SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 10, 1995
THE WESTERN COMPANY OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
DELAWARE 1-7452 75-0763484
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
515 POST OAK BOULEVARD
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 629-2600
<PAGE>
Item 2. ACQUISITION AND DISPOSITION OF ASSETS
In November 1994, the registrant, The Western Company of North America
(the "Company"), formalized a plan to dispose of the remaining assets
of its offshore drilling segment. These assets consisted primarily of
two semi-submersible offshore drilling rigs and related equipment and
inventory. The Company completed the sale of the ALASKAN STAR in
December 1994 for $11.8 million of which $6.3 million is a bankers'
acceptance drawn on a U.S. bank due within one year. This rig sale
resulted in a gain of $0.3 million. On February 10, 1995, the Company
completed the sale of the PACESETTER IV for $37.2 million which
resulted in a loss of $6.7 million.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Not applicable
(b) Pro Forma Financial Information
The following financial statements provide unaudited pro forma
consolidated balance sheet data as of December 31, 1994 and
unaudited pro forma condensed consolidated statements of
operations for the years ended December 31, 1994, 1993 and
1992. This pro forma financial data reflects the offshore
drilling segment as discontinued operations and accordingly
presents pro forma financial information for the Company
without the offshore drilling segment.
Such pro forma financial data is not necessarily indicative of
the future financial condition or results of operations of the
Company. For further information, refer to the consolidated
financial statements and notes thereto attached as Exhibit 21.4
in the Company's Report on Form 8-K dated February 10, 1995.
- 1 -
<PAGE>
THE WESTERN COMPANY OF NORTH AMERICA
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(In thousands)
ASSETS
Pro Forma
as
Historical(A) Adjustments(B) Adjusted
------------- -------------- ---------
CURRENT ASSETS:
Cash and cash equivalents ....... $ 12,650 $ 35,060 $ 47,710
Receivables, net ................ 74,080 -- 74,080
Inventories ..................... 20,065 -- 20,065
Assets held for sale,
net-discontinued operations .... 35,060 (35,060) --
Other ........................... 5,154 -- 5,154
--------- --------- ---------
Total current assets .......... 147,009 -- 147,009
--------- --------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Pressure pumping equipment ...... 199,720 -- 199,720
Buildings and other ............. 56,395 -- 56,395
Construction in progress ........ 6,676 -- 6,676
--------- --------- ---------
262,791 -- 262,791
Less: Accumulated depreciation .. (76,696) -- (76,696)
--------- --------- ---------
186,095 -- 186,095
Other assets ...................... 20,597 -- 20,597
--------- --------- ---------
$ 353,701 $ -- $ 353,701
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................ $ 29,996 $ -- $ 29,996
Accrued liabilities ............. 38,389 -- 38,389
--------- --------- ---------
Total current liabilities ..... 68,385 -- 68,385
--------- --------- ---------
LONG-TERM DEBT .................... 90,909 -- 90,909
--------- --------- ---------
OTHER LONG-TERM LIABILITIES ....... 15,258 -- 15,258
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Common stock .................... 1,828 -- 1,828
Additional paid-in capital ...... 193,991 -- 193,991
Cumulative translation adjustment (317) -- (317)
Accumulated deficit ............. (16,353) -- (16,353)
--------- --------- ---------
179,149 -- 179,149
--------- --------- ---------
$ 353,701 $ -- $ 353,701
========= ========= =========
(A) The offshore drilling segment is reflected as discontinued operations in
the historical balance sheet at December 31, 1994
(B) Net cash proceeds from sale of the PACESETTER IV semi-submersible offshore
drilling rig and related equipment and inventory
(C) See Exhibit 21.4 for audited financial statements of The Western Company
of North America
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THE WESTERN COMPANY OF NORTH AMERICA
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1993 1992
--------- --------- ----------
REVENUES:
Pressure pumping ..................... $ 307,511 $ 294,073 $ 225,353
Production chemicals ................. 34,990 -- --
--------- --------- ----------
342,501 294,073 225,353
--------- --------- ----------
OPERATING COSTS AND EXPENSES:
Pressure pumping ..................... 270,737 250,471 200,532
Production chemicals ................. 31,027 -- --
Depreciation and amortization ........ 18,814 14,589 14,887
General and administrative ........... 8,846 9,022 8,076
--------- --------- ----------
329,424 274,082 223,495
--------- --------- ----------
Operating income ................... 13,077 19,991 1,858
--------- --------- ----------
OTHER INCOME (EXPENSE):
Interest expense, net of interest
capitalized ......................... (10,032) (13,505) (10,407)
Interest income ...................... 1,236 4,653 1,059
Merger related expenses .............. (21,118) -- --
Writedown of pressure pumping
assets and other .................... -- (7,132) --
--------- --------- ----------
Total other income (expense) ....... (29,914) (15,984) (9,348)
--------- --------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY
LOSSES ................................ (16,837) 4,007 (7,490)
Provision for income taxes ........... 495 627 353
--------- --------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
LOSSES ................................ $ (17,332) $ 3,380 $ (7,843)
========= ========= ==========
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations before extraordinary
losses .............................. $ (0.95) $ 0.18 $ (0.44)
========= ========= ==========
SHARES OUTSTANDING ..................... 18,236 18,591 17,757
========= ========= ==========
(A) The above historical statements of operations have been prepared to
account for the discontinuance of the offshore drilling segment and
accordingly present pro forma financial information for the Company
without the offshore drilling segment
(B) See Exhibit 21.4 for audited financial statements of The Western Company
of North America
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits Required by Item 601 of Regulation S-K
Exhibit Number Description
-------------- -----------
21.1 Memorandum of Agreement dated December 21, 1994
21.2 Amendment No. 1 to the Memorandum of Agreement
dated December 27, 1994
21.3 Amendment No. 2 and Release to the Memorandum
of Agreement dated February 10, 1994
21.4 The Western Company of North America Audited
Financial Statements at December 31, 1994 and 1993
and for each of the three years in the period ended
December 31, 1994
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE WESTERN COMPANY OF NORTH AMERICA
(Registrant)
By: /s/ Steven P. Beatty
(Steven P. Beatty)
(Vice President and
Chief Accounting Officer
Date: February 24, 1995
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INDEX TO EXHIBITS
Number Exhibit
------- ------------
21.1 Memorandum of Agreement dated
December 21, 1994
21.2 Amendment No. 1 to the Memorandum of
Agreement dated December 27, 1994
21.3 Amendment No. 2 and Release to
Memorandum of Agreement dated
February 10, 1994
21.4 The Western Company of North America
Audited Financial Statements at
December 31, 1994 and 1993 and for
each of the three years in the period
ended December 31, 1994
27 Financial Data Schedule
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MEMORANDUM OF AGREEMENT
CONTRACT NO. 94MGA-380(54)05US
Dated: December 21, 1994 The Western Company of North America, a Delaware
corporation, and its subsidiary, Western Oceanic (U.K.) Ltd., a United Kingdom
corporation
hereinafter called Sellers, have agreed to sell and CMC Hitran International
Shipbuilding Company, a subsidiary of China National Machinery Import and Export
Corporation (Machimpex)/The Ministry of Geology and Mineral Resources, Bureau of
Petroleum and Marine Geology (Enduser).
hereinafter called the Buyers, have agreed to buy:
Name: WESTERN PACESETTER IV
Classification society/Class: ABS (Maltese Cross) A-1
(Circle M) column stabilized drilling unit (propulsion assistance only)
Built: 1983
By: Far East Levingston Shipbuilding Ltd., Singapore
Flag: Panamanian
Place of Registration: Panama, R.P.
Call Sign: HO-2826
Grt/Nrt: 9,143.07/7,991.00
Registration Number: 13834-84-C
Hereinafter called the Vessel, under the following terms and conditions:
PAGE 1
DEFINITIONS
"Banking days" are days on which banks are open both in the country of the
currency stipulated for the Purchase Price in Clause I and in the place of
closing stipulated in Clause 3.
"in writing" or "written" means a letter handed over from the Sellers to
the Buyers or vice versa, a registered letter, telex, telefax or other modern
form of written communication.
"Classification society" or "Class" means the society referred to above.
1. PURCHASE PRICE.
Thirty-Seven Million Five Hundred Thousand United States Dollars
(U.S.$37,500,000.00) payable by wire transfer to Citibank, N.A., New York, New
York, ABA #02100089, Credit Account The Western Company of North America,
Account No. 40573604. The Buyers and Sellers allocate $37,500,000 of the
purchase price to the Vessel and its equipment described in Annex 1, which is
inclusive of $2,000,000 of spare parts and equipment listed in Annex 2.
Following the signing of this Agreement, Sellers shall provide Buyers with a
version of Annex 2 allocating the $2,000,000 among the major accounting
categories represented in that Annex, but no later than the time the Buyers
representatives arrive on the vessel.
2. DEPOSIT.
As security for the correct fulfillment of this Agreement, the Buyers
shall pay a deposit of 10% (ten percent) of the Purchase Price within seven (7)
banking days from the date of this Agreement. Seller and Buyer shall open a
joint account at Bank of China, London Branch immediately after signature of
this agreement. This deposit shall be paid into this joint account, and held by
that bank for the Sellers and the Buyers, to be released in accordance with
joint written instruction of the Sellers and Buyers, interest, if any, to be
credited to the Buyers. Any fee charged for holding the said deposit shall be
borne equally by the Sellers and the Buyers.
3. PAYMENT.
The said Purchase Price shall be paid in full free of bank charges, other
than charges mentioned in Clause 2 above, on delivery of the Vessel, but not
later than five (5) banking days
PAGE 2
after the Vessel is at the place of delivery and the Notice of Readiness has
been given in accordance with Clause 5 and received by the Buyers.
4. INSPECTIONS.
The Buyers have inspected and accepted the Vessel's classification
records. The Buyers have also inspected the Vessel in November, 1994, at its
then-current location on the U.K. Continental Shelf and have accepted the Vessel
following this inspection and the sale is outright and definite, subject only to
the terms and conditions of this agreement.
5. NOTICES, TIME AND PLACE OF DELIVERY.
(a) The Sellers shall keep the Buyers well informed of the Vessel's
itinerary and shall provide the Buyers with 15, 10, and 5 days notice of the
estimated time of arrival at the intended place of delivery. When the Vessel is
at the place of delivery in accordance with this Agreement, the Sellers shall
give the Buyers a written Notice of Readiness for delivery.The Buyers and the
Sellers shall send their representatives to the Vessel to witness the delivery.
(b) The Vessel shall be delivered and taken over safely afloat at a safe
and accessible berth or anchorage at Invergordon, Scotland
Expected time of delivery: February 10, 1995, or upon completion of the
Vessel's then current well and demobilization to Invergordon, Scotland.
Date of cancelling (see Clauses 5(c), 6(b)(iii) and 14): March 30, 1995.
(c) If the Sellers anticipate that, notwithstanding the exercise of due
diligence by them, the Vessel will not be ready for delivery by the cancelling
date they may notify the Buyers in writing stating the date when they anticipate
the Vessel will be ready for delivery and propose a new cancelling date. Upon
receipt of such notification, the Buyers shall have the option of either
cancelling this Agreement in accordance with Clause 14 within seven (7) running
days of receipt of the notice or accepting the new date as the new cancelling
date. If the Buyers have not declared their option within seven (7) running days
of receipt of the Sellers' notification or if the Buyers accept the new date,
the date proposed in the Sellers' notification shall be deemed to be the new
cancelling date and shall be substituted for the cancelling date stipulated
above.
PAGE 3
If this Agreement is maintained with the new cancelling date all terms and
conditions hereof including those contained in Clauses 5(a) and 5(c) shall
remain unaltered and in full force and effect. Cancellation or failure to cancel
shall be entirely without prejudice to any claim for damages the Buyers may have
under Clause 14 for the Vessel not being ready by the original cancelling date.
(d) Should the Vessel be declared an actual, constructive or compromised
total loss by the Vessel's underwriters surveyors before delivery the deposit
together with interest earned shall be released immediately to the Buyers
whereafter this Agreement shall be null and void.
