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<SEC-DOCUMENT>0000950134-03-003499.txt : 20030307
<SEC-HEADER>0000950134-03-003499.hdr.sgml : 20030307
<ACCEPTANCE-DATETIME>20030306213836
ACCESSION NUMBER: 0000950134-03-003499
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030307
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NATIONAL OILWELL INC
CENTRAL INDEX KEY: 0001021860
STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533]
IRS NUMBER: 760475815
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-12317
FILM NUMBER: 03595271
BUSINESS ADDRESS:
STREET 1: 10000 RICHMOND AVENUE
STREET 2: 4TH FLOOR
CITY: HOUSTON
STATE: TX
ZIP: 77042-4200
BUSINESS PHONE: 7133467500
MAIL ADDRESS:
STREET 1: 10000 RICHMOND AVENUE
STREET 2: 4TH FLOOR
CITY: HOUSTON
STATE: TX
ZIP: 77042-4200
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>h03420e10vk.txt
<DESCRIPTION>NATIONAL-OILWELL, INC.- YEAR ENDED DEC. 31, 2002
<TEXT>
<PAGE>
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12317
NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0475815
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
10000 RICHMOND AVENUE
HOUSTON, TEXAS
77042-4200
-------------------------------------------------------
(Address of principal executive offices)
(713) 346-7500
-------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 NEW YORK STOCK EXCHANGE
---------------------------- ------------------------------
(Title of Class) (Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ v ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of March 3, 2003, 84,224,527 common shares were outstanding. Based upon the
closing price of these shares on the New York Stock Exchange and, excluding
solely for purposes of this calculation 4,140,609 shares beneficially owned by
directors and executive officers, the aggregate market value of the common
shares of National-Oilwell, Inc. held by non-affiliates was approximately $1.8
billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 2003 Annual Meeting of
Stockholders are incorporated in Part III of this report.
<PAGE>
ITEM 1. BUSINESS
GENERAL
National Oilwell is a worldwide leader in the design, manufacture and sale of
comprehensive systems, components, and products used in oil and gas drilling and
production, as well as in distributing products and providing supply chain
integration services to the upstream oil and gas industry.
Our Products and Technology segment is a global leader in the design and
manufacture of complete land drilling and workover rigs, and for drilling
related systems on offshore rigs. Technology has increased the desirability of
one vendor assuming responsibility for the entire suite of components used in
the drilling process, as mechanical and hydraulic components are replaced by or
augmented with integrated computerized systems. In addition to traditional
components such as drawworks, mud pumps, top drives, derricks, cranes, jacking
and mooring systems, and other structural components, we provide automated
pipehandling, control and electrical power systems. We have also developed new
technology for drawworks and mud pumps applicable to the highly demanding
offshore markets.
Non-capital products produced by our Products and Technology segment include
drilling motors and specialized downhole tools that are sold or rented, spare
parts and service on the large installed base of our equipment, expendable parts
for mud pumps and other equipment, and smaller downhole, progressive cavity and
transfer pumps.
Our Distribution Services segment provides maintenance, repair and operating
supplies and spare parts to drill site and production locations throughout North
America and to offshore contractors worldwide. Increasingly, this business also
is expanding to locations outside North America, including the Middle East,
Southeast Asia, and South America. Using our information technology platforms
and processes, we can provide complete procurement, inventory management, and
logistics services to our customers.
BUSINESS STRATEGY
National Oilwell's business strategy is to enhance its market positions and
operating performance in the upstream oil and gas business by:
Leveraging our Capital Equipment Installed Base
We believe our market position and comprehensive product offering present
substantial opportunities to capture a significant portion of expenditures for
the construction of new drilling rigs and equipment as well as the upgrade and
refurbishment of existing drilling rigs and equipment. Over the next few years,
the advanced age of the existing fleet of drilling rigs, coupled with drilling
activity involving greater depths and extended reach, is expected to generate
demand for new equipment. National Oilwell's automation and control systems
offer the potential to improve the performance of new and existing drilling
rigs. The large installed base of our equipment also provides recurring demand
for spare parts and expendable products necessary for proper and efficient
operation.
Expanding our Non-Capital Products Business
Our non-capital equipment revenues continue to represent over half of our
products and technology business. We are a leader in the rental and sale of
high-performance drilling motors and downhole tools and in the manufacture of
certain expendable products and spare parts needed in the drilling and
production process. We believe additional expansion in the non-capital upstream
oil and gas industry would be beneficial to our business and our customers.
1
<PAGE>
Furthering our Information Technology and Process Improvement Strategy
National Oilwell has developed an integrated information technology and process
improvement strategy to enhance procurement, inventory management and logistics
activities. As a result of the need to improve industry efficiency, oil and gas
companies and drilling contractors are frequently seeking alliances with
suppliers, manufacturers and service providers to achieve cost and capital
improvements. We believe we are well positioned to provide these services as a
result of our:
- large and geographically diverse network of distribution service
centers in major oil and gas producing areas;
- strong relationship with a large community of industry suppliers;
- knowledge of customers procurement processes, suppliers capabilities
and products performance; and
- information systems that offer customers and suppliers enhanced
capabilities.
In addition, the integration of our distribution expertise, extensive network
and growing base of customer alliances provides an increased opportunity for
cost-effective marketing of our manufactured parts and equipment.
Continuing our Acquisitions Strategy
We believe the oilfield service and equipment industry will continue to
experience consolidation as businesses seek to align themselves with other
market participants in order to gain access to broader markets and integrated
product offerings. From 1997 through January 2003, National Oilwell has made a
total of thirty-two acquisitions and plans to continue to participate in this
trend.
OPERATIONS
Products and Technology
National Oilwell designs, manufactures and sells drilling systems and components
for both land and offshore drilling rigs as well as complete land drilling and
well servicing rigs. Mechanical components include drawworks, mud pumps, top
drives, solids control equipment, traveling equipment and rotary tables. These
components are essential to pump fluids and hoist, support and rotate the drill
string. Many of these components are designed specifically for applications in
offshore, extended reach and deep land drilling. This equipment is installed on
new rigs and often replaced during the upgrade and refurbishment of existing
rigs.
We design and manufacture masts, derricks and substructures for use on land rigs
and on fixed and mobile offshore platforms suitable for drilling applications to
depths of up to 30,000 feet or more. Other products include cranes, jacking
systems, mooring systems, reciprocating and centrifugal pumps and fluid end
expendables for all major manufacturers' pumps. Our business includes the sale
of replacement parts for our own manufactured machinery and equipment.
We also design and manufacture electrical systems and control and data
acquisition systems for drilling related operations and automated and remotely
controlled machinery for drilling rigs. Our control systems can control and
monitor many simultaneous operations on a drilling rig and often form the basis
for our state-of-the-art driller's cabin. Our automated pipe handling system
provides an efficient and cost effective method of joining lengths of drill pipe
or casing as does our iron roughneck. These and similar technologically advanced
products can greatly improve the safety on rigs, often by reducing the number of
persons working on the drilling floor.
2
<PAGE>
While offering a complete line of conventional rigs, National Oilwell has
extensive experience in providing rig designs to satisfy requirements for harsh
or specialized environments. Such products include drilling and well servicing
rigs designed for the Arctic, highly mobile drilling and well servicing rigs for
jungle and desert use, modular well servicing rigs for offshore platforms and
modular drilling facilities for North Sea platforms. We also design and produce
fully integrated drilling solutions for offshore rigs.
National Oilwell designs and manufactures drilling motors, drilling jars and
specialized drilling tools for rent and sale. We also design and manufacture a
complete line of fishing tools used to remove objects stuck in the wellbore.
Distribution Services
National Oilwell provides distribution services through its network of
approximately 150 distribution service centers. These distribution service
centers stock and sell a variety of expendable items for oilfield applications
and spare parts for our proprietary equipment. As oil and gas companies and
drilling contractors have refocused on their core competencies and emphasized
efficiency initiatives to reduce costs and capital requirements, our
distribution services have expanded to offer outsourcing and alliance
arrangements that include comprehensive procurement, inventory management and
logistics support. In addition, we believe we have a competitive advantage in
the distribution services business by distributing market-leading products
manufactured by us and from the association of this business with our Products
and Technology segment.
The supplies and equipment stocked by our distribution service centers vary by
location. Each distribution point generally offers a large line of oilfield
products including valves, fittings, flanges, spare parts for oilfield equipment
and miscellaneous expendable items.
Most drilling contractors and oil and gas companies typically buy supplies and
equipment pursuant to non-exclusive contracts, which normally specify a discount
from list price for each product or product category. Our goal is to create
strategic alliances with our customers whereby we become the customer's primary
supplier of those items. In certain cases, we assume responsibility for
procurement, inventory management and product delivery for the customer,
occasionally by working directly out of the customer's facilities.
We believe e-commerce brings a significant advantage to larger companies that
are technologically proficient. During the last few years, we have invested over
$20 million to improve our information technology systems. Our e-commerce system
can interface directly with customers' systems to maximize efficiencies for us
and for our customers. We believe we have an advantage in this effort due to our
investment in technology, geographic size, knowledge of the industry and
customers, existing relationships with vendors and existing means of product
delivery.
Marketing
Substantially all of our capital equipment and spare parts sales, and a large
portion of our smaller pumps and parts sales, are made through our direct sales
force and distribution service centers. Sales to foreign state-owned oil
companies are typically made in conjunction with agent or representative
arrangements. Our downhole products are generally rented and sold worldwide
through our own sales force and through commissioned representatives.
Distribution sales are made through our network of distribution service centers.
Customers for our products and services include drilling and other service
contractors, exploration and production companies, supply companies and
nationally owned or controlled drilling and production companies.
Competition
The oilfield services and equipment industry is highly competitive and our
revenues and earnings can be affected by price changes, introduction of new
technologies and products and improved availability and delivery. We compete
with a large number of companies, none of which are dominant.
3
<PAGE>
Manufacturing and Backlog
National Oilwell has manufacturing facilities located in the United States,
Canada, Norway and China. The manufacture of parts or purchase of components is
sometimes outsourced to qualified subcontractors. The manufacturing operations
require a variety of components, parts and raw materials which we purchase from
multiple commercial sources. We have not experienced and do not expect any
significant delays in obtaining deliveries of materials.
Sales of products are made on the basis of written orders and oral commitments.
Our backlog for equipment at recent year-ends has been:
<Table>
<S> <C>
December 31, 2002 $364 million (includes $170 million from the Hydralift ASA acquisition)
December 31, 2001 385 million
December 31, 2000 282 million
</Table>
Distribution Suppliers
National Oilwell obtains products sold by its Distribution Services business
from a number of suppliers, including our own Products and Technology segment.
No single supplier of products is significant to our operations. We have not
experienced and do not expect a shortage of products that we sell.
Engineering
National Oilwell maintains a staff of engineers and technicians to:
- design and test new products, components and systems for use in drilling
and pumping applications;
- enhance the capabilities of existing products; and
- assist our sales organization and customers with special projects.
Our product engineering efforts focus on developing technology to improve the
economics and safety of drilling and production processes, and to emphasize
technology and complete drilling solutions.
Patents and Trademarks
National Oilwell owns or has a license to use a number of patents covering a
variety of products. Although in the aggregate these patents are of importance,
we do not consider any single patent to be of a critical or essential nature. In
general, our business has historically relied upon technological capabilities,
quality products and application of expertise rather than patented technology.
Employees
As of December 31, 2002, we had a total of 6,900 employees, 4,300 of whom were
salaried and 2,600 of whom were paid on an hourly basis. Of this workforce,
1,300 employees are employed in Canada, 850 in Norway and 675 in other locations
outside the United States.
Available Information Regarding our SEC Filings
Our corporate offices are located at 10000 Richmond Avenue, Houston, Texas
77042-4200. Our phone number at that location is (713) 346-7500 and our Internet
address is www.natoil.com. Information we make public about our company,
including all SEC required filings, is available to you, free of charge, at our
Internet address.
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below, in addition to other
information contained or incorporated by reference herein. Realization of any of
the following risks could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
National Oilwell Depends on the Oil and Gas Industry
National Oilwell is dependent upon the oil and gas industry and its willingness
to explore for and produce oil and gas. The industry's willingness to explore
and produce depends upon the prevailing view of future product prices. Many
factors affect the supply and demand for oil and gas and therefore influence
product prices, including:
o level of production from known reserves;
o cost of producing oil and gas;
o level of drilling activity;
o worldwide economic activity;
o national government political requirements;
o development of alternate energy sources; and
o environmental regulations.
If there is a significant reduction in demand for drilling services, in cash
flows of drilling contractors or production companies or in drilling or well
servicing rig utilization rates, then demand for our products will decline.
Oil and Gas Prices are Volatile
Oil and gas prices have been volatile since 1990, ranging from $10 - $40 per
barrel. Over the last three years, oil prices have generally ranged within $20 -
$30 per barrel. Spot gas prices have also been volatile since 1990, ranging from
less than $1.00 per mmbtu to above $10.00. Gas prices were moderate in 1998 and
1999, generally ranging from $1.80 to $2.50 per mmbtu. Gas prices in 2000
generally ranged from $4.00 - $8.00 per mmbtu. In the second quarter of 2001,
gas prices came under pressure, generally ranging between $2.20 to $3.00 per
mmbtu through the first quarter of 2002. Gas prices have generally ranged
between $3.00 - $5.00 per mmbtu since that time.
Expectations for future oil and gas prices cause many shifts in the strategies
and expenditure levels of oil and gas companies and drilling contractors,
particularly with respect to decisions to purchase major capital equipment of
the type we manufacture. Industry activity and our revenues have not responded
to the higher commodity prices that have existed since the second quarter of
2002, presumably due to concerns that these prices will not continue in the
current range. We cannot predict future oil and gas prices or the effect prices
will have on exploration and production levels.
National Oilwell's Industry is Highly Competitive
The oilfield products and services industry is highly competitive. The following
competitive actions can each affect our revenues and earnings:
o price changes;
o new product and technology introductions; and
o improvements in availability and delivery.
