<PAGE> 1
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 July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number
---------------------------------------------------------
Dailey Petroleum Services Corp.
- -------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0503351
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2507 North Frazier, Conroe, Texas 77305
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
713/350-3399
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 No X
----- -----
Number of shares outstanding of issuer's Class A Common Stock as of August 31,
1996 was 4,270,000.
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DAILEY PETROLEUM SERVICES CORP.
FORM 10-Q FOR THE QUARTER ENDED JULY 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - July 31, 1996 and April 30, 1996 1
Consolidated statements of operations - Three months ended July 31, 1996 and 1995 2
Consolidated statements of cash flows - Three months ended July 31, 1996 and 1995 3
Notes to consolidated financial statements - July 31, 1996 4 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 8
PART II. OTHER INFORMATION 9
Item 1. Legal Procedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 10
</TABLE>
i
<PAGE> 3
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1996 1996
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................................... $ 2,492 $ 1,967
Accounts receivable, net............................................ 17,310 16,306
Accounts receivable from officers and affiliates.................... 5 436
Prepaid expenses.................................................... 676 422
Deferred income taxes............................................... 790 389
Other current assets................................................ 391 153
-------- --------
Total current assets........................................... 21,664 19,673
Revenue-producing tools and inventory, net.............................. 29,688 29,208
Property and equipment, net............................................. 5,430 5,121
Property and equipment held for sale, net............................... 205 205
Deferred income taxes................................................... 860 1,384
Intangibles and other assets............................................ 1,137 287
-------- --------
Total assets................................................... $ 58,984 $55,878
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities............................ $ 8,977 $ 6,749
Income taxes payable................................................ 1,877 1,749
Short-term debt..................................................... 1,700 1,300
Current portion of long-term debt................................... 1,726 1,738
Current portion of indebtedness to affiliate........................ 10,660 660
-------- --------
Total current liabilities...................................... 24,940 12,196
Long-term debt.......................................................... 6,438 6,866
Long-term indebtedness to affiliate..................................... 935 1,100
Other noncurrent liabilities............................................ 68 75
Commitments and contingencies
Stockholders' equity:
Preferred stock..................................................... --- ---
Common stock........................................................ 50 50
Paid-in capital..................................................... 4,559 4,559
Retained earnings................................................... 21,994 31,032
-------- --------
Total stockholders' equity..................................... 26,603 35,641
-------- --------
Total liabilities and stockholders' equity..................... $ 58,984 $ 55,878
======== ========
</TABLE>
See accompanying notes
1
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DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1996 1995
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<S> <C> <C>
REVENUES:
Rental income................................................. $ 12,119 $ 10,561
Sales of products and services................................ 4,637 4,918
--------- ---------
16,756 15,479
COSTS AND EXPENSES:
Cost of rentals............................................... 9,344 8,231
Cost of products and services................................. 2,536 2,493
Selling, general and administrative........................... 2,900 2,753
Research and development...................................... 175 162
--------- ---------
14,955 13,639
--------- ---------
Operating income.................................................. 1,801 1,840
Other (income) expense:
Interest income............................................... (12) (7)
Interest expense-nonaffiliates................................ 202 204
Interest expense-affiliate.................................... 111 47
Foreign exchange (gain) loss.................................. (7) 39
Other, net.................................................... (39) 16
--------- ---------
Income before income taxes........................................ 1,546 1,541
Provision for income taxes........................................ 584 544
--------- ---------
Net income........................................................ $ 962 $ 997
========= =========
Pro forma earnings per share (Note 2)............................. $ .15 .15
========= =========
Weighted average shares outstanding............................... 6,610,000 6,610,000
========= =========
</TABLE>
See accompanying notes
2
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DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1996 1995
