AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1999
Registration No. 333-68455
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
CRC HOLDINGS CORP.
[TO BE RENAMED CRC-EVANS INTERNATIONAL, INC.]
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3533 76-0539257
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
------------------------
11601 N. HOUSTON ROSSLYN ROAD
HOUSTON, TEXAS 77086
(281) 999-8920
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
M. TIMOTHY CAREY
CHIEF EXECUTIVE OFFICER
11601 N. HOUSTON ROSSLYN ROAD
HOUSTON, TEXAS 77086
(281) 999-8920
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID S. PETERMAN, P.C. WILLIAM N. FINNEGAN, IV
AKIN, GUMP, STRAUSS, HAUER & FELD, ANDREWS & KURTH L.L.P.
L.L.P. 600 TRAVIS STREET, SUITE 4200
711 LOUISIANA STREET, SUITE 1900 HOUSTON, TEXAS 77002
HOUSTON, TEXAS 77002 (713) 220-4200
(713) 220-5800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Section 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 17, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
3,000,000 SHARES
[LOGO] CRC-EVANS INTERNATIONAL, INC.
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of CRC-Evans International,
Inc. CRC-Evans is offering 3,000,000 shares of common stock with this
prospectus. This is a firm commitment underwriting.
CRC-Evans expects that the price to the public in the offering will be between
$14.00 and $16.00 per share. The market price of the shares after the offering
may be higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq Stock Market's
National Market under the symbol "CRCE."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Price to the public.................. $ $
Underwriting discount................
Proceeds to CRC-Evans................
</TABLE>
CRC-Evans has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 450,000 additional
shares from CRC-Evans within 30 days following the date of this prospectus to
cover over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
DEUTSCHE BANC ALEX. BROWN
SIMMONS & COMPANY
INTERNATIONAL
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
[THE ARTWORK DEPICTS THE COMPANY'S PRODUCTS AND SERVICES IN USE AND PHOTOGRAPHS
OF VARIOUS TYPES OF PRODUCTS THE COMPANY MANUFACTURES.]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary...................... 5
Risk Factors............................ 10
Forward-Looking Statements.............. 14
Use of Proceeds......................... 15
Dividend Policy......................... 15
Capitalization.......................... 16
Dilution................................ 17
Selected Consolidated Financial Data.... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
Business................................ 25
Management.............................. 38
Principal Stockholders.................. 43
Certain Related Transactions............ 44
Description of Capital Stock............ 45
Shares Eligible for Future Sale......... 47
Underwriting............................ 48
Legal Matters........................... 50
Experts................................. 50
Where You Can Find More Information..... 50
Index to Financial Statements........... F-1
</TABLE>
------------------------------------
As used in this prospectus, the term "CRC-Evans" means CRC-Evans
International, Inc. and its subsidiaries, including the predecessor business
described below (unless the context indicates a different meaning), and the term
"common stock" means CRC-Evans' common stock, $0.01 par value.
As used in this prospectus, references to CRC-Evans' "predecessors" or the
"predecessor business" refer to the business and assets of the consolidated
subsidiaries of CRC-Evans, prior to their acquisition by CRC-Evans on June 12,
1997, and their predecessors.
CRC-Evans' principal executive offices are located at 11601 N. Houston Rosslyn
Road, Houston, Texas 77086. Its telephone number is (281) 999-8920.
Unless otherwise stated herein, all information contained in this prospectus
assumes no exercise of the over-allotment option granted to the underwriters.
Simultaneous with the effectiveness of the registration statement, CRC-Evans
will effect a 40-for-1 stock split and an amendment to its certificate of
incorporation as disclosed herein. All common stock numbers and other
information in this prospectus reflect the stock split and the amendment to
CRC-Evans' certificate of incorporation.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.
3
<PAGE>
(This page has been intentionally left blank.)
4
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
INTRODUCTION TO CRC-EVANS
CRC-Evans is the leading provider of specialized equipment and services used in
the construction and rehabilitation of gas and oil transmission pipelines.
CRC-Evans and its predecessors have been leaders in the specialized pipeline
construction equipment industry since 1933. CRC-Evans provides equipment and
services, primarily to pipeline contractors, that are essential to the
successful completion of a pipeline construction project. CRC-Evans' pipeline
products include automatic pipeline welding systems, pipe bending equipment,
line-up clamps, pipe coating plants, coating and cleaning equipment, pipeline
rehabilitation equipment and lay barge pipe handling equipment. CRC-Evans also
provides specialized services including joint coating, cement weighting,
induction and resistance heating, and automatic welding systems training and
technical assistance.
CRC-Evans' management team together with two institutional investors, Natural
Gas Partners IV, L.P. and Equus II Incorporated, acquired CRC-Evans' assets and
business from Weatherford Enterra in June 1997. CRC-Evans believes the depth and
experience of its management and employees are keys to its excellent reputation
with the world's leading pipeline contractors.
CRC-Evans has experienced significant growth in revenues, EBITDA (net income
before interest, taxes, depreciation, and amortization and non-cash stock
compensation expense), and net income since the June 1997 buyout. For the year
ended March 31, 1999, CRC-Evans generated revenues of $97.7 million, EBITDA of
$22.5 million and net income of $6.8 million. These amounts represent increases
over the results for the combined twelve months ended March 31, 1998 of 51.0% in
revenues, 138.0% in EBITDA and 159.7% in net income.
Management believes that this growth is attributable to:
o a recent increase in demand for CRC-Evans' specialized products and
services in response to increased worldwide pipeline construction and
rehabilitation activity;
o CRC-Evans' strategic acquisitions; and
o the successful implementation of CRC-Evans' business strategy.
INDUSTRY OVERVIEW
The pipeline construction equipment and services industry provides products and
services to support pipeline construction and rehabilitation performed by
pipeline construction contractors. CRC-Evans provides specialized equipment and
services used in the construction of gas and oil pipelines ranging from 6 to 60
inches in diameter and steel water pipelines ranging up to 120 inches in
diameter. These products and services are generally provided by specialized
pipeline equipment manufacturers and service providers because:
o most pieces of pipeline construction equipment are specific to a small
range of diameter sizes, while the contractor works on a wide range of
pipeline diameters;
o contracts often have short lead times, requiring quick delivery of
equipment and services; and
o proprietary equipment, specialized engineering and technical operating
capabilities are critical to meeting the requirements of pipeline
bending, welding and coating.
Worldwide pipeline construction activity, based upon miles of pipeline
completed, has grown substantially since 1995, increasing approximately 58% from
14,201 miles in 1995 to 22,397 miles in 1998. Industry sources estimate that
approximately 49,000 miles of pipeline are presently planned to be constructed
in 1999 and thereafter. In addition, CRC-Evans expects a growing share of its
activity in the pipeline and equipment services industry will be derived from
rehabilitating large-diameter pipelines.
5
<PAGE>
CRC-EVANS' STRENGTHS
CRC-Evans believes it is well positioned to continue as the leading provider of
specialized equipment and services used in the construction and rehabilitation
of gas and oil transmission pipelines. It believes it possesses a unique
combination of specific strengths which provides a solid foundation for its
growth strategy. CRC-Evans' strengths include:
o INDUSTRY LEADER. CRC-Evans is the leading provider of specialized
equipment and services used in constructing and rehabilitating pipelines.
o SIGNIFICANT BARRIERS TO ENTRY. CRC-Evans believes its large investment
in specialized rental equipment, highly experienced management,
proprietary technology, technical expertise and personnel, and worldwide
sales force and sales representative network all serve as barriers to
entry.
o WORLDWIDE PRESENCE. CRC-Evans manages its geographically diverse
customer base through its international direct sales force and
commissioned sales representatives and distributors.
o CUSTOMER RELATIONSHIPS. CRC-Evans has developed long-term relationships
with the majority of the world's leading pipeline construction
contractors and pipe coating contractors.
o EXPERIENCED MANAGEMENT. CRC-Evans' current senior management team has
been involved in managing CRC-Evans or its predecessors' major lines of
business since 1971.
CRC-EVANS' BUSINESS STRATEGY
CRC-Evans seeks to maximize shareholder value through its growth strategy which
includes:
o EXPANDING INTERNATIONAL OPERATIONS. CRC-Evans seeks to strengthen and
expand its international operational capability primarily by acquiring
established operations in several key international regions. These new
operations centers are intended to provide distribution hubs from which
it can more readily provide existing and new products and services to
customers' projects.
o ADDING RELATED PRODUCTS AND SERVICES. CRC-Evans intends to acquire or
develop related products and services which it will provide through its
distribution system comprised of its sales force, international sales
representatives and operations centers in key geographic regions.
o MAKING STRATEGIC ACQUISITIONS. CRC-Evans believes acquisition candidates
are available that should allow it to increase market share in its
existing lines of business, provide product line extensions, and expand
the geographic scope of its operations.
o EXTENDING AND LEVERAGING TECHNOLOGICAL LEADERSHIP. CRC-Evans intends to
further extend its technological leadership and capabilities through
in-house research and development, acquisition and licensing of
technology as well as participation in joint development efforts.
RECENT DEVELOPMENTS
On April 12, 1999 CRC-Evans entered into a letter of intent with the principal
shareholder of Societe Miniere et Commerciale, S.A. ("SOMICO") of Paris, France
defining the intention of the parties to enter into an agreement pursuant to
which CRC-Evans would purchase 100% of the capital stock of SOMICO for a
purchase price of approximately $1.5 million in cash and 139,280 shares of
common stock of CRC-Evans. The principal shareholder would continue in his
present position as President of SOMICO after the acquisition. SOMICO has been
associated with CRC-Evans and its predecessors for over forty years as its sales
representative and distributor in certain countries in Europe and North Africa.
SOMICO maintains manufacturing and equipment rental operations and also serves
as a sales representative for certain other product lines sold to the pipeline
construction industry.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by CRC-Evans.... 3,000,000 shares
Common stock to be outstanding after 9,294,520 shares
the offering(1)....................
