-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, R/E92GLSVStsuHurIJTP2uDDa+hL5SKLFY5lJ//PGRifEzx1flfTFvRR39tsUi8H +m+EBqgH5jc7KA8xPofiSQ== 0000898430-94-000855.txt : 19941122 0000898430-94-000855.hdr.sgml : 19941122 ACCESSION NUMBER: 0000898430-94-000855 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARCO INTERNATIONAL INC CENTRAL INDEX KEY: 0000102993 STANDARD INDUSTRIAL CLASSIFICATION: 3533 IRS NUMBER: 950472620 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08158 FILM NUMBER: 94559114 BUSINESS ADDRESS: STREET 1: 743 N ECKHOFF ST CITY: ORANGE STATE: CA ZIP: 92668 BUSINESS PHONE: 7149781900 MAIL ADDRESS: STREET 1: 743 NO ECKHOFF STREET CITY: ORANGE STATE: CA ZIP: 92668 10-Q/A 1 FORM 10-Q, AMENDED UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- --------------- Commission File number 1-8158 VARCO INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) California 95-0472620 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 743 North Eckhoff Street, Orange, CA 92668 (Address of principal executive offices) (Zip code) (714) 978-1900 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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 -- -- ---- 33,365,075 (Number of shares of Common Stock outstanding at October 31, 1994) PART I-FINANCIAL INFORMATION Item 1. Financial statements. Pursuant to General Instruction D to Form 10-Q, the Condensed Consolidated Statements of Cash Flows, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income of Varco International, Inc., (the "Company") and its subsidiaries included in the registrant's Third Quarter Report to Shareholders for the three months ended September 30, 1994, filed as Exhibit 19 hereto are incorporated herein by reference. Such financial statements should be read in light of the following: Adjustments. The financial statements contained in Exhibit 19 hereto include all adjustments which in the opinion of management are of a normal recurring nature, considered necessary to present fairly the results of operations for the interim periods presented. Net Income Per Share. Net income per share is based upon an average of 33,527,248 and 33,412,160 shares outstanding for the nine months ended September 30, 1994, and 1993 respectively, and upon an average of 33,545,611 and 33,483,897 shares outstanding for the three months ended September 30, 1994 and 1993 respectively. Inventories. The Company estimates the components of inventory at September 30, 1994 and December 31, 1993, to be as follows:
September 30, 1994 December 31, 1993 ------------------ ----------------- Raw Materials $ 6,081,000 $ 5,615,000 Work in Process 15,277,000 11,806,000 Finished Goods 36,594,000 34,031,000 ----------- ----------- $57,952,000 $51,452,000 =========== ===========
Fixed Assets. Fixed assets are stated net of accumulated depreciation of $50,965,000 at September 30, 1994, and $45,768,000 at December 31, 1993. 2 Common Stock and Additional Paid-In-Capital. On September 30,1994, the Company Common Stock account was $23,733,000, and Additional Paid-In-Capital accounts were $102,175,000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Pursuant to General Instruction D to Form 10-Q, Management' Discussion and Analysis of Financial Condition and Results of Operations contained in the registrant's Third Quarter Report to Shareholders for the three months ended September 30, 1994, filed as Exhibit 19 hereto, is incorporated herein by reference. PART II-OTHER INFORMATION Item 2. Changes in Securities On July 17, 1992, the Company sold $50,000,000 aggregate principal amount of its 8.95% Senior Notes Due June 30,1999 (the "Senior Notes") to a group of ten institutional investors pursuant to a Note Agreement dated as of July 1, 1992 (the "Note Agreement"). The principal of the Senior Notes is payable in five equal annual installments commencing on June 30, 1995. The Note Agreement prohibits any "Restricted Payment" subsequent to July 17, 1992 unless after giving effect thereto, (i) the aggregate amount of all Restricted Payments subsequent to such date would not exceed $5,000,000 plus the cumulative sum of 50% of the Company's consolidated net income (or minus 100% in the case of a deficit) subsequent to March 31, 1992 and (ii) the Company could incur at least $1.00 of additional indebtedness under the Note Agreement covenant limiting indebtedness. The term "Restricted Payment" includes (a) any dividend (other than dividends payable in shares of capital stock) or other distributions on any shares of capital stock of the Company; (b) any purchase, redemption or other acquisition of any shares of the capital stock of the Company or any rights or options to purchase or acquire such shares; and (c) any "Restricted Investment", which is generally defined as any investment other than an investment in a subsidiary of the Company or an investment in certain designated government or rated securities. The redemption of the Company's outstanding $2.00 Cumulative Convertible Preferred Stock, Series A and the redemption of the 8 1/2% Convertible Subordinated Debentures Due 1996 guaranteed by the Company were exempted from the foregoing restrictions. In addition, the 3 Company may purchase, redeem or otherwise acquire shares of its capital stock or make Restricted Investments from the net cash proceeds of the substantially current sales of shares of capital stock or from the sale of securities convertible into such shares upon conversion. On February 25, 1993 the Company entered into an unsecured revolving credit agreement with Citicorp USA, Inc. and Citibank, N.A. (the "Credit Agreement") which currently provides for advances and letters of credit of up to $10,000,000 each, subject to reduction in certain events. Under the terms of the Credit Agreement the amount available for the payment of dividends on, and repurchases of, Common Stock is limited to 25% of the Company's consolidated net income arising after January 1, 1992, computed on a cumulative basis. In addition, pursuant to an amendment to the Credit Agreement entered into in May 1994, the Company may repurchase at any time prior to December 31, 1995 not in excess of one million shares of its Common Stock for an aggregate cost not exceeding $6 million. The Company may also purchase or otherwise acquire shares of Common Stock from the proceeds of the substantially concurrent sale of shares of Common Stock. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 The Varco International Inc. 1994 Directors' Stock Option Plan 11 Statement re computation of per share earnings for the three months and nine months ended September 30, 1994 and 1993. 