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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-13439
DRIL-QUIP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other 74-2162088
jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
13550 HEMPSTEAD HIGHWAY
HOUSTON, TEXAS
77040
(Address of principal executive offices)
(Zip Code)
(713) 939-7711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [_]
As of August 9, 2002, the number of shares outstanding of the registrant's
common stock, par value $.01 per share, was 17,293,373.
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PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DRIL-QUIP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, June 30,
2001 2002
------------ --------
(In thousands)
ASSETS
------
Current assets:
Cash and cash equivalents......................................................... $ 11,326 $ 4,637
Trade receivables................................................................. 59,789 48,865
Inventories....................................................................... 98,283 98,372
Deferred taxes.................................................................... 5,320 4,838
Prepaids and other current assets................................................. 2,642 3,267
-------- --------
Total current assets.......................................................... 177,360 159,979
Property, plant and equipment, net................................................... 102,310 111,413
Other assets......................................................................... 289 274
-------- --------
Total assets.................................................................. $279,959 $271,666
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................................. $ 28,009 $ 17,769
Current maturities of long-term debt.............................................. 1,074 1,142
Accrued income taxes.............................................................. 490 1,414
Customer prepayments.............................................................. 7,725 3,172
Accrued compensation.............................................................. 5,675 5,422
Other accrued liabilities......................................................... 3,289 4,951
-------- --------
Total current liabilities..................................................... 46,262 33,870
Long-term debt....................................................................... 57,814 54,420
Deferred taxes....................................................................... 3,018 3,298
-------- --------
Total liabilities............................................................. 107,094 91,588
Stockholders' equity:
Preferred stock:
10,000,000 shares authorized at $0.01 par value (none issued)................... -- --
Common stock:
50,000,000 shares authorized at $0.01 par value, 17,293,373 shares issued and
outstanding................................................................... 173 173
Additional paid-in capital........................................................ 64,737 64,737
Retained earnings................................................................. 115,015 120,175
Foreign currency translation adjustment........................................... (7,060) (5,007)
-------- --------
Total stockholders' equity.................................................... 172,865 180,078
-------- --------
Total liabilities and stockholders' equity.................................... $279,959 $271,666
======== ========
The accompanying notes are an integral part of these statements.
2
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2002 2001 2002
----------- ----------- ----------- -----------
(In thousands except share amounts)
Revenues............................... $ 48,900 $ 54,013 $ 96,005 $ 105,110
Cost and expenses:
Cost of sales....................... 33,174 39,508 65,680 75,124
Selling, general and administrative. 6,818 6,890 13,173 13,704
Engineering and product development. 3,555 3,490 6,895 7,404
----------- ----------- ----------- -----------
43,547 49,888 85,748 96,232
----------- ----------- ----------- -----------
Operating income....................... 5,353 4,125 10,257 8,878
Interest expense....................... 629 528 1,244 1,044
----------- ----------- ----------- -----------
Income before income taxes............. 4,724 3,597 9,013 7,834
Income tax provision................... 1,638 1,223 3,119 2,674
=========== =========== =========== ===========
Net income............................. $ 3,086 $ 2,374 $ 5,894 $ 5,160
=========== =========== =========== ===========
Earnings per share:
Basic............................... $ 0.18 $ 0.14 $ 0.34 $ 0.30
=========== =========== =========== ===========
Fully diluted....................... $ 0.18 $ 0.14 $ 0.34 $ 0.30
=========== =========== =========== ===========
Weighted average shares:
Basic............................... 17,292,000 17,293,000 17,291,000 17,293,000
=========== =========== =========== ===========
Fully diluted....................... 17,409,000 17,370,000 17,410,000 17,361,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
3
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
------------------
2001 2002
-------- --------
(In thousands)
Operating activities
Net income..................................................................... $ 5,894 $ 5,160
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................ 4,235 4,526
Loss (gain) on sale of equipment............................................. (31) 38
Deferred income taxes........................................................ (67) 775
Changes in operating assets and liabilities:
Trade receivables.......................................................... 418 11,722
Inventories................................................................ (17,711) 1,332
Prepaids and other assets.................................................. (1,226) (706)
Trade accounts payable and accrued expenses................................ (3,415) (13,343)
-------- --------
Net cash provided by (used in) operating activities...................... (11,903) 9,504
Investing activities
Purchase of property, plant and equipment...................................... (9,099) (12,643)
Proceeds from sale of equipment................................................ 93 20
-------- --------
Net cash used in investing activities.................................... (9,006) (12,623)
Financing activities
Proceeds from revolving line of credit and long-term borrowing................. 18,440 87
Principal payments on long-term debt........................................... (226) (3,867)
Activity under stock option plan............................................... 77 0
-------- --------
Net cash provided by (used in) financing activities...................... 18,291 (3,780)
Effect of exchange rate changes on cash activities.............................. 933 210
-------- --------
Decrease in cash................................................................ (1,685) (6,689)
Cash at beginning of period..................................................... 5,870 11,326
-------- --------
Cash at end of period........................................................... $ 4,185 $ 4,637
======== ========
The accompanying notes are an integral part of these statements.