We compete with many companies and there are low barriers to entry in many of
our business segments.
5
<PAGE>
National Oilwell Faces Potential Product Liability and Warranty Claims
Customers use some of our products in potentially hazardous drilling, completion
and production applications that can cause:
o injury or loss of life;
o damage to property, equipment or the environment; and
o suspension of operations.
We maintain amounts and types of insurance coverage that we believe are
consistent with normal industry practice. We cannot guarantee that insurance
will be adequate to cover all liabilities we may incur. We also may not be able
to maintain insurance in the future at levels we believe are necessary and at
rates we consider reasonable.
National Oilwell may be named as a defendant in product liability or other
lawsuits asserting potentially large claims if an accident occurs at a location
where our equipment and services have been used. We are currently party to
various legal and administrative proceedings. We cannot predict the outcome of
these proceedings, nor can we guarantee any negative outcomes will not be
significant to us.
Instability of Foreign Markets Could Have a Negative Impact on our Revenues and
Operating Results
Some of our revenues depend upon customers in the Middle East, Africa, Southeast
Asia, South America and other international markets. These revenues are subject
to risks of instability of foreign economies and governments. Laws and
regulations limiting exports to particular countries can affect our sales, and
sometimes export laws and regulations of one jurisdiction contradict those of
another.
Changes in Foreign Currency Exchange Rates Could Have a Negative Impact on our
Revenues and Operating Results
National Oilwell is exposed to the risks of changes in exchange rates between
the U.S. dollar and foreign currencies. Our Norwegian companies enter into
foreign exchange forward contracts, primarily between the Norwegian kroner and
the US dollar, to hedge cash flows on certain significant contracts. Our
decisions regarding the need for hedging foreign currencies in Norway and other
countries can adversely affect our operating results.
National Oilwell May Not be Able to Successfully Manage its Growth
National Oilwell has acquired 32 companies since April 1997, including nine in
2001 and four in 2002. In addition, we acquired two other companies in January
2003. We cannot predict whether suitable acquisition candidates will be
available on reasonable terms or if we will have access to adequate funds to
complete any desired acquisition. Once acquired, we cannot guarantee that we
will successfully integrate the operations of the acquired companies. Combining
organizations could interrupt the activities of some or all of our businesses
and have a negative impact on operations.
National Oilwell has Debt
In 1998, National Oilwell issued $150 million of 6 7/8% unsecured senior notes
due July 1, 2005. In 2001, we issued an additional $150 million of 6 1/2%
unsecured senior notes due March 15, 2011. In 2002, we issued $200 million of
5.65% unsecured senior notes due November 15, 2012. We also have a $175 million
revolving line of credit and approximately $223 million in facilities, of which
$91 million was available at December 31, 2002, under various borrowing
arrangements of our wholly-owned foreign subsidiaries. Our leverage requires us
to use some of our cash flow from operations for payment of interest on our
debt. Our leverage may also make it more difficult to obtain additional
financing in the future. Further, our leverage could make us more vulnerable to
economic downturns and competitive pressures.
6
<PAGE>
Item 2. Properties
National Oilwell owned or leased approximately 235 facilities worldwide as of
December 31, 2002, including the following principal manufacturing and
administrative facilities:
<Table>
<Caption>
APPROXIMATE
BUILDING SPACE
LOCATION (SQUARE FOOT) DESCRIPTION STATUS
- -------- -------------- ----------- ------
<S> <C> <C> <C>
Pampa, Texas 548,000 Manufactures drilling machinery and equipment Owned
Houston, Texas 540,000 Manufactures downhole tools and mobile rigs Owned
Houston, Texas 260,000 Manufactures drilling machinery and equipment Leased
Carquefou, France 213,000 Manufactures offshore and marine handling Owned
equipment
Sugarland, Texas 190,000 Manufactures braking systems and generators Owned
Galena Park, Texas 188,000 Manufactures drilling components and rigs Owned
Houston, Texas 178,000 Manufactures electrical power systems Owned
Edmonton, Alberta, Canada 162,000 Manufactures downhole tools Owned
Kristiansand, Norway 157,000 Manufactures drilling and offshore equipment Owned
Tulsa, Oklahoma 140,000 Manufactures pumps and expendable parts Owned
McAlester, Oklahoma 117,000 Manufactures pumps and expendable parts Owned
Houston, Texas 115,000 Administrative offices Leased
Stavanger, Norway 87,000 Manufactures drilling components and systems Leased
Calgary, Alberta, Canada 76,000 Manufactures coiled tubing units and wireline trucks Owned
Molde, Norway 68,000 Manufactures marine handling equipment Owned
Marble Falls, Texas 65,000 Manufactures drilling expendable parts Owned
Stavanger, Norway 62,000 Manufactures drilling components and systems Owned
Nisku, Alberta, Canada 59,000 Manufactures drilling machinery and equipment Owned
Edmonton, Alberta, Canada 57,000 Manufactures drilling machinery and equipment Owned
</Table>
We own or lease 65 satellite repair and manufacturing facilities that refurbish
and manufacture new equipment and parts and approximately 150 distribution
service centers worldwide. We believe the capacity of our facilities is adequate
to meet demand currently anticipated for 2003.
ITEM 3. LEGAL PROCEEDINGS
National Oilwell has various claims, lawsuits and administrative proceedings
that are pending or threatened, all arising in the ordinary course of business,
with respect to commercial, product liability and employee matters. Although no
assurance can be given with respect to the outcome of these or any other pending
legal and administrative proceedings and the effect such outcomes may have, we
believe any ultimate liability resulting from the outcome of such proceedings
will not have a material adverse effect on our consolidated financial
statements.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
National Oilwell common stock is listed on the New York Stock Exchange (ticker
symbol: NOI). The following table sets forth the stock price range during the
past three years:
<Table>
<Caption>
2002 2001 2000
------------------------- ------------------------ -------------------------
Quarter High Low High Low High Low
- ----------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
First $ 26.25 $ 16.43 $ 40.50 $ 33.65 $ 31.38 $ 14.25
Second 28.81 20.91 39.55 26.80 32.89 22.94
Third 21.29 15.19 25.74 12.91 37.50 27.25
Fourth 23.31 17.69 20.86 13.85 39.19 28.25
</Table>
As of March 3, 2003, there were 537 holders of record of National Oilwell common
stock. Many stockholders choose to own shares through brokerage accounts and
other intermediaries rather than as holders of record so the actual number is
unknown but significantly higher. National Oilwell has never paid cash
dividends, and none are anticipated during 2003.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Data for periods prior to 2000 shown below is restated to combine IRI
International and Dupre' results pursuant to pooling-of-interests accounting.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 1,521,946 $ 1,747,455 $ 1,149,920 $ 839,648 $ 1,449,248
Operating income (1) 134,323 189,277 48,456 1,325 139,815
Income (loss) before taxes 112,465 168,017 27,037 (14,859) 125,021
Net income (loss) (2) 73,069 104,063 13,136 (9,385) 81,336
Net income (loss) per share
Basic (2) 0.90 1.29 0.17 (0.13) 1.19
Diluted (2) 0.89 1.27 0.16 (0.13) 1.19
OTHER DATA:
Depreciation and amortization 25,048 38,873 35,034 25,541 20,518
Capital expenditures 24,805 27,358 24,561 17,547 39,246
BALANCE SHEET DATA:
Working capital 768,852 631,257 480,321 452,015 529,937
Total assets 1,968,662 1,471,696 1,278,894 1,005,715 1,091,028
Long-term debt, less current maturities 594,637 300,000 222,477 196,053 222,209
Stockholders' equity 933,364 867,540 767,206 596,375 603,568
</Table>
(1) In connection with the IRI International Corporation merger in 2000, we
recorded charges of $14.1 million related to direct merger costs, personnel
reductions, and facility closures and inventory write-offs of $15.7 million
due to product line rationalization. In 1998, a $17.0 million charge was
recorded related to personnel reductions and facility closures and a $5.6
million charge related to the write-down of certain tubular inventories.
(2) We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142), effective January 1, 2002. The
effects of not amortizing goodwill and other intangible assets in periods
prior to the adoption of SFAS 142 would have resulted in net income (loss)
of $115.0 million, $23.1 million, $(4.0) million and $84.8 million for the
years ended December 31, 2001, 2000, 1999,and 1998, respectively; basic
earnings per common share of $1.42, $0.29, $(0.06) and $1.24 for the years
ending December 31, 2001, 2000, 1999 and 1998, respectively; and diluted
earnings per common share of $1.41, $0.29, $(0.06) and $1.24 for the years
ending December 31, 2001, 2000, 1999 and 1998, respectively.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
National Oilwell is a worldwide leader in the design, manufacture and sale of
drilling systems, drilling equipment and downhole products as well as the
distribution to the oil and gas industry of maintenance, repair and operating
products. Our revenues and operating results are directly related to the level
of worldwide oil and gas drilling and production activities and the
profitability and cash flow of oil and gas companies and drilling contractors,
which in turn are affected by current and anticipated prices of oil and gas. Oil
and gas prices have been and are likely to continue to be volatile. See "Risk
Factors".
We conduct our operations through the following segments:
Products and Technology
Our Products and Technology segment is a global leader in the design and
manufacture of complete land drilling and workover rigs, and for drilling
related systems on offshore rigs. Technology has increased the desirability of
one vendor assuming responsibility for the entire suite of components used in
the drilling process, as mechanical and hydraulic components are replaced by or
augmented with integrated computerized systems. In addition to traditional
components such as drawworks, mud pumps, top drives, derricks, cranes, jacking
and mooring systems, and other structural components, we provide automated
pipehandling, control and electrical power systems. We have also developed new
technology for drawworks and mud pumps applicable to the highly demanding
offshore markets.
Distribution Services
Our Distribution Services segment provides maintenance, repair and operating
supplies and spare parts from our network of distribution service centers to
drill site and production locations throughout North America and to offshore
contractors worldwide. Increasingly, this business also is expanding to
locations outside North America, including the Middle East, Southeast Asia, and
South America. Using our information technology platforms and processes, we can
provide complete procurement, inventory management, and logistics services to
our customers. Products are purchased from numerous manufacturers and vendors,
including our Products and Technology segment.
RESULTS OF OPERATIONS
Operating results by segment, which have been restated to reflect a business
combination accounted for under the pooling-of-interests method during 2000, are
as follows (in millions):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Products and Technology $ 917.3 $1,120.9 $ 683.5
Distribution Services 686.2 707.8 521.3
Eliminations (81.5) (81.3) (54.8)
-------- -------- --------
Total $1,522.0 $1,747.4 $1,150.0
======== ======== ========
Operating Income:
Products and Technology $ 127.0 $ 171.0 $ 61.0
Distribution Services 18.1 28.5 12.9
Corporate (10.8) (10.2) (11.3)
-------- -------- --------
134.3 189.3 62.6
Special Charge -- -- 14.1
-------- -------- --------
Total $ 134.3 $ 189.3 $ 48.5
======== ======== ========
</Table>
10
<PAGE>
Products and Technology
Products and Technology revenues in 2002 were $203.6 million (18%) lower than
the previous year as moderate oil and gas prices failed to sustain the 2001
levels of market activity in all product areas. Capital equipment revenues were
down $72 million while related spare parts and expendable parts were lower than
2001 by $38 million. Sales and rentals of downhole motors and fishing tools
decreased by approximately $74 million, impacted by its strong dependence on the
North American market. Operating income fell $44 million in 2002 when compared
to the prior year, impacted by the margin reduction due to the significantly
lower volume. The absence of amortization of goodwill in 2002, as required per
the new accounting guidance, favorably impacted operating income by $10.4
million. Reductions in compensation expense also contributed approximately $11.0
million in operating income when compared to the prior year. Revenues from the
mid-December 2002 acquisition of Hydralift ASA, and the consolidation of our
Chinese joint venture, each contributed $8.0 million in revenues and $0.3
million and $2.2 million in operating income, respectively.
Revenues for the Products and Technology segment in 2001 increased by $437.4
million (64 %) from 2000 as virtually all products experienced significant
revenue growth. Capital equipment revenues were up $285 million, drilling spares
up $35 million, expendable pumps and parts were higher by $47 million and
downhole tools increased $75 million. As a result of this robust revenue growth,
operating income in 2001 increased by $110.0 million from the prior year.
Revenues from acquisitions completed in 2001 under the purchase method of
accounting contributed $34 million in incremental revenues.
Backlog of the Products and Technology capital products was $364 million at
December 31, 2002, $385 million at December 31, 2001 and $282 million at
December 31, 2000. Backlog at December 31, 2002 includes $170 million acquired
in late December through the purchase of Hydralift ASA. Substantially all of the
current backlog is expected to be shipped by mid-year 2004.
Distribution Services
Distribution Services revenues fell $21.6 million, or 3%, from the 2001 level as
this segment's strategy to create strategic alliances and expand its
international presence made significant market penetration during a difficult
market. North American revenues fell approximately 16% due to the lower activity
level while shipments in the international market almost doubled. Sales of our
own-make products increased almost 12% while maintenance, repair and operating
("MRO") supplies fell almost 5%. Operating income in 2002 was $10.4 million
lower than the prior year. Margin reduction, due to the lower volume and project
bidding pressures, contributed to approximately 80% of the operating income
shortfall with the remainder due to significant infrastructure growth.
Distribution Services revenues in 2001 increased $186.5 million from the 2000
level with all areas and products participating in the upswing that lasted until
the middle of the 4th quarter 2001. U.S. revenues of MRO supplies were up 44%
while Canadian revenues were 13% higher than the prior year. Operating income in
2001 increased by $15.6 million from the prior year due to the higher revenue
volume and cost efficiencies linked to the new global operating system. Revenues
from acquisitions completed in 2001 under the purchase method of accounting
contributed $24 million in incremental revenues.
Corporate
Corporate charges represent the unallocated portion of centralized and executive
management costs. Year 2002 costs of $10.8 million reflect certain corporate-led
marketing initiatives and general overhead incurred to support a larger company.