6. DRYDOCKING/DIVER'S INSPECTION.
No drydocking or underwater inspection of the Vessel shall take place. The
Sellers shall give the Buyers a copy of the Vessel's latest underwater survey
report at the delivery, and they shall allow the Buyers to conduct a visual,
internal inspection of the Vessel's tanks and compartments.
7. SPARES/BUNKERS, ETC.
The Sellers shall deliver the Vessel to the Buyers with everything
belonging to her on board and on shore, consisting solely of those items listed
on Annexes 1 and 2 to this Agreement, which the parties have initialed for
identification. All listed spare parts and spare equipment including, spare
tail-end shaft(s) and/or spare propeller(s)/propeller blade(s), if any,
belonging to the Vessel at the time of inspection used or unused, whether on
board or not shall become the Buyers' property, but spares on order are to be
excluded. Charges for shipment of onshore materials to the Vessel in Invergordon
or to the Port of Aberdeen, Scotland, as the Buyers direct, and all associated
forwarding charges, if any, shall be for Sellers account. The Sellers personnel
shall arrange the transportation of those materials. Buyers shall bear all
onward freight costs of any materials which are not carried aboard the Vessel.
The Sellers are not requested to replace spare parts including spare tail-end
shaft(s) and spare propeller(s)/propeller blade(s) which are taken out of spare
and used as a replacement prior to delivery, but the replaced items shall be the
property of the Buyers. The radio installation and navigational equipment shall
be included in the sale without extra payment if they are the property of the
Sellers. Unused stores and provisions shall be included in the sale and taken
over by the Buyers without extra payment.
PAGE 4
The Sellers have the right to take ashore crockery, plates, cutlery, linen
and other articles bearing the Sellers' flag or name, provided that they replace
same with similar unmarked items. Library, forms, etc. exclusively for use in
the Sellers' vessel(s), shall be excluded without compensation. Captain's,
officers' and crews' personal belongings including the slop chest are to be
excluded from the sale, as well as the following additional items (including
items on hire):
-Cementing unit
-Electric logging unit
-Mud logging unit
-Proprietary and third-party software
-ROV unit and dive spread
-Inmarsat system
-Alfa-Laval centrifuges
By written notice Buyers may request Sellers to procure additional
bunkers and lubricating oils for the Vessel, and the Sellers shall do so if the
notice provides adequate time before the delivery. The Buyers shall take over
the bunkers and unused lubricating oils in storage tanks and sealed drums and
pay the current net market price (excluding barging expenses) at the port and
date of delivery of the Vessel. Seller shall give a credit of U.S. $ 50,000.00
toward the purchase of bunkers and lubricating oils by Buyer from any payments
made to seller under this clause. Payment under this clause shall be made at the
same time and place and in the same currency as the Purchase Price.
8. DOCUMENTATION.
The place of closing: London
In exchange for payment of the Purchase Price, the Sellers shall furnish
the Buyers with delivery documents, namely:
(a) Legal Bill of Sale in a form recordable in Panama ("Contrato de Compra
y Venta") warranting that the Vessel is free from all encumbrances, mortgages
and maritime liens or any other debts or claims whatsoever, duly notarially
attested and legalized by the consul of such country or other competent
authority and also legalized by the Embassy of China in London.
PAGE 5
(b) Current Certificate of Ownership issued by the competent authorities
of the flag state of the Vessel.
(c) Confirmation of Class issued within seventy-three (73) hours prior to
delivery.
(d) Resolution of the respective Boards of directors of the Sellers
confirming Sellers' agreement to sell the Vessel to the Buyers.
(e) Current certificate issued by the competent authorities stating that
the Vessel is free from registered encumbrances.
(f) A copy of the Protocol of Delivery and Acceptance in the form of Annex
4 to this Agreement signed by the parties' representatives.
(g) Any such additional documents as may reasonably be required by the
competent authorities for the purpose of registering the Vessel, provided the
Buyers notify the Sellers of any such documents as soon as possible after the
date of this Agreement.
At the time of delivery the Buyers and the Sellers shall sign and deliver
to each other a Protocol of Delivery and Acceptance in the form of Annex 4
confirming the date and time of delivery of the Vessel from the Sellers to the
Buyers.
At the time of delivery, the Sellers shall hand to the Buyers the
classification certificate(s) as well as all plans etc., which are on board the
Vessel. Other certificates which are on board the Vessel shall also be handed
over to the Buyers unless the Sellers are requested to retain same, in which
case the Buyers to have the right to take copies. Other technical documentation
which may be in the Sellers' possession shall be promptly forwarded to the
Buyers at Sellers expense, if they so request. The Sellers may keep the Vessel's
log books but the Buyers to have the right to take copies of same.
9. ENCUMBRANCES.
The Sellers warrant that the Vessel, at the time of delivery, is free from
all charters, encumbrances, mortgages and maritime liens or any other debts
whatsoever. The Sellers hereby undertake to indemnify the Buyers against all
consequences of claims made against the Vessel which have been incurred prior to
the time of delivery.
PAGE 6
10. TAXES, ETC.
Any taxes, fees and expenses in connection with the purchase and
registration under the Buyers' flag shall be for the Buyers' account, whereas
similar charges in connection with the closing of the Sellers' register shall be
for the Sellers' account.
11. CONDITION ON DELIVERY.
The Vessel with everything belonging to her shall be at the Sellers' risk
and expense until she is delivered to the Buyers, but subject to the terms and
conditions of this Agreement she shall be delivered and taken over as she was at
the time of inspection, fair wear and tear excepted.
However, the Vessel shall be delivered with her class maintained without
condition/recommendation, and with her classification certificates and national
certificates, as well as all other certificates the Vessel had at the time of
inspection, valid and unextended without condition and recommendation by Class
or the relevant authorities at the time of delivery and for 90 days thereafter.
Notes, if any, in the surveyor's report which are accepted by the Classification
Society without condition/recommendation are not to be taken into account.
"Inspection" in this Clause 11, shall mean the Buyers' inspection
according to Clause 4 or the Buyers' inspection prior to the signing of this
Agreement. If the Vessel is taken over without inspection, the date of this
agreement shall be the relevant date.
12. NAME/MARKINGS.
Upon delivery the Buyers undertake to change the name of the Vessel to one
that does not include "Western" or "Oceanic" or "Pacesetter", and alter funnel
markings.
13. BUYERS' DEFAULT.
Should the deposit not be paid in accordance with Clause 2, the Sellers
have the right to cancel this Agreement, and they shall be entitled to claim
compensation for their losses and for all expenses incurred together with
interest at 12% per annum.
PAGE 7
Should the Purchase Price not be in accordance with Clause 3, the Sellers
have the right to cancel this Agreement, in which case the deposit together with
interest earned shall be released to the Sellers. If the deposit does not cover
their loss, the Sellers shall be entitled to claim further compensation for
their losses and for all expenses incurred together with interest at 12% per
annum.
14. SELLERS' DEFAULT.
Should the Sellers fail to give Notice of Readiness in accordance with
Clause 5(a) or fail to be ready to validly complete a legal transfer by the
cancellation date stipulated in Clause 5(b), the Buyers shall have the option of
cancelling this Agreement in which case the deposit in full shall be returned to
the Buyers together with interest at 12% per annum. The Sellers shall make due
compensation for the losses to the Buyers caused by failure to execute a legal
transfer or to deliver the Vessel in the manner and within the time specified in
this Agreement, if such are due to the proven negligence of the Sellers.
15. BUYERS' REPRESENTATIVES.
After this Agreement has been signed by both parties and the deposit has
been lodged, the Buyers have the right to place up to ten (10) representatives
on board the Vessel at their sole risk and expense at the Vessel's present
location on the U.K. continental shelf to witness the function tests as per
Clause 18 subject to the current customer's approval, availability of sleeping
berths, survival training of the representatives, and Sellers ability to provide
supervision of Buyers' representatives using Sellers' normal complement of
personnel aboard the Vessel. Buyer shall schedule their representatives' visits
to minimize inconvenience to Sellers and their customer.
These representatives are on board for the purpose of familiarization and
in the capacity of observers only. The Buyers' representatives shall sign the
Sellers' letter of indemnity prior to their embarkation.
16. ARBITRATION.
This Agreement shall be governed by and construed in accordance with
English law and any disputes arising out of this Agreement shall be referred to
arbitration in London in accordance with the arbitration Acts 1950 and 1979 or
any statutory modification or re-enactment thereof for the time being in force,
one arbitrator being appointed by each party. The parties intend to preclude
judicial review and appeal of the arbitral award to the fullest extent allowed
by those Acts. On receipt by one party of the nomination in writing of the other
party's arbitrator, that party shall appoint their
PAGE 8
arbitrator within fourteen (14) days, failing which the decision of the single
arbitrator appointed shall apply. If two arbitrators properly appointed shall
not agree they shall appoint an umpire whose decision shall be final.
17. PAYMENT
The Buyers shall within seven days of the date of this Agreement open an
irrevocable letter of credit with the Bank of China, Beijing conforming to the
Uniform Customs and Practice for Documentary Credits in favor of the Sellers for
the price specified in Clause 1.
The credit shall be available against Sellers drafts drawn at the sight
of the Bank of China, London, as follows:
Amount Accompanying Document
10% as deposit Certified copy of this agreement
(Accordance to Clause 2)
90% balance Certified copies of the documents referred
to in sub clauses 8(a), 8(b), 8(c), 8(e) and 8(f).
18. WARRANTY
Sellers warrant that if any of the major items of equipment referred to in
Clause 19 breaks down within the 270 days following the date of delivery, then
Sellers shall supply such replacement parts as are necessary to repair the
failure or breakdown, or, at Sellers' option, Sellers shall pay the Buyers the
F.O.B. Houston price of those parts, provided that:
(a) The equipment has been operated and maintained in accordance with the
manufacturers recommendations, good oilfield practice and the Sellers' planned
maintenance system.
(b) The breakdown was not caused or contributed to by normal wear and tear
or negligent operations and/or negligent maintenance.
(c) The Buyers shall support their claim with an onboard report issued by
an exclusive ABS surveyor which includes a report on the condition found, the
recommended repair, copies of maintenance records, hourmeter readings (if
applicable), engineers/master's log entries and the crews' signed failure of
incident report.
PAGE 9
(d) The Buyers shall not claim for costs which are recoverable under
Buyers' Hull and Machinery insurance. The Buyers shall provide insurance cover
for the Vessel from Delivery until expiry of the warranty period and shall
evidence this cover to the Sellers.
(e) The aggregate of claims under this clause may not exceed $375,000 and
each individual claim is subject to a deductible of $ 10,000 to the Buyers
account.
The Sellers will send two (2) representatives to China for start-up and
training for a period of four (4) weeks. The representatives will carry out
training of Buyers personnel and any breakdowns will be immediately reported to
them. Sellers will send the two (2) representatives at Sellers expense, except
for local transport in China, accommodation and catering which will be to the
account of Buyer.
19. FUNCTION TEST
The Buyers/Sellers shall jointly perform testing of the Vessel prior to
its delivery. Result of such testing, however, shall not allow the Buyers to
reject the Vessel, provided, however, that Sellers carry out the required
repairs, which to be limited to class related items.
The tests are described below. Buyers and Sellers have agreed that they
shall both cooperate and perform their respective duties in a timely manner,
without any undue delays to the rig's operation.
Function tests of major equipment, machinery, and systems will be
performed by the Sellers upon the request of the Buyers, the result of which
will satisfy class requirements and requirements as outlined in the Witness of
Function Test. Such tests will not interfere with the Vessel's normal operation.
Seller shall rectify any breakdown arising from such tests at Seller's expense
and as soon as practicable.
Should any discrepancy of opinions occur between the Buyers and the
Sellers after these testings with regard to the functioning of the major
equipment, machinery, and systems a survey or from the Vessel's present class
(ABS) shall be called in for final judgement. Cost of requesting the service of
surveyors to act as "arbitrators" including transportation shall be borne
equally by the Sellers/Buyers. Repairs required by ABS affecting the Vessel's
class shall be paid by the Sellers.
