<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On April 30, 1998, there were 54,802,834 shares of Common Stock
outstanding.
================================================================================
<PAGE> 2
WESTERN ATLAS INC.
INDEX TO REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Statements of Income
Three months ended March 31, 1998 and March 31, 1997...................................... 1
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997...................................................... 2
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and March 31, 1997...................................... 3
Notes to Condensed Consolidated Financial Statements........................................ 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................... 7
Item 3: Quantitative and Qualitative Disclosures About Market Risk.................................... 11
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.............................................................. 12
Signatures .............................................................................................. 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN ATLAS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenue $ 490,745 $ 379,946
---------- ----------
Costs and expenses:
Operating expenses 291,748 245,840
General and administrative 16,960 16,800
Research and technology 14,427 15,235
Depreciation, depletion, and amortization 100,620 67,100
---------- ----------
Total costs and expenses 423,755 344,975
---------- ----------
Operating profit 66,990 34,971
---------- ----------
Other income and expenses:
Interest income 594 506
Interest expense (13,382) (8,669)
---------- ----------
Total other income and expenses (12,788) (8,163)
---------- ----------
Earnings from continuing operations before taxes on income 54,202 26,808
Taxes on income (20,597) (10,724)
---------- ----------
Earnings from continuing operations 33,605 16,084
Discontinued operations -- results of UNOVA, Inc.
distributed to shareholders -- 14,718
---------- ----------
Net earnings $ 33,605 $ 30,802
========== ==========
Basic net earnings per share:
Continuing operations $ 0.61 $ 0.30
Discontinued operations -- 0.28
---------- ----------
Total $ 0.61 $ 0.58
========== ==========
Diluted net earnings per share:
Continuing operations $ 0.60 $ 0.29
Discontinued operations -- 0.28
---------- ----------
Total $ 0.60 $ 0.57
========== ==========
Shares used in computing net earnings per share:
Basic 54,689 53,743
Diluted 56,075 54,734
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
WESTERN ATLAS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,464 $ 33,504
Accounts receivable, net 450,024 445,420
Inventories 39,391 39,360
Deferred tax assets 37,168 34,841
Other current assets 46,383 39,366
------------ ------------
Total current assets 589,430 592,491
Property, plant, and equipment, net 967,650 926,382
Multiclient seismic data and other assets 510,108 479,654
Goodwill and other intangibles, net 327,501 332,180
------------ ------------
Total assets $ 2,394,689 $ 2,330,707
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 330,811 $ 260,627
Payroll and related expenses 72,132 111,108
Notes payable and current portion of long-term debt 49,838 106,592
------------ ------------
Total current liabilities 452,781 478,327
Long-term debt 701,330 701,530
Deferred revenue and other long-term obligations 316,207 263,983
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 54,792 54,588
Additional paid-in capital 688,978 685,283
Retained earnings 184,107 150,502
Pension liability adjustments (3,506) (3,506)
------------ ------------
Total shareholders' equity 924,371 886,867
------------ ------------
Total liabilities and shareholders' equity $ 2,394,689 $ 2,330,707
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
WESTERN ATLAS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations $ 33,605 $ 16,084
Adjustments to reconcile net earnings from continuing operations
to net cash provided by operating activities:
Depreciation, depletion, and amortization 100,620 67,100
Change in accounts receivable (4,604) (13,592)
Change in inventories (31) 3,787
Change in other current assets (7,017) 824
Change in accounts payable and accrued liabilities 70,184 13,228
Change in payroll and related expenses (38,976) (31,929)
Change in deferred revenue 48,205 94,340
Other operating activities (1,210) (249)
------------ ------------
Total from continuing operations 200,776 149,593
Net cash flow from discontinued operations -- (4,994)
------------ ------------
Net cash provided by operating activities 200,776 144,599
------------ ------------
Cash flows from investing activities:
Capital expenditures (86,817) (128,245)
Costs of multiclient seismic data acquired (80,259) (51,109)
Other investing activities 1,755 (2,049)
------------ ------------
Total from continuing operations (165,321) (181,403)
Net cash flow from discontinued operations -- (272,568)
------------ ------------
Net cash used in investing activities (165,321) (453,971)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 2,021
Repayment of long-term debt (49,289) (200)
Net increase (decrease) in short-term borrowings (7,665) 200,561
Increase in UNOVA, Inc. receivable -- (56,915)
Proceeds from issuance of common stock 3,898 1,070
Other financing activities 561 (2,510)
------------ ------------
Total from continuing operations (52,495) 144,027
Net cash flow from discontinued operations -- 161,136
------------ ------------
Net cash provided by (used in) financing activities (52,495) 305,163
------------ ------------
Net decrease in cash and cash equivalents (17,040) (4,209)
Cash and cash equivalents, beginning of period 33,504 16,296
------------ ------------
Cash and cash equivalents, end of period $ 16,464 $ 12,087
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,164 $ 3,805
Income taxes $ 8,002 $ 20,945
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
WESTERN ATLAS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998
1. GENERAL
The amounts included in this report are unaudited; however, in the opinion
of the management of Western Atlas Inc. (the "Company"), all adjustments
necessary for a fair presentation of the Company's consolidated financial
position as of March 31, 1998 and its results of operations and cash flows
for the three months ended March 31, 1998 and 1997 are included. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles are condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed consolidated
financial statements should be read in conjunction with the Company's 1997
Annual Report on Form 10-K (as amended by Form 10-K/A) prepared in
accordance with generally accepted accounting principles. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the entire year.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which established 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 was adopted
by the Company in 1998. Comprehensive income as determined under this
standard was $28.1 million for the three months ended March 31, 1997; there
was no effect for the three months ended March 31, 1998.
