-----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, TFNk7uKXsfGAXoaugg9BRt70oXHWexH92H+nwSJ0uhVyK2JKriSvujuKTcSamD0Q ShcSliQbxnUpOZSjyEV/Wg== 0000950129-96-002003.txt : 19960827 0000950129-96-002003.hdr.sgml : 19960827 ACCESSION NUMBER: 0000950129-96-002003 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960611 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960826 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITH INTERNATIONAL INC CENTRAL INDEX KEY: 0000721083 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 953822631 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08514 FILM NUMBER: 96620823 BUSINESS ADDRESS: STREET 1: 16740 HARDY ST CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 7134433370 MAIL ADDRESS: STREET 1: 16740 HARDY ST CITY: HOUSTON STATE: TX ZIP: 77032 8-K/A 1 SMITH INTERNATIONAL - FORM 8-K/A - 06/11/96 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 June 11, 1996 Date of Report (Date of earliest event reported) SMITH INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 1-8514 95-3822631 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 16740 Hardy Street Houston, Texas (Address of principal executive offices) 77032 (Zip Code) (713) 443-3370 (Registrant's telephone number, including area code) 2 ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS On June 11, 1996, M-I Drilling Fluids L.L.C. ("M-I"), a 64% owned affiliate of Smith International Inc. (the "Registrant"), purchased Anchor Drilling Fluids A.S. ("Anchor") from Transocean A.S. ("Seller"). M-I acquired the assets of Anchor in exchange for cash and the assumption of certain liabilities totaling 695.75 million Norwegian kroner. The principal source of the Registrant's portion of the purchase price was a loan made in the ordinary course of business. The Company entered into a five year term loan for 320.00 million Norwegian kroner with a bank group consisting of Texas Commerce Bank, ABN-Amro Bank, Den Norske Bank, Bank of America, First Interstate Bank, the Bank of New York, CORESTATES and Union Bank of California. The remainder of the funds came from a private placement made in the ordinary course of business through Principal Mutual and John Hancock. The terms of the purchase, including the purchase price, were negotiated on an arms-length basis between M-I and Seller. Anchor's assets include plant, equipment and property used, and which will continue to be used, in connection with manufacturing and marketing oil field drilling fluids and drilling fluid systems. 2 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired. The following financial statements of Anchor Drilling Fluids A.S. are attached as part of this report. Audited Financial Statements of Anchor Drilling Fluids, A.S. Report of Independent Accountants Directors Report 1995 Consolidated Statements of Operations for the Years Ended December 31, 1995 and 1994 Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 Comments to the Accounts Notes to Consolidated Financial Statements Unaudited Financial Statements of Anchor Drilling Fluids, A.S. Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995 Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 Notes to Consolidated Financial Statements (b) Pro Forma Financial Information. The following Pro Forma financial information of Smith International, Inc. is attached as part of this report. Pro Forma Condensed Statement of Operations for the Year Ended December 31, 1995 Pro Forma Condensed Statement of Operations for the Three Months Ended March 31, 1996 Pro Forma Condensed Balance Sheet as of March 31, 1996 Notes to Pro Forma Condensed Financial Statements 3 4 (c) Exhibits. Exhibit number and description (2) Plan of Acquisition, Reorganization, Arrangement or Succession. 2.1 Purchase and Sale Agreement By and Between M-I Drilling Fluids L.L.C. and Anchor Drilling Fluids A.S.* (23) Consents of Experts and Counsel. 23.1 Consent of Coopers & Lybrand ANS * Previously 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 hereunto duly authorized. SMITH INTERNATIONAL, INC. By: /s/ NEAL S. SUTTON ------------------------------------- Neal S. Sutton Senior Vice President - Administration, General Counsel and Secretary Date: August 26, 1996 4 5 To The Annual General Meeting Anchor Drilling Fluids AS AUDIT REPORT FOR 1995 (TRANSLATION FROM NORWEGIAN) We have audited the financial statements for Anchor Drilling Fluids AS for 1995, showing a profit for the year of NOK 18.664.000 for the parent company and an annual profit of NOK 23.385.000 for the group. The financial statements, consisting of the Board of Directors' report, profit and loss account, balance sheet, cash flow statement, notes and consolidated financial statements, have been presented by the company's Board of Directors and its managing director. Our responsibility is to examine the company's financial statements, the accounts and accounting records and other related matters. We have performed the audit in accordance with the relevant laws, regulations and generally accepted auditing standards. We have performed the audit procedures which we have considered necessary in order to confirm that the annual report and accounts do not contain material errors or misstatements. We have examined on a sample basis the evidence supporting the accounting items and assessed the accounting principles applied, the estimates made by management and the overall financial statements' content and presentation. To the extent it is required by generally accepted auditing standards we have reviewed the company's management routines and internal control. The Board's proposed disposition of the net profit and equity transfers is in accordance with the requirements of the Joint Stock Companies' Act. In our opinion the financial statements are prepared in accordance with the Joint Stock Companies' Act and present fairly the financial position of the company and the group pr. December 31, 1995 and the result of the operations in the accounting year in compliance with generally accepted accounting principles. Oslo, 1. April 1996 COOPERS & LYBRAND ANS /s/ Jorgen O. Kjorsvik - ---------------------- Jorgen O. Kjorsvik Statsautorisert revisor (State Authorized Public Accountant) 5 6 DIRECTORS REPORT 1995 Anchor Drilling Fluids (Anchor) has throughout 1995 maintained its position as one of the leading service companies within the petroleum industry. Staying close to the core business has allowed the necessary focus on research and development with respect to technical performance and environmental