PAGE 10
20. MAINTENANCE
From the date of this agreement until the delivery of the Vessel, Sellers
shall continue to carry out their preventative maintenance program for the
Vessel, including their paint plan for 1994 (March 1994 to March 1995), a copy
of which is attached as Annex 5 to this Agreement. Buyers representatives aboard
the Vessel pursuant to Clause 15 may review Sellers attainment of the paint
program through the delivery date. If Buyers request, after delivery Sellers
shall complete the 1994 paint plan, to the extent they can do so during the 10
days immediately following the delivery using the complement of painters aboard
the Vessel at the time this Agreement is signed, except for areas below the main
deck, and except to the extent that temperature or other weather conditions made
it unreasonably difficult to do so prior to the delivery date.
21. ANNEXES
The following Annexes are attached herewith and form an integral part of
this Agreement:
Annex 1 Rig description and equipment
Annex 2 Spare parts inventory (bound separately and initialed for
identification)
Annex 3 List of Certificates
Annex 4 Protocol of Delivery and Acceptance
Annex 5 Sellers paint program
Annex 6 Witness of function test
Annex 7 List of Major Manuals and drawings
PAGE 11
CMC HITRAN INTERNATIONAL THE WESTERN COMPANY OF
SHIPBUILDING COMPANY NORTH AMERICA
A Subsidiary of CHINA NATIONAL
MACHINERY IMPORT & EXPORT
CORPORATION
By: /s/ MEI HAOLIN By: /s/ RONNIE J. PHELPS
Mei Haolin Ronnie J. Phelps,
Vice President Attorney-In-Fact
MINISTRY OF GEOLOGY AND WESTERN OCEANIC (U.K.) LIMITED
MINERAL RESOURCES
BUREAU OF PETROLEUM AND By: /s/ RONNIE J. PHELPS
MARINE GEOLOGY Ronnie J. Phelps,
Attorney-In-Fact
By: /s/ LIU ZEYING
Liu Zeying
Deputy Director
WITNESS BY AGENT
OGERD CORPORATION
By: /s/ DR. DAVIS X. SUN
Dr. Davis X. Sun
President
PAGE 12
AMENDMENT NO. 1
TO MEMORANDUM OF AGREEMENT
Dated: 27 December, 1994. Contract No. 94MGA-380(54)05US
This is Amendment No. 1 to the Memorandum of Agreement dated 21 December, 1994
(the "MOA") entered into between:
The Western Company of North America and Western Oceanic (U.K.) Limited,
hereinafter called the "Sellers", on the one hand; and
CMC Hitran International Shipbuilding Co., acting for and on behalf of the
Ministry for Geology and Mineral Resources of China, hereinafter called the
"Buyers", on the other hand.
Sellers and Buyers are jointly referred to herein as the "Parties".
WHEREAS the Parties wish to alter the provisions for payment of the MOA.
NOW IT IS HEREBY AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. CLAUSE 1. Clause 17 will be replaced by the following:
"Ten percent (10%) of the Purchase Price will be paid into the joint
account referred to in Clause 2 of the Agreement within seven (7)
banking days of the signing of this Agreement.
The deposit shall be released to the Sellers and the balance of the
Purchase Price will be paid into the account of the Sellers identified
in Clause 1 of this Agreement in exchange for the delivery
documents, as specified in Clause 8 of this Agreement."
2. CLAUSE 2. The Parties hereby agree that this Amendment No. 1 will take
effect from the date of execution by the Parties which can be done by an
exchange of fax. The originals will be exchanged by courier as soon as
possible thereafter.
3. CLAUSE 3. All other terms and conditions of the MOA will remain
unchanged.
Signed on the day first mentioned above.
FOR AND ON BEHALF OF SELLER: FOR AND ON BEHALF OF BUYER:
/s/ Ronnie Phelps 12/28/94 /s/ Li Bin 12/27/94
RONNIE PHELPS, Attorney-In-Fact LI BIN
DEPUTY GENERAL MANAGER
AMENDMENT NO. 2 AND RELEASE
TO
MEMORANDUM OF AGREEMENT
DATED DECEMBER 21, 1994
CONTRACT NO. 94MGA-380(54)05US
between
The Western Company of North America, and Western Oceanic (U.K.) Ltd.
("Sellers")
and
CMC Hitran International Shipbuilding Company (a subsidiary of China
National Machinery Import & Export Corporation) and Ministry of Geology
and Mineral Resources, Bureau Petroleum and Marine Geology ("Buyers")
Whereas the parties hereto wish to modify the above referenced Memorandum of
Agreement, as amended by Amendment No. 1 thereto (the "MoA"), they have today
the 10th day of February 1995 agreed as follows:
1. The following items belonging to Sellers shall be included in the sale, at
no further cost to Buyers:
* Spare Slip Joint (estimated value (pound)50,000)
* CR1 Ball Joint (estimated value (pound)20,000)
* DR1 Ball Joint (estimated value (pound)10,000)
* Slip Joint Support Ring for Spare Slip Joint (value included in
Slip Joint)
These items are sold "as is, where is" and shall be delivered from Sellers
to Buyers at Sellers' designated storage facility in Aberdeen, Scotland,
following delivery of the Vessel to Buyers. Buyers shall arrange and pay
for transportation of said items from Sellers' storage facility.
2. Sellers and Buyers agree that the Purchase Price payable by Buyers
to Sellers in respect of the Vessel shall be reduced from USD 37,500,000
to USD 37,150,000 (USDollars thirty seven million one hundred and fifty
thousand 00/100).
In consideration of the reduction in the Purchase Price and the inclusion
in the sale of the items listed in 1 hereof, the MoA shall be amended as
follows:
(a) With respect to Clause 7 of the MoA, spares on order at the time
hereof are included in the sale, at no further cost to Buyers.
Sellers shall provide Buyers promptly with a list of such items and
deliver them to Sellers as soon as possible. Further, no settlement
shall be made in respect of bunkers and luboils. Finally, Buyers
accept that some items listed in Annexes 1 and 2 may not be on board
the Vessel, and shall have no claims against Sellers in that
respect.
(b) With respect to Clause 11 of the MoA, Buyers accept that the Vessel
will be taken over with the certificates (whether class, national or
otherwise) as they are at the time of delivery.
(c) Clause 18 of the MoA dealing with Sellers' warranty obligations and
obligations with respect to training, is deleted in its entirety.
Buyers accept that that after having accepted the Vessel and taken
delivery of her from Sellers, they shall have no claim whatsoever
against Sellers in respect of the Vessel's physical condition,
whether arising in contract or in tort, and Buyers shall
under no circumstances be entitled to make any claim against Sellers
or initiate any legal proceedings against them based on such
grounds. This release shall be permanent and valid forever.
(d) The function test referred to in Clause 19 has been carried out.
Sellers shall have no further obligations in respect of this test
other than those corrective measures/actions that have been
completed or are ongoing at the time of delivery, or such
obligations following from this Amendment and Release.
(e) Buyers accept that Sellers' obligations with respect to the paint
plan referred to in Clause 20, shall be deemed completed as of the
date hereof.
3. This Amendment and Release shall be governed by English law.
All terms defined in the MoA shall have the same meaning when used herein.
CMC HITRAN INTERNATIONAL THE WESTERN COMPANY OF
SHIPBUILDING COMPANY NORTH AMERICA
a subsidiary of CHINA NATIONAL
MACHINERY IMPORT & EXPORT
CORPORATION
______________________________ _________________________
MINISTRY OF GEOLOGY AND WESTERN OCEANIC (U.K.)
MINERAL RESOURCES LTD.
BUREAU OF PETROLEUM AND
MARINE GEOLOGY
______________________________ _________________________
<TABLE>
THE WESTERN COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Pressure pumping ............................. $ 307,511 $ 294,073 $ 225,353
Production chemicals ......................... 34,990 -- --
---------- ---------- ----------
342,501 294,073 225,353
---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Pressure pumping ............................. 270,737 250,471 200,532
Production chemicals ......................... 31,027 -- --
Depreciation and amortization ................ 18,814 14,589 14,887
General and administrative ................... 8,846 9,022 8,076
---------- ---------- ----------
329,424 274,082 223,495
---------- ---------- ----------
Operating income ........................... 13,077 19,991 1,858
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense, net of interest capitalized (10,032) (13,505) (10,407)
Interest income .............................. 1,236 4,653 1,059
Merger related expenses ...................... (21,118) -- --
Writedown of pressure pumping assets and other -- (7,132) --
---------- ---------- ----------
Total other income (expense) ............... (29,914) (15,984) (9,348)
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY LOSSES .......................... (16,837) 4,007 (7,490)
Provision for income taxes ................... 495 627 353
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY LOSSES ................... (17,332) 3,380 (7,843)
DISCONTINUED OPERATIONS ........................ (4,197) 35,321 9,510
EXTRAORDINARY LOSSES ........................... -- (25,713) (1,223)
---------- ---------- ----------
NET INCOME (LOSS) .............................. $ (21,529) $ 12,988 $ 444
========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Primary:
Income (loss) from continuing
operations before extraordinary
losses .................................... $ (0.95) $ 0.18 $ (0.44)
Discontinued operations .................... (0.23) 1.90 0.53
Extraordinary losses ....................... -- (1.38) (0.07)
---------- ---------- ----------
Net income (loss) .......................... $ (1.18) $ 0.70 $ 0.02
========== ========== ==========
Fully diluted:
Income (loss) from continuing operations
before extraordinary losses ............... $ * $ * $ *
Discontinued operations .................... * 1.48 *
Extraordinary losses ....................... * * *
---------- ---------- ----------
Net income (loss) .......................... $ * $ * $ *
========== ========== ==========
* Fully diluted computation is not reflected because per share effect is
antidilutive
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
THE WESTERN COMPANY OF NORTH AMERICA
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
DECEMBER 31,
-----------------------
1994 1993
---------- --------
ASSETS
CURRENT ASSETS:
Cash (including cash equivalents of $10,459 in
1994 and $134,467 in 1993) ....................... $ 12,650 $141,279
Marketable securities ............................. -- 18,868
Receivables (less allowances of $4,273 in
1994 and $4,373 in 1993) ......................... 74,080 63,853
Inventories ....................................... 20,065 16,887
Assets held for sale, net - discontinued
operations ....................................... 35,060 --
Other current assets .............................. 5,154 9,464
---------- --------
Total current assets ............................ 147,009 250,351
---------- --------
PROPERTY AND EQUIPMENT, AT COST:
Pressure pumping equipment ........................ 199,720 183,172
Offshore drilling equipment ....................... -- 69,668
Buildings and other ............................... 56,395 45,098
Construction in progress .......................... 6,676 8,775
---------- --------
262,791 306,713
Less - Accumulated depreciation and
amortization ................................... 76,696 77,897
---------- --------
186,095 228,816
---------- --------
OTHER ASSETS ........................................ 20,597 9,218
---------- --------
$ 353,701 $488,385
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ................. $ -- $ 97,784
Accounts payable .................................. 29,996 33,112
Accrued liabilities ............................... 38,389 51,184
---------- --------
Total current liabilities ....................... 68,385 182,080
---------- --------
LONG-TERM DEBT ...................................... 90,909 90,910
---------- --------
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS .... 15,258 14,948
---------- --------
STOCKHOLDERS' EQUITY:
Common stock -- par value $.10; authorized
50,000,000 shares, issued 18,279,914 and
18,198,285 shares at December 31, 1994
and 1993, respectively ........................... 1,828 1,820
Additional paid-in capital ........................ 193,991 193,451
Cumulative translation adjustment ................. (317) --
Retained earnings (accumulated deficit),
since May 12, 1989 ............................... (16,353) 5,176
---------- --------
179,149 200,447
---------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
$ 353,701 $488,385
========== ========
The accompanying notes are an integral part of these balance sheets.
