- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q ---------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 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 74-2162088 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or 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 November 12, 1999, the number of shares outstanding of the registrant's common stock, par value $.01 per share, was 17,245,000. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PART I--FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS DRIL-QUIP, INC. CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> December 31, September 30, 1998 1999 ------------ ------------- (In thousands) ASSETS ------ <S> <C> <C> Current assets: Cash and cash equivalents......................... $ 11,869 $ 9,151 Trade receivables................................. 44,527 39,918 Inventories....................................... 55,536 52,078 Deferred taxes.................................... 3,883 4,615 Prepaids and other current assets................. 1,387 986 -------- -------- Total current assets............................ 117,202 106,748 Property, plant and equipment, net.................. 59,753 69,591 Other assets........................................ 291 470 -------- -------- Total assets.................................... $177,246 $176,809 ======== ======== <CAPTION> LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ <S> <C> <C> Current liabilities: Accounts payable.................................. $ 16,712 $ 12,400 Current maturities of long-term debt.............. 165 111 Accrued income taxes.............................. 1,637 506 Customer prepayments.............................. 9,039 4,952 Accrued compensation.............................. 3,742 3,936 Other accrued liabilities......................... 2,312 2,750 -------- -------- Total current liabilities....................... 33,607 24,655 Long-term debt...................................... 150 86 Deferred taxes...................................... 1,577 1,623 -------- -------- Total liabilities............................... 35,334 26,364 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, 17,245,000 shares issued and outstanding....... 172 172 Additional paid-in capital........................ 63,291 63,291 Retained earnings................................. 80,017 89,001 Foreign currency translation adjustment........... (1,568) (2,019) -------- -------- Total stockholders' equity...................... 141,912 150,445 -------- -------- Total liabilities and stockholders' equity...... $177,246 $176,809 ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 2
DRIL-QUIP, INC. CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, ------------------------ ------------------------ 1998 1999 1998 1999 ----------- ----------- ----------- ----------- (In thousands except share amounts) <S> <C> <C> <C> <C> Revenues................... $ 47,125 $ 38,813 $ 132,829 $ 118,292 Cost and expenses: Cost of sales............ 31,925 26,790 89,482 80,758 Selling, general and administrative.......... 5,397 4,944 15,556 15,696 Engineering and product development............. 3,174 2,661 8,728 8,340 ----------- ----------- ----------- ----------- 40,496 34,395 113,766 104,794 ----------- ----------- ----------- ----------- Operating income........... 6,629 4,418 19,063 13,498 Interest expense (income).. (305) (142) (1,005) (323) ----------- ----------- ----------- ----------- Income before income taxes..................... 6,934 4,560 20,068 13,821 Income tax provision....... 2,391 1,615 6,922 4,837 ----------- ----------- ----------- ----------- Net income................. $ 4,543 $ 2,945 $ 13,146 $ 8,984 =========== =========== =========== =========== Earnings per share: Basic.................... $ 0.26 $ 0.17 $ 0.76 $ 0.52 =========== =========== =========== =========== Fully diluted............ $ 0.26 $ 0.17 $ 0.76 $ 0.52 =========== =========== =========== =========== Weighted average shares: Basic.................... 17,245,000 17,245,000 17,245,000 17,245,000 =========== =========== =========== =========== Fully diluted............ 17,245,000 17,289,000 17,285,000 17,260,000 =========== =========== =========== =========== </TABLE> The accompanying notes are an integral part of these statements. 3
DRIL-QUIP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Nine months ended September 30, ---------------- 1998 1999 ------- ------- (In thousands) <S> <C> <C> Operating activities Net income.................................................. $13,146 $ 8,984 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 4,033 4,930 Gain on sale of equipment.................................. (3) (162) Deferred income taxes...................................... (452) (736) Changes in operating assets and liabilities: Trade receivables......................................... (13,817) 4,585 Inventories............................................... 396 3,110 Prepaids and other assets................................. (654) 215 Trade accounts payable and accrued expenses............... 3,765 (8,739) ------- ------- Net cash provided by operating activities................... 6,414 12,187 Investing activities Purchase of property, plant and equipment.................. (24,063) (15,055) Proceeds from sale of equipment............................ 190 323 ------- ------- Net cash used in investing activities...................... (23,873) (14,732) Financing activities Principal payments on long-term debt....................... (135) (118) ------- ------- Net cash provided by (used in) financing activities........ (135) (118) Effect of exchange rate changes on cash activities.......... (377) (55) ------- ------- Increase (decrease) in cash................................. (17,971) (2,718) Cash at beginning of period................................. 