<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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 Numbers: 333-48283
----------
333-48279
----------
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
(Exact name of registrants as specified in their charters)
<TABLE>
<S> <C>
DELAWARE 13-3989167
TEXAS 74-1282680
(States or other jurisdictions of (I.R.S. Employer Identification Nos.)
incorporation of organization)
4440 BRITTMOORE ROAD
HOUSTON, TX 77041-8004
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 335-7000
(Registrants' 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 [ ]
UNIVERSAL COMPRESSION, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM
10-Q WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1999 1999
---------- ----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,927 $ 4,255
Accounts receivable, net 22,469 16,612
Inventories 10,272 12,141
Deferred tax assets 426 426
Other 938 1,117
---------- ----------
Total current assets 37,032 34,551
Property, plant and equipment
Rental equipment 296,049 309,125
Other 17,122 16,802
Less: accumulated depreciation (17,647) (19,940)
---------- ----------
Net property, plant, and equipment 295,524 305,987
Goodwill, net of amortization 96,345 95,717
Other assets, net 8,632 8,376
Long-term deferred tax asset 458 458
---------- ----------
Total assets $ 437,991 $ 445,089
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,540 $ 17,180
Current portion of long-term debt 750 2,150
---------- ----------
Total current liabilities 13,290 19,330
Capital lease obligation -- 2,535
Long-term debt 343,927 343,693
---------- ----------
Total liabilities 357,217 365,558
Stockholders' equity:
Series A preferred stock, $.01 par value, 5,000,000
shares authorized, 1,320,144 and 1,320,128 shares
issued and outstanding at March 31, 1999 and
June 30, 1999, respectively, $50-per-share
liquidation value 13 13
Common stock, $.01 par value, 994,000 shares
authorized, 330,036 and 330,032 shares issued,
329,906 and 329,902 shares outstanding at
March 31, 1999 and June 30, 1999, respectively 3 3
Class A non-voting common stock, $.01 par
value, 6,000 shares authorized, 4,120 shares
issued, 4,080 and 3,970 shares outstanding at
March 31, 1999 and June 30, 1999, respectively -- --
Treasury stock, 170 and 280 shares at cost
at March 31, 1999 and June 30, 1999,
respectively (9) (14)
Additional paid-in capital 82,698 82,698
Retained deficit (1,931) (3,169)
---------- ----------
Total stockholders' equity 80,774 79,531
---------- ----------
Total liabilities and stockholders' equity $ 437,991 $ 445,089
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE> 3
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1999
---------- ----------
<S> <C> <C>
Revenues:
Rental $ 21,765 $ 23,188
Sales 7,798 10,619
Other 74 1
---------- ----------
Total revenue 29,637 33,808
Costs and expenses
Rentals, exclusive of depreciation
and amortization 7,997 8,602
Cost of sales, exclusive of
depreciation and amortization 6,686 9,102
Depreciation and amortization 4,522 5,617
Selling, general and administrative 3,808 4,538
Interest expense 6,983 7,946
---------- ----------
Total costs and expenses 29,996 35,805
---------- ----------
Loss before income taxes (359) (1,997)
Income tax benefit (132) (759)
---------- ----------
Net loss $ (227) $ (1,238)
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (227) $ (1,238)
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 4,522 5,617
(Gain) loss on asset sales (35) 19
Amortization of debt issuance costs 291 290
Accretion of discount notes 4,416 4,853
Change in working capital (2,751) 7,051
------------ ------------
Net cash provided by operating activities 6,216 16,592
Cash flows from investing activities:
Additions to property, plant, and equipment, net (11,723) (10,171)
Capital lease-back of vehicles -- (3,935)
------------ ------------
Net cash used in investing activities (11,723) (14,106)
Cash flows from financing activities:
Principal repayments of long-term debt (188) (188)
Net borrowing on line of credit 3,556 (4,900)
Proceeds from sale-lease-back of vehicles -- 3,935
Treasury stock -- (5)
------------ ------------
Net cash (used in) provided by financing activities 3,368 (1,158)
Increase (decrease) in cash (2,139) 1,328
Cash at beginning of period 2,383 2,927
------------ ------------
Cash at end of period $ 244 $ 4,255
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
Universal Compression Holdings, Inc. (the "Company") was formed on December 12,
1997 for the purpose of acquiring Tidewater Compression Service, Inc. ("TCS")
from Tidewater Inc. ("Tidewater"). The Company formed an acquisition
subsidiary, TW Acquisition Corporation ("Acquisition Corp.") which acquired
100% of the voting securities of TCS (the "Acquisition"). Immediately following
the Acquisition, Acquisition Corp. was merged with and into TCS, which changed
its name to Universal Compression, Inc. ("Universal"). The Company is a holding
company which conducts its operations through its wholly owned subsidiary,
Universal. Accordingly, the Company is dependent upon the distribution of
earnings from Universal whether in the form of dividends, advances or payments
on account of intercompany obligations, to service its debt obligations. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements presented in the Company's Annual Report on
Form 10-K for the year ended March 31, 1999. That report contains a more
comprehensive summary of the Company's major accounting policies. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all appropriate adjustments, all of which are normally
recurring adjustments unless otherwise noted, considered necessary to present
fairly its financial position, results of operations and cash flows for the
respective periods. Operating results for the three month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending March 31, 2000.
The Company through its subsidiaries is a leading provider of natural gas
compressor rental, maintenance and operations services to the domestic oil and
gas industry, owning one of the largest domestic gas compressor fleets, and has
a growing presence in key international markets. The Company through its
subsidiaries has a broad base of over 500 customers and its 577,000 horsepower
("HP") gas compression rental fleet is comprised of over 2,600 units. Founded
in 1954, Universal has an operating presence in all active domestic gas
compression markets. As a complement to its rental operations, the Company
through its subsidiaries designs and fabricates compression units for its own
fleet as well as for its global customer base.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." For the three
months ended June 30, 1998 and 1999, the effect of transactions which would
have given rise to further disclosure were not significant.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings
effects of the hedged comprehensive income pending recognition in earnings.
This statement is effective for all fiscal years beginning after June 15, 2000.
The Company is currently evaluating what impact, if any, adoption of this
statement will have on the Company's consolidated financial statements.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
MARCH, 1999 JUNE, 1999
----------- ----------
<S> <C> <C>
Work-in-progress $ 4,993 $ 7,794
Finished goods 5,279 4,347
--------- ---------
$ 10,272 $ 12,141
========= =========
</TABLE>
5
<PAGE> 6
4. INDUSTRY SEGMENTS
The Company has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance Segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products Segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer specifications. The International
Rental and Maintenance Segment represents substantially all of the Company's
foreign activities.