Use of proceeds...................... CRC-Evans intends to use the net proceeds from the
offering, estimated to be approximately $40.8 million
after underwriting discount and other expenses of the
offering, to repay indebtedness and to provide for
working capital and general corporate purposes,
including strategic acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol............................... "CRCE"
</TABLE>
- ---------------------------
(1) Excludes 670,160 shares of common stock that could be issued upon the
exercise of outstanding stock options, all of which will be exercisable upon
the close of this offering, and 40,000 shares of common stock that could be
issued upon the exercise of stock options that CRC-Evans intends to issue
concurrently with the close of this offering.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth, for the dates and periods indicated, summary
historical financial data of CRC-Evans. The financial data for the twelve months
ended March 31, 1998 combines the activities of the Predecessor Business for the
period from April 1, 1997 to June 11, 1997 with the activities of CRC-Evans for
the period from June 12, 1997 to March 31, 1998. The summary historical
financial data set forth below have been derived from CRC-Evans' historical
financial statements. The As Adjusted Balance Sheet data as of March 31, 1999
give effect to the sale of shares of common stock in this offering and CRC-
Evans' use of the net proceeds. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
---------------------------------------
CRC-EVANS(1) COMBINED CRC-EVANS(1)
YEAR ENDED ---------------- TWELVE MONTHS ------------
MARCH 31, PERIOD FROM PERIOD FROM ENDED MARCH YEAR ENDED
-------------------- APRIL 1, 1997 TO JUNE 12, 1997 TO 31, MARCH 31,
1996 1997 JUNE 11, 1997 MARCH 31, 1998 1998 1999
--------- --------- ---------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
STATEMENT OF EARNINGS DATA:
Revenues:
Sales revenue......................... $ 25,325 $ 26,082 $ 5,687 $ 23,850 $ 29,537 $ 33,777
Rental and service revenue............ 39,329 43,293 6,928 28,254 35,182 63,926
--------- --------- ------- --------------- ------------- ------------
Total revenues.......................... 64,654 69,375 12,615 52,104 64,719 97,703
Total cost of revenues.................. 45,851 46,676 9,163 34,670 43,833 57,417
--------- --------- ------- --------------- ------------- ------------
Gross profit............................ 18,803 22,699 3,452 17,434 20,886 40,286
Operating expenses:
Selling, general and administrative... 13,056 13,018 3,016 10,114 13,130 20,621
Non-cash stock compensation expense... -- -- -- -- -- 4,425
Research and development.............. 856 754 153 951 1,104 1,688
Other expenses (income)............... 2,750 367 (153) 79 (74) (530)
--------- --------- ------- --------------- ------------- ------------
Operating income........................ 2,141 8,560 436 6,290 6,726 14,082
Interest expense (income)............... (246) (689) (50) 2,411 2,361 3,098
--------- --------- ------- --------------- ------------- ------------
Income before income taxes.............. 2,387 9,249 486 3,879 4,365 10,984
Income tax expense...................... 889 3,359 207 1,536 1,743 4,176
--------- --------- ------- --------------- ------------- ------------
Net income.............................. $ 1,498 $ 5,890 $ 279 $ 2,343 $ 2,622 $ 6,808
========= ========= ======= =============== ============= ============
NET EARNINGS PER SHARE:
Basic................................... $ 0.59 $ 1.14
Diluted................................. 0.57 1.04
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................... 4,000,000 5,981,645
Diluted................................. 4,120,000 6,566,904
OTHER FINANCIAL DATA:
EBITDA(2)............................... $ 6,978 $ 10,847 $ 824 $ 8,631 $ 9,455 $ 22,507
Depreciation and amortization........... 4,836 2,287 388 2,341 2,729 4,000
Net cash provided by (used in) operating
activities............................ 9,005 3,061 (231) 3,002 2,771 17,543
Net cash provided by (used in) investing
activities............................ (464) (2,367) (37) (41,047) (41,084) (19,120)
Net cash provided by (used in) financing
activities............................ (9,250) 815 (2,950) 39,562 36,612 8,051
Capital expenditures (excluding
acquisitions)......................... 464 2,367 37 1,083 1,120 7,164
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------
HISTORICAL AS ADJUSTED
---------- --------------
<S> <C> <C>
(dollars in thousands)
BALANCE SHEET DATA:
Working capital......................... $ 29,163 $ 36,453
Total assets............................ 88,259 92,105
Total long-term debt, excluding current
installments.......................... 31,823 262
Total liabilities....................... 66,181 29,257
Total stockholders' equity.............. 22,078 62,848
</TABLE>
- ---------------------------
(1) Does not give effect to the offering and the application of the net proceeds
therefrom. Giving effect to the use of such proceeds as described in "Use
of Proceeds," interest expense would be $0.0 and net income per share would
be $1.46 for the historical year ended March 31, 1999.
(2) EBITDA represents net income before interest, income taxes, depreciation and
amortization and non-cash stock compensation expense. CRC-Evans has included
EBITDA data (which is not a measure of financial performance under generally
accepted accounting principles ("GAAP")) because it understands that it is
one measure certain investors use to determine a company's historical
ability to service its indebtedness. You should not consider EBITDA to be an
alternative to net income, as an indicator of CRC-Evans' operating
performance or as an alternative to cash flow as a measure of liquidity.
9
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES.
THE PIPELINE CONSTRUCTION INDUSTRY IS CYCLICAL
CRC-Evans' revenues and profits would likely be hurt by reduced activity in the
pipeline construction industry. This is because demand for CRC-Evans' equipment
and services rises and falls based primarily on the level of new pipeline
construction by major oil and gas transmission companies and, to a lesser
extent, on the level of rehabilitation work on existing pipelines. Historically,
the pipeline construction industry has been cyclical, with a number of factors
influencing spending decisions in the industry, including:
o costs of producing and transporting oil and gas;
o conversion to natural gas for residential and power generation usage;
o discoveries of new oil and gas reserves;
o local and international political and economic conditions;
o technological advances;
o the ability of oil and gas transmission companies to generate capital;
and
o current and projected oil and gas prices.
CRC-Evans cannot control these factors. If CRC-Evans' construction or
rehabilitation projects were delayed or cancelled, the revenues and cash flow of
CRC-Evans would be adversely impacted. Although
CRC-Evans seeks to mitigate revenue and cash flow fluctuations through the
execution of its business strategy, CRC-Evans' revenues and cash flow will
likely continue to be subject to substantial cyclical swings. In particular,
CRC-Evans is aware of projects that would provide demand for its products and
services being cancelled or delayed in the countries making up the former Soviet
Union and Southeast Asia. The former Soviet Union has historically been a
significant region for CRC-Evans. See "-- CRC-Evans' operations are focused on
a few projects," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
CRC-EVANS HAS A LIMITED NUMBER OF MAJOR CUSTOMERS
CRC-Evans' success depends on keeping its current customers and building
relationships with new customers. This is particularly true because CRC-Evans
has a limited number of customers and potential customers. If CRC-Evans loses
one or more of its major customers, its revenues and profits would likely
decrease. Ten customers were responsible for 45% of CRC-Evans' total revenues in
the period from June 12, 1997 to March 31, 1998. In addition, one customer
accounted for approximately 11% of CRC-Evans' total revenues in the period from
June 12, 1997 to March 31, 1998. Ten customers were responsible for 33% of
CRC-Evans' total revenues in the fiscal year ended March 31, 1999. As a result
of the small number of customers, CRC-Evans' accounts receivable are exposed to
concentration risks, which risks are increased because its accounts receivable
are generally not collateralized. See "Business -- Customers and contracts."
CRC-EVANS' OPERATIONS ARE FOCUSED ON A FEW PROJECTS
CRC-Evans' operations are usually focused on a few projects, because at any time
there are a limited number of major pipeline construction projects worldwide.
Accordingly, the status of these projects is critical to CRC-Evans' business. In
addition, because CRC-Evans' operations are focused on only a few projects, the
company is subject to variations in quarter to quarter financial results.
CRC-EVANS IS EXPOSED TO RISKS IN DEVELOPING AND OTHER COUNTRIES
Many of the developing countries in which CRC-Evans operates pose risks that are
not found in developed countries. These risks include foreign currency
restrictions, substantial exchange rate fluctuations, government seizure of
assets, riots, government instability and underdeveloped legal systems. In
addition, state-owned gas, oil and water pipeline companies are often CRC-Evans'
major customers in these countries. These companies may choose not to use
CRC-Evans' equipment or services for political reasons,
10
<PAGE>
or may be unable to do so if the government or local economy experiences
problems. The legal risks in these countries are great, and can include unfair
application of laws and regulations to foreign businesses, and unanticipated
taxes of various kinds.
Recently, certain developing countries, particularly those in South America,
Southeast Asia and the Former Soviet Union, have experienced substantial
economic turmoil. If this turmoil continues or spreads to other developing
countries, fewer pipelines may be built in these countries, which could result
in lower demand for CRC-Evans' products and services. This would likely reduce
CRC-Evans' revenues and income.
The following table shows investors, on the basis of revenues from the point of
sale, some of the countries where CRC-Evans' operations have recently been
concentrated:
<TABLE>
<CAPTION>
HISTORICAL CRC-EVANS
HISTORICAL PREDECESSOR BUSINESS ---------------------------
------------------------------------------------- PERIOD FROM
JUNE 12, 1997 YEAR
YEAR ENDED MARCH 31, PERIOD FROM APRIL 1, TO ENDED
------------------------- 1997 TO JUNE 11, MARCH 31, MARCH 31,
COUNTRY 1996 1997 1997 1998 1999
- ------------------------------------- ----------- ----------- --------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
United States of America............. 19.5% 18.8% 24.6% 27.0% 34.9%
Canada............................... 7.9 12.0 4.4 10.6 21.1
United Kingdom....................... 7.1 6.4 7.6 6.7 6.6
Brazil............................... 1.9 0.9 0.1 3.9 4.0
Algeria.............................. 20.3 13.1 5.5 1.5 4.0
France............................... 1.3 3.5 10.6 5.3 0.8
Russia............................... 9.6 8.1 9.1 7.6 0.3
All others(1)........................ 32.4 37.2 38.1 37.4 28.3
----------- ----------- ------ ------------- -----------
Total Revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0%
=========== =========== ====== ============= ===========
</TABLE>
- ---------------------------
(1) This includes Saudi Arabia, Egypt, Bolivia, Norway, Greece, Malaysia, UAE,
the Netherlands and others, none of which accounted for more than 6% of
revenues in the year ended March 31, 1999.
