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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12317
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
77056
----------------------------------------
(Address of principal executive offices)
(713) 960-5100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registant (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 12, 1998, 51,635,761 common shares were outstanding, assuming the
exchange on a one-for-one basis of all Exchangeable Shares of Dreco Energy
Services Ltd. into shares of National-Oilwell, Inc. common stock.
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21,252 $ 19,824
Receivables, less allowance of $4,110 and $4,056 222,969 223,991
Inventories 224,802 203,520
Deferred income taxes 7,803 9,839
Prepaids and other current assets 4,345 6,424
------------- -------------
481,171 463,598
Property, plant and equipment, net 73,893 74,282
Deferred income taxes 7,366 4,919
Goodwill 24,152 24,233
Other assets 949 479
------------- -------------
$ 587,531 $ 567,511
============= =============
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,332 $ 1,340
Accounts payable 127,340 134,955
Customer prepayments 50,157 37,688
Accrued compensation 8,897 12,957
Other accrued liabilities 25,051 24,521
------------- -------------
212,777 211,461
Long-term debt 57,172 61,565
Deferred income taxes 2,682 2,675
Other liabilities 12,510 14,122
------------- -------------
285,141 289,823
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 51,684,967 shares
and 51,655,782 shares issued and outstanding
at March 31, 1998 and December 31, 1997 517 517
Additional paid-in capital 208,342 207,954
Retained earnings 97,428 76,291
Accumulated other comprehensive income (3,897) (7,074)
------------- -------------
302,390 277,688
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$ 587,531 $ 567,511
============= =============
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31,
----------------------------
1998 1997
--------- ---------
Revenues $ 301,852 $ 206,670
Cost of revenues 237,060 164,747
--------- ---------
Gross profit 64,792 41,923
Selling, general and administrative 29,493 25,227
--------- ---------
Operating income 35,299 16,696
Other income (expense):
Interest and financial costs (1,248) (1,452)
Interest income 221 538
Other (726) (686)
--------- ---------
Income before income taxes 33,546 15,096
Provision for income taxes 12,409 5,397
--------- ---------
Net income $ 21,137 $ 9,699
========= =========
Net income per share:
Basic $ 0.41 $ 0.19
========= =========
Diluted $ 0.40 $ 0.19
========= =========
Weighted average shares outstanding:
Basic 51,982 50,436
========= =========
Diluted 52,257 51,562
========= =========
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended March 31,
----------------------------
1998 1997
--------- --------
Cash flow from operating activities:
Net income $ 21,137 $ 9,699
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 4,258 2,899
Provision for losses on receivables 212 25
Provision for deferred income taxes (404) 965
Gain on sale of assets (647) (605)
Foreign currency transaction loss 635 389
Changes in assets and liabilities, net of acquisitions:
Receivables 1,065 (3,452)
Inventories (22,309) (7,381)
Prepaid and other current assets 1,458 205
Accounts payable (10,071) (5,844)
Other assets/liabilities, net 10,963 (14,682)
Net cash provided (used) by operating activities 6,297 (17,782)
Cash flow from investing activities:
Purchases of property, plant and equipment (4,925) (5,657)
Proceeds from sale of assets 1,103 994
Cash received from business acquired - 955
Net cash used by investing activities (3,822) (3,708)
Cash flow from financing activities:
Borrowings (payments) on line of credit (4,049) 5,709
Proceeds (retirement) of long-term debt (344) 9,686
Proceeds from issuance of common stock - 37,240
Proceeds from stock options exercised 388 136
Net cash provided (used) by financing activities (4,005) 52,771
Effect of exchange rate (gain) loss on cash 2,958 (507)
Increase in cash and equivalents 1,428 30,774
Cash and cash equivalents, beginning of period 19,824 13,611
Cash and cash equivalents, end of period $ 21,252 $ 44,385
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 1,363 $ 645
Income taxes 10,156 540
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Effective September 25, 1997, National-Oilwell completed a combination
("Combination") with Dreco Energy Services Ltd. ("Dreco"). As a result of the
Combination, each Dreco Class "A" common share ("Dreco Common Share")
outstanding was converted into .9159 of a Dreco Exchangeable Share
("Exchangeable Share") and, accordingly, approximately 14.4 million Exchangeable
Shares were issued. Each Exchangeable Share is intended to have substantially
identical economic and legal rights as, and will ultimately be exchanged on a
one-for-one basis for, a share of National-Oilwell common stock.