The Company evaluates performance based on gross profit or loss from
operations, which represents total revenue less rental expenses and cost of
sales. Revenues include sales to external customers. Operating income
represents revenues less total costs and expenses, not including the effect of
interest expense and income taxes. The Corporate and Other segment represents
primarily corporate activities, part sales and services and all other items
that could not be allocated to an identifiable segment. The Corporate and Other
segment principally serves the oil and gas market, including sales of parts and
equipment utilized in the extraction of natural gas and the service that the
Company provides to customers' natural gas compression units.
The following table presents sales and other financial information by
industry segment for the quarter ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ----------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
June 30, 1999:
Revenues .......................... $ 19,761 $ 3,426 $ 5,988 $ 4,633 $ 33,808
Gross profit ...................... $ 12,018 $ 2,568 $ 576 $ 942 $ 16,104
Operating income(loss) ............ $ 4,246 $ 1,199 $ (99) $ 603 $ 5,949
June 30, 1998:
Revenues .......................... $ 19,624 $ 1,662 $ 2,814 $ 5,537 $ 29,637
Gross profit ...................... $ 12,211 $ 1,221 $ 671 $ 851 $ 14,954
Operating income .................. $ 5,428 $ 630 $ 206 $ 360 $ 6,624
</TABLE>
5. SALE AND LEASE BACK OF VEHICLES
In June 1999, a subsidiary of the Company completed a $3.9 million sale and
lease back of the majority of its service vehicle fleet. The sale of the
vehicles resulted in a deferred gain of $1.4 million at June 30, 1999 which is
included in accrued liabilities. The lease back of the vehicles is recorded as
a capital lease obligation. Under the agreement, the vehicles were sold and
leased back by such subsidiary at lease terms ranging from 20 months to 56
months and will continue to be deployed by such subsidiary under its normal
operating procedures.
6. SUBSEQUENT EVENT
On July 21, 1999, a wholly owned subsidiary of the Company received $7.8
million as the first phase of a financing lease with Societe Generale Bank
regarding certain compression equipment. The Company expects an additional $4
million, approximately, to be received under the financing lease agreement in
the third quarter of the current fiscal year. The financing lease has a term of
5 years and bears interest at a rate of LIBOR plus 4.25%. The financing lease
is related to the Company's subsidiary's Colombia operations.
6
<PAGE> 7
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,927 $ 4,255
Accounts receivable, net 22,469 16,612
Inventories 10,272 12,141
Deferred tax assets 426 426
Other 916 1,085
------------ ------------
Total current assets 37,010 34,519
Property, plant and equipment
Rental equipment 296,049 309,125
Other 17,122 16,802
Less: accumulated depreciation (17,647) (19,940)
------------ ------------
Net property, plant, and equipment 295,524 305,987
Goodwill, net of amortization 96,101 95,475
Other assets, net 7,852 7,618
------------ ------------
Total assets $ 436,487 $ 443,599
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,538 $ 17,490
Payable to parent 1,434 1,418
Current portion of long-term debt 750 2,150
------------ ------------
Total current liabilities 14,722 21,058
Deferred income taxes 859 859
Capital lease obligation -- 2,535
Long-term debt 315,598 314,571
------------ ------------
Total liabilities 331,179 339,023
Stockholder's equity:
Common stock, $10 par value, 5,000 shares
authorized and 4,910 shares issued and
outstanding 49 49
Additional paid-in capital 105,131 105,131
Retained earnings (deficit) 128 (604)
------------ ------------
Total stockholder's equity 105,308 104,576
------------ ------------
Total liabilities and stockholder's equity $ 436,487 $ 443,599
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
7
<PAGE> 8
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1999
---------- ----------
<S> <C> <C>
Revenues:
Rental $ 21,765 $ 23,188
Sales 7,798 10,619
Other 74 1
---------- ----------
Total revenue 29,637 33,808
Costs and expenses
Rentals, exclusive of depreciation
and amortization 7,997 8,602
Cost of sales, exclusive of
depreciation and amortization 6,686 9,102
Depreciation and amortization 4,520 5,615
Selling, general and administrative 3,808 4,538
Interest expense 6,249 7,132
---------- ----------
Total costs and expenses 29,260 34,989
---------- ----------
Income (loss) before income taxes 377 (1,181)
Income taxes (benefit) 147 (449)
---------- ----------
Net income (loss) $ 230 $ (732)
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
8
<PAGE> 9
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 230 $ (732)
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 4,520 5,615
(Gain) loss on asset sales (35) 19
Amortization of debt issuance costs 270 268
Accretion of discount notes 3,873 4,060
Change in working capital (2,642) 7,357
---------- ----------
Net cash provided by operating activities 6,216 16,587
Cash flows from investing activities:
Additions to property, plant, and equipment, net (11,723) (10,171)
Capital lease-back of vehicles -- (3,935)
---------- ----------
Net cash used in investing activities (11,723) (14,106)
Cash flows from financing activities:
Principal repayments of long-term debt (188) (188)
Net borrowing on line of credit 3,556 (4,900)
Proceeds from sale-lease-back of vehicles -- 3,935
---------- ----------
Net cash (used in) provided by financing activities 3,368 (1,153)
Increase (decrease) in cash (2,139) 1,328
Cash at beginning of period 2,383 2,927
---------- ----------
Cash at end of period $ 244 $ 4,255
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
9
<PAGE> 10
UNIVERSAL COMPRESSION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
Universal Compression, Inc., formerly Tidewater Compression Service, Inc.
("TCS") was formed in 1954. On February 20, 1998, TW Acquisition Corporation
("Acquisition Corp."), a wholly owned subsidiary of Universal Compression
Holdings, Inc. ("Holdings"), acquired 100% of the voting securities of TCS.
Immediately following the acquisition, Acquisition Corp. was merged with and
into TCS, which changed its name to Universal Compression, Inc. (the "Company").
The Company is a wholly owned subsidiary of Holdings. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements presented in the Company's Annual Report on Form 10-K for
the year ended March 31, 1999. That report contains a more comprehensive summary
of the Company's major accounting policies. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all appropriate
adjustments, all of which are normally recurring adjustments unless otherwise
noted, considered necessary to present fairly its financial position, results of
operations and cash flows for the respective periods. Operating results for the
three month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2000.
The Company is a leading provider of natural gas compressor rental, maintenance
and operations services to the domestic oil and gas industry, owning one of the
largest domestic gas compressor fleets, and has a growing presence in key
international markets. The Company has a broad base of over 500 customers and
its 577,000 horsepower ("HP") gas compression rental fleet is comprised of over
2,600 units. The Company has an operating presence in all active domestic gas
compression markets. As a complement to its rental operations, the Company
designs and fabricates compression units for its own fleet as well as for its
global customer base.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." For the three
months ended June 30, 1998 and 1999, the effect of transactions which would
have given rise to further disclosure were not significant.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings
effects of the hedged comprehensive income pending recognition in earnings.
