-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LxKMuOTN7y2dMpMUJO/mkIJhA6n1n7e1/Enqbvdz+/NmfcY0OfEdXhaJZEwKj026 qmanVcGUXtoNYsHme6duZg== 0001017062-96-000521.txt : 19961115 0001017062-96-000521.hdr.sgml : 19961115 ACCESSION NUMBER: 0001017062-96-000521 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARCO INTERNATIONAL INC CENTRAL INDEX KEY: 0000102993 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 950472620 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08158 FILM NUMBER: 96662218 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 1 FORM 10-Q PERIOD ENDING 09-30-96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (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, 1996 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 incorporation or organization) Identification No.) 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 ----- ----- 31,575,713 (Number of shares of Common Stock outstanding at October 31, 1996) 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, 1996, 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 31,488,163 and 33,910,939 shares outstanding for the nine months ended September 30, 1996, and 1995 respectively, and upon an average of 32,118,119 and 30,640,435 shares outstanding for the three months ended September 30, 1996 and 1995 respectively. INVENTORIES. The Company estimates the components of inventory at September 30, 1996, and December 31, 1995, to be as follows:
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------- ------------------ Raw Materials $ 5,666,000 $ 5,480,000 Work in Process 20,663,000 18,061,000 Finished Goods 72,185,000 59,426,000 LIFO Reserves (14,005,000) (13,761,000) ------------ ------------ $ 84,509,000 $ 69,206,000 ============ ============
FIXED ASSETS. Fixed assets are stated net of accumulated depreciation of $52,802,000 at September 30, 1996, and $48,376,000 at December 31, 1995. COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL. On September 30, 1996, the Company Common Stock account was $21,775,000 and Additional Paid-In-Capital accounts were $119,467,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Pursuant to General Instruction D to Form 10-Q, Management's 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, 1996, filed as Exhibit 19 hereto, is incorporated herein by reference. PART II-OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES On May 29, 1996 the Company completed the sale of 989,406 shares of its Common Stock at a price to the public of $15.875 per share. On March 24, 1995, the Company commenced a "Dutch Auction" type tender offer (the "Tender Offer") to purchase up to 5,300,000 shares of its Common Stock at a purchase price not greater than $8.00 per share nor less than $6.75 per share. Pursuant to the Tender Offer, which terminated on April 21, 1995, the Company purchased 3,150,560 shares of its Common Stock at a purchase price of $8.00 per share. 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 (as amended, the "Note Agreement"). The principal of the Senior Notes is payable in five equal annual installments of $10.0 million, the first of which was made 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. In addition, the Company may purchase, redeem or otherwise acquire shares of its capital stock or make Restricted Investments from the net cash proceeds of the substantially concurrent sales of shares of capital stock or from the sale of securities convertible into such shares upon conversion. Pursuant to a waiver and amendment dated as of March 8, 1995, the holders of the Senior Notes (1) waived compliance with the limitations on Restricted Payments discussed above, (2) agreed that the amount expended in the Tender Offer would not constitute a Restricted Payment, and (3) amended certain covenants to take into account the effect of the consummation of the Tender Offer on certain financial ratios. On February 25, 1993 the Company entered into an unsecured revolving credit agreement with Citicorp USA, Inc. and Citibank, N.A. (as amended, the "Credit Agreement"). Effective as of March 17, 1995 the Credit Agreement was amended to (1) extend the maturity date from March 31, 1996 to October 31, 1998; (2) increase the total maximum facility from $20.0 to $35.0 million, consisting of a loan facility of $25.0 million and a letter of credit facility of $10.0 million; and (3) to amend certain convenants to permit the Tender Offer and to take into account the effect of the consummation of the Tender Offer on certain financial ratios. 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 the December 31, 1995 amendment to the Credit Agreement discussed above, the Company may repurchase at any time prior to December 31, 1996 shares of its Common Stock for an aggregate cost not exceeding $50.0 million, including shares purchased pursuant to the Tender Offer. 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 11 Statement re computation of per share earnings for the three months and nine months ended September 30, 1996 and 1995. 19 Varco International, Inc. Third Quarter Report to Shareholders, Three Months Ended September 30, 1996. 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. 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 12, 1996 BY: /s/ RICHARD A. KERTSON --------------------------- VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER DATE: NOVEMBER 12, 1996 BY: /s/ DONALD L. STICHLER --------------------------- CONTROLLER-TREASURER AND SECRETARY EXHIBIT INDEX 11 Statement re computation of per share earnings for the three months and nine months ended September 30, 1996 and 1995. 19 Varco International, Inc. Third Quarter Report to Shareholders, Three Months Ended September 30, 1996. 27 Financial Data Schedule EX-11 2 STATEMENT RE COMPUTATION EXHIBIT 11 VARCO INTERNATIONAL, INC. Statement Re Computation of Per Share Earnings