The Combination was accounted for as a pooling-of-interests and the
consolidated financial statements of National-Oilwell and Dreco have been
combined with all prior periods restated to give effect to the Combination.
Information concerning common stock and per share data has been restated on an
equivalent share basis and assumes the exchange of all Exchangeable Shares.
National-Oilwell has a year end of December 31 and, prior to the
Combination, Dreco had a year end of August 31. The restated financial
statements combine the December 31, 1996 balance sheet of National-Oilwell with
the November 30, 1996 balance sheet of Dreco. The income statement reflects the
combined three months ended March 31, 1998 compared to the combination of the
three months ended March 31, 1997 for National-Oilwell with the three months
ended February 28, 1997 for Dreco.
2. INVENTORIES
Inventories consist of (in thousands):
March 31, December 31,
1998 1997
--------- ---------
Raw materials and supplies $ 21,705 $ 19,970
Work in process 41,406 34,849
Finished goods and purchased products 161,691 148,701
--------- ---------
Total $ 224,802 $ 203,520
========= =========
3. RECENTLY ISSUED ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components. The adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity,
to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of
Statement 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $24,314 and $8,478.
4. RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the current
year presentation.
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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 ("MRO") 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.
Effective September 25, 1997, National-Oilwell completed a combination
("Combination") with Dreco Energy Services Ltd. ("Dreco"). As a result of the
Combination, each Dreco Class "A" common share ("Dreco Common Share")
outstanding was converted into .9159 of a Dreco Exchangeable Share
("Exchangeable Share") and, accordingly, approximately 14.4 million Exchangeable
Shares were issued. Each Exchangeable Share is intended to have substantially
identical economic and legal rights as, and will ultimately be exchanged on a
one-for-one basis for, a share of National-Oilwell common stock. Approximately
80% of the Exchangeable Shares have been exchanged for National-Oilwell common
stock as of March 31, 1998.
The Combination was accounted for as a pooling-of-interests and the
consolidated financial statements of National-Oilwell and Dreco have been
combined with all prior periods restated to give effect to the Combination.
Information concerning common stock and per share data has been restated on an
equivalent share basis and assumes the exchange of all Exchangeable Shares.
National-Oilwell has a year end of December 31 and, prior to the
Combination, Dreco had a year end of August 31. The restated financial
statements combine the December 31, 1996 balance sheet of National-Oilwell with
the November 30, 1996 balance sheet of Dreco. The income statement reflects the
combined three months ended March 31, 1998 compared to the combination of the
three months ended March 31, 1997 for National-Oilwell with the three months
ended February 28, 1997 for Dreco.
RESULTS OF OPERATIONS
Operating results (unaudited) by segment are as follows (in thousands):
Quarter Ended March 31,
--------------------------
1998 1997
---------- ----------
Revenues
Products and Technology $ 148,034 $ 65,333
Downhole Products 17,810 15,710
Distribution Services 156,189 139,558
Eliminations (20,181) (13,931)
---------- ----------
Total $ 301,852 $ 206,670
========== ==========
Operating Income
Products and Technology $ 25,128 $ 7,640
Downhole Products 6,263 6,138
Distribution Services 5,238 4,830
Eliminations (1,330) (1,912)
---------- ----------
Total $ 35,299 $ 16,696
========== ==========
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Products and Technology
The Products and Technology segment designs and manufactures a large line of
proprietary products, including drawworks, mud pumps, power swivels, electrical
control systems and reciprocating pumps, as well as complete land drilling and
well servicing rigs and structural components such as masts, derricks and
substructures. A substantial installed base of these products results in a
recurring replacement parts and maintenance business. 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. This segment also provides
drilling pump expendable products for maintenance of the Company's and other
manufacturers' equipment.