This statement is effective for all fiscal years beginning after June 15, 2000.
The Company is currently evaluating what impact, if any, adoption of this
statement will have on the Company's consolidated financial statements.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
MARCH, 1999 JUNE, 1999
----------- ----------
<S> <C> <C>
Work-in-progress $ 4,993 $ 7,794
Finished goods 5,279 4,347
---------- ----------
$ 10,272 $ 12,141
========== ==========
</TABLE>
10
<PAGE> 11
4. INDUSTRY SEGMENTS
The Company has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance Segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products Segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer specifications. The International
Rental and Maintenance Segment represents substantially all of the Company's
foreign activities.
The Company evaluates performance based on gross profit or loss from
operations, which represents total revenue less rental expenses and cost of
sales. Revenues include sales to external customers. Operating income
represents revenues less total costs and expenses, not including the effect of
interest expense and income taxes. The Corporate and Other segment represents
primarily corporate activities, part sales and services and all other items
that could not be allocated to an identifiable segment. The Corporate and Other
segment principally serves the oil and gas market, including sales of parts and
equipment utilized in the extraction of natural gas and the service that the
Company provides to customers' natural gas compression units.
The following table presents sales and other financial information by
industry segment for the quarter ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ----------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
June 30, 1999:
Revenues .................. $ 19,761 $ 3,426 $ 5,988 $ 4,633 $ 33,808
Gross profit .............. $ 12,018 $ 2,568 $ 576 $ 942 $ 16,104
Operating income(loss) .... $ 4,246 $ 1,199 $ (99) $ 605 $ 5,951
June 30, 1998:
Revenues .................. $ 19,624 $ 1,662 $ 2,814 $ 5,537 $ 29,637
Gross profit .............. $ 12,211 $ 1,221 $ 671 $ 851 $ 14,954
Operating income .......... $ 5,428 $ 630 $ 206 $ 362 $ 6,626
</TABLE>
5. SALE AND LEASE BACK OF VEHICLES
In June 1999, the Company completed a $3.9 million sale and lease back of the
majority of its service vehicle fleet. The sale of the vehicles resulted in a
deferred gain of $1.4 million at June 30, 1999 which is included in accrued
liabilities. The lease back of the vehicles is recorded as a capital lease
obligation. Under the agreement, the vehicles were sold and leased back by the
Company at lease terms ranging from 20 months to 56 months and will continue to
be deployed by the Company under its normal operating procedures.
6. SUBSEQUENT EVENT
On July 21, 1999, a wholly owned subsidiary of the Company received $7.8
million as the first phase of a financing lease with Societe Generale Bank
regarding certain compression equipment. The Company expects an additional $4
million, approximately, to be received under the financing lease agreement in
the third quarter of the current fiscal year. The financing lease has a term of
5 years and bears interest at a rate of LIBOR plus 4.25%. The financing lease
is related to the Company's subsidiary's Colombia operations.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
UNIVERSAL COMPRESSION HOLDINGS, INC.
THREE MONTHS ENDED JUNE 30, 1999
Revenue. Revenue for the quarter ended June 30, 1999 increased $4.2
million, or 14%, to $33.8 million compared to $29.6 million for the quarter
ended June 30, 1998 due to increases in both rental revenue and revenue from
fabrication and equipment sales. Rental revenue increased 7% to $23.2 million.
The increase in rental revenue was due to an increase in utilized horsepower
combined with an increase in average rental pricing. The Company increased the
amount of HP rented in international markets by 20,773 HP primarily through
additional service in Argentina and Colombia. Revenue from fabrication and
sales increased to $10.6 million from $7.8 million, an increase of 36%, due to
a relatively higher level of fabrication activity.
Gross Margin. Gross margin (defined as total revenue less (i) rental
expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii)
gain on asset sales and (iv) interest income) for the quarter ended June 30,
1999 increased $1.2 million, or 8%, to $16.1 million from gross margin of $14.9
million for the quarter ended June 30, 1998. The rental gross margin for the
quarter ended June 30, 1999 increased $0.8 million, or 6%, to $14.6 million
compared to gross margin of $13.8 million for the quarter ended June 30, 1998.
Gross margin increased primarily as the result of the revenue growth discussed
above while rental margins remained constant at approximately 63%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended June 30, 1999 increased $0.7
million compared to the quarter ended June 30, 1998. As a percentage of
revenue, selling, general and administrative expenses represented 13% of
revenues for the quarters ended June 30, 1999 and 1998. The increase was
primarily due to increased personnel costs in the quarter ended June 30, 1999
as the Company added the additional sales and engineering personnel necessary
to rent and manage a larger rental fleet.
Net income. Primarily as a result of interest expense for the indebtedness
incurred in the Acquisition increasing from $7.0 million to $7.9 million and
depreciation and amortization related to the continued expansion of the
Company's assets increasing from $4.5 million to $5.6 million, offset by an
increased income tax benefit and the factors discussed above, the Company had a
net loss of $1.2 million for the quarter ended June 30, 1999 compared to a net
loss of $0.2 million for the quarter ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at June 30, 1999 was $4.3
million compared to $2.9 million at March 31, 1999. For the quarter ended June
30, 1999, the Company generated cash flow from operations of $16.6 million and
received $5.8 million from the sale of assets. The Company used this cash flow
to expend $16.0 million on equipment for its rental operations and make net
principal payments of $5.1 million under its established lines of credit.
The Company expects to expend between $65 to $70 million on capital projects
during fiscal 2000. The expected expenditures include approximately $48 million
for expansion of its domestic rental fleet, $12 million for additional
expansion into international markets and $7 million for maintaining and
updating the existing fleet. The Company's other principal uses of cash will be
to fund working capital needs and to meet required principal and interest
payments on debt obligations.
The Company anticipates that internally generated cash flow including
improvement in its working capital position, availability under the Revolving
Credit Facility and permitted international borrowings, will be sufficient to
fund domestic and international operations, capital projects, and its
obligations for Fiscal 2000.
IMPACT OF THE YEAR 2000
Many existing computer programs, embedded systems and components use only two
digits to identify a year (for example, "98" is used to represent "1998"). Such
programs may read "00" as the year 1900, thus incorrectly recognizing dates
beginning with the Year
12
<PAGE> 13
2000, or may otherwise produce erroneous results or cease processing when dates
after 1999 are encountered. Such failures could cause disruptions in normal
business operations.
State of Readiness. During 1998 the Company assembled a Year 2000 Committee
("Committee") to review the Year 2000 issues and manage the Company's
compliance initiative. The Committee has assessed the Company's internal
information and operating systems in order to develop a comprehensive strategy
to address the computer software and hardware changes and facility upgrades
that are required to remedy Year 2000 related deficiencies inherent in those
systems. The Committee has focused its efforts on both information technology
(IT) systems (primarily computer hardware and software) and non-information
technology (Non-IT) systems (embedded technology such as microcontrollers) in
all aspects of the Company's businesses and operations. Generally, the Company
has substantially completed the various modifications and testing of existing
IT systems to accommodate the problems associated with the Year 2000 issues.