- 2 -
<PAGE>
<TABLE>
THE WESTERN COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS ASSOCIATED WITH OPERATING ACTIVITIES:
Net income (loss) ................................... $ (21,529) $ 12,988 $ 444
Reconciliation of net income (loss) to net
cash provided by operating activities --
Depreciation and amortization ..................... 22,846 24,294 26,891
(Gains)/losses on sales of offshore
drilling rigs .................................... 4,818 (59,161) --
Writedown of offshore drilling rigs ............... -- 18,328 --
Writedown of pressure pumping assets .............. -- 3,500 --
Extraordinary losses .............................. -- 25,713 1,223
Non-cash provision for income taxes ............... -- 6,630 825
Provision for doubtful accounts receivable ........ (207) (450) --
Other, net ........................................ 1,439 2,146 457
Changes in assets and liabilities --
Accounts receivable .............................. 1,721 10,935 (3,177)
Inventory ........................................ (1,319) (4,689) 1,869
Accounts payable ................................. (5,778) 5,077 (2,066)
Accrued interest payable ......................... (1,049) (448) 572
Accrued merger related expenses .................. 10,386 -- --
Other, net ....................................... 1,523 (246) (2,512)
---------- ---------- ----------
Net cash provided by operating activities ...... 12,851 44,617 24,526
---------- ---------- ----------
CASH FLOWS ASSOCIATED WITH INVESTING ACTIVITIES:
Additions to property and equipment ................. (21,313) (53,312) (38,773)
Acquisitions, net of cash acquired .................. (27,535) (10,400) --
Proceeds from sales of offshore drilling rigs ....... 5,340 169,250 --
Disposition costs for rig sales ..................... -- (4,406) --
Proceeds from sales of marketable securities ........ 18,711 153,458 --
Purchases of marketable securities .................. -- (173,687) --
Other, net .......................................... 964 347 367
---------- ---------- ----------
Net cash provided (used) in investing activities (23,833) 81,250 (38,406)
---------- ---------- ----------
CASH FLOWS ASSOCIATED WITH FINANCING ACTIVITIES:
Debt incurred ....................................... 7,000 7,000 114,801
Debt payments ....................................... (124,946) (7,000) (106,118)
Proceeds from exercise of stock options ............. 486 2,243 --
Other, net .......................................... (187) (10) (307)
---------- ---------- ----------
Net cash provided (used) by financing activities (117,647) 2,233 8,376
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents ............................ (128,629) 128,100 (5,504)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR ......... 141,279 13,179 18,683
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF YEAR ............... $ 12,650 $ 141,279 $ 13,179
========== ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of interest capitalized .......... $ 11,007 $ 14,182 $ 10,577
Income taxes paid ................................... 1,804 1,965 1,345
NONCASH INVESTING AND FINANCING ACTIVITIES
(NOTES 1, 3, 4 AND 8)
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
<TABLE>
THE WESTERN COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<CAPTION>
COMMON STOCK RETAINED
PAR VALUE $.10 ADDITIONAL CUMULATIVE EARNINGS
------------------------- PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
---------- ---------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991 .............. 17,741 $ 1,774 $ 180,618 -- $ (8,256) $ 174,136
Net income ........................... -- -- -- -- 444 444
Realization of pre-reorganization net
operating losses .................... -- -- 825 -- -- 825
Other, net ........................... 1 -- -- -- -- --
------- -------- --------- ------ --------- ----------
BALANCE DECEMBER 31, 1992 .............. 17,742 1,774 181,443 -- (7,812) 175,405
Net income ........................... -- -- -- -- 12,988 12,988
Realization of pre-reorganization net
operating losses .................... -- -- 6,013 -- -- 6,013
Exercise of stock options ............ 455 46 5,374 -- -- 5,420
Tax benefit of stock options exercised -- -- 617 -- -- 617
Other, net ........................... 1 -- 4 -- -- 4
------- -------- --------- ------ --------- ----------
BALANCE DECEMBER 31, 1993 .............. 18,198 1,820 193,451 -- 5,176 200,447
Net loss ............................. -- -- -- -- (21,529) (21,529)
Exercise of stock options ............ 90 9 539 -- -- 548
Cumulative translation adjustment .... -- -- -- (317) -- (317)
Other, net ........................... (9) (1) 1 -- -- --
------- -------- --------- ------ --------- ----------
BALANCE DECEMBER 31, 1994 .............. 18,279 $ 1,828 $ 193,991 $ (317) $ (16,353) $ 179,149
======= ======== ========= ====== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
THE WESTERN COMPANY OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all accounts of The Western
Company of North America and its wholly-owned subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated in consolidation.
PLAN OF REORGANIZATION
On February 2, 1988, The Western Company of North America ("WCNA") filed a
voluntary petition for reorganization under chapter 11 of the federal Bankruptcy
Code. On May 12, 1989 the WCNA Third Amended Plan of Reorganization was
consummated.
The Company adopted reorganization accounting to record the effects of
consummating the Plan of Reorganization.
REVENUE RECOGNITION
Revenue related to pressure pumping, production chemicals and offshore drilling
services and sales of pressure pumping and production chemical products are
recognized as services are provided and products are shipped or delivered.
The Company uses the percentage-of-completion method for equipment sales
contracts to recognize revenues and expenses as the earnings process progresses.
CONCENTRATION OF CREDIT RISK
The Company's customers consist primarily of major integrated international oil
companies and independent oil and gas companies, including companies owned in
whole or in part by foreign governments. The Company performs ongoing credit
evaluations of its customers and generally does not require material collateral.
The Company maintains reserves for potential credit losses, and historically
such losses have been within its expectations. No single customer accounted for
10% or more of the Company's consolidated revenues during 1994, 1993 and 1992.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents represent highly liquid investments with a maturity of three
months or less. Marketable securities represent highly liquid investments with a
maturity in excess of three months but less than one year. Cash equivalents and
marketable securities are carried at cost, which approximates market value at
December 31, 1994 and 1993. During 1994, proceeds from the sales of marketable
securities classified as available for sale totaled $18.7 million. Loss on the
sales of these securities was immaterial.
- 5 -
INVENTORIES
Inventories are comprised principally of materials and supplies and are stated
at lower of cost or market. Cost is determined using the first-in, first-out
method for pressure pumping inventories and the average cost method for
production chemicals and offshore drilling rig inventories.
PROPERTY AND EQUIPMENT
Except for offshore drilling rigs and associated equipment and a well
stimulation vessel and associated equipment, property and equipment is
depreciated or amortized using the straight-line method over their estimated
useful lives.
The Company uses the units-of-service method to calculate depreciation expense
associated with offshore drilling rigs and its well stimulation vessel. Under
this method, depreciation is reduced to 20% of its normal rate while the rigs
and the well stimulation vessel are not being utilized.
The Company capitalizes renewals and improvements which significantly enhance
the value or extend the useful life of an asset. Expenditures for normal
maintenance and repairs are charged to expense as incurred. The cost of pressure
pumping equipment retired or sold and related accumulated depreciation are
removed from the accounts, and gains and losses are reflected in operations.
Normal retirements of offshore drilling equipment are reflected in accumulated
depreciation accounts; gains or losses arising from unusual retirements are
reflected in earnings, and asset cost and related accumulated depreciation are
removed from the accounts.
INTEREST EXPENSE
The Company capitalizes interest expense applicable to significant capital
projects which require a period of time to construct. In 1994, 1993 and 1992,
total interest incurred was $10.0 million, $19.3 million and $14.0 million,
respectively, and interest of $5.8 million in 1993 and $2.3 million in 1992 was
capitalized. No interest was capitalized in 1994. Included in the 1992 income
from discontinued operations is $1.3 million of interest expense associated with
certain rig debt.
IMPAIRMENT OF LONG-LIVED ASSETS
An impairment writedown on long-lived assets is recorded whenever events or
changes in circumstances indicate that market value is less than net book value.
Market value is determined by either independent appraisals or calculation of
future undiscounted net cash flows.
A 1993 writedown of pressure pumping assets and other included a $3.5 million
writedown of older pressure pumping equipment and idle facilities to net
realizable value in anticipation of disposal.
GOODWILL
Goodwill represents the excess of cost of acquisitions over the fair value of
identifiable assets acquired less liabilities assumed. Goodwill is included as a
component of other assets and is amortized on a straight-line basis over
15 years. As of December 31, 1994 and 1993, goodwill was
- 6 -
$18.4 million and $1.2 million, respectively, net of accumulated amortization
of $1.4 million and $0.2 million, respectively. Impairment of goodwill is
evaluated in the same manner as other long-lived assets.
ACCRUED LIABILITIES
At December 31, 1994 and 1993, accrued liabilities included the following:
1994 1993
-------- -------
(In thousands)
Accrued extraordinary loss (see Note 5).................. $ -- $23,408
Accrued merger related expenses.......................... 10,386 --
Accrued payroll and related expenses..................... 11,371 10,356
Income taxes payable..................................... 4,495 5,806
Accrued interest......................................... 3,127 4,022
ENVIRONMENTAL COSTS
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and that do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when remedial efforts
are probable and the costs can be reasonably estimated. Generally, the timing of
these accruals coincides with the completion of an environmental evaluation or
the Company's commitment to a formal plan of action. At December 31, 1994 and
1993, liabilities for environmental costs were $2.6 million and $2.4 million,
respectively.
INTEREST RATE SWAP
During 1993, the Company entered into an interest rate swap agreement to manage
its interest rate exposure. This agreement involves the exchange of fixed rate
interest payments for floating rate interest payments based on the six month
London Interbank Offering Rate ("LIBOR"). The estimated differential to be paid
or received at each semiannual settlement date is charged or credited to
interest expense as interest rates change.
This agreement was entered into with a major financial institution. Management
believes the risk of incurring losses related to nonperformance by the financial
institution is remote and any such losses would be immaterial.
FOREIGN CURRENCY TRANSLATION
The financial statements of certain foreign operations are translated from the
functional currencies to U.S. dollars. Adjustments resulting from the
translation process totaled $0.3 million in 1994 and are reflected as a
cumulative translation adjustment in stockholders' equity.
- 7 -
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is based on the weighted average number of
shares of Common Stock, $.10 par value ("Common Stock") and Common Stock
equivalent shares (when dilutive) outstanding during the year. Common stock
equivalent shares relate to options to purchase shares under various stock
option plans (see Note 9). Additionally, the fully diluted earnings per share
computation assumes the conversion of the Company's 7 1/4% Convertible
Subordinated Debentures (see Note 5).
The weighted average number of shares used in computing earnings (loss) per
share are as follows:
1994 1993 1992
---- ---- ----
(In thousands)
Primary........................................ 18,236 18,591 17,757
Fully diluted.................................. 23,958 23,794 23,136
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1994, 1993 and 1992, expenditures classified
as research and development costs incurred by the Company were $8.4 million,
$6.5 million and $5.5 million, respectively.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements and notes
thereto have been reclassified to conform to the current year's presentation
including the presentation of discontinued operations.
NOTE 2 - MERGER
In November 1994, the Company and BJ Services Company ("BJ Services") entered
into a definitive merger agreement. Subject to certain conditions and to
appraisal rights under Delaware law, this agreement provides that stockholders
of the Company will receive $20 in cash or in shares of BJ Services common stock
for each outstanding share of Company Common Stock they own. Additionally, for
each share of Common Stock they hold, each stockholder will receive .2 of a
five-year warrant to purchase one share of BJ Services common stock for $30 per
share. Pursuant to the merger agreement, stockholders may elect to receive any
proportion of cash and BJ Services common stock, provided that the total number
of shares of Common Stock for which such elections are made will be adjusted so
that the total shares for which each type of election is made will be
approximately equal. The transaction is subject to the approval of both
companies' stockholders, antitrust review and other customary closing
conditions, and is expected to close during the first half of 1995. Merger
related expenses of $21.1 million represent costs associated with the expected
merger with BJ Services and include investment banker, legal and accounting
fees, certain severance costs and other miscellaneous expenses. In addition to
the expenses recorded in 1994, additional legal fees and other expenses related
to the merger are expected to be incurred and recorded in 1995.
- 8 -
NOTE 3 - ACQUISITIONS
The Company completed the acquisitions, in February 1994, of substantially all
of the assets of the production and process chemical business of Unichem
International, Inc. ("Unichem") for $19.8 million in cash and in June 1994, of
substantially all of the oilfield chemicals business and assets of Betz Energy
Chemicals, Inc. ("Betz") for $4.8 million in cash. The businesses acquired from
Unichem and Betz are substantially the same. In July 1994, the Company completed
the acquisition of the coiled tubing business of Coiltech, Inc. ("Coiltech") for
$3.1 million in cash. All three acquisitions were accounted for using the
purchase method of accounting. Goodwill associated with these transactions
totaled $18.4 million (see Note 1). The Unichem, Betz and Coiltech results of
operations have been included in the consolidated financial statements since
January 1994, July 1994 and July 1994, respectively. In April 1993, the Company
completed a $10.4 million cash acquisition of the assets of the Smith Energy
Services division of Allied Products Corporation. This acquisition was accounted
for using the purchase method of accounting.