4
DRIL-QUIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Dril-Quip, Inc., a Delaware corporation (the "Company" or "Dril-Quip"),
manufactures highly engineered offshore drilling and production equipment which
is well suited for use in deepwater, harsh environment and severe service
applications. The Company's principal products consist of subsea and surface
wellheads, subsea and surface production trees, mudline hanger systems,
specialty connectors and associated pipe, drilling and production riser
systems, wellhead connectors and diverters for use by major integrated, large
independent and foreign national oil and gas companies in offshore areas
throughout the world. Dril-Quip also provides installation and reconditioning
services and rents running tools for use in connection with the installation
and retrieval of its products. The Company has four subsidiaries that
manufacture and market the Company's products abroad. Dril-Quip (Europe)
Limited is located in Aberdeen, Scotland, with branches in Norway, Holland and
Denmark. Dril-Quip Asia Pacific PTE Ltd. is located in Singapore. DQ Holdings
PTY Ltd. is located in Perth, Australia and Dril-Quip do Brasil LTDA is located
in Macae, Brazil.
The condensed consolidated financial statements included herein have been
prepared by Dril-Quip and are unaudited, except for the balance sheet at
December 31, 2001, which has been prepared from the audited financial
statements at that date. In the opinion of management, the unaudited condensed
consolidated interim financial statements include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation of
the financial position as of June 30, 2002, and the results of operations for
each of the three and six-month periods ended June 30, 2002 and 2001 and cash
flows for the six-month periods ended June 30, 2002 and 2001. Although
management believes the unaudited interim related disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information and footnote disclosures normally included in
annual audited financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The results of
operations and the cash flows for the six-month period ended June 30, 2002 are
not necessarily indicative of the results to be expected for the full year. The
consolidated financial statements included herein should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
2. INVENTORIES
Inventories consist of the following:
(Unaudited)
December 31, June 30,
2001 2002
------------ -----------
(In thousands)
Raw materials and supplies........... $21,840 $19,186
Work in progress..................... 22,418 28,461
Finished goods and purchased supplies 54,025 50,725
------- -------
$98,283 $98,372
======= =======
Certain balances at December 31, 2001 have been reclassified to conform to
current period presentation.
3. COMPREHENSIVE INCOME
SFAS No. 130 establishes rules for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires the Company to
include unrealized gains or losses on foreign currency translation adjustments
in other comprehensive income, which prior to adoption were reported separately
in stockholders' equity.
5
DRIL-QUIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
During the first six months of 2002 and 2001, total comprehensive income
equaled $7.2 million and $3.6 million, respectively. For the three-month
periods ended June 30, 2002 and 2001, total comprehensive income equaled $5.2
million and $2.8 million, respectively.
4. NEW ACCOUNTING STANDARDS
Effective January 1, 2002, Dril-Quip adopted Financial Accounting Standards
No. 141, Business Combinations ("FAS 141") and No. 142, Goodwill and Other
Intangible Assets ("FAS 142"). FAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Under FAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. The amortization provisions of FAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001. The adoption of
this statement did not have a significant impact on Dril-Quip's financial
position or results of operations.