Additionally the Company has substantially completed its evaluation of Non-IT
systems and believes that a failure, if any, of such systems would not
significantly impact the operations of the Company. The Company has also
evaluated the relationships with its vendors and customers and has determined
that the Company has no significant supplier or customer that directly
interfaces with the Company's information technology systems. However, there is
no assurance that the computer systems of the vendors and customers on which
the Company relies will be converted timely and will not have a material
adverse effect on the Company.
Cost of Addressing the Company's Year 2000 Issues. The aggregate cost of the
required modifications and testing has been approximately $100,000 and consists
primarily of the Company's internal costs for its information systems group.
The costs for the required modifications and testing have been expensed as
incurred. The Company does not expect to incur significant additional costs
relating to the Company's Year 2000 issues.
Year 2000 Risks and Contingency Planning. The committee is continually
reviewing the problems and uncertainties associated with Year 2000 issues and
the potential consequences on the Company's operations. The Company is in the
process of developing contingency plans which are intended to address the worst
case Year 2000 issues. The Company believes that the most reasonably likely
worst case Year 2000 scenario would include these elements: (a) one or more of
the Company's third party providers will be unable to provide the supplies
expected and (b) one or more parts of the Company's internal systems will
operate incorrectly. The Company believes that the uncertainties associated
with a failure of third party providers are mitigated by the following factors:
(a) significant supplies are in inventory and (b) there is a long lead-time in
ordering supplies. The Company believes that the modifications and testing of
critical systems have minimized the uncertainties associated with a failure of
its systems related to significant Year 2000 issues. In the event of a systems
failure, the Company believes it is equipped to switch to manual processes
until such failure is remedied, without significantly impacting operations.
The occurrence of an unexpected Year 2000 issue could result in the disruption
of the Company's business and operations and have a material adverse effect on
the Company's results of operations, liquidity or financial condition. However
based upon the Company's substantial completion of its compliance initiative,
the Company does not believe that such matters will have a material adverse
effect on its results of operations.
FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical facts, including
without limitation statements regarding the sufficiency of available cash flows
to fund its continuing operations, capital improvements and research and
development, and the expected amount of capital expenditures for the fiscal
year may be regarded as "forward looking statements" within the meaning of the
Securities Litigation Reform Act. Such forward looking statements are subject
to the impact of risks and uncertainties that could cause actual results to
differ materially from results expressed or implied in such forward looking
statements. The risks and uncertainties include, but are not limited to (1)
conditions in the oil and gas industry including the price of oil and natural
gas and the demand for natural gas, (2) competition among the various providers
of contract compression services, (3) changes in safety and environmental
regulations pertaining to the production and transportation of natural gas, and
(4) changes in economic or political conditions in the international markets in
which the Company competes.
13
<PAGE> 14
UNIVERSAL COMPRESSION, INC.
THREE MONTHS ENDED JUNE 30, 1999
Revenue. Revenue for the quarter ended June 30, 1999 increased $4.2
million, or 14%, to $33.8 million compared to $29.6 million for the quarter
ended June 30, 1998 due to increases in both rental revenue and revenue from
fabrication and equipment sales. Rental revenue increased 7% to $23.2 million.
The increase in rental revenue was due to an increase in utilized horsepower
combined with an increase in average rental pricing. Universal increased the
amount of HP rented in international markets by 20,773 HP primarily through
additional service in Argentina and Colombia. Revenue from fabrication and
sales increased to $10.6 million from $7.8 million, an increase of 36%, due to
a relatively higher level of fabrication activity.
Gross Margin. Gross margin (defined as total revenue less (i) rental
expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii)
gain on asset sales and (iv) interest income) for the quarter ended June 30,
1999 increased $1.2 million, or 8%, to $16.1 million from gross margin of $14.9
million for the quarter ended June 30, 1998. The rental gross margin for the
quarter ended June 30, 1999 increased $0.8 million, or 6%, to $14.6 million
compared to gross margin of $13.8 million for the quarter ended June 30, 1998.
Gross margin increased primarily as the result of the revenue growth discussed
above while rental margins remained constant at approximately 63%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended June 30, 1999 increased $0.7
million compared to the quarter ended June 30, 1998. As a percentage of
revenue, selling, general and administrative expenses represented 13% of
revenues for the quarters ended June 30, 1999 and 1998. The increase was
primarily due to increased personnel costs in the quarter ended June 30, 1999
as Universal added the additional sales and engineering personnel necessary to
rent and manage a larger rental fleet.
Net income. Primarily as a result of interest expense for the indebtedness
incurred in the Acquisition increasing from $6.2 million to $7.1 million and
depreciation and amortization related to the continued expansion of Universal's
assets increasing from $4.5 million to $5.6 million, offset by decreased income
taxes and the factors discussed above, Universal had a net loss of $0.7 million
for the quarter ended June 30, 1999 compared to net income of $0.2 million for
the quarter ended June 30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to some market risk due to the floating interest rate
under the revolving credit facility and term loan. The revolving credit
facility and term loan bear interest at LIBOR plus 2.25% and 2.5%,
respectively, are due February 2005 and February 2003, respectively, and have
outstanding principal balances of $70.5 million and $73.9 million,
respectively. The LIBOR rate at June 30, 1999 was 5.22%. A 1.0% increase in
interest rates could result in a $1.4 million annual increase in interest
expense on the existing principal balances. Additionally, there is no
significant foreign currency credit risk as substantially all transactions ,
after deducting in-country expenses, are denominated in U.S. dollars.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following documents have been included as Exhibits to this form:
10.1 -- Master Lease Agreement dated June 17, 1999 by and between
Universal Compression, Inc. and GE Capital Fleet Services
27.1 -- Financial Data Schedule - Universal Compression Holdings, Inc.
27.2 -- Financial Data Schedule - Universal Compression, Inc.
(b) Reports on Form 8-K.
Neither the Company nor Universal filed any reports on Form 8-K during the
three month period ended June 30, 1999.
14
<PAGE> 15
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.
UNIVERSAL COMPRESSION HOLDINGS, INC.
Date: August 13, 1999 By: /s/ RICHARD FITZGERALD
--------------------------------
Richard FitzGerald,
Chief Financial Officer and
Senior Vice President
15
<PAGE> 16
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.
UNIVERSAL COMPRESSION, INC.
