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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(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
--- ---
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.
Western Atlas Inc. hereby amends and restates the following sections of its
Annual Report on Form 10-K, as amended, for the year ended December 31, 1997:
Part I, Item 1., Business
Part II, Item 6., Selected Financial Data
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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, amortization, and non-recurring items ("Adjusted
EBITDA") grew from approximately $408 million to approximately $570 million, an
increase of 39%. 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. Historically, such exploration and production activities have been
concentrated in Texas, Argentina, offshore China, offshore West Africa, and the
United States Gulf of Mexico. Further exploration and production efforts are
ongoing in other areas including the possible acquisition of working interests
in additional projects in connection with the Company's clients and partners.
Revenues from oil and gas exploration and production activities amounted to less
than 1% of consolidated revenue in each of the periods included herein.
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
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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 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 is
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.
RECENT EVENTS
On March 8, 1998, the Company entered into an agreement to acquire the stock of
Wedge Dia-Log, Inc. ("Wedge Dia-Log"), for approximately $218 million in cash.
Wedge Dia-Log is a wireline company specializing in cased-hole and pipe recovery
services.
In addition, on March 8, 1998, the Company entered into an agreement to acquire
the stock of 3-D Geophysical, Inc., a supplier of primarily land-based seismic
data acquisition services, in an all cash tender offer for $9.65 per share, for
an aggregate of $115 million if all shares are tendered.
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PART II
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) $ 561.2 $ 456.7 $ 408.5 $ 341.3 $ (155.6) $ 311.2
Adjusted 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
Cash flows from (g):
Operating activities 519.1 449.6 277.6 320.7 124.0 271.8
Investing activities (758.2) (451.9) (228.0) (311.3) (143.9) (154.7)
Financing activities 440.2 18.1 (22.7) 40.1 (93.9) (62.5)
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 (h) 10,600 9,100 8,500 8,900 7,800 8,800
</TABLE>
(see notes on following page)
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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.
(b) On May 4, 1997, the Company's Board of Directors approved a plan for the
Spin-off of UNOVA. On October 31, 1997, the shares of common stock of UNOVA
were distributed to the Company's shareholders pursuant to the Spin-off.
UNOVA's operations through October 31, 1997 are reported in the Company's
consolidated financial statements as 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 charges of $8.4 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 minority interest. "Adjusted EBITDA" represents EBITDA
adjusted for non-recurring items. Non-recurring items represent Spin-off
charges of $8.4 million in the year ended December 31, 1997; restructuring
charges of $242.2 million in the five-month period ended December 31, 1993;
and cumulative effect of a change in accounting principle of $1.8 million
in the year ended July 31, 1993. EBITDA and Adjusted EBITDA are non-GAAP
measures that may not be comparable to similarly titled items of other
companies and should not be considered as alternatives 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 and Adjusted EBITDA are widely
accepted financial indicators 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.
(g) Cash flow information represents continuing operations.
(h) Excluding employees of UNOVA.
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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
May 21, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amendment to 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
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<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
* Director March 6, 1998
- ------------------------------------
Paul Bancroft III
* Director and March 6, 1998
- ------------------------------------ Chairman of the Board
Alton J. Brann
* Director March 6, 1998
- ------------------------------------
Joseph T. Casey
* Director March 6, 1998
- ------------------------------------
William C. Edwards
* Director March 6, 1998
- ------------------------------------
Claire W. Gargalli
* Director March 6, 1998
- ------------------------------------
Orion L. Hoch
</TABLE>
*By /s/ LOURDES T. HERNANDEZ
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(Attorney-in-fact for persons indicated)
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