NOTE 4 - DISCONTINUED OPERATIONS
The Company formalized a plan in November 1994 (the "Measurement Date") to
dispose of the remaining assets of its offshore drilling segment. These assets
consisted primarily of two semi- submersible offshore drilling rigs and related
equipment and inventory. As a result, the offshore drilling segment has been
reclassified in the consolidated statements of operations as discontinued
operations.
The results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Revenues ..................................... $ 22,609 $ 64,676 $ 89,613
========= ========= =========
Income from discontinued operations:
Operating income ........................... $ 2,429 $ 4,161 $ 13,919
Other income (loss):
Gains on sales of offshore drilling rigs . -- 59,161 --
Writedowns of offshore drilling rigs ..... -- (18,328) --
Interest expense ......................... -- -- (1,333)
--------- --------- ---------
Income from discontinued operations before
income taxes .............................. 2,429 44,994 12,586
Provision for income taxes ................. 152 9,673 3,076
--------- --------- ---------
2,277 35,321 9,510
--------- --------- ---------
Loss on disposal, net of income tax benefit in
1994 of $(152) .............................. (6,474) -- --
--------- --------- ---------
$ (4,197) $ 35,321 $ 9,510
========= ========= =========
</TABLE>
- 9 -
The loss on disposal includes operating results subsequent to the Measurement
Date including shut-down expenses and gain (loss) from the disposal of the two
semi-submersible offshore drilling rigs, ALASKAN STAR and PACESETTER IV. In
December 1994, the Company completed the sale of the ALASKAN STAR for $11.8
million, of which $6.3 million is a bankers' acceptance drawn on a U.S. bank due
within one year. This rig sale resulted in a gain of $0.3 million. In December
1994, the Company signed a letter of intent to sell the PACESETTER IV. The
Company completed the sale in early February 1995 for $37.2 million which
resulted in a loss of $6.7 million (see Note 13). At December 31, 1994, Assets
held for sale, net - discontinued operations primarily consists of the net
realizable value of the PACESETTER IV.
Income from discontinued operations includes operating results prior to the
Measurement Date. Income from discontinued operations during 1993 included the
following sales of offshore drilling rigs and writedowns of offshore drilling
rigs. In March 1993, the Company completed the sale of the TRITON III jack-up
drilling rig for $17.8 million in cash. This sale resulted in a gain of $9.1
million. In July 1993, the Company completed the sale of the DELTA jack-up
drilling rig for $1.5 million in cash which resulted in a gain of $0.4 million.
In October 1993, the Company completed the sale of nine jack-up drilling rigs
and associated equipment and inventories for $150.0 million cash that resulted
in a 1993 fourth quarter gain of $49.7 million. The rigs sold were: APOLLO I,
APOLLO II, APOLLO IV, NIKE I, POLARIS I, POLARIS II, TRITON I, TRITON II and
TRITON IV. In March 1993, the Company wrote down the net book value of its three
mat-supported jack-up rigs by $8.8 million. This writedown reflected the low
utilization experienced by these types of rigs and the expectation of lower
future utilization for them. In December 1993, the Company wrote down the net
book value of the ALASKAN STAR semi-submersible drilling rig by $9.5 million.
This writedown reflected the Company's lower expectation of future operating
cash flow opportunities for second generation semi-submersibles like the ALASKAN
STAR.
Included in the 1992 income from discontinued operations is $1.3 million
of interest expense associated with certain rig debt.
- 10 -
NOTE 5 - LONG-TERM DEBT
At December 31, 1994 and 1993, long-term debt consisted of the following:
1994 1993
-------- ---------
(In thousands)
Senior Unsecured:
12 7/8% Senior Notes................................ $ 2,212 $ 100,000
Subordinated Unsecured:
7 1/4% Convertible Subordinated Debentures.......... 88,746 88,746
-------- ---------
90,958 188,746
Less: Unamortized portion of original issue discount.. 49 52
-------- ---------
90,909 188,694
Less: Current portion................................. -- 97,784
-------- ---------
$ 90,909 $ 90,910
======== =========
The 12 7/8% Senior Notes, Due 2002 (the "Notes"), are unsecured and were issued
in November 1992 in the face amount of $100 million. During March 1994, the
Company purchased, through a tender offer, and retired $97.8 million face amount
of the Notes. The aggregate purchase price of these Notes was $117.3 million,
resulting in an extraordinary loss of $25.7 million ($1.38 per share) including
unamortized original debt issuance costs of $3.2 million, unamortized original
issue discount of $2.3 million and offering costs of $0.7 million. This
extraordinary loss was recognized in December 1993. The carrying value of the
Notes represents the face amount less unamortized original issue discount.
Interest at 12 7/8% per annum is payable semiannually. The effective interest
rate associated with the Notes, after considering amortization of original issue
discount, is 13.33%. The Notes mature December 1, 2002, and there are no sinking
fund requirements. The indenture governing the Notes contains restrictions and
requirements relating to mergers.
During the fourth quarter of 1992, the Company issued the Notes and used the net
proceeds to prepay secured debt totaling $94.6 million associated with bank loan
facilities, ship financing bonds and a note relating to an offshore drilling
rig. As a result, it incurred a $1.2 million ($0.07 per share) extraordinary
loss primarily representing prepayment penalties and the write-off of
unamortized debt issuance costs.
In 1990, the Company issued $90 million face amount of 7 1/4% Convertible
Subordinated Debentures, due January 15, 2015 (the "Debentures"). Interest at 7
1/4% per annum is payable semiannually. Annual payments equal to 5% of the
principal amount of the Debentures commence in 2001; such payments are
calculated to retire 70% of principal prior to maturity. The Debentures, unless
previously redeemed, are convertible into Common Stock at $17 per share at the
option of the holder at any time prior to maturity. The indenture governing the
Debentures contains restrictions and requirements relating to mergers.
The Company has a $30 million revolving credit facility which had no borrowings
outstanding at December 31, 1994 and 1993. Borrowings under this revolving
credit facility are secured by the Company's accounts receivable and are limited
to a percentage of such receivables. The revolving
- 11 -
credit facility bears interest at 1 1/2% over LIBOR or 1/2% over prime and
matures December 31, 1995. Commitment fees on the unused portion of the
revolving credit facility are 1/2% per annum. The revolving credit facility
contains restrictions and requirements relating to, among other things, mergers
and maintenance of certain financial ratios.
The Company has entered into an interest rate swap agreement which effectively
changes fixed-rate debt into floating-rate debt. Under the agreement, the
Company receives a fixed rate of 5.26% on a notional principal amount of $100
million and pays a floating rate based on LIBOR, as determined in six month
intervals. On June 1, 1995 the notional principal amount will be reduced from
$100 million to $75 million until the agreement expires on June 1, 1996. The
Company may elect from time to time to terminate the swap agreement. Had it
elected to do so at December 31, 1994, it would have been required to make a
termination payment of $4.1 million.
At December 31, 1994, there were no required principal payments associated with
long-term debt until 2001.
At December 31, 1994, the fair value of the Company's long-term debt, determined
based on quoted market prices, was as follows:
Amount
--------------
(In thousands)
12 7/8% Senior Notes............................................ $ 2,349
7 1/4% Convertible Subordinated Debentures...................... 91,519
---------
$ 93,868
=========
Such market prices are subject to changing market conditions; therefore, the
fair value of the Company's long-term debt at December 31, 1994 is not
indicative of future fair market value.
- 12 -
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company's operating leases include rental commitments associated with office
buildings, equipment and vehicles. As of December 31, 1994, the Company had
lease commitments for future minimum rental payments as follows:
Amount
--------------
(In thousands)
1995.............................................................. $ 7,570
1996.............................................................. 5,281
1997.............................................................. 3,070
1998.............................................................. 1,791
1999.............................................................. 1,528
Thereafter........................................................ 5,452
-------
$24,692
=======
Rental expense for the years ended December 31, 1994, 1993 and 1992 was
approximately $9 million, $7 million and $7 million, respectively.
At December 31, 1994, the Company was contingently liable for outstanding
letters of credit, not reflected in the accompanying consolidated financial
statements, in the amount of $3.5 million.
Actions for well damage and loss of oil and gas production alleging negligence,
breach of contract and fraud, under common law as well as state and federal
statutes, are incidental to the pressure pumping business. Actions for personal
injury are also incidental to that business and the offshore drilling business
where federal statutes permit employees who work on rigs to sue their employers
instead of pursuing workmen's compensation remedies. Increasingly, plaintiffs in
both property damage and personal injury litigation allege damages for which
insurance coverage generally does not exist or is prohibited, such as punitive
damages, treble damages or damages for breach of contract. Numerous such
incidental lawsuits are pending against the Company which include claims covered
by insurance and which are being defended by the Company's insurance carriers.
To the extent a plaintiff is ultimately successful on an uninsured portion of a
claim, the Company would be responsible for satisfying such judgment. To date,
the Company has not, by judgment or through settlement, incurred a material
uninsured liability arising out of personal injury or property damage
litigation.
From time to time it has been alleged by competitors of the Company that the use
by the Company of certain products or methods to perform particular pressure
pumping services constitutes infringement of patents they hold. Such claims
could result in payment by the Company of damages or royalties and the Company
could be enjoined from performing services in which such products or services
are used. To date, the Company has not experienced a material reduction in
revenues or incurred a material loss as a result of such allegations.
Shortly after the public announcement by BJ Services in September 1994 of a
proposal to acquire the Company ("BJS Proposal"), four actions were commenced
against the Company and its directors in the Delaware Court of Chancery styled
CROYDEN ASSOCIATES VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF
NORTH AMERICA, C. A. No. 13740, filed September 13, 1994, REGGIE P. JUDICE VS.
SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No.
13742, filed September 14, 1994, WILLIAM T. HENDERSON VS. SHELDON R. ERIKSON, ET
AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13743, filed September
14, 1994, and RUSS
- 13 -
SEGER VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA,
C. A. No. 13769, filed September 27, 1994. The allegations in these lawsuits,
all of which were filed as class action complaints, are substantially the same
and relate to the rejection of the BJS Proposal by the Company's Board of
Directors. The purported class of plaintiffs on whose behalf the class action
complaints were filed is all stockholders of the Company. It is claimed in these
lawsuits, INTER ALIA, that by failing to accept the BJS Proposal the Company and
its directors breached their fiduciary duties to the stockholders of the
Company. The plaintiffs seek equitable relief to compel the Company and its
directors to perform their fiduciary duties, as such are construed by the
plaintiffs, and unspecified damages. The Company believes the allegations in
these lawsuits are untrue and that the claims they assert are totally without
merit. A motion to consolidate the four actions is pending.
NOTE 7 - INCOME TAXES
Components of the provision for income taxes consisted of the following:
1994 1993 1992
------- ------- ------
(In thousands)
Current tax expense:
U.S. federal................................ $ -- $ -- $ --
Foreign..................................... 495 241 353
------- ------- ------
495 241 353
------- ------- ------
Noncash tax expense:
U.S. federal................................ -- 386 --
Foreign..................................... -- -- --
------- ------- ------
-- 386 --
------- ------- ------
-- --- --
------- ------- ------
$ 495 $ 627 $ 353
======= ======= ======
The non-cash taxes are due primarily to the utilization of prereorganization tax
benefits which are recorded directly to stockholders' equity and, therefore, are
not reflected as a reduction of income tax expense.