Effective January 1, 2002, Dril-Quip adopted Financial Accounting Standard
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement established a single accounting model for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired.
Additionally, the statement expands the definition of a discontinued operation
from a segment of business to a component of an entity that has been disposed
of or is classified as held for sale and can be clearly distinguished,
operationally and for reporting purposes, from the rest of the entity. The
results of operations of a component classified as held for sale shall be
reported in discontinued operations in the period incurred. Adoption of this
statement did not have a significant impact on Drip-Quip's financial position
or results of operations.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS
No. 145"). SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. SFAS No. 145 is
effective for the Company beginning January 1, 2003. Under SFAS No. 145, the
Company will report gains and losses on the extinguishment of debt in pre-tax
earnings rather than in extraordinary items.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructuring, involuntarily terminating employees, and consolidating
facilities, initiated after December 31, 2002.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected certain aspects of the Company's financial position
and results of operations during the periods included in the accompanying
unaudited consolidated financial statements. This discussion should be read in
conjunction with the unaudited consolidated financial statements included
elsewhere herein, and with the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the annual
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
Overview
Dril-Quip manufactures highly engineered offshore drilling and production
equipment which is well suited for use in deepwater, harsh environment and
severe service applications. The Company designs and manufactures subsea
equipment, surface equipment and offshore rig equipment for use by major
integrated, large independent and foreign national oil and gas companies in
offshore areas throughout the world. The Company's principal products consist
of subsea and surface wellheads, subsea and surface production trees, mudline
hanger systems, specialty connectors and associated pipe, drilling and
production riser systems, wellhead connectors and diverters. Dril-Quip also
provides installation and reconditioning services and rents running tools for
use in connection with the installation and retrieval of its products.
Both the market for offshore drilling and production equipment and services
and the Company's business are substantially dependent on the condition of the
oil and gas industry and, in particular, the willingness of oil and gas
companies to make capital expenditures on exploration, drilling and production
operations offshore. Oil and gas prices and the level of offshore drilling and
production activity have historically been characterized by significant
volatility.
Revenues. Dril-Quip's revenues are generated by its two operating groups:
the Product Group and the Service Group. The Product Group manufactures
offshore drilling and production equipment, and the Service Group provides
installation and reconditioning services as well as rental running tools for
installation and retrieval of its products. For the six months ended June 30,
2002, the Company derived 87% of its revenues from the sale of its products and
13% of its revenues from services. Revenues from the Service Group generally
correlate to revenues from product sales because increased product sales
generate increased revenues from installation services and rental running
tools. Substantially all of Dril-Quip's sales are made on a purchase order
basis. Purchase orders are subject to change and/or termination at the option
of the customer. In case of a change or termination, the customer is required
to pay the Company for work performed and other costs necessarily incurred as a
result of the change or termination.
The Company accounts for larger and more complex projects that have
relatively longer manufacturing time frames on a percentage of completion
basis. For the first six months of 2002, eleven projects representing
approximately 15% of the Company's revenues were accounted for using percentage
of completion accounting. This percentage may fluctuate in the future. Revenues
accounted for in this manner are generally recognized on the ratio of costs
incurred to the total estimated costs. Accordingly, price and cost estimates
are reviewed periodically as the work progresses, and adjustments proportionate
to the percentage of completion are reflected in the period when such estimates
are revised. Amounts received from customers in excess of revenues recognized
are classified as a current liability.
Foreign sales represent a significant portion of the Company's business. In
the six months ended June 30, 2002, the Company generated approximately 66% of
its revenues from foreign sales. In this period, approximately 60% (on the
basis of revenues generated) of all products sold were manufactured in the
United States.
