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                                   FORM 10-Q

                                 UNITED STATES


                             WASHINGTON, D.C. 20549

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                        SECURITIES EXCHANGE ACT OF 1934

                        Commission file number 333-11051

                             NATIONAL-OILWELL, INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                           76-0475815
- ---------------------------------                          -------------------
  (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                          Identification No.)

                                5555 SAN FELIPE
                                 HOUSTON, TEXAS
                    (Address of principal executive offices)

                                 (713) 960-5100
              (Registrant's telephone number, including area code)

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 
                                -----    -----

As of May 9, 1997, 17,874,128 common shares were outstanding.

                        PART 1 - FINANCIAL INFORMATION


                            NATIONAL-OILWELL, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

March 31, December 31, 1997 1996 ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,349 $ 4,315 Receivables, less allowance of $2,688 and $2,760 98,345 102,858 Inventories 121,001 115,479 Deferred taxes 3,938 4,028 Prepaids and other current assets 6,849 6,710 -------- -------- Total current assets 235,482 233,390 Property, plant and equipment, net 18,243 18,680 Deferred taxes 6,296 6,847 Goodwill 6,286 6,327 Deferred financing costs 1,105 1,166 Other assets 194 333 -------- -------- $267,606 $266,743 ======== ======== LIABILITIES AND OWNERS' EQUITY Current liabilities: Accounts payable $ 70,077 $ 77,935 Customer prepayments 2,524 5,126 Accrued compensation 4,878 7,839 Other accrued liabilities 16,051 12,420 -------- -------- Total current liabilities 93,530 103,320 Long-term debt 42,007 36,392 Insurance reserves 6,378 6,599 Other liabilities 10,985 11,352 -------- -------- Total liabilities 152,900 157,663 Commitments and contingencies Owners' equity: Common stock - par value $.01; 17,874,128 shares issued and outstanding 179 179 Additional paid-in capital 107,497 107,497 Cumulative translation adjustment 744 1,159 Retained earnings 6,286 245 -------- -------- 114,706 109,080 -------- -------- $267,606 $266,743 ======== ========
Three Months Ended March 31, ---------------------------- 1997 1996 ---------- --------- Revenues $ 176,154 $ 141,144 Cost of revenues 149,894 122,850 --------- --------- Gross profit 26,260 18,294 Selling, general and administrative 14,976 13,021 --------- --------- Operating income 11,284 5,273 Interest and financial costs (1,255) (3,078) Interest income 81 16 Other income (expense) (173) (130) --------- --------- Income before income taxes 9,937 2,081 Provision for income taxes 3,896 647 --------- --------- Net income $ 6,041 $ 1,434 ========= ========= Weighted average shares outstanding 18,190 13,590 ========= ========= Net income per share $ 0.33 $ 0.10 ========= =========
The accompanying notes are an integral part of these statements. 2 4 NATIONAL-OILWELL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, ---------------------------- 1997 1996 ------------- ------------- Cash flow from operating activities: Net income $ 6,041 $ 1,434 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 929 946 Provision for losses on receivables 25 304 Provision for deferred income taxes 961 647 Gain on sale of assets (39) 16 Foreign currency transaction (gain) loss 190 107 Changes in operating assets and liabilities: Decrease (increase) in receivables 4,642 (5,986) Decrease (increase) in inventories (5,718) (3,013) Decrease (increase) in prepaids and other current assets (139) (2,883) Increase (decrease) in accounts payable (7,710) (12,294) Increase (decrease) in other assets/liabilities, net (3,439) (4,101) ------- --------- Net cash provided (used) by operating activities (4,257) (24,823) ------- --------- Cash flow from investing activities: Purchases of property, plant and equipment (482) (395) Proceeds from sale of assets 115 16 Acquisition of predecessor company, net of cash acquired -- (106,248) Other -- (350) ------- --------- Net cash provided (used) by investing activities (367) (106,977) ------- --------- Cash flow from financing activities: Proceeds from revolving lines of credit, net 5,709 11,477 Payments on long-term debt -- (9,128) Proceeds from issuance of common stock -- 30,179 Acquisition debt proceeds -- 103,378 ------- --------- Net cash provided (used) by financing activities 5,709 135,906 ------- --------- Effect of exchange rate losses on cash (51) (20) ------- --------- Increase in cash and equivalents 1,034 4,086 Cash and cash equivalents, beginning of period 4,315 -- ------- --------- Cash and cash equivalents, end of period $ 5,349 $ 4,086 ======= =========