32,612 11,869 ------- ------- Cash at end of period....................................... $14,641 $ 9,151 ======= ======= </TABLE> 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 three 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. The consolidated financial statements included herein have been prepared by Dril-Quip and are unaudited, except for the balance sheet at December 31, 1998, which has been prepared from the audited financial statements at that date. In the opinion of management, the unaudited consolidated interim financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the financial position as of September 30, 1999, the results of operations for each of the three and nine-month periods ended September 30, 1999 and 1998 and the cash flows for each of the nine-month periods ended September 30, 1999 and 1998. 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 nine-month period ended September 30, 1999 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, 1998. 2. INVENTORIES Inventories consist of the following: <TABLE> <CAPTION> (Unaudited) December 31, September 30, 1998 1999 ------------ ------------- (In thousands) <S> <C> <C> Raw materials and supplies........................... $13,114 $13,312 Work in progress..................................... 18,114 11,313 Finished goods and purchased supplies................ 24,308 27,453 ------- ------- $55,536 $52,078 ======= ======= </TABLE> 3. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or stockholders' equity. 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. During the first nine months of 1999 and 1998, total comprehensive income amounted to $8.5 million and $14.1 million, respectively. For the three-month periods ended September 30, 1999 and 1998, total comprehensive income equaled $4.6 million and $5.1 million, respectively. 5
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, 1998. 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. The market for offshore drilling and production equipment and services is fundamentally driven by the exploration, development and production spending of oil and gas companies, particularly with respect to offshore activities worldwide. 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 nine months ended September 30, 1999, the Company derived 88% of its revenues from the sale of its products and 12% 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. Historically, Dril-Quip recognized revenues upon the delivery of a completed product. Beginning in 1997, the Company began receiving orders relating to larger and more complex projects that have longer manufacturing time frames. The Company accounts for such projects on a percentage of completion basis. For the first nine months of 1999, eight projects representing approximately 30% of the Company's revenues were accounted for using percentage of completion accounting. This percentage may increase 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 nine months ended September 30, 1999, the Company generated approximately 48% of its revenues from foreign sales. In this period, approximately 73% (on the basis of revenues generated) of all products sold were manufactured in the United States. 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 6
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: <TABLE> <CAPTION> Nine months Three months ended ended September September 30, 30, ------------------- --------------- 1998 1999 1998 1999 --------- --------- ------- ------- <S> <C> <C> <C> <C> Revenues: Product Group............................ 88.0 % 90.2 % 87.7 % 88.1 % Service Group............................ 12.0 % 9.8 % 12.3 % 11.9 % --------- --------- ------- ------- Total................................... 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales............................. 67.7 % 69.0 % 67.4 % 68.3 % Selling, general and administrative expenses................................. 11.5 % 12.7 % 11.7 % 13.3 % Engineering and product development expenses................................. 6.7 % 6.9 % 6.6 % 7.0 % --------- --------- ------- ------- Operating income.......................... 14.1 % 11.4 % 14.3 % 11.4 % Interest expense (income)................. (0.6)% (0.4)% (0.8)% (0.3)% --------- --------- ------- ------- Income before income taxes................ 14.7 % 11.8 % 15.1 % 11.7 % Income tax provision...................... 5.1 % 4.2 % 5.2 % 4.1 % --------- --------- ------- ------- Net income................................ 9.6 % 7.6 % 9.9 % 7.6 % ========= ========= ======= ======= </TABLE> Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998. Revenues. Revenues decreased by $8.3 million, or 18%, to $38.8 million in the three months ended September 30, 1999 from $47.1 million in the three months ended September 30, 1998. The net decrease resulted from decreased export sales from the United States of $8.7 million, decreased sales of $1.6 million in the Asia-Pacific area and decreased sales of $6.1 million in the European area, partially offset by increased domestic sales in the United States of $8.1 million. The decrease in revenues can be attributed to previously depressed oil prices which led to worldwide exploration and production budget cuts by most major oil companies. Although oil prices have returned to higher levels reecently, exploration and production spending by major oil companies has not returned to previous levels. These conditions have resulted in pricing pressure and less demand for Dril-Quip products. Cost of Sales. Cost of sales decreased $5.1 million, or 16%, to $26.8 million for the three months ended September 30, 1999 from $31.9 million for the same period in 1998. As a percentage of revenues, cost of sales were 69% and 68% for the three-month periods ending September 30, 1999 and 1998, respectively. This increase was primarily due to downward pricing pressure as discussed above. 7