ACCIDENTS INVOLVING CRC-EVANS' EQUIPMENT COULD EXPOSE CRC-EVANS TO LITIGATION
Like most large pieces of construction equipment, operating CRC-Evans' equipment
involves a certain degree of risk to the operator and those working in the
vicinity. If there is a defect or malfunction in CRC-Evans' equipment, the
results can include injury or loss of life and damage to property. If any of
these happened, CRC-Evans could lose revenues, face higher costs or be sued.
Litigation arising from such an occurrence could result in CRC-Evans being named
as a defendant in lawsuits asserting large claims.
CRC-Evans maintains insurance to cover its losses in these situations. However,
this insurance may be insufficient to pay for all or a large part of these
losses. If CRC-Evans' insurance did not pay for these losses, its income would
fall. In addition, CRC-Evans may not be able to maintain its insurance if
insurance rates or insurance industry policies change. See
"Business -- Insurance."
ACQUISITIONS CAN ADVERSELY EFFECT CRC-EVANS' PERFORMANCE
CRC-Evans' growth strategy, which includes acquiring other companies and product
lines, exposes CRC-Evans to risks outside the ordinary course of business. After
an acquisition, CRC-Evans must devote significant management resources
integrating the newly acquired company or assets which could adversely affect
its existing business. CRC-Evans also could have lower income and cash flow over
the short-term while the newly acquired company or assets are being integrated
with CRC-Evans' existing business. In addition, if the integration of the new
company or assets does not work, CRC-Evans could be adversely affected over the
longer-term. Furthermore, if CRC-Evans acquires an operating business, it may
incorrectly value the business, or it may be subject to liabilities that were
not discovered in the due diligence before the acquisition.
CRC-Evans cannot predict whether it will be able to find good acquisition
candidates. Even if it finds a good acquisition candidate, it may be unable to
complete the acquisition for any number of reasons,
11
<PAGE>
including the inability to obtain capital to finance the acquisition. If
CRC-Evans makes an acquisition, it may issue new stock or incur debt to pay for
the acquired company. If it issues stock, the issuance could result in
substantial dilution to CRC-Evans' then existing stockholders. In addition,
CRC-Evans may need to use a large part of its cash resources or its borrowing
capacity for a single acquisition.
GOVERNMENT REGULATION MAY DECREASE CRC-EVANS' REVENUES AND PROFITS
The governments of the countries where CRC-Evans operates regulate its business
in many ways including local currency controls, taxes imposed on CRC-Evans and
its employees, trade restrictions, including embargos, and rules controlling its
use of local workers and suppliers. Because the demand for CRC-Evans' products
and services depends primarily on the oil and gas pipeline construction
industry, regulations which affect this industry also affect CRC-Evans'
business. If the countries in which CRC-Evans operates change their regulations
or impose new regulations, CRC-Evans' revenues and profits could decrease.
CRC-Evans cannot predict how regulations might change and, therefore, cannot
predict whether regulatory changes will hurt its business. See
"Business -- Government regulation -- General."
CRC-EVANS MAY BE REQUIRED TO DEVOTE SUBSTANTIAL RESOURCES TO COMPLY WITH
ENVIRONMENTAL LAWS
CRC-Evans' equipment is often used in sensitive environmental areas such as
rivers, lakes and wetlands. If CRC-Evans' equipment does not perform properly in
these areas, environmental damage could occur, such as from the release of a
hazardous substance. In addition, the pipeline coating materials removed during
pipeline rehabilitation often contain hazardous substances and, therefore, are
subject to environmental regulation. Some environmental laws impose joint and
several strict liability for cleanup after the release of a hazardous substance.
This means that CRC-Evans might have to pay for cleanup even if it was not at
fault or was complying with all environmental laws. If there is a release of a
hazardous substance, CRC-Evans might also be sued for personal injury or
property damage if people or property are exposed to the substance. See
"Business -- Government regulation -- Environmental."
CRC-Evans' operations may be subject to the Resource Conservation and Recovery
Act, the Clean Water Act, the Clean Air Act, the Oil Pollution Act of 1990, the
Endangered Species Act and the Toxic Substances Control Act and comparable
foreign and state statutes and regulations. Violation of these laws could expose
CRC-Evans to substantial monetary penalties and injunctions.
CRC-EVANS COMPETES WITH PIPELINE CONSTRUCTION EQUIPMENT AND SERVICE COMPANIES
AND ITS CUSTOMERS THAT INTERNALLY PROVIDE CRC-EVANS' PRODUCTS AND SERVICES
CRC-Evans expects the pipeline construction equipment business to remain very
competitive. CRC-Evans competes on the basis of a number of factors, including
price, customer service, satisfying technical specifications, flexibility in
meeting customer needs and the quality and reliability of its equipment.
CRC-Evans' competitors include many smaller pipeline construction equipment
companies worldwide and several business units of larger companies. In addition,
certain major contractors, who are often CRC-Evans' customers, have chosen and
may continue to choose to build their own specialized pipeline construction
equipment and perform on their own services CRC-Evans provides, which could
reduce its revenues or income. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
Because CRC-Evans' success has been and will continue to be highly dependent on
the efforts and skills of its senior management, if it were to lose any of its
senior management, its operations could be disrupted. CRC-Evans maintains a $1
million "key man" life insurance policy on its Chief Executive Officer, M.
Timothy Carey, but does not insure any other senior managers. In addition,
CRC-Evans' future success depends on its ability to find and retain new key
management personnel, which it may not be able to do successfully. See
"Management."
PURCHASERS OF THE COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
Purchasers of common stock will experience immediate and substantial dilution in
net tangible book value of $8.57 per share based on an assumed initial public
offering price of $15.00 per share (the midpoint of the range of initial public
offering prices set forth on the cover page of this prospectus). See
"Dilution."
12
<PAGE>
PERCENTAGE OWNERSHIP WILL BE REDUCED IF CRC-EVANS ISSUES NEW SHARES
Investors' percentage ownership of CRC-Evans would be reduced if shares are
issued in connection with acquisitions, exercise of stock options, or for other
reasons. CRC-Evans can issue all (up to a total of 14,460,320) of its authorized
but unissued shares without receiving stockholder approval. CRC-Evans might
issue these shares to acquire another company or to raise money. In addition,
CRC-Evans has reserved 1,245,160 shares of common stock for issuance under its
various employee stock option plans. There are currently outstanding options to
purchase 670,160 shares of common stock, all of which will be exercisable at the
close of this offering. CRC-Evans may also have trouble raising additional
capital because of the possible dilution that could occur upon exercise of
options granted under stock option plans. See "Management -- Stock option
plans" and "Description of Capital Stock."
SHARE PRICE MAY DECLINE BECAUSE OF SHARES ELIGIBLE FOR FUTURE SALE
Actual sales or the possibility of sales of substantial amounts of common stock
from any sources may adversely affect the price of CRC-Evans' common stock and
impede CRC-Evans' ability to raise capital by issuing more equity securities.
See "Shares Eligible for Future Sale."
Upon completion of the offering, there will be 9,294,520 shares of common stock
outstanding (or up to 9,744,520 shares if the underwriters' over-allotment
option is exercised). All of the shares sold in the offering will be freely
transferable without restriction by the Securities Act, except for shares
purchased by affiliates of CRC-Evans.
The remaining 6,294,520 shares outstanding after the offering cannot be sold
unless the sale is registered under the Securities Act or an exemption from
registration is available, including the exemption provided by Rule 144 under
the Securities Act.
Some of CRC-Evans' stockholders have signed a Registration Rights Agreement with
CRC-Evans which allows them to require CRC-Evans to register for public sale
their shares of common stock. The parties to this Agreement have agreed that
they will not sell or otherwise dispose of their common stock for 180 days after
the date of this prospectus, unless CIBC World Markets Corp. consents. See
"Description of Capital Stock."
CRC-Evans has reserved 1,245,160 shares of common stock for issuance under its
outstanding stock options and under its stock incentive plan. Of these, 670,160
shares of common stock are issuable upon the exercise of outstanding stock
options, all of which will be exercisable at the close of this offering.
CRC-Evans intends to issue an additional 40,000 stock options concurrently with
the close of this offering. CRC-Evans will register the offering and sale of
common stock which can be issued under its stock option plans. See
"Management -- Stock option plans."
CRC-EVANS' SIGNIFICANT STOCKHOLDERS WILL CONTROL IT
At the closing, CRC-Evans' officers, directors and principal stockholders will
beneficially own approximately 59.3% of the common stock. As a result, these
stockholders will be able to elect a majority or all of the Board of Directors,
and, in general, determine (without the consent of CRC-Evans' other
stockholders) the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of CRC-Evans' assets. These stockholders will be
able to prevent or cause a change in control of the company. See "Principal
Stockholders" and "Description of Capital Stock."
13
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, the following: plans for, and successful closing and integration
of, future acquisitions, CRC-Evans' capacity to integrate successfully
acquisitions that have already been completed, the adequacy of anticipated
sources of cash, including the proceeds from this offering, to fund CRC-Evans'
future capital requirements and statements with respect to areas of potential
growth. These statements may be found under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Selected Consolidated Financial Data" and
"Business" as well as elsewhere herein. Forward-looking statements typically
are identified by use of terms such as "may," "will," "should,"
"expect," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
CRC-Evans' actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including: general
economic conditions, labor costs, competition, pipeline construction and
rehabilitation activity worldwide, sufficiency of capital resources, ability to
integrate acquired businesses successfully, potential adverse economic and
political conditions and unanticipated difficulties in product and services
development. You should also consider carefully the statements under "Risk
Factors" and other sections of this prospectus, which address additional
factors that could cause CRC-Evans' actual results to differ from those set
forth in the forward-looking statements. YOU SHOULD BE AWARE THAT THE SAFE
HARBOR PROTECTIONS WITH RESPECT TO FORWARD-LOOKING STATEMENTS AFFORDED BY
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
ARE NOT APPLICABLE TO INITIAL PUBLIC OFFERINGS.
14
<PAGE>
USE OF PROCEEDS
CRC-Evans estimates that the net proceeds from the sale of the shares of common
stock it is offering will be approximately $40.8 million. If the underwriters
fully exercise the over-allotment option, the net proceeds to CRC-Evans will be
approximately $47.1 million. "Net proceeds" is what CRC-Evans expects to
receive after paying the underwriting discount and other expenses of the
offering. For the purpose of estimating net proceeds, CRC-Evans is assuming the
public offering price will be $15.00 per share.