2. DISCONTINUED OPERATIONS
On October 31, 1997, the Company distributed all the shares of UNOVA, Inc.
("UNOVA"), its then wholly owned industrial automation systems subsidiary,
as a stock dividend to the Company's shareholders (the "Spin-off"). The
operations of UNOVA for the three months ended March 31, 1997 are
classified as discontinued operations in the Company's Condensed
Consolidated Financial Statements. For periods prior to the Spin-off, total
cash, debt, and related net interest expense were allocated based on the
capital needs of the operations. All corporate general and administrative
costs of the Company are included in continuing operations and no
allocation was made to UNOVA for any of the periods presented.
Discontinued operations of UNOVA for the three months ended March 31, 1997
are as follows (in thousands):
<TABLE>
<S> <C>
Net revenue $ 323,066
Allocated interest expense 3,566
Allocated interest income 1,648
Income before income taxes $ 24,529
Provision for income taxes 9,811
----------
Total discontinued operations, net of income taxes $ 14,718
==========
</TABLE>
4
<PAGE> 7
3. EARNINGS PER SHARE
For the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, titled "Earnings per
Share," which simplifies the computation of earnings per share ("EPS") and
increases comparability to international accounting standards. The effect
of this accounting change on previously reported EPS data for the three
months ended March 31, 1997 is as follows:
<TABLE>
<S> <C>
Primary EPS as originally reported $ 0.56
Effect of SFAS No. 128 0.02
----------
Basic EPS as restated $ 0.58
==========
Fully diluted EPS as originally reported $ 0.56
Effect of SFAS No. 128 0.01
----------
Diluted EPS as restated $ 0.57
==========
</TABLE>
4. INVENTORY
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
(in thousands)
<S> <C> <C>
Raw materials $ 19,330 $ 19,084
Work in progress 16,807 16,032
Finished goods 3,254 4,244
---------- ----------
Total $ 39,391 $ 39,360
========== ==========
</TABLE>
5. DEBT
The Company has a short-term commercial paper ("CP") program which allows
the Company to borrow up to $400 million in aggregate maturity value of
commercial paper, with maturities up to 270 days. At March 31, 1998, $201.9
million was borrowed under the CP program at annual interest rates
approximating 5.69%. In connection with the CP program, the Company agreed
to maintain committed credit facilities with a group of banks that provide
for $400 million in long-term committed credit. At March 31, 1998, there
were no amounts outstanding under the long-term committed credit facility.
At March 31, 1998, $300 million in commercial paper and short-term
obligations was reclassified to long-term debt as the Company has the
ability and intent to refinance such obligations on a long-term basis.
5
<PAGE> 8
6. SUBSEQUENT EVENTS
On April 1, 1998, the Company acquired all the outstanding stock of WEDGE
DIA-LOG, Inc. ("WEDGE") for approximately $218 million in cash (the "WEDGE
Acquisition"). In connection with the WEDGE Acquisition, the Company repaid
approximately $33 million of WEDGE's indebtedness. WEDGE specializes in
cased-hole logging and pipe recovery services.
In April 1998, the Company acquired 3-D Geophysical, Inc. ("3-D
Geophysical") for $9.65 cash per share for an aggregate consideration of
approximately $115 million. 3-D Geophysical is a supplier of primarily
land-based seismic data acquisition services. In addition, the holders of
unexercised options to acquire 3-D Geophysical common stock will receive an
aggregate of approximately $3 million. 3-D Geophysical also had
approximately $11 million in outstanding indebtedness which was repaid by
the Company.
The purchase method of accounting was used to record both of these
acquisitions. Unaudited pro forma information related to these acquisitions
is not included as the impact of these acquisitions is not material.