Selling, General and Administrative Expenses. In the three months ended September 30, 1999, selling, general and administrative expenses decreased by $453,000, or 8%, to $4.9 million from $5.4 million in the 1998 period. However, due to the reduction in revenues, selling, general and administrative expenses increased as a percentage of revenues to 12.7% from 11.5%. Engineering and Product Development Expenses. In the three months ended September 30, 1999, engineering and product development expenses decreased by approximately 16% to $2.7 million from $3.2 million in the same period in 1998. However, due to reduced revenues, engineering and product development expenses increased as a percent of revenues to 6.9% from 6.7%. Interest Income. Interest income for the three months ended September 30, 1999 was $142,000 as compared to interest income of $305,000 for the three- month period ended September 30, 1998. This decrease of approximately $163,000 resulted primarily from reductions in the Company's invested cash balance from 1998 to 1999. Net Income. Net income decreased by approximately $1.6 million, or 35%, to $2.9 million in the three months ended September 30, 1999 from $4.5 million for the same period in 1998 for the reasons set forth above. Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998. Revenues. Revenues decreased by $14.5 million, or 11%, to $118.3 million in the nine months ended September 30, 1999 from $132.8 million in the nine months ended September 30, 1998. The net decrease was due to decreased export sales from the United States of $9.9 million, decreased sales of $9.7 million in the Asia-Pacific area and decreased sales of $11.9 million in the European area, partially offset by increased domestic sales in the United States of $17.0 million. The decrease in revenues can be attributed to previously depressed oil prices which led to worldwide exploration and production budget cuts by most major oil companies. These reductions have resulted in pricing pressure and less demand for Dril-Quip products. Cost of Sales. Cost of sales decreased $8.7 million, or 10%, to $80.8 million for the nine months ended September 30, 1999 from $89.5 million for the same period in 1998. As a percentage of revenues, cost of sales were 68.3% and 67.4% for the nine month periods ending September 30, 1999 and 1998, respectively. This increase was due to pricing pressure as discussed above. Selling, General and Administrative Expenses. In the nine months ended September 30, 1999, selling, general and administrative expenses increased by $140,000, or 1%, to $15.7 million from $15.6 million in the 1998 period. The increase was primarily due to higher labor costs. Selling, general and administrative expenses increased as a percent of revenues from 11.7% to 13.3%. Engineering and Product Development Expenses. In the nine months ended September 30, 1999, engineering and product development expenses decreased by $388,000, or approximately 4%, to $8.3 million from $8.7 million in the same period in 1998. However, due to reduced revenues, engineering and product development expenses increased as a percent of revenues to 7% from 6.6%. Interest Income. Interest income for the nine months ended September 30, 1999 was approximately $323,000 as compared to interest income of $1,005,000 for the nine month period ended September 30, 1998. This decrease of approximately $682,000 resulted primarily from reductions in the Company's invested cash balance from 1998 to 1999. Net Income. Net income decreased by approximately $4.2 million, or 32%, to $9.0 million in the nine months ended September 30, 1999 from approximately $13.2 million for the same period in 1998 for the reasons set forth above. 8
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. In the past, the Company's principal sources of funds were cash flows from operations and bank indebtedness. However, as a result of the Company's October 1997 initial public offering of common stock, all of the Company's bank indebtedness was repaid in 1997. Since that time, the Company has used the remaining proceeds from the initial public offering and cash flows from operations as its principal sources of funds. Net cash provided by operating activities was approximately $12.2 million and $6.4 million for the nine months ended September 30, 1999 and 1998, respectively. Improvements in cash flow from operating activities are principally due to decreased working capital requirements attributable to accounts receivable and inventories, offset by increased working capital requirements attributable to trade accounts payable and accrued expenses. Capital expenditures by the Company were $15.1 million and $24.1 million for the nine months ended September 30, 1999 and 1998, respectively. Principal payments on long-term debt were approximately $118,000 and $135,000 for the nine months ended September 30, 1999 and 1998, respectively. On August 27, 1999, the Company entered into a credit agreement with Bank One, Texas, N.A. which provides for an unsecured revolving line of credit of up to $10 million. At the election of the Company, borrowing under this facility bears interest at either a rate equal to LIBOR (London Interbank Offered Rate) plus 2% or the Bank One base rate. In addition, the facility calls for quarterly interest payments and terminates on August 27, 2001. To date, there have been no drawdowns under this facility. The Company believes that cash on hand plus cash generated from operations (in conjunction with its existing revolving line of credit, if necessary) will be sufficient to fund operations, working capital needs and anticipated capital expenditure