considerations. To safeguard and simplify the total operation of the company, Anchor has reviewed its internal procedures and certified its operation in accordance to the ISO - 9001 quality assurance standard. SALES AND CONTRIBUTION As a consequence of the re-structuring of the group, turnover and contribution have been reduced from NOK 974.4 mill in 1994 to NOK 908.2 mill in 1995. Profit margins have been maintained at approximately 1994 levels, but a larger proportion of the contribution has been spent on new area development. Total profit for the year is NOK 33.6 mill compared to NOK 90.7 mill in 1994. COST EFFICIENCIES AND ENVIRONMENTAL CONSIDERATIONS Customer focus on reduced drilling cost has continued in 1995 within the frame work of environmental considerations. Governmental bodies world wide have focused on the possible negative impact of drilling fluids discharged to the marine environment and issued directives to minimize this potential. Anchor welcomes this development as this coincides with Anchor's objectives to produce novel technology from non-toxic and biodegradable components. In line with targeting Anchor as the "green-alternative", extensive testing has been performed to replace existing components with more environmental products on a continued basis. OPERATIONS Anchor is continuing its integration with its customers in all geographical areas. Novel technology has been applied in both Vietnam and Malaysia, securing and maintaining a high market share in South East Asia. The Vietnamese company has concluded its 50th well and supplied drilling fluids and engineering services to a higher temperature well (203 Degrees C) with good results. During the second half of 1995, Anchor was awarded contracts in Bangladesh and Thailand has throughout 1995 worked for more than 20 different operating companies. The board has not been satisfied with the results in the United States and Anchor has reorganized its activities. Alternative solutions will be used to monitor progress and evaluated in the near future. In Canada, the specialized novel Glycol system for onshore wells. Anco 4000 has passed environmental regulations and proved successful under field conditions. 6 7 Anchor's operations in the North Sea have been affected by reduced drilling activity in the Norwegian Sector. In Norway, Anchor serviced all exploration wells drilled and has been the preferred alternative for high temperature/pressure wells. In the UK market, Anchor has conducted several successful operations on complex wells using novel drilling fluid technology. The company has also serviced offshore wells from Holland using their base facilities in Great Yarmouth. During the latter part of the year, Anchor established a separate fully integrated drilling fluid company in Nigeria. TECHNICAL ACHIEVEMENTS Anchor has throughout the year concentrated its efforts within the research and development part of the company. Along with the company's long term objectives, selected vendors have been invited to participate in long term research and development projects to identify promising and specialized chemicals for novel drilling fluids. The capacity at the head office at Forus has been increased to encompass the anticipated future increased emphasis on environmental considerations. The continuous focus on improved efficiency has lead to the development of a Linear Alpha Olefin (LAO) based synthetic drilling fluid Anco Tec. This system aims at the European market, whereas an isometized Olefin (IAO) has been developed for the U.S. market. WORKING ENVIRONMENT Anchor has continued its close cooperation with established trade unions to safeguard completion of complex projects without industrial disputes. Anchor can once again review a satisfactory year with respect to health and safety. The absenteeism has been maintained below the targeted 2% and no accidents or near misses have been recorded. Attention has also been paid to the working environment for the offshore workers. Anchor's new oil based drilling fluid, Ancovert, has been developed with the specific objective reducing negative impact on human beings. Field tests confirmed the anticipated results and were well received by drilling contractor employees. ORGANIZATION AND ALLOCATION OF PROFITS In total, the Anchor Group employs 474 people. Remuneration to the President, auditors and directors are listed as notes in the Annual Report of the parent company, Anchor Drilling Fluids A/S. From the total turnover of NOK 908.2 mill, the net result before tax was NOK 33.6 mill for the Group. For the holding company, the turnover was NOK 411.4 mill, generating a profit before tax of NOK 20.0 mill. The board of directors recommend the profit of the holding company, Anchor Drilling fluids A/S to be distributed as follows: (NOK 1,000). 7 8 Profit for the year 18,664 Group contribution (28,988) Transferred from reallocation fund 5,757 At disposal (4,567) Recommended disposed as follows: To legal reserve 1,866 From retained earnings (6,433) Total disposed (4,567)
Finally, the board of directors would like to express their thanks to all employees for their dedicated and loyal efforts throughout 1995 and look forward to a continuation of the cooperation in the years to come. Stavanger, 22.03.1996 /s/ REIDAR LUND /s/ JAN ERIK TVETERAAS /s/ BENGT HAVNEGJERDE - ---------------------- ---------------------- ---------------------- Reidar Lund Jan Erik Tveteraas Bengt Havnegjerde Chairman Board member Employee elected board member /s/ LEON TVEIT /s/ STEINAR OLSEN - ---------------------- ---------------------- Leon Tveit Steinar Olsen Employee elected President board member
8 9 ANCHOR DRILLING FLUIDS, A.S. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------ NOTE 1995 1994 -------- ----------- ---------- (NOK in thousands) TURNOVER 908,159 974,385 Costs of goods (553,385) (584,216) Salaries and personnel expenses (158,262) (153,309) Other operating expenses 1 (122,882) (113,518) Depreciation 10 (32,409) (24,042) ----------- -------- TOTAL OPERATING EXPENSES (866,938) (875,085) ----------- -------- OPERATING PROFIT 41,221 99,301 Interest income 2 8,005 7,434 Interest expense 2 (16,119) (15,015) Other financial expenses 2 (1,557) (4,318) Earnings from partnerships 2,097 3,336 NET FINANCIAL ITEMS (7,574) (8,562) ----------- -------- PROFIT BEFORE TAX 33,647 90,738 Taxes payable 3,4 (7,528) (5,573) Deferred tax 4 (1,191) (1,338) ----------- -------- PROFIT BEFORE MINORITY INTEREST 24,928 83,827 Minority interest 14 (1,543) (1,902) ----------- -------- NET INCOME 23,385 81,925 =========== ========