19 Varco International, Inc. Third Quarter Report to Shareholders. Three Months Ended September 30, 1994. 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. 4 SIGNATURES 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. VARCO INTERNATIONAL, INC. Date: November 10, 1994 By: /s/ RICHARD A. KERTSON --------------------------- Vice President-Finance and Chief Financial Officer Date: November 10, 1994 By: /s/ DONALD L. STICHLER --------------------------- Controller-Treasurer and Secretary 5 EXHIBIT INDEX 10 The Varco International Inc. 1994 Directors' Stock Option Plan 11 Statement re computation of per share earnings for the three months and nine months ended September 30, 1994 and 1993. 19 Varco International, Inc. Third Quarter Report to Shareholders, Three Months Ended September 30, 1994. 27 Financial Data Schedule. 6 EX-10 2 DIRECTORS' STOCK OPTION EXHIBIT 10 VARCO INTERNATIONAL, INC. 1994 DIRECTORS' STOCK OPTION PLAN 1. PURPOSE The purpose of this 1994 Directors' Stock Option Plan (the "Plan") of Varco International, Inc. (the "Company") is to advance the interests of the Company and its shareholders by enabling the Company to attract and retain highly qualified directors who are not also employees of the Company or any of its subsidiaries and by encouraging increased ownership of shares of the Common Stock of the Company (the "Common Stock") by such directors. 2. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") appointed by the Board of Directors of the Company (the "Board"), which shall consist of not less than three directors of the Company. The Board may designate its Compensation Committee, if any, as the Committee. The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, not inconsistent with the provisions of the Plan, as it may deem advisable. Notwithstanding the foregoing, the Plan is intended to meet the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act") and, more specifically, to meet the criteria for a plan providing for "formula awards" set forth in Rule 16b-3(c)(2)(ii) or any successor rule or regulation, and, accordingly, the Committee shall have no discretion with respect to the eligibility or selection of directors to be granted options ("Options") under the Plan, the timing of the grant of any Option, the number of Shares subject any Option or the exercise price thereof, or any other matter or determination which would cause the Plan not to meet such criteria. Decisions of the Committee shall be final and binding upon all parties having an interest in the Plan. 3. PARTICIPATION All directors of the Company who are not employees of the Company or any subsidiary of the Company ("Eligible Directors") shall be eligible to participate in the Plan. As used herein, "subsidiary" shall mean any corporation at least 50% of the outstanding voting stock of which is owned, directly or indirectly through one or more intermediaries, by the Company. 4. COMMON STOCK SUBJECT TO THE PLAN Subject to adjustment as provided in Section 7 of the Plan, the maximum number of shares of Common Stock which may be issued upon the exercise of Options shall be 650,000. Such shares shall be authorized but unissued shares. If any Option shall expire or terminate for any reason without having been exercised in full, the unpurchased shares which were subject thereto shall again become available for issuance under the Plan. 5. GRANTS OF OPTIONS (a) Initial Grants. There shall be granted to each Eligible Director (i) on the date of his or her initial election as a member of the Board in the case of each Eligible Director who was not a member of the Board of Directors on the date the Plan was approved by the Board (the "Board Approval Date"), (ii) on the Board Approval Date in the case of each Eligible Director who is a member of the Board on the Board Approval Date, and (iii) on the date a person becomes an Eligible Director by virtue of the termination of his or her employment by the Company or any subsidiary of the Company in the case of each Eligible Director who was not an Eligible Director on the date of his or her initial election as a member of the Board or on the Board Approval Date, an Option to purchase 5,000 shares of Common Stock. (b) Annual Grants. There shall be granted to each Eligible Director annually on the second Thursday of August in each year, commencing with the year 1995 and to an including the year 2003, an Option to purchase 5,000 shares of Common Stock ("Annual Grant Option"). (c) Election. Any Eligible Director may elect not to receive an Annual Grant Option, but only by written notice delivered to the Committee not less than six months prior to the date of grant of such Option. (d) Adjustments. The number of shares subject to any outstanding Option and the number of shares subject to any Option to be granted under this Section 5 shall be subject to adjustment from time to time as provided in Section 7 of the Plan. (e) No Limitation on Removal. No Option granted under this Section 5 shall be construed as limiting any right which either the shareholders of the Company or the Board may have to remove at any time, with or without cause, any Eligible Director from the Board. 6. TERMS AND CONDITIONS OF OPTIONS Each Option shall be evidenced by a written instrument in substantially the form of Exhibit 1 attached hereto or in such other form as may be approved by the Committee and shall be subject to the following terms and conditions: 2 (a) Term. The term of each Option shall be ten years from its date of grant, subject to earlier termination in accordance with Section 7(b) of the Plan or as follows: (i) If any Eligible Director shall cease to be an Eligible Director for any reason other than his or her death or disability (within the meaning of Section 422(c)(6) of the Internal Revenue Code of 1986, as amended (the "Code")) while holding an Option which has not expired and has not been fully exercised, such holder may exercise such Option to the extent that it was exercisable at the time he or she ceased to be an Eligible Director at any time within three months after the date on which such holder ceased to be an Eligible Director, but in no event later than ten years from the date such Option was granted. Such Option shall terminate upon the expiration of such period unless the holder dies prior to such expiration, in which event he or she shall be deemed to have died on the date he or she ceased to be an Eligible Director, and such Option be exercisable and terminate in