The accompanying notes are an integral part of these statements. 3 5 NATIONAL-OILWELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Effective January 1, 1996, National-Oilwell, Inc. acquired National-Oilwell, a general partnership between National Supply Company, Inc., a subsidiary of Armco Inc., and Oilwell, Inc., a subsidiary of USX Corporation, and subsidiaries (the "Acquisition"). The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with generally accepted accounting principles. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal, recurring nature, necessary for a fair presentation of the results of the interim periods. It is recommended that these statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. No significant accounting changes have occurred during the three months ended March 31, 1997. 2. INVENTORIES Inventories consist of (in thousands):
March 31, December 31, 1997 1996 --------- ------------ Raw Materials $ 9,855 9,510 Work in process 7,039 6,141 Finished goods 104,107 99,828 -------- -------- $121,001 115,479 ======== ========
3. STATEMENTS OF CASH FLOWS The following information is provided to supplement the Statements of Cash Flows (in thousands):
Three Months Ended March 31, ---------------------------- 1997 1996 ---------- ---------- Cash paid during the period for: Interest $456 $1,979 Income taxes 197 48
4. ACQUISITIONS On April 25, 1997, the Company purchased the drilling business of Ross Hill Controls and its affiliate, Hill Graham Controls Limited. This business involves the manufacture, sale and service of innovative electrical control systems used in conjunction with drilling operations. Borrowings available under the revolving credit facility were used to finance the $19 million purchase price and the transaction will be accounted for under the purchase method of accounting. On April 11, 1997, the Company signed a letter of intent, subject to a definitive agreement, to purchase 100% of the common stock of PEP, Inc., a manufacturer of petroleum expendable products. Issuance of Company stock is anticipated to fund the transaction which is expected to be recorded in accordance with the pooling of interests method of accounting. The transaction is not expected to have a material impact on the Company's current financial statements. 4 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company is a worldwide leader in the design, manufacture and sale of machinery and equipment and in the distribution of maintenance, repair and operating products used in oil and gas drilling and production. The Company's revenues are directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies and drilling contractors, which in turn are affected by current and anticipated prices of oil and gas. During 1996, the Company completed two significant capital transactions. First, in January 1996, the Company acquired the operations of National-Oilwell, resulting in the incurrence of significant amounts of debt and related interest expense. Second, on October 29, 1996, the Company sold 4.6 million shares of its common stock through an initial public offering (the "IPO"). Net proceeds from the IPO of approximately $72 million were used to repay debt incurred in connection with the Acquisition. At that same time, the Company entered into a new $120 million five-year senior secured revolving credit facility. RESULTS OF OPERATIONS Operating results (unaudited) by segment are as follows (in thousands):
Quarter Ended March 31, ------------------------ 1997 1996 --------- --------- Revenues Products and Technology $ 50,527 $ 38,680 Distribution Services 139,558 114,149 Eliminations (13,931) (11,685) --------- --------- Total $ 176,154 $ 141,144 ========= ========= Operating Income Products and Technology $ 7,461 $ 2,933 Distribution Services 4,830 3,310 Corporate (1,007) (970) --------- --------- Total $ 11,284 $ 5,273 ========= =========
5 7 Products and Technology The Products and Technology segment designs and manufactures a large line of proprietary products, including drawworks, mud pumps, power swivels and reciprocating pumps. A substantial installed base of these products results in a recurring replacement parts and maintenance business. Drilling pump expendable products are sold for maintenance of the Company's and other manufacturers' equipment. Sales of new capital equipment can result in large fluctuations in volume between periods depending on the size and timing of the shipment of orders. Products and Technology revenues increased $11.8 million (31%) in the first quarter of 1997 as compared to 1996 due primarily to an increase in demand for drilling capital equipment, fluid end expendable parts, and reciprocating pumps and associated parts. Operating income for the Products and Technology segment increased $4.5 million in the first quarter of 1997 as compared to the prior year, representing 