-----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, DYlcy87d+YGZqz9P4lzwUBeOHoCbiETh1lh+xhsuv3/qe96lKMAgcPxzhnTvg4Ky XexergUn4bkL/uYhRzSzFg== 0000899243-02-002297.txt : 20020814 0000899243-02-002297.hdr.sgml : 20020814 20020814115059 ACCESSION NUMBER: 0000899243-02-002297 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRIL-QUIP INC CENTRAL INDEX KEY: 0001042893 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 742162088 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13439 FILM NUMBER: 02732807 BUSINESS ADDRESS: STREET 1: 13550 HEMPSTEAD HIGHWAY CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7139397711 MAIL ADDRESS: STREET 1: 180 EAST FIFTH STREET CITY: HOUSTON STATE: TX ZIP: 77040 10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDING JUNE 30, 2002 ================================================================================ 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 JUNE 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-13439 DRIL-QUIP, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other 74-2162088 jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 13550 HEMPSTEAD HIGHWAY HOUSTON, TEXAS 77040 (Address of principal executive offices) (Zip Code) (713) 939-7711 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] As of August 9, 2002, the number of shares outstanding of the registrant's common stock, par value $.01 per share, was 17,293,373. ================================================================================ PART I--FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS DRIL-QUIP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, June 30, 2001 2002 ------------ -------- (In thousands) ASSETS ------ Current assets: Cash and cash equivalents......................................................... $ 11,326 $ 4,637 Trade receivables................................................................. 59,789 48,865 Inventories....................................................................... 98,283 98,372 Deferred taxes.................................................................... 5,320 4,838 Prepaids and other current assets................................................. 2,642 3,267 -------- -------- Total current assets.......................................................... 177,360 159,979 Property, plant and equipment, net................................................... 102,310 111,413 Other assets......................................................................... 289 274 -------- -------- Total assets.................................................................. $279,959 $271,666 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable.................................................................. $ 28,009 $ 17,769 Current maturities of long-term debt.............................................. 1,074 1,142 Accrued income taxes.............................................................. 490 1,414 Customer prepayments.............................................................. 7,725 3,172 Accrued compensation.............................................................. 5,675 5,422 Other accrued liabilities......................................................... 3,289 4,951 -------- -------- Total current liabilities..................................................... 46,262 33,870 Long-term debt....................................................................... 57,814 54,420 Deferred taxes....................................................................... 3,018 3,298 -------- -------- Total liabilities............................................................. 107,094 91,588 Stockholders' equity: Preferred stock: 10,000,000 shares authorized at $0.01 par value (none issued)................... -- -- Common stock: 50,000,000 shares authorized at $0.01 par value, 17,293,373 shares issued and outstanding................................................................... 173 173 Additional paid-in capital........................................................ 64,737 64,737 Retained earnings................................................................. 115,015 120,175 Foreign currency translation adjustment........................................... (7,060) (5,007) -------- -------- Total stockholders' equity.................................................... 172,865 180,078 -------- -------- Total liabilities and stockholders' equity.................................... $279,959 $271,666 ======== ========
The accompanying notes are an integral part of these statements. 2 DRIL-QUIP, INC. CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 2001 2002 2001 2002 ----------- ----------- ----------- ----------- (In thousands except share amounts) Revenues............................... $ 48,900 $ 54,013 $ 96,005 $ 105,110 Cost and expenses: Cost of sales....................... 33,174 39,508 65,680 75,124 Selling, general and administrative. 6,818 6,890 13,173 13,704 Engineering and product development. 3,555 3,490 6,895 7,404 ----------- ----------- ----------- ----------- 43,547 49,888 85,748 96,232 ----------- ----------- ----------- ----------- Operating income....................... 5,353 4,125 10,257 8,878 Interest expense....................... 629 528 1,244 1,044 ----------- ----------- ----------- ----------- Income before income taxes............. 4,724 3,597 9,013 7,834 Income tax provision................... 