accordance with the provisions of paragraph (ii) below. (ii) If any Eligible Director shall cease to be an Eligible Director by reason of his or her death or disability (within the meaning of Section 422(c)(6) of the Code), while holding an Option which has not expired and has not been fully exercised, such holder (or his or her guardian or legal representative) may exercise such Option to the extent that it was exercisable at the time he or she ceased to be an Eligible Director by reason of such death or disability at any time within twelve months after the date on which such person ceased to be an Eligible Director, but in no even later than ten years from the date such Option was granted. Such Option shall terminate upon the expiration of such period. (b) Exercise Price. The purchase price for each share of Common Stock subject to an Option shall be equal to 100% of the Fair Market Value (as hereinafter defined) of the Common Stock on the date such Option is granted. As used in the Plan, "Fair Market Value" on any date shall be equal to the mean of the high and low sales prices of a share of Common Stock on such date (or if such date is not a trading day or there are no sales reported on such date, on the next preceding trading day for which sales are reported), based on the composite or consolidated transactions for New York Stock Exchange issues reported by The Wall Street Journal (or if The Wall Street Journal is not then being published, by The New York Times or such other source as shall be determined by the Committee.) In the event that the Common Stock ceases to be listed on the New York Stock Exchange, the method of determining Fair Market Value shall be 3 determined by the Committee. The exercise price of outstanding Options shall be subject to adjustment from time to time in accordance with Section 7 of the Plan. (c) Exercisability. Each Option shall become exercisable with respect to 50% of the shares subject thereto on the first anniversary of the date of grant of such Option and with respect to the remaining 50% on the second anniversary of such date of grant, provided that the holder is an Eligible Director on the applicable anniversary date. Notwithstanding the foregoing, in the event that (i) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding Common Stock or (ii) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board of Directors of the Company, then immediately upon the occurrence of any such event (a "Change in Control") each outstanding Option shall become exercisable with respect to all shares subject thereto. Options shall also become exercisable pursuant to the provisions of Section 7(b) of the Plan. (d) Exercise and Payment. An Option may be exercised only by written notice to the Company at its principal executive office by the person entitled to exercise such Option, stating the number of shares of Common Stock with respect to which such Option is being exercised and accompanied by payment of the full purchase price for the shares with respect to which it is exercised. The minimum number of shares of Common Stock with respect to which an Option may be exercised at any one time shall be 500, unless the number of shares with respect to which the Option is being exercised is the total number of shares available for purchase under the Option. The purchase price may be paid in cash, in shares of Common Stock owned by the Holder, or partly in cash and partly in shares of Common Stock. The value of shares of Common Stock delivered in payment of the purchase price shall be their Fair Market Value, as of the date of exercise. Upon receipt of such notice and payment and payment of any amount on account of withholding taxes as provided in paragraph (e) below, the Company shall promptly issue and deliver to the holder (or other person entitled to exercise the Option) a certificate or certificates for the number of shares of Common Stock as to which the exercise is made. No holder of an Option shall have any rights as an owner of Common Stock until the date of issuance to him or her of such certificate or certificates. (e) Withholding Taxes. It shall be a condition to the obligation of the Company to issue shares of Common Stock upon the exercise of an Option, that the holder pay to the Company the amount requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. 4 (f) Transferability. No Option shall be transferable by the holder thereof otherwise than by will or the laws of descent and distribution and any such Option shall be exercisable during the holder's lifetime only by him or her, or in the event of disability, by his or her guardian or legal representative. (g) Nonstatutory Options. Each Option shall be a nonstatutory option not intended to qualify as an incentive stock option under Section 422 of the Code. (g) Compliance with Law. The exercise of each Option shall be on the condition that the purchase of shares of Common Stock thereunder shall be for investment purposes, and not with a view to resale or distribution unless such shares are registered under the Securities Act of 1933, as amended, or if in the opinion of counsel for the Company such registration is not required under such Act, or any other applicable law, rule or regulation. 7. ADJUSTMENTS (a) In the event of any change in the outstanding Common Stock by reason of stock dividends, split-ups, consolidations, recapitalizations, reorganizations or like events (as determined by the Committee), an appropriate and proportionate adjustment shall be made by the Committee in the number of shares available for issuance under the Plan, in the number of shares of Common Stock to be subject to Options to be granted under Section 5 of the Plan, and in the number of shares subject to, and the exercise price of shares of Common Stock subject to Options outstanding under the Plan with respect to any unpurchased shares. Any such adjustment to an outstanding Option shall be made without a change in the total exercise price applicable to such unpurchased shares but with a corresponding adjustment in the per share exercise price. No fractional shares of Common Stock shall be issued under the Plan on account of any adjustment under this Section 7(a). (b) Notwithstanding anything in paragraph (a) above to the contrary, in the event of any merger, consolidation or other reorganization of the Company in which the Company is not the surviving or continuing corporation (as determined by the Committee) or in the event of the liquidation or dissolution of the Company, all Options shall terminate on the effective date of the merger, consolidation, reorganization, liquidation or dissolution unless, in the case of a merger, consolidation or reorganization, the agreement with respect thereto provides otherwise. Notwithstanding any other provision of the Plan to the contrary, all outstanding Options shall be exercisable with respect to all shares subject thereto for a period of 30 days prior to the effective date of any such merger, consolidation, reorganization, liquidation or dissolution unless, in the case of a merger, consolidation or reorganization, such Options are assumed by the continuing or surviving corporation. 