On May 10, 1998, Baker Hughes Incorporated ("Baker Hughes") and the Company
entered into a definitive merger agreement (the "Merger Agreement") which
provides for the Company to be merged (the "BHI Merger") with a subsidiary
of Baker Hughes. The Merger Agreement provides that the Company's
shareholders are to receive 2.4 shares of newly issued Baker Hughes common
stock for each Western Atlas common share, subject to adjustment. The
transaction is expected to be accounted for as a pooling of interests and
is expected to be tax-free to the Company's shareholders. It is anticipated
that the transaction will be completed by the end of September 1998 and is
subject to shareholder and regulatory approvals, including expiration of
the applicable waiting period under the Hart-Scott-Rodino Act, and other
customary closing conditions.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with Western Atlas Inc.'s (the
"Company") Condensed Consolidated Financial Statements and the related notes
thereto, and the information provided under the caption "Forward-Looking
Statements" set forth below.
OVERVIEW
On October 31, 1997, the Company distributed all the shares of UNOVA, Inc.
("UNOVA"), its then wholly owned industrial automation systems subsidiary, as a
stock dividend to the Company's shareholders (the "Spin-off"). The operations of
UNOVA for the three months ended March 31, 1997 are classified as discontinued
operations in the Company's Condensed Consolidated Financial Statements.
Accordingly, the accounts of these operations for the prior year have been
reclassified as earnings from discontinued operations. See Note 2 of Notes to
Condensed Consolidated Financial Statements.
On April 1, 1998, the Company acquired all the outstanding stock of WEDGE
DIA-LOG, Inc. ("WEDGE") for approximately $218 million in cash (the "WEDGE
Acquisition"). In connection with the WEDGE Acquisition, the Company repaid
approximately $33 million of WEDGE's indebtedness. WEDGE specializes in
cased-hole logging and pipe recovery services.
In April 1998, the Company acquired 3-D Geophysical, Inc. ("3-D Geophysical")
for $9.65 cash per share for an aggregate consideration of approximately $115
million. 3-D Geophysical is a supplier of primarily land-based seismic data
acquisition services. In addition, the holders of unexercised options to acquire
3-D Geophysical common stock will receive an aggregate of approximately $3
million. 3-D Geophysical also had approximately $11 million in outstanding
indebtedness which was repaid by the Company.
The purchase method of accounting was used to record both of these acquisitions.
These two acquisitions are not expected to materially affect the Company's
earnings in 1998, but are expected to be accretive in 1999 and thereafter.
RESULTS OF CONTINUING OPERATIONS
The terms "1Q98" and "1Q97" used herein refer to the three-month periods ended
March 31, 1998 and March 31, 1997, respectively. 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 otherwise specified.
Net earnings from continuing operations for 1Q98 totaled $33.6 million, or $0.60
per share, an increase of 109% compared to $16.1 million, or $0.29 per share,
for 1Q97.
Total revenue for 1Q98 was $490.7 million, an increase of 29% (approximately
$111 million) over 1Q97. Businesses acquired after the first quarter of 1997
contributed approximately $15.0 million, or 14%, of the revenue improvement.
Approximately 67% of the Company's consolidated revenue was derived from
international activities in 1Q98, compared to 74% in 1Q97. Consolidated
international revenue increased 16% in 1Q98 over 1Q97.
Operating profit from continuing operations for 1Q98 was $67.0 million compared
to $35.0 million for 1Q97, an increase of 92%. Approximately 49% of the
Company's consolidated operating profit was derived from international
activities in 1Q98 compared to 69% in 1Q97.
7
<PAGE> 10
WESTERN GEOPHYSICAL ("WG") - WG's 1Q98 revenue increased 29% and operating
profit increased 82% compared to the prior year period. Seismic operations
benefited from a number of successful multiclient surveys processed and
delivered in the first quarter of 1998 as well as increased demand for
proprietary seismic data acquisition and processing services. In addition,
results were favorably impacted by upgrades to the Company's marine seismic and
ocean-bottom cable fleets and the operation of seven additional data processing
centers in the first quarter of 1998 compared to the prior year period.
WESTERN ATLAS LOGGING SERVICES ("WALS") - WALS' revenue and operating profit for
1Q98 increased 29% and 39%, respectively, over the prior year period.
Acquisitions completed in mid-1997 contributed to the positive results in 1Q98.
Additionally, increased customer demand for WALS' high-end technologies and
pricing improvements in the U.S. market contributed to its improved results.
E&P SERVICES ("E&PS") - E&PS' oil and gas operations realized an operating loss
in 1Q98.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense decreased as a percent of sales from 4.4% in
1Q97 to 3.5% in 1Q98 due to the increase in sales. Actual expenditures for
1Q98 were $17.0 million compared to $16.8 million for 1Q97.