Date: August 13, 1999 By: /s/ RICHARD FITZGERALD
--------------------------------
Richard FitzGerald,
Chief Financial Officer and
Senior Vice President
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 -- Master Lease Agreement dated June 17, 1999 by and between
Universal Compression, Inc. and GE Capital Fleet Services
27.1 -- Financial Data Schedule - Universal Compression Holdings, Inc.
27.2 -- Financial Data Schedule - Universal Compression, Inc.
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
[LOGO]
GE CAPITAL
FLEET SERVICES
MASTER LEASE AGREEMENT
This Master Lease Agreement (the "Agreement") is entered into by and between
Geico Corporation, a Minnesota corporation, doing business as GE Capital Fleet
Services ("GECFS"), and the undersigned (the "Customer"). If more than one
party executes this Agreement as Customer, each shall be jointly and severally
liable hereunder.
1. LEASE; DISCLAIMER. GECFS hereby agrees to lease to Customer and Customer
hereby agrees to lease from GECFS certain Vehicles for use in its business.
Customer shall order a Vehicle for lease by placing a noncancelable Vehicle
Order. Customer's Vehicle Order shall authorize GECFS to purchase such Vehicles
subject to the then current warranty of the manufacturer, GECFS hereby assigns
the manufacturer's warranty to Customer for the Lease Term. CUSTOMER AGREES
THAT GECFS IS NOT THE MANUFACTURER, DESIGNER OR DISTRIBUTOR OF THE VEHICLES AND
THAT EACH VEHICLE ORDERED IS OF A DESIGN SELECTED BY CUSTOMER AND SUITABLE FOR
ITS PURPOSES. GECFS MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY VEHICLE INCLUDING, BUT NOT LIMITED TO: THE
MERCHANTABILITY OR OTHERS FOR A PARTICULAR PURPOSE OF A VEHICLE; THE DESIGN,
QUALITY OR CAPACITY OF A VEHICLE; OR COMPLIANCE OF A VEHICLE WITH APPLICABLE
LAW.
2. DELIVERY. Customer shall take delivery within 3 business days of notice that
the Vehicle is available. If Customer fails to do so, GECFS may, for purposes
of beginning rental charges, treat such 3rd business day as the date of
acceptance. Customer shall inspect a Vehicle at the location of delivery for
conformity to the Vehicle Order. Customer's removal of the Vehicle from such
location shall constitute acceptance of the Vehicle. If Customer requests that
GECFS, prior to delivery to Customer, deliver one or more Vehicles to a
Customer-specified upfitter, body company, Installer or other third party
and/or obtain certain equipment or parts from a specific vendor (each, a
"Vendor"), then a) GECFS' warranty disclaimer shall apply to any work performed
or parts and/or accessories added to the Vehicle by any Vendor or any equipment
or parts purchased from a Vendor, b) Customer's covenants of indemnity and
insurance shall be effective upon the earlier of delivery of a Vehicle to
Vendor or Customer, and c) Customer assumes all risks of doing business with
Vendor, including without limitation, the Vendor's creditworthiness, Customer
agrees that Customer's obligation to pay rent and other amounts with respect to
such Vehicle shall be unconditional and that Customer shall not be entitled to
any reduction of, or setoff against, such amounts (provided, however, that any
such payment shall not prejudice Customer's right to claim adjustment or
reimbursement):
3. TERM OF AGREEMENT. This Agreement shall commence on the Effective Date, and
continue until canceled or terminated by either party upon 30 days' written
notice to the other. Notwithstanding termination, this Agreement shall remain
in effect with respect to each Vehicle then leased and each Vehicle Order
processed by GECFS until all terms and conditions of this Agreement are
satisfied.
4. LEASE TERM. The noncancelable minimum Lease Term for each Vehicle is 367
days beginning upon Customer's acceptance. Thereafter, the Lease Term may be
renewed monthly for the lesser of the Maximum Lease Term (autos: 50 months;
light trucks: 72 months; and medium and heavy trucks: 96 months) or the
amortization term set in the respective Vehicle Order.
5. OPERATION. Customer shall operate the Vehicles in the United States and in
accordance with applicable federal, state and local law governing Vehicle use,
operation, maintenance or alteration. Customer agrees to repair the Vehicles
and to maintain them in safe and good mechanical condition. All additions to a
Vehicle become the property of GECFS and shall be surrendered with the Vehicle.
NO VEHICLES MAY BE USED TO TRANSPORT PERSONS FOR HIRE OR HAZARDOUS SUBSTANCES.
6. NET LEASE. Customer covenants that it will pay all costs, expenses, fees,
charges, fines, and taxes incurred in connection with the Vehicle's titling,
registration, delivery, purchase, sale, rental, modification, and arising from
the operation or use of the Vehicle during its Lease Term. If GECFS pays any of
the foregoing amounts, Customer shall promptly reimburse GECFS and pay GECFS'
then current administrative charge.
7. RENTAL CHARGES. Customer will pay rental for the Vehicles in accordance with
the Rate Schedule, as well as all other rental charges provided for in this
Agreement. Rental payment obligations shall begin on the first day of the
calendar month following acceptance. Customer agrees that, from the time of
acceptance of the Vehicle by Customer to the time when such rental charges are
payable, Customer will pay interim rental in an amount equal to the monthly
rental charge pro-rated on a daily basis based on the actual number of days in
the month. Rental payment obligations end on the last day of the month prior to
sale. Customer agrees to pay interim rental for the month of sale until the
date of sale in an amount equal to the monthly rental charge pro-rated on a
daily basis based on the actual number of days in the month. If a Vehicle Order
specifies a Vehicle requiring modifications, such that it is necessary or
desirable for GECFS to pay for an incomplete Vehicle or its components, GECFS
shall charge Customer, as additional rental, interim financing as provided in
the Rate Schedule.
8. PAYMENT TERMS. Time is of the essence. All charges are due and payable
within 10 days of the date of invoice. Late payments will be charged in the
amount of the lesser of 1 1/2% or the highest legal interest rate, per month or
fraction thereof. It is the intent of GECFS that it not receive directly or
indirectly any amount in excess of that amount which may be legally paid. Any
excess charges will be credited to Customer or, upon request of Customer,
refunded. Customer agrees to carefully review each invoice or other statement
provided by GECFS. If Customer identifies a billing error, Customer will advise
GECFS promptly and in such event, GECFS' sole liability and Customer's
exclusive remedy shall be appropriate adjustments in Customer's account. All
charges are based upon GECFS' standard operating routines, existing business
policy and computer systems capabilities.
9. SURRENDER OF VEHICLES. At the end of the minimum Lease Term, Customer may,
and at the end of the Lease Term, Customer shall, upon reasonable written
notice to GECFS, deliver the Vehicle to GECFS at a mutually agreed location.