Year 2001 costs of $10.2 million represents a 10% reduction from the prior year
as various e-strategy and e-commerce initiatives became operational. Year 2003
corporate charges are expected to approximate $12 million due to recent
acquisitions.
11
<PAGE>
Special Charge
During 2000, we recorded a special charge, net of a $0.4 million credit from
previous special charges, of $14.1 million ($11.0 million after tax, or $0.14
per share) related to the merger with IRI International. Components of the
charge were (in millions):
<Table>
<S> <C>
Direct transaction costs $ 6.6
Severance 6.4
Facility closures 1.5
-----
14.5
Prior year reversal (0.4)
-----
$14.1
-----
</Table>
The cash and non-cash elements of the charge approximated $13 million and $1.1
million, respectively. All direct cash outlays have been spent. Facility closure
costs consisted of lease cancellation costs and impairment of a closed
manufacturing facility that is classified with "Property held for sale" on our
balance sheet. All of this charge is applicable to the Products and Technology
business segment.
Interest Expense
Interest expense in 2002 totaled $24.1 million, an increase of $1.3 million from
the prior year. All of this increase is a direct result of our mid-November 2002
sale of $200 million of 5.65% unsecured senior notes. Our average borrowing cost
during 2002 of 6.4% remained the same as 2001. We expect our interest expense in
2003 to increase by at least $10 million as a result of our higher senior debt
level.
Despite continual borrowing rate declines during 2001, interest expense
increased approximately $5.5 million over 2000 due to our higher debt level to
support the working capital associated with the robust business climate. In
March 2001, we sold $150 million of 6 1/2% unsecured senior notes which
increased our total senior debt to $300 million. Year 2001 average monthly debt,
including the senior notes, was $334 million or $118 million (54%) greater than
the 2000 level.
Income Taxes
National Oilwell is subject to U.S. federal, state and foreign taxes and
recorded a combined tax rate of 35% in 2002, 38% in 2001 and 51% in 2000. The
2000 effective tax rate was impacted by certain transaction costs associated
with the IRI merger and the inclusion of pre-merger IRI capital losses due to
pooling-of-interests accounting that may not be deductible. Excluding the impact
of merger-related costs and capital losses, our combined effective tax rate for
2000 was 36%. We expect our tax rate in 2003 to approximate 34%.
We have net operating loss carryforwards in the United States that could reduce
future tax expense by up to $4.2 million. They expire at various dates through
2017. Additional loss carryforwards in Europe could reduce future tax expense by
$10.3 million and reduce goodwill $9.4 million if realized in the future. Due to
the uncertainty of future utilization of these loss carryforwards, $2.8 million
of the potential benefits in the U.S. and $9.6 million in Europe have been fully
reserved.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, National Oilwell had working capital of $768.9 million, an
increase of $137.6 million from December 31, 2001. The addition of Hydralift ASA
and consolidation of the Chinese joint venture accounted for $123.3 million of
this increase, including $78 million of the increase in cash. After considering
the Halco acquisition in January 2002 and the change in current deferred taxes,
the rest of the company reduced our need for working capital during 2002. Due to
a new revolving three-year credit facility put in place during July 2002, all of
our debt is of a long-term nature.
12
<PAGE>
Total capital expenditures were $24.8 million during 2002, $27.4 million in 2001
and $24.6 million in 2000. Additions and enhancements to the downhole rental
tool fleet and information management and inventory control systems represent
the majority of these capital expenditures. Capital expenditures are expected to
approximate $35 million in 2003, which should also approximate depreciation
expense in that year, with continued emphasis on rental tools and information
technology. We believe we have sufficient existing manufacturing capacity to
meet currently anticipated demand through 2003 for our products and services.
In November 2002, we sold $200 million of 5.65 % unsecured senior notes due
November 15, 2012. Proceeds were used to acquire Hydralift ASA. Interest is
payable on May 15 and November 15 of each year. In March 2001, we sold $150
million of 6.50 % unsecured senior notes due March 15, 2011, with interest
payable on March 15 and September 15 of each year. In June 1998, we sold $150
million of 6.875 % unsecured senior notes due July 1, 2005, with interest
payments due annually on January 1 and July 1.
On July 30, 2002, we replaced the existing credit facility with a new three-year
unsecured $175 million revolving credit facility. This facility is available for
acquisitions and general corporate purposes and provides up to $50 million for
letters of credit, of which $22.0 million were outstanding at December 31, 2002.
Interest is based upon prime or Libor plus 0.5% subject to a ratings based grid.
In securing this new credit facility, we incurred approximately $0.9 million in
fees which will be amortized to expense over the term of the facility.
The senior notes contain reporting covenants and the credit facility contains
financial covenants and ratios regarding maximum debt to capital and minimum
interest coverage. We were in compliance with all covenants governing these
facilities at December 31, 2002.
We also have additional credit facilities totaling $223 million that are used
primarily for acquisitions, general corporate purposes and letters of credit.
Recently acquired Hydralift ASA represents $152 million of these facilities.
These multi-currency Hydralift committed facilities are secured by a guarantee,
contain financial covenants and expire in 2006. Borrowings against these
additional credit facilities totaled $93 million at December 31, 2002 and an
additional $39 million had been used for letters of credit and guarantees.
We believe cash generated from operations and amounts available under our credit
facilities and from other sources of debt will be sufficient to fund operations,
working capital needs, capital expenditure requirements and financing
obligations. We also believe any significant increase in capital expenditures
caused by any need to increase manufacturing capacity can be funded from
operations or through debt financing.
We have not entered into any transactions, arrangements, or relationships with
unconsolidated entities or other persons which would materially affect
liquidity, or the availability of or requirements for capital resources. A
summary of our outstanding contractual obligations and other commercial
commitments at December 31, 2002 is as follows (in thousands):
13
<PAGE>
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
----------------------------------------------------------
LESS THAN 1
CONTRACTUAL OBLIGATIONS TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ----------------------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Long Term Debt $ 594,637 $ -- $ 244,637 $ -- $ 350,000
Operating Leases 63,625 17,658 30,450 6,943 8,574
---------- ----------- ----------- ----------- -------------
Total contractual obligations $ 658,262 $ 17,658 $ 275,087 $ 6,943 $ 358,574
========== =========== =========== =========== =============
</Table>
<Table>
<Caption>
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
----------------------------------------------------------
LESS THAN 1
COMMERCIAL COMMITMENTS TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ---------------------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Line of Credit $ 326,698 $ -- $ 326,698 $ -- $ --
Standby Letters of Credit 61,432 41,635 19,797 -- --
---------- ----------- ----------- ----------- -------------
Total commercial commitments $ 388,130 $ 41,635 $ 346,495 $ -- $ --
========== =========== =========== =========== =============
</Table>
We intend to pursue additional acquisition candidates, but the timing, size or
success of any acquisition effort and the related potential capital commitments
cannot be predicted. We expect to fund future cash acquisitions primarily with
cash flow from operations and borrowings, including the unborrowed portion of
the credit facility or new debt issuances, but may also issue additional equity
either directly or in connection with acquisitions. There can be no assurance
that acquisition funds will be available at terms acceptable to us.
Inflation has not had a significant impact on National Oilwell's operating
results or financial condition in recent years.
MARKET RISK DISCLOSURE
We are exposed to changes in foreign currency exchange rates and interest rates.
Additional information concerning each of these matters follows:
Foreign Currency Exchange Rates
We have operations in foreign countries, including Canada, Norway and the United
Kingdom, as well as operations in Latin America, China and other European
countries. The net assets and liabilities of these operations are exposed to
changes in foreign currency exchange rates, although such fluctuations generally
do not affect income since their functional currency is the local currency. For
operations where our functional currency is not the local currency, such as
Singapore and Venezuela, the net asset or liability position is insignificant
and, therefore, changes in foreign currency exchange rates are not expected to
have a material impact on earnings.
Some of our revenues in foreign countries are denominated in US dollars, and
therefore, changes in foreign currency exchange rates impact our earnings to the
extent that costs associated with those US dollar revenues are denominated in
the local currency. In order to mitigate that risk, we may utilize foreign
currency forward contracts to better match the currency of our revenues and
associated costs. We do not use foreign currency forward contracts for trading
or speculative purposes. The counterparties to these contracts are major
financial institutions, which minimizes counterparty credit risk.
The impact of foreign currency exchange rates has not materially affected our
results of operations in any of the last three years. We do not believe that a
hypothetical 10% movement in these foreign currencies would have a material
impact on our earnings.
14
<PAGE>
Interest Rate Risk
Our long term borrowings consist of $150 million in 6.875% senior notes, $150
million in 6.5% senior notes and $200 million in 5.65% senior notes. We also
have borrowings under our other facilities totaling $94.6 million at December
31, 2002. A portion of the borrowings are denominated in multiple currencies
which could expose us to market risk with exchange rate movements. These
instruments carry interest at a pre-agreed upon percentage point spread from
either the prime interest rate, LIBOR or NIBOR. Under our credit facilities, we
may, at our option, fix the interest rate for certain borrowings based on a
spread over LIBOR or NIBOR for 30 days to 6 months. Based upon our December 31,
2002 borrowings under our variable rate facilities of $94.6 million, an
immediate change of one percent in the interest rate would cause a change in
annual interest expense of approximately $0.9 million. Our objective in
maintaining a portion of our debt in variable rate borrowings is the flexibility
obtained regarding early repayment without penalties and lower overall cost as
compared with fixed-rate borrowings.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements requires us to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Our estimation process generally relates to
potential bad debts, obsolete and slow moving inventory, value of intangible
assets, and deferred income tax accounting. Note 1 to the consolidated financial
statements contains the accounting policies governing each of these matters. Our
estimates are based on historical experience and on our future expectations that
we believe to be reasonable under the circumstances. The combination of these
factors result in the amounts shown as carrying values of assets and liabilities
in the financial statements and accompanying notes. Actual results could differ
from our current estimates and those differences may be material.
We believe the following accounting policies are the most critical in the
preparation of our consolidated financial statements:
We maintain an allowance for doubtful accounts for accounts receivables by
providing for specifically identified accounts where collectibility is doubtful
and a general allowance based on the aging of the receivables compared to past
experience and current trends. A majority of our revenues come from drilling
contractors, independent oil companies, international oil companies and
government-owned or government-controlled oil companies, and we have
receivables, some denominated in local currency, in many foreign countries. If,
due to changes in worldwide oil and gas drilling activity or changes in economic
conditions in certain foreign countries, our customers were unable to repay
these receivables, additional allowances would be required.
Allowances for inventory obsolescence are determined based on our historical
usage of inventory on-hand as well as our future expectations related to our
substantial installed base and the development of new products. The amount
reserved is the recorded cost of the inventory minus its estimated realizable
value. Changes in worldwide oil and gas drilling activity and the development of
new technologies associated with the drilling industry could require additional
allowances to reduce the value of inventory to the lower of its cost or net
realizable value.
Business acquisitions are accounted for using the purchase method of accounting.
The cost of the acquired company is allocated to identifiable tangible and
intangible assets based on estimated fair value, with the excess allocated to
goodwill. On at least an annual basis, we assess whether goodwill is impaired.
Our annual impairment tests are performed at the beginning of the 4th quarter of
each year. If we determine that goodwill is impaired, we measure that impairment
based on the amount by which the book value of goodwill exceeds its implied fair
value. The implied fair value of goodwill is determined by deducting the fair
value of a reporting unit's identifiable assets and liabilities from the fair
value of that reporting unit as a whole. Additional impairment assessments may
be performed on an interim basis if we encounter events or changes in
circumstances that would indicate that, more likely than not, the carrying
amount of goodwill has been impaired. The fair value of the reporting units is
determined based on internal management estimates that considers multiple
valuation techniques.
Our net deferred tax assets and liabilities are recorded at the amount that is
more likely than not to be realized or paid. Should we determine that we would
not be able to realize all or part of the net deferred tax asset in the future,
an adjustment to the deferred tax assets would be charged to income in the
period of such determination.
15
<PAGE>
SUBSEQUENT EVENTS
On January 2, 2003, we acquired LSI, a Houston, Texas based distributor of
specialty electrical products, for approximately $13 million. This transaction
generated approximately $6 million in goodwill and is complementary to our
distribution services business.
On January 16, 2003, we acquired the Mono pumping products business from
Halliburton Energy Services for approximately $89 million, consisting of $22.7
million in cash and 3.2 million shares of our common stock. This transaction,
which consisted of purchasing all the outstanding stock of Monoflo, Inc. in the
United States and Mono Group in the United Kingdom, generated approximately $46
million in goodwill and will add to the non-capital product lines within our
Products and Technology segment.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement on Financial
Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations", which sets forth the accounting and reporting to be followed for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs and SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", addresses disposal activities and
termination costs in exiting an activity. These pronouncements are generally
effective January 1, 2003. The Company believes the adoption of these new
accounting pronouncements will not have a significant impact on its results of
operations or financial position.
FORWARD-LOOKING STATEMENTS
Some of the information in this document contains, or has incorporated by
reference, forward-looking statements. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements typically are identified by use of terms
such as "may," "will," "expect," "anticipate," "estimate," and similar words,
although some forward-looking statements are expressed differently. You should
be aware that our actual results could differ materially from results
anticipated in the forward-looking statements due to a number of factors,
including but not limited to changes in oil and gas prices, customer demand for
our products and worldwide economic activity. You should also consider carefully
the statements under "Risk Factors" which address additional factors that could
cause our actual results to differ from those set forth in the forward-looking
statements. Given these uncertainties, current or prospective investors are
cautioned not to place undue reliance on any such forward-looking statements. We
undertake no obligation to update any such factors or forward-looking statements
to reflect future events or developments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference to Item 7 above, "Market Risk
Disclosure."
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Attached hereto and a part of this report are financial statements
and supplementary data listed in Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the definitive Proxy Statement for the
2003 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the definitive Proxy Statement for the
2003 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the definitive Proxy Statement for the
2003 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the definitive Proxy Statement for the
2003 Annual Meeting of Stockholders
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our chief executive officer and chief financial officer, based
on their evaluation of our disclosure controls and procedures
(as defined in Exchange Act Rule 13a-14(c)) as of a date
within 90 days prior to the filing of this annual report on
Form 10-K, have concluded that our disclosure controls and
procedures are adequate and effective for the information
required to be disclosed by us in the reports we file or
submit under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and that this information is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules
and forms.