Three Months Ended Nine Months Ended September 30 1996 September 30 1996 ------------------ ------------------ A.CALCULATION OF ADJUSTED EARNINGS Net Income After Tax $7,167,000 $15,874,000
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, 1996 92 2,889,117,512 31,403,451 714,668 32,118,119 Nine Months Ended September 30, 1996 274 8,431,937,537 30,773,495 714,668 31,488,163
C.CALCULATION OF EARNINGS PER SHARE Income Per Share = Net Income After Tax ------------------------ Total Shares Outstanding Income Per Share = Three Months Ended September 30, 1996 7,167,000 = $0.22 -------------- 32,118,119 Nine Months Ended September 30, 1996 15,874,000 = $0.50 -------------- 31,488,163
VARCO INTERNATIONAL, INC. Statement Re Computation of Per Share Earnings
Three Months Ended Nine Months Ended September 30 1995 September 30 1995 ------------------ ------------------ A.CALCULATION OF ADJUSTED EARNINGS Net Income After Tax $3,681,000 $11,997,000
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, 1995 92 2,794,794,140 30,378,197 262,238 30,640,435 Nine Months Ended September 30, 1995 273 8,640,095,493 31,648,701 262,238 31,910,939
C.CALCULATION OF EARNINGS PER SHARE Income Per Share = Net Income After Tax ------------------------ Total Shares Outstanding Income Per Share = Three Months Ended September 30, 1995 3,681,000 = $0.12 -------------- 30,640,435 Nine Months Ended September 30, 1995 11,997,000 = $0.38 -------------- 31,910,939
EX-19 3 3RD QUARTER REPORT EXHIBIT 19 Varco International, Inc. 1996 Third Quarter Report TO OUR SHAREHOLDERS The worldwide offshore drilling industry is continuing to strengthen, resulting in record Revenues, Net Income and order bookings for Varco. Oil companies are finding the economics of drilling offshore increasingly attractive, generating higher demand for offshore rigs, particularly "premium" rigs capable of drilling in deep water and hostile environments. Reflecting this demand, the worldwide utilization of offshore rigs averaged 91 percent during the third quarter, as compared to 86 percent for the same period of last year; and the effective utilization for some categories of rigs is approaching 100 per cent. As a result, day rates are increasing and contract terms are lengthening, with many deep water drilling rigs contracted into 1999 and beyond. These conditions are directly benefiting Varco as stacked rigs are being reactivated, existing rigs are being upgraded, and more funds are available for refurbishing and replacing equipment. In particular, we are benefiting from the upgrading of floating offshore rigs (semisubmersibles and drillships) to increase their water depth capacity. Third quarter Revenues of $98.1 million and Net Income of $7.2 million represented the highest quarterly totals in the Company's history; per share earnings were $.22. During the comparable period of last year, Net Income was $3.7 million, $.12 per share, on Revenues of $68.1 million. Incoming orders totaled $128.0 million for the most recent three months, also an all-time high, surpassing the $102.2 million recorded in the first quarter of this year. Order bookings were $67.8 million for the third quarter of 1995. Although each of the Company's four largest business units experienced increased Revenues and orders as compared to the third quarter of last year, most of the growth is attributable to the Shaffer Division. For the third quarter, Shaffer had Revenues of $38.9 million and incoming orders of $67.7 million, versus $16.6 million and $17.2 million, respectively, in the comparable quarter a year ago. As we have indicated in recent reports to you, the sharp increase in Shaffer's business has resulted from upgrading the water depth capacity of several floating offshore rigs. Each such upgrade represents significant revenue potential, as it requires equipment representing a substantial portion of the type Shaffer provides. With the industry recovery gaining momentum there is considerable evidence that the upturn is sustainable. Salomon Brothers' survey of Exploration and Production spending anticipates a 1996 increase in excess of eleven per cent from 1995, with another year of double-digit growth being projected for next year. It is significant that this survey also indicates that those spending plans generally assume lower oil and gas prices than currently prevail. Thus, it would appear that there is some "cushion" below the unexpectedly strong commodity prices that exist today, as