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<S> <C>
OPERATING ACTIVITIES:
Net income .................................................................... $ 962 $ 997
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.............................................. 1,479 1,424
Deferred income taxes...................................................... 123 45
Provision for doubtful accounts receivable................................. 79 24
(Gain) loss on sale and disposition of property and equipment.............. (3) 11
Changes in operating assets and liabilities:
Accounts receivable - trade........................................... (1,083) (3,188)
Accounts receivable from/payable to affiliates........................ 431 646
Prepaid expenses and other............................................ (494) 16
Accounts payable and accrued liabilities.............................. 2,228 (93)
Income taxes payable.................................................. 128 216
-------- --------
Net cash provided by operating activities...................................... 3,850 98
INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory............................. (3,947) (1,149)
Inventory transferred to cost of rentals....................................... 1,379 1,201
Revenue-producing tools lost in hole, abandoned, and sold...................... 826 901
Additions to property and equipment............................................ (596) (319)
Proceeds from sale of property and equipment................................... 79 6
-------- --------
Net cash provided by (used in) investing activities............................ (2,259) 640
FINANCING ACTIVITIES:
Proceeds from the issuance of debt............................................. 10,400 ---
Payments on long-term debt..................................................... (605) (436)
Cost of initial public offering................................................ (861) ---
Dividends paid................................................................. (10,000) ---
-------- --------
Net cash used in financing activities.......................................... (1,066) (436)
-------- --------
Increase in cash and cash equivalents.......................................... 525 302
Cash and cash equivalents at beginning of period............................... 1,967 1,796
-------- --------
Cash and cash equivalents at end of period..................................... $ 2,492 $ 2,098
======== ========
</TABLE>
See accompanying notes
3
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DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include
the accounts of Dailey Petroleum Services Corp. and its subsidiaries (the
"Company"), and have been prepared in accordance with United States generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three months ended
July 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending April 30, 1997. For further information,
reference is made to the consolidated financial statements and footnotes
thereto included in the Company's Form S-1 filed with the Securities and
Exchange Commission on August 14, 1996.
2. ORGANIZATION
The accompanying financial statements reflect the operations of Dailey
Petroleum Services Corp., a Delaware corporation, which was merged with Dailey
Corporation (which changed its name to Dailey Petroleum Services Corp.) in June
1996. New Dailey Petroleum Services Corp. and its predecessor, Dailey
Petroleum Services Corp., are hereinafter referred to as the "Company" or
"Dailey".
Prior to June 1996, Dailey was a wholly-owned subsidiary of Lawrence
Industries, Inc. ("Lawrence"). In June 1996, in preparation for the subsequent
filing of a public offering of Class A Common Stock of Dailey (the "Offering"),
Lawrence reorganized its ownership of the Company into a holding company
structure through a forward triangular merger of Dailey Petroleum Services
Corp., into a newly-formed, wholly-owned indirect subsidiary of Lawrence, Dailey
Corporation (the "Reorganization"). The effect of the forward triangular merger
has been reflected retroactively in the accompanying financial statements. On
August 14, 1996 the Company filed its public offering of 3,910,000 shares of
Class A Common Stock, including the underwriters over-allotment option of
510,000 shares.
Dailey's Restated Certificate of Incorporation provides for three
classes of stock: Class A Common Stock, $.01 par (20,000,000 shares
authorized, no shares issued or outstanding) ("Class A Common Stock"), Class B
Common Stock, $.01 par (10,000,000 shares authorized, 5,000,000 shares issued
and outstanding) ("Class B Common Stock"), and Preferred Stock, $.01 par
(5,000,000 shares authorized, no shares issued or outstanding). The Board of
Directors is empowered to authorize the issuance of Preferred Stock in one or
more series and to fix the rights, powers, preferences and limitations of each
series. A holder of Class B Common Stock may convert its Class B Common Stock
into Class A Common Stock at any time at the ratio of one share of
4
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Class A Common Stock for each share of Class B Common Stock. In the event of
liquidation, holders of Class A Common Stock and Class B Common Stock share
with each other on a ratable basis as a single class in the net assets of the
Company available for distribution. In addition, shares of Class B Common
Stock convert automatically into a like number of shares of Class A Common
Stock upon the sale or transfer of such shares to a person or entity that is
not a member of the Lawrence Group (as defined in the Company's Restated
Certificate of Incorporation).