1,638 1,223 3,119 2,674 =========== =========== =========== =========== Net income............................. $ 3,086 $ 2,374 $ 5,894 $ 5,160 =========== =========== =========== =========== Earnings per share: Basic............................... $ 0.18 $ 0.14 $ 0.34 $ 0.30 =========== =========== =========== =========== Fully diluted....................... $ 0.18 $ 0.14 $ 0.34 $ 0.30 =========== =========== =========== =========== Weighted average shares: Basic............................... 17,292,000 17,293,000 17,291,000 17,293,000 =========== =========== =========== =========== Fully diluted....................... 17,409,000 17,370,000 17,410,000 17,361,000 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 3 DRIL-QUIP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, ------------------ 2001 2002 -------- -------- (In thousands) Operating activities Net income..................................................................... $ 5,894 $ 5,160 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization................................................ 4,235 4,526 Loss (gain) on sale of equipment............................................. (31) 38 Deferred income taxes........................................................ (67) 775 Changes in operating assets and liabilities: Trade receivables.......................................................... 418 11,722 Inventories................................................................ (17,711) 1,332 Prepaids and other assets.................................................. (1,226) (706) Trade accounts payable and accrued expenses................................ (3,415) (13,343) -------- -------- Net cash provided by (used in) operating activities...................... (11,903) 9,504 Investing activities Purchase of property, plant and equipment...................................... (9,099) (12,643) Proceeds from sale of equipment................................................ 93 20 -------- -------- Net cash used in investing activities.................................... (9,006) (12,623) Financing activities Proceeds from revolving line of credit and long-term borrowing................. 18,440 87 Principal payments on long-term debt........................................... (226) (3,867) Activity under stock option plan............................................... 77 0 -------- -------- Net cash provided by (used in) financing activities...................... 18,291 (3,780) Effect of exchange rate changes on cash activities.............................. 933 210 -------- -------- Decrease in cash................................................................ (1,685) (6,689) Cash at beginning of period..................................................... 5,870 11,326 -------- -------- Cash at end of period........................................................... $ 4,185 $ 4,637 ======== ========
The accompanying notes are an integral part of these statements. 4 DRIL-QUIP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION Dril-Quip, Inc., a Delaware corporation (the "Company" or "Dril-Quip"), manufactures highly engineered offshore drilling and production equipment which is well suited for use in deepwater, harsh environment and severe service applications. The Company's principal products consist of subsea and surface wellheads, subsea and surface production trees, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, wellhead connectors and diverters for use by major integrated, large independent and foreign national oil and gas companies in offshore areas throughout the world. Dril-Quip also provides installation and reconditioning services and rents running tools for use in connection with the installation and retrieval of its products. The Company has four subsidiaries that manufacture and market the Company's products abroad. Dril-Quip (Europe) Limited is located in Aberdeen, Scotland, with branches in Norway, Holland and Denmark. Dril-Quip Asia Pacific PTE Ltd. is located in Singapore. DQ Holdings PTY Ltd. is located in Perth, Australia and Dril-Quip do Brasil LTDA is located in Macae, Brazil. The condensed consolidated financial statements included herein have been prepared by Dril-Quip and are unaudited, except for the balance sheet at December 31, 2001, which has been prepared from the audited financial statements at that date. In the opinion of management, the unaudited condensed consolidated interim financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the financial position as of June 30, 2002, and the results of operations for each of the three and six-month periods ended June 30, 2002 and 2001 and cash flows for the six-month periods ended June 30, 2002 and 2001. Although management believes the unaudited interim related disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and the cash flows for the six-month period ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements included herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 2. INVENTORIES Inventories consist of the following:
(Unaudited) December 31, June 30, 2001 2002 ------------ ----------- (In thousands) Raw materials and supplies........... $21,840 $19,186 Work in progress..................... 22,418 28,461 Finished goods and purchased supplies 54,025 50,725 ------- ------- $98,283 $98,372 ======= =======