CRC-Evans intends to use the net proceeds as follows:
o approximately $35.0 million to repay indebtedness under its credit
facility,
o approximately $1.9 million to repay its 12% subordinated notes due 2002,
and
o the remainder for working capital and general corporate purposes,
including strategic acquisitions.
Until CRC-Evans uses the net proceeds of the offering for these purposes, it
intends to invest the net proceeds in short-term, investment grade, interest
bearing securities.
As part of the June 1997 buyout, CRC-Evans entered into its credit facility with
a syndicate of banks led by BankBoston for up to a maximum of $45 million, of
which:
o $20.0 million was a revolving line of credit,
o $20.0 million was a six-year term loan, and
o approximately $5.0 million was a revolving line of credit denominated in
British pounds.
On July 3, 1998, the credit facility was amended to provide for $17.5 million
and 1.45 million of availability to finance acquisitions and growth capital
expenditures, and $5 million of additional revolving line of credit availability
for working capital purposes.
CRC-Evans borrowed approximately $32.5 million to finance the June 1997 buyout.
In addition, since July 3, 1998, CRC-Evans has borrowed $11.0 million and
5/81.3 million under the credit facility principally to finance acquisitions
and major capital expenditures.
As of May 31, 1999, CRC-Evans had approximately $35 million of senior debt
outstanding as follows:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING(1)
(DOLLARS IN MILLIONS) INTEREST RATE MATURITY
--------------------- ------------- ---------------
<S> <C> <C> <C>
Term
U.S............................. $16.1 6.75%(2) June 12, 2003
Revolving
U.S............................. 11.0(3) 6.75%(2) June 12, 2003
3.0 8.00%(2) June 12, 2003
U.K............................. 4.9(4) 7.88%(5) June 12, 2003
</TABLE>
- ---------------------------
(1) Principal payments on the term loan and the converting portions of the
revolving line of credit are to be made on a formula-based amortization
schedule beginning September 30, 1997 and March 31, 2000, respectively.
(2) The interest rate is calculated based on the higher of (a) BankBoston's base
rate and (b) 0.5% above the federal funds effective rate plus 0.25% to 1%.
CRC-Evans may elect to borrow at an interest rate equal to the Eurodollar
rate plus 1.75% to 2.50%.
(3) If still outstanding, this indebtedness would convert into a term loan on
December 31, 1999.
(4) If still outstanding, $2.1 million of the $4.9 million outstanding would
convert into a term loan on December 31, 1999.
(5) The interest rate is calculated based on LIBOR plus 1%.
DIVIDEND POLICY
CRC-Evans has never declared or paid any cash dividends on its common stock. In
addition, CRC-Evans' credit facility prohibits it from paying dividends on its
common stock. Following the offering, CRC-Evans intends to retain any future
earnings to fund growth and does not anticipate paying any cash dividends in the
foreseeable future. Any future determination as to CRC-Evans' dividend policy
will be made at the discretion of its Board of Directors and will depend on a
number of factors, including future earnings, capital requirements, financial
condition and future prospects, restrictions on dividend payments pursuant to
credit or other agreements and such other factors as the Board of Directors may
deem relevant. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and capital resources."
15
<PAGE>
CAPITALIZATION
The following table shows:
o The capitalization of CRC-Evans on March 31, 1999.
o The capitalization of CRC-Evans on March 31, 1999, assuming the
completion of the offering at an assumed public offering price of $15.00
per share and the use of the net proceeds as described under "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
(dollars in thousands)
Cash................................. $ 7,724 $12,088
========== ===========
Long-term debt, excluding current
installments....................... $ 31,823 $ 262
12% subordinated notes due 2002...... 1,919 --
---------- -----------
Total long-term debt............ 33,742 262
---------- -----------
Stockholders' equity:
Common stock, $0.01 par value,
25,000,000 shares authorized,
6,294,520 shares issued and
outstanding, actual; 9,294,520
shares issued and outstanding, as
adjusted(1)........................ 15,223 55,992
Preferred stock, $0.01 par value,
2,500,000 shares authorized, no
shares issued and outstanding,
actual; no shares issued and
outstanding, as adjusted........... -- --
Retained earnings.................... 9,151 9,151
Less notes receivable from
shareholders....................... (2,028) (2,028)
Cumulative foreign currency
translation adjustment............. (267) (267)
---------- -----------
Total stockholders' equity...... 22,079 62,848
---------- -----------
Total capitalization....... $ 55,821 $63,110
========== ===========
</TABLE>
- ---------------------------
(1) Excludes 670,160 shares of common stock that could be issued upon the
exercise of outstanding stock options, all of which will be exercisable upon
the close of this offering, and 40,000 shares of common stock that could be
issued upon the exercise of stock options that CRC-Evans intends to issue
concurrently with the close of this offering.
16
<PAGE>
DILUTION
CRC-Evans' net tangible book value on March 31, 1999 was $19.0 million, or $3.01
per share. "Net tangible book value" is total assets minus the sum of
liabilities and intangible assets. "Net tangible book value per share" is net
tangible book value divided by the total number of shares outstanding before the
offering.
After giving effect to certain adjustments relating to the offering, CRC-Evans'
pro forma net tangible book value on March 31, 1999 would have been $59.7
million or $6.43 per share. The adjustments made to determine pro forma net
tangible book value per share are the following:
o An increase in total assets and a decrease in total debt to reflect
receipt of the net proceeds of the offering as described under "Use of
Proceeds" (assuming that the public offering price will be $15.00 per
share).
o The addition of the number of shares offered by this prospectus to the
number of shares outstanding.
The following table illustrates the pro forma increase in net tangible book
value of $3.42 per share and the dilution (the difference between the offering
price per share and net tangible book value per share) to new investors:
<TABLE>
<S> <C> <C> <C>
Assumed public offering price per
share.............................. $ 15.00
Net tangible book value per share as
of March 31, 1999.................. $ 3.01
Increase in net tangible book value
per share attributable to the
offering........................... 3.42
---------
Pro forma net tangible book value per
share, as of March 31, 1999, after
giving effect to the offering...... 6.43
---------
Dilution per share to new investors
in the offering.................... $ 8.57
=========
</TABLE>
The following table shows the difference between existing stockholders and new
investors with respect to the number of shares purchased from CRC-Evans, the
total consideration paid and the average price paid per share. The table assumes
that the public offering price will be $15.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 6,294,520 67.7% $ 14,382,979 24.2% $ 2.28
New investors........................ 3,000,000 32.3 45,000,000 75.8 15.00
---------- ------- ------------- -------
Total........................... 9,294,520 100.0% $ 59,382,979 100.0%
========== ======= ============= =======
</TABLE>
The foregoing tables exclude the effect of:
o 670,160 shares of common stock issuable upon exercise of outstanding
stock options, all of which will be exercisable upon the close of this
offering, and which were granted to officers, employees and consultants
at a weighted average exercise price of $2.78 per share, and
o 40,000 shares of common stock issuable upon exercise of stock options to
be granted to outside directors upon the close of this offering.
To the extent any of the outstanding options or warrants are exercised, there
will be further dilution to stockholders. See "Management -- Stock option
plans."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents selected historical financial data of CRC-Evans. You
should read carefully the financial statements included in this prospectus,
including the notes to the financial statements. The selected data in this
section is not intended to replace the financial statements. The data for the
year ended March 31, 1997 and the periods from April 1, 1997 to June 11, 1997,
from June 12, 1997 to March 31, 1998 and the year ended March 31, 1999 are
derived from the audited financial statements of CRC-Evans and its predecessors.
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS CRC-EVANS
--------------------------------------------------------- -------------------------
PERIOD FROM PERIOD FROM
APRIL 1, JUNE 12,
YEAR ENDED MARCH 31, 1997 1997 YEAR ENDED
------------------------------------------ TO JUNE 11, TO MARCH 31, MARCH 31,
1994 1995 1996 1997 1997 1998 1999
--------- --------- --------- --------- ------------ ------------ ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues:
Sales revenue......................... $ 20,843 $ 30,838 $ 25,325 $ 26,082 $ 5,687 $ 23,850 $ 33,777
Rental and service revenue............ 31,029 35,717 39,329 43,293 6,928 28,254 63,926
--------- --------- --------- --------- ------------ ------------ ----------
Total revenues.......................... 51,872 66,555 64,654 69,375 12,615 52,104 97,703
--------- --------- --------- --------- ------------ ------------ ----------
Cost of revenues:
Cost of sales revenue................. 15,128 26,398 16,595 18,373 3,712 16,096 22,898
Cost of rental and service revenue.... 21,695 24,391 29,256 28,303 5,451 18,574 34,519
--------- --------- --------- --------- ------------ ------------ ----------
Total cost of revenues.................. 36,823 50,789 45,851 46,676 9,163 34,670 57,417
--------- --------- --------- --------- ------------ ------------ ----------
Gross profit............................ 15,049 15,766 18,803 22,699 3,452 17,434 40,286
Operating expenses:
Selling, general and administrative... 12,656 12,955 13,056 13,018 3,016 10,114 20,621
Non-cash stock compensation expense... -- -- -- -- -- -- 4,425
Research and development.............. 731 703 856 754 153 951 1,688
Other expenses (income)............... 4 (267) 2,750 367 (153) 79 (530)
--------- --------- --------- --------- ------------ ------------ ----------
Operating income........................ 1,658 2,375 2,141 8,560 436 6,290 14,082
Interest expense (income)............... (642) 213 (246) (689) (50) 2,411 3,098
--------- --------- --------- --------- ------------ ------------ ----------
Income before income taxes.............. 2,300 2,162 2,387 9,249 486 3,879 10,984
Income tax expense...................... 445 799 889 3,359 207 1,536 4,176
--------- --------- --------- --------- ------------ ------------ ----------
Net income.............................. $ 1,855 $ 1,363 $ 1,498 $ 5,890 $ 279 $ 2,343 $ 6,808
========= ========= ========= ========= ============ ============ ==========
NET EARNINGS PER SHARE:
Basic................................... $ 0.59 $ 1.14
Diluted................................. 0.57 1.04
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................... 4,000,000 5,981,645
Diluted................................. 4,120,000 6,566,904
OTHER FINANCIAL DATA:
EBITDA.................................. $ 6,365 $ 7,207 $ 6,978 $ 10,847 $ 824 $ 8,631 $ 22,507
Depreciation and amortization........... 4,707 4,832 4,836 2,287 388 2,341 4,000
Net cash provided by (used in) operating
activities(1)......................... 9,005 3,061 (231) 3,002 17,543
Net cash provided by (used in) investing
activities(1)......................... (464) (2,367) (37) (41,047) (19,120)
Net cash provided by (used in) financing
activities(1)......................... (9,250) 815 (2,950) 39,562 8,051
Capital expenditures (excluding
acquisitions)......................... 464 2,367 37 1,083 7,164
BALANCE SHEET DATA:
Working capital......................... $ 21,267 $ 24,435 $ 19,663 $ 25,792 $ 23,895 $ 24,064 $ 29,163
Total assets............................ 50,612 53,177 40,501 48,034 46,503 56,352 88,259
Total long-term debt, excluding current
installments.......................... 1,225 1,040 -- -- -- 29,019 31,823
Total liabilities....................... 13,981 18,482 12,659 13,172 14,013 46,748 66,181
Total equity............................ 36,631 34,695 27,842 34,862 32,490 9,604 22,078
</TABLE>
- ---------------------------
(1) Net cash provided by operating activities, net cash provided by investing
activities and net cash provided by financing activities are not available
for the years ended March 31, 1994 and 1995 for the Predecessor Business.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS.