The total provision for income taxes is reflected in the consolidated statements
of operations under the following components:
1994 1993 1992
------- ------- ------
(In thousands)
Continuing operations......................... $ 495 $ 627 $ 353
Discontinued operations........................ -- 9,673 3,076
------- ------- ------
$ 495 $10,300 $3,429
======= ======= ======
- 14 -
The deferred tax assets (liabilities) consisted of the following:
December 31,
----------------- January 1,
1994 1993 1993
-------- -------- -------
(In thousands)
Gross deferred tax assets:
Loss carryforwards.......................... $144,388 $129,346 $157,080
Stock of foreign affiliates................. 28,055 23,247 20,625
Property and equipment...................... 7,433 6,202 5,800
Inventory reserves.......................... 3,201 4,818 5,637
Allowances for doubtful accounts receivable. -- -- 5,449
Other....................................... 16,010 13,566 10,614
-------- -------- -------
199,087 177,179 205,205
Gross deferred tax liabilities:
Property and equipment...................... (13,569) (10,301) (27,050)
Deferred tax asset valuation allowance......... (185,518) (166,878) (178,155)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
The differences between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate and income (loss) from continuing
operations before provision for income taxes and extraordinary losses were as
follows:
1994 1993 1992
------- ------ --------
(In thousands)
Income taxes computed using the U.S. federal rate $(5,893) $ 1,402 $(2,547)
Losses not receiving income tax benefits....... 2,350 -- 2,491
Foreign taxes, net of foreign tax deduction taken 327 159 233
Merger related costs not deductible............ 2,720 -- --
Noncash taxes due to carryover tax benefits
recorded directly to stockholders' equity..... -- 386 --
Net benefit of operating loss carryforwards.... -- (1,605) --
Other, net..................................... 991 285 176
------- ------ --------
$ 495 $ 627 $ 353
======= ======= =======
In 1993, current taxable income was reduced by $84.5 million of net operating
loss carryforwards. The financial statement impact was limited to $14.2 million
due to the change in deferred tax assets and liabilities.
The net change in the deferred tax asset valuation allowance was an increase of
$18.6 million in 1994 and a decrease of $11.3 million in 1993. The portion of
the deferred tax asset valuation allowance which, if realized, will be recorded
directly to stockholders' equity was $114 million at December 31, 1994, $114
million at December 31, 1993 and $120 million at January 1, 1993.
- 15 -
The Company has net operating loss carryforwards for federal income tax purposes
of $372 million. If not utilized, these carryforwards will expire between 2001
and 2009. As a result of the Company having experienced changes in control as
defined in Internal Revenue Code Section 382 in prior years, the usage of
approximately $219 million of these carryforwards is subject to an annual
limitation. The entire $372 million of carryforwards could be subject to an
annual limitation due to the pending merger with BJ Services (see Note 2). For
United Kingdom income tax purposes, the Company at December 31, 1994 had tax
attribute carryforwards amounting to (pound)43 million which are not subject to
an annual limitation. However, these United Kingdom tax benefits will be reduced
substantially as a result of the sale of the PACESETTER IV in 1995 (see Note
13).
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The Company
elected to adopt SFAS 109 prospectively. The initial adoption did not materially
affect results of operations.
Income (loss) before provision for income taxes and extraordinary items
consisted of the following:
1994 1993 1992
--------- --------- ---------
(In thousands)
Domestic income (loss)...................... $ (13,303) $ 37,245 $ (20,457)
Foreign income (loss)....................... (7,731) 11,756 25,553
--------- --------- ---------
$ (21,034) $ 49,001 $ 5,096
========= ========= =========
NOTE 8 - RETIREMENT AND OTHER BENEFIT PROGRAMS
PENSION PLAN
The Company has a defined benefit pension plan (the "Pension Plan") covering all
employees with one year of service. Pension benefits are based on years of
service and average compensation for each employee's five consecutive highest
paid years during the last ten years worked. Pension benefits are fully vested
after five years of service.
Generally, the Company makes annual contributions to the Pension Plan to the
extent they are tax deductible and, at a minimum, funds the amount necessary to
meet minimum funding requirements under the Employees' Retirement Income
Security Act, as amended.
- 16 -
Net pension expense for 1994, 1993 and 1992 included the following components:
1994 1993 1992
------- ------- ------
(In thousands)
Service cost - benefits earned during the
period ...................................... $ 1,309 $ 1,153 $ 1,240
Interest cost on projected benefit obligation.. 2,822 2,697 2,513
Actual return on plan assets................... 448 (3,485) (1,614)
Net gain (loss) deferred....................... (3,132) 1,106 (566)
------- ------- -------
$ 1,447 $ 1,471 $ 1,573
======= ======= =======
Assumptions used in determining 1994, 1993 and 1992 net pension expense were:
1994 1993 1992
---- ---- ----
Discount rate..................................... 7.0% 7.75% 8.0%
Rate of increase in compensation levels........... 5.0% 5.0% 5.0%
Expected long-term rate of return on assets....... 9.0% 9.0% 9.0%
Pension Plan assets consist primarily of government debt securities, corporate
equities, money market instruments and long-term corporate debt obligations,
both domestic and foreign.
The following table sets forth as of December 31, 1994 and 1993 the Pension
Plan's estimated funded status, amounts recognized in the Company's consolidated
balance sheets and actuarial present value of benefit obligations. The discount
rates used to determine all benefit obligations at December 31, 1994 and 1993
were 8.00% and 7.00%, respectively.
1994 1993
-------- --------
(In thousands)
Projected benefit obligation............................. $ 37,849 $ 39,732
Pension Plan assets at fair value........................ 28,994 29,675
-------- --------
Projected benefit obligation in excess of
Pension Plan assets .................................... 8,855 10,057
Net unrecognized prior service cost and gain/loss from
past experience......................................... (1,608) (1,879)
-------- --------
Accrued pension liability................................ $ 7,247 $ 8,178
======== ========
Accumulated benefit obligation, including vested
benefits of $33.4 million in 1994
and $36.5 million in 1993............................... $ 34,684 $ 37,416
======== ========
POSTRETIREMENT BENEFITS
The Company provides postretirement life insurance and medical benefits to
retired employees between the ages of 55 and 65. Certain life insurance benefits
are also provided to retired employees over 65 years of age. The life insurance
is funded by insurance premiums paid entirely by the Company. The medical
benefits are funded by a capped self insurance program with contributions made
by retirees for themselves and their covered dependents. Effective January 1,
1993, the Company adopted Statement of Financial Accounting Standards No. 106,
- 17 -
"Employers' Accounting for Postretirement Benefits Other Than Pensions," which
requires the accrual method of accounting for the expected costs of providing
such benefits. Under such accounting method, the future costs of postretirement
benefits are recorded during the years employees render service to earn
eligibility for such benefits.
Net periodic postretirement benefit cost for 1994 and 1993 included the
following components:
1994 1993
------ ------
(In thousands)
Service cost - benefits attributed to service during
the period............................................ $ 282 $ 232
Actual return on plan assets............................. -- --
Interest cost on accumulated postretirement benefit
obligation........................................ 349 336
Amortization of transition obligation.................... 99 117
Other, net............................................... 21 214
------ ------
$ 751 $ 899
====== ======
The discount rates used to determine postretirement benefit costs were 7% in
1994 and a weighted average of 7.75% in 1993.
The following table sets forth the status of postretirement benefit obligations
at December 31, 1994 and 1993:
1994 1993
------ -------
(In thousands)
Accumulated postretirement benefit obligation
Retirees.............................................. $ 1,741 $ 1,746
Other fully eligible participants..................... 1,160 1,134
Other active participants............................. 2,180 2,237
------- -------
Total accumulated postretirement benefit obligation...... 5,081 5,117
Unrecognized actuarial loss.............................. (44) (546)
Unrecognized transition obligation....................... (1,782) (1,881)
Plan assets at fair value................................ -- --
-- --
------- -------
Accrued postretirement benefit cost...................... $ 3,255 $ 2,690
======= =======
The discount rate used to determine postretirement benefit obligations at
December 31, 1994 and 1993 were 8% and 7%, respectively. There were no plan
assets.
For measurement purposes, a 9% annual rate of increase for covered health care
benefits was assumed for 1994. The rate is assumed to decrease gradually to 5%
by 2026 and remain at that level thereafter.
Increasing the health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of December
31, 1994 by $279,000 and the aggregate of the service and interest cost
components of net postretirement health care cost for fiscal year 1994 by
$59,000.
- 18 -
NON-EMPLOYEE DIRECTOR RETIREMENT PLAN
During 1994, the Company adopted an unfunded retirement plan for non-employee
directors. To be eligible for benefits under the plan, a director must have
retired from the Board of Directors after having served for at least 10
consecutive years and reached the age of 65. Benefits are payable for 10 years
and at December 31, 1994, the Company accrued $250,000 related to the plan.
RETIREMENT SAVINGS PLAN
All employees with one year of service are eligible to participate in the
Company's Retirement Savings Plan. Subject to certain Internal Revenue Code
limitations, participants may contribute up to 15% of their annual compensation.
Effective March 1, 1994, the Company began matching employee contributions to
the Plan up to 6% of compensation at the rate of 25 cents for each dollar the
employee contributes. In addition, the Company has the option of providing an
additional match at the end of each year at the rate of 1 cent to 25 cents for
each dollar the employee has contributed to the Plan during the year up to 6% of
compensation. In February 1995, the Company elected to make an additional match
at the 25 cents level for the 1994 plan year. Matching contributions made or
accrued in 1994 were $656,000.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" which requires accrual accounting for
postemployment benefits such as disability-related and workers' compensation
payments. The effect of this adoption on 1994 operating income was immaterial,
as the Company has historically accrued for most of these costs incurred by the
Company. At December 31, 1994, the Company's liability for these benefits was
$5.1 million.
NOTE 9 - STOCK INCENTIVE PLANS
The Company maintains a long-term management incentive plan and a non-employee
Director stock option plan. Up to 1,837,500 shares of Common Stock may be or
have been issued under this long-term management incentive plan. Of such number,
1,112,500 shares were allocated to an employee stock option plan, 375,000 shares
were allocated for restricted stock awards and 350,000 shares were allocated for
performance share awards. Under the non-employee Director stock option plan,
75,000 shares of Common Stock were reserved for issuance.
Under the employee stock option plan, shares of Common Stock may be purchased at
a price determined by the Executive Development and Compensation Committee (the
"Committee") of the Board of Directors, but in no case less than 90% of market
price on date of grant for nonqualified options and 100% of market price on date
of grant for incentive stock options. Options which have been granted expire up
to ten years after date of grant and are exercisable on a cumulative basis equal
to either 25% or 33% for each year outstanding or such other basis as may be
determined by the
- 19 -
Committee. At December 31, 1994, options to purchase 693,538 shares were
outstanding under this plan at option prices ranging from $4.50 to $19.00 per
share.
Under the non-employee Director stock option plan, shares of Common Stock may be
purchased at 100% of market price on date of grant. During 1989, options to
purchase 2,500 shares were granted to each non-employee Director, thereafter,
pursuant to the plan options to purchase 1,250 shares have been granted to each
Director at each annual meeting of the Company's stockholders. This plan is, in
most other respects, similar in its operation to the employee stock option plan
discussed above. At December 31, 1994, options to purchase 37,500 shares were
outstanding under this plan at option prices ranging from $4.00 to $15.38 per
share; options to purchase 18,750 shares were exercisable at that date.
As a result of the merger agreement signed by BJ Services and the Company (see
Note 2), all stock options outstanding under the long-term management incentive
plan became fully vested and exercisable for a period of ninety days. At the end
of the ninety day period, all options still outstanding will revert back to the
original terms of the option plans until consummation of the merger, at which
time they will again become fully vested and exercisable.
A summary of transactions relating to these stock option plans during 1994, 1993
and 1992 is as follows:
Number of Total Option
Options Price
--------- ------------
(In thousands)
Outstanding at December 31, 1991........................ 320,700 $ 3,472
Granted ($4.00 to $7.00 per share)................... 251,125 1,257
Cancelled ($5.88 to $19.13 per share)................ (96,450) (1,348)
-------- --------
Outstanding at December 31, 1992........................ 475,375 3,381
Granted ($4.88 to $12.13 per share).................. 338,500 3,114
Exercised ($4.50 to $9.00 per share)................. (155,937) (898)
Cancelled ($7.00 to $18.25 per share)................ (11,281) (101)
-------- --------
Outstanding at December 31, 1993........................ 646,657 5,496
Granted ($12.50 to $14.50 per share)................. 238,500 3,076
Exercised ($4.50 to $12.13 per share)................ (69,994) (425)
Cancelled ($4.50 to $15.50 per share)................ (84,125) (777)
-------- --------
Outstanding at December 31, 1994........................ 731,038 $ 7,370
======== ========
The number of shares of Common Stock available for future granting of options
under these stock option plans was 178,406, 332,781 and 60,000 at December 31,
1994, 1993 and 1992, respectively.
