<PAGE> 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Weatherford International, Inc.:
We have audited the accompanying combined balance sheet of Weatherford
Compression as of December 31, 1998, and the related combined statements of
operations, equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Weatherford
Compression as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
November 17, 2000
153
<PAGE> 2
WEATHERFORD COMPRESSION
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 36
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $207....................................... 22,514
Inventories, Net.......................................... 56,054
Lease Receivable.......................................... 19,608
Deferred Tax Asset........................................ 1,361
Other Current Assets...................................... 4,319
--------
103,892
--------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land...................................................... 2,284
Buildings and Leasehold Improvements...................... 11,245
Rental and Service Equipment.............................. 85,606
Machinery and Other Equipment............................. 46,178
--------
145,313
Less: Accumulated Depreciation.................... 39,539
--------
105,774
--------
GOODWILL, NET............................................... 178,553
OTHER ASSETS................................................ 943
--------
$389,162
========
LIABILITIES AND COMBINED EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt......................... $ 764
Accounts Payable.......................................... 11,525
Accrued Liabilities....................................... 6,591
--------
18,880
--------
LONG-TERM DEBT.............................................. 1,831
UNEARNED INCOME............................................. 42,249
DEFERRED INCOME TAXES....................................... 27,457
LONG-TERM PAYABLE DUE TO PARENT COMPANY..................... 105,765
COMMITMENTS AND CONTINGENCIES
COMBINED EQUITY, Includes Accumulated Other Comprehensive
Loss of $3,337............................................ 192,980
--------
$389,162
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
154
<PAGE> 3
WEATHERFORD COMPRESSION
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
REVENUES:
Products.................................................. $ 86,982
Services and Rentals...................................... 94,344
--------
181,326
--------
COSTS AND EXPENSES:
Cost of Products.......................................... 83,305
Cost of Services and Rentals.............................. 56,338
Selling, General and Administrative....................... 22,208
Non-Recurring Charge...................................... 1,500
--------
163,351
--------
OPERATING INCOME............................................ 17,975
--------
OTHER INCOME (EXPENSE):
Interest Expense from Parent Company...................... (13,276)
Interest Expense.......................................... (76)
Other, Net................................................ (750)
--------
INCOME BEFORE INCOME TAXES.................................. 3,873
INCOME TAX PROVISION........................................ 2,289
--------
NET INCOME.................................................. $ 1,584
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
155
<PAGE> 4
WEATHERFORD COMPRESSION
COMBINED STATEMENT OF EQUITY
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1997................................ $185,010
Comprehensive Income (Loss):
Net Income................................................ 1,584
Cumulative Translation Adjustment......................... (1,468)
--------
Total Comprehensive Income................................ 116
Contribution From Parent Company (see Note 3)............... 7,854
--------
Balance at December 31, 1998................................ $192,980
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
156
<PAGE> 5
WEATHERFORD COMPRESSION
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 1,584
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization.......................... 23,256
Deferred Income Tax Provision.......................... 3,403
Gain on Sale of Property, Plant and Equipment.......... (478)
Provision for Uncollectible Accounts Receivable........ 11
Change in Assets and Liabilities:
Accounts Receivable.................................. 6,244
Inventories.......................................... 3,275
Other Current Assets................................. (2,596)
Accounts Payable..................................... (2,558)
Other Current Liabilities............................ (4,298)
Other Assets......................................... (2,780)
--------
Net Cash Provided by Operating Activities......... 25,063
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures for Property, Plant and Equipment.... (30,780)
Proceeds from Sales of Property, Plant and Equipment...... 2,019
Proceeds from Sale and Leaseback of Equipment............. 100,000
--------
Net Cash Provided by Investing Activities......... 71,239
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt........................................ (1,054)
Repayments to Parent Company, Net......................... (95,212)
--------
Net Cash Used by Financing Activities............. (96,266)
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 36
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. --
--------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 36
========
INTEREST PAID............................................... $ 150
INCOME TAXES PAID........................................... $ 1,348
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
157
<PAGE> 6
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
The accompanying combined financial statements of Weatherford Compression
(the "Company") include the accounts of Enterra Compression Company, Weatherford
Compression Canada Ltd., as well as accounts related to compression product
lines of Weatherford Canada Ltd., EVI Oil Tools Canada, Weatherford Venezuela
S.A., Weatherford Australia Pty Ltd. and Weatherford Enterra S.A. These seven
companies are wholly owned subsidiaries of Weatherford International, Inc. (the
"Parent Company").