7
Cost of Sales. The principal elements of cost of sales are labor, raw
materials and manufacturing overhead. Variable costs, such as labor, raw
materials, supplies and energy, generally account for approximately two-thirds
of the Company's cost of sales. Fixed costs, such as the fixed portion of
manufacturing overhead, constitute the remainder of the Company's cost of
sales. Cost of sales as a percentage of revenues is also influenced by the
product mix sold in any particular quarter and market conditions. The Company's
costs related to its foreign operations do not significantly differ from its
domestic costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the costs associated with sales and marketing,
general corporate overhead, compensation expense, legal expenses and other
related administrative functions.
Engineering and Product Development Expenses. Engineering and product
development expenses consist of new product development and testing, as well as
application engineering related to customized products.
Income Tax Provision. Dril-Quip's effective tax rate has historically been
lower than the statutory rate due to benefits from its foreign sales
corporation.
Results of Operations
The following table sets forth, for the periods indicated, certain statement
of operations data expressed as a percentage of revenues:
Three months ended Six months ended
June 30, June 30,
----------------- ---------------
2001 2002 2001 2002
----- ----- ----- -----
Revenues:
Product Group............................ 84.4% 85.8% 86.0% 86.9%
Service Group............................ 15.6% 14.2% 14.0% 13.1%
----- ----- ----- -----
Total................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 67.8% 73.1% 68.4% 71.5%
Selling, general and administrative expenses 13.9% 12.8% 13.7% 13.0%
Engineering and product development expenses 7.3% 6.4% 7.2% 7.0%
----- ----- ----- -----
Operating income............................ 11.0% 7.7% 10.7% 8.5%
Interest expense............................ 1.3% 1.0% 1.3% 1.0%
----- ----- ----- -----
Income before income taxes.................. 9.7% 6.7% 9.4% 7.5%
Income tax provision........................ 3.4% 2.3% 3.3% 2.6%
----- ----- ----- -----
Net income.................................. 6.3% 4.4% 6.1% 4.9%
===== ===== ===== =====
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001.
Revenues. Revenues increased by $5.1 million, or approximately 10%, to
$54.0 million in the three months ended June 30, 2002 from $48.9 million in the
three months ended June 30, 2001. The net increase resulted from increased
export sales from the United States of $8.3 million and increased sales of $3.8
million in the European area, offset by decreased domestic sales in the United
States of $6.9 million and decreased sales of approximately $100,000 in the
Asia-Pacific region.
Cost of Sales. Cost of sales increased $6.3 million, or approximately 19%,
to $39.5 million for the three months ended June 30, 2002 from $33.2 million
for the same period in 2001. As a percentage of revenues, cost of sales were
approximately 73% and 68% for the three-month periods ending June 30, 2002 and
2001, respectively. This increase in cost of sales as a percentage of revenues
was primarily attributed to lower than anticipated margins resulting from an
ongoing project related to the Company's entry into the deepwater
8
development market. This project, which includes numerous deepwater subsea
trees and assorted installation equipment, represented approximately $6.9
million in revenues during the second quarter of 2002, versus none during the
second quarter of 2001.
Selling, General and Administrative Expenses. In the three months ended
June 30, 2002, selling, general and administrative expenses increased by
approximately 1%, to $6.9 million from $6.8 million in the 2001 period Selling,
general and administrative expenses decreased as a percentage of revenues to
12.8% in 2002 from 13.9% in 2001.
Engineering and Product Development Expenses. In the three months ended
June 30, 2002, engineering and product development expenses decreased by
approximately 2% to $3.5 million from $3.6 million for the same period in 2001.
Engineering and product development expenses decreased as a percentage of
revenues to 6.4% in 2002 from 7.3% in 2001.
Interest Income and Expense. Interest expense for the three months ended
June 30, 2002 was $528,000 as compared to interest expense of $629,000 for the
three-month period ended June 30, 2001. This change resulted primarily from
lower interest rates on borrowings during the period ended June 30, 2002 under
the Company's unsecured revolving line of credit.
Net Income. Net income decreased by $712,000, or approximately 23%, to $2.4
million in the three months ended June 30, 2002 versus $3.1 million for the
same period in 2001, for the reasons set forth above.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001.