38% of the revenue increase. Distribution Services Distribution Services revenues result primarily from the sale of maintenance, repair and operating supplies ("MRO") from the Company's network of distribution service centers and from the sale of well casing and production tubing. These products are purchased from numerous manufacturers and vendors, including the Company's Products and Technology segment. While the Company has increased revenues and improved its operating income by entering into alliances and outsourcing arrangements, improvements in operating results remain primarily dependent on attaining increased volumes of activity through its distribution service centers while controlling the fixed costs associated with numerous points of sale. Revenues during the first quarter of 1997 increased $25.4 million (22%) over the comparable 1996 period as MRO products and tubular products sales reflected gains of $11 million and $7 million, respectively. Business with alliance customers caused a substantial portion of this growth during the quarter. Operating income increased $1.5 million during the first quarter of 1997 compared to the same period in 1996. A portion of the increased margin from the higher revenue levels was offset by higher operating costs associated with the addition in the second half of 1996 of operating and administrative personnel in order to better manage assets and in anticipation of future revenue growth. Interest Expense Interest expense decreased substantially during the first three months of 1997 due to substantially lower levels of debt. 6 8 LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had working capital of $142 million, an increase of $12 million from December 31, 1996. Accounts receivable decreased by $4.5 million during the first three months of 1997 as revenues declined 2.4% from the fourth quarter of 1996. Inventories increased $5.5 million during this period due to specific build programs and in response to increasing demand for oilfield equipment and supplies. The Company's business has not required large expenditures for capital equipment in recent years. Total capital expenditures were $0.5 million during the first three months of 1997 and have averaged $3.8 million per year over the last three years. Enhancements to information and inventory control systems represent a large portion of these capital expenditures. Total annual capital expenditures of as much as $6 million are anticipated over the next three years to meet the Company's operating needs, including further enhancements to the Company's information systems. The Company believes it has sufficient existing manufacturing capacity to meet current and anticipated demand over the next twelve months for its products and services. Any significantly greater increases in demand for oilfield equipment products, to the extent qualified subcontracting and outsourcing are not available, could result in additional increases in capital expenditures. The Company believes that cash generated from operations and amounts available under its revolving credit facility will be sufficient to fund operations, working capital needs, capital expenditure requirements and financing obligations. The Company also believes any significant increase in capital expenditures caused by any need to increase manufacturing capacity can be funded from operations or through debt financing. The Company intends to pursue acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. The Company expects to fund future acquisitions primarily through cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility and/or issuances of additional equity. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to the Company. FORWARD-LOOKING STATEMENTS This document, other than historical financial information, may contain forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to documents filed by the Company with the Securities and Exchange Commission which identify significant risk factors which could cause actual results to differ from those contained in the forward-looking statements, including "Risk Factors" at Item 1 of the Annual Report on Form 10-K 7 9 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company has not filed any report on Form 8-K during the quarter for which this report is filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 9, 1997 / s / Steven W. Krablin -------------------- ------------------------------------------ Steven W. Krablin Principal Financial and Accounting Officer and Duly Authorized Signatory 8 10 INDEX TO EXHIBITS (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company has not filed any report on Form 8-K during the quarter for which this report is filed.

5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 5,439 0 101,033 2,688 121,001 235,482 23,132 4,889 267,606 93,530 42,007 0 0 179 114,527 267,606 176,154 176,154 149,894 149,894 0 25 1,255 9,937 3,896 6,041 0 0 0 6,041 .33 .33