OVERVIEW
CRC-Evans has been under its current ownership since June 12, 1997, when certain
members of management, together with Natural Gas Partners and Equus, purchased
CRC-Evans' business and assets from Weatherford Enterra.
CRC-Evans provides equipment and services, primarily to pipeline contractors in
the pipeline construction industry, which are essential to the successful
completion of a pipeline construction project within budget and on time.
CRC-Evans sells and rents automatic pipeline welding systems, pipe bending
equipment, line-up clamps, pipe coating plants, coating and cleaning equipment,
pipeline rehabilitation equipment and lay barge pipe handling equipment.
CRC-Evans also provides specialized services including joint coating, cement
weighting, induction and resistance heating, and automatic welding systems
training and supervision.
CRC-Evans' business is seasonal. In the United States, CRC-Evans' highest level
of sales and rentals generally occur from April through November of each year,
mainly due to the constraints on pipeline construction during the winter months.
Canadian pipeline construction is also seasonal but consists of a summer and a
winter pipeline construction season. There is no significant seasonality with
respect to the aggregate of other international operations in the pipeline
construction industry. CRC-Evans' pipeline equipment is generally rented in the
United States and Canada and, with the exception of automatic welding equipment,
sold internationally.
CRC-Evans' revenues are heavily influenced by natural gas demand growth as the
company derives the majority of its revenues from the construction of natural
gas pipelines. CRC-Evans derives its revenue from contracts or purchase orders
with durations from less than a week to several months and, occasionally, for
greater than one year. CRC-Evans obtains contracts for its work primarily by
competitive bidding or through negotiations with long-standing clients. Large
projects can cause variability in CRC-Evans' quarterly results. This factor, as
well as external factors, such as weather, client financial condition and
financing requirements, labor, governmental regulations and politics may affect
a project's timing, progress and completion date and the resulting timing of
revenue recognition. In addition, the pipeline construction industry is
cyclical, and demand for CRC-Evans' equipment and services rises and falls based
primarily on the level of new pipeline construction by major oil and gas
pipeline construction companies as well as the level of rehabilitation work on
existing pipelines. CRC-Evans' revenues and cash flow have been and will likely
continue to be subject to substantial cyclical swings.
CRC-Evans recognizes sales revenue when it ships equipment, rental revenue
ratably over the term of the rental agreement and service revenue when it
renders the services. Because of the character of its business, CRC-Evans
believes that quarter-to-quarter comparisons of operating results may not always
be meaningful and that its operating results should be evaluated over a
sufficiently long time horizon to gauge the effects of large projects.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the relationship (in percentage terms) to the
related line items of certain revenues and expenses. In order to facilitate
management's discussion, the results for the twelve months ended March 31, 1998
combine the activities of the Predecessor Business for the period from April 1,
1997 to June 11, 1997 with the activities of CRC-Evans for the period from June
12, 1997 to March 31, 1998.
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
-------------------------------- CRC-EVANS COMBINED
PERIOD ----------- ----------- CRC-EVANS
FROM PERIOD FROM TWELVE ----------
YEAR ENDED MARCH 31, APRIL 1, JUNE 12, MONTHS YEAR
1997 TO 1997 TO ENDED ENDED
-------------------- JUNE 11, MARCH 31, MARCH 31, MARCH 31,
1996 1997 1997 1998 1998 1999
--------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Sales revenue...................... 39.2% 37.6% 45.1% 45.8% 45.6% 34.6%
Rental and service revenue......... 60.8 62.4 54.9 54.2 54.4 65.4
Total Revenues..................... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of sales revenue.............. 65.5 70.4 65.3 67.5 67.1 67.8
Cost of rental and service
revenue.......................... 74.4 65.4 78.7 65.7 68.3 54.0
Total cost of revenues............... 70.9 67.3 72.6 66.5 67.7 58.8
Gross profit......................... 29.1 32.7 27.4 33.5 32.3 41.2
Operating expenses:
Selling, general and
administrative................... 20.2 18.8 23.9 19.4 20.3 21.1
Non-cash stock compensation
expense.......................... -- -- -- -- -- 4.5
Research and development........... 1.3 1.1 1.2 1.8 1.7 1.7
Other expenses (income)............ 4.3 0.5 (1.2) 0.2 (0.1) (0.5)
Operating income..................... 3.3 12.3 3.5 12.1 10.4 14.4
Interest expense (income)............ (0.4) (1.0) (0.4) 4.6 3.6 3.2
Income before income tax............. 3.7 13.3 3.9 7.4 6.7 11.2
Income tax expense................... 37.2 36.3 42.6 39.6 39.9 38.0
Net income........................... 2.3% 8.5% 2.2% 4.5% 4.1% 7.0%
</TABLE>
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999 COMPARED TO THE COMBINED
TWELVE MONTHS ENDED MARCH 31, 1998
SALES REVENUE. Sales revenue increased to $33.8 million in the year ended March
31, 1999 from a combined $29.5 million for the twelve months ended March 31,
1998, representing an increase of 14.4%. This increase was attributable to the
acquisition of the concrete weighting operations of B.L. Key Services, L.L.C. on
April 1, 1998. The increase was partially offset by a 22.9% decrease in pipeline
product sales.
RENTAL AND SERVICE REVENUE. Rental and service revenue increased to $63.9
million for the year ended March 31, 1999 from a combined $35.2 million for the
twelve months ended March 31, 1998, representing an increase of 81.7%. This
increase was primarily attributable to increased pipeline construction activity
in North and South America. To a lesser extent revenues increased as a result of
the acquisition in May 1998 of additional pipeline construction equipment
assets.
COST OF SALES REVENUE. Cost of sales revenue increased to $22.9 million for the
year ended March 31, 1999 from a combined $19.8 million for the twelve months
ended March 31, 1998, representing an increase of 15.6%. This increase was
attributable to increases in sales volume. Cost of sales as a percentage of
sales revenue was 67.8% for the year ended March 31, 1999 and 67.1% for the
combined twelve months ended March 31, 1998.
COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue
increased to $34.5 million for the year ended March 31, 1999 from a combined
$24.0 million for the twelve months ended March 31, 1998, representing an
increase of 43.7%. This increase was attributable to increased rental and
service activities. Costs as a percentage of rental and service revenue declined
from 68.3% for the combined twelve months ended March 31, 1998 to 54.0% for the
year ended March 31, 1999. This reduction in costs was due to
20
<PAGE>
CRC Evans' participation in longer-term projects, which reduced equipment
overhaul costs as a percentage of revenue.
GROSS PROFIT. Gross profit increased to $40.3 million for the year ended March
31, 1999 from a combined $20.9 million for the twelve months ended March 31,
1998, representing an increase of 92.9%. Gross profit as a percentage of total
revenues increased 27.6% due to a higher proportion of revenue being derived
from rentals. Rental income typically generates higher margins for CRC-Evans.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $20.6 million for the year ended March 31, 1999 from a
combined $13.1 million for the twelve months ended March 31, 1998, representing
an increase of 57.1%. This increase is attributable in part to $1.1 million of
additional costs associated with the operations of B.L. Key Services acquired in
April 1998; $1.4 million for management shareholders' special bonuses; a $1.0
million increase in management incentive compensation; and a $500,000 increase
in 401K matching contributions. As a percentage of total revenues, selling,
general and administrative expenses increased 3.9% from 20.3% to 21.1%.
STOCK COMPENSATION EXPENSE. Stock compensation expense represents the
difference between the estimated fair market value of $15.00 per share and the
option exercise price of $2.78 per share.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to $1.7
million for the year ended March 31, 1999 from a combined $1.1 million for the
twelve months ended March 31, 1998, representing an increase of 52.9%.
OPERATING INCOME. Operating income increased to $14.1 million for the year
ended March 31, 1999 from a combined $6.7 million for the twelve months ended
March 31, 1998, representing an increase of 109.4% due to increased revenue and
improvements in gross profit margins.
INTEREST EXPENSE. Interest expense increased to $3.1 million for the year ended
March 31, 1999 from a combined $2.4 million for the twelve months ended March
31, 1998, representing an increase of 31.2%. This increase was a result of an
increased debt level incurred due to acquisitions during the year ended March
31, 1999.
RESULTS OF OPERATIONS FOR THE COMBINED TWELVE MONTHS ENDED MARCH 31, 1998
COMPARED TO YEAR
ENDED MARCH 31, 1997
SALES REVENUE. Sales revenue increased to a combined $29.5 million for the
twelve months ended March 31, 1998 from $26.1 million for the year ended March
31, 1997, representing an increase of 13.2%. This increase was a result of an
increase in global pipeline construction activity, primarily in North and South
America, and non-recurring automatic welding sales.