The Company used $5.0 million of the proceeds from the Offering to
repay the outstanding balance of a $10.0 million promissory note, which was
incurred in connection with a dividend declared on June 27, 1996. On August
13, 1996, the Company's sole stockholder contributed to the capital of the
Company the remaining $5.0 million of the outstanding principal of the
promissory note. The promissory note accrued interest at the prime rate. In
the accompanying statements of operations, pro forma per share data is included
which gives effect to the number of shares from which proceeds would be used
to pay the dividend (the $10.0 million dividend would require an additional
1,250,000 shares assuming a per share Offering price of $8.00, thus earnings
per share for the periods ending July 31, 1996 and 1995, are based on 6,610,000
shares of Common Stock outstanding).
3. REVENUE-PRODUCING TOOLS AND INVENTORY
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1996 1996
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(IN THOUSANDS)
<S> <C> <C>
Revenue-producing tools............................................. $ 48,559 $48,024
Accumulated depreciation............................................ (30,148) (29,740)
-------- --------
18,411 18,284
Inventory:
Components, subassemblies and expendable parts............. 8,269 9,096
Rental tools and expendable parts under production......... 1,966 1,058
Raw materials.............................................. 1,042 770
-------- --------
11,277 10,924
-------- --------
Revenue-Producing Tools and Inventory.............. $ 29,688 $29,208
======== =======
</TABLE>
4. SUBSEQUENT EVENT
In addition to the subsequent public offering and capital contribution
discussed in Note 2 above, subsequent to July 31, 1996, and effective with the
completion of the public offering, the Board of Directors adopted the "1996 Key
Employee Stock Plan" and the "1996 Non-Employee Director Stock Plan." The
Company's "1996 Key Employee Stock Plan," a non compensatory plan, authorized
the grant of options or restricted stock for Class A Common Stock to management
personnel for up to 900,000 shares of the Company's Common Stock. The Company
granted options totalling 378,327 shares contemporaneously with the offering to
various executive officers at the initial public offering price, which will
vest over three years. In addition, immediately following
5
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the Offering the Company granted to key officers restricted stock awards
totalling 360,000 shares of Class A Common Stock, which will vest over three
years and not require any payment by the key officers. The "1996 Non-Employee
Director Stock Plan," a compensatory plan, has 100,000 shares authorized for
the granting of options to outside directors.
6
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DAILEY PETROLEUM SERVICES CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
The Company provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Founded in 1945 as a rental tool company,
Dailey began offering directional drilling services in 1984 and currently
provides such services in the Gulf of Mexico, the United States Gulf Coast
region, and most recently, Venezuela and the Austin Chalk formation in Texas
and Louisiana. The Company operates in one business segment.
Quarter Ended July 31, 1996 Compared to the Quarter Ended July 31, 1995
Rental Income. Rental income for the quarter ended July 31, 1996, was
$12.1 million, an increase of 15% from $10.6 million for the quarter ended
July 31, 1995. This increase was due primarily to an increase in demand for the
Company's directional drilling services and related products in Venezuela, the
Gulf of Mexico and the United States Gulf Coast region, which resulted in a
$1.9 million increase in rentals from MWD equipment, downhole motors and other
directional drilling tools. This increase was partially offset by a decrease
in rental income from the Company's drilling jars of $400,000 due primarily to
a decrease in demand in Latin America.
Sales of Products and Services. Sales of products and services for
the quarter ended July 31, 1996, were $4.6 million, a decrease of 6% from $4.9
million for the quarter ended July 31, 1995. This decrease was due primarily
to a decrease in export sales of mechanical drilling jars of approximately
$500,000 and to a decrease in lost-in-hole revenues of $400,000. The decrease
is largely offset by an increase in the Company's directional drilling services
revenue of $700,000 in the Gulf of Mexico, the United States Gulf Coast region
and Venezuela.
Cost of Rentals. As a percentage of rental income, cost of rentals
decreased from 78% in the first quarter of 1996 to 77% in the first quarter of
1997, which reflects the fixed nature of the Company's cost base. The
increase of $1.1 million was due primarily to the variable costs associated
with an increase in rental activity, such as tool repair costs, agent
commissions and third party tool charges.