5 8. AMENDMENT The Plan may be amended at any time and from time to time by the Board, provided, however, that shareholder approval shall be required for any amendment materially increasing the benefits accruing to participants under the Plan, materially increasing the number of shares of Common Stock which may be issued under the Plan (except as permitted by Section 7 of the Plan) or materially modifying the requirements as to eligibility for participation in the Plan and provided, further, that the Plan may not be amended more than once every six months other than to comply with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. No amendment to the Plan shall impair the rights of a holder of an Option granted prior to its adoption without such holder's consent. 9. REGULATORY REQUIREMENTS (a) The Company may require that any holder, as a condition of the exercise of any Option, to represent and establish to the satisfaction of the Company that all shares of Common Stock acquired upon the exercise of such Option will be acquired for investment and not with a view to resale or distribution. The Company may prevent the sale or other disposition of any shares acquired pursuant to the exercise of an Option until it is satisfied that such sale or other disposition would not be in contravention of applicable state or Federal securities laws. (b) No Option shall be exercisable in whole or in part at any time the Board shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to such Option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the exercise of such Option or the issuance of shares of Common Stock thereunder, unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 10. TERMINATION The Plan shall terminate upon the earlier of the adoption by the Board of a resolution terminating the Plan or ten years from the Board Approval Date. The termination of the Plan shall not affect the validity of any Option outstanding under the Plan at the date of termination, but no Option shall be granted under the Plan subsequent to its termination. 6 11. STOCKHOLDER APPROVAL The Plan shall become effective upon its adoption by the Board, subject to approval by the shareholders of the Company on or before July 31, 1995, by the affirmative vote of the holders of a majority of the shares of Common Stock of the Company present, or represented and entitled to vote, at a meeting duly held in accordance with the laws of the State of California. In the event such approval is not obtained, all Options granted under the Plan shall be void and without effect, and no additional Options shall be granted under the Plan. 7 EXHIBIT 1 VARCO INTERNATIONAL, INC. DIRECTOR STOCK OPTION VARCO INTERNATIONAL, INC., a California corporation, hereby grants to _______________________ (the "Holder") a stock option pursuant and subject to the terms and conditions of the 1994 Directors' Stock Option Plan (the "Plan") of the Company and upon the terms and conditions set forth below. Capitalized terms used and not otherwise defined in this Option shall have the respective meanings set forth in the Plan. 1. STOCK OPTION. The Company grants to the Holder the right and option to purchase from the Company an aggregate of _____ shares of Common Stock of the Company at an exercise price of $______ per share. This Option shall become exercisable with respect to _____ shares on _________________, and with respect to the remaining _____ shares on _________________, provided that the Holder is an Eligible Director on the applicable date. Notwithstanding the foregoing, this Option shall become exercisable with respect to all shares of Common Stock subject hereto immediately upon the occurrence of a Change in Control and shall become exercisable with respect to all such shares in certain events in accordance with the provisions of Section 7(b) of the Plan. This Option shall be a nonstatutory option not intended to qualify as an incentive stock option under Section 422 of the Code. 2. TERM. The term of this Option is ten years commencing on _________________ and ending on _________________, subject to earlier termination in accordance with Section 7(b) of the Plan or as follows: (a) If the Holder shall cease to be an Eligible Director for any reason other than his or her death or disability (within the meaning of Section 422(c)(6) of the Code), prior to the expiration of this Option, the Holder may exercise this Option to the extent that it was exercisable at the time he or she ceased to be an Eligible Director at any time within three months after the date on which he or she ceased to be an Eligible Director, but in no event later than _________________. This Option shall terminate upon the expiration of such period unless the Holder dies prior to such expiration, in which event he or she shall be deemed to have died on the date he or she ceased to be an Eligible Director, and this Option be exercisable and terminate in accordance with the provisions of paragraph (b) below. (ii) If the Holder shall cease to be an Eligible Director by reason of his or her death or disability (within the meaning of Section 422(c)(6) of the Code), prior to the expiration of this Option, the Holder (or his or her guardian or legal representative) may exercise this Option to the extent that it was exercisable at the time he or she ceased to be an Eligible Director by reason of such death or disability at any time within twelve months after the date on which he or she ceased to be an Eligible Director, but in no even later than _________________. This Option shall terminate upon the expiration of such period. 