The Company is engaged in the business of renting, fabricating, selling and
servicing natural gas compressor packages used in the oil and gas industry. The
Company is headquartered in Corpus Christi, Texas, and maintains approximately
15 service and sales offices in the surrounding four-state area. U.S.
manufacturing is completed primarily in Texas. The Company also has fabrication,
service, and rental operations in Canada, and rental operations in Argentina,
Australia, and Venezuela. Compression equipment is utilized in the production
and transportation of natural gas. Factors influencing compressor rental
operations include the number and age of producing gas wells, the ownership of
these properties and natural gas prices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The financial statements are presented on a combined basis because their
business activities are performed as one entity. All significant intercompany
accounts and transactions have been eliminated in combination.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expense during the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the moving average method for parts inventories or by using standards
which approximates moving average.
Inventories at December 31, 1998, are summarized as follows (in thousands):
<TABLE>
<S> <C>
Raw materials.............................................. $20,332
Work in process............................................ 10,497
Finished goods............................................. 25,225
-------
$56,054
=======
</TABLE>
Work in process includes the costs of materials, labor and overhead.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of refurbishment (i.e. renewals,
replacements and betterments) are capitalized. Depreciation on
158
<PAGE> 7
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
fixed assets is computed using the straight-line method over the estimated
useful lives for the respective categories. The useful lives of the major
classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C>
Buildings and leasehold improvements.................... 10-40 years
Rental and service equipment............................ 5-15 years
Machinery and other equipment........................... 3-7 years
</TABLE>
When property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related accounts and any resulting gain or
loss is included in the combined statement of operations, with the exception of
gains related to the sale and leaseback arrangements (see Note 8). The
depreciation expense for the year ended December 31, 1998 was $17.9 million.
Goodwill
The Company's goodwill represents the excess of the aggregate price paid by
the Company in acquisitions accounted for as purchases over the fair market
value of the net assets acquired. Goodwill is being amortized on a straight-line
basis over the lesser of the estimated useful life or 40 years. The Company
periodically evaluates goodwill and other intangible assets, net of accumulated
amortization, for impairment based on the undiscounted cash flows associated
with the asset compared to the carrying amount of that asset. Management
believes that there have been no events or circumstances which warrant revision
to the remaining useful life or which affect the recoverability of goodwill.
Amortization expense for goodwill for the twelve months ended December 31, 1998
was $5.3 million. Accumulated amortization related to goodwill was $20.2 million
at December 31, 1998.
Equipment Held for Lease
The Company leases certain equipment to customers under agreements that
contain an option to purchase the equipment at any time. The option amount is
computed based on the original purchase price, less payments received, plus
interest and insurance covering the period from the inception of the lease to
the date the option is exercised. The lease payments are generally computed to
payout the original purchase price plus interest over approximately 36 months.
Leases with noncancelable lease terms greater than 18 months are considered
sales-type leases because, by the end of the original lease term, the option
price is expected to be lower than the equipment's fair market value.
Equipment Under Operating Leases
The Company also leases equipment under agreements with noncancelable lease
terms of less than 18 months and those which do not include a purchase option.
These types of leases are accounted for as operating leases and included in
property, plant and equipment. This equipment has a net book value of $81.7
million at December 31, 1998. Rental fleet depreciation expense totaled $15.0
million in 1998.
Accounting for Income Taxes
Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
Accounting for Income Taxes, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
The Parent Company filed consolidated federal tax returns for the years
through December 31, 1998 and separate and consolidated state returns depending
on the state in question for the Parent Company and each of its subsidiaries.
The accompanying financial statements have been prepared in accordance with
159
<PAGE> 8
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the separate return methods of SFAS No. 109, whereby the allocation of tax
expense is based on what the Company's current and deferred tax expense would
have been had the Company filed a federal income tax return outside its
consolidated group.