RESEARCH AND TECHNOLOGY
Research and technology expense decreased 5% in 1Q98 to $14.4 million compared
to $15.2 million in the comparable prior year period.
DEPRECIATION, DEPLETION, AND AMORTIZATION
Depreciation, depletion, and amortization expense for 1Q98 increased $33.5
million, or 50%, over the same prior year period. Increased capital spending in
1997 raised the depreciable bases for equipment and multiclient seismic data
resulting in higher expense. The impact of a higher depreciable base for
equipment was partially offset by the effect of extending the useful lives of
certain assets in late 1997 to more closely reflect management's current
estimate.
INTEREST EXPENSE
Interest expense in 1Q98 increased $4.7 million from 1Q97 due to higher debt
levels during 1Q98 as compared to 1Q97. The higher debt levels were attributable
primarily to acquisitions made in 1997 by UNOVA prior to the Spin-off.
INCOME TAXES
The effective income tax rate for 1Q98 was 38%, down from 40% in 1Q97 due
primarily to the effects of the Spin-off.
DISCONTINUED OPERATIONS
Discontinued operations consist of the Company's industrial automation systems
business, UNOVA, for the three months ended March 31, 1997. All corporate
general and administrative costs of the Company are included in continuing
operations and no allocation was made to UNOVA for any of the periods presented.
Interest expense attributable to UNOVA for 1Q97 totaled $3.6 million and was
reclassified to discontinued operations in the Company's Condensed Consolidated
Statements of Operations. Interest income attributable to UNOVA of $1.6 million
for 1Q97 has also been reclassified to discontinued operations. See Note 2 of
Notes to the Condensed Consolidated Financial Statements included herein for
further information.
8
<PAGE> 11
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
The Company ended the first quarter of 1998 with cash and cash equivalents of
$16.5 million compared with $33.5 at December 31, 1997. Cash generated from
operations exceeded capital expenditures and multiclient seismic data
acquisition costs by approximately $33.7 million for the three months ended
March 31,1998. In addition, during the quarter the Company made payments on
long-term debt totaling $49.3 million. The Company's ratio of current assets to
current liabilities was 1.3:1 at March 31, 1998, compared to 1.2:1 at December
31, 1997.
Total debt was $751.2 million as of March 31, 1998, compared to $808.1 million
at December 31, 1997. Total debt constituted approximately 45% of total
capitalization at March 31, 1998 compared to 48% at December 31, 1997. As of
March 31, 1998, outstanding borrowings under the Company's commercial paper
("CP") program totaled $201.9 million. In connection with the CP program, the
Company agreed to maintain committed credit facilities with a group of banks
that provide for $400 million in long-term committed credit. At March 31, 1998,
there were no amounts outstanding under the long-term committed credit
facilities. At March 31, 1998, $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.
On March 11, 1998, the Company filed two registration statements with the
Securities and Exchange Commission regarding the proposed underwritten public
offerings of $400 million of Adjustable Conversion-rate Equity Security Units
and $200 million of Senior Notes due 2008. Proceeds from the sale of these
offerings are expected to be used to repay debt incurred to finance the
acquisitions discussed herein and to retire CP and other short-term debt.
During periods of growth, the Company has historically spent substantial funds
for capital expenditures and acquisitions of multiclient seismic data in order
to remain competitive in its businesses. The Company estimates that it will
spend approximately $760 million during 1998 for these purposes. In addition,
the Company's recent acquisitions of WEDGE and 3-D Geophysical along with the
assumption and/or repayment of those entities' respective indebtedness, required
approximately $400 million which the Company has borrowed on a short-term basis
pending the completion of the Units Offering and the Notes Offering. This
short-term debt matures in June 1998 and bears interest at LIBOR plus 20 basis
points (0.2%). The Company believes that its working capital resources, expected
cash flow from operations, existing lines of credit, and the proceeds from the
Units Offering and the Notes Offering (if such offerings are consummated) will
be sufficient to meet the Company's 1998 funding needs. In the event the Units
Offering and the Notes Offering are not consummated, or, if consummated, less
than $600 million is raised therefrom, the Company may be required to obtain
alternative funding from borrowings or the sale of debt or equity securities.
While the Company believes that such sources of capital will continue to be
available, there is no assurance that the Company will be able to continue to
finance its needs on terms it finds acceptable. Also, in the event the Company
borrows additional amounts or issues debt securities, its credit ratings, and
accordingly, its borrowing costs may deteriorate.