RENTAL AND SERVICE REVENUE. Rental and service revenue decreased to a combined
$35.2 million for the twelve months ended March 31, 1998 from $43.3 million for
the year ended March 31, 1997, representing a decrease of 18.7%. This decrease
was attributable to unusually large contracts in Algeria for joint coating
products and services and, to a lesser extent, automatic welding, which
contracts were completed in 1997.
COST OF SALES REVENUE. Cost of sales revenue increased to a combined $19.8
million for the twelve months ended March 31, 1998 from $18.4 million for the
year ended March 31, 1997, representing an increase of 7.8% due to increased
sales activity. The cost of equipment sales as a percentage of equipment sales
revenue decreased 4.7% due to a higher proportion of CRC-Evans' sales being of
higher margin products.
COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue
decreased to a combined $24.0 million for the twelve months ended March 31, 1998
from $28.3 million for the year ended March 31, 1997, representing a decrease of
15.1% due to lower rentals and services related to large contracts in Algeria
completed in 1997. Costs of rental and service revenue as a percentage of rental
and service revenue increased approximately 4.4% as a result of lower rental and
service revenue.
GROSS PROFIT. Gross profit decreased to a combined $20.9 million for the twelve
months ended March 31, 1998 from $22.7 million for the year ended March 31,
1997, representing a decrease of 8.0%. Gross profit as a percentage of total
revenues decreased 1.2%, which was primarily due to lower rental and services
revenue, which typically generate higher margins for CRC-Evans than equipment
sales and service revenue.
21
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to a combined $13.1 million for the twelve months ended March
31, 1998 from $13.0 million for the year ended March 31, 1997, representing an
increase of less than 1%.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to a
combined $1.1 million for the twelve months ended March 31, 1998 from $0.8
million for the year ended March 31, 1997.
OPERATING INCOME. Operating income decreased to a combined $6.7 million for the
twelve months ended March 31, 1998 from $8.6 million for the year ended March
31, 1997, representing a decrease of 21.4% which was primarily due to lower
total revenues.
INTEREST EXPENSE. Interest expense increased to a combined $2.4 million for the
twelve months ended March 31, 1998 from interest income of $0.7 million for the
year ended March 31, 1997. This increase is attributable to the debt incurred to
complete the June 1997 buyout and for working capital.
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR
ENDED MARCH 31, 1996
SALES REVENUE. Sales revenue increased to $26.1 million for the year ended
March 31, 1997 from $25.3 million in the year ended March 31, 1996, representing
an increase of 3.0% as a result of slight increases in demand for CRC-Evans'
products.
RENTAL AND SERVICE REVENUE. Rental and service revenue increased to $43.3
million for the year ended March 31, 1997 from $39.3 million in the year ended
March 31, 1996, representing an increase of 10.1%. This increase was primarily
due to increased demand for automatic welding rentals and services.
COST OF SALES REVENUE. Cost of sales revenue increased to $18.4 million for the
year ended March 31, 1997 from $16.6 million in the year ended March 31, 1996,
representing an increase of 10.7%. The cost of equipment sales as a percentage
of equipment sales revenue increased 7.5% primarily due to a higher proportion
of sales of lower margin products.
COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue
decreased to $28.3 million for the year ended March 31, 1997 from $29.3 million
for the year ended March 31, 1996, representing a decrease of 3.3%. The cost of
rental and service revenue as a percentage of rental and service revenue
decreased 12.1% primarily due to participation in longer-term projects thereby
reducing equipment overhaul costs as a percentage of revenue.
GROSS PROFIT. Gross profit increased to $22.7 million for the year ended March
31, 1997 from $18.8 million in the year ended March 31, 1996, representing an
increase of 20.7%. Gross profit as a percentage of total revenues increased
12.4% due to a relatively greater increase in rental income which typically
generates higher margins for CRC-Evans than equipment sales and service revenue.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased to $13.0 million for the year ended March 31, 1997 from $13.1
million for the year ended March 31, 1996, representing a decrease of 0.3%
primarily because selling, general and administrative expenses are relatively
fixed.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased to $0.8
million for the year ended March 31, 1997 from $0.9 million for the year ended
March 31, 1996, representing a decrease of 11.9%.
OPERATING INCOME. Operating income increased to $8.6 million for the year ended
March 31, 1997 from $2.1 million in the year ended March 31, 1996, representing
an increase of 299.8% due to increased revenues and improvement in operating
expense margins.
LIQUIDITY AND CAPITAL RESOURCES
CRC-Evans intends to pursue a growth-oriented strategy, which is to be
implemented by:
o expanding international operations,
o adding related products and services,
o making strategic acquisitions, and
o extending and leveraging its technological leadership.
CRC-Evans is currently evaluating certain business acquisition and expansion
opportunities, but currently has no binding contracts or capital commitments
relating to any potential acquisitions or developments. See
22
<PAGE>
"Prospectus Summary -- Recent Developments" and "Risk Factors -- Acquisitions
can adversely effect CRC-Evans' performance."
Net cash provided by operating activities for the period from June 12, 1997 to
March 31, 1998 was $3.0 million. For the year ended March 31, 1999, net cash
provided by operating activities was $17.5 million. Improvements in cash flow
from operating activities are principally the result of an increase in the level
of pipeline construction which had a positive effect on all of CRC-Evans'
operations.
Capital expenditures, excluding acquisitions, were $1.1 million and $7.2 million
for the period from June 12, 1997 to March 31, 1998 and the year ended March 31,
1999, respectively.
Principal payments on long-term debt were $1.5 million and $16.9 million for the
period June 12, 1997 to March 31, 1998 and the year ended March 31, 1999,
respectively. Capital expenditures for CRC-Evans, excluding acquisitions, for
the year ending March 31, 2000 are expected to be approximately $3.5 million.
On May 20, 1998, CRC-Evans issued 995,640 shares of common stock to each of
Natural Gas Partners and Equus and 235,240 shares of common stock to certain
members of management for aggregate proceeds of approximately $5.1 million.
Assuming the completion of this offering, CRC-Evans will recognize an additional
$3.8 million of non-cash stock compensation expense in fiscal year 2000.
As of May 31, 1999, the principal amount of outstanding indebtedness under the
credit facility for the U.S. revolver, U.K. revolver and term loan was $14.0
million, approximately $4.9 million and $16.1 million, respectively, of which
$11.0 million of the U.S. revolver and $2.1 million of the U.K. revolver will
convert into a term loan on December 31, 1999. The current maturity of the
credit facility is June 12, 2003; however, principal payments on the current
term loan and the term loans to be converted are made on a formula-based
amortization schedule beginning September 30, 1997 and March 31, 2000,
respectively, with final maturity on June 12, 2003. All amounts outstanding
under the credit facility are secured by substantially all of CRC-Evans' assets.
CRC-Evans also has:
o $1.9 million in the form of 12% subordinated notes due 2002 (which it
expects to repay with the proceeds of the offering),
o $0.4 million of other subordinated debt, and
o contingent liabilities for issued standby letters of credit totaling $1.4
million outstanding.
After the closing of the offering and the application of the net proceeds
therefrom, CRC-Evans expects to have $29.0 million and approximately $5.0
million of availability under the U.S. and U.K. revolvers, respectively.
CRC-Evans believes cash on hand and the proceeds from the offering, together
with cash flow anticipated from operations and available borrowings under the
credit facility, will be adequate to meet debt service requirements, fund
continuing capital requirements and satisfy working capital and general
corporate needs through the next twelve to eighteen months.
CRC-Evans may need to raise additional funds through public or private debt or
equity financing to take advantage of opportunities that may become available to
it, including acquisitions and more rapid expansion. The availability of such
capital will depend upon prevailing market conditions and other factors over
which CRC-Evans has no control, as well as the company's financial condition and
results of operations. There can be no assurance that sufficient funds will be
available to finance intended acquisitions or capital expenditures to sustain
CRC-Evans' recent rate of growth.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
CRC-Evans is subject to market risk exposure related to changes in interest
rates on its Credit Facility. Interest on borrowings under the Credit Facility
is at a pre-agreed percentage point spread from either the prime interest rate
or LIBOR. CRC-Evans may, at its option, fix the interest rate for certain
borrowings based on a spread over LIBOR for up to 90 days, with longer periods
requiring bank approval. At March 31, 1999, CRC-Evans had approximately $35
million outstanding under its Credit Facility. Based
23
<PAGE>
upon this balance, an immediate change of one percent in the interest rate would
cause a change in interest expense of approximately $350,000 on an annual basis.
CRC-Evans' objective in maintaining these variable rate borrowings is the
flexibility obtained regarding early repayment without penalties and lower
overall cost as compared with fixed-rate borrowings. CRC-Evans intends to use a
portion of the net proceeds from the offering to repay outstanding indebtedness
under the Credit Facility.
FOREIGN CURRENCY EXCHANGE RATE RISK
CRC-Evans conducts business in a number of foreign countries. Predominately all
of CRC-Evans' operations are denominated in the currency of their base
operations (principally U.S., Canada and U.K.). CRC-Evans structures its
contracts in the currency of its base operations to mitigate its exposure to
fluctuations in foreign currencies. Other than some limited trade payables,
CRC-Evans does not currently have financial instruments that are sensitive to
foreign currency exchange rates.
EFFECT OF INFLATION AND CHANGING PRICES; FOREIGN EXCHANGE RISK MANAGEMENT
CRC-Evans' operations are affected by increases in prices, whether caused by
inflation, government mandates or other economic factors in the countries in
which it operates. CRC-Evans attempts to recover anticipated increases in the
cost of labor, materials and outside services through price escalation
provisions in certain of its major contracts or by considering the estimated
effect of such increases when bidding or pricing its equipment and services.
THE YEAR 2000
CRC-Evans uses a number of computer programs across its entire operation both in
application software (IT applications) and in plant and equipment (embedded
technology). In view of the potential adverse impact of the Year 2000 issue on
its business, operations, and financial condition, CRC-Evans has established a
central function to coordinate and report on a continuing basis with regard to
the assessment, remediation planning, and plan implementation processes of the
company directed to Year 2000 issues in the IT application and embedded
technology contexts.
CRC-Evans has completed surveying its major vendors and customers and has
checked its products' computers (particularly its automated welding system) for
Year 2000 compliance. CRC-Evans believes that the Year 2000 assessment,
remediation planning and plan implementation will be completed by the end of
September 30, 1999.
