(iii) a forfeiture of benefits because the Participant
engages in or becomes employed by another enterprise which is directly or
indirectly competitive with the Company or products (or services) in which it
deals or proposes to deal, or the Participant violates the agreements described
in Section 3, Section 5(a)(iii) or the terms of his consulting agreement, if
any, with the Company.
IN WITNESS WHEREOF, this Amendment has been executed as of the 18th day
of February, 1998, to be effective as of January 1, 1998.
WESTERN ATLAS INTERNATIONAL INC.
By: /s/ William H. Flores
----------------------------------------
Title: Senior Vice President
----------------------------------------
<PAGE> 1
EXHIBIT 10.14
AMENDMENT NO. 1
TO
CONSULTING AGREEMENT
This Amendment No. 1, effective the 1st day of October, 1997, is made to that
certain Consulting Agreement between WESTERN ATLAS INC. (hereinafter "Company")
and JOSEPH T. CASEY, dated August 1, 1996 (hereinafter called the "Agreement").
WHEREAS, the parties to the Agreement wish to extend the Duration of the
Agreement described in the Agreement for a term of one (1) year beginning on
October 1, 1997 at a Minimum Annual Fee of $150,000 and to amend the designated
Point of Contact.
NOW, THEREFORE, by mutual agreement of the parties, the Agreement is hereby
amended as follows:
1. Duration:
The date "October 1, 1996" which appears in numbered Paragraph 3 is
hereby changed to read "October 1, 1997".
2. Point of Contact:
The designated Point of Contact, "Alton J. Brann, Chief Executive of
the Company", set forth in Paragraph 1(b), is hereby changed to read "Chief
Executive Officer of the Company".
3. Compensation and Payment:
For the new term which shall begin on October 1, 1997 and terminate on
September 30, 1998, the Minimum Annual Fee shall again be $150,000, payable in
monthly installments of $12,500.00 per month with all other terms and conditions
remaining unchanged.
4. Notices:
The addressee of any Notice to the Company under Paragraph 10
identified to be "Alton J. Brann, Chairman of the Board and Chief Executive
Officer, Western Atlas Inc., 360 North Crescent Drive, Beverly Hills, California
90210", is hereby changed to read "Chief Executive Officer, Western Atlas Inc.,
10205 Westheimer Road, Houston, Texas 77251-1407".
5. Other Terms and Conditions:
Except as modified herein all terms and conditions of the Agreement
shall remain in full force and effect as originally written.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have signed and delivered this
Amendment No. 1 as of the date first written above.
CONSULTANT WESTERN ATLAS INC.
By: /s/ Joseph T. Casey By: /s/ Alton J. Brann
--------------------------------- ---------------------------------
Joseph T. Casey Alton J. Brann
Chairman and Chief Executive
Officer
Dated: 9/16/97 Dated:
------------------------------ ------------------------------
<PAGE> 1
EXHIBIT 11
WESTERN ATLAS INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
---------------------------------------------------- DECEMBER 31, JULY 31,
1997 1996 1995 1994 1993 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ 91,811 $ 69,922 $ 61,409 $ 39,748 $(190,580) $ 40,791
Earnings (loss) from discontinued operations (154,927) 55,743 38,430 37,993 7,303 33,129
--------- --------- --------- --------- --------- ---------
Earnings (loss) before cumulative effect of a
change in accounting principle (63,116) 125,665 99,839 77,741 (183,277) 73,920
Cumulative effect of a change in accounting
principle (a) -- -- -- -- -- (1,119)
--------- --------- --------- --------- --------- ---------
Net earnings available for common shares $ (63,116) $ 125,665 $ 99,839 $ 77,741 $(183,277) $ 72,801
========= ========= ========= ========= ========= =========
Earnings (loss) per share from continuing
operations $ 1.69 $ 1.31 $ 1.16 $ .83 $ (4.18) $ .87
Earnings (loss) per share from discontinued
operations (2.85) 1.04 .72 .80 .16 .70
--------- --------- --------- --------- --------- ---------