In addition to the foregoing, the Company may seek to acquire complementary
businesses as part of its long-term growth strategy. To the extent that the
Company is successful in this regard, there is no assurance that the Company
will be able to finance such activities on terms it finds acceptable, and, to
the extent that the Company issues equity securities in connection with any such
transactions, there is no assurance that the issuance of such securities will
not be dilutive to the holders of the Company's common stock. In the event of a
downturn in industry conditions, the Company may, to the extent advisable, seek
to reduce any or all of the following activities or combinations thereof: (i)
capital expenditures, (ii) acquisitions of multiclient seismic data, and (iii)
business acquisition and/or combination activities. These reductions may
adversely affect the Company's subsequent competitiveness and financial results.
In the event of such a downturn, there is no assurance that the Company will be
able to find adequate sources of funding on terms it finds acceptable.
9
<PAGE> 12
On May 10, 1998, Baker Hughes Incorporated ("Baker Hughes") and the Company
entered into a definitive merger agreement (the "Merger Agreement") which
provides for the Company to be merged (the "BHI Merger") with a subsidiary of
Baker Hughes. The Merger Agreement provides that the Company's shareholders are
to receive 2.4 shares of newly issued Baker Hughes common stock for each
Western Atlas common share, subject to adjustment. The transaction is expected
to be accounted for as a pooling of interests and is expected to be tax-free to
the Company's shareholders. It is anticipated that the transaction will be
completed by the end of September 1998 and is subject to shareholder and
regulatory approvals, including expiration of the applicable waiting period
under the Hart-Scott-Rodino Act, and other customary closing conditions. In
connection with the Merger Agreement, the Company has deferred taking further
actions to effect the Units Offering and the Notes Offering discussed above.
Between the date of this report and the consummation of the BHI Merger, the
Company will continue to utilize CP and short-term bank debt to meet its
funding needs. The Company believes that these sources of funds will be
available during this interim period, however, there is no assurance that such
funding will be available, or, if available, that it will be at reasonable
interest rates.
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which established 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 was adopted by the Company in 1998.
Comprehensive income as determined under this standard was $28.1 million for the
three months ended March 31, 1997; there was no effect for the three months
ended March 31, 1998.
FORWARD-LOOKING STATEMENTS
The statements in this Quarterly Report on Form 10-Q relating to matters that
are not historical facts, including, but not limited to, statements found under
the captions "Overview," "Results of Continuing Operations," and "Liquidity,
Capital Resources, and Financial Condition" above, 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.
These statements include, without limitation, statements concerning the
Company's future revenues, financial position and results of operations and cash
flows, general business and financing strategies, operating trends, industry
trends, expectations for funding capital expenditures and acquisitions of
multiclient seismic data, business acquisitions and/or combination activities,
and operations in future periods. When used in this Quarterly Report, words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"plan," "project," "will," and similar expressions, as they relate to the
Company or its management, identify forward-looking statements. Such
forward-looking statements involve and are dependent upon certain risks and
uncertainties, including but not limited to, the following which are beyond the
Company's control: dependence upon energy 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; regulatory uncertainties; worldwide
political stability and economic conditions; operating risks associated with
international activity; and other factors. The actual results of the future
events described in said forward-looking statements could differ materially from
those expressed or implied in such forward-looking statements because of the
risks and uncertainties described above, elsewhere in this Quarterly Report, the
Company's 1997 Annual Report on Form 10-K (as amended on Form 10-K/A), and other
risks and uncertainties set forth, from time to time, in the Company's other
public reports and public statements. All forward-looking statements in this
Quarterly Report are based on information available to the Company at the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements.
10
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 and/or interest rate related
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 forward-looking statement included herein and the
1997 Annual Report on Form 10-K (as amended on Form 10-K/A).
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 March 31, 1998, the
Company's principal long-term debt obligations, which bear fixed rates 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 8.03% and 8.62%, respectively, and the aggregate fair value of
such debt is $447.2 million. At March 31, 1998, the Company was not a party to
any interest rate swap agreements.
On April 3, 1998, the Company entered into an interest rate lock agreement with
an investment banking firm having a notional amount of $100 million. This
agreement had a determination date of May 1, 1998 and was intended to limit the
interest rate exposure on a portion of the Company's planned Notes Offering
discussed above. The notional amount of the interest rate agreement is used to
measure interest to be paid or received and does not represent the amount of
exposure to credit loss. On April 28, 1998, the Company anticipated that the
Notes Offering would not be completed prior to the expiration of this agreement,
therefore, the Company settled the agreement and received approximately $2
million. The net cash amount received on the agreement was deferred and will be
recognized as an adjustment to interest expense over the life of the notes
issued pursuant to the Notes Offering.
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 currently included in income. From time to time, the Company
enters into foreign currency forward contracts to hedge anticipated and
committed foreign currency transactions. Foreign currency gains and losses for
such purchases are deferred as part of the basis of the assets. At March 31,
1998, 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 having an aggregate notional amount of approximately $82
million at March 31, 1998, 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 exists
as of the date of this report.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K for the quarter ended March 31, 1998 and through
the date of this report: During the quarter ended March 31, 1998, the
Company filed a Current Report on Form 8-K dated March 9, 1998 (Items
5 and 7), which reported the acquisitions of WEDGE DIA-LOG, Inc. and
3-D Geophysical, Inc.