requirements. However, should the above mentioned 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. Year 2000 Readiness Disclosure Historically, certain computerized systems have used two digits rather than four digits to define the applicable year, which could result in recognizing the date using "00" as the year 1900 rather than the year 2000. This could result in major failures or miscalculations and is generally referred to as the Year 2000 problem. The Company has undertaken a Year 2000 readiness program that encompasses a comprehensive review of three distinct areas that are susceptible to the Year 2000 problem: . information systems; . automated production systems; and . third parties. Information systems include communications and traditional software and hardware in the Company network and desktop environments. Automated production systems include all automation and embedded chips used in production and manufacturing. Third parties include any party that supplies goods or services to the Company. The Company does not anticipate any material year 2000 exposure arising out of the sale of its products to third party customers because the Company's products are mechanical and structural in nature and do not include integrated circuitry. The Year 2000 problem is being addressed within the Company and progress is regularly reported to management and the Board of Directors. In implementing the Year 2000 program, the Company has prioritized 9
its readiness efforts into two categories: "mission critical" and "non-mission critical." Systems and third parties which are considered mission critical are those of which a Year 2000 failure could cause any of the following to occur: . the inability of the Company to meet its product delivery obligations; . a reduction or cessation of the Company's manufacturing capacity or capabilities; . the inability of the Company to meet its financial obligations; or . any other major interruption to Company operations. Mission critical systems and mission critical third parties are addressed on a priority basis over non-mission critical systems and non-mission critical third parties. The Company's Year 2000 program is made up of three phases: assessment, remediation and testing. As of March 1, 1999, the Company had completed assessment and remediation of all mission critical information systems and automated production systems. Testing of mission critical systems is 95% complete and is planned to be 100% complete by November 30, 1999. As of July 31, 1999, the Company had completed assessment and remediation of substantially all non-mission critical systems and testing is complete. As of March 1, 1999, the Company had contacted substantially all mission critical third party suppliers and vendors about their Year 2000 readiness. The Company has received responses from a majority of those third parties contacted. As of July 31, 1999, the Company had also contacted substantially all of its non-mission critical third parties. Although the Company is taking affirmative steps to determine the readiness of third parties, there can be no assurance that the systems and processes of such third parties will remain functional. Year 2000 failures among mission critical third parties could possibly cause shutdowns or other significant business interruptions that could result in a material effect on the operations, liquidity or capital resources of the Company. At this time, the Company cannot quantify the potential impact of these failures. The Company is currently developing contingency plans to address issues within its control. The program minimizes, but does not eliminate, the issues of third parties. The total cost of the Company's Year 2000 program is not expected to be material to the Company's operations, liquidity or capital resources. Costs are being handled within the current information systems budget, and no special allocations have been made. The total estimated cost for the Company's Year 2000 program is expected to be less than $200,000. This includes costs for the replacement, repair or upgrade of existing non-ready systems. This disclosure is provided pursuant to Securities Exchange Act Release No. 34-40277. As such, it is protected as a forward-looking statement under the Private Securities Litigation Reform Act of 1995. See "Item 5. Other Information: Forward Looking Statements" on page 11. This disclosure is also subject to protection under the Year 2000 Information and Readiness Disclosure Act of 1998, 15 USC (S)1, as a "Year 2000 Statement" and "Year 2000 Readiness Disclosure" as defined therein. 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 would 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. None. 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; . use of initial public offering proceeds; . working capital requirements; . the availability of expected sources of liquidity; . the impact of the Year 2000 problem; . 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 Registration Statement on Form S-1 (Registration No. 333-33447) filed in connection with the initial public offering and the Company's other 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. 11
Item 6. Exhibits and Reports on Form 8-K. <TABLE> <CAPTION> Exhibit Number Description ------- ----------- <C> <S> *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)). 10.1 --Credit Agreement between Dril-Quip, Inc. and Bank One, Texas, N.A. dated August 27, 1999. 27.1 --Financial Data Schedule. </TABLE> - -------- * Incorporated herein by reference as indicated. Reports on Form 8-K None. 12
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DRIL-QUIP, INC. /s/ Jerry M. Brooks ------------------------------------- Principal Financial Officer and Duly Authorized Signatory Date: November 12, 1999 13