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Top-Drive Drilling System, Cost Cuts Credited : Varco Turns First Profit in 14 Quarters : ORANGE : COUNTY

October 15, 1985|ROBERT HANLEY | Times Staff Writer

Citing cost-cutting measures instituted more than a year ago, as well as increased demand for its top-drive drilling system, Varco International Inc. on Monday reported its first profitable quarter in more than three years.

However, an official of the Orange oil tool manufacturer said he wasn't sure the company could maintain its new-found profitability after posting losses during each of the 13 previous quarters.

"We are certainly very hopeful of maintaining profitability now that we've achieved it and we're going to work very hard to ensure that we do," said Dick Kertson, Varco's vice president of finance. "But I don't think that in this market one can predict anything with absolute certainty."

Net income for the calendar third quarter was $202,000, compared with a loss of $2.9 million in the 1984 quarter. Revenues were $15.5 million, virtually flat compared with revenues of $14.8 million during the 1984 period.

For the nine months, Varco posted a loss of $2.2 million, compared with a loss of $16 million for the first three quarters last year. Revenues rose slightly, to $44.8 million from $44 million.

Although the company sold its headquarters building and adjacent excess manufacturing space in Orange last month for $7.4 million, Kertson said the $6 million the company netted from the sale, to Cove Development Co. of Newport Beach, was used to pay down debt and had no effect on the third-quarter profit.

Other cash generated by the sale of "excess assets," including real estate and service facilities in Texas and Louisiana, have helped the company to reduce its overall debt to $38.4 million, compared with $59.1 million a year ago, he said.

Kertson said that since mid-1984, when Varco instituted an "across-the-board expense control" program, the company has saved about $10 million in sales expenses, research and development and administrative costs. The company has also cut production costs by purchasing more raw materials from less expensive overseas sources, he said.

Strong demand for Varco's top-drive oil drilling system, which, unlike conventional drilling motors, operates at the top of the oil rig instead of the bottom, contributed to the improved performance during the quarter, Kertson said.

Kevin Simpson, an analyst with Drexel Burnham Lambert Inc. in New York, said that Varco has met with "very good market acceptance" of its top-drive drilling system and that major oil companies are beginning to insist on its use in their operations.

So far this year, Varco has sold 25 of the devices and expects to sell 10 more during the fourth quarter. Last year Varco sold 25 top-drive systems. At $500,000 each, the systems accounted for $14.7 million in revenues during the last nine months, compared with $7.4 million during the comparable period last year.

"We don't expect the overall market to recover significantly in the near-term future," Kertson said. "However, the economics of the use of the top-drive drilling system are so beneficial to the operator that we have found that we can sell them even in a very difficult market."

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