9 10 ANCHOR DRILLING FLUIDS, A.S. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------ ASSETS NOTE 1995 1994 --------- --------- (NOK in thousands) CURRENT ASSETS: --------------- Cash and bank deposits 6 39,663 17,038 Receivables 7 232,821 198,969 Inventory 8 135,448 150,596 ------- ------- TOTAL CURRENT ASSETS 407,932 366,603 ------- ------- NON CURRENT ASSETS: ------------------- Long term receivables 5,590 5,727 Shares 9 369 369 Partnership holdings 9 7,899 7,358 Fixed assets 10 106,174 112,267 ------- ------- TOTAL NON CURRENT ASSETS 120,032 125,721 ------- ------- TOTAL ASSETS 527,964 492,324 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities 11 222,427 179,085 LONG TERM LIABILITIES: Long term liabilities 12 58,321 65,995 Deferred tax 4 5,668 4,473 Subordinated loan 13 216,044 171,451 ------- ------- TOTAL LONG TERM LIABILITIES 280,032 241,919 ------- ------- Minority interest 14 14,049 13,546 SHAREHOLDERS' EQUITY: Share capital (16,612 shares @ NOK 1.0) 16,612 16,612 Other equity 15 (5,156) 41,162 ------- ------- TOTAL SHAREHOLDERS' EQUITY 11,456 57,774 ------- ------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 527,964 492,324 ======= ======= Mortgages and guarantees 16 273,609 277,033
/s/ JAN ERIK TVETERAAS /s/ REIDAR LUND /s/ STEINAR OLSEN - ------------------------- ---------------------- ----------------------- Jan Erik Tveteraas Reidar Lund Steinar Olsen Chairman President /s/ BENGT HAVNEGJERDET /s/ LEON TVEIT - ------------------------- ----------------------- Bengt Havnegjerdet Leon Tveit 10 11 ANCHOR DRILLING FLUIDS, A.S. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: (NOK in thousands) Profit before tax 33,647 90,738 Gain on sale of fixed assets 1,523 214 Depreciation 32,409 24,042 Taxes (7,528) (5,573) Deferred tax (1,191) (1,338) Payable group contribution (17,621) (25,932) Minority interest (1,543) (1,902) ------- ------- GROSS CASH PROVIDED BY OPERATING ACTIVITIES 39,696 80,249 ------- ------- Change in current assets, except cash (18,704) 7,301 Change in current liabilities 43,342 (23,299) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 64,334 64,251 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Investment in fixed assets (net) (27,839) (30,311) Change in long term receivables (404) 2,759 ------- ------- NET CASH USED IN INVESTING ACTIVITIES (28,243) (27,552) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Change in long term liabilities (7,197) (42,897) Change in minority interest 503 1,396 Change in equity (6,772) (8,977) ------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (13,466) (50,478) ------- -------- NET INCREASE (DECREASE) IN CASH DURING THE YEAR 22,625 (13,779) CASH AT THE BEGINNING OF THE YEAR 17,038 30,817 ------- ------- CASH AT THE END OF THE YEAR 39,663 17,038 ======= =======
11 12 ANCHOR DRILLING FLUIDS, A.S. COMMENTS TO THE ACCOUNTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF INCOME AND EXPENSES The annual accounts have been compiled using the historic cost principle. Income is recognized when goods are delivered and services when performed. Expenses are recognized when they are incurred. CLASSIFICATION OF BALANCE SHEET ITEMS Receivables and debts are classified as current assets/current liabilities if they fall due within one year following the balance sheet date. First year installments on long term loans are included in current liabilities. Other assets are classified as fixed assets and other liabilities as long term liabilities. CONSOLIDATED ACCOUNTING PRINCIPLES Companies, in which Anchor Drilling Fluids owns more than 50% of the shares and has a controlling interest, have been included as subsidiaries in the consolidated accounts. The consolidated accounts show the Group's financial position and result after all intra-group transactions and balances have been eliminated. Companies in which Anchor Drilling Fluids owns less than 50% of the shares have been included in the consolidated accounts if Anchor, through agreements, exercises full control or has a significant influence on all financial and operational decisions, including the distribution of profits and dividends. When consolidating foreign companies, the income statement is translated to NOK using the average exchange rate for the year, while the balance sheet is translated using the exchange rate valid on the balance sheet date. The resulting exchange rate difference on the translation is offset directly against the Group's equity. Affiliated companies are included in the consolidated accounts using the net equity method. Affiliated companies (20 - 50% owned) are those companies in which Anchor Drilling Fluids has a significant and strategic, but not controlling interest. In accordance with the accounting principles of this method, Anchor's part of profit after tax is included as other financial income in the income statement. The interest in the respective company is included in the consolidated balance sheet at cost price, adjusted for Anchor's share of changes in the respective company's equity since the acquisition. 12 13 ANCHOR DRILLING FLUIDS, A.S. COMMENTS TO THE ACCOUNTS ASSETS AND LIABILITIES IN FOREIGN CURRENCY Current assets and liabilities in foreign currency are translated to NOK using the exchange rate valid at the balance sheet date. Long term receivables in foreign currency are translated at the lower of the exchange rate on the balance sheet date and the historical rate. Long term liabilities in foreign currency are translated using the higher of the exchange rate on the balance sheet date and the historical rate. Unrealized losses are charged as expense, except when unrealized losses can be netted against unrealized profits in the same currency. LEASING The Group differentiates between operational and financial leasing. Agreements that transfer the majority of commitments and benefits connected to the ownership of an asset to the lessee have been classified as financial leases. Assets acquired through financial leasing have been included in fixed assets classified as leased assets and are depreciated over the remaining useful lifetime of the asset. The remaining lease commitments under the contract have been posted as current or long term liabilities in accordance with general classification principles. Leasing agreements that do not meet the above criteria have been classified as operational leases and the lease payments as ordinary operating expenses. ACCOUNTS RECEIVABLE AND INVENTORY Accounts receivable are derived from normal business activities and are stated at book value less provision for bad debts where appropriate. Inventory represents goods held for resale and is stated at the lower of cost or estimated net realizable value. Cost is arrived at on the first-in first-out basis. Provision is made for obsolete or slow moving items where appropriate. Provision has also been made for the environmentally safe destruction of unsalable products where appropriate. FIXED ASSETS AND DEPRECIATION Property, plant, machinery and equipment are stated in the balance sheet at historical cost less accumulated depreciation. Depreciation is calculated on a straight line basis based on an assessment of the remaining useful life of the asset. The depreciation rates are shown in Note 11. The difference between the book value and the tax related value is treated as a temporary timing difference. 