Foreign Currency Translation
The functional currency for most of the Company's international operations
is the applicable local currency. Results of operations for foreign subsidiaries
for which functional currencies are the applicable foreign currency are
translated using average exchange rates during the period. Assets and
liabilities of these foreign subsidiaries are translated using the exchange
rates in effect at the balance sheet date and the resulting translation
adjustments are included in accumulated other comprehensive income (loss), a
separate component of combined equity. Currency transaction gains and losses are
reflected in income for the period.
Concentration of Credit Risk
The Company sells, leases and rents gas compressors to customers in the oil
and gas industry. The Company generally does not require collateral. However,
cash prepayments and security deposits are required for accounts with indicated
credit risks. The Company also bills for progress payments from time to time on
large dollar, long-term construction projects. The Company maintains reserves
for potential losses, and credit losses have been within management's
expectations.
Revenue Recognition
Revenues are recognized as rental equipment is provided, as services are
performed, or as parts or equipment deliveries are made. Most rental contracts
have an initial contract term of six to twelve months and then continue on a
month-to-month basis. The Company provides a limited warranty on certain
equipment and services. The warranty period varies depending on the equipment
sold or service performed. A liability for performance under warranty
obligations is accrued based upon the nature of the warranty and historical
experience.
The Company provides management services under various gas compressor
system fleet rental agency agreements with four limited partnerships and two
Subchapter S corporations. During the year ended December 31, 1998, management
fee income of $0.6 million was recognized under the agency agreements.
New Reporting Requirements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting
Comprehensive Income. SFAS No. 130 establishes standards for the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements and is effective for years beginning after December 15,
1997. The Company presents total comprehensive income in the accompanying
Combined Statement of Stockholder's Equity. Comprehensive income as defined by
SFAS No. 130 is net income plus direct adjustments to stockholder's equity. The
cumulative translation adjustment of certain foreign entities is the only such
direct adjustment applicable to the Company.
3. ACQUISITIONS
In January 1998, the Parent Company acquired Taro Industries Limited
("Taro"). Taro was a Canadian provider of well automation, gas compression, and
drilling equipment distribution. The compression division of Taro was
contributed to the Company and the results of operations included in the
accompanying Combined Statement of Operations from the date of acquisition.
160
<PAGE> 9
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition discussed above was accounted for using the purchase method
of accounting. Results of operations for acquisitions accounted for as purchases
are included in the accompanying combined financial statements since the date of
acquisition. The purchase price was allocated to the net assets acquired based
upon their estimated fair market values at the date of acquisition.
4. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1998 are summarized as follows (in
thousands):
<TABLE>
<S> <C>
Other taxes................................................ $1,127
Customer deposits.......................................... 1,262
Wages and benefits......................................... 2,043
Accrued warranty........................................... 580
Other...................................................... 1,579
------
$6,591
======
</TABLE>
5. DEBT
The components of debt as of December 31, 1998 are summarized as follows
(in thousands):
<TABLE>
<S> <C>
Bonds...................................................... $2,595
------
2,595
Less: amounts due in one year.............................. (764)
------
Long-term debt............................................. $1,831
======
</TABLE>
The Industrial Development Corporation of Port of Corpus Christi
Variable/Fixed Rate Demand Industrial Development Revenue Refunding Bonds,
Series 2002 (Lantana Corporation Project) (the "Bonds") require annual payment
of principal and interest with the final payment due on July, 2002. The Bonds
are secured by a letter of credit. Interest is variable and determined to be the
lowest rate which will permit the Bonds to be sold at par. The rate was 4.1% at
December 31, 1998. Accordingly, the estimated fair value of the Bonds
approximates book value.
Maturities of the Company's long-term debt at December 31, 1998 are as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 764
2000........................................................ 646
2001........................................................ 575
2002........................................................ 610
------
$2,595
======
</TABLE>
6. COMBINED EQUITY
Combined equity caption on the accompanying financial statements represents
the Parent Company's interest in the Company. Changes represent net income
(loss) of the Company, net contributions from/to the Parent Company and
accumulated other comprehensive income (loss). During 1998, the Parent Company
contributed the compression division of Taro (see Note 3).