(b) See Exhibit Index included herein on page 13.
12
<PAGE> 15
WESTERN ATLAS INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Western
Atlas Inc., filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1997, and incorporated herein by
reference.
3.2 By-Laws of Western Atlas Inc., as amended, filed as
Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, and
incorporated herein by reference.
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.
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.
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C>
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# Amendment No. 3 to the Amended and Restated Credit
Agreement dated as of April 6, 1998, 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 herewith.
4.9 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, Damir S. Skerl, and Richard C.
White, filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
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 as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.6* Western Atlas Supplemental Retirement Plan, as
amended and restated on November 13, 1997 (the "SR
Plan"), filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.7* Amendment No. 1 to the SR Plan dated February 18,
1998, filed as Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
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.
</TABLE>
14
<PAGE> 17
<TABLE>
<S> <C>
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.
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 as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference.
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.
27.1# Financial Data Schedules for the three months ended
March 31, 1998 (filed only electronically with the
Securities and Exchange Commission).
27.2# Restated Financial Data Schedules for 1996 (filed
only electronically with the Securities and Exchange
Commission).
27.3# Restated Financial Data Schedules for 1997 (filed
only electronically with the Securities and Exchange
Commission).
</TABLE>
- ----------------
# Filed herewith.
* Denotes management contract, compensatory plan or similar arrangements.
15
<PAGE> 18
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 15, 1998
16
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Western
Atlas Inc., filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1997, and incorporated herein by
reference.
3.2 By-Laws of Western Atlas Inc., as amended, filed as
Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, and
incorporated herein by reference.
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.
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.
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
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# Amendment No. 3 to the Amended and Restated Credit
Agreement dated as of April 6, 1998, 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 herewith.
4.9 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, Damir S. Skerl, and Richard C.
White, filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
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 as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.6* Western Atlas Supplemental Retirement Plan, as
amended and restated on November 13, 1997 (the "SR
Plan"), filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.7* Amendment No. 1 to the SR Plan dated February 18,
1998, filed as Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
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.
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
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.
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 as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference.
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.
27.1# Financial Data Schedules for the three months ended
March 31, 1998 (filed only electronically with the
Securities and Exchange Commission).
27.2# Restated Financial Data Schedules for 1996 (filed
only electronically with the Securities and Exchange
Commission).
27.3# Restated Financial Data Schedules for 1997 (filed
only electronically with the Securities and Exchange
Commission).
</TABLE>
- ----------------
# Filed herewith
* Denotes management contract, compensatory plan or similar arrangements.
<PAGE> 1
CONFORMED COPY
AMENDMENT NO. 3 TO CREDIT AGREEMENT
AMENDMENT No.3 dated as of April 6, 1998 to the Credit Agreement dated
as of December 23, 1993, as amended and restated as of December 22, 1994 and as
further amended and restated as of March 19, 1997 (as heretofore amended, the
"CREDIT AGREEMENT") among WESTERN ATLAS INC. (the "BORROWER"), the BANKS party
thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent
(the "AGENT").
The parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. Amendments. The Credit Agreement is hereby amended as
follows:
(a) In the definition of "Financing Documents" in Section 1.01, by
deleting the phrase "and the Subsidiary Guarantee Agreement" and by replacing
the comma with the word "and".
(b) To insert in Section 1.01 a definition of "Foreign Debt" to read
as follows:
"Foreign Debt" means Debt incurred by a Subsidiary organized
under the laws of a jurisdiction outside the United States (or incurred
through a branch or office outside the United States of a Subsidiary
organized under the laws of a jurisdiction within the United States)
which Debt is incurred with a view to obtaining financial or tax
benefits associated with the foreign operations of such Subsidiary
(including without limitation currency hedging).
<PAGE> 2
(c) In the definition of "Material Subsidiary" in Section 1.01, by
deleting the following language "(i) any Guarantor and (ii)" and deleting the
word "other" between the words "any" and "Subsidiary" in the second line
thereof.
(d) By deleting in its entirety the definition of "Obligors" in
Section 1.01.
(e) In the first sentence of Section 4.02, by replacing the phrase
"each Obligor" with "the Borrower" and deleting the phrase "to which it is a
party".
(f) By deleting the second sentence of Section 4.03.
(g) In Section 4.10, by replacing the phrase "Neither the Borrower
nor any Guarantor is" with "The Borrower is not".
