'Heartbreak Decisions' Bring Smith Out of Bankruptcy, but Dangers Lie Ahead

Smith International may have emerged from bankruptcy, but Smith officials and Wall Street analysts agree that the Irvine-based oil services company has a long way to go before it can claim victory.

"With the company out of bankruptcy, I see my mission as about half over," said Smith chief financial officer Loren Carroll, who joined the company in 1984 to engineer its financial restructuring.

"We have to turn our attention to making a profit in a very weak market," Carroll said. "We've made all the heartbreak decisions. Now, it's back to business."

Carroll said the company should start operating in the black sometime in 1988, even if oil prices remain at current levels of about $17 per barrel.

For the first, second and third quarters of 1987, the company lost $19.5 million, $13 million and $4.2 million, respectively. Results for the fourth quarter have not been released.

But Smith is about 50% more efficient than it was just a year ago, generating revenues of about $120,000 per employee, Carroll says.

Its staff has been cut back dramatically. Ten years ago, the company employed 9,000 workers. Today, the number is down to 2,400. As part of that paring back, the company has reduced the number of corporate officers from 17 to five.

The company has also shed several unprofitable businesses, raising needed cash. The sale of McEvoy-Willis, a Smith iron-works subsidiary, in September yielded $61 million.

And the company settled a patent infringement lawsuit with Baker-Hughes for $90 million. Carroll sees that settlement as a boon because the original damage award was set at $210 million.

Smith is satisfying its creditors with two major distributions of cash and stock. One was made in September, the other will come in February.

Several Wall Street analysts have become fans of Smith's restructuring efforts.

Jeffrey Freedman, an analyst with Smith Barney in New York, said that Smith has an "exceptionally high" ratio of sales per dollar of fixed assets and that the stock, which closed on Friday at $6.75 per share, down 12.5 cents, is a bargain.

Others are more cautious.

"Smith is one of the great potential companies in this market," said Ivan Obolensky, an analyst with Josephthal & Co. in New York.

"But with everything else that's out there to buy, I can't recommend buying the stock of a company who's just had its head handed to it and whose survival depends on a strong economy," Obolensky said.

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