well as some upside potential if they remain near current levels. After years of downsizing and consolidation, the recovery is enabling the oil service industry to begin generating much improved financial results and returns. We believe that the acquisitions we have made, together with our continuing investment in product development, have uniquely positioned Varco take advantage of the improved industry conditions. Our challenge is to reap the benefits of our past actions while continually planting the seeds of our future success. We appreciate the support and confidence of our shareholders, employees, suppliers, and friends. Walter B. Reinhold George I. Boyadjieff Chairman President and Chief Executive Officer November 12, 1996 CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, December 31, (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Cash and cash equivalents $ 4,533 $ 6,762 Receivables (net) 89,148 60,683 Inventories 84,509 69,206 Other 10,148 8,663 Total Current Assets 188,338 145,314 Property, plant and equipment at cost less accumulated depreciation 46,974 45,260 Rental inventory less accumulated depreciation 12,047 6,988 Cost in excess of net assets acquired 35,588 36,371 Other assets 11,161 12,638 Total Assets $294,108 $246,571 Accounts payable $ 28,107 $ 21,356 Other liabilities 35,698 26,397 Current portion of long-term debt 10,000 10,000 Total Current Liabilities 73,805 57,753 Long-term debt 27,671 29,539 Other non-current liabilities 8,806 8,100 Total Liabilities 110,282 95,392 Common Stock and additional paid-in capital 141,242 124,552 Retained earnings 42,584 26,627 Total Shareholders' Equity 183,826 151,179 Total Liabilities and Shareholders' Equity $294,108 $246,571
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES
(unaudited) (in thousands) Nine Months Ended September 30, 1996 1995 - --------------------------------------------------------------- Net income $ 15,874 $ 11,997 Depreciation and amortization 9,667 9,239 Increase (decrease) in operating cash flows: Receivables (28,465) (4,222) Inventories (15,303) (12,980) Accounts payable 6,751 6,136 Customer deposits 3,385 304 Taxes payable 3,756 1,367 Interest payable (1,056) 917 Other 3,711 1,343 Net cash from operating activities (1,680) 14,101 Short-term investments 29,832 Equipment purchases (7,344) (8,397) Additions to rental inventory (7,689) (2,260) Proceeds from equipment sales 587 402 Other 463 Net cash from (used in) investing activities (14,446) 20,040 Payment on long-term debt (10,000) (10,000) Increase in line of credit 8,000 Proceeds from issuance of Common Stock 15,897 1,061 Repurchase of Common Stock (26,343) Net cash from (used in) financing activities 13,897 (35,282) Net change in cash and cash equivalents (2,229) (1,141) Cash and cash equivalents at beginning of year 6,762 8,793 Cash and cash equivalents at end of quarter $ 4,533 $ 7,652
VARCO INTERNATIONAL, INC. AND SUBSIDIARIES (unaudited)
(in thousands, Three Months Ended Nine Months Ended except per share amounts) September 30, September 30, 1994 1995 1996 1995 - -------------------------------------------------------------------------------- Net sales $89,706 $61,507 $236,543 $182,776 Rental income 8,198 6,313 21,491 18,607 Other income 208 233 1,397 1,102 98,112 68,053 259,431 202,485 Cost of sales 62,244 41,115 163,751 119,256 Cost of rental income 2,691 1,925 6,592 5,543 Selling, general and administrative 17,804 15,235 51,056 45,870 Research and development costs 3,223 3,302 10,585 9,837 Interest expense 918 1,019 2,959 3,512 86,880 62,596 234,943 184,018 Income before income taxes 11,232 5,457 24,488 18,467 Provision for income taxes 4,065 1,776 8,614 6,470 Net income $ 7,167 $ 3,681 $ 15,874 $ 11,997 Net income per share of Common Stock $ .22 $ .12 $ .50 $ .38 Shares used to calculate earning per share 32,118 30,640 31,488 31,911
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, 1995. VARCO INTERNATIONAL, INC. AND SUBSIDIARIES 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 1996 to an average of approximately 1,807 from an average of approximately 1,697 during the same period in 1995. North American drilling activity increased approximately 6% to an average of approximately 1,003 rigs. International drilling activity increased by 5% to an average of approximately 792 as compared to 756 in the first nine months of 1995. Offshore drilling activity increased significantly year-to-year, as reflected by an increase in rig utilization (mobile offshore rigs under contract as a percent of available rigs). For the third quarter of 1996, mobile offshore rig utilization averaged 91%, the highest level since early 1982, as compared to 86% in the third quarter of 1995. The higher utilization was accompanied by increasing day rates and longer contract periods, particularly among the "premium" offshore rigs. The increase in drilling activity, particularly the increase in offshore rig utilization, has led to higher day rates and improved profits and cash flow for the Company's major customers, the offshore drilling contractors. RESULTS OF OPERATIONS Set forth below are the net orders and revenues for the Company's five operating divisions:
Three Months Ended Nine Months Ended September 30, 1996 1995 1996 1995 - ------------------------------------------------------------------- Varco Drilling Systems $ 28,497 $ 23,693 $ 81,653 $ 71,099 Varco BJ Oil Tools 14,110 10,348 41,699 31,452 Martin-Decker/TOTCO Instrumentation 15,861 14,406 44,600 43,585 Shaffer 67,696 17,180 141,303 55,239 Thule Rigtech 1,810 2,176 6,123 7,972 Total $127,974 $ 67,803 $315,378 $209,347 Varco Drilling Systems $ 30,142 $ 24,023 $ 87,373 $ 74,051 Varco BJ Oil Tools 12,672 11,062 36,684 31,292 Martin-Decker/TOTCO Instrumentation 14,658 13,860 43,727 42,687 Shaffer 38,904 16,593 83,671 45,098 Thule Rigtech 1,528 2,282 6,579 8,255 Total $ 97,904 $ 67,820 $258,034 $201,383
Order bookings increased $106.0 million, 51%, in the first nine months of 1996 and $60.2 million, 89%, in the third quarter of 1996 as compared to the same periods of 1995. These increases are mostly attributable to the Shaffer Division and included orders to upgrade several offshore rigs (primarily floating offshore rigs used in deepwater drilling) with higher capacity pressure control, motion compensation and related equipment. The nine-month bookings for Drilling Systems in 1996 include orders for 36 Top Drive Drilling Systems, including orders for 13 of the Company's new land top drives ("TDS-9S"). Total Top Drive Drilling Systems orders were 26 in the comparable 1995 period. The year-to-year increase in order rates at the Oil Tool Division generally reflects the overall increase - -------------------------------------------------------------------------------- in drilling activity and the impact of improved cash flow for the drilling contractors. The Company's increased revenue levels in the 1996 periods as compared to 1995 are generally due to improved industry conditions as discussed above. Particularly significant has been the impact on Shaffer of the upgrade of floating offshore rigs. The increase in the Shaffer Division revenues accounted for 74% of the third quarter increase from the comparable year-ago period, and 68% of the increase for the nine-month period. The increased Drilling Systems revenue, as compared to the first nine months of 1995; are attributable to the Racking Systems product line and to an increase in the parts and service revenue. At September 30, 1996 the Company's backlog of unshipped orders was approximately $132.7 million as compared to $75.4 million at December 31, 1995. In accordance with industry practice, orders and commitments generally are cancelable by customers at any time. The Company believes that most of the backlog will be shipped by mid-1997. 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 1996 was 34.0%, compared to a gross margin of 38.0% for the same period in 1995. Approximately 2.0% of this decline is due to lower margins at the Drilling Systems Division. These lower margins primarily reflect low margins on TDS-9S units ($8.5 million in Revenue), which included high field support costs, and generally higher manufacturing cost, particularly during the earlier part of the year. Prior to the second quarter of 1996, the TDS-9S product line incurred negative margins. These margins have improved to just over 20% in the third quarter of 1996. The balance of the decline is due to higher Shaffer revenues which carry lower gross margins (due principally to price competition) than the combined gross margins of the other Divisions. Gross margins for the third quarter 1996 decreased to 33.7% from 36.5% in the third quarter 1995. This decline in margins of 2.8% is primarily due to the increase in Shaffer's revenue. The impact of Shaffer's lower margins represented 1.6% of the 2.8% decline. The balance of the third-quarter decline was primarily due to lower- than-average margins on newer products at Drilling Systems. The Company believes that new product development is a significant factor for the future of the Company. During the first nine months of 1996 the Company spent $10.6 million or 4.1% of revenues on new product development. This compares to $9.8 million or 4.9% of revenues during the same period in 1995. The Company expects both the dollar amount and percentage of research and development expenditures in 1997 to increase. Primarily as a result of activities related to the increased revenues, selling, general and administrative expenses have increased in 1996 when compared to similar periods in 1995. However, as a percent of revenues, selling, general and administrative expenses are down year-to-year. For the first nine months of 1996 this percent was 19.7%, and it compares to 22.7% for the same period of 1995. Overall Company employment at September 30, 1996 was 1,843 (including 230 temporary employees) which compares to 1,572 (including 219 temporary employees) a year ago. This increase is primarily due to an increase in manufacturing employees. The effective tax rate for he third quarter of 1996 was 36% as compared to 33% for 1995. The lower third quarter 1995 tax rate is due to recording a credit for a foreign tax loss carryforward. LIQUIDITY AND CAPITAL RESOURCES On May 29, 1996 the Company completed the sale of 989,406 