3. EXERCISE AND PAYMENT. This Option may only be exercised by written notice to the Company at its principal executive office by the person entitled to exercise this Option, stating the number of shares of Common Stock with respect to which it is being exercised (which shall be not less than 500 shares unless this Option is being exercised with respect to the total number of shares available for purchase hereunder) and accompanied by payment of the full purchase price for the shares with respect to which this Option is being exercised. The purchase price may be paid in cash, in shares of Common Stock owned by the Holder, valued at their Fair Market Value on the date of exercise, determined as provided in the Plan, or partly in cash and partly in shares of Common Stock. It shall be a condition to the exercise of this Option that the Holder pay to the Company the amount requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. The Holder shall not have any rights as an owner of Common Stock by reason of the exercise of this Option until the date of issuance to him or her of a certificate or certificates representing the shares of Common Stock purchased. 4. ADJUSTMENTS. The number of shares of Common Stock subject to this Option and the exercise price is subject to adjustment as provided in Section 7 of the Plan. 5. TRANSFERABILITY. This Option may not be transferred by the Holder otherwise than by will or the laws of descent and distribution and during the Holder's lifetime shall be exercisable only by him or her, or in the event of disability, by his or her guardian or legal representative. 6. COMPLIANCE WITH LAW. The exercise of this Option shall be on the condition that the purchase of shares of Common Stock hereunder shall be for investment purposes, and not with a view to resale or distribution unless such shares are registered under the Securities Act of 1933, as amended, or if in the opinion of counsel for the Company such registration is not required under such Act, or any other applicable law, rule or regulation. 2 9. REGULATORY REQUIREMENTS. (a) The Company may require that the Holder, as a condition of any exercise of this Option, represent and establish to the satisfaction of the Company that all shares of Common Stock to be acquired upon such exercise will be acquired for investment and not with a view to resale or distribution. The Company may prevent the sale or other disposition of any shares acquired pursuant to any exercise of this Option until it is satisfied that such sale or other disposition would not be in contravention of applicable state or Federal securities laws. (b) This Option shall not be exercisable in whole or in part at any time the Board shall determine in its discretion that the listing or qualification of the shares of Common Stock subject hereto on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the exercise of this Option or the issuance of shares of Common Stock hereunder, unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 10. CONFLICT. In the event of any conflict between the terms and provisions of this Option and the terms and provisions of the Plan, the terms and provisions of the Plan shall govern. 11. GOVERNING LAW. This Option shall be governed by and interpreted in accordance with the laws of the State of California. VARCO INTERNATIONAL, INC. BY_____________________________ Title: Dated: _________________ 45684.2 3 EX-11 3 COMPUTATION OF EARNINGS EXHIBIT 11 VARCO INTERNATIONAL, INC. Statement Re Computation of Per Share Earnings
Three Months Ended Nine Months Ended September 30, 1994 September 30, 1994 -------------------------------------- A. CALCULATION OF ADJUSTED EARNINGS Net Income After Tax $3,008,000 $8,270,000 Total Number Average Number Stock Option Shares Used Number of of Shares after of Shares Equivalent To Calculate Days Weighing Outstanding Shares EPS ---------------------------------------------------------------------- B. CALCULATION OF AVERAGE SHARES OUTSTANDING Common Stock Outstanding from time-to-time during: Three Months Ended September 30, 1994 92 3,071,445,454 33,385,277 160,334 33,545,611 Nine Months Ended September 30, 1994 273 9,109,167,516 33,366,914 160,334 33,527,248 C. CALCULATION OF EARNINGS PER SHARE Income Per Share = Net Income After Tax ------------------------ Total Shares Outstanding Income Per Share = Three Months Ended September 30, 1994 3,008,000 = $0.09 ------------------------- 33,545,611 Nine Months Ended September 30, 1994 8,270,000 = $0.25 -------------------------- 33,527,248
EXHIBIT 11 VARCO INTERNATIONAL, INC. Statement Re Computation of Per Share Earnings
Three Months Ended Nine Months Ended September 30, 1993 September 30, 1993 -------------------------------------- A. CALCULATION OF ADJUSTED EARNINGS Net Income After Tax $1,034,000 $3,803,000 Total Number Average Number Stock Option Shares Used Number of of Shares after of Shares Equivalent To Calculate Days Weighing Outstanding Shares EPS ---------------------------------------------------------------------- B. CALCULATION OF AVERAGE SHARES OUTSTANDING Common Stock Outstanding from time-to-time during: Three Months Ended September 30, 1993 92 3,056,330,008 33,220,978 262,919 33,483,897 Nine Months Ended September 30, 1993 273 9,049,742,792 33,149,241 262,919 33,412,160 C. CALCULATION OF EARNINGS PER SHARE Income Per Share = Net Income After Tax ------------------------ Total Shares Outstanding Income Per Share = Three Months Ended September 30, 1994 1,034,000 = $0.03 ------------------------- 33,483,897 Nine Months Ended September 30, 1994 3,803,000 = $0.11 -------------------------- 33,412,160
EX-19 4 3RD QUARTER REPORT VARCO INTERNATIONAL, INC. 3 THIRD QUARTER REPORT 1994 TO OUR SHAREHOLDERS Several third quarter developments provide encouragement that our key strategies are producing increasingly positive results. Earnings were up significantly from a year ago; incoming orders remained strong; and there was evidence of a growing acceptance of our newer products. Additionally, we recently announced an acquisition that we believe expands our future growth opportunities. Net Income for the quarter was $3.0 million, $.09 per share, on Revenues of $54.2 million. In the third quarter of last year we earned $1.0 million, $.03 per share, on Revenues of $43.7 million. For the first nine months of 1994 Net Income increased to $8.3 million, $.25 per share, from $3.8 million, $.11 per share, in the comparable period of last year. Revenues were $163.1 million for the nine months, 18 per cent above the $138.2 million of a year ago. On each dollar of sales and rental revenue above the 1993 level we were able to generate 29 cents of increased pre-tax profits, a performance consistent with our management objectives. Incoming orders totaled $58.6 million for the third quarter, somewhat above the $57.4 million recorded in the prior three months, and