Revenues. Revenues increased by $9.1 million, or approximately 9%, to
$105.1 million in the six months ended June 30, 2002 from $96.0 million in the
six months ended June 30, 2001. The increase was due to increased export sales
from the United States of $6.7 million, increased sales of $7.2 million in the
European area, and $3.1 in the Asia Pacific area, offset by decreased domestic
sales in the United States of $7.9 million.
Cost of Sales. Cost of sales increased $9.4 million, or approximately 14%,
to $75.1 million for the six months ended June 30, 2002 from $65.7 million for
the same period in 2001. As a percentage of revenues, cost of sales were 71.5%
and 68.4% for the six month periods ending June 30, 2002 and 2001,
respectively. This increase in cost of sales as a percentage of revenues was
attributed to increases in costs of raw material, labor, energy, and outside
services which, due to competitive pricing pressures, were not offset by price
increases. In addition, the increase in cost of sales as a percentage of
revenues resulted from lower than anticipated margins on an ongoing project
related to the Company's entry into the deepwater development market as noted
above.
Selling, General and Administrative Expenses. In the six months ended June
30, 2002, selling, general and administrative expenses increased by
approximately $531,000, or approximately 4%, to $13.7 million from $13.2
million in the 2001 period. Selling, general and administrative expenses
decreased as a percent of revenues to 13% from approximately 13.7%.
Engineering and Product Development Expenses. In the six months ended June
30, 2002, engineering and product development expenses increased by
approximately 7% to $7.4 million from $6.9 million in the 2001 period. However,
engineering and product development expenses remained constant as a percentage
of revenues at approximately 7%.
Interest Expense. Interest expense for the six months ended June 30, 2002
was approximately $1 million as compared to interest expense of $1.2 million
for the six month period ended June 30, 2001. This change resulted primarily
from lower interest rates under the Company's unsecured revolving line of
credit.
Net Income. Net income decreased by $734,000, or approximately 12.5%, to
$5.2 million in the six months ended June 30, 2002 from $5.9 million for the
same period in 2001 for the reasons set forth above.
9
Liquidity and Capital Resources
The primary liquidity needs of the Company are (i) to fund capital
expenditures to increase manufacturing capacity, improve and expand facilities
and manufacture additional rental running tools and (ii) to fund working
capital. The Company's principal sources of funds are cash flows from
operations and bank indebtedness.
Net cash provided by operating activities was approximately $9.5 million for
the six months ended June 30, 2002. During the six months ended June 30, 2001,
net cash used in operating activities was approximately $11.9 million. The
improvement in cash flow from operating activities was principally due to
decreased working capital requirements attributable to trade receivables and
inventories, offset by reduced trade accounts payable and accrued expenses.
Capital expenditures by the Company were $12.6 million and $9.1 million for
the six months ended June 30, 2002 and 2001, respectively. Principal payments
on long-term debt were approximately $3.9 million and $226,000 for the six
months ended June 30, 2002 and 2001, respectively.
The Company has a credit facility with Guaranty Bank, FSB providing an
unsecured revolving line of credit of up to $60 million. At the option of the
Company, borrowing under this facility bears interest at either a rate equal to
LIBOR (London Interbank Offered Rate) plus 1.75% or the Guaranty Bank base
rate. In addition, the facility calls for quarterly interest payments and
terminates on May 18, 2004. As of June 30, 2002, the Company had drawn down
$46.1 million under this facility for operating activities and capital
expenditures.
Dril-Quip (Europe) Limited has a credit agreement with the Bank of Scotland
dated March 21, 2001 in the amount of U.K. Pounds Sterling 4.0 million
(approximately U.S. $6.1 million). Borrowing under this facility bears interest
at the Bank of Scotland base rate, currently 4%, plus 1%, and is repayable in
120 equal monthly installments, plus interest. This facility was used to
finance capital expenditures in Norway.
Dril-Quip Asia Pacific PTE Ltd. has a secured term loan with the Overseas
Union Bank dated August 29, 2001 in the amount of Singapore $6 million
(approximately U.S. $3.4 million). Borrowing under this facility bears interest
at the swap rate, approximately 0.9%, plus 1.5% and is repayable in 40 equal
quarterly installments, plus interest. This facility was used to finance
capital expenditures in Singapore.