Revenues for the Products and Technology segment increased by $82.7 million
(127%) in the first quarter of 1998 as compared to the same quarter in 1997 due
to increased sales of major capital equipment and drilling spare parts. Sales of
new mud pumps, masts, derricks and cranes were particularly strong, representing
$24 million of the increase. Operating income increased by $17.5 million (229%)
in the first quarter compared to the same quarter in 1997. Operating income as a
percentage of revenues increased from 12% to 17%, primarily due to manufacturing
and operating cost efficiencies that result from higher volumes.
Backlog of the Products and Technology group has remained strong during the
first quarter of 1998 and was $273 million at March 31, 1998, compared to $271
million at December 31, 1997 and $86 million at March 31, 1997.
Substantially all of the current backlog will be shipped by the end of 1998.
Downhole Products
National-Oilwell designs and manufactures drilling motors and specialized
drilling tools for rent and sale. Rentals generally involve products that are
not economical for a customer to own or maintain because of the broad range of
equipment required for the diverse hole sizes and depths encountered in drilling
for oil and gas. Sales generally involve products that require infrequent
service, are disposable or are sold in countries where National-Oilwell does not
provide repair and maintenance services.
Downhole Products revenues increased by $2.1 million (13%) in the first quarter
of 1998 when compared to the same period in 1997, primarily due to a general
increase in activity levels.
Operating income for the Downhole Products segment increased slightly in the
first quarter of 1998 compared to the same quarter in 1997, as additional
depreciation charges offset the margin recognized on the incremental revenues. A
change in product mix from motor spare parts to mechanical products further
reduced operating income.
Distribution Services
Distribution Services revenues result primarily from the sale of MRO products
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.
Distribution Services revenues during the first quarter of 1998 exceeded the
comparable 1997 period by $16.6 million. This 12% increase reflects the
increased spending levels of the Company's tubular products alliance partners as
sales of MRO products and other commodities remained flat. Operating income in
the first quarter of 1998 was $0.4 million (8%) greater than the first quarter
of 1997.
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Corporate
Corporate costs during the first quarter of 1998 were $0.6 million lower than
the prior year primarily due to elimination of duplicate corporate costs that
existed prior to the Combination.
Interest Expense
Interest expense decreased slightly during the three months ended March 31, 1998
due to both lower levels of debt and lower interest rates resulting from the
credit facility entered into in conjunction with the Combination.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $268 million, an increase
of $16 million from December 31, 1997. Net cash provided by operating activities
was $6 million, as a $22 million increase in inventories, primarily caused by
increases in work in process and finished goods to support higher activity
levels in the Products and Technology segment, used a significant portion of the
cash generated from net income.
Total capital expenditures were $4.9 million during the first three months of
1998. Enhancements to information and inventory control systems represent a
large portion of these capital expenditures. The Company believes it has
sufficient existing manufacturing capacity to meet currently anticipated demand
through 1998 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 has a five-year unsecured $125 million revolving credit facility
(the "Credit Facility") that is available for acquisitions and general corporate
purposes. The Credit Facility provides for interest at prime or LIBOR plus
0.375% (8.5% and 6.03% at March 31,1998), subject to adjustment based on the
Company's Capitalization Ratio, as defined. The Credit Facility contains
financial covenants and ratios regarding minimum tangible net worth, maximum
debt to capital and minimum interest coverage.
The Company believes that cash generated from operations and amounts available
under the 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 cash acquisitions
primarily with cash flow from operations and borrowings, including the
unborrowed portion of the Credit Facility or new debt issuances. 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, contains
forward-looking statements that involve risks and uncertainties. Such statements
relate to the Company's revenues, sales of capital equipment, backlog, capacity,
liquidity and capital resources and plans for acquisitions and any related
financings. 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. Given these uncertainties, current or prospective investors are cautioned
not to place undue reliance on any such forward-looking statements. The Company
disclaims any obligation or intent to update any such factors or forward-looking
statements to reflect future events or developments.
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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 12, 1998 / s / Steven W. Krablin
----------------------- -----------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
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EXHIBIT INDEX
27.1 Financial Data Schedule
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
21,252
0
227,079
4,110
224,802
481,171
115,098
41,205
587,531
212,777
57,172
0
0
517
301,873
587,531
301,852
301,852
237,060
237,060
0
212
1,248
33,546
12,409
21,137
0
0
0
21,137
.41
.40
BASIC