13 14 ANCHOR DRILLING FLUIDS, A.S. COMMENTS TO THE ACCOUNTS GOODWILL The difference between the purchase price and net book equity of a company at the time of purchase is classified as excess value. Goodwill represents the portion of the above excess value that could not be allocated to specific assets at the time of purchase. Goodwill is depreciated on a straight line basis in accordance with Norwegian GAAP and based on an assessment of the expected lifetime of the goodwill. DEFERRED TAX Deferred tax is incurred through the Group's activity in the accounting year, but will not become payable until later periods. Deferred tax has been computed based on current prevailing tax rates and temporary differences between values for accounting and tax purpose, and is shown as long term debt in the balance sheet. Such tax liabilities that may fall due after a substantial period of time has not been discounted. The tax expense in the income statement consists of two components. Change in deferred tax liabilities during the year, and taxes payable on the accounting year's taxable profits. Goodwill is shown net of deferred tax. In the consolidated accounts, net tax assets of group companies are set off against other companies' tax liabilities where this is in accordance with local tax regulations. EMPLOYEE PENSION RETIREMENT PLANS Anchor has adopted the recommendations for treatment of accrued pensions under Norwegian GAAP for the Group accounts with effect 1st of January 1994. (The new accounting standard closely resembles USGAAP, FAS87.) Contribution is made in accordance with the individual level premium actuarial cost method for employees with defined benefit retirement plans, based on years of service and estimated final salary level. The Norwegian Group companies have defined benefit plans while the international subsidiaries and affiliates have defined contribution plans under local laws and regulations. This year's pension cost is included as cost in "salary and personnel expenses" in the income statement. Plans with accumulated benefit obligations less than plan assets are shown as long term assets in the balance sheet, while plans with obligations exceeding plan assets are treated as long term liabilities. When calculating the plan assets and the 14 15 ANCHOR DRILLING FLUIDS, A.S. COMMENTS TO THE ACCOUNTS pension obligations, estimated amounts based on the actuarial calculation and the market value of the plan assets have been used. The accrued pension rights of the Group's Norwegian employees are secured through a collective insurance scheme arranged with an insurance company. Employees in the Group's foreign subsidiaries are covered locally by various defined contribution plans. 15 16 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) 1. OTHER OPERATING EXPENSES Included in other operating expenses is office rental for the Groups headquarters in Norway held under an operational lease contract. The contract expires in 2011 but with an option for Anchor to exit the agreement every 5 years. The annual rental amount is in USD and total approximately NOK 1,310. 2. FINANCIAL ITEMS The financial income consists of interest income on the Group's deposits and placement. Financial expenses consist primarily of interest expenses on loans in NOK and USD. Other financial expenses includes both realized gain/loss on currency and unrealized losses on currency. 3. TAXES Income taxes have been provided on taxable profits in subsidiaries at current rates. Deferred taxation is provided at the tax rate expected to apply to differences arising from the inclusion of income and expenditures in tax computations in periods different from those in which they are included in the accounts. The tax liabilities of the Norwegian entities of the Group have been reduced wholly or in part by the surrender of group contribution to the parent company, Transocean AS. Provision has not been made for withholding taxes which would be payable if retained profits of overseas subsidiaries were remitted to Norway. Withholding tax has been provided for where applicable on interest, dividends and fees charged between group companies. 4. DEFERRED TAX In accordance with the Norwegian standard for tax accounting, deferred tax assets and liabilities resulting from temporary differences that may be reversed within the same period of time are shown net. Any net tax benefit will however not be included as an asset. In the consolidated statements the Groups net tax assets have been set off against tax liabilities in other group companies, where tax regulations make this possible. Such regulations for instance include Norwegian group contributions. 16 17 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) In accordance with current regulations, no deferred tax has been computed on retained earnings elements from the Groups subsidiaries. Below is a specification of temporary differences for the Group. Negative amounts represent future tax benefit reserves.
DECEMBER 31, --------------------- TEMPORARY DIFFERENCES RELATED TO: 1995 1994 ----- ---- Inventory 595 595 Other current assets 305 305 Other current items - 6 - 6 Fixed assets 243 - 30 Unrealized currency exchange gain/loss - 188 - 188 Other items 9,830 7,070 ------ ----- TOTAL RESERVE 10,779 7,746 ------ ----- TOTAL DEFERRED TAX ON ABOVE DIFFERENCES 5,668 4,473 ====== ======
The split of the tax expense for the Group is shown below. The payable taxes in Norway have been eliminated through the surrender of group contribution to the Group's ultimate parent company, Transocean AS. Current tax reported for Norway represent foreign withholding tax on fees and interest received.
