SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-31579
HYDRIL COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 95-2777268 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| 3300 North Sam Houston Parkway East Houston, Texas | 77032-3411 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (281) 449-2000
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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Shares outstanding at April 30, 2004:
Common stock, $.50 par value, 16,153,841 shares outstanding
Class B common stock, $.50 par value, 6,726,578 shares outstanding
HYDRIL COMPANY
| Page | ||
| PART I—FINANCIAL INFORMATION | ||
| Item 1. Financial Statements |
||
| Consolidated Balance Sheets—March 31, 2004 (unaudited) and December 31, 2003 |
3 | |
| Unaudited Consolidated Statements of Operations—For the Three Months Ended March 31, 2004 and 2003 |
5 | |
| Unaudited Consolidated Statements of Cash Flows—For the Three Months Ended March 31, 2004 and 2003 |
6 | |
| 7 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
27 | |
| Item 4. Controls and Procedures |
27 | |
| PART II—OTHER INFORMATION | ||
| Item 6. Exhibits and Reports on Form 8-K |
27 | |
* * *
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance, including our business strategy and product development plans, and involve known and unknown risks and uncertainties. These risks and uncertainties and assumptions, which are more fully described under “RISK FACTORS” in Item 2 of this report and in Hydril Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission, include, but are not limited to, the impact of changes in oil and natural gas prices and worldwide and domestic economic conditions on drilling activity and demand for and pricing of Hydril’s products, the impact of geo-political and other events affecting international markets and trade, Hydril’s ability to remain on the leading edge of technology in its products and maintain and increase its market share, the impact of international and domestic trade laws, the loss of or change to distribution methods of premium connections in the U.S. and Canada, overcapacity in the pressure control industry, and high fixed costs that could affect the pricing of Hydril’s products. These factors may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipated,” “believes,” “estimated,” “potential,” or the negative of these terms or other comparable terminology.
These statements are only projections, based on anticipated industry activity. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
HYDRIL COMPANY
Part I, Item 1: Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Information)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 62,315 | $ | 54,139 | ||||
| Investments |
7,922 | 6,831 | ||||||
| Receivables: |
||||||||
| Trade, less allowance for doubtful accounts: 2004, $1,092; 2003, $1,127 |
39,154 | 34,886 | ||||||
| Contract costs and estimated earnings in excess of billings |
2,606 | 4,366 | ||||||
| Other |
1,496 | 1,842 | ||||||
| Total receivables |
43,256 | 41,094 | ||||||
| Inventories: |
||||||||
| Finished goods |
23,157 | 24,190 | ||||||
| Work-in-process |
6,038 | 5,320 | ||||||
| Raw Materials |
6,457 | 6,906 | ||||||
| Total inventories |
35,652 | 36,416 | ||||||
| Deferred tax asset |
9,093 | 9,095 | ||||||
| Other current assets |
4,579 | 4,422 | ||||||
| Total current assets |
162,817 | 151,997 | ||||||
| PROPERTY: |
||||||||
| Land and improvements |
21,132 | 21,021 | ||||||
| Buildings and equipment |
53,449 | 53,217 | ||||||
| Machinery and equipment |
160,802 | 163,574 | ||||||
| Construction-in-progress |
4,826 | 2,106 | ||||||
| Total |
240,209 | 239,918 | ||||||
| Less accumulated depreciation and amortization |
(136,897 | ) | (134,871 | ) | ||||
| Property, net |
103,312 | 105,047 | ||||||
| OTHER LONG-TERM ASSETS: |
||||||||
| Investments |
952 | 958 | ||||||
| Deferred tax asset |
1,106 | 901 | ||||||
| Other assets |
5,625 | 5,649 | ||||||
| TOTAL |
$ | 273,812 | $ | 264,552 | ||||
See notes to unaudited consolidated financial statements
3
HYDRIL COMPANY
Part I, Item 1: Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Information)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 13,359 | $ | 13,481 | ||||
| Billings in excess of contract costs and estimated earnings |
453 | 487 | ||||||
| Accrued liabilities |
16,927 | 17,184 | ||||||
| Income taxes payable |