In addition to the stock options included in the preceding table, an executive
of the Company was granted an option to purchase 268,750 shares of Common Stock
at a price of $3.02 per share in connection with his employment in 1987.
Compensation associated with these options was
- 20 -
recorded pursuant to reorganization accounting. The option agreement expires
December 31, 1998. At December 31, 1994, such option was outstanding and
exercisable for 248,750 shares.
During 1989, the 375,000 shares of Common Stock reserved for restricted stock
awards were issued. Compensation associated with such awards was recorded
pursuant to reorganization accounting. With one exception, 50% of the shares
issued were issued without forfeiture restrictions, and, generally, the
remaining restrictions lapsed as to 12.5% of the shares awarded on each of the
first four anniversaries of the date the restricted stock awards were issued. At
December 31, 1994, no shares remained subject to forfeiture restrictions.
The 350,000 performance shares were awarded during 1989 subject to vesting over
four years upon the attainment of specified performance objectives or at earlier
dates under certain conditions relating to the reduction of principal and
interest outstanding under a long-term debt agreement. During 1990, the
performance share awards became vested and 140,000 shares of Common Stock were
issued. The remainder of the performance share awards were converted into
options to purchase 298,945 shares of Common Stock based on the value of such
performance share awards. During 1993, all 298,945 options were exercised. This
resulted in a 1993 non-cash reclassification of the difference between $4.50,
the exercise price, and the value of the share awards when vested from other
long-term liabilities to additional paid-in capital.
NOTE 10 - STOCKHOLDER PROTECTION RIGHTS PLAN
In March 1990, the Company's Board of Directors (the "Board") adopted a
Stockholder Protection Rights Plan (the "Rights Plan") designed to protect
against attempts to acquire control of the Company that the Board believes are
not in the best interest of the stockholders. The Rights Plan provides for the
distribution of one Right for each outstanding share of Common Stock. Such
Rights will separate from the Common Stock upon the earlier of (i) the date any
person or group becomes the beneficial owner of 15% or more outstanding Common
Stock, or (ii) the tenth business day (or a later date designated by the Board)
after any person makes a tender or exchange offer for 15% or more of outstanding
Common Stock.
Upon separation from Common Stock, each Right will entitle the holder thereof to
purchase 1/100th share of Participating Preferred Stock at an exercise price of
$70, subject to adjustment (the "Exercise Price"). Each 1/100th share of the
Participating Preferred Stock is the economic and voting equivalent to one share
of Common Stock. Additionally, if any person or group becomes the beneficial
owner of 15% or more of outstanding Common Stock, each Right will entitle the
holder thereof to purchase, for the Exercise Price, Common Stock having a value
of twice the Exercise Price. Rights held by such person or group would become
void. Under certain circumstances, without action by the holders of Rights, the
Board may exchange each Right for one share of Common Stock or 1/100th share of
Participating Preferred Stock. The Board can terminate the Rights anytime before
a person or group acquires 15% or more of outstanding Common Stock.
- 21 -
The Company amended the Rights Plan in November 1994 to provide that BJ Services
would not be a beneficial owner of Company securities for purposes of the Rights
Plan by reason of entering into the merger agreement with the Company or
consummating the transactions contemplated therein (see Note 2).
- 22 -
<PAGE>
NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS
Following is a summary of the Company's domestic and foreign operations by
business segment:
<TABLE>
<CAPTION>
PRESSURE PRODUCTION OFFSHORE ELIMINA-
PUMPING CHEMICALS DRILLING TIONS CONSOLIDATED
-------- ---------- -------- ------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
1994
REVENUES:
Domestic ....................................... $ 291,441 $ 34,990 $ -- $ -- $ 326,431
Foreign and export sales ....................... 16,070 -- -- -- 16,070
Intersegment sales ............................. -- 963 -- (963) --
---------- --------- ---------- ---------- ----------
$ 307,511 $ 35,953 $ -- $ (963) $ 342,501
========== ========= ========== ========== ==========
OPERATING INCOME:
Domestic ....................................... $ 29,258 $ 1,861 $ -- $ -- $ 31,119
Foreign and export sales ....................... (8,086) -- -- -- (8,086)
---------- --------- ---------- ---------- ----------
$ 21,172 $ 1,861 $ -- $ -- 23,033
---------- --------- ---------- ----------
General and administrative ..................... (9,956)
----------
Operating income ............................... 13,077
Interest expense, net of interest
capitalized ................................... (10,032)
Interest income ................................ 1,236
Merger related expenses ........................ (21,118)
----------
Loss from continuing operations before
provision for income taxes .................... $ (16,837)
==========
IDENTIFIABLE ASSETS:
Domestic ....................................... $ 234,031 $ 29,112 $ -- $ -- $ 263,143
Foreign ........................................ 25,517 -- 39,655 -- 65,172
---------- --------- ---------- ----------- ----------
$ 259,548 $ 29,112 $ 39,655 $ -- 328,315
---------- --------- ---------- -----------
Corporate assets ............................... 25,386
----------
$ 353,701
==========
1993
REVENUES:
Domestic........................................ $ 278,131 $ -- $ -- $ -- $ 278,131
Foreign and export sales........................ 15,942 -- -- -- 15,942
---------- --------- ---------- ---------- ----------
$ 294,073 $ -- $ -- $ -- $ 294,073
========== ========= ========== ========== ==========
OPERATING INCOME:
Domestic ....................................... $ 35,409 $ -- $ -- $ -- $ 35,409
Foreign and export sales ....................... (5,744) -- -- -- (5,744)
---------- --------- ---------- ---------- ----------
$ 29,665 $ -- $ -- $ -- 29,665
---------- --------- ---------- ----------
General and administrative ................... (9,674)
----------
Operating income ............................. 19,991
Interest expense, net of interest
capitalized ................................. (13,505)
Interest income .............................. 4,653
Writedown of pressure pumping assets
and other ................................... (7,132)
-----------
Income from continuing operations
before provision for income tax and
extraordinary loss .......................... $ 4,007
==========
IDENTIFIABLE ASSETS:
Domestic ..................................... $ 157,031 $ -- $ 894 $ -- $ 157,925
Foreign ...................................... 96,932 -- 62,311 -- 159,243
---------- --------- ---------- ---------- ----------
$ 253,963 $ -- $ 63,205 $ -- 317,168
---------- --------- ---------- ----------
Corporate assets ............................. 171,217
----------
$ 488,385
==========
- 23 -
1992
REVENUES:
Domestic...................................... $ 211,576 $ -- $ -- $ -- $ 211,576
Foreign and export sales...................... 13,777 -- -- -- 13,777
---------- --------- ---------- ---------- ----------
$ 225,353 $ -- $ -- $ -- $ 225,353
========== ========= ========== ========== ==========
OPERATING INCOME:
Domestic...................................... $ 10,640 $ -- $ -- $ -- $ 10,640
Foreign and export sales...................... 23 -- -- -- 23
---------- --------- ---------- ---------- ----------
$ 10,663 $ -- $ -- $ -- 10,663
---------- --------- ---------- ----------
General and administrative ................... (8,805)
----------
Operating income.............................. 1,858
Interest expense, net of interest.............
capitalized................................. (10,407)
Interest income............................... 1,059
----------
Loss from continuing operations before
provision for income taxes and
extraordinary loss.......................... $ (7,490)
==========
IDENTIFIABLE ASSETS:
Domestic...................................... $ 145,828 $ -- $ 27,990 $ -- $ 173,818
Foreign....................................... 64,969 -- 166,648 -- 231,617
---------- --------- ---------- ---------- ----------
$ 210,797 $ -- $ 194,638 $ -- 405,435
---------- --------- ---------- ----------
Corporate assets.............................. 26,535
----------
$ 431,970
==========
</TABLE>
- 24 -
In November 1994, the Company formalized a plan to dispose of the remaining
assets of its offshore drilling segment. These assets consisted primarily of two
semi-submersible offshore drilling rigs and related equipment and inventory. As
a result, the business segment data for 1993 and 1992 has been restated to
exclude the offshore drilling segment (see Note 4).
The results of operations for the offshore drilling segment for 1993 and 1992
were as follows:
1993 1992
------- -------
(In thousands)
Revenues................................................... $64,676 $89,613
======= =======
Operating income........................................... $ 4,161 $13,919
Interest expense........................................... -- (1,333)
Gains on sales of offshore drilling rigs................... 59,161 --
Writedowns of offshore drilling rigs....................... (18,328) --
------- -------
Income before income taxes and extraordinary losses........ $44,994 $12,586
======= =======
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------ ------------------------------ -----------------------------
DEPRECIATION CAPITAL DEPRECIATION CAPITAL DEPRECIATION CAPITAL
AND AMORTIZATION EXPENDITURES AND AMORTIZATION EXPENDITURES AND AMORTIZATION EXPENDITURES
---------------- ------------ ---------------- ------------ ---------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Pressure pumping ................... $ 15,601 $ 21,353 $ 13,937 $ 50,166 $ 14,158 $ 29,921
Production chemicals ............... 2,103 5,722 -- -- -- --
Offshore drilling .................. -- 66 -- 11,526 -- 8,765
Corporate .......................... 1,110 861 652 2,020 729 87
-------- -------- -------- -------- -------- --------
$ 18,814 $ 28,002 $ 14,589 $ 63,712 $ 14,887 $ 38,773
======== ======== ======== ======== ======== ========
</TABLE>
Amounts reported above for 1994, 1993 and 1992 foreign and export sales include
operations in the following geographic areas:
1994 1993 1992
---------- ---------- ----------
(In thousands)
Revenues:
Northwest Europe ........ $ 1,130 $ 434 $ --
West Africa ............. 3,280 3,995 5,997
South America ........... 4,420 1,171 2,014
Far East ................ 1,774 9,355 4,949
Eastern Europe and Former
Soviet Union ........... 5,231 814 602
Other ................... 235 173 215
---------- ---------- ----------
$ 16,070 $ 15,942 $ 13,777
========== ========== ==========
Operating income (loss):
Northwest Europe ........ $ (4,362) $ (4,193) $ (1,260)
West Africa ............. (1,452) (1,029) 767
South America ........... 1,034 140 561
Far East ................ (1,016) (152) 327
Eastern Europe and Former
Soviet Union ........... (2,062) (408) (206)
Other ................... (228) (102) (166)
---------- ---------- ----------
$ (8,086) $ (5,744) $ 23
========== ========== ==========
Identifiable assets:
Northwest Europe ........ $ 41,676 $ 116,232 $ 86,458
West Africa ............. 5,442 5,338 89,097
South America ........... 4,835 16,737 45,040
Far East ................ 5,975 11,982 9,886
Eastern Europe and Former
Soviet Union ........... 6,528 7,095 1,023
Other ................... 716 1,859 113
---------- ---------- ----------
$ 65,172 $ 159,243 $ 231,617
========== ========== ==========
The pressure pumping business provides two major services, stimulation and
cementing. During 1994, 1993 and 1992, stimulation services accounted for
approximately 71%, 73% and 68%, respectively, of the segment's revenues,
exclusive of export sales of equipment and products of approximately $5 million,
$9 million and $7 million in 1994, 1993 and 1992, respectively.
The production chemical business was acquired in 1994 (see Note 3). This segment
provides specialty chemicals and services to the upstream oil and gas industry
as well as downstream to the refinery, petrochemical, gas processing, pipeline
and power generation industries.
The Company's well stimulation vessel, WESTERN RENAISSANCE, moved from foreign
to domestic operations during the third quarter of 1994.
Offshore drilling foreign identifiable assets represent all assets associated
with offshore drilling rigs which are operating in foreign waters at the end of
each year (see Note 4).
Capital expenditures represent cash expended on property and equipment,
including interest capitalized.
Corporate assets are comprised principally of cash and other assets.