DECEMBER 31, ---------------------- ------- ------ CURRENT TAX EXPENSE: 1995 1994 Norway 1,330 536 Foreign group companies 6,198 5,037 ----- ----- TOTAL TAXES PAYABLE 7,528 5,573 ----- -----
17 18 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) DEFERRED TAX EXPENSE: Norway 0 0 Foreign group companies 1,191 1,338 ----- ----- TOTAL DEFERRED TAX EXPENSE 1,191 1,338 ----- ----- TOTAL TAX EXPENSE 8,719 6,911 ===== =====
5. GROUP CONTRIBUTION The taxable profit in the Norwegian entities of the Group has been surrendered to the ultimate parent company Transocean AS as group contribution. The payable portion of the group contribution has been included under short term liabilities in the balance sheet. The remainder is included as a subordinate loan. 6. CASH AND BANK DEPOSITS Included in cash and bank deposits is NOK 5,585 in restricted/locked-up funds for the payment of personnel income tax and other taxes for the period up to the balance sheet date. 7. RECEIVABLES
DECEMBER 31, ---------------------------------- 1995 1994 ------- ------- Gross trade receivables 204,662 158,356 Other receivables 28,159 40,614 ------- ------- TOTAL RECEIVABLES 232,821 198,970 ======= =======
8. INVENTORY
DECEMBER 31, --------------------------------- 1995 1994 ------- -------- Raw materials 13,872 14,173 Finished goods/goods held for resale 121,576 136,423 ------- ------- TOTAL INVENTORY 135,448 150,596 ======= =======
18 19 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) 9. SHARES
Share Number Value in Name of company Curr capital Percentage of issued Par bal. Sheet (1.000) owned shares value of parent co. - ------------------------------------------------------------------------------------------------------------------- Shares in Subsidiaries ------------------------------------------- Sun-Tek A/S NOK 51 100% 51 1,000 428 Norbar Minerals A/S NOK 16,000 100% 16,000 1,000 16,000 Anchor Drilling Fluids Aps DK DKK 80 100% 80,000 1 558 Anchor Drilling Fluids Ltd UK GBP 1,363 100% 325,000 4 4,344 PT Mudcoindo Pratama Indonesia RPI 200,000 0% 0 BW Promud Sdn Bhd Malaysia MYR 200 40% 200,000 1 11,114 Anchor Drilling Fluids Inc USA USD 1,751 100% 2,006,958 1 41,243 Anchor Drilling Fluids Inc Canada CAD 200 100% 200,000 1 19,560 Anchor Drilling Fluids Hong Kong USD 1 100% 2 705 8 Anchor Nigeria USD 61 100% 1 61 381 ------ Total shares in subsidiaries 93,636 ====== Shares in affiliated companies ------------------------------------------- Anchor Italia ITL 20,000 99% 100 200,000 350 Other 19 ------ Total shares in affiliated companies 369 Holdings in Partnerships and Joint Ventures ------------------------------------------- Anchor Vietnam USD 800 50% 400 3,043 Accumulated share of result in affiliated companies 4,856 ------ Booked value 7,899 ======
All shares in subsidiaries have been eliminated and other companies have been included in the consolidated accounts in accordance with Norwegian GAAP and applicable accounting standards. 19 20 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) 10. FIXED ASSETS
MACHINERY AND EQUIPMENT BUILDINGS SITE GOODWILL TOTAL - ------------------------------------------------------------------------------------------------------------------ Cost at January 1, 1995 157,572 75,684 2,836 45,724 281,816 Currency transl. at January 1, 1995 (2,931) (1,160) (55) (29) (4,175) Additions in 1995 36,675 8,719 0 0 45,394 Disposals (11,763) (10,352) (794) 0 (22,909) COST AT DECEMBER 31, 1995 179,553 72,891 1,987 45,695 300,126 Acc. deprec. at December 31, 1995 (121,112) (40,284) 0 (40,562) (201,958) Currency transl. acc. depr. 2,331 (509) 55 (17) 1,860 Acc. depr. disposals 5,435 711 6,146 BOOK VALUE AT DECEMBER 31, 1995 66,207 32,809 2,042 5,116 106,174 Depr. for the year 17,059 3,083 12,268 32,410 Depr. percentage used 10-25% 5% 0% 10-20%
The Group differentiates between operational and financial leasing. Assets covered by financial leasing agreements constitute an insignificant share of the total assets in the Group. Goodwill represents the difference between the purchase price and the net book equity of the subsidiaries at the time of purchase. 20 21 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) INVESTMENT/DISPOSALS OF FIXED ASSETS
Machinery & Equipment Buildings Site Goodwill --------------------- ---------------------- ---------------------- ---------------------- INVESTMENT DISPOSAL INVESTMENT DISPOSAL INVESTMENT DISPOSAL INVESTMENT DISPOSAL 1995 36,675 11,763 8,719 10,352 0 794 0 0 1994 28,671 3,607 4,454 0 1,845 1993 23,948 3,283 2,939 936 6 1992 48,253 4,105 18,753 172 2,976 1991 31,014 9,276 1,134 4,738 513 1,003 27,782
11. CURRENT LIABILITIES
DECEMBER 31, ---------------------------- 1995 1994 ------- -------- Trade payable 111,214 104,827 Overdraft facility 41,671 31,438 Current taxes 7,451 3,793 Employee taxes, Holiday allowance, etc. 7,059 8,530 Other current liabilities 55,032 30,496 ------- ------- CURRENT LIABILITIES 222,427 179,085 ======= =======
Included in Other current liabilities is NOK 17,621 representing this years payable portion of group contribution. 12. LONG TERM LIABILITIES
DECEMBER 31, ---------------------------- 1995 1994 ------- -------- Loan in NOK 1,967 2,000 Loan in USD 50,552 54,080 Loan in other currencies 0 5,148 Net pension liabilities 5,802 4,767 ------ ------ LONG TERM LIABILITIES 58,321 65,995 ====== ======
21 22 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) The loan agreement Anchor has entered into with Den norske Bank contains various covenants relating to the profitability and balance sheet of the Group. At year end, the Group was within the set targets. NET PENSION LIABILITIES (EMPLOYEE PENSION RETIREMENT PLANS) The defined benefit plans are administrated by independent insurance companies. Within the Group there are four different arrangements for defined benefit plans, covering individual plans for 92 employees as of December 31, 1995. The last external actuarial calculation was made in December 1995. NET PERIODIC PENSION COST FOR DEFINED BENEFIT PLAN ARRANGEMENTS