considerably higher than the $50.0 million received in the third quarter of 1993. Two third quarter orders are of particular significance. Each results from the construction of a new drilling rig, one for an offshore platform and the other for land drilling in Europe. Each includes integrated horizontal and vertical pipe handling systems a well as a Top Drive Drilling System. In each case Varco was selected by its customer, the drilling contractor, to collaborate in the design of a drilling rig employing the latest technology. It is anticipated that these rigs will also include "TOTAL" computer based drilling information systems supplied by our M/D Totco Division, as well as products of other Varco divisions. Increasingly, our newer products - those designed to help our customers drill faster and safer at less cost - are significantly impacting our industry. On November 10 we announced an agreement in principle for the acquisition of Rig Technology Limited of Aberdeen, Scotland. Under the name Thule Rigtech, the company designs and sells equipment and systems used in the handling and processing of drilling fluids. It has gained a reputation for introducing technically advanced products which reduce the cost of drilling. Their strategies parallel those of Varco, and their systems offer a potential for integration with the products of other Varco divisions. Thus, we believe this acquisition offers a significant new avenue for future growth. With oil prices hovering in the $17-$18 per barrel range, and natural gas prices declining during the third quarter, oil companies are under continuing pressure to reduce costs. In that environment, our product offerings command significant attention. We are please with our recent results, but recognize that we must work even harder to achieve continued progress. The support of our shareholders, employees, customers, suppliers and friends is much appreciated. Walter B. Reinhold George I. Boyadjieff Chairman President and Chief Executive Officer November 10, 1994 2 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands) September 30, December 31, 1994 1993 CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 13,694 $ 22,560 SHORT TERM INVESTMENTS 33,652 30,746 RECEIVABLES (NET) 44,658 40,239 INVENTORIES 57,952 51,452 OTHER 9,440 7,558 - - ------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 159,396 152,555 PROPERTY, PLANT AND EQUIPMENT AT COST, LESS ACCUMULATED DEPRECIATION 51,772 49,764 COST IN EXCESS OF NET ASSETS ACQUIRED 33,825 34,766 OTHER ASSETS 11,407 10,936 - - ------------------------------------------------------------------------------ TOTAL ASSETS $256,400 $248,021 ============================================================================== CURRENT LIABILITIES ACCOUNTS PAYABLE $ 13,588 $ 13,818 OTHER LIABILITIES 22,730 25,496 CURRENT PORTION OF LONG-TERM DEBT 10,000 - - ------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 46,318 39,314 LONG-TERM DEBT 39,291 49,164 OTHER NON-CURRENT LIABILITIES 10,509 6,935 - - ------------------------------------------------------------------------------ TOTAL LIABILITIES 96,118 95,413 SHAREHOLDERS' EQUITY COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL $125,908 $126,302 RETAINED EARNINGS 34,374 26,306 - - ------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 160,282 152,608 - - ------------------------------------------------------------------------------ TOTAL LIABILTIES AND SHAREHOLDERS' EQUITY $256,400 $248,021 ==============================================================================
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, Three Months Nine Months except per share data) Ended September 30, Ended September 30, 1994 1993 1994 1993 REVENUES NET SALES $47,666 $38,111 $144,354 $122,847 RENTAL INCOME 5,998 5,179 17,158 14,142 OTHER INCOME 584 402 1,569 1,174 - - -------------------------------------------------------------------------------- 54,248 43,692 163,081 138,163 - - -------------------------------------------------------------------------------- COSTS AND EXPENSES COST OF SALES 30,004 25,424 92,718 81,781 COST OF RENTAL INCOME 1,858 1,486 5,286 4,274 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,583 11,415 39,590 34,883 RESEARCH AND DEVELOPMENT COSTS 2,720 2,431 8,799 7,358 INTEREST EXPENSE 1,219 1,257 3,558 3,786 - - -------------------------------------------------------------------------------- 49,384 42,013 149,951 132,082 - - -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 4,864 1,679 13,130 6,081 PROVISION FOR INCOME TAXES 1,856 645 4,860 2,278 - - -------------------------------------------------------------------------------- NET INCOME $ 3,008 $ 1,034 $ 8,270 $ 3,803 ================================================================================ NET INCOME PER SHARE OF COMMON STOCK $ .09 $ .03 $ .25 $ .11 ================================================================================ SHARES USED TO CALCULATE EARNINGS PER SHARE 33,546 33,484 33,527 33,412 ================================================================================
Note: These statements are condensed and do not contain disclosures required by generally accepted accounting principles. Reference should be made to the financial statements contained in the Annual Report to Shareholders for the year ended December 31, 1993. VARCO INTERNATIONAL INC. AND SUBSIDIARIES 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands) Nine Months Ended September 30, 1994 1993 OPERATING ACTIVITIES NET INCOME $ 8,270 $ 3,803 DEPRECIATION AND AMORTIZATION 8,126 8,044 INCREASE (DECREASE) IN OPERATING CASH FLOWS: RECEIVABLES (4,419) 9,928 INVENTORIES (6,500) 6,777 ACCOUNTS PAYABLE (230) (1,800) INTEREST PAYABLE 1,123 1,113 OTHER (2,566) 5,528 - - ------------------------------------------------------------------------------- NET CASH FROM OPERATING ACTIVITIES 3,804 33,393 - - ------------------------------------------------------------------------------- INVESTING ACTIVITIES SHORT TERM INVESTMENTS (2,906) (22,421) EQUIPMENT PURCHASES (8,457) (1,906) PROCEEDS FROM EQUIPMENT SALES 112 653 ACQUISITION COSTS (352) (4,920) - - ------------------------------------------------------------------------------- NET CASH (USED IN) INVESTING ACTIVITIES (11,603) (28,594) - - ------------------------------------------------------------------------------- FINANCING ACTIVITIES REPURCHASE OF COMMON STOCK (1,067) PRINCIPAL PAYMENTS ON DEBT (2,055) OTHER (157) - - ------------------------------------------------------------------------------- NET CASH (USED IN) FINANCING ACTIVITIES (1,067) (2,212) - - ------------------------------------------------------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (8,866) 2,587 - - ------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22,560 26,921 - - ------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $13,694 $29,508 ===============================================================================