Costs to date incurred in connection with the Year 2000 assessment, remediation,
planning and plan implementation are approximately $600,000 of which $100,000
has been expensed (the remaining costs being capital items). Aggregate cost to
CRC-Evans, including estimated cost of $600,000 associated with the acquisition
and installation of a business software system, is estimated to be $900,000.
Substantially all of these costs are expected to be funded with working capital
and have been used to replace rather than repair CRC-Evans' software and
hardware. CRC-Evans is continuing its assessment of the impact of Year 2000
across its business and operations, but currently believes that the costs of
addressing this issue will not have a material adverse impact on the Company's
financial position. However, if CRC-Evans and third parties upon which it relies
are unable to address this issue in a timely manner, it could result in a
material financial risk to it. In an attempt to assure that this does not occur,
CRC-Evans plans to devote all resources required to resolve any significant Year
2000 issues in a timely manner.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
Instruments and Hedging Activities (SFAS 133), was issued by the FASB in June
1998 and amended in May 1999. Statement 133 standardizes the accounting for
derivatives instruments, including certain derivative instruments embedded in
other contracts.
24
<PAGE>
BUSINESS
CRC-EVANS
CRC-Evans is the leading provider of specialized equipment and services used in
the construction and rehabilitation of gas and oil transmission pipelines.
CRC-Evans and its predecessors have been leaders in the specialized pipeline
construction equipment industry since 1933. CRC-Evans' current senior management
team has been involved in managing CRC-Evans or its predecessors' major lines of
business since 1971. CRC-Evans believes the depth and experience of its
management and employees are keys to the company's excellent reputation with the
world's leading pipeline contractors.
CRC-Evans provides equipment and services, primarily to pipeline contractors,
which are essential to the successful completion of a pipeline construction
project. Although CRC-Evans' products and services represent only a relatively
small cost component of a pipeline construction project, the critical nature of
CRC-Evans' equipment and services has a significant impact on the pipeline
contractor's ability to complete a project within budget and on time. CRC-Evans'
pipeline products and services provide a wide range of solutions to the pipeline
construction and rehabilitation industry. CRC-Evans sells and/or rents automatic
pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating
plants, coating and cleaning equipment, pipeline rehabilitation equipment and
lay barge pipe handling equipment. CRC-Evans also provides specialized services
including joint coating, cement weighting, induction heating, and automatic
welding systems training and technical assistance.
CRC-Evans has experienced significant growth in revenues, EBITDA and net income
since the June 1997 buyout. For the year ended March 31, 1999, CRC-Evans
generated revenue, EBITDA and net income of $97.7 million, $22.5 million and
$6.8 million, respectively. These amounts represent increases of approximately
51.0%, 138.0% and 159.7%, respectively, over the results for the combined twelve
months ended March 31, 1998. Management believes that this growth is
attributable to:
o a recent increase in demand for CRC-Evans' specialized products and
services in response to increased worldwide pipeline construction and
rehabilitation activity,
o CRC-Evans' strategic acquisitions and
o the successful implementation of CRC-Evans' business strategy.
DESCRIPTION OF JUNE 1997 BUYOUT AND RELATED TRANSACTIONS
In June 1997, CRC-Evans purchased the business and assets of its predecessors
from Weatherford Enterra for approximately $40.0 million using proceeds from
bank loans and capital provided by certain officers, directors and key
employees, led by Messrs. Wood, Carey and Evans, together with institutional
investors Natural Gas Partners and Equus. Each of Natural Gas Partners and Equus
made an equity investment of approximately $3.2 million, representing a 35%
interest in the company. In addition, CRC-Evans borrowed $1.9 million from
Natural Gas Partners and Equus pursuant to subordinated promissory notes due
June 30, 2002, each in the original principal amount of $959,700, and each
bearing interest at a rate of 12% per annum. Employees and members of the
management team -- 14 people total -- made an equity investment of approximately
$2.7 million, representing a 30% interest in CRC-Evans, $1.9 million of which
was borrowed from CRC-Evans pursuant to promissory notes bearing interest at a
rate of 6.75% per annum and maturing on June 30, 2002.
In addition to the above financing sources, CRC-Evans borrowed $32.5 million
under its credit facility to assist in financing the management buyout. See
"Use of Proceeds."
INDUSTRY OVERVIEW
The pipeline construction equipment and services industry provides products and
services to support pipeline construction and rehabilitation performed by
pipeline construction contractors. CRC-Evans provides specialized equipment and
services used in the construction of gas and oil pipelines ranging from 6 to 60
inches in diameter and steel water pipelines ranging up to 120 inches in
diameter. These specialized products and services are critical to the pipeline
contractor's ability to complete a project within budget and
25
<PAGE>
on time. These products and services are generally provided by specialized
pipeline equipment manufacturers and service providers such as CRC-Evans
because:
o most pieces of pipeline construction equipment are specific to a small
range of diameter sizes, while the contractor works on a wide range of
pipeline diameters and needs to use multiple equipment sizes for
relatively short periods of time;
o contracts are often procured with short lead times, so rapid delivery of
equipment and services is required; and
o proprietary equipment, specialized engineering and technical operating
capabilities, such as those CRC-Evans offers, are critical to meeting the
speed, efficiency and engineering requirements of pipeline welding,
bending and coating.
Accordingly, CRC-Evans has developed its business strategy around designing,
manufacturing, reconditioning and providing a broad inventory of specialized
pipeline construction equipment, for rental or sale, and providing services on
an expedited basis to pipeline general contractors.
The primary factor influencing demand for CRC-Evans' products and services is
the worldwide level of gas, oil and water pipeline construction and
rehabilitation activity. CRC-Evans believes several factors influenced by global
economic growth will contribute to worldwide pipeline infrastructure capital
expenditures.
LONG-TERM INCREASING GLOBAL ENERGY DEMAND
Long-term growth in the consumption of energy is one of the primary factors
which increases the demand for pipeline construction equipment and services. The
demand for natural gas is particularly relevant for pipeline construction
equipment and services, since pipelines are normally the most efficient method
of transporting natural gas.
The following graphs show the increased consumption of gas and oil since 1975.
Gas and oil consumption has grown at an average annual rate of 2.8% and 1.2%,
respectively, since 1975.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
WORLD NATURAL GAS CONSUMPTION
(BILLIONS OF CUBIC FEET PER DAY)
U.S. Rest of World
---- ---------------
1975 53.51 74.65
1976 54.48 81.14
1977 53.46 85.13
1978 53.76 91.02
1979 55.44 98.91
1980 54.29 101.07
1981 53.15 103.02
1982 49.3 107.12
1983 46.11 113.55
1984 49.03 122.60
1985 47.33 130.49
1986 44.43 134.71
1987 47.14 141.37
1988 49.25 148.78
1989 51.49 155.46
1990 51.26 159.68
1991 52.14 162.60
1992 53.38 161.67
1993 55.54 162.54
1994 56.72 161.99
1995 59.11 165.83
1996 59.53 171.35
1997 59.95 176.87
1998(E) 58.54 186.00
Source: Cambridge Energy Research Associates.
26
<PAGE>
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
WORLD OIL CONSUMPTION
(MILLIONS OF BARRELS PER DAY
U.S. Rest of World
--- ---------------
1975 16.65 39.37
1976 17.81 41.68
1977 18.81 42.65
1978 19.24 44.47
1979 18.87 46.16
1980 17.41 45.23
1981 16.38 44.11
1982 15.53 43.39
1983 15.44 43.33
1984 15.96 43.74
1985 15.94 43.88
1986 16.48 45.20
1987 16.88 46.25
1988 17.47 47.48
1989 17.53 48.39
1990 17.18 49.04
1991 16.95 49.76
1992 17.24 50.02
1993 17.45 50.25
1994 17.95 50.64
1995 17.96 52.10
1996 18.51 53.31
1997 18.73 54.95
1998(E) 19.3 54.60
Source: Cambridge Energy Research Associates.
Longer term, there are several key factors which could dictate the increased
consumption of gas. These include:
o environmental considerations that provide strong incentives to use
"cleaner-burning" natural gas in place of other carbon or nuclear
fuels;
o the plentiful supply of natural gas in North America and worldwide;
o increasing electricity deregulation in the United States because
electricity generation is currently the fastest growing market for
natural gas in the United States; and
o the development of local international gas markets.
EXPANDED GAS, OIL AND WATER TRANSPORTATION INFRASTRUCTURE
Areas of energy supply and demand shift over time. Therefore, CRC-Evans believes
that new pipeline and transportation infrastructure and the resulting demand for
pipeline construction equipment and services should increase faster than energy
demand growth.
In addition, the exploration and development of new oil and gas fields has led
to, and is expected to continue to lead to, demand for additional pipeline
infrastructure. Many newly developed oil and gas reserves are in remote regions
of the world, including deep-water offshore areas and regions in South America,
Asia, Siberia and Africa, which are far from where the products will be used. As
these remote fields are developed, CRC-Evans believes that demand for long-haul
transmission pipelines to transport gas or oil to refineries, electric
generation facilities, areas of residential and other industrial consumption, or
marine shipping terminals will continue to increase.
Many geographic regions currently lack the infrastructure to transport natural
gas from areas of supply to areas of demand. As a result, these regions are
developing natural gas pipeline grids. For example, in North America there are
specific pipeline construction projects to transport natural gas from Canada
southward and eastward to the large consumption markets in the eastern and
midwestern United States. Regional pipeline grids are also being constructed in
the Mercosur Free Trade Zone of South America (Argentina, Brazil, Paraguay and
Uruguay) and in multiple regions within Asia.
For political and other factors, many pipelines are being routed around certain
countries. As a result, many miles of pipeline may be constructed that would
otherwise not be constructed.
27
<PAGE>
OTHER IMPORTANT TRENDS
The pipeline rehabilitation market is influenced by the necessity to address an
aging pipeline infrastructure to maintain safe operating conditions and to
comply with increasing governmental regulations concerning safety and
environmental protection. For example, if a large-diameter pipeline has
significantly deteriorated due to corrosion, it is often more economical to
rehabilitate the pipeline than to replace it. Industry sources estimate that 19%
of all United States pipelines currently in service were built before 1950, 49%
were built between 1950 and 1969 and 32% were built between 1970 and 1998.