Certain balances at December 31, 2001 have been reclassified to conform to current period presentation. 3. COMPREHENSIVE INCOME SFAS No. 130 establishes rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires the Company to include unrealized gains or losses on foreign currency translation adjustments in other comprehensive income, which prior to adoption were reported separately in stockholders' equity. 5 DRIL-QUIP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) During the first six months of 2002 and 2001, total comprehensive income equaled $7.2 million and $3.6 million, respectively. For the three-month periods ended June 30, 2002 and 2001, total comprehensive income equaled $5.2 million and $2.8 million, respectively. 4. NEW ACCOUNTING STANDARDS Effective January 1, 2002, Dril-Quip adopted Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. The adoption of this statement did not have a significant impact on Dril-Quip's financial position or results of operations. Effective January 1, 2002, Dril-Quip adopted Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement established a single accounting model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. Additionally, the statement expands the definition of a discontinued operation from a segment of business to a component of an entity that has been disposed of or is classified as held for sale and can be clearly distinguished, operationally and for reporting purposes, from the rest of the entity. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period incurred. Adoption of this statement did not have a significant impact on Drip-Quip's financial position or results of operations. In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS No. 145"). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for the Company beginning January 1, 2003. Under SFAS No. 145, the Company will report gains and losses on the extinguishment of debt in pre-tax earnings rather than in extraordinary items. In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities, such as restructuring, involuntarily terminating employees, and consolidating facilities, initiated after December 31, 2002. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected certain aspects of the Company's financial position and results of operations during the periods included in the accompanying unaudited consolidated financial statements. This discussion should be read in conjunction with the unaudited consolidated financial statements included elsewhere herein, and with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the annual consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Overview Dril-Quip manufactures highly engineered offshore drilling and production equipment which is well suited for use in deepwater, harsh environment and severe service applications. The Company designs and manufactures subsea equipment, surface equipment and offshore rig equipment for use by major integrated, large independent and foreign national oil and gas companies in offshore areas throughout the world. The Company's principal products consist of subsea and surface wellheads, subsea and surface production trees, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, wellhead connectors and diverters. Dril-Quip also provides installation and reconditioning services and rents running tools for use in connection with the installation and retrieval of its products. Both the market for offshore drilling and production equipment and services and the Company's business are substantially dependent on the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make capital expenditures on exploration, drilling and production operations offshore. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility. Revenues. Dril-Quip's revenues are generated by its two operating groups: the Product Group and the Service Group. The Product Group manufactures offshore drilling and production equipment, and the Service Group provides installation and reconditioning services as well as rental running tools for installation and retrieval of its products. For the six months ended June 30, 2002, the Company derived 87% of its revenues from the sale of its products and 13% of its revenues from services. Revenues from the Service Group generally correlate to revenues from product sales because increased product sales generate increased revenues from installation services and rental running tools. Substantially all of Dril-Quip's sales are made on a purchase order basis. Purchase orders are subject to change and/or termination at the option of the customer. In case of a change or termination, the customer is required to pay the Company for work performed and other costs necessarily incurred as a result of the change or termination. The Company accounts for larger and more complex projects that have relatively longer manufacturing time frames on a percentage of completion basis. For the first six months of 2002, eleven projects representing approximately 15% of the Company's revenues were accounted for using percentage of completion accounting. This percentage may fluctuate in the future. Revenues accounted for in this manner are generally recognized on the ratio of costs incurred to the total estimated costs. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage of completion are reflected in the period when such estimates are revised. Amounts received from customers in excess of revenues recognized are classified as a current liability. Foreign sales represent a significant portion of the Company's business. In the six months ended June 30, 2002, the Company generated approximately 66% of its revenues from foreign sales. In this period, approximately 60% (on the basis of revenues generated) of all products sold were manufactured in the United States. 