- 26 -
NOTE 12 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Company operating results by quarter for the year ended December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1994
Revenues:
Pressure pumping ................ $ 70,278 $ 70,901 $ 82,052 $ 84,280 $ 307,511
Production chemicals ............ 7,773 7,867 9,700 9,650 34,990
-------- -------- -------- --------- ---------
78,051 78,768 91,752 93,930 342,501
-------- -------- -------- --------- ---------
Operating costs and expenses:
Pressure pumping ................ 64,677 63,139 71,107 71,814 270,737
Production chemicals ............ 7,092 7,215 8,108 8,612 31,027
Depreciation and amortization ... 4,577 4,347 4,832 5,058 18,814
General and administrative ...... 2,234 2,366 1,953 2,293 8,846
-------- -------- -------- --------- ---------
78,580 77,067 86,000 87,777 329,424
-------- -------- -------- --------- ---------
Operating income (loss) ...... (529) 1,701 5,752 6,153 13,077
-------- -------- -------- --------- ---------
Other income (expense):
Interest expense ................ (3,746) (1,950) (1,954) (2,382) (10,032)
Interest income ................. 772 174 109 181 1,236
Merger related expenses<F1> ..... -- -- -- (21,118) (21,118)
-------- -------- -------- --------- ---------
Total other income (expense) . (2,974) (1,776) (1,845) (23,319) (29,914)
-------- -------- -------- --------- ---------
Income (loss) from continuing
operations before provision for
income taxes and extraordinary
loss .............................. (3,503) (75) 3,907 (17,166) (16,837)
Provision for income taxes ...... 103 2 205 185 495
-------- -------- -------- --------- ---------
Income (loss) from continuing
operations ........................ (3,606) (77) 3,702 (17,351) (17,332)
Discontinued operations ............ 318 978 1,142 (6,635) (4,197)
-------- -------- -------- --------- ---------
Net income (loss) .................. (3,288) $ 901 $ 4,844 $ (23,986) $ (21,529)
======== ======== ======== ========= =========
Earnings (loss) per share:
Income (loss) from continuing
operations ..................... $ (0.20) $ 0.00 $ 0.20 $ (0.95) $ (0.95)
Discontinued operations ......... 0.02 0.05 0.06 (0.36) (0.23)
-------- -------- -------- --------- ---------
Net income (loss) ............... $ (0.18) $ 0.05 $ 0.26 $ (1.31) $ (1.18)
======== ======== ======== ========= =========
<FN>
<F1> Merger related expenses of $21.1 million represent costs associated with
the expected merger with BJ Services and include investment banker, legal
and accounting fees, certain severance costs and other miscellaneous
expenses. In addition to the expenses recorded in 1994, additional legal
fees and other expenses related to the merger are expected to be incurred
and recorded in 1995 (see Note 2).
</FN>
</TABLE>
- 27 -
The Company formalized a plan in November 1994 to dispose of the remaining
assets of its offshore drilling segment. These assets consisted primarily of two
semi-submersible offshore drilling rigs and related equipment and inventory. As
a result, the offshore drilling segment has been reclassified in the
consolidated statements of operations as discontinued operations (see Note 4).
The results of the discontinued operations by quarter for the year ended
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues ................................................. $ 5,495 $ 6,056 $ 6,115 $ 4,943 $ 22,609
======== ======== ======== ======== ========
Income from discontinued operations ...................... $ 345 $ 1,081 $ 1,172 (169) $ 2,429
Provision for income taxes ............................... 27 103 30 (8) 152
-------- -------- -------- -------- --------
318 978 1,142 (161) 2,277
-------- -------- -------- -------- --------
Loss on disposal, net of income tax benefit of $(152) .... -- -- -- (6,474) (6,474)
-------- -------- -------- -------- --------
$ 318 $ 978 $ 1,142 $ (6,635) $ (4,197)
======== ======== ======== ======== ========
</TABLE>
Income from discontinued operations includes operating results prior to the
Measurement Date.
The loss on disposal includes operating results subsequent to the Measurement
Date including shut-down expenses and gain (loss) from the disposal of the two
semi-submersible offshore drilling rigs, ALASKAN STAR and PACESETTER IV. In
December 1994, the Company completed the sale of the ALASKAN STAR for $11.8
million, of which $6.3 million is a bankers' acceptance drawn on a U.S. bank due
within one year. This rig sale resulted in a gain of $0.3 million. In December
1994, the Company signed a letter of intent to sell the PACESETTER IV. The
Company completed the sale in early February 1995 for $37.2 million (see Note
13). At December 31, 1994, Assets held for sale, net - discontinued operations
primarily consists of the net book value and inventory of the PACESETTER IV, net
of the loss on sale of such rig.
- 28 -
<PAGE>
Company operating results by quarter for the year ended December 31, 1993 were
as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1993
Revenues:
Pressure pumping ................ $ 74,901 $ 67,361 $ 71,545 $ 80,266 $ 294,073
Operating costs and expenses:
Pressure pumping ................ 62,921 57,487 60,778 69,285 250,471
Depreciation and amortization ... 3,508 3,984 3,596 3,501 14,589
General and administrative ...... 1,955 1,926 2,029 3,112 9,022
-------- -------- -------- --------- ---------
68,384 63,397 66,403 75,898 274,082
-------- -------- -------- --------- ---------
Operating income ............. 6,517 3,964 5,142 4,368 19,991
-------- -------- -------- --------- ---------
Other income (expense):
Interest expense ................ (3,631) (3,432) (2,962) (3,480) (13,505)
Interest income ................. 146 1,575 383 2,549 4,653
Writedown of pressure pumping
assets and other<F1> ......... (248) -- -- (6,884) (7,132)
-------- -------- -------- --------- ---------
Total other income (expense) . (3,733) (1,857) (2,579) (7,815) (15,984)
-------- -------- -------- --------- ---------
Income (loss) from continuing
operations before provision for
income taxes and extraordinary
loss ............................. 2,784 2,107 2,563 (3,447) 4,007
Provision for income taxes ... 180 309 538 (400) 627
-------- -------- -------- --------- ---------
Income (loss) from continuing
operations before extraordinary
loss .............................. 2,604 1,798 2,025 (3,047) 3,380
Discontinued operations ............ (114) 166 2,131 33,138 35,321
Extraordinary loss<F2> ............. -- -- -- (25,713) (25,713)
-------- -------- -------- --------- ---------
Net income ......................... $ 2,490 $ 1,964 $ 4,156 $ 4,378 $ 12,988
======== ======== ======== ========= =========
Earnings (loss) per share:
Primary:
Income (loss) from
continuing operations ....... $ 0.15 $ 0.10 $ 0.11 $ (0.16) $ 0.18
Discontinued operations ...... (0.01) 0.01 0.11 1.77 1.90
Extraordinary loss ........... -- -- -- (1.38) (1.38)
-------- -------- -------- --------- ---------
Net income (loss) ............ $ 0.14 $ 0.11 $ 0.22 $ 0.23 $ 0.70
======== ======== ======== ========= =========
Fully diluted:
Income (loss) from continuing
operations ................. $ * $ * $ * $ * $ *
Discontinued operations ...... * * * 1.39 1.48
Extraordinary loss ........... * * * * *
-------- -------- -------- --------- ---------
Net income (loss) ............ $ * $ * $ * $ * $ *
======== ======== ======== ========= =========
<FN>
*Fully diluted computation is not reflected because per share effect is
antidilutive.
<F1> The writedown of pressure pumping assets and other totaled $7.1 million
and included a $3.5 million writedown of older pressure pumping equipment
and idle facilities to net realizable value in anticipation of disposal
and various other non-operating costs.
<F2> During March 1994, the Company purchased through a tender offer $97.8
million face amount of Notes. The aggregate purchase price of these Notes
was $117.3 million, resulting in an extraordinary loss of $25.7 million
($1.38 per share) including unamortized original issue costs of $3.2
million, unamortized original issue discount of $2.3 million and offering
costs of $.7 million. The anticipated extraordinary loss was accrued
during the fourth quarter of 1993.
</FN>
</TABLE>
- 29 -
The Company formalized a plan in November 1994 to dispose of the remaining
assets of its offshore drilling segment. These assets consisted primarily of two
semi-submersible offshore drilling rigs and related equipment and inventory. As
a result, the offshore drilling segment has been reclassified in the
consolidated statements of operations as discontinued operations.
The results of the discontinued operations by quarters for the year ended
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 18,629 $ 19,186 $ 19,870 $ 6,991 $ 64,676
======== ======== ======== ======== ========
Income from discontinued
operations
Operating income ........................ $ 462 $ 896 $ 2,406 $ 397 $ 4,161
-------- -------- -------- -------- --------
Other income (loss):
Gains on sales of
offshore drilling rigs ............... 9,076 -- 372 49,713 59,161
Writedowns of offshore
drilling rigs ........................ (8,828) -- -- (9,500) (18,328)
-------- -------- -------- -------- --------
248 -- 372 40,213 40,833
-------- -------- -------- -------- --------
Income from discontinued
operations before income taxes ......... 710 896 2,778 40,610 44,994
Provision for income taxes ................ 824 730 647 7,472 9,673
-------- -------- -------- -------- --------
$ (114) $ 166 $ 2,131 $ 33,138 $ 35,321
======== ======== ======== ======== ========
</TABLE>
Income from discontinued operations includes operating results prior to the
Measurement Date. Income from discontinued operations during 1993 included the
following sales of offshore drilling rigs and writedowns of offshore drilling
rigs. In March 1993, the Company completed the sale of the TRITON III jack-up
drilling rig for $17.8 million in cash. This sale resulted in a gain of $9.1
million . In July 1993, the Company completed the sale of the DELTA jack-up
drilling rig for $1.5 million in cash which resulted in a gain of $0.4 million.
In October 1993, the Company completed the sale of nine jack-up drilling rigs
and associated equipment and inventories for $150.0 million cash that resulted
in a 1993 fourth quarter gain of $49.7 million. The rigs sold were: APOLLO I,
APOLLO II, APOLLO IV, NIKE I, POLARIS I, POLARIS II, TRITON I, TRITON II and
TRITON IV. In March 1993, the Company wrote down the net book value of its three
mat-supported jack-up rigs by $8.8 million. This writedown reflected the low
utilization experienced by these types of rigs and the expectation of lower
future utilization for them. In December 1993, the Company wrote down the net
book value of the ALASKAN STAR semi- submersible drilling rig by $9.5 million.
This writedown reflected the Company's lower expectation of future operating
cash flow opportunities for second generation semi-submersibles like the ALASKAN
STAR.
- 30 -
NOTE 13 - SUBSEQUENT EVENT (UNAUDITED)
The Company completed the sale of the PACESETTER IV in early February 1995 for
$37.2 million which resulted in a loss of $6.7 million. At December 31, 1994,
Assets held for sale, net - discontinued operations primarily consists of the
net book value and inventory of the PACESETTER IV, net of the loss on sale of
such rig.
- 31 -
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE WESTERN COMPANY OF NORTH AMERICA
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Western
Company of North America and its subsidiaries at December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 7 to the consolidated financial statements, The Western
Company of North America changed its method of accounting for income taxes by
adopting Statement of Financial Accounting Standards No. 109 in 1993. Also in
1993, The Western Company of North America adopted Statement of Financial
Accounting Standards No. 106, discussed in Note 8, and accordingly changed its
method of accounting for postretirement benefits other than pensions.
PRICE WATERHOUSE LLP
Houston, Texas
February 22, 1995
- 32 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Company's
unaudited pro forma condensed consolidated financial statements for the year
ended December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 47,710
<SECURITIES> 0
<RECEIVABLES> 74,080
<ALLOWANCES> 4,273
<INVENTORY> 20,065
<CURRENT-ASSETS> 147,009
<PP&E> 262,791
<DEPRECIATION> 76,696
<TOTAL-ASSETS> 353,701
<CURRENT-LIABILITIES> 68,385
<BONDS> 90,909
<COMMON> 1,828
0
0
<OTHER-SE> 177,321
<TOTAL-LIABILITY-AND-EQUITY> 353,701
<SALES> 0
<TOTAL-REVENUES> 342,501
<CGS> 0
<TOTAL-COSTS> 301,764
<OTHER-EXPENSES> 48,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,032
<INCOME-PRETAX> (16,837)
<INCOME-TAX> 495
<INCOME-CONTINUING> (17,332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> 0
</TABLE>