Earnings (loss) per share before cumulative
effect of a change in accounting principle (1.16) 2.35 1.88 1.63 (4.02) 1.57
Cumulative effect of a change in accounting
principle (a) -- -- -- -- -- (.02)
--------- --------- --------- --------- --------- ---------
Total $ (1.16) $ 2.35 $ 1.88 $ 1.63 $ (4.02) $ 1.55
========= ========= ========= ========= ========= =========
SHARES USED IN COMPUTATION:
Weighted-average common shares outstanding
(net of treasury shares) 54,252 53,490 53,074 47,662 45,582 46,999
========= ========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Earnings (loss) from continuing operations $ 91,811 $ 69,922 $ 61,409 $ 39,748 $(190,580) $ 40,791
Earnings (loss) from discontinued operations (154,927) 55,743 38,430 37,993 7,303 33,129
--------- --------- --------- --------- --------- ---------
Earnings (loss) before cumulative effect of a
change in accounting principle (63,116) 125,665 99,839 77,741 (183,277) 73,920
Cumulative effect of a change in accounting
principle (a) -- -- -- -- -- (1,119)
--------- --------- --------- --------- --------- ---------
Net earnings available for common shares and
common stock equivalent shares deemed
to have a dilutive effect $ (63,116) $ 125,665 $ 99,839 $ 77,741 $(183,277) $ 72,801
========= ========= ========= ========= ========= =========
Earnings (loss) per share from continuing
operations $ 1.65 $ 1.29 $ 1.14 $ .82 $ (4.18) $ .87
Earnings (loss) per share from discontinued
operations (2.78) 1.03 .72 .78 .16 .70
--------- --------- --------- --------- --------- ---------
Earnings (loss) per share before cumulative
effect of a change in accounting principle (1.13) 2.32 1.86 1.60 (4.02) 1.57
Cumulative effect of a change in accounting
principle (a) -- -- -- -- -- (.02)
--------- --------- --------- --------- --------- ---------
Total $ (1.13) $ 2.32 $ 1.86 $ 1.60 $ (4.02) $ 1.55
========= ========= ========= ========= ========= =========
SHARES USED IN COMPUTATION:
Weighted average common shares outstanding
(net of treasury shares) 54,252 53,490 53,074 47,662 45,582 46,999
Additional potentially dilutive securities
(equivalent in common stock) 1,361 781 681 857 -- --
--------- --------- --------- --------- --------- ---------
Total 55,613 54,271 53,755 48,519 45,582 46,999
========= ========= ========= ========= ========= =========
</TABLE>
(a) Amounts pertain to continuing operations.
E-1
<PAGE> 1
EXHIBIT 21
WESTERN ATLAS INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE
OF OF
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
------------------ ------------- ----------
<S> <C> <C>
Western Research Holdings, Inc. Delaware 100
Western Atlas International, Inc. Delaware 100
PetroAlliance Services Company, Ltd. Cyprus 50
</TABLE>
The Registrant has additional operating subsidiaries which, considered in the
aggregate as a single subsidiary, do not constitute a significant subsidiary.
All above-listed subsidiaries were consolidated in the Registrant's financial
statements.
E-2
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-76506 and No. 33-76508 of Western Atlas Inc. on Form S-8 of our report dated
February 18, 1998, appearing in this Annual Report on Form 10-K of Western Atlas
Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Houston, Texas
March 6, 1998
E-3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,504
<SECURITIES> 0
<RECEIVABLES> 473,273
<ALLOWANCES> 27,853
<INVENTORY> 39,360
<CURRENT-ASSETS> 592,491
<PP&E> 1,418,161
<DEPRECIATION> 491,779
<TOTAL-ASSETS> 2,330,707
<CURRENT-LIABILITIES> 478,327
<BONDS> 808,122
0
0
<COMMON> 54,588
<OTHER-SE> 832,279
<TOTAL-LIABILITY-AND-EQUITY> 2,330,707
<SALES> 0
<TOTAL-REVENUES> 1,658,150
<CGS> 0
<TOTAL-COSTS> 962,683
<OTHER-EXPENSES> 494,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,856
<INCOME-PRETAX> 151,245
<INCOME-TAX> 59,434
<INCOME-CONTINUING> 91,811
<DISCONTINUED> (154,927)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,116)
<EPS-PRIMARY> (1.16)<F1>
<EPS-DILUTED> (1.13)
<FN>
<F1>Represents Basic EPS
</FN>
</TABLE>