YEAR ENDED DECEMBER 31, ----------------------- 1995 1994 ------ ------ Benefit earned during the year including social security tax (2,922) (2,039) Interest on prior period benefit obligation (808) (840) Estimated (earnings) loss on plan assets 713 713 Amortized (profit) loss on estimates (49) 0 ------- ------- NET PENSION COST (3,066) (2,166) ======= =======
22 23 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) STATUS OF DEFINED BENEFIT PLANS RECONCILED TO THE BALANCE SHEET ABO=Accumulated benefit obligations
PLAN ASSETS EXCEED ABO ABO EXCEEDS PLAN ASSETS ---------------------- ----------------------- 12/31/95 1/1/95 12/31/95 1/1/95 Accumulated benefit obligations (ABO) (887) (1,071) (15,752) (13,781) Plan assets at estimated fair value 552 1,454 11,027 9,610 Social security tax on accrued pension liability (527) (596) NET PENSION (OBLIGATIONS) ASSETS (335) 383 (5,252) (4,767) Amortized (profit) loss on estim. 785 (550) Accum. estimation (profit) loss (49) TOTAL PREPAID PENSION (ACCRUED PENSION LIABILITY) ON BALANCE SH. 401 383 (5,802) (4,767) Assumptions in determination of projected accumulated benefit obligations Discount rate 7% 6% 7% 6% Assumed rate of return plan assets 8% 7% 8% 7% Assumed salary increase 3,5% 3% 3,5% 3% Assumed pension increase 3% 3% 3% 3% Assumed turnover 2% 2% 2% 2%
13. SUBORDINATED LOAN The Group has subordinated loans totaling NOK 216,044 composed of the non-payable portion of group contributions and a small loan from SND. 14. MINORITY INTEREST Minority interest relates to Comabar and is composed as follows: Value at January 1, 1995 13,546 Minority interest in profit after tax on ordinary activity 1,543 Exchange adjustment (1,040) ------ VALUE AT DECEMBER 31, 1995 14,049 ======
23 24 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) 15. EQUITY
SHARE OTHER TOTAL CAPITAL EQUITY EQUITY ------- ------ ------ Shareholders' equity at January 1, 1995 16,612 41,162 57,774 Net income 1995 23,385 23,385 Group contribution (62,931) (62,931) Currency translation differences (6,772) (6,772) -------- -------- SHAREHOLDERS' EQUITY AT DECEMBER 31, 1995 16,612 (5,156) 11,456 ====== ======== ========
16. OFF BALANCE SHEET ITEMS Anchor has provided guarantees totaling NOK 4,472. All the guarantees have been provided by the parent company. As security for the Groups long term loans, the Parent Company has mortgaged trade receivables and inventory for all the Norwegian and the US entities. In addition, selected machinery and equipment and an office building in the UK has been mortgaged. At year end, these assets had a total book value of NOK 269,137. 24 25 ANCHOR DRILLING FLUIDS, A.S. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1996 1995 --------- --------- NOK in thousands) Revenue 245,938 188,049 Costs of revenue (161,998) (110,752) Salaries and personnel expenses (39,246) (33,358) Other operating expenses (30,836) (26,210) Depreciation (5,333) (6,377) --------- --------- Total operating expenses (237,414) (176,697) --------- --------- OPERATING INCOME 8,524 11,352 Interest income 2,967 1,703 Interest expense (3,895) (3,715) Other financial expenses 1,002 (2,289) Earnings from partnerships 207 98 --------- --------- NET FINANCIAL ITEMS 281 (4,203) --------- --------- INCOME BEFORE TAXES AND MINORITY INTEREST 8,805 7,149 Current taxes (1,044) (4,070) --------- --------- INCOME BEFORE MINORITY INTEREST 7,761 3,079 Minority interest (7,278) (423) --------- --------- NET INCOME 782 2,656 ========= =========
25 26 ANCHOR DRILLING FLUIDS, A.S. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, ASSETS 1996 1995 --------- ------------ (NOK in thousands) CURRENT ASSETS: - --------------- Cash and bank deposits 30,853 39,663 Receivables 243,672 232,821 Inventory 144,185 135,448 -------- -------- TOTAL CURRENT ASSETS 418,710 407,932 -------- -------- NON CURRENT ASSETS: - ------------------- Long term receivables 6,818 5,590 Shares 354 369 Partnership holdings 7,846 7,899 Fixed assets 107,820 106,174 -------- -------- TOTAL NON CURRENT ASSETS 122,838 120,032 -------- -------- TOTAL ASSETS 541,548 527,964 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities 231,258 222,427 LONG TERM LIABILITIES: - ---------------------- Long term liabilities 61,362 58,321 Deferred tax 5,576 5,668 Subordinated loan 216,044 216,044 -------- -------- TOTAL LONG TERM LIABILITIES 282,983 280,032 -------- -------- Minority interest 14,532 14,049 SHAREHOLDERS' EQUITY: - ---------------------- Share capital (16,612 shares @ NOK 1.0) 16,612 16,612 Other equity (3,836) (5,156) -------- -------- TOTAL SHAREHOLDERS' EQUITY 12,776 11,456 -------- -------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 541,548 527,964 ======== ========
26 27 ANCHOR DRILLING FLUIDS, A.S. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1995 ------ ------ (NOK in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Income before tax 8,805 7,149 Depreciation 5,333 6,377 Taxes and group contribution (1,044) (4,070) Minority interest (483) (423) ------- ------- GROSS CASH PROVIDED BY OPERATING ACTIVITIES 12,611 9,033 Change in current assets, except cash (19,588) 29,686 Change in current liabilities 8,831 (21,411) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES (1,854) 17,309 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Investment in fixed assets (net) (6,979) (4,850) Change in long term receivables (1,160) (2,217) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (8,139) (7,067) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Change in long term liabilities 2,951 (6,391) Change in minority interest 483 423 Change in equity (5,959) (5,924) ------- ------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,525) (11,892) ------- ------- NET INCREASE (DECREASE) IN CASH DURING THE YEAR (8,810) (1,650) CASH AT THE BEGINNING OF THE YEAR 39,663 17,038 ------- ------- CASH AT THE END OF THE YEAR 30,853 15,388 ======= =======