Upon surrender or, if not surrendered, at final disposition, the Vehicle shall
be in good, safe and lawful operating condition. Surrender of the Vehicle shall
not be effective until GECFS has actual physical possession of the Vehicle and
has received all license plates, registration certificates, documents of title,
odometer and damage disclosures and other documentation necessary for the sale
of the Vehicle. If, upon Customer request, GECFS accepts an offer to purchase a
Vehicle from a Customer or a purchaser identified by Customer and GECFS does
not take actual physical possession of the Vehicle, neither surrender nor sale
shall be deemed to occur until GECFS delivers the certificate of title and
receives payment. Any personal property in a Vehicle upon surrender shall be
deemed abandoned and may be disposed of by GECFS without liability.
10. SALE OF VEHICLES. GECFS shall, and Customer may, solicit from prospective
purchasers wholesale cash bids for Vehicles. Such Vehicles shall be sold in a
commercially reasonable manner. From the sales proceeds, GECFS shall deduct all
direct sales expenses paid or incurred by GECFS as well as the sale fee set
forth in the Rate Schedule, the balance remaining to constitute the Net
Proceeds which shall be payable to GECFS. If GECFS sells any vehicle owned by
Customer or a third party, Customer agrees that
<PAGE> 2
the sale of such vehicle shall be subject to the indemnity herein and to pay
GECFS' then current sale fee.
11. TERMINAL RENTAL ADJUSTMENT. As an incentive to the Customer to maintain the
value of the Vehicle by good maintenance, repair and careful use during its
Lease Term, the parties agree that the enhancement or reduction in value shall
be compensated as follows:
a. Refund of Rental. If the Net Proceeds exceed the Book Value (as to
each Vehicle, its Capitalized Cost, as defined in the Rate Schedule, reduced by
appropriate amortization), GECFS shall retain an amount equal to the Book
Value, and remit the excess to the Customer as a refund of rental.
b. Rental Charge. If the Net Proceeds are less than the Book Value,
Customer shall pay GECFS the amount of the difference.
12. INSURANCE. Customer shall maintain the following coverages during the Lease
Term of each Vehicle with an insurance company acceptable to GECFS and deliver
to GECFS a certificate thereof:
a. Automobile liability insurance naming GECFS as an Additional
Insured with limits of coverage as GECFS may require, but in no event less than
$1 million combined single limit per occurrence ($5 million for Vehicles
capable of transporting 9 or more passengers). No self-insured retention or
deductible is permissible.
b. Comprehensive and collision insurance naming GECFS as Loss Payee
with coverage for the actual cash value of each Vehicle and subject to a
deductible no greater than the amount specified on the Rate Schedule.
Notwithstanding the foregoing, with respect to Comprehensive and Collision
coverage, Customer may self-insure for the Actual Cash Value of the Vehicles
(for physical damage to the Vehicles), and, in such event GECFS would not be
named as Loss Payee. Customer shall bear all risk of loss, damage or
destruction to the Vehicle (which may exceed actual cash value), however
caused, from the time of acceptance until surrender to GECFS.
c. Conditions. All insurance policies shall provide for 30 days' prior
written notice to GECFS of any cancellation or reduction in coverage. Customer
authorizes GECFS to endorse Customer's name to insurance checks related to the
Vehicles.
13. INDEMNITY. CUSTOMER WILL INDEMNIFY AND DEFEND GECFS (INCLUDING ANY OF
ITS AFFILIATES) AGAINST ANY LOSS, LIABILITY, OR CLAIM, DIRECTLY OR INDIRECTLY
RELATING TO THE LEASE, MAINTENANCE, USE, CONDITION (INCLUDING BUT NOT LIMITED
TO, PATENT OR LATENT DEFECTS WHETHER OR NOT DISCOVERABLE, PRODUCT LIABILITY
CLAIMS OR THE CONDITION OF THE VEHICLE AT SURRENDER) OR SURRENDER OF ANY VEHICLE
BETWEEN THE TIME OF DELIVERY TO CUSTOMER AND THE TIME OF SURRENDER. IF GECFS
SELLS ANY VEHICLE TO CUSTOMER, ANY OF ITS EMPLOYEES OR A PURCHASER FROM WHOM
CUSTOMER OBTAINS AN OFFER, CUSTOMER'S COVENANTS OF INDEMNITY WITH RESPECT TO
SUCH VEHICLE SHALL CONTINUE. THIS INDEMNITY IS ABSOLUTE AND UNCONDITIONAL AND
INCLUDES CLAIMS OF NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY, BUT DOES
NOT EXTEND TO CLAIMS OR LIABILITY ARISING FROM THE ACTIVE NEGLIGENCE OR WILLFUL
MISCONDUCT OF GECFS, ITS AGENTS OR EMPLOYEES WHICH IS THE DIRECT AND PROXIMATE
CAUSE OF SUCH LOSS, LIABILITY OR CLAIM, PROVIDED, HOWEVER, THAT ACTIVE
NEGLIGENCE SHALL NOT BE CONSTRUED TO INCLUDE NEGLIGENCE WHICH MAY BE DIRECTLY OR
INDIRECTLY IMPUTED TO GECFS DUE TO ACTION OR INACTION OF CUSTOMER, ANY EMPLOYEE
OR AGENT OF CUSTOMER. THIS INDEMNITY WILL SURVIVE ANY TERMINATION OF THIS
AGREEMENT.
14. NATURE OF AGREEMENT. THE PARTIES INTEND ALL LEASES OF VEHICLES HEREUNDER TO
BE TRUE LEASES PURSUANT TO MINNESOTA STATUTES SECTION 168A.17 SUBSECTION 1A.
Customer has no right, title or interest in and to any Vehicle leased
hereunder except as lessee, and Customer has no option to purchase any
Vehicle. GECFS has the right to mark the Vehicle at any time stating its
interest as owner and to receive and retain compensation related to the
Vehicles from manufacturers, suppliers and vendors. Without prejudice to the
intention of the parties that this Agreement be a lease, Customer hereby grants
GECFS a security interest in the Vehicles and all proceeds, accessions,
documents, instruments, accounts, chattel paper, equipment and general
intangibles related thereto to secure all obligations of Customer to GECFS
under this or any other agreement. A photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement.
15. FINANCIAL INFORMATION. The creditworthiness of Customer and any guarantor
is a material condition to this Agreement. Customer shall provide GECFS with
financial information reasonably requested by and satisfactory to GECFS each
year of this Agreement. Nothing herein shall be construed to require GECFS to
accept any Vehicle Order.