(h) In Section 4.12, by deleting both instances of the phrase "or any
Guarantor" in the first sentence thereof and by replacing the phrase "any
Obligor" with "the Borrower" in the second sentence thereof.
(i) Section 5.07 is amended to read as follows:
"SECTION 5.07. Limitation on Subsidiary Debt. The aggregate
outstanding principal amount of Debt of the Subsidiaries of the
Borrower (exclusive of (i) Debt owing to the Borrower or another
Subsidiary and (ii) Foreign Debt) shall at no time exceed 15% of
Consolidated Tangible Net Assets."
(j) In Section 6.01:
(i) by replacing the phrases "any Obligor" and "such Obligor"
with "the Borrower" in Subsections (c) and (d) thereof;
(ii) by deleting in its entirety Subsection (1) and moving the
word "or" from the end of Subsection (k) to the end of Subsection
(j);
(iii) by replacing each occurrence of the phrase "any Obligor"
and the phrase "the Obligors" with "the Borrower" in the proviso at
the end of Section 6.01.
(k) In Section 6.02, by replacing the phrase "an Obligor" with "the
Borrower".
2
<PAGE> 3
(l) In Section 7.04, by replacing the phrase "any Obligor" with "the
Borrower".
(m) In item (ii) of the second sentence of Section 7.05, by replacing
the phrase "any Obligor" with "the Borrower".
(n) In the second sentence of Section 9.04, by replacing the phrase
"Each of the Borrower and the Guarantors" with "The Borrower" and deleting the
phrase "or such Guarantor, as the case may be".
(o) In the second and third sentences of Section 9.08, by replacing
the phrase "Each of the Borrower and the Guarantors" with "The Borrower".
(p) In Section 9.10, by deleting the phrase "THE GUARANTORS,".
SECTION 3. Exhibit H; Amended and Restated Subsidiary Guarantee
Agreement. The Amended and Restated Subsidiary Guarantee Agreement dated as of
March 19, 1997 among WESTERN ATLAS INC., the Guarantors referred to therein and
Morgan Guaranty Trust Company of New York, as Agent, is hereby terminated in its
entirety and the Guarantors referred to therein are hereby released from all
obligations thereunder.
SECTION 4. Representations of Borrower. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of the Credit Agreement are true on and as of the date hereof and
(ii) no Default has occurred and is continuing on and as of the date hereof.
SECTION 5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 7. Effectiveness. This Amendment shall become effective as of
the date hereof when the Agent shall have received from each of the Borrower and
the Banks a counterpart hereof duly signed by such party or facsimile or other
written confirmation (in form satisfactory to the Agent) that such party has
signed a counterpart hereof.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
WESTERN ATLAS INC.
By: /s/ F. Albert Moncrieff
---------------------------------------
Title: Vice President & Treasurer
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Kathryn Sayko-Yanes
---------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ Claire Liu
---------------------------------------
Title: Managing Director
THE BANK OF NEW YORK
By: /s/ John Yancey
---------------------------------------
Title: Vice President
4
<PAGE> 5
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Mona M. Foch
---------------------------------------
Title: Managing Director
CIBC INC.
By: /s/ Robin W. Elliott
---------------------------------------
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Leo Loughead
---------------------------------------
Title: Assistant Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Patrick M. Delaney
---------------------------------------
Title: Senior Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By: /s/ J. Alan Alexander Jr.
---------------------------------------
Title: Vice President
5
<PAGE> 6
DRESDNER BANK A.G., NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By: /s/ Beverly G. Cason
---------------------------------------
Title: Vice President
By: /s/ John W. Sweeney
---------------------------------------
Title: Assistant Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ James Moran
---------------------------------------
Title: Director
By: /s/ Scott Karro
---------------------------------------
Title: Associate
THE NORTHERN TRUST COMPANY
By: /s/ John E. Burda
---------------------------------------
Title: Second Vice President
MELLON BANK, N.A.
By: /s/ Lawrence C. Ivey
---------------------------------------
Title: Vice President
6
<PAGE> 7
TORONTO DOMINION (TEXAS), INC.