27 28 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) 1. GENERAL COMMENT The consolidated financial statements for the three months ended March 31, 1996 and 1995 included herein are unaudited. Reference is hereby made to the Comments to the Accounts contained in the financial statements included in the Anchor Drilling Fluids AS annual report for the year ended December 31, 1995. The unaudited financial statements have been prepared using the same accounting principles and there are no significant changes in the content of these notes except as discussed below. 2. INVENTORY
MARCH 31, 1996 -------------- Raw materials 13,196 Finished goods/goods held for resale 130,989 ------- TOTAL INVENTORY 144,185 =======
3. CURRENT LIABILITIES
MARCH 31, 1996 -------------- Trade payable 84,949 Overdraft facility 64,215 Current taxes 6,572 Employee taxes, Holiday allowance, etc. 7,830 Other current liabilities 67,692 ------- CURRENT LIABILITIES 231,258 =======
Included in Other current liabilities is NOK 27,050 representing accrued payable group contribution. 28 29 ANCHOR DRILLING FLUIDS, A.S. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN NOK 000 UNLESS OTHERWISE SPECIFIED) 4. LONG TERM LIABILITIES
MARCH 31, 1996 -------------- Loan in NOK 1,719 Loan in USD 51,552 Other long term liabilities 1,635 Net pension liabilities 6,456 ------ LONG TERM LIABILITIES 61,362 ======
The loan agreement Anchor has entered into with Den norske Bank contains various covenants relating to the profitability and balance sheet of the Group. At the Balance Sheet Date, the Group was within the set targets. 5. EQUITY
SHARE OTHER TOTAL CAPITAL EQUITY EQUITY ------- ------ ------ Shareholders' equity at January 1, 1996 16,612 (5,156) 11,456 Net income 1 quarter 1996 7,278 7,278 Group contribution (6,496) (6,496) Currency translation differences 538 538 ------ ------- ------ SHAREHOLDERS' EQUITY AT MARCH 31, 1996 16,612 (3,836) 12,776 ====== ======= ======
29 30 PROF FORMA CONDENSED FINANCIAL STATEMENTS The following Pro Forma Condensed Balance Sheet as of March 31, 1996 and the Pro Forma Condensed Statements of Operations for the year ended December 31, 1995 and the three months ended March 31, 1996 have been prepared to give effect to the acquisition of Anchor Drilling Fluids, A.S. ("Anchor"). On June 11, 1996, M-I Drilling Fluids L.L.C. ("M-I Drilling Fluids"), a majority owned subsidiary of Smith International, Inc. (the "Registrant"), acquired the assets of Anchor, a Norwegian company. The assets were acquired in exchange for cash and the assumption of certain liabilities totaling $114.7 million in a transaction accounted for as a purchase. The accompanying Pro Forma Condensed Balance Sheet and Statements of Operations assume the transaction occurred on March 31, 1996 and January 1, 1995, respectively. The Pro Forma information is based upon the historical financial statements, giving effect to the acquisition under the purchase method of accounting and the assumptions included in the accompanying notes to Pro Forma Condensed Financial Statements. In connection with finalizing the transaction, M-I Drilling Fluids reached an agreement with the U.S. Department of Justice to modify a 1994 judgment issued by the U.S. District Court for the District of Columbia. M-I Drilling Fluids agreed to hold the acquired assets of Anchor Drilling Fluids USA, Inc. ("Anchor USA") separate until a sale of those assets can be made to an acceptable purchaser. These pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional depreciation expense as a result of a step-up in the basis of property, plant and equipment, additional amortization expense as a result of goodwill and other intangible assets and increased interest expense on the acquisition-related debt. The pro forma results do not include estimated consolidation savings; therefore, they do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on January 1, 1995 or of future results of operations for the consolidated entities. The pro forma financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto of the Registrant in the Registrant's 1995 Annual Report on Form 10-K. 30 31 SMITH INTERNATIONAL, INC. PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN U.S. DOLLAR THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED ----------------------------------------------------------------- HISTORICAL PRO FORMA ------------------------- ------------------------------- SMITH ANCHOR ADJUSTMENTS COMBINED -------- ---------- ----------- ---------- Revenues $874,544 $143,492 $(36,043)(f) $981,993 -------- -------- -------- -------- Costs and expenses: Costs of revenues 582,004 87,436 (20,846)(f) 648,594 Selling expenses 158,300 25,252 (9,166)(f) 174,526 140 (b) General and administrative 47,992 24,206 (9,200)(f) 65,214 expenses 1,940 (a) 276 (b) ------- ------- -------- -------- Total costs and expenses 788,296 136,894 (36,856) 888,334 Income from continuing operations before interest and taxes 86,248 6,598 813 93,659 Interest expense, net 12,238 1,282 3,467 (c) 16,987 ------- -------- -------- -------- Income from continuing operations before income taxes and minority interests 74,010 5,316 (2,654) 76,672 Income tax provision 12,609 1,377 (743)(d) 13,243 ------- -------- -------- -------- Income from continuing operations before minority interests 61,401 3,939 (1,911) 63,429 Minority interests 15,809 244 1,890 (e) 17,943 -------- -------- -------- -------- Net Income $ 45,592 $ 3,695 $ (3,801) $ 45,486 ======== ======== ======== ======== Average common and common equivalent shares outstanding 39,383 39,383 ======== ======== Earnings per share operations per common share $ 1.16 $ 1.16 ======== ========