shares of its Common Stock at a price to the public of $15.875 per share. A portion of the net proceeds from the sale of approximately $14.6 million was used to make the $10.0 million principal payment due June 30, 1996 on the Senior Notes. At September 30, 1996 the Company had cash and cash equivalents of $4.5 million as compared to $6.8 million at December 31, 1995. This decrease was due to increased working capital, primarily receivables 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 of $10.0 million, the first of which was made on June 30, 1995. Effective as of March 8, 1995, the holders of the Senior Notes waived compliance with certain covenants contained in the Note Agreement in order to permit certain purchases of the Company's Common Stock and amended certain financial covenants. The Senior 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, 1996 the prepayment penalty would have been approximately $1.4 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"). Effective as of March 17, 1995 the Credit Agreement was amended to (1) extend the maturity date from March 31, 1996 to October 31, 1998; (2) increase the total maximum facility from $20.0 to $35.0 million, consisting of a loan facility of $25.0 million and a letter of credit facility of $10.0 million; and (3) amend certain covenants to permit certain purchases of Company stock and to amend certain financial ratios. At September 30, 1996 there were $8.0 million in advances outstanding and $5.0 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 a December 31, 1995 amendment to the Credit Agreement, the Company may repurchase at any time prior to December 31, 1996 shares of its Common Stock for an aggregate cost not exceeding $50.0 million, including the 3,150,560 shares purchased pursuant to the Company's 1995 tender offer. 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 $6.0 million (the "Repurchase Program"). On May 26, 1995 the Company announced an increase and extension of the above Repurchase Program. The total number of shares authorized for repurchase was increased to 1,500,000; the maximum aggregate purchase price was increased to $11.0 million and the purchase period was extended through December 31, 1996. To date, the Company has repurchased on the open market 627,600 shares of its Common Stock at an average price of approximately $8.00 per share. The last such purchase was on December 6, 1995. At September 30, 1996 the Company's working capital was $114.5 million as compared to $87.6 million at December 31, 1995 and its current ratio was 2.6 to 1.0 as compared to 2.5 to 1.0 at December 31, 1995. Long-term debt as a percent of total capitalization was 13% at September 30, 1996 as compared to 16% at December 31, 1995. The increase in working capital is due to the higher level of receivables and inventory needed to support the Company's higher revenue levels. The lower debt to total capitalization ratio is primarily due to the sale of Common Stock to the public. The increase to the Company's rental inventory of $7.7 million during the first nine months of 1996 is primarily due to the addition of Drilling Systems' TDS-9S units to the rental fleet. The Company's capital expenditures during the first nine months of 1996 were $7.3 million as compared to $8.4 million (including $3.6 million for the purchase of Martin-Decker/TOTCO's manufacturing facility) for the 1995 nine-month period. The Company's current plans for capital expenditures in 1996 are approximately $11.0 million. During 1997 capital expenditures are expected to increase to over $20.0 million, primarily consisting of equipment purchases. The Company believes its revolving credit facility and its cash and cash equivalents will be sufficient to meet operating its cash needs and to make the June 30, 1997 principal payment on the Senior Notes. The Company intends to finance a portion of its 1997 capital expenditures. PROFILE Varco International, Inc. is a leading manufacturer of products used in the oil and gas well drilling industry worldwide. The Company also leads in the development of new technology and equipment to enhance the safety and productivity of the drilling process. Operating through five divisions, the Company's products include: integrated systems for rotating and handling the various sizes and types of pipe used on a drilling rig; conventional pipe handling tools, hoisting equipment and rotary equipment; drilling rig instrumentation; pressure control and motion compensation equipment; and solids control equipment and systems. 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] EX-27 4 FINANCIAL DATA SCHEDULE ARTICLE 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIALS STATEMENTS OF THE REGISTRANT INCLUDED IN ITS THIRD QUARTER REPORT TO SHAREHOLDERS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 4,533,000 0 90,935,000 (1,787,000) 84,509,000 188,338,000 99,776,000 (52,802,000) 294,108,000 73,805,000 27,671,000 0 0 141,242,000 42,584,000 294,108,000 97,904,000 98,112,000 64,935,000 82,739,000 3,223,000 0 918,000 11,232,000 4,065,000 7,167,000 0 0 0 7,167,000 0.22 0.22
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