(b) Changes in internal control
There were no significant changes in our internal controls or
in other factors that could significantly affect our internal
controls subsequent to the date of their evaluation described
above.
17
<PAGE>
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
a) Financial Statements and Exhibits
1. Financial Statements
The following financial statements are presented in response to Part II,
Item 8:
<Table>
<Caption>
Page(s) in
This Report
-----------
<S> <C>
Consolidated Balance Sheets...................................................................................24
Consolidated Statements of Operations.........................................................................25
Consolidated Statements of Cash Flows.........................................................................26
Consolidated Statements of Stockholders' Equity...............................................................27
Notes to Consolidated Financial Statements....................................................................28
</Table>
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, not required or
the information is included in the financial statements or notes thereto.
3. Exhibits
2.1 Combination Agreement between National-Oilwell, Inc. and Hydralift
ASA regarding the transaction announced October 11, 2002 (Exhibit
2.1) (5)
3.1 Amended and Restated Certificate of Incorporation of
National-Oilwell, Inc. (Exhibit 3.1) (1)
3.2 By-laws of National-Oilwell, Inc.
10.1 Employment Agreement dated as of January 1, 2002 between Merrill A.
Miller, Jr. and National Oilwell, with a similar agreement with
Steven W. Krablin (Exhibit 10.1) (2)
10.2 Employment Agreement dated as of January 1, 2002 between Dwight W.
Rettig and National Oilwell, with similar agreements with Robert L.
Bloom, Kevin Neveu, Mark A. Reese and Robert R. Workman (Exhibit
10.2) (2)
10.3 Employment Agreement dated as of June 28, 2000 between Gary W.
Stratulate and IRI International, Inc., which has now merged into
National Oilwell (Exhibit 10.3) (2)
10.4 Amended and Restated Stock Award and Long-Term Incentive Plan
(Exhibit 10.1) (3)*
10.5 Loan Agreement dated July 30, 2002 (Exhibit 10.2) (3)
10.6 Employment Agreement dated as of March 1, 2000 between Jon Gjedebo
and a National Oilwell subsidiary (Exhibit 10.8) (4)
10.7 Non-competition Agreement dated as of June 28, 2000 between Hushang
Ansary and National Oilwell (Exhibit 10.9) (4)
21.1 Subsidiaries of the Company
18
<PAGE>
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on signature page hereto)
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
b) Reports on Form 8-K
A report on Form 8 - K was filed on October 16, 2002 regarding
a press release announcing the signing of a Combination Agreement to
acquire Hydralift ASA for NOK 55, approximately U.S. $7.33, per share.
A report on Form 8 - K was filed on November 14, 2002 which
contained the Combination Agreement of the previously announced transaction
with Hydralift ASA.
A report on Form 8 - K was filed on February 12, 2003
regarding a press release announcing our financial results for the fourth
quarter and full year ended December 31,2002.
- ----------
* Compensatory plan or arrangement for management or others
(1) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
August 11, 2000.
(2) Filed as an Exhibit to our Annual Report on Form 10-K filed on March
28, 2002.
(3) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
November 12, 2002.
(4) Filed as an Exhibit to our Annual Report on Form 10-K filed on March
1, 2001.
(5) Filed as an Exhibit to our Current Report on Form 8-K filed on
November 14, 2002.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
NATIONAL-OILWELL, INC.
DATE: MARCH 6, 2003 BY: /s/ STEVEN W. KRABLIN
- ----------------------------- --------------------------------
STEVEN W. KRABLIN
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES AND ON THE DATES INDICATED.
EACH PERSON WHOSE SIGNATURE APPEARS BELOW IN SO SIGNING, CONSTITUTES AND
APPOINTS STEVEN W. KRABLIN AND M. GAY MATHER, AND EACH OF THEM ACTING ALONE, HIS
TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION, FOR
HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO EXECUTE AND
CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ANY AND ALL
AMENDMENTS TO THIS REPORT, AND IN EACH CASE TO FILE THE SAME, WITH ALL EXHIBITS
THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND
CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO
OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Merrill A. Miller, Jr. Chairman, President and Chief Executive March 6, 2003
- -------------------------------------- ---------------------
Merrill A. Miller, Jr. Officer (Principal Executive Officer)
/s/ Steven W. Krablin Vice President and Chief Financial Officer March 6, 2003
- -------------------------------------- (Principal Financial Officer and Principal ---------------------
Steven W. Krablin Accounting Officer)
Director
- -------------------------------------- ---------------------
Hushang Ansary
/s/ Robert E. Beauchamp Director March 6, 2003
- -------------------------------------- ---------------------
Robert E. Beauchamp
/s/ Jon Gjedebo Director March 6, 2003
- -------------------------------------- ---------------------
Jon Gjedebo
/s/ Ben A. Guill Director March 6, 2003
- -------------------------------------- ---------------------
Ben A. Guill
/s/ Roger L. Jarvis Director March 6, 2003
- -------------------------------------- ---------------------
Roger L. Jarvis
/s/ William E. Macaulay Director March 6, 2003
- -------------------------------------- ---------------------
William E. Macaulay
/s/ Frederick W. Pheasey Director March 6, 2003
- -------------------------------------- ---------------------
Frederick W. Pheasey
/s/ Joel V. Staff Director March 6, 2003
- -------------------------------------- ---------------------
Joel V. Staff
</Table>
20
<PAGE>
CERTIFICATIONS
I, Merrill A. Miller, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of National-Oilwell, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: March 6, 2003
/s/ Merrill A. Miller, Jr.
- ---------------------------
Merrill A. Miller, Jr.
Chief Executive Officer
21
<PAGE>
I, Steven W. Krablin, certify that:
1. I have reviewed this annual report on Form 10-K of National-Oilwell, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: March 6, 2003
/s/ Steven W. Krablin
- ---------------------
Steven W. Krablin
Chief Financial Officer
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
National-Oilwell, Inc.
We have audited the accompanying consolidated balance sheets of
National-Oilwell, Inc., as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
National-Oilwell, Inc., at December 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, in 2002
the Company changed its method of accounting for goodwill and other intangible
assets.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 18, 2003
23
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<Table>
<Caption>
December 31, December 31,
2002 2001
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 118,338 $ 43,220
Receivables, net 428,116 382,153
Inventories 470,088 455,934
Costs in excess of billings 53,805 --
Deferred income taxes 26,783 16,825
Prepaid and other current assets 17,938 10,434
------------ ------------
Total current assets 1,115,068 908,566
Property, plant and equipment, net 208,420 168,951
Deferred income taxes 36,864 16,663
Goodwill, net 581,576 352,094
Property held for sale 7,389 12,144
Other assets 19,345 13,278
------------ ------------
$ 1,968,662 $ 1,471,696
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt -- 10,213
Accounts payable 168,548 161,277
Customer prepayments 9,533 9,843
Accrued compensation 5,087 23,661
Billings in excess of costs 61,738 --
Other accrued liabilities 101,310 72,315
------------ ------------
Total current liabilities 346,216 277,309
Long-term debt 594,637 300,000
Deferred income taxes 54,612 20,380
Other liabilities 30,229 6,467
------------ ------------
Total liabilities 1,025,694 604,156
Commitments and contingencies
Minority interest 9,604 --
Stockholders' equity:
Common stock - par value $.01; 81,014,713 and 80,902,882 shares
issued and outstanding at December 31, 2002 and December 31, 2001 810 809
Additional paid-in capital 594,849 592,507
Accumulated other comprehensive loss (44,461) (34,873)
Retained earnings 382,166 309,097
------------ ------------
933,364 867,540
------------ ------------
$ 1,968,662 $ 1,471,696
============ ============
</Table>
The accompanying notes are an integral part of these statements.
24
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Year Ended December 31,
--------------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 1,521,946 $ 1,747,455 $ 1,149,920
Cost of revenues:
Cost of products and services sold 1,160,082 1,319,621 884,774
Merger related inventory write-offs -- -- 15,684
-------------- -------------- --------------
Gross profit 361,864 427,834 249,462
Selling, general, and administrative 227,541 238,557 186,924
Special charge -- -- 14,082
-------------- -------------- --------------
Operating income 134,323 189,277 48,456
Interest and financial costs (27,279) (24,929) (19,069)
Interest income 2,638 1,775 2,908
Other income (expense), net 2,783 1,894 (5,258)
-------------- -------------- --------------
Income before income taxes 112,465 168,017 27,037
Provision for income taxes 39,396 63,954 13,901
-------------- -------------- --------------
Net income $ 73,069 $ 104,063 $ 13,136
============== ============== ==============
Net income per share:
Basic $ 0.90 $ 1.29 $ 0.17
============== ============== ==============
Diluted $ 0.89 $ 1.27 $ 0.16
============== ============== ==============
Weighted average shares outstanding:
Basic 80,974 80,813 79,325
============== ============== ==============
Diluted 81,709 81,733 80,760
============== ============== ==============
</Table>
The accompanying notes are an integral part of these statements.
25
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
Year Ended December 31,
-----------------------------------------------
2002 2001 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 73,069 $ 104,063 $ 13,136
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 25,048 38,873 35,034
Provision for losses on receivables 3,606 3,897 1,589
Provision for deferred income taxes 11,446 7,847 (5,881)
Gain on sale of assets (4,551) (2,878) (3,522)
Foreign currency transaction (gain) loss 307 573 (1,397)
Special charge -- -- 14,082
Merger related inventory write-offs -- -- 15,684
Changes in assets and liabilities, net of acquisitions:
Marketable securities -- -- 14,686
Receivables 58,953 (74,700) (65,619)
Inventories 25,189 (71,906) (27,219)
Income taxes receivable -- -- 12,888
Prepaid and other current assets (2,960) 2,411 (4,802)
Accounts payable (32,031) (23,357) 47,345
Other assets/liabilities, net (54,035) (20,199) (19,391)
----------- ----------- -----------
Net cash provided (used) by operating activities 104,041 (35,376) 26,613
----------- ----------- -----------
Cash flow from investing activities:
Purchases of property, plant and equipment (24,805) (27,358) (24,561)
Proceeds from sale of assets 12,534 7,927 8,227
Businesses acquired and investments in joint ventures, net of cash (213,052) (38,517) (48,208)
----------- ----------- -----------
Net cash used by investing activities (225,323) (57,948) (64,542)
----------- ----------- -----------
Cash flow from financing activities:
Borrowings (payments) on line of credit (7,798) (60,226) 19,174
Net proceeds from issuance of long-term debt 199,070 146,631 --
Proceeds from stock options exercised 2,343 9,286 14,247
Other 1,363 -- (662)
----------- ----------- -----------
Net cash provided by financing activities 194,978 95,691 32,759
----------- ----------- -----------
Effect of exchange rate losses on cash 1,422 (1,606) (462)
----------- ----------- -----------
Increase (decrease) in cash and equivalents 75,118 761 (5,632)
Cash and cash equivalents, beginning of year 43,220 42,459 48,091
----------- ----------- -----------
Cash and cash equivalents, end of year $ 118,338 $ 43,220 $ 42,459
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 21,579 $ 20,772 $ 16,807
Income taxes 45,615 26,775 7,333
</Table>
The accompanying notes are an integral part of these statements.
26
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
STOCK CAPITAL LOSS EARNINGS TOTAL
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 717 $ 415,701 $ (11,923) $ 191,880 $ 596,375
---------- ---------- ---------- ---------- ----------
Net income 13,136 13,136
Other comprehensive income
Currency translation adjustments (10,684) (10,684)
Marketable securities valuation adjustment 749 749
----------
Comprehensive income 3,201
Stock issued for acquisition 79 153,948 154,027
Stock options exercised 9 8,580 8,589
Tax benefit of options exercised 4,901 4,901
Other 95 18 113
---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 $ 805 $ 583,225 $ (21,858) $ 205,034 $ 767,206
---------- ---------- ---------- ---------- ----------
Net income 104,063 104,063
Other comprehensive income
Currency translation adjustments (11,569) (11,569)
Marketable securities valuation adjustment (1,446) (1,446)
----------
Comprehensive income 91,048
Stock options exercised 4 6,934 6,938
Tax benefit of options exercised 2,348 2,348
---------- ---------- ---------- ---------- ----------
Balance at December 31, 2001 $ 809 $ 592,507 $ (34,873) $ 309,097 $ 867,540
========== ========== ========== ========== ==========
Net income 73,069 73,069
Other comprehensive income
Currency translation adjustments 2,474 2,474
Interest rate contract 886 886
Minimum liability of defined benefit plans (12,948) (12,948)
----------
Comprehensive income 63,481
Stock options exercised 1 2,014 2,015
Tax benefit of options exercised 328 328
---------- ---------- ---------- ---------- ----------
Balance at December 31, 2002 $ 810 $ 594,849 $ (44,461) $ 382,166 $ 933,364
========== ========== ========== ========== ==========
</Table>
The accompanying notes are an integral part of these statements.
27
<PAGE>
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF BUSINESS
We are a worldwide leader in the design, manufacture and sale of comprehensive
systems, components, and products used in oil and gas drilling and production,
as well as in distributing products and providing supply chain integration
services to the upstream oil and gas industry. Our revenues and operating
results are directly related to the level of worldwide oil and gas drilling and
production activities and the profitability and cash flow of oil and gas
companies and drilling contractors, which in turn are affected by current and
anticipated prices of oil and gas. Oil and gas prices have been and are likely
to continue to be volatile.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
National-Oilwell, Inc. and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Investments that are not wholly-owned, but where we exercise control, are fully
consolidated with the equity held by minority owners reflected as minority
interest in the accompanying balance sheet and their portion of net income
(loss) is included in other income (expense) in the accompanying statement of
operations. Investments in unconsolidated affiliates, over which we exercise
significant influence, but not control, are accounted for by the equity method.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, receivables, and payables approximated fair value because of the
relatively short maturity of these instruments. Cash equivalents include only
those investments having a maturity date of three months or less at the time of
purchase. The carrying values of other financial instruments approximate their
respective fair values.