See accompanying unaudited notes to pro forma financial statements. 31 32 SMITH INTERNATIONAL, INC. PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (IN U.S. DOLLAR THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED ------------------------------------------------------------------ HISTORICAL PRO FORMA --------------------------- ------------------------------- SMITH ANCHOR (j) ADJUSTMENTS COMBINED -------- ---------- ----------- ---------- Revenues $238,820 $38,165 (6,900)(f) $270,085 -------- ------- ------- -------- Costs and expenses: Costs of revenues 157,911 23,791 (4,419)(f) 177,283 Selling expenses 41,826 4,241 (2,106)(f) 43,996 35 (b) General and administrative 14,033 8,623 (2,316)(f) 20,894 expenses 485 (a) 69 (b) -------- ------- ------- -------- Total costs and expenses 213,770 36,655 (8,252) 242,173 -------- ------- ------- -------- Income from continuing operations before interest and taxes 25,050 1,510 1,352 27,912 Interest expense, net 3,039 144 867 (c) 4,050 -------- ------- ------- -------- Income from continuing operations before income taxes and minority interests 22,011 1,366 485 23,862 Income tax provision 5,015 162 136 (d) 5,313 -------- ------- ------- -------- Income (loss) from continuing operations before minority interests 16,996 1,204 349 18,549 Minority interests 4,048 75 438 4,561 -------- ------- ------- -------- Net income $ 12,948 $ 1,129 $ (89) $ 13,988 ======== ======= ======= ======== Average common and equivalent shares outstanding 39,719 39,719 ======== ======== Earnings per share $ 0.33 $ 0.35 ======== ========
See accompanying notes to pro forma financial statements. 32 33 SMITH INTERNATIONAL, INC. PRO FORMA CONDENSED BALANCE SHEET AS OF MARCH 31, 1996 (DOLLARS IN THOUSANDS)
UNAUDITED ------------------------------------------------------ HISTORICAL PRO FORMA --------------------- -------------------------- SMITH ANCHOR ADJUSTMENTS COMBINED ------- -------- ----------- -------- ASSETS Current Assets: Cash and cash equivalents $ 13,314 $ 4,811 $ (813)(a) $ 17,312 Receivables 237,229 37,457 (7,721)(a) 266,965 Inventories, net 234,390 22,483 (5,935)(a) 251,270 332 (b) Deferred tax assets, net 3,925 - 3,925 Prepaid expenses and other 17,721 540 (235)(a) 18,026 Assets held for sale - - 14,327 (a) 14,327 -------- -------- -------- -------- Total Current Assets 506,579 65,291 (45) 571,825 -------- -------- -------- -------- PROPERTY, PLANT AND EQUIPMENT, net 139,508 16,068 (2,091)(a) 155,480 1,995 (b) OTHER ASSETS 41,515 2,342 (1,000)(h) 43,357 500 (d) Goodwill, net 43,977 744 76,857 (c) 121,578 -------- -------- -------- -------- TOTAL ASSETS $731,579 $84,445 $76,216 $892,240 ======== ======= ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 73,300 $18,988 $ (2,154)(a) $ 90,134 Short-term borrowings and current portion of 15,768 10,613 (314)(a) 28,601 long-term debt 2,534 (e) Accrued payroll costs 27,972 1,216 29,188 Income taxes payable 13,701 2,038 15,739 Other 48,901 3,205 6,936 (h) 59,042 -------- -------- -------- -------- Total current liabilities 179,642 36,060 7,002 222,704 -------- -------- -------- -------- Long-Term Debt 132,701 - 63,612 (e) 196,313 Other Long-Term Liabilities 16,232 10,438 26,670 Minority Interests 87,714 2,266 41,283 (f) 131,263 Shareholders' Equity 315,290 35,681 (35,681)(g) 315,290 -------- -------- -------- -------- Total Liabilities and Shareholders' Equity $731,579 $84,445 $ 76,216 $892,240 ======== ======= ======== ========
See accompanying unaudited notes to pro forma financial statements. 33 34 SMITH INTERNATIONAL, INC. NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (IN U.S. DOLLAR THOUSANDS) STATEMENT OF OPERATIONS - (a) To record goodwill amortization resulting from the Anchor purchase over expected life of 40 years. (b) To record depreciation expense on the step-up of Anchor property and equipment from book value to estimated fair value and the amortization of the covenant-not-to compete. The property and equipment and covenant will be depreciated over the average estimated remaining useful life of eight and three years, respectively. (c) To record interest expense on the net increase in acquisition-related debt assuming no principal reduction. (d) To record a reduction in income tax expense at the Norwegian statutory rate for the impact of the Pro Forma adjustments. (e) To record minority interest expense related to the minority partner's ownership in M-I. (f) A judgment issued by the U.S. Department of Justice requires Smith to divest the Anchor US operations. To remove the impact of the Anchor U.S. Operations. BALANCE SHEET - (a) To reclassify the assets and liabilities of the Anchor U.S. operations to the current asset line item "Assets held for Sale". (b) To record the step-up of fixed assets and inventory from book value to the estimated fair market value. (c) To record the purchase price in excess of the estimated fair market value of Anchor's net assets as goodwill. (d) To record the estimated fair market value of the covenant-not-to-compete with Seller Group. (e) To record the current and long-term portions of the Registrant's $73.4 million of acquisition-related borrowings, net of the payoff of certain Anchor borrowings which were assumed in connection with the acquisition. (f) To record the minority interest partner's ownership in the net assets of Anchor. (g) To eliminate the historical equity of Anchor. (h) To record the accrual of transaction costs, including the estimated losses on continuing operations and disposal of Anchor's U.S. operations. 34 35 EXHIBIT INDEX 23.1 Consent of Independent Auditors EX-23.1 2 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in the Form 8-K/A of Smith International, Inc. of our report dated April 1, 1996 issued on the financial statements of Anchor Drilling Fluids A.S. for the year ended December 31, 1995. We make no representation as to whether the form and content of our report, or of the financial statements in accordance with accounting principles generally accepted in Norway, meet the requirements of the filing of the Form 8-K of Smith International, Inc. /s/ COOPERS & LYBRAND ANS -------------------------- COOPERS & LYBRAND ANS Oslo, Norway August 22, 1996 -----END PRIVACY-ENHANCED MESSAGE-----