7 Cost of Sales. The principal elements of cost of sales are labor, raw materials and manufacturing overhead. Variable costs, such as labor, raw materials, supplies and energy, generally account for approximately two-thirds of the Company's cost of sales. Fixed costs, such as the fixed portion of manufacturing overhead, constitute the remainder of the Company's cost of sales. Cost of sales as a percentage of revenues is also influenced by the product mix sold in any particular quarter and market conditions. The Company's costs related to its foreign operations do not significantly differ from its domestic costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses include the costs associated with sales and marketing, general corporate overhead, compensation expense, legal expenses and other related administrative functions. Engineering and Product Development Expenses. Engineering and product development expenses consist of new product development and testing, as well as application engineering related to customized products. Income Tax Provision. Dril-Quip's effective tax rate has historically been lower than the statutory rate due to benefits from its foreign sales corporation. Results of Operations The following table sets forth, for the periods indicated, certain statement of operations data expressed as a percentage of revenues:
Three months ended Six months ended June 30, June 30, ----------------- --------------- 2001 2002 2001 2002 ----- ----- ----- ----- Revenues: Product Group............................ 84.4% 85.8% 86.0% 86.9% Service Group............................ 15.6% 14.2% 14.0% 13.1% ----- ----- ----- ----- Total................................ 100.0% 100.0% 100.0% 100.0% Cost of sales............................... 67.8% 73.1% 68.4% 71.5% Selling, general and administrative expenses 13.9% 12.8% 13.7% 13.0% Engineering and product development expenses 7.3% 6.4% 7.2% 7.0% ----- ----- ----- ----- Operating income............................ 11.0% 7.7% 10.7% 8.5% Interest expense............................ 1.3% 1.0% 1.3% 1.0% ----- ----- ----- ----- Income before income taxes.................. 9.7% 6.7% 9.4% 7.5% Income tax provision........................ 3.4% 2.3% 3.3% 2.6% ----- ----- ----- ----- Net income.................................. 6.3% 4.4% 6.1% 4.9% ===== ===== ===== =====
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001. Revenues. Revenues increased by $5.1 million, or approximately 10%, to $54.0 million in the three months ended June 30, 2002 from $48.9 million in the three months ended June 30, 2001. The net increase resulted from increased export sales from the United States of $8.3 million and increased sales of $3.8 million in the European area, offset by decreased domestic sales in the United States of $6.9 million and decreased sales of approximately $100,000 in the Asia-Pacific region. Cost of Sales. Cost of sales increased $6.3 million, or approximately 19%, to $39.5 million for the three months ended June 30, 2002 from $33.2 million for the same period in 2001. As a percentage of revenues, cost of sales were approximately 73% and 68% for the three-month periods ending June 30, 2002 and 2001, respectively. This increase in cost of sales as a percentage of revenues was primarily attributed to lower than anticipated margins resulting from an ongoing project related to the Company's entry into the deepwater 8 development market. This project, which includes numerous deepwater subsea trees and assorted installation equipment, represented approximately $6.9 million in revenues during the second quarter of 2002, versus none during the second quarter of 2001. Selling, General and Administrative Expenses. In the three months ended June 30, 2002, selling, general and administrative expenses increased by approximately 1%, to $6.9 million from $6.8 million in the 2001 period Selling, general and administrative expenses decreased as a percentage of revenues to 12.8% in 2002 from 13.9% in 2001. Engineering and Product Development Expenses. In the three months ended June 30, 2002, engineering and product development expenses decreased by approximately 2% to $3.5 million from $3.6 million for the same period in 2001. Engineering and product development expenses decreased as a percentage of revenues to 6.4% in 2002 from 7.3% in 2001. Interest Income and Expense. Interest expense for the three months ended June 30, 2002 was $528,000 as compared to interest expense of $629,000 for the three-month period ended June 30, 2001. This change resulted primarily from lower interest rates on borrowings during the period ended June 30, 2002 under the Company's unsecured revolving line of credit. Net Income. Net income decreased by $712,000, or approximately 23%, to $2.4 million in the three months ended June 30, 2002 versus $3.1 million for the same period in 2001, for the reasons set forth above. Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001. Revenues. Revenues increased by $9.1 million, or approximately 9%, to $105.1 million in the six months ended June 30, 2002 from $96.0 million in the six months ended June 30, 2001. The increase was due to increased export sales from the United States of $6.7 million, increased sales of $7.2 million in the European area, and $3.1 in the Asia Pacific area, offset by decreased domestic sales in the United States of $7.9 million. Cost of Sales. Cost of sales increased $9.4 million, or approximately 14%, to $75.1 million for the six months ended June 30, 2002 from $65.7 million for the same period in 2001. As a percentage of revenues, cost of sales were 71.5% and 68.4% for the six month periods ending June 30, 2002 and 2001, respectively. This increase in cost of sales as a percentage of revenues was attributed to increases in costs of raw material, labor, energy, and outside services which, due to competitive pricing pressures, were not offset by price increases. In addition, the increase in cost of sales as a percentage of revenues resulted from lower than anticipated margins on an ongoing project related to the Company's entry into the deepwater development market as noted above. Selling, General and Administrative Expenses. In the six months ended June 30, 2002, selling, general and administrative expenses increased by approximately $531,000, or approximately 4%, to $13.7 million from $13.2 million in the 2001 period. Selling, general and administrative expenses decreased as a percent of revenues to 13% from approximately 13.7%. Engineering and Product Development Expenses. In the six months ended June 30, 2002, engineering and product development expenses increased by approximately 7% to $7.4 million from $6.9 million in the 2001 period. However, engineering and product development expenses remained constant as a percentage of revenues at approximately 7%. Interest Expense. Interest expense for the six months ended June 30, 2002 was approximately $1 million as compared to interest expense of $1.2 million for the six month period ended June 30, 2001. This change resulted primarily from lower interest rates under the Company's unsecured revolving line of credit. Net Income. Net income decreased by $734,000, or approximately 12.5%, to $5.2 million in the six months ended June 30, 2002 from $5.9 million for the same period in 2001 for the reasons set forth above. 9 Liquidity and Capital Resources The primary liquidity needs of the Company are (i) to fund capital expenditures to increase manufacturing capacity, improve and expand facilities and manufacture additional rental running tools and (ii) to fund working capital. The Company's principal sources of funds are cash flows from operations and bank indebtedness. Net cash provided by operating activities was approximately $9.5 million for the six months ended June 30, 2002. During the six months ended June 30, 2001, net cash used in operating activities was approximately $11.9 million. The improvement in cash flow from operating activities was principally due to decreased working capital requirements attributable to trade receivables and inventories, offset by reduced trade accounts payable and accrued expenses. Capital expenditures by the Company were $12.6 million and $9.1 million for the six months ended June 30, 2002 and 2001, respectively. Principal payments on long-term debt were approximately $3.9 million and $226,000 for the six months ended June 30, 2002 and 2001, respectively. The Company has a credit facility with Guaranty Bank, FSB providing an unsecured revolving line of credit of up to $60 million. At the option of the Company, borrowing under this facility bears interest at either a rate equal to LIBOR (London Interbank Offered Rate) plus 1.75% or the Guaranty Bank base rate. In addition, the facility calls for quarterly interest payments and terminates on May 18, 2004. As of June 30, 2002, the Company had drawn down $46.1 million under this facility for operating activities and capital expenditures. Dril-Quip (Europe) Limited has a credit agreement with the Bank of Scotland dated March 21, 2001 in the amount of U.K. Pounds Sterling 4.0 million (approximately U.S. $6.1 million). Borrowing under this facility bears interest at the Bank of Scotland base rate, currently 4%, plus 1%, and is repayable in 120 equal monthly installments, plus interest. This facility was used to finance capital expenditures in Norway. Dril-Quip Asia Pacific PTE Ltd. has a secured term loan with the Overseas Union Bank dated August 29, 2001 in the amount of Singapore $6 million (approximately U.S. $3.4 million). Borrowing under this facility bears interest at the swap rate, approximately 0.9%, plus 1.5% and is repayable in 40 equal quarterly installments, plus interest. This facility was used to finance capital expenditures in Singapore. The Company believes that cash generated from operations plus cash on hand and its existing lines of credit will be sufficient to fund operations, working capital needs and anticipated capital expenditure requirements. However, should market conditions result in unexpected cash requirements, the Company believes that additional borrowing from commercial lending institutions would be readily available and more than adequate to meet such requirements. Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in any material hedging transactions, forward contracts or currency trading which could be subject to market risks inherent to such transactions. 10 PART II--OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. Dril-Quip's annual meeting of stockholders was held on May 15, 2002 for the purpose of electing two directors to serve for three-year terms and approving the appointment of Ernst & Young LLP as independent public accountants of the Company for 2002. 1. Election of Directors Stockholders elected J. Mike Walker and Gary W. Loveless, each for a three-year term expiring at the 2005 annual meeting. The vote tabulation was as follows:
Votes Cast Votes Cast Against Director For Or Withheld -------- ---------- ------------------ J. Mike Walker....... 15,780,370 1,198,820 Gary W. Loveless..... 16,864,131 115,059
Directors continuing in office were Larry E. Reimert, Gary D. Smith, James M. Alexander and Gary L. Stone. 2. Proposal approving the appointment of Ernst & Young LLP as independent public accountants of the Company for 2002. For.... ...... 16,807,798 Against....... 167,372 Abstain ...... 4,020
Item 5. Other Information. Forward Looking Statements. Statements contained in all parts of this document that are not historical facts are forward looking statements that involve risks and uncertainties that are beyond the Company's control. These forward-looking statements include the following types of information and statements as they relate to the Company: . scheduled, budgeted and other future capital expenditures; . working capital requirements; . the availability of expected sources of liquidity; . statements regarding the market for Dril-Quip products; . statements regarding the exploration and production activities of Dril-Quip customers; 11 . all statements regarding future operations, financial results, business plans and cash needs; and . the use of the words "anticipate," "estimate," "expect," "may," "project," "believe" and similar expressions intended to identify uncertainties. These statements are based upon certain assumptions and analyses made by management of the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including but not limited to, those relating to the volatility of oil and natural gas prices and cyclicality of the oil and gas industry, the Company's international operations, operating risks, the Company's dependence on key employees, the Company's dependence on skilled machinists and technical personnel, the Company's reliance on product development and possible technological obsolescence, control by certain stockholders, the potential impact of governmental regulation and environmental matters, competition, reliance on significant customers and other factors detailed in the Company's filings with the Securities and Exchange Commission. Prospective investors are cautioned that any such statements are not guarantees of future performance, and that, should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Item 6. Exhibits and Reports on Form 8-K.
Exhibit Number Description - ------ ----------- *3.1 --Restated Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-33447)). *3.2 --Bylaws of the Company (Incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-33447)). *4.1 --Certificate of Designations for Series A Junior Participating Preferred Stock (Incorporated herein by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-33447)). *4.2 --Form of certificate representing Common Stock (Incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-33447)). *4.3 --Rights Agreement between Dril-Quip, Inc. and Chase Mellon Shareholder Services, L.L.C., as rights agent (Incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-33447)). 99.1 --Certification by Co-Chief Executive Officer Required by Section 906 of the Sarbanes-Oxley Act of 2002 99.2 --Certification by Co-Chief Executive Officer Required by Section 906 of the Sarbanes-Oxley Act of 2002 99.3 --Certification by Co-Chief Executive Officer Required by Section 906 of the Sarbanes-Oxley Act of 2002 99.4 --Certification by Chief Financial Officer Required by Section 906 of the Sarbanes-Oxley Act of 2002
- -------- * Incorporated herein by reference as indicated. Reports on Form 8-K None. 12 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. DRIL-QUIP, INC. /S/ JERRY M. BROOKS -------------------------------------- Principal Financial Officer and Duly Authorized Signatory Date: August 9, 2002 13 EX-99.1 3 dex991.txt CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Larry E. Reimert, Co-Chief Executive Officer of Dril-Quip, Inc., a Delaware corporation (the "Company"), hereby certify that: (1) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2002 /s/ Larry E. Reimert ------------------------- Name: Larry E. Reimert Co-Chief Executive Officer 1 EX-99.2 4 dex992.txt CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER EXHIBIT 99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Gary D. Smith, Co-Chief Executive Officer of Dril-Quip, Inc., a Delaware corporation (the "Company"), hereby certify that: (1) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2002 /s/ Gary D. Smith ------------------------- Name: Gary D. Smith Co-Chief Executive Officer 1 EX-99.3 5 dex993.txt CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER EXHIBIT 99.3 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, J. Mike Walker, Co-Chief Executive Officer of Dril-Quip, Inc., a Delaware corporation (the "Company"), hereby certify that: (1) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2002 /s/ J. Mike Walker ------------------------- Name: J. Mike Walker Co-Chief Executive Officer 1 EX-99.4 6 dex994.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.4 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Jerry M. Brooks, Chief Financial Officer of Dril-Quip, Inc., a Delaware corporation (the "Company"), hereby certify that: (1) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2002 /s/ Jerry M. Brooks ------------------------- Name: Jerry M. Brooks Chief Financial Officer 1 -----END PRIVACY-ENHANCED MESSAGE-----