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL INDUSTRY CONDITIONS Worldwide drilling activity, as measured by the average number of active drilling rigs, increased in the first nine months of 1994 to an average of approximately 1,740 from an average of approximately 1,660 during the same period in 1993. This increase is due primarily to an increase of approximately 13% in North American drilling activity to an average of approximately 1,007 rigs. The international component of active drilling rigs declined to an average of approximately 733 in the first nine months as compared to 771 in the first nine months of 1993. Offshore drilling is down slightly year-to-year, as a gain in the Gulf of Mexico was offset by declines in other areas of the world. The average number of worldwide active drilling rigs for the years 1993, 1992, and 1991 were 1,711, 1,674, and 1,888, respectively. ACQUISITIONS On August 17, 1993 the Company acquired all of the outstanding Common Stock of Metrox, Inc. for cash consideration of approximately $4.0 million. Metrox designed and manufactured instrumentation used in the oil and gas industry, as well as in general commercial and industrial applications. Metrox has been combined with, and is reported within, the Company's Martin-Decker/TOTCO Instrumentation Division. On November 10, 1994 the Company announced an agreement in principle for the acquisition of Rig Technology Limited of Aberdeen, Scotland for cash consideration of approximately $9.5 million. Under the name Thule Rigtech, the company designs and sells equipment and systems used in the handling and processing of drilling fluids. RESULTS OF OPERATIONS Set forth below are the net orders and revenues for the Company's four operating divisions:
Three months ended Nine months ended September 30, September 30, 1994 1993 1994 1993 NET ORDERS VARCO DRILLING SYSTEMS $26,631 $13,130 $62,649 $34,763 VARCO BJ OIL TOOLS 9,116 9,503 31,868 27,298 MARTIN-DECKER/TOTCO INSTRUMENTATION 13,032 12,900 38,699 33,154 SHAFFER 9,838 14,425 35,174 34,126 - - ---------------------------------------------------------------- TOTAL $58,617 $49,958 $168,390 $129,341 ================================================================ REVENUES VARCO DRILLING SYSTEMS $17,037 $12,709 $ 54,481 $ 38,944 VARCO BJ OIL TOOLS 10,095 9,344 30,880 30,453 MARTIN-DECKER/TOTCO INSTRUMENTATION 13,681 11,464 39,364 32,271 SHAFFER 12,851 9,773 36,787 35,321 - - ---------------------------------------------------------------- TOTAL $53,664 $43,290 $161,512 $136,989 ================================================================
The increase in orders for Varco Drilling Systems is primarily due to Top Drive Drilling Systems orders. Orders for Top Drive Drilling Systems for the third quarter and the first nine months of 1994 were 12 and 32 units, respectively. For the same periods of 1993 orders were 7 and 14 units, respectively. In addition, orders increased due to third quarter racking and pipe handling systems orders and to improved spare parts and service business. During the third quarter of 1994 Drilling Systems received orders totaling approximately $5.4 million for racking and pipe handling systems. No such orders were received in the third quarter of 1993 and less than $1.0 million was received in the first two quarters of 1993. Drilling Systems' increase in revenues is also primarily from the shipment of Top Drive Drilling Systems. In the third quarter and first nine months of 1994 revenue from Top Drive shipments were $9.3 million and $28.4 million, respectively. This compares to revenue of $7.0 million and $16.3 million for the same periods of 1993. Drilling Systems' parts and service business has also increased during these periods, an approximate $3.4 million increase in the first nine months of 1994 as compared to the same period in 1993 and by approximately $1.3 million for the third quarter of 1994 over the third quarter of 1993. The increase in orders for Varco BJ Oil Tools during the first nine months of 1994 as compared to the same period of 1993 is primarily due to the receipt of a large order from Russia in the first quarter of 1994; to the receipt of large orders from Latin America during the second quarter of 1994 and to the improved general industry conditions as evidenced by the increased worldwide drilling activity. Revenues for Oil Tools were flat year to year as a result of a larger backlog of unshipped orders at the beginning of 1993 as compared to the beginning backlog of 1994. The increase in orders and revenues for Martin-Decker/TOTCO Instrumentation is primarily due to new product sales, the Metrox acquisition and to increased drilling activity. The increase in Instrumentation's revenues in the first nine months 1994 as compared to the same period 1993 is comprised of increased product sales of approximately $5.0 million and increased North American rental revenue of approximately $2.1 million. The increase in product sales is due to increased revenue from the TOTAL System products and to increased revenue from Metrox products of $2.3 million due to their inclusion for the full nine months. The increased rental revenue is due to increased rentals of TOTAL Systems and to increased drilling activity. The North American average active rig count for the first nine months of 1994 was approximately 1,007 as compared to approximately 889 for the same period last year. The increase in drilling activity in 1994 has resulted in a small increase in spare parts, service and repair orders and revenues for Shaffer. In addition, Shaffer's business is subject to the periodic receipt of large orders for blowout preventors ("BOP's"). During the third quarter of 1993 two such orders were received; no such orders were received in the third quarter of 1994. At September 30, 1994 the Company's backlog of unshipped orders was approximately $39.2 million as compared to $32.3 million at December 31, 1993. In accordance with industry practice, orders and commit- 6 ments generally are cancelable by customers at any time. The Company believes that most of the backlog will be shipped by December 31, 1994. Gross margin (net sales and rental income less