Derivative Financial Instruments
We record all derivative financial instruments at their fair value in our
consolidated balance sheet. All derivative financial instruments we hold are
designated as cash flow hedges and are highly effective in offsetting movements
in the underlying risks. Accordingly, gains and losses from changes in the fair
value of derivative financial instruments are deferred and recognized in
earnings as the underlying transactions occur. Because our derivative financial
instruments are so closely related to the underlying transactions, hedge
ineffectiveness is insignificant.
We use foreign currency forward contracts to mitigate our exposure to changes in
foreign currency exchange rates on firm sale commitments to better match the
local currency cost components of our fixed US dollar contracts. Such
arrangements typically have terms between three months and one year, depending
upon the customer's purchase order. We also use, from time to time, interest
rate contracts to mitigate our exposure to changes in interest rates on
anticipated long-term debt issuances. These contracts are typically short term
in nature. We do not use derivative financial instruments for trading or
speculative purposes.
28
<PAGE>
Inventories
Inventories consist of oilfield products, manufactured equipment, manufactured
specialized drilling products and downhole motors and spare parts for
manufactured equipment and drilling products. Inventories are stated at the
lower of cost or market using the first-in, first-out or average cost methods.
Allowances for excess and obsolete inventories are determined based on our
historical usage of inventory on-hand as well as our future expectations related
to our substantial installed base and the development of new products. The
amount reserved, which totaled $49.4 million and $49.1 million at December 31,
2002 and 2001, respectively, is the recorded cost of the inventory minus its
estimated realizable value. Provisions for excess and obsolete inventories have
been immaterial in recent years.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for major
improvements that extend the lives of property and equipment are capitalized
while minor replacements, maintenance and repairs are charged to operations as
incurred. Disposals are removed at cost less accumulated depreciation with any
resulting gain or loss reflected in operations. Depreciation is provided using
the straight-line method or declining balance method over the estimated useful
lives of individual items. Depreciation expense was $25.0 million, $27.1 million
and $24.7 million for the years ending December 31, 2002, 2001 and 2000.
Long-lived Assets
Effective January 1, 2002, we adopted SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 superceded SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". The adoption of SFAS 144 had no effect on our results of operations. We
record impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amount of those assets. The net carrying value of assets not recoverable is
reduced to fair value if lower than carrying value. In determining the fair
market value of the assets, we consider market trends and recent transactions
involving sales of similar assets, or when not available, discounted cash flow
analysis.
Assets Held for Sale
In the course of integrating acquisitions and streamlining operations, we have
closed certain manufacturing facilities. Facilities where we have a formal plan
to sell the facility are classified as held for sale. We expect these facilities
to be sold within the next 1 to 3 years. When we designate an asset as held for
sale, we record its carrying value at the lower of its current carrying amount
or the estimated fair value less costs to sell and stop recording depreciation
expense.
Intangible Assets
Beginning in 2002, we adopted FAS 142 "Accounting for Goodwill and Other
Intangible Assets" and accordingly stopped amortizing goodwill that arose from
acquisitions before June 30, 2001. We also performed an impairment test as of
the beginning of 2002 that indicated no impairment of goodwill or other
intangibles. The effect of not amortizing goodwill and other intangibles in
periods prior to adoption follows (in thousands):
29
<PAGE>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Reported net income $ 73,069 $ 104,063 $ 13,136
Add back: Goodwill amortization, net of tax -- 10,959 9,930
---------- ---------- ----------
Adjusted net income $ 73,069 $ 115,022 $ 23,066
Adjusted net income per share:
Basic $ 0.90 $ 1.42 $ 0.29
Diluted $ 0.89 $ 1.41 $ 0.29
Weighted average shares outstanding:
Basic 80,974 80,813 79,325
Diluted 81,709 81,733 80,760
</Table>
On at least an annual basis, we assess whether goodwill is impaired. Our annual
impairment tests are performed at the beginning of the 4th quarter of each year.
If we determine that goodwill is impaired, we measure that impairment based on
the amount by which the book value of goodwill exceeds its implied fair value.
The implied fair value of goodwill is determined by deducting the fair value of
a reporting unit's identifiable assets and liabilities from the fair value of
that reporting unit as a whole. Additional impairment assessments may be
performed on an interim basis if we encounter events or changes in circumstances
that would indicate that, more likely than not, the carrying amount of goodwill
has been impaired. Fair value of the reporting units is determined based on
internal management estimates.
Foreign Currency
The functional currency for our Canadian, United Kingdom, Norwegian, German,
Netherlands and Australian operations is the local currency. The cumulative
effects of translating the balance sheet accounts from the functional currency
into the U.S. dollar at current exchange rates are included in accumulated other
comprehensive income. The U.S. dollar is used as the functional currency for the
Singapore and Venezuelan operations. Accordingly, certain assets are translated
at historical exchange rates and all translation adjustments are included in
income. For all operations, gains or losses from remeasuring foreign currency
transactions into the functional currency are included in income.
Revenue Recognition
Our products and services are generally sold based upon purchase orders or
contracts with the customer that include fixed or determinable prices and that
do not include right of return or other similar provisions or other significant
post delivery obligations. We record revenue at the time the manufacturing
process is complete, the customer has been provided with all proper inspection
and other required documentation, title and risk of loss has passed to the
customer and when collectibility is reasonably assured. We also recognize
revenue on bill-and-hold transactions where the product has been completed and
is ready to be shipped, however at the customer's request, we store the product
on the customers' behalf for a brief period of time, typically less than one
year. Customer advances or deposits are deferred and recognized as revenue when
we have completed all of our performance obligations related to the sale. We
also recognize revenue as services are performed and as rental charges are
incurred.
Revenues for the construction of large rig packages are reported on the
percentage of completion method of accounting. Revenues and gross profit are
recognized as work is performed based
30
<PAGE>
upon the relationship between actual costs incurred and total expected costs at
completion. All known or anticipated losses on contracts are provided for
immediately in earnings.
Income Taxes
The liability method is used to account for income taxes. Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to amounts which are more likely than not to be realized.
Concentration of Credit Risk
We grant credit to our customers, which operate primarily in the oil and gas
industry. We perform periodic credit evaluations of our customers' financial
condition and generally do not require collateral, but may require letters of
credit for certain international sales. We maintain an allowance for doubtful
accounts for accounts receivables by providing for specifically identified
accounts where collectibility is doubtful and an additional allowance based on
the aging of the receivables compared to past experience and current trends.
Accounts receivable are net of allowances for doubtful accounts of approximately
$12.6 million and $9.1 million at December 31, 2002 and December 31, 2001,
respectively.
Stock-Based Compensation
We use the intrinsic value method in accounting for our stock-based employee
compensation plans.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect reported and contingent amounts of assets and
liabilities as of the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement on Financial
Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations", which sets forth the accounting and reporting to be followed for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs and SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", addresses disposal activities and
termination costs in exiting an activity. These pronouncements are generally
effective January 1, 2003. The Company believes the adoption of these new
accounting pronouncements will not have a significant impact on its results of
operations or financial position.
31
<PAGE>
Net Income Per Share
The following table sets forth the computation of weighted average basic and
diluted shares outstanding (in thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Denominator for basic earnings per
share - weighted average 80,974 80,813 79,325
Effect of dilutive securities:
Employee stock options 735 920 1,435
---------- ---------- ----------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 81,709 81,733 80,760
========== ========== ==========
</Table>
2. ACQUISITIONS
Year 2002
On December 18, 2002, we completed a cash tender offer for 92% of the common
shares of Hydralift ASA, a Norwegian based company specializing in the offshore
drilling equipment industry. By December 31, 2002, we had substantially
completed the acquisition of the remaining shares for a total purchase price,
including the assumption of debt, of approximately $300 million. The results of
Hydralift's operations have been included in our income statement since the
acquisition date.
As a result of this acquisition, we strengthened our position in the offshore
drilling market and gained access to new product lines that complement our
existing product offerings. The combination of our product offerings will open
new markets to us, particularly within the FPSO (floating production storage and
offloading) market.
32
<PAGE>
The purchase price will be allocated to the assets acquired and liabilities
assumed based on their relative fair values. A preliminary allocation of the
purchase price follows (in thousands):
<Table>
<S> <C>
Assets acquired:
Cash $ 47,387
Other current assets 138,709
Fixed assets 28,626
Other 24,920
Goodwill and other intangible assets 221,073
---------
460,715
Liabilities assumed:
Current liabilities 95,223
Debt obligations 93,101
Other 27,390
---------
215,714
Net assets acquired $ 245,001
=========
</Table>
The final allocation of the purchase price will be based upon independent
appraisals and other valuations and may reflect other actions including product
line rationalizations or other actions. All of the goodwill from this
acquisition will be allocated to the Products and Technology segment and will be
fully deductible for tax purposes.
The following unaudited pro forma information assumes the acquisition of
Hydralift had occurred as of the beginning of each year shown (in thousands):
<Table>
<Caption>
2002 2001
----------- -----------
<S> <C> <C>
Revenues $ 1,862,372 $ 2,003,995
Net income 87,148 116,718
Per diluted share $ 1.07 $ 1.43
</Table>
Adjustments made to derive the pro forma data relate principally to acquisition
financing. These results are not necessarily indicative of what actually would
have occurred if the acquisition had happened as of the beginning of 2002 or
2001 nor are they indicative of future results. The estimated effects of cost
reductions arising from the acquisition of Hydralift have been excluded.
In January 2002, we also completed the acquisition of the assets and business of
HAL Oilfield Pump & Equipment Company for approximately $16 million. This
business, which designs, manufactures and distributes centrifugal pumps, pump
packages and expendable parts, is complementary to our Mission pump product
line. Goodwill related to this acquisition was approximately $10 million and is
fully deductible for tax purposes.
During 2002 we also acquired two other businesses for approximately $1.2 million
in cash.
33
<PAGE>
Year 2001
In 2001, we acquired nine companies for an aggregate of $51 million in cash.
Individual purchase prices ranged from $0.6 million to $16.5 million. Each of
these acquisitions enhanced or expanded our market position within each of our
segments. Five of these acquisitions related to our Products and Technology
segment, including Integrated Power Systems, Maritime Hydraulics (Canada) Ltd.,
Tech Power Controls Company, Houston Scientific International, Inc. and Rigquip
UK business and related assets. The remaining acquisitions, including Demij (a
Netherlands distribution company), Rye Supply Company, Inc., Texas Oil Works
Supply, Inc. and Well-Serv, Inc. related to our Distribution segment. Aggregate
goodwill relating to these acquisitions was $30 million and approximately half
of this amount is deductible for tax purposes.
Year 2000
In February 2000, the merger with Hitec ASA was completed for approximately $158
million as we issued 7.9 million shares of common stock. This transaction was
accounted for as a purchase effective February 1, 2000 and generated goodwill of
approximately $150 million.
In June 2000, IRI International Corporation was merged with the Company and
accounted for as a pooling-of-interests. We issued 13.5 million shares of common
stock valued at approximately $447 million.
During 2000 we also acquired four other businesses for approximately $48 million
in cash. The purchase method of accounting was used to account for these
acquisitions and generated approximately $9 million in goodwill.
Subsequent Events
On January 2, 2003, we acquired LSI, a Houston, Texas based distributor of
specialty electrical products, for approximately $13 million. This transaction
generated approximately $6 million in goodwill and is complementary to our
distribution services business.
On January 16, 2003 we acquired the Mono pumping products business from
Halliburton Energy Services for approximately $89 million, consisting of $22.7
million in cash and 3.2 million shares of our common stock. This transaction,
which consisted of purchasing all the outstanding stock of Monoflo, Inc. in the
United States and Mono Group in the United Kingdom, generated approximately $46
million in goodwill.
34
<PAGE>
3. INVENTORIES
Inventories consist of (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 60,699 $ 39,272
Work in process 109,924 101,376
Finished goods and purchased products 299,465 315,286
---------- ----------
Total $ 470,088 $ 455,934
========== ==========
</Table>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of (in thousands):
<Table>
<Caption>
ESTIMATED DECEMBER 31, DECEMBER 31,
USEFUL LIVES 2002 2001
-------------- ------------ ------------
<S> <C> <C> <C>
Land and improvements 2-20 Years $ 11,927 $ 9,557
Buildings and improvements 5-31 Years 74,610 53,268
Machinery and equipment 5-12 Years 111,652 89,268
Computer and office equipment 3-10 Years 92,794 73,322
Rental equipment 1-7 Years 77,328 63,971
------------ -----------
368,311 289,386
Less accumulated depreciation (159,891) (120,435)
------------ -----------
$ 208,420 $ 168,951
============ ===========
</Table>
5. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
<S> <C> <C>
Credit facilities $ 94,637 $ 10,213
6.875% senior notes 150,000 150,000
6.50% senior notes 150,000 150,000
5.65% senior notes 200,000 --
----------- -----------
594,637 310,213
Less current portion -- 10,213
----------- -----------
$ 594,637 $ 300,000
=========== ===========
</Table>
In November 2002, we sold $200 million of 5.65 % unsecured senior notes due
November 15, 2012. Proceeds were used to acquire Hydralift ASA. Interest is
payable on May 15 and November 15 of each year. In March 2001, we sold $150
million of 6.50 % unsecured senior notes due March 15, 2011, with interest
payable on March 15 and September 15 of each year. In
35
<PAGE>
June 1998, we sold $150 million of 6.875 % unsecured senior notes due July 1,
2005, with interest payments due annually on January 1 and July 1.
On July 30, 2002, we replaced the existing credit facility with a new three-year
unsecured $175 million revolving credit facility. This facility is available for
acquisitions and general corporate purposes and provides up to $50 million for
letters of credit, of which $22.0 million were outstanding at December 31, 2002.
Interest is based upon prime or Libor plus 0.5% subject to a ratings based grid.