Cost of Products and Services. Cost of products and services for the
quarter ended July 31, 1996, was $2.5 million, which is consistent with the
quarter ended July 31, 1995. The margin on sales of products and services for
the first quarter of 1997 is 45% compared to 49% for the same quarter last
year. This decrease is due primarily to a decrease in higher margin export
sales of mechanical jars partially offset by increased revenues and improved
margins on revenues from directional drilling services.
7
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2.9 million for the quarter ended July 31, 1996,
a 4% increase over the quarter ended July 31, 1995.
Income Tax Expense. Provision for income taxes for the quarter ended
July 31, 1996, was $584,000, an increase of 7% from $544,000 for the quarter
ended July 31, 1995. This is a result of an increase in the effective tax rate
from 35% to 38% to reflect an anticipated increase in state income tax
resulting from filing separate from Lawrence.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. At July 31, 1996, the Company had $2.5 million in
cash and cash equivalents. For the quarter ended July 31, 1996, the Company
had net income of $962,000 and cash provided by operating activities of $3.9
million. Other sources of cash included $826,000 from revenue-producing tools
lost in hole, abandoned and sold and $400,000 from advances under the revolving
line of credit discussed below. The Company's principal uses of cash for the
quarter were to fund $2.8 million for capital expenditures and $605,000 for
the repayment of long-term debt. During the past several years, the Company
has funded its working capital requirements through cash generated from
operations, its credit facilities and asset sales.
Credit Facilities. At July 31, 1996, the Company had $9.9 million of
bank debt outstanding pursuant to an amended and restated credit agreement
dated December 13, 1995, as amended on June 5, 1996 (the "Credit Agreement").
The Credit Agreement provides for a term loan and a revolving credit facility.
At July 31, 1996, the outstanding principal balance of the term loan was $8.2
million and the outstanding principal balance of advances made pursuant to the
revolving line of credit was $1.7 million. Borrowings under the revolving
credit facility are limited to the lesser of $3.0 million or a loan formula
based upon the level of the Company's eligible accounts receivable.
Notes to Lawrence. At July 31, 1996, the Company had approximately
$1.6 million outstanding under a note to Lawrence. In addition, on June 27,
1996, the Company declared and paid a $10.0 million dividend to the Company's
sole stockholder, a subsidiary of Lawrence, in the form of a demand promissory
note accruing interest at its bank's prime rate. The Company repaid $6.6
million of these notes in August utilizing a portion of the net proceeds from
the Offering. The remaining $5.0 million was contributed back to the capital
of the Company by the stockholder.
Capital Expenditures. The Company made capital expenditures of
approximately $2.8 million in the quarter ending July 31, 1996. These
expenditures were for downhole tools, primarily MWD and other directional
equipment, hydraulic drilling jars, hydraulic fishing jars and various
equipment. The Company believes it has available resources through internally
generated cash flow, the existing Credit Agreement and the net proceeds of the
Offering to fund its operations for at least the next 12 months.
8
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
9
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Signatures
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.
Dailey Petroleum Services Corp.
(Registrant)
Date September 25, 1996 /s/ DAVID T. TIGHE
-------------------------------------
David T. Tighe
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
10
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 2,492
<SECURITIES> 0
<RECEIVABLES> 18,960
<ALLOWANCES> 1,650
<INVENTORY> 0
<CURRENT-ASSETS> 21,664
<PP&E> 24,790
<DEPRECIATION> 19,360
<TOTAL-ASSETS> 58,984
<CURRENT-LIABILITIES> 24,940
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 26,553
<TOTAL-LIABILITY-AND-EQUITY> 58,984
<SALES> 0
<TOTAL-REVENUES> 16,756
<CGS> 0
<TOTAL-COSTS> 14,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313
<INCOME-PRETAX> 1,546
<INCOME-TAX> 584
<INCOME-CONTINUING> 962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 962
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