costs of sales and rental income) as a percentage of net sales and rental income for the first nine months of 1994 was 39.3%. This compares to a gross margin of 37.2% for the same period in 1993. Gross margin for the third quarter 1993 improved to 40.6% from 37.8% in the third quarter 1993. These improvements are due to increased utilization of the Company's manufacturing facilities. The Company estimates that based upon direct labor hours its manufacturing facilities were approximately 75% utilized in each of the first three quarters of 1994 as compared to only 50%; 60% and 60% utilization during the first; second and third quarters of 1993, respectively. The effect of this higher utilization has been to increase the percentage of manufacturing expenses allocated to inventory and decrease expenses charged directly to cost of sales, thereby contributing to an increase in gross margins. The Company believes that new product development is a significant factor for the future of the Company. During the first nine months of 1994 the Company spent $8.8 million or 5.4% of revenues on new product development. This compares to $7.4 million or 5.3% of revenues during the same period in 1993. As a percent of revenues, selling, general and administrative expenses were down slightly year-to-year. For the first nine months of 1994 this percent was 24.3% and it was 25.0% for the third quarter of 1994. As a percent of revenues, selling, general and administrative expenses were 25.2% and 26.1% for the first nine months and third quarter of 1993, respectively. Overall Company employment at September 30, 1994 was 1,390 (including 203 temporary employees) which compares to 1,217 (including 160 temporary employees) a year ago. Most of the increase is in manufacturing and sales. In the first quarter of 1994 the Company adopted Financial Accounting Standards Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." The effect of this adoption did not have a material impact on the financial statements of the Company. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1994 the Company had cash and cash equivalents and short term investments of $47.3 million as compared to $53.3 million at December 31, 1993. This decline was primarily due to increases in accounts receivable and inventory. In July 1992 the Company sold $50.0 million aggregate principal amount of its 8.95% Senior Notes Due June 30, 1999 (the "Senior Notes") to a group of ten institutional investors pursuant to a Note Agreement dated as of July 1, 1992 (the "Note Agreement"). The principal of the Senior Notes is payable in five equal annual installments commencing on June 30, 1995. The Notes include a yield maintenance prepayment penalty if any principal is repaid prior to the installment due date. Had the entire outstanding principal amount been prepaid at September 30, 1994 the prepayment penalty would have been approximately $2.1 million. On February 25, 1993 the Company entered into an unsecured revolving credit agreement with Citicorp USA, Inc. and Citibank, N.A. (the "Credit Agreement"). The Credit Agreement currently provides for advances and letters of credit of up to $10 million each, subject to reduction in certain events. At September 30, 1994 there were no advances outstanding and $3.5 million in letters of credit outstanding under this facility. Both the Note Agreement and the Credit Agreement restrict the payment of dividends (other than dividends payable solely in shares of Common Stock) on, and repurchases of, Common Stock. Under the terms of the Credit Agreement, which is generally the more restrictive of these, the amount available for the payment of dividends on, and repurchases of, Common Stock is limited to 25% of the Company's consolidated net income arising after January 1, 1992, computed on a cumulative basis. In addition, pursuant to an amendment to the Credit Agreement entered into in May 1994, the Company may repurchase at any time prior to December 31, 1995 not in excess of one million shares of its Common Stock for an aggregate cost not exceeding $6 million. The Company may also purchase or otherwise acquire shares of Common Stock from the proceeds of the substantially concurrent sale of shares of Common Stock. On May 26, 1994 the Company announced that its Board of Directors authorized the repurchase of up to one million shares of the Company's Common Stock for an aggregate purchase price not exceeding $6 million. Subsequent to that date the Company has repurchased on the open market 168,200 shares of its Common Stock at an average price of approximately $6.30 per share. At September 30, 1994 the Company's working capital was $113.1 million as compared to $113.2 million at December 31, 1993 and its current ratio was 3.4 to 1.0 as compared to 3.9 to 1.0 at December 31, 1993. Long-term debt as a percent of total capitalization was 20% at September 30, 1994 as compared to 24% at December 31, 1993. The decrease in the foregoing ratio and percentage is due to the reclassification from long-term to current of the principal payment on the Senior Notes due June 30, 1995. At September 30, 1994 the Company had net deferred tax assets of approximately $8.1 million. The Company believes that current levels of pre-tax income are sufficient to realize the deferred tax assets in the future. The Company's capital expenditures during the first nine months of 1994 were $8.5 million as compared to $4.0 million of all of 1993. The Company's current plans for capital expenditures in 1994 are approximately $9.7 million. The Company believes its September 30, 1994 cash and cash equivalents and short term investments will be sufficient for the acquisition of Rig Technology Limited and to meet its capital expenditures and operating cash needs for 1994 and 1995. INVESTOR CONTACT Richard A. Kertson Vice President-Finance Varco International, Inc. 743 North Eckhoff Street Orange, California 92668 Tel (714) 978-1900 Fax (714) 937-5029 [LOGO] 7 EX-27 5 ART. 5 FDS FOR QUARTER REPORT 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE REGISTRANT INCLUDED IN ITS THIRD QUARTER REPORT TO SHAREHOLDERS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-1994 SEP-30-1994 $13,694,000 $33,652,000 $46,380,000 ($1,722,000) $57,952,000 $159,396,000 $102,737,000 ($50,965,000) $256,400,000 $46,318,000 $39,291,000 $125,908,000 0 0 $34,374,000 $256,400,000 $161,512,000 $163,081,000 $98,004,000 $137,594,000 $8,799,000 0 $3,558,000 $13,130,000 $4,860,000 $8,270,000 0 0 0 $8,270,000 $0.25 $0.25
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