The Company believes that cash generated from operations plus cash on hand
and its existing lines of credit will be sufficient to fund operations, working
capital needs and anticipated capital expenditure requirements. However, should
market conditions result in unexpected cash requirements, the Company believes
that additional borrowing from commercial lending institutions would be readily
available and more than adequate to meet such requirements.
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any material hedging transactions, forward
contracts or currency trading which could be subject to market risks inherent
to such transactions.
10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Dril-Quip's annual meeting of stockholders was held on May 15, 2002 for the
purpose of electing two directors to serve for three-year terms and approving
the appointment of Ernst & Young LLP as independent public accountants of the
Company for 2002.
1. Election of Directors
Stockholders elected J. Mike Walker and Gary W. Loveless, each for a
three-year term expiring at the 2005 annual meeting. The vote tabulation was as
follows:
Votes Cast Votes Cast Against
Director For Or Withheld
-------- ---------- ------------------
J. Mike Walker....... 15,780,370 1,198,820
Gary W. Loveless..... 16,864,131 115,059
Directors continuing in office were Larry E. Reimert, Gary D. Smith, James
M. Alexander and Gary L. Stone.
2. Proposal approving the appointment of Ernst & Young LLP as independent
public accountants of the Company for 2002.
For.... ...... 16,807,798
Against....... 167,372
Abstain ...... 4,020
Item 5. Other Information.
Forward Looking Statements.
Statements contained in all parts of this document that are not historical
facts are forward looking statements that involve risks and uncertainties that
are beyond the Company's control. These forward-looking statements include the
following types of information and statements as they relate to the Company:
. scheduled, budgeted and other future capital expenditures;
. working capital requirements;
. the availability of expected sources of liquidity;
. statements regarding the market for Dril-Quip products;
. statements regarding the exploration and production activities of
Dril-Quip customers;
11
. all statements regarding future operations, financial results, business
plans and cash needs; and
. the use of the words "anticipate," "estimate," "expect," "may,"
"project," "believe" and similar expressions intended to identify
uncertainties.
These statements are based upon certain assumptions and analyses made by
management of the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
subject to a number of assumptions, risks and uncertainties, including but not
limited to, those relating to the volatility of oil and natural gas prices and
cyclicality of the oil and gas industry, the Company's international
operations, operating risks, the Company's dependence on key employees, the
Company's dependence on skilled machinists and technical personnel, the
Company's reliance on product development and possible technological
obsolescence, control by certain stockholders, the potential impact of
governmental regulation and environmental matters, competition, reliance on
significant customers and other factors detailed in the Company's filings with
the Securities and Exchange Commission. Prospective investors are cautioned
that any such statements are not guarantees of future performance, and that,
should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially
from those indicated.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
Number Description
- ------ -----------
*3.1 --Restated Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-33447)).
*3.2 --Bylaws of the Company (Incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-33447)).
*4.1 --Certificate of Designations for Series A Junior Participating Preferred Stock (Incorporated herein by
reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 (Registration No.
333-33447)).
*4.2 --Form of certificate representing Common Stock (Incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (Registration No. 333-33447)).
*4.3 --Rights Agreement between Dril-Quip, Inc. and Chase Mellon Shareholder Services, L.L.C., as rights
agent (Incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-1 (Registration No. 333-33447)).
99.1 --Certification by Co-Chief Executive Officer Required by Section 906 of the Sarbanes-Oxley Act of
2002
99.2 --Certification by Co-Chief Executive Officer Required by Section 906 of the Sarbanes-Oxley Act of
2002
99.3 --Certification by Co-Chief Executive Officer Required by Section 906 of the Sarbanes-Oxley Act of
2002
99.4 --Certification by Chief Financial Officer Required by Section 906 of the Sarbanes-Oxley Act of 2002
- --------
* Incorporated herein by reference as indicated.
Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRIL-QUIP, INC.
/S/ JERRY M. BROOKS
--------------------------------------
Principal Financial Officer
and Duly Authorized Signatory
Date: August 9, 2002
13