In securing this new credit facility, we incurred approximately $0.9 million in
fees which will be amortized to expense over the term of the facility.
The senior notes contain reporting covenants and the credit facility contains
financial covenants and ratios regarding maximum debt to capital and minimum
interest coverage. We were in compliance with all covenants governing these
facilities at December 31, 2002.
We also have additional credit facilities totaling $223 million that are used
primarily for acquisitions, general corporate purposes and letters of credit.
Recently acquired Hydralift ASA represents $152 million of these facilities.
These multi-currency Hydralift committed facilities are secured by a guarantee,
contain financial covenants and expire in 2006. These instruments carry interest
at a pre-agreed upon percentage point spread from either the prime interest rate
or NIBOR. Borrowings against these additional credit facilities totaled $93
million at December 31, 2002 and an additional $39 million had been used for
letters of credit and guarantees.
6. PENSION PLANS
National Oilwell and its consolidated subsidiaries have pension plans covering
substantially all of its employees. Defined-contribution pension plans cover
most of the U.S. and Canadian employees and are based on years of service, a
percentage of current earnings and matching of employee contributions. For the
years ended December 31, 2002, 2001 and 2000, pension expense for
defined-contribution plans was $9.1 million, $6.0 million and $4.2 million, and
all funding is current.
Certain retired or terminated employees of predecessor or acquired companies
also participate in defined benefit plans in the United States which have been
retained by National Oilwell subsidiaries but which no longer accrue benefits.
Active employees are ineligible to participate in any of these defined benefit
plans. Our subsidiaries in the United Kingdom have a defined benefit pension
plan whose participants are primarily retired and terminated employees who are
no longer accruing benefits. In addition, approximately 160 U.S. retirees and
spouses participate in defined benefit health care plans of predecessor or
acquired companies that provide postretirement medical and life insurance
benefits. Pension assets are principally invested in a fixed income bond fund,
equity securities, United Kingdom government securities and cash deposits.
36
<PAGE>
The change in benefit obligation, plan assets and the funded status of the
defined pension plans in the United States and the United Kingdom, and defined
postretirement plans in the United States, follows:
<Table>
<Caption>
Pension benefits Postretirement benefits
---------------------------- ----------------------------
At year end 2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 49,605 $ 46,511 $ 7,416 $ 3,107
Service cost 274 173 40 21
Interest cost 3,336 3,457 552 506
Actuarial (gain) loss 10,973 1,272 1,094 4,079
Benefits paid (2,996) (2,186) (645) (503)
Retiree contributions 161 99 32 --
Other 3,357 279 -- 206
------------ ------------ ------------ ------------
BENEFIT OBLIGATION AT END OF YEAR $ 64,710 $ 49,605 $ 8,489 $ 7,416
------------ ------------ ------------ ------------
Fair value of plan assets at beginning of year $ 51,211 $ 60,062 $ -- $ --
Actual return (9,335) (7,715) -- --
Benefits paid (2,996) (2,186) (645) (503)
Contributions 1,621 450 645 503
Other 4,174 600 -- --
------------ ------------ ------------ ------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 44,675 $ 51,211 -- --
------------ ------------ ------------ ------------
Funded status $ (20,035) $ 1,606 (8,489) (7,416)
Unrecognized actuarial net loss/ (gain) 31,815 7,662 4,270 3,389
Prior service costs not yet recognized 281 303 213 257
Minimum pension liability (19,698) -- -- --
Other (10,543) (9,223)
------------ ------------ ------------ ------------
PREPAID (ACCRUED) BENEFIT COST $ (18,180) $ 348 (4,006) (3,770)
------------ ------------ ------------ ------------
</Table>
37
<PAGE>
Significant assumptions used for the plans follow:
<Table>
<Caption>
Pension benefits Postretirement benefits
------------------------------- -----------------------------
For the year 2002 2001 2000 2002 2001 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions:
Discount rate 5.8% 6.5% 7.5% 6.5% 6.9% 7.6%
Expected long-term rate of return 6.3% 7.0% 8.0% n/a n/a n/a
Rate of compensation increase 4.0% 4.25% 5.0% n/a n/a n/a
</Table>
A 17% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2003, decreasing by approximately 3% points per year to
5.5% in 2007, with 5.5% increases per year thereafter.
Net periodic benefit cost (credit):
<Table>
<Caption>
Pension benefits Postretirement benefits
------------------------------- -----------------------------
For the year 2002 2001 2000 2002 2001 2000
------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during the period $ 422 $ -- $ 108 $ 40 $ 21 $ 16
Interest cost on projected benefit obligation 3,313 1,194 1,186 552 506 232
Expected return on plan assets (3,886) (1,183) (1,280) -- -- --
Net amortization and deferral 74 46 (8) 257 178 (13)
------- ------- ------- ------- ------- -------
NET PERIODIC BENEFIT COST (CREDIT) $ (77) $ 57 $ 6 $ 849 $ 705 $ 235
======= ======= ======= ======= ======= =======
</Table>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the postretirement benefits. A one percentage point change in
assumed health care cost trend rates would have the following effects:
<Table>
<Caption>
1% Point Increase 1% Point Decrease
----------------- -----------------
(in thousands)
<S> <C> <C>
Effect on total of service and interest cost components in 2002 $ 47 $ (40)
Effect on postretirement benefit obligation at year-end 2002 $ 770 $ (655)
</Table>
In addition, our subsidiaries in Norway have defined benefit pension plans. The
pension plan assets are invested primarily in equity securities, overseas bonds,
real estate and cash deposits. At December 31, 2002, the plan assets at fair
market value and the projected benefit obligation were approximately $12.0
million.
38
<PAGE>
7. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)
The components of other comprehensive loss are as follows (in thousands):
<Table>
<Caption>
Cumulative Cumulative
Change in Currency Marketable
Minimum Translation Interest Securities
Pension Liability Adjustment Rate Contract Valuation Adj. TOTAL
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ -- $ (12,639) $ -- $ 716 $ (11,923)
Current period activity (10,684) 1,136 (9,548)
Tax effect (387) (387)
----------------- ---------------- ---------------- ---------------- ----------------
Balance at December 31, 2000 -- (23,323) -- 1,465 (21,858)
Current period activity (11,569) (2,191) (13,760)
Tax effect 745 745
----------------- ---------------- ---------------- ---------------- ----------------
Balance at December 31, 2001 -- (34,892) -- 19 (34,873)
----------------- ---------------- ---------------- ---------------- ----------------
Current period activity (19,698) 2,474 1,363 (15,861)
Tax effect 6,750 (477) 6,273
---------------- ---------------- ---------------- ---------------- ----------------
Balance at December 31, 2002 $ (12,948) $ (32,418) $ 886 $ 19 $ (44,461)
================ ================ ================ ================ ================
</Table>
8. COMMITMENTS AND CONTINGENCIES
We lease land, buildings, storage facilities, vehicles, data processing
equipment and software under operating leases expiring in various years through
2012. Rent expense for the years ended December 31, 2002, 2001 and 2000 was
$21.2 million, $19.0 million and $12.6 million. Our minimum rental commitments
for operating leases at December 31, 2002 were as follows: 2003 - $17.7 million;
2004 - $13.8 million; 2005 - $9.9 million; 2006 - $6.8 million; 2007 - $5.8
million and subsequent to 2007 - $9.7 million.
We are involved in various claims, regulatory agency audits and pending or
threatened legal actions involving a variety of matters. The total liability on
these matters at December 31, 2002 cannot be determined; however, in our
opinion, any ultimate liability, to the extent not otherwise provided for,
should not materially affect our financial position, liquidity or results of
operations.
Our business is affected both directly and indirectly by governmental laws and
regulations relating to the oilfield service industry in general, as well as by
environmental and safety regulations that specifically apply to our business.
Although we have not incurred material costs in connection with our
compliance with such laws, there can be no assurance that other developments,
such as stricter environmental laws, regulations and enforcement policies
thereunder could not result in additional, presently unquantifiable costs or
liabilities to us.
39
<PAGE>
9. COMMON STOCK
National Oilwell has authorized 150 million shares of $.01 par value common
stock. We also have authorized 10 million shares of $.01 par value preferred
stock, none of which is issued or outstanding.
Under the terms of National Oilwell's Stock Award and Long-Term Incentive Plan,
as amended, 8.4 million shares of common stock are authorized for the grant of
options to officers, key employees, non-employee directors and other persons.
Options granted under our stock option plan generally vest over a three-year
period starting one year from the date of grant and expire five or ten years
from the date of grant. The purchase price of options granted may not be less
than the market price of National Oilwell common stock on the date of grant. At
December 31, 2002, approximately 4.2 million shares were available for future
grants.
We also have inactive stock option plans that were acquired in connection with
the acquisitions of Dreco Energy Services, Ltd. in 1997, and of Hitec ASA and
IRI International Corporation in 2000. We converted the outstanding stock
options under these plans to options to acquire our common stock and no further
options are being issued under these plans. Stock option information summarized
below includes amounts for the National Oilwell Stock Award and Long-Term
Incentive Plan and stock plans of acquired companies.
Options outstanding at December 31, 2002 under the stock option plans have
exercise prices between $5.62 and $40.50 per share, and expire at various dates
from February 19, 2003 to August 15, 2012.
The following summarizes options activity:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------- ---------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at 3,094,160 $ 22.95 2,792,585 $ 16.50 2,041,204 $ 14.59
beginning of year
Granted 977,500 18.53 911,626 40.50 758,961 23.56
Options from acquisitions -- -- -- -- 1,006,342 10.52
Cancelled (133,465) 28.54 (218,086) 25.47 (86,425) 14.10
Exercised (147,699) 13.52 (391,965) 16.39 (927,497) 11.80
------------ ------------ ------------ ------------ ------------ ------------
Shares under option at 3,790,496 $ 21.99 3,094,160 $ 22.95 2,792,585 $ 16.50
end of year
Exercisable at end of year 2,119,692 $ 18.71 1,474,833 $ 15.68 1,097,327 $ 13.73
============ ============ ============ ============ ============ ============
</Table>
40
<PAGE>
The following summarizes information about stock options outstanding as of
December 31, 2002:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED-AVG. --------------------------------- --------------------------------
RANGE OF REMAINING WEIGHTED-AVG. WEIGHTED-AVG.
EXERCISE PRICE CONTRACTUAL LIFE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- --------------------- ---------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 5.62 to $10.52 2.98 1,131,451 $ 10.21 1,131,451 $ 10.21
$11.45 to $21.70 8.57 1,049,425 18.21 111,925 15.56
$22.56 to $40.50 6.55 1,609,620 32.73 876,316 30.10
--------------- --------------- --------------- --------------- ---------------
Totals 6.04 3,790,496 $ 21.99 2,119,692 $ 18.71
=============== =============== =============== =============== ===============
</Table>
The weighted average fair value of options granted during 2002, 2001 and 2000
was approximately $8.95, $22.04, and $15.70 per share, respectively, as
determined using the Black-Scholes option-pricing model. Assuming that we had
accounted for our stock-based compensation using the alternative fair value
method of accounting under FAS No. 123 and amortized the fair value to expense
over the option's vesting period, our net income and net income per share would
have been (in thousands, except per share data):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported $ 73,069 $ 104,063 $ 13,136
Pro forma $ 63,926 $ 94,227 $ 5,584
Basic net income per share:
As reported $ 0.90 $ 1.29 $ 0.17
Pro forma 0.79 1.17 0.07
Diluted net income per share:
As reported $ 0.89 $ 1.27 $ 0.16
Pro forma 0.78 1.15 0.07
</Table>
These pro forma results may not be indicative of future effects.
The assumptions used in the Black-Scholes option-pricing model were:
<Table>
<Caption>
ASSUMPTIONS 2002 2001 2000
----------------------------------- ---------- --------- --------
<S> <C> <C> <C>
Risk-free interest rate 2.4% 6.3% 4.7%
Expected dividend -- -- --
Expected option life (years) 5 5 4
Expected volatility 54% 55% 94%
</Table>
The Company evaluates annually the grant of options to eligible participants and
in February 2003, 977,500 options to purchase shares of common stock were
granted at an exercise price of $20.14, the fair value of the common stock at
the date of grant.
41
<PAGE>
10. INCOME TAXES
The domestic and foreign components of income before income taxes were as
follows (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
Domestic $ 45,716 $ 101,700 $ (10,555)
Foreign 66,749 66,317 37,592
------------ ------------ ------------
$ 112,465 $ 168,017 $ 27,037
============ ============ ============
</Table>
The components of the provision (benefit) for income taxes consisted of
(in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 11,315 $ 32,222 $ 5,401
State 909 581 123
Foreign 15,726 23,304 14,258
------------ ------------ ------------
27,950 56,107 19,782
------------ ------------ ------------
Deferred:
Federal 4,888 4,925 (6,757)
State 1,144 391 (507)
Foreign 5,414 2,531 1,383
------------ ------------ ------------
11,446 7,847 (5,881)
------------ ------------ ------------
$ 39,396 $ 63,954 $ 13,901
============ ============ ============
</Table>
42
<PAGE>
The difference between the effective tax rate reflected in the provision for
income taxes and the U.S. federal statutory rate was as follows (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
--------------- --------------- ---------------
<S> <C> <C> <C>
Federal income tax at statutory rate $ 39,363 $ 58,806 $ 9,462
Foreign income tax rate differential (2,990) 1,405 781
State income tax, net of federal benefit 556 299 336
Tax benefit of foreign sales income (1,580) (1,575) (1,492)
Nondeductible expenses 1,053 2,423 4,626
Foreign dividends net of FTCs 1,176 (1,967) (1,046)
Net operating loss carryforwards -- 2,948 1,744
Change in deferred tax valuation allowance 400 1,223 (606)
Prior year taxes 1,126 -- --
Other 292 392 96
--------------- --------------- ---------------
$ 39,396 $ 63,954 $ 13,901
=============== =============== ===============
</Table>
Significant components of National Oilwell's deferred tax assets and
liabilities were as follows (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2001
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Allowances and operating liabilities $ 29,047 $ 9,408
Net operating loss carryforwards 23,891 16,107
Foreign tax credit carryforwards 15,082 13,580
Capital loss carryforward 3,527 3,527
Other 22,012 20,378
--------------- ---------------
Total deferred tax assets 93,559 63,000
Valuation allowance for deferred tax assets (29,912) (29,512)
--------------- ---------------
63,647 33,488
--------------- ---------------
Deferred tax liabilities:
Tax over book depreciation 14,168 10,366
Operating and other assets 31,688 --
Other 8,756 10,014
--------------- ---------------
Total deferred tax liabilities 54,612 20,380
--------------- ---------------
Net deferred tax assets $ 9,035 $ 13,108
=============== ===============
</Table>
In the United States, the Company has $12.0 million of net operating loss
carryforwards as of December 31, 2002, which expire at various dates through
2017. These operating losses were acquired primarily in the combination with
Dreco Energy Services, Ltd. and are associated with Dreco's US subsidiary. As a
result of share exchanges occurring since the date of the combination resulting
in a more than 50% aggregate change in the beneficial ownership of Dreco, the
availability of these loss carryforwards to reduce future United States federal
taxable income may have become subject to various limitations under Section 382
of the Internal Revenue Code of 1986, as amended. In addition, these net
operating losses can only be used to offset separate company taxable income of
Dreco's US subsidiary. Since the ultimate realization of these net operating
losses is uncertain, the related potential benefit of $4.2 million has been
recorded with a $2.8 million valuation allowance. Future income tax expense will
be reduced if the Company ultimately realizes the benefit of these net operating
losses.