By: /s/ Jimmy Simien
---------------------------------------
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as AGENT
By: /s/ Kathryn Sayko-Yanes
---------------------------------------
Title: Vice President
7
<PAGE> 1
Exhibit 11
WESTERN ATLAS INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Earnings from continuing operations $ 33,605 $ 16,084
Earnings from discontinued operations -- 14,718
------------ ------------
Net earnings available for common shares $ 33,605 $ 30,802
============ ============
Earnings per share from continuing operations $ 0.61 $ 0.30
Earnings per share from discontinued operations -- 0.28
------------ ------------
Total $ 0.61 $ 0.58
============ ============
DILUTED EARNINGS PER SHARE:
Earnings from continuing operations $ 33,605 $ 16,084
Earnings from discontinued operations -- 14,718
------------ ------------
Net earnings $ 33,605 $ 30,802
============ ============
Earnings per share from continuing operations $ 0.60 $ 0.29
Earnings per share from discontinued operations -- 0.28
------------ ------------
Total $ 0.60 $ 0.57
============ ============
SHARES USED IN COMPUTATION:
Weighted average common shares outstanding
(net of treasury shares) 54,689 53,743
Additional potentially dilutive securities
(equivalent in common stock) 1,386 991
------------ ------------
Total 56,075 54,734
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,484
<SECURITIES> 0
<RECEIVABLES> 450,024
<ALLOWANCES> 0
<INVENTORY> 39,391
<CURRENT-ASSETS> 589,430
<PP&E> 1,482,483
<DEPRECIATION> 514,833
<TOTAL-ASSETS> 2,394,689
<CURRENT-LIABILITIES> 452,781
<BONDS> 701,330
0
0
<COMMON> 54,792
<OTHER-SE> 688,978
<TOTAL-LIABILITY-AND-EQUITY> 2,394,689
<SALES> 0
<TOTAL-REVENUES> 490,745
<CGS> 0
<TOTAL-COSTS> 423,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,382
<INCOME-PRETAX> 54,202
<INCOME-TAX> 20,597
<INCOME-CONTINUING> 33,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,605
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 165,763 131,491 47,424 51,909
<SECURITIES> 0 0 0 0
<RECEIVABLES> 755,507 594,428 861,608 861,632
<ALLOWANCES> 0 0 0 0
<INVENTORY> 137,158 157,397 162,458 155,075
<CURRENT-ASSETS> 1,193,935 1,039,335 1,023,032 1,023,643
<PP&E> 824,760 1,363,286 1,397,171 1,421,148
<DEPRECIATION> 0 639,269 651,264 655,797
<TOTAL-ASSETS> 2,782,876 2,483,497 2,516,443 2,576,941
<CURRENT-LIABILITIES> 726,375 508,485 501,366 570,199
<BONDS> 569,977 568,627 564,797 564,716
0 0 0 0
0 0 0 0
<COMMON> 53,692 53,369 53,547 53,585
<OTHER-SE> 1,449,246 1,331,239 1,366,284 1,404,334
<TOTAL-LIABILITY-AND-EQUITY> 2,782,876 2,483,497 2,516,443 2,576,941
<SALES> 0 0 0 0
<TOTAL-REVENUES> 2,582,790 549,456 1,175,947 1,848,549
<CGS> 0 0 0 0
<TOTAL-COSTS> 1,788,729 378,289 813,040 1,276,084
<OTHER-EXPENSES> 546,599 124,597 256,729 395,641
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 43,919 10,959 22,330 32,995
<INCOME-PRETAX> 209,442 37,806 87,538 148,411
<INCOME-TAX> 83,777 15,122 35,001 59,364
<INCOME-CONTINUING> 125,665 22,684 52,537 89,047
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 125,665 22,684 52,537 89,047
<EPS-PRIMARY> 2.35 0.43 0.99 1.67
<EPS-DILUTED> 2.32 0.42 0.98 1.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 15,133 16,707 16,195
<SECURITIES> 0 0 0
<RECEIVABLES> 842,793 344,068 382,064
<ALLOWANCES> 0 0 0
<INVENTORY> 184,021 38,769 40,074
<CURRENT-ASSETS> 1,208,147 1,301,666 1,386,566
<PP&E> 1,587,258 1,306,633 1,348,541
<DEPRECIATION> 660,489 455,148 485,763
<TOTAL-ASSETS> 3,092,821 2,673,506 2,818,192
<CURRENT-LIABILITIES> 1,045,533 861,456 631,034
<BONDS> 776,889 971,067 1,059,571
0 0 0
0 0 0
<COMMON> 53,762 53,892 54,051
<OTHER-SE> 1,475,242 1,319,469 1,366,051
<TOTAL-LIABILITY-AND-EQUITY> 3,092,821 2,673,506 2,818,192
<SALES> 0 0 0
<TOTAL-REVENUES> 703,012 798,451 1,218,665
<CGS> 0 0 0
<TOTAL-COSTS> 498,317 554,188 826,296
<OTHER-EXPENSES> 143,277 170,129 260,888
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 12,235 20,617 32,848
<INCOME-PRETAX> 51,337 54,507 99,999
<INCOME-TAX> 20,535 21,803 40,000
<INCOME-CONTINUING> 30,802 32,704 59,999
<DISCONTINUED> 0 (171,880) (157,750)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 30,802 (139,176) (97,751)
<EPS-PRIMARY> 0.58 (2.57) (1.80)
<EPS-DILUTED> 0.57 (2.50) (1.75)
</TABLE>