161
<PAGE> 10
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The domestic and foreign components of Income before Income Taxes consisted
of the following for the year ended December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Domestic.................................................... $ 890
Foreign..................................................... 2,983
------
$3,873
======
</TABLE>
The Company's provision (benefit) for income taxes for the year ended
December 31, 1998, consisted of (in thousands):
<TABLE>
<S> <C>
Current
U.S. Federal and State................................... $(1,814)
Foreign.................................................. 700
-------
(1,114)
-------
Deferred
U.S. Federal and State................................... 2,831
Foreign.................................................. 572
-------
3,403
-------
$ 2,289
=======
</TABLE>
The actual income tax provision for the year ended December 31, 1998,
differed from the income tax provision calculated using the statutory federal
income rate of 35%, as follows (in thousands):
<TABLE>
<S> <C>
Tax provision at statutory rate............................. $1,356
Increase (reduction) in taxes resulting from:
Nondeductible goodwill.................................... 1,188
Other..................................................... (255)
------
$2,289
======
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions in which the Company has
operations.
162
<PAGE> 11
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Generally, deferred tax assets and liabilities are classified as current or
noncurrent according to the classification of the related asset or liability for
financial reporting. The components of the net deferred tax (asset) liability
were as follows as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Net Current Deferred Tax Asset:
Inventories............................................. $ (801)
Other................................................... (560)
-------
$(1,361)
=======
Net Noncurrent Deferred Tax Liability (Asset):
Property, plant and equipment........................... $21,842
Goodwill................................................ 5,627
Other................................................... (12)
-------
$27,457
=======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Sales-Type Lease Receivables
The Company provides a capital lease financing option to its customers.
Future minimum lease payments receivable resulting from the sale of compression
packages under sales-type leases are due as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $302
2000........................................................ 165
----
$467
====
</TABLE>
Sale and Leaseback of Equipment
The Company entered into a sale and leaseback arrangement in December 1998
where it was provided with the right to sell up to $200.0 million of compression
units through December 1999 and lease them back over a five year period under an
operating lease. Payments under the lease are calculated based on a rate of
return on the purchase price and an agreed valuation of the leased compressors.
Under the terms of the lease, the Company may repurchase the equipment for fair
market value at any time. The Parent Company has provided for a residual value
guarantee at the end of the term of the lease equal to approximately 85.5% of
the appraised value of the compression units under lease.
As of December 31, 1998, the Company had sold compressors under this
arrangement, having an appraised value of $119.6 million, and received cash of
$100.0 million and a receivable of $19.6 million, which is due on demand. The
net book value of the equipment sold was approximately $77.4 million, resulting
in a pre-tax gain of $42.2 million, which may be deferred until the end of the
lease.
This arrangement calls for quarterly rental payments. The following table
provides future minimum lease payments (in thousands) under the aforementioned
lease exclusive of any guarantee payments:
<TABLE>
<S> <C>
1999...................................................... $ 7,491
2000...................................................... 7,491
2001...................................................... 7,491
2002...................................................... 7,491
2003...................................................... 6,867
-------
$36,831
=======
</TABLE>
163
<PAGE> 12
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Operating Leases Payable
The Company leases certain buildings and service equipment under
noncancelable operating leases. Aggregate minimum rental commitments under
noncancelable operating leases with lease terms in excess of one year as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $277
2000........................................................ 252
2001........................................................ 193
2002........................................................ 151
2003........................................................ 92
----
$965
====
</TABLE>
Rental expenses for operating leases were $0.4 million for the year ended
December 31, 1998.
Savings and Retirement Plan
Weatherford Enterra Compression Company, L.P. Savings and Retirement Plan
is a defined contribution benefit plan. Effective October 16, 1995, the plan was
frozen and no additional contributions were made. When the plan was frozen
participants had the option to cash out their accounts and receive payment over
five years. As of December 31, 1998 all payments had been made.
Claims and Litigation
The Company is defending various claims and litigation arising in the
normal course of business. In the opinion of management, uninsured losses, if
any, resulting from these matters will not have a material adverse effect on the
Company's results of operations, financial position or liquidity.