43
<PAGE>
Also in the United States, the Company has $9.1 million of capital loss
carryforwards as of December 31, 2002, which expire at various dates through
2005. The related potential benefit of $3.5 million has been recorded with a
valuation allowance of $3.5 million. These capital losses are not available to
reduce future operating income but are expected to be realized as deductions
against future capital gains. The Company has $ 15.1 million of excess foreign
tax credits as of December 31, 2002, which expire at various dates through 2006.
These credits have been allotted a valuation allowance of $ 14.1 million and
would be realized as a reduction of future income tax expense.
Outside the United States, the company has $67.5 million of net operating loss
carryforwards as of December 31, 2002. Of this amount, $65.3 million will expire
at various dates through 2012 and $2.2 million is available indefinitely. The
related potential benefit available of $19.7 million has been recorded with a
valuation allowance of $9.6 million. If the Company ultimately realizes the
benefit of these net operating losses, $9.4 million would reduce goodwill and
other intangible assets and $10.3 million would reduce income tax expense.
The deferred tax valuation allowance increased $0.4 million for the period
ending December 31, 2002 and $1.2 million for the period ending December 31,
2001. These increases resulted primarily from the recognition of additional
excess foreign tax credits that may not be realized in the future.
National-Oilwell's deferred tax assets are expected to be realized principally
through future earnings.
Undistributed earnings of the Company's foreign subsidiaries amounted to $193.4
million and $149.2 million at December 31, 2002 and December 31, 2001,
respectively. Those earnings are considered to be permanently reinvested and no
provision for U.S. federal and state income taxes has been made. Distribution of
these earnings in the form of dividends or otherwise could result in either U.S.
federal taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable in various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practical; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $23.4 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 2002.
11. SPECIAL CHARGE
During 2000, we recorded a special charge, net of a $0.4 million credit from
previous special charges, of $14.1 million ($11.0 million after tax, or $0.14
per share) related to the merger with IRI International. Components of the
charge were (in millions):
<Table>
<S> <C>
Direct transaction costs $ 6.6
Severance 6.4
Facility closures 1.5
------
14.5
Prior year reversal (0.4)
------
$ 14.1
------
</Table>
The cash and non-cash elements of the charge approximated $13 million and $1.1
million, respectively. All direct cash outlays have been spent. Facility closure
costs consisted of lease cancellation costs and impairment of a closed
manufacturing facility that is classified with "Property held for sale" on our
balance sheet. All of this charge is applicable to the Products and Technology
business segment.
44
<PAGE>
12. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
National Oilwell's operations consist of two segments: Products and Technology
and Distribution Services. The Products and Technology segment designs and
manufactures a variety of oilfield equipment for use in oil and gas drilling,
completion and production activities. The Distribution Services segment
distributes an extensive line of oilfield supplies and equipment. Intersegment
sales and transfers are accounted for at commercial prices and are eliminated in
consolidation. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies of the
Company. The Company evaluates performance of each reportable segment based upon
its operating income, excluding non-recurring items.
No single customer accounted for 10% or more of consolidated revenues during the
three years ended December 31, 2002.
45
<PAGE>
Summarized financial information is as follows (in thousands):
Business Segments
<Table>
<Caption>
PRODUCTS AND DISTRIBUTION CORPORATE/
TECHNOLOGY SERVICES ELIMINATIONS TOTAL
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 2002
Revenues from:
Unaffiliated customers $ 837,750 $ 684,196 $ -- $ 1,521,946
Intersegment sales 79,500 1,978 (81,478) --
------------- ------------ ------------ -------------
Total revenues 917,250 686,174 (81,478) 1,521,946
Operating income (loss) 127,011 18,083 (10,771) 134,323
Capital expenditures 19,849 3,612 1,344 24,805
Depreciation and amortization 19,340 4,883 825 25,048
Goodwill 560,235 16,457 4,884 581,576
Identifiable assets 1,640,171 266,663 61,828 1,968,662
DECEMBER 31, 2001
Revenues from:
Unaffiliated customers $ 1,041,614 $ 705,817 $ 24 $ 1,747,455
Intersegment sales 79,305 2,001 (81,306) --
------------- ------------ ------------ -------------
Total revenues 1,120,919 707,818 (81,282) 1,747,455
Operating income (loss) 171,013 28,473 (10,209) 189,277
Capital expenditures 22,170 4,066 1,122 27,358
Depreciation and amortization 31,882 6,428 563 38,873
Goodwill 332,121 15,089 4,884 352,094
Identifiable assets 1,178,118 260,212 33,366 1,471,696
DECEMBER 31, 2000
Revenues from:
Unaffiliated customers $ 629,967 $ 519,911 $ 42 $ 1,149,920
Intersegment sales 53,500 1,362 (54,862) --
------------- ------------ ------------ -------------
Total revenues 683,467 521,273 (54,820) 1,149,920
Operating income (loss) 60,992 (2) 12,884 (25,420) (1) 48,456 (1)(2)
Capital expenditures 14,960 7,387 2,214 24,561
Depreciation and amortization 28,712 5,985 337 35,034
Goodwill 313,468 10,843 5,029 329,340
Identifiable assets 1,001,391 223,973 53,530 1,278,894
</Table>
(1) Includes a special charge of $14,082 for 2000 related to the merger
with IRI.
(2) Includes $15,684 of inventory write-offs related to the merger with
IRI.
46
<PAGE>
Geographic Areas:
<Table>
<Caption>
UNITED UNITED
STATES CANADA NORWAY KINGDOM OTHER ELIMINATIONS TOTAL
----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 2002
Revenues from:
Unaffiliated customers $ 1,054,956 $ 254,361 $ 86,169 $ 44,733 $ 81,727 $ -- $ 1,521,946
Interarea sales 108,191 59,370 18,561 7,393 1,199 (194,714) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,163,147 313,731 104,730 52,126 82,926 (194,714) 1,521,946
Long-lived assets 618,501 423,029 787,505 48,525 91,102 -- 1,968,662
DECEMBER 31, 2001
Revenues from:
Unaffiliated customers $ 1,280,598 $ 337,447 $ 38,171 $ 42,978 $ 48,261 $ -- $ 1,747,455
Interarea sales 129,525 45,890 11,591 7,421 445 (194,872) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,410,123 383,337 49,762 50,399 48,706 (194,872) 1,747,455
Long-lived assets 768,160 379,976 223,747 49,750 50,063 -- 1,471,696
DECEMBER 31, 2000
Revenues from:
Unaffiliated customers $ 799,415 $ 239,940 $ 31,961 $ 48,050 $ 30,554 $ -- $ 1,149,920
Interarea sales 43,521 28,302 3,786 4,796 737 (81,142) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 842,936 268,242 35,747 52,846 31,291 (81,142) 1,149,920
Long-lived assets 646,210 338,319 216,866 44,633 32,866 -- 1,278,894
</Table>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly results were as follows (in thousands, except per share
data):
<Table>
<Caption>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2002
Revenues $ 388,986 $ 372,390 $ 366,929 $ 393,641 $ 1,521,946
Gross Profit 93,045 87,404 88,533 92,882 361,864
Income before taxes 33,102 26,501 27,743 25,119 112,465
Net income 21,185 16,961 17,756 17,167 73,069
Net income per basic share 0.26 0.21 0.22 0.21 0.90
Net income per diluted share 0.26 0.21 0.22 0.21 0.89
YEAR ENDED DECEMBER 31, 2001
Revenues $ 360,272 $ 434,628 $ 486,812 $ 465,743 $ 1,747,455
Gross Profit 91,173 103,494 119,905 113,262 427,834
Income before taxes 34,640 40,805 47,369 45,203 168,017
Net income 21,478 25,299 28,938 28,348 104,063
Net income per basic share 0.27 0.31 0.36 0.35 1.29
Net income per diluted share 0.26 0.31 0.36 0.35 1.27
</Table>
47
<PAGE>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Combination Agreement between National-Oilwell, Inc. and
Hydralift ASA regarding the transaction announced October 11,
2002 (Exhibit 2.1) (5)
3.1 Amended and Restated Certificate of Incorporation of
National-Oilwell, Inc. (Exhibit 3.1) (1)
3.2 By-laws of National-Oilwell, Inc.
10.1 Employment Agreement dated as of January 1, 2002 between Merrill
A. Miller, Jr. and National Oilwell, with a similar agreement
with Steven W. Krablin (Exhibit 10.1) (2)
10.2 Employment Agreement dated as of January 1, 2002 between Dwight
W. Rettig and National Oilwell, with similar agreements with
Robert L. Bloom, Kevin Neveu, Mark A. Reese and Robert R. Workman
(Exhibit 10.2) (2)
10.3 Employment Agreement dated as of June 28, 2000 between Gary W.
Stratulate and IRI International, Inc., which has now merged into
National Oilwell (Exhibit 10.3) (2)
10.4 Amended and Restated Stock Award and Long-Term Incentive Plan
(Exhibit 10.1) (3)*
10.5 Loan Agreement dated July 30, 2002 (Exhibit 10.2) (3)
10.6 Employment Agreement dated as of March 1, 2000 between Jon
Gjedebo and a National Oilwell subsidiary (Exhibit 10.8) (4)
10.7 Non-competition Agreement dated as of June 28, 2000 between
Hushang Ansary and National Oilwell (Exhibit 10.9) (4)
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on signature page hereto)
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
</Table>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>h03420exv3w2.txt
<DESCRIPTION>BY-LAWS OF NATIONAL-OILWELL, INC.
<TEXT>
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NATIONAL-OILWELL, INC.
(formerly NOW Holdings, Inc.)
A Delaware Corporation
Date of Adoption:
July 15, 1995
<PAGE>
NATIONAL-OILWELL, INC.
BYLAWS
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
<S> <C>
Article I
Offices ....................................................................... 1
Section 1. Registered Office ................................................. 1
Section 2. Other Offices ..................................................... 1
Article II
Stockholders .................................................................. 1
Section 1. Place of Meetings ................................................. 1
Section 2. Quorum; Adjournment of Meetings ................................... 1
Section 3. Annual Meetings ................................................... 2
Section 4. Special Meetings .................................................. 2
Section 5. Record Date ....................................................... 2
Section 6. Notice of Meetings ................................................ 3
Section 7. Stock List ........................................................ 3
Section 8. Proxies ........................................................... 3
Section 9. Voting; Elections; Inspectors ..................................... 3
Section 10. Conduct of Meetings ............................................... 4
Section 11. Treasury Stock .................................................... 5
Section 12. Action Without Meeting ............................................ 5
Article III
Board of Directors ............................................................ 5
Section 1. Power; Number; Term of Office ..................................... 5
Section 2. Quorum ............................................................ 5
Section 3. Place of Meetings; Order of Business .............................. 5
Section 4. First Meeting ..................................................... 6
Section 5. Regular Meetings .................................................. 6
Section 6. Special Meetings .................................................. 6
Section 7. Removal ........................................................... 6
Section 8. Vacancies; Increases in the Number of Directors ................... 6
Section 9. Compensation ...................................................... 7
</Table>
<PAGE>
<Table>
<S> <C>
Section 10. Action Without a Meeting; Telephone Conference Meeting ........... 7
Section 11. Approval or Ratification of Acts or Contracts by Stockholders .... 7
Article IV
Committees .................................................................... 7
Section 1. Designation; Powers ............................................... 7
Section 2. Procedure; Meetings; Quorum ....................................... 8
Section 3. Substitution of Members ........................................... 8
Article V
Officers ...................................................................... 8
Section 1. Number, Titles and Term of Office ................................. 8
Section 2. Salaries .......................................................... 9
Section 3. Removal ........................................................... 9
Section 4. Vacancies ......................................................... 9
Section 5. Powers and Duties of the Chief Executive Officer .................. 9
Section 6. Powers and Duties of the Chairman of the Board .................... 9
Section 7. Powers and Duties of the President ................................ 9
Section 8. Vice Presidents ................................................... 9
Section 9. Treasurer ......................................................... 10
Section 10. Assistant Treasurers .............................................. 10
Section 11. Secretary ......................................................... 10
Section 12. Assistant Secretaries ............................................. 10
Section 13. Action with Respect to Securities of Other Corporations ........... 10
Article VI
Indemnification of Directors, Officers, Employees and Agents .................. 11
Section 1. Right to Indemnification .......................................... 11
Section 2. Indemnification of Employees and Agents ........................... 11
Section 3. Right of Claimant to Bring Suit ................................... 12
Section 4. Nonexclusivity of Rights .......................................... 12
Section 5. Insurance ......................................................... 12
Section 6. Savings Clause .................................................... 12
Section 7. Definitions ....................................................... 13
</Table>
<PAGE>
<Table>
<S> <C>
Article VII
Capital Stock ................................................................. 13
Section 1. Certificates of Stock ............................................. 13
Section 2. Transfer of Shares ................................................ 13
Section 3. Ownership of Shares ............................................... 14
Section 4. Regulations Regarding Certificates ................................ 14
Section 5. Lost or Destroyed Certificates .................................... 14
Article VIII
Miscellaneous Provisions ...................................................... 14
Section 1. Fiscal Year ....................................................... 14
Section 2. Corporate Seal .................................................... 14
Section 3. Notice and Waiver of Notice ....................................... 14
Section 4. Resignations ...................................................... 15
Section 5. Facsimile Signatures .............................................. 15
Section 6. Reliance upon Books, Reports, and Records ......................... 15
Article IX
Amendments .................................................................... 15
</Table>
<PAGE>
DELAWARE BYLAWS
OF
NATIONAL-OILWELL, INC.