16. DEFAULT; REMEDIES. If Customer shall fail to make the payments or maintain
insurance coverage as herein required or after 30 days' written notice shall
fall to perform any of its other covenants under this Agreement, or Customer or
any guarantor shall (i) make an assignment for the benefit of creditors, or
suffer a receiver or trustee to be appointed, or file or suffer to be filed any
petition under any bankruptcy or insolvency law of any jurisdiction; or (ii)
discontinue business; or (iii) cease its corporate or partnership existence or
die; or (iv) be in default under any other agreement it may have with GECFS; or
(v) suffer a material adverse change in operating or financial condition which
materially impairs Customer's ability to perform its obligations hereunder or
GECFS' title to or rights in the Vehicles; or (vi) make any representation or
warranty herein, or in any document delivered to GECFS in connection herewith,
which shall prove to be false or misleading in any material respect; then in
such event Customer shall be in default under this Agreement. A default under
the terms of this Agreement shall constitute a default under any other agreement
Customer has with GECFS. GECFS shall have the right to offset any amounts due to
Customer against amounts due to GECFS and all rights and remedies available at
law or in equity; all such rights and remedies to be cumulative and not
exclusive.
17. LIMITATION OF DAMAGES. EXCEPT WITH RESPECT TO CUSTOMER'S OBLIGATIONS OF
INDEMNITY, EACH PARTY AGREES THAT: ITS SOLE AND EXCLUSIVE REMEDY FOR ANY MATTER
OR CAUSE OF ACTION RELATED DIRECTLY OR INDIRECTLY TO ANY CLAIM RELATED TO THE
SUBJECT MATTER HEREOF BY THE OTHER PARTY TO THIS AGREEMENT SHALL BE A CONTRACT
ACTION; DAMAGES SHALL BE LIMITED TO ACTUAL AND DIRECT DAMAGES INCURRED; AND NO
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES WILL BE CLAIMED.
18. ASSIGNMENTS. CUSTOMER SHALL NOT ASSIGN, SUBLET, LIEN, ENCUMBER, OR TRANSFER
ANY INTEREST IN ANY OF THE VEHICLES LEASED HEREUNDER OR ANY INTEREST IN THIS
AGREEMENT TO ANY PARTY WITHOUT THE WRITTEN CONSENT OF GECFS. ANY SUCH CONSENT
BY GECFS SHALL NOT RELIEVE CUSTOMER OF ITS OBLIGATIONS AND LIABILITIES. GECFS
may assign all or any part of its right, title and interest in this Agreement
or the Vehicles, including all receivables, provided that any such assignment
does not relieve GECFS of any of its obligations.
19. RELATED ENTITIES. Any Vehicles leased or operated by present or future
subsidiaries, parents or affiliates of Customer shall be within the terms and
conditions of this Agreement, unless covered by a separate agreement with such
subsidiary, parent or affiliate, and Customer agrees that, in the event such
subsidiary, parent or affiliate does not perform according to the terms and
conditions of this Agreement, Customer guarantees such performance.
20. THE PARTIES DESIRE TO PROVIDE FOR A PROMPT AND FAIR METHOD OF RESOLUTION OF
ALL DISPUTES WHICH THE PARTIES BELIEVE WILL BE ACHIEVED THROUGH THE RESOLUTION
OF ANY DISPUTES UNDER THIS AGREEMENT BY A SINGLE, EXPERIENCED ARBITRATOR. Any
dispute, claim or controversy directly or indirectly arising out of or related
to this Agreement or the breach, termination or validity hereof, shall be
finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). The AAA shall appoint a
retired judge as an arbitrator. The arbitrator is not empowered to award damages
in excess of compensatory damages or any class action remedies. The place of
arbitration shall be New York, New York. Judgment upon the award may be entered
by any court having jurisdiction thereof. Notwithstanding any of the foregoing
and without prejudice to arbitration in accordance with this provision, the
parties recognize that in cases where time is of the essence, arbitration may
not proceed with the speed required to protect the parties' interests, therefore
either party may seek provisional remedies through the courts, including,
without limitation, injunctive relief and replevin, pending a final resolution
of the dispute through arbitration. IF ANY ACTION OR PROCEEDING ARISING
<PAGE> 3
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED IN THIS AGREEMENT FOR ANY REASON PROCEEDS TO LITIGATION, THE
PARTIES HEREBY (1) WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ORDER TO ENABLE
A JUDGE TO RESOLVE ANY DISPUTE AND (2) AGREE THAT ANY SUCH ACTION OR PROCEEDING
MAY BE FILED IN ANY COURT OF RECORD IN THE STATE OF TEXAS OR IN THE STATE OF
MINNESOTA AND THAT EACH PARTY WAIVES OBJECTION TO VENUE IN ANY SUCH COURT.
21. GOVERNING LAW. THIS AGREEMENT SHALL NOT BE EFFECTIVE UNTIL EXECUTED BY
GECFS IN MINNESOTA, AND SHALL, UPON SUCH EXECUTION, BE DEEMED EFFECTIVE AS OF
THE EFFECTIVE DATE. THE LAWS OF THE STATE OF MINNESOTA SHALL GOVERN ALL
QUESTIONS OR DISPUTES RELATING TO THE VALIDITY, INTERPRETATION, PERFORMANCE,
ENFORCEMENT, OR EFFECT OF THIS AGREEMENT, WITHOUT REGARD TO CHOICE OF LAW
PRINCIPLES.
22. ODOMETER DISCLOSURE STATEMENT. Federal law (and State law, if applicable)
requires that Customer as lessee disclose, and Customer shall disclose, the
mileage of each Vehicle to GECFS in connection with the transfer of ownership of
the Vehicle. Failure to complete an odometer disclosure statement or making a
false statement may result in fines and/or imprisonment.
23. PRIOR AGREEMENTS. Except for Vehicles subject to closed-end lease
agreements, all Vehicles leased from GECFS shall, as of the Effective Date of
this Agreement, be subject to the terms and conditions of this Agreement except
with respect to Rental Charges which shall continue to be determined in
accordance with the lease agreement in effect at the time that the Vehicle was
originally leased.
24. MODIFICATIONS. This Agreement, its Exhibits, Rate Schedules, Vehicle
Orders, and amendments contain the entire understanding of the parties and
merge all oral understandings. Customer may issue purchase orders for
administrative convenience, but such purchase orders are subject to the terms
and conditions of this Agreement and shall not amend or supplement it. Any
modifications, changes, or amendments may be made only in a writing duly signed
by Customer and GECFS. Failure of either party to enforce any right shall not
be deemed a waiver of such right.
- -------------------------------------------------------------------------------
IMPORTANT! PLEASE INITIAL BELOW:
===============================================================================
GECFS Initials PAE CUSTOMER INITIALS DC
-------------- --------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by duly authorized representatives.
UNIVERSAL COMPRESSION, INC.