4,722 | 4,350 | ||||||
| Total current liabilities |
35,461 | 35,502 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Deferred tax liability |
141 | 140 | ||||||
| Other |
12,309 | 11,900 | ||||||
| Total long-term liabilities |
12,450 | 12,040 | ||||||
| CONTINGENCIES (Note 4) |
||||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Capital stock: |
||||||||
| Preferred stock-authorized, 10,000,000 shares of $1 par value; none issued or outstanding |
— | — | ||||||
| Common stock-authorized 75,000,000 shares of $.50 par value; 16,153,841 and 16,058,792 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
8,077 | 8,029 | ||||||
| Class B common stock-authorized, 32,000,000 shares of $.50 par value; 6,726,578 and 6,757,721 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
3,363 | 3,379 | ||||||
| Additional paid in capital |
50,152 | 49,312 | ||||||
| Retained earnings |
167,933 | 160,059 | ||||||
| Deferred compensation |
(1,656 | ) | (1,801 | ) | ||||
| Accumulated other comprehensive loss |
(1,968 | ) | (1,968 | ) | ||||
| Total stockholders’ equity |
225,901 | 217,010 | ||||||
| TOTAL |
$ | 273,812 | $ | 264,552 | ||||
See notes to unaudited consolidated financial statements
4
HYDRIL COMPANY
Part I, Item 1: Unaudited Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| REVENUE |
$ | 57,497 | $ | 57,338 | ||||
| COST OF SALES |
35,147 | 35,039 | ||||||
| GROSS PROFIT |
22,350 | 22,299 | ||||||
| SELLING, GENERAL & ADMINISTRATION EXPENSES: |
||||||||
| Engineering |
2,917 | 3,666 | ||||||
| Sales and marketing |
4,115 | 3,998 | ||||||
| General and administration |
4,861 | 4,307 | ||||||
| Total |
11,893 | 11,971 | ||||||
| OPERATING INCOME |
10,457 | 10,328 | ||||||
| INTEREST EXPENSE |
— | (555 | ) | |||||
| INTEREST INCOME |
184 | 250 | ||||||
| OTHER INCOME (EXPENSE) |
(105 | ) | (80 | ) | ||||
| INCOME BEFORE INCOME TAXES |
10,536 | 9,943 | ||||||
| PROVISION FOR INCOME TAXES |
2,662 | 3,480 | ||||||
| NET INCOME |
$ | 7,874 | $ | 6,463 | ||||
| NET INCOME PER SHARE: |
||||||||
| BASIC |
$ | 0.34 | $ | 0.29 | ||||
| DILUTED |
$ | 0.34 | $ | 0.28 | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: |
||||||||
| BASIC |
22,847,662 | 22,593,902 | ||||||
| DILUTED |
23,137,955 | 22,944,120 | ||||||
See notes to unaudited consolidated financial statements
5
HYDRIL COMPANY
Part I, Item 1: Unaudited Consolidated Statements of Cash Flows
(In Thousands)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 7,874 | $ | 6,463 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Amortization of deferred compensation |
96 | — | ||||||
| Depreciation |
3,106 | 2,889 | ||||||
| Deferred income taxes |
(206 | ) | 782 | |||||
| Provision for doubtful accounts |
70 | 104 | ||||||
| Change in operating assets and liabilities: |
||||||||
| Receivables |
(3,992 | ) | 434 | |||||
| Contract costs and estimated earnings in excess of billings |
1,760 | (3,185 | ) | |||||
| Inventories |
764 | 1,590 | ||||||
| Other current and noncurrent assets |
72 | 368 | ||||||
| Accounts payable |
(122 | ) | (22 | ) | ||||
| Billings in excess of contract costs and estimated earnings |
(34 | ) | 222 | |||||
| Accrued liabilities |
(257 | ) | (5,934 | ) | ||||
| Income taxes payable |
372 | (64 | ) | |||||
| Other long-term liabilities |
409 | 810 | ||||||
| Net cash provided by operating activities |
9,912 | 4,457 | ||||||
| NET CASH FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of held-to-maturity investments |
(3,692 | ) | (9,591 | ) | ||||
| Proceeds from held-to-maturity investments |
2,607 | 5,657 | ||||||
| Capital expenditures |
(1,402 | ) | (1,803 | ) | ||||
| Net cash used in investing activities |
(2,487 | ) | (5,737 | ) | ||||
| NET CASH FROM FINANCING ACTIVITIES: |
||||||||
| Net proceeds from issuance of common stock |
126 | 102 | ||||||
| Net proceeds from exercise of stock options |
625 | 255 | ||||||
| Net cash provided by financing activities |
751 | 357 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
8,176 | (923 | ) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
54,139 | 61,590 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 62,315 | $ | 60,667 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
| Interest paid |
$ | — | $ | 523 | ||||
| Income taxes paid: |
||||||||
| Domestic |
780 | — | ||||||
| Foreign |
1,119 | 2,581 | ||||||
See notes to unaudited consolidated financial statements
6