Article I
Offices
Section 1. Registered Office. The registered office of the Corporation
required by the General Corporation Law of the State of Delaware to be
maintained in the State of Delaware, shall be the registered office named in the
original Certificate of Incorporation of the Corporation, or such other office
as may be designated from time to time by the Board of Directors in the manner
provided by law. Should the Corporation maintain a principal office within the
State of Delaware such registered office need not be identical to such principal
office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be specified or fixed in the notices
or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required
by law or provided in the Certificate of Incorporation or these bylaws, the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
any meeting of stockholders for the transaction of business and the act of a
majority of such stock so represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the meeting of stockholders. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of
Incorporation or these bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy, at any meeting of stockholders, whether or not a quorum is present,
shall have the power to adjourn such meeting from time to time, without any
notice other than announcement at the meeting of the time and place of the
holding of the adjourned meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting. At such
<PAGE>
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board (if
any), by the President or by a majority of the Board of Directors, or by a
majority of the executive committee (if any), and shall be called by the
Chairman of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the holder(s) of at least ten percent (10%)
of the issued and outstanding stock entitled to vote at such meeting.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors of the Corporation
may fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty (60) days nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VIII, Section 3 of these bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. If, in
accordance with Section 12 of this Article II, corporate action without a
meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-2-
<PAGE>
Section 6. Notice of Meetings. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Chairman of the Board (if any) or the President, the Secretary or the other
person(s) calling the meeting to each stockholder entitled to vote thereat not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
Such notice may be delivered either personally or by mail. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
Section 7. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in the name of such stockholder, shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The stock list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting who shall decide all questions touching upon the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall have
one vote for each share of stock
-3-
<PAGE>
entitled to vote which is registered in his name on the record date for the
meeting. Shares registered in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the bylaw (or
comparable instrument) of such corporation may prescribe, or in the absence of
such provision, as the Board of Directors (or comparable body) of such
corporation may determine. Shares registered in the name of a deceased person
may be voted by his executor or administrator, either in person or by proxy.
All voting, except as required by the Certificate of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by stockholders holding a majority of the issued and
outstanding stock present in person or by proxy at any meeting a stock vote
shall be taken. Every stock vote shall be taken by written ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
All elections of directors shall be by ballot, unless otherwise provided in the
Certificate of Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders shall
be presided over by the Chairman of the Board (if any), or if he is not present,
by the President, or if neither the Chairman of the Board (if any), nor
President is present, by a chairman elected at the meeting. The Secretary of the
Corporation, if present, shall act as secretary of such meetings, or if he is
not present, an Assistant Secretary shall so act; if neither the Secretary nor
an Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order. Unless the chairman of the meeting of stockholders shall otherwise
determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting called for
that purpose.
-4-
<PAGE>
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Stock. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
Section 12. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action permitted or required by law, the
Certificate of Incorporation or these bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors, shall be determined from time to time by resolution of the Board of
Directors (provided that no decrease in the number of directors which would have
the effect of shortening the term of an incumbent director may be made by the
Board of Directors). If the Board of Directors makes no such determination, the
number of directors shall be the number set forth in the Certificate of
Incorporation, Each director shall hold office for the term for which he is
elected, and until his successor shall have been elected and qualified or until
his earlier death, resignation or removal.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may hold
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provided by
-5-
<PAGE>
law, in such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine by resolution. At all
meetings of the Board of Directors business shall be transacted in such order as
shall from time to time be determined by the Chairman of the Board (if any), or
in his absence by the President, or by resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board (if any), the President or, on the
written request of any two directors, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VIII,
Section 3 hereof, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the Certificate of
Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors; provided that, unless the
Certificate of Incorporation otherwise provides, if the Board of Directors is
classified, then the stockholders may effect such removal only for cause; and
provided further that, if the Certificate of Incorporation expressly grants to
stockholders the right to cumulate votes for the election of directors and if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of which
such director is a part.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, unless sooner displaced.
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for
-6-
<PAGE>
which such directors shall have been chosen, and until their successors shall be
duly elected and shall qualify.
Section 9. Compensation. Unless otherwise restricted by the Certificate
of Incorporation, the Board of Directors shall have the authority to fix the
compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present), shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote and such
consent shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
Article IV
Committees
Section 1. Designation Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so
-7-
<PAGE>
determine, an executive committee, each such committee to consist of one or more
of the directors of the Corporation. Any such designated committee shall have
and may exercise such of the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation as may be provided
in such resolution, except that no such committee shall have the power or
authority of the Board of Directors in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing the bylaws or adopting new
bylaws for the Corporation and, unless such resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Any such
designated committee may authorize the seal of the Corporation to be affixed to
all papers which may require it. In addition to the above such committee or
committees shall have such other powers and limitations of authority as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own chairman, shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when requested, shall fix its own rules or procedures, and shall meet at such
times and at such place or places as may be provided by such rules, or by
resolution of such committee or resolution of the Board of Directors. At every
meeting of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board and such other officers as the Board of Directors may from time to
time elect or appoint. Each officer shall hold office until his successor shall
be duly elected and shall qualify or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same person, unless
-8-
<PAGE>
the Certificate of Incorporation provides otherwise. Except for the Chairman of
the Board, if any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation of the officers
and agents of the Corporation shall be fixed from time to time by the Board of
Directors.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed, either with or without cause, by the vote of
a majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors, provided the
notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors and the executive
committee (if any), the chief executive officer shall have general executive
charge, management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts, evidences
of indebtedness and other obligations in the name of the Corporation and may
sign all certificates for shares of capital stock of the Corporation; and shall
have such other powers and duties as designated in accordance with these bylaws
and as from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If elected,
the Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors; and he shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the
-9-
<PAGE>
duties of the President, and when so acting shall have all the powers of and be
subject to all the restrictions upon the President. In the absence of a
designation by the Board of Directors of a Vice President to perform the duties
of the President, or in the event of his absence or inability or refusal to act,
the Vice President who is present and who is senior in terms of time as a Vice
President of the Corporation shall so act. The Vice Presidents shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge of
his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the seal
of the Corporation to all contracts of the Corporation and attest the affixation
of the seal of the Corporation thereto; he may sign with the other appointed
officers all certificates for shares of capital stock of the Corporation; he
shall have charge of the certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to inspection of any director upon
application at the office of the Corporation during business hours; he shall
have such other powers and duties as designated in these bylaws and as from time
to time may be assigned to him by the Board of Directors; and he shall in
general perform all acts incident to the office of Secretary, subject to the
control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the chief executive officer
shall have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with respect to any
action of security holders of any other corporation in which this
-10-
<PAGE>
Corporation may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
Article VI
Indemnification of Directors, Officers, Employees and Agents
Section 1. Right to Indemnification. Each person who was or is, made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative, is or was or has agreed to become
a director or officer of the Corporation or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving or having agreed to
serve as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity hereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Corporation. The right to indemnification conferred in
this Article VI shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
current, former or proposed director or officer in his or her capacity as a
director or officer or proposed director or officer (and not in any other
capacity in which service was or is or has been agreed to be rendered by such
person while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnified person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified person is not entitled to be
indemnified under this Section or otherwise.
Section 2. Indemnification of Employees and Agents. The Corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation,
-11-
<PAGE>
individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in this Article.
Section 3. Right of Claimant to Bring Suit. If a written claim received
by the Corporation from or on behalf of an indemnified party under this Article
VI is not paid in full by the Corporation within ninety days after such receipt,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article VI shall not
be exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
-12-
<PAGE>
Section 7. Definitions. For purposes of this Article, reference to the
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger prior to (or, in the case of an entity specifically
designated in a resolution of the Board of Directors, after) the adoption hereof
and which, if its separate existence had continued, would have had the power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
Article VII
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. The Chairman of the Board (if any), President or a
Vice President shall cause to be issued to each stockholder one or more
certificates, under the seal of the Corporation or a facsimile thereof if the
Board of Directors shall have provided for such seal, and signed by the Chairman
of the Board (if any), President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. The stock certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
-13-
<PAGE>
Section 3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which a new certificate of stock may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
Article VIII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required
to be given by law, the Certificate of Incorporation or under the provisions of
these bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission or (ii) by deposit of the same in a
post office box in a sealed prepaid wrapper addressed to the person entitled
thereto at his post office address, as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
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<PAGE>
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice unless so required
by the Certificate of Incorporation or the bylaws.
Section 4. Resignations. Any director, member of a committee or officer
may resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time be specified, at the time of
its receipt by the chief executive officer or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each director and
each member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
Article IX
Amendments
If provided in the Certificate of Incorporation of the Corporation, the
Board of Directors shall have the power to adopt, amend and repeal from time to
time bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such bylaws as adopted
or amended by the Board of Directors.
-15-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>4
<FILENAME>h03420exv21w1.txt
<DESCRIPTION>SUBSIDIARIES OF THE COMPANY
<TEXT>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
National-Oilwell, L.P. Delaware
NOW International, Inc. Delaware
National-Oilwell Canada Ltd. Canada
TS&M Technical Sales & Maintenance Ltd. Canada
National Oilwell (U.K.) Limited UK
Hitec Drilling & Marine Systems, Ltd. UK
National Oilwell de Venezuela C.A. Venezuela
National-Oilwell Pte. Ltd. Singapore
National-Oilwell Pty. Ltd. Australia
Russell Sub-Surface Systems, Ltd. UK
National Oilwell - Netherlands B.V. Holland
NOW International Denmark ApS Denmark
P.T. National Oilwell Indonesia Indonesia
Dreco Energy Services, Ltd. Canada
Dreco DHT, Inc. Delaware
Vector Oil Tool Ltd. Canada
Hitec Systems and Controls, Inc. Canada
Dreco International Holdings, Ltd. Canada
Dreco Limited (UK) UK
National Oilwell DHT, L.P. Delaware
National Oilwell Norway Holdings AS Norway
National Oilwell Norway AS Norway
Hitec AS Norway
Maritime Industry Services AS Norway
National Oilwell-Hydralift AS Norway
Hydralift ASA Norway
Hydralift Holding, Inc. Delaware
Hydralift-AmClyde, Inc. Delaware
Hydralift, Inc. Delaware
Hydraift France SAS France
Hydralift BLM SA France
Hydralift Holding (UK) Ltd. UK
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>h03420exv23w1.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of National-Oilwell, Inc. and in the related Prospectuses of our
report dated February 18, 2003, with respect to the consolidated financial
statements of National-Oilwell, Inc. included in this Annual Report on Form 10-K
for the year ended December 31, 2002.
Form Description
S-8 Stock Award and Long Term Incentive Plan, Value Appreciation and
Incentive Plan A and Value Appreciation and Incentive Plan B (No.
333-15859)
S-8 National-Oilwell Retirement and Thrift Plan (No. 333-36359)
S-8 Post Effective Amendment No. 3 to the Registration Statement on Form
S-4 filed on Form S-8 pertaining to the Dreco Energy Services Ltd.
Amended and Restated 1989 Employee Incentive Stock Option Plan, as
amended, and Employment and Compensation Arrangements Pursuant to
Private Stock Option Agreements (No. 333-21191)
S-8 Post Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 pertaining to the IRI International Corporation Equity
Incentive Plan (No. 333-36644)
S-3 Registration Statement on Form S-3 pertaining to the issuance of
3,200,000 shares to Halliburton Energy Services, Inc. (No. 333-102665)
/s/ ERNST & YOUNG LLP
Houston, Texas
March 6, 2003
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>6
<FILENAME>h03420exv99w1.txt
<DESCRIPTION>CERTIFIATION OF CEO PURSUANT TO SECTION 906
<TEXT>
<PAGE>
NATIONAL-OILWELL, INC. FORM 10-K FILED MARCH 6, 2003
EXHIBIT 99.1
I, Merrill A. Miller, Jr., Chairman, President and Chief Executive Officer of
National-Oilwell, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Annual Report on Form 10-K for the year ended December 31, 2002
(the "Periodic Report') which this statement accompanies fully complies
with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m) and
(2) information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of
National-Oilwell, Inc.
Dated: March 6, 2003
/s/ Merrill A. Miller, Jr.
-----------------------------------------------
Merrill A. Miller, Jr.
Chairman, President and Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>7
<FILENAME>h03420exv99w2.txt
<DESCRIPTION>CERTIFIATION OF CFO PURSUANT TO SECTION 906
<TEXT>
<PAGE>
EXHIBIT 99.2
I, Steven W. Krablin, Chief Financial Officer of National-Oilwell, Inc.,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Annual Report on Form 10-K for the year ended December 31,
2002 (the "Periodic Report') which this statement accompanies
fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m) and
(2) information contained in the Periodic Report fairly presents,
in all material respects, the financial condition and results
of operations of National-Oilwell, Inc.
Dated: March 6, 2003
/s/ Steven W. Krablin
-----------------------------------
Steven W. Krablin
Chief Financial Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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