9. RELATED PARTY TRANSACTIONS
Overhead Allocation
The Parent Company provides certain administrative services for the
Company, primarily including 1) state, federal and property tax preparation and
management, 2) legal services, 3) administration of employee benefit plans and
risk management programs and 4) marketing services. The Parent Company
determines the overhead allocation by multiplying the consolidated direct and
indirect costs of providing these services to its subsidiaries by each
subsidiary's percentage of consolidated revenues. For the year ended December
31, 1998, the Company expensed approximately $0.7 million related to these
overhead charges.
Insurance
The Company participates with the Parent Company for the partial
self-insurance of its general, product, property, and workers' compensation
liabilities. During the year ended December 31, 1998, the Company expensed
approximately $1.5 million related to such self-insurance.
Benefit Plans
The Company participates in the Parent Company's 401(k) and partial
self-insured health and welfare plan. The Company expensed $0.5 million and $2.2
million related to the 401(k) and health and welfare plans, respectively, in
1998.
164
<PAGE> 13
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Due to Parent Company
The Parent Company provides funding of certain activities of the Company.
Payment of the resulting liability occurs only when surplus cash is available.
The balance accrues interest, based on average balances, at a variable rate
based on prime, approximately 6% at December 31, 1998.
10. NON-RECURRING CHARGE
The 1998 non-recurring charge of $1.5 million, caused by a downturn in
market conditions, relates to the write-down of specific assets which are held
for sale.
11. SEGMENT INFORMATION
Foreign Operations
Financial information by geographic segment for the year ended December 31,
1998 is summarized below. Revenues are attributable to countries based on the
location of the entity selling the products or performing the services.
Long-lived assets are long-term assets.
<TABLE>
<CAPTION>
UNITED LATIN ASIA
STATES CANADA AMERICA PACIFIC TOTAL
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues from Unaffiliated
Customers.......................... $132,897 $46,225 $2,141 $ 63 $181,326
Long-lived Assets.................... 251,358 23,125 7,531 3,256 285,270
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following sets forth unaudited quarterly financial data for 1998.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ $45,894 $47,948 $42,641 $44,843 $181,326
Gross Profit.................... 11,577 10,280 10,232 9,594 41,683
Net Income (Loss)............... 1,148 378 307 (249) 1,584
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
In February 1999, the Parent Company formed a joint venture with GE Capital
Corporation ("GE Capital") in which the Company's compression services
operations were combined with GE Capital's Global Compression's Services
operations. The joint venture is known as Weatherford Global Compression. The
Parent Company owns 64% of the joint venture and GE Capital owns 36%. The
Company has the right to acquire GE Capital's interest at anytime at a price
equal to the greater of a market determined third party valuation or book value.
GE Capital also has the right to require the Company to purchase its interest
anytime after February 2001 at a market determined third party valuation as well
as request a public offering of its interest after that date, if the Parent
Company has not purchased its interest by that date.
On October 24, 2000, the Parent Company announced the proposed acquisition
of 13.75 million shares of common stock (a 48% interest) of Universal
Compression Holdings, Inc. ("Universal") in exchange for the contribution of
substantially all of the Company into a subsidiary of Universal. The Parent
Company will retain approximately $40 million of the assets of the Company,
including Singapore-based GSI and its Asia-Pacific compressor rental operations,
other than those in Thailand and Australia. The Parent Company will, however,
continue to operate compressor rentals in those regions either alone or in
conjunction with Universal. The Parent Company will value the transaction based
on the stock price of Universal as of the closing date of the transaction.
Closing of the transaction is conditioned upon the
165
<PAGE> 14
WEATHERFORD COMPRESSION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
average closing price of Universal's common stock during the 20 consecutive
trading days prior to the transaction being not less than $25 per share.
In connection with this investment the Parent Company has entered into an
agreement to purchase GE Capital's 36% interest in the joint venture in which
the Company operates for $206.5 million, subject to the concurrent closing of
our investment in Universal. The transactions are subject to various conditions,
including governmental approvals, approval of Universal's stockholders, and the
refinancing of its joint venture's and Universal's debt and compressor sale
leaseback arrangements. Although there can be no assurance the merger and
purchase will close, the Parent Company anticipates that the transactions will
be consummated by the end of the year, or early in the first quarter of 2001.
166