(CUSTOMER)
By: /s/ DOUG COUVILLION
--------------------------------------
Title: VICE PRESIDENT
-----------------------------------
(President, Vice President,
Treasurer, or provide certificate
of authority)
Address: 4430 Baltimore Road
Houston, TX 77041
GE CAPITAL FLEET SERVICES (GECFS)
By: /s/ PATTY A. EDEN
--------------------------------------
Title: Authorized Signatory
Address: Three Capital Drive,
Eden Prairie, MN 55344
EFFECTIVE DATE: 6-17-99
--------------------------
<PAGE> 4
[LOGO]
GE CAPITAL
FLEET SERVICES
MASTER LEASE AGREEMENT
BUSINESS USE CERTIFICATION
1. Customer certifies under penalty of perjury that it intends the
Vehicles leased pursuant to this Agreement to be used more than 50% in
the trade or business of Customer, and
2. Customer has been advised that GECFS and not Customer will be treated
as the owner of the Vehicles for Federal Income Tax purposes.
UNIVERSAL COMPRESSION, INC.
(CUSTOMER)
By: /s/ DOUG COUVILLION
--------------------------------
Title: Vice President
-----------------------------
<PAGE> 5
[LOGO]
GE CAPITAL
FLEET SERVICES
EFFECTIVE DATE: 6-17-99 MASTER LEASE AGREEMENT
RATE SCHEDULE
CAPITALIZED COST: (i) Manufacturer's invoice price of the Vehicle plus dealer
charges, if any; (ii) Invoice price of any additions pursuant to Customer's
request; (iii) applicable sales and acquisition taxes calculated on the
foregoing (actual tax paid may be less due to credits taken by GECFS); and (iv)
a markup as set forth below. Adjustments which occur after GECFS' payment for
the Vehicle may be credited or billed to Customer.
<TABLE>
<S> <C>
Type of Vehicle Markup or Markdown Adjustment
Factory Orders: Domestic Cars
& Lt. Trucks except those below Less $400
Alaska & Hawaii Delivery of Factory
Ordered Vehicles Plus Courtesy Delivery Fees
Stock & Direct Purchases,
Saturns and Foreign Vehicles Plus 2% of Capitalized Cost before Markup
</TABLE>
MONTHLY RENTAL IS THE SUM OF:
Amortization: The rate selected by Customer in the Vehicle Order from the range
of rates below or as accepted by GECFS multiplied by the Capitalized Cost.
<TABLE>
<CAPTION>
Vehicle Type Months Rate Months Rate
<S> <C> <C> <C> <C>
Cars & Lt. Trucks with annual mileage in
excess of 80,000 miles 12 8.3334% 35 2.8671%
Cars 36 2.7778% 60 2.0000%
Lt. Trucks 36 2.7778% 60 1.6657%
</TABLE>
MANAGEMENT FEE: The applicable rate set forth below multiplied by the
Capitalized Cost; and
INTEREST: If fixed: averaged over the Levelized Period, computed by multiplying
the average unamortized Book Value by the Index Rate plus the Adder divided by
12. Upon disposition of a Vehicle, Customer shall pay deficit interest equal to
the difference, if any, between actual simple interest and the averaged
interest billed. If float: computed by multiplying the unamortized Book Value
by the Index Rate plus the Adder divided by 12.
TREASURY NOTE RATE: the yield in the "Treasury Notes, Bonds and Bills" column
of The Wall Street Journal as in effect on the 15th day of the month preceding
the date of delivery, for the current "on the run" Treasury Notes maturing in
the years specified below. The rate shall be the yield which most closely
approximates par for the appropriate maturity.
COMMERCIAL PAPER RATE: the yield for 30-day high-grade unsecured notes sold
through dealers by major corporations as listed in the "Money Rates" column of
The Wall Street Journal as in effect on the 15th day of the month preceding
rental billing, discounted to maturity, divided by 360 and multiplied by 365,
plus an additional 15.5 basis points for issuance costs, broker's fees and
other administrative costs.
<TABLE>
<CAPTION>
Vehicle Type Fixed or Float Levelized Period Index Rate Adder Management Fee
<S> <C> <C> <C> <C> <C>
Cars & Lt. Trucks Float N/A Commercial Paper 100 basis points .050%
Cars & Lt. Trucks Fixed 12 months 2 Yr. Treasury Notes 150 basis points .050%
</TABLE>
INTERIM FINANCING: charged at the Prime Rate plus one percent for the period(s)
beginning with each advance of funds for an uncompleted Vehicle and ending on
the day preceding the first monthly rental billing for the Vehicle. Prime Rate:
the rate quoted as the prime rate (in the "Money Rates" column of The Wall
Street Journal as in effect on the date of each advance, divided by 360 and
multiplied by 365.
SALE FEE: None.
DEDUCTIBLE PERMITTED ON COMPREHENSIVE AND COLLISION INSURANCE: Actual Cash
Value (Customer approved to self-insure for physical damage to the Vehicles).
UNIVERSAL COMPRESSION, INC. GE CAPITAL FLEET SERVICES
By: /s/ DOUG COUVILLION By: /s/ PATTY A. EDEN
------------------------------------- -------------------------------
Title: Vice President Title: Authorized Signatory
----------------------------------
(President, Vice President,
Treasurer, or provide certificate
of authority)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0001057234
<NAME> UNIVERSAL COMPRESSION HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,255
<SECURITIES> 0
<RECEIVABLES> 16,782
<ALLOWANCES> 170
<INVENTORY> 12,141
<CURRENT-ASSETS> 34,551
<PP&E> 325,927
<DEPRECIATION> 19,940
<TOTAL-ASSETS> 445,089
<CURRENT-LIABILITIES> 19,330
<BONDS> 343,693
0
13
<COMMON> 3
<OTHER-SE> 79,515
<TOTAL-LIABILITY-AND-EQUITY> 445,089
<SALES> 10,619
<TOTAL-REVENUES> 33,808
<CGS> 9,102
<TOTAL-COSTS> 17,704
<OTHER-EXPENSES> 18,101
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 7,946
<INCOME-PRETAX> (1,997)
<INCOME-TAX> (759)
<INCOME-CONTINUING> (1,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,238)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0001057233
<NAME> UNIVERSAL COMPRESSION, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,255
<SECURITIES> 0
<RECEIVABLES> 16,782
<ALLOWANCES> 170
<INVENTORY> 12,141
<CURRENT-ASSETS> 34,519
<PP&E> 325,927
<DEPRECIATION> 19,940
<TOTAL-ASSETS> 443,599
<CURRENT-LIABILITIES> 21,058
<BONDS> 314,571
0
0
<COMMON> 49
<OTHER-SE> 104,527
<TOTAL-LIABILITY-AND-EQUITY> 443,599
<SALES> 10,619
<TOTAL-REVENUES> 33,808
<CGS> 9,102
<TOTAL-COSTS> 17,704
<OTHER-EXPENSES> 17,285
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 7,132
<INCOME-PRETAX> (1,181)
<INCOME-TAX> (449)
<INCOME-CONTINUING> (732)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (732)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