CRC-Evans believes pipeline operators in the United States and in other
countries such as the countries of the Former Soviet Union are addressing and
will continue to address their aging pipeline infrastructure. CRC-Evans expects
that a growing share of activity in the industry will be derived from
larger-diameter pipeline rehabilitation in the United States and Canada and
elsewhere.
There is a continuing trend to design and build gas pipelines to operate at
increasingly higher pressures. High pressure transmission pipelines require the
use of higher strength steels and tougher welds. The use of certain of
CRC-Evans' products, including its automatic welding systems, to address these
technical needs has recently increased substantially, and CRC-Evans believes
these trends will continue.
CRC-Evans expects that a significant shortage of usable water throughout the
world, increased industrialization, higher living standards and the
privatization of the water industry around the world should lead to increased
potable and wastewater infrastructure development and, as a result, water
pipeline construction.
PIPELINE CONSTRUCTION STATISTICS
Pipeline construction has become increasingly international since 1995 as
developing nations expand their pipeline infrastructure. The following table
sets forth the total miles of gas and oil pipeline construction projects that
were completed from 1992 through 1998. The U.S. market has been steadily growing
since 1995, especially in response to Canadian gas imports. Worldwide pipeline
construction mileage increased from 14,201 miles in 1995 to 22,397 miles in
1998. Industry sources estimate that approximately 49,000 miles of pipeline are
presently planned to be constructed in 1999 and thereafter.
WORLD PIPELINE CONSTRUCTION MILEAGE
1992-1998(1)
<TABLE>
<CAPTION>
1992 1993 1994 1995
-------------------- -------------------- -------------------- --------------------
LOCATION MILES % MILES % MILES % MILES %
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.................................. 6,328 39.2% 5,591 36.0% 5,426 35.9% 4,623 32.6%
Other................................ 9,801 60.8 9,559 64.0 9,677 64.1 9,578 67.4
--------- --------- --------- --------- --------- --------- --------- ---------
World Total.......................... 16,129 100.0% 15,150 100.0% 15,103 100.0% 14,201 100.0%
========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
LOCATION MILES % MILES % MILES %
- ------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S.................................. 5,537 31.7% 6,598 32.2% 7,177 32.0%
Other................................ 11,935 68.3 13,887 67.8 15,220 68.0
--------- --------- --------- --------- --------- ---------
World Total.......................... 17,472 100.0% 20,485 100.0% 22,397 100.0%
========= ========= ========= ========= ========= =========
</TABLE>
- ---------------------------
Source: (1) PIPE LINE & GAS INDUSTRY, January 1999.
COMPANY STRENGTHS
CRC-Evans believes it is well positioned to continue as the leading provider of
specialized equipment and services used in the construction and rehabilitation
of gas and oil transmission pipelines. The company believes it possesses a
unique combination of specific strengths that provides a solid foundation for
its growth strategy.
o INDUSTRY LEADER. CRC-Evans is the leading provider of specialized
equipment and services used in the construction and rehabilitation of
pipelines. CRC-Evans has a dominant market position in several product
lines which are key to its business. Management believes that CRC-Evans'
portfolio of specialized pipeline construction and rehabilitation
equipment and services is the most complete in the industry.
o SIGNIFICANT BARRIERS TO ENTRY. CRC-Evans believes its large investment
in specialized rental equipment, highly experienced management, technical
expertise and personnel, and worldwide sales force and sales
representative network all serve as a barrier to entry. Furthermore,
CRC-Evans
28
<PAGE>
believes that its proprietary technology, including patents and pending
patents, provides it with a significant technological advantage over its
competitors in many of its product lines and services. In particular,
CRC-Evans developed the first commercially accepted automatic pipeline
welding system in 1968 and continues to provide the most commonly used
automatic pipeline welding systems in the world.
o WORLDWIDE PRESENCE. Pipeline construction is worldwide in scope. While
the United States is a large market, the majority of new pipeline
construction projects are located outside the United States. CRC-Evans is
organized to manage its diverse geographic customer base with a strong
international direct sales force that is further complemented by a
network of experienced commissioned sales representatives and
distributors in key international markets.
o CUSTOMER RELATIONSHIPS. CRC-Evans has developed long-term relationships
with the majority of the world's leading pipeline construction
contractors and pipe coating contractors. CRC-Evans has enjoyed repeat
business with the majority of these companies. CRC-Evans' Total Project
SupportSM program helps its customers achieve maximum efficiency and
productivity on projects by making available to its customers the
experience and technical expertise of its engineers and support staff
throughout the entire project.
o EXPERIENCED MANAGEMENT WITH SIGNIFICANT OWNERSHIP. CRC-Evans' current
senior management team has been involved in managing CRC-Evans or its
predecessors' major lines of business since 1971. Management also has
significant acquisition and operational experience gained through
numerous years of service as executive officers of public companies.
Messrs. Wood, Carey and Evans have completed over 30 acquisitions for
CRC-Evans and its predecessors. Following the completion of the offering,
CRC-Evans' officers and other management will beneficially own
approximately 16.2% of the common stock.
BUSINESS STRATEGY
CRC-Evans seeks to maximize shareholder value through its growth strategy which
includes:
o EXPANDING INTERNATIONAL OPERATIONS. Although CRC-Evans has historically
served a worldwide customer base, it intends to strengthen and expand its
international operational capability. It seeks to accomplish this goal
primarily by acquiring established operations in several key
international regions. These new operations centers will provide
distribution hubs from which CRC-Evans can more readily provide existing
and new products and services to customers' projects. By being in close
proximity to its customers, CRC-Evans expects to strengthen its long-term
customer relationships through increased customer contact as well as
augment its market intelligence through the company's local personnel.
o ADDING RELATED PRODUCTS AND SERVICES. CRC-Evans intends to acquire or
develop related products and services. CRC-Evans will provide these new
products and services through its broad distribution system comprised of
the company's sales force, international sales representatives and
operations centers in key geographic regions of pipeline construction and
rehabilitation activity. This strategy is designed to enhance the
performance of acquired companies, increase the speed of new product
acceptance and further diversify CRC-Evans' sources of revenue.
o MAKING STRATEGIC ACQUISITIONS. CRC-Evans continually evaluates
opportunities to acquire businesses that offer complementary or
competitive products and services. CRC-Evans believes acquisition
candidates are available that will allow it to increase market share in
its existing lines of business, provide product line extensions, and
expand the geographic scope of its operations. CRC-Evans has completed
three acquisitions since March 1998 with an aggregate purchase price of
approximately $17.4 million (including all estimated future earn-out
payments). CRC-Evans has consolidated a domestic competitor with pipeline
rental assets, expanded its business into concrete weighting for
pipelines and added resistance heat treating services to complement its
pipeline induction heating business.
o EXTENDING AND LEVERAGING TECHNOLOGICAL LEADERSHIP. Continuing its long
history of innovation in the pipeline equipment and services industry,
CRC-Evans intends to further extend its technological leadership and
capabilities through in-house research and development, acquisition and
licensing of
29
<PAGE>
technology as well as participation in joint development efforts with
providers of related products or processes which incorporate CRC-Evans'
products. This strategy has produced many industry innovations for the
company including the automatic welding system, pneumatic line-up clamps
and mandrels, hydraulic pipe bending machines and line travel pipeline
rehabilitation systems.
PRODUCT AND SERVICES OVERVIEW
CRC-Evans is the leading provider of specialized equipment and services used in
the construction and rehabilitation of gas and oil transmission pipelines. The
company's pipeline products and services provide a wide range of solutions to
the pipeline construction and rehabilitation industry. CRC-Evans sells and rents
automatic pipeline welding systems, pipe bending equipment, line-up clamps, pipe
coating plants, coating and cleaning equipment, pipeline rehabilitation
equipment and lay barge pipe handling equipment. CRC-Evans also provides
specialized services including joint coating, cement weighting, induction and
resistance heating and automatic welding systems training and supervision.
CRC-Evans' products and services are used in various aspects of pipeline
construction. In constructing a pipeline, after the survey, design and
permitting stages, the site is prepared for the pipeline by clearing land and
digging the ditch in which the pipeline will be laid. As the ditch is dug,
sections of pipe are brought to the site and are placed end-to-end beside the
ditch prior to bending and welding. Except for the ends which will be welded
together and coated at the site, these sections are usually coated with a
protective coating either at the pipe mill where the pipe is fabricated or at a
separate coating plant. At this time, equipment is used to bend those sections
to conform to the ditch in which the pipe will be laid. The sections are lined
up using pneumatic line-up clamps, and welded together either manually or by
automatic welding systems. After the sections are welded, the uncoated ends
which have been welded together are coated through a variety of application
methods, including an induction heating and epoxy powder coating process,
spray-applied coatings or shrink sleeves. Because pipe coatings often require
protection from rocks in the soil, prior to being placed in the ditch, a padding
of screened dirt or sand is often placed into the ditch to protect the pipe
coating. At this time, unless the pipeline runs across a river or through a
wetland, the ditch is refilled with dirt. If the pipeline is laid across a river
or through a wetland, the pipeline needs to be weighted to prevent it from
floating out of the ditch or off the bottom of the river. To anchor the
pipeline, it is covered with on-site manufactured concrete bolt-on weights,
set-on weights or a continuous coating of concrete.
As pipelines age and the original coating deteriorates, a decision is made
whether to replace or rehabilitate them. The decision either to replace or
rehabilitate is made based on the amount of corrosion the pipeline has suffered
and the cost and effectiveness of employing cathodic protection to prevent
additional corrosion. CRC-Evans provides rehabilitation equipment and services
to perform certain operations in the rehabilitation process. A rehabilitation
project begins with exposing the pipeline sections to be rehabilitated and
stripping the pipe of its former protective coating. This stripping process
requires highly specialized equipment, usually high pressure water blasting,
both to remove the coating and, if required, to contain the removed coating,
which may contain hazardous material such as asbestos. After the pipe is
stripped, it undergoes inspection to ascertain the degree of corrosion, and
based on this inspection, affected areas are cut out and replaced. The surface
is prepared for recoating using steel shot/grit or sand blasting and is then
recoated by a mobile coating plant. After recoating, the pipe sections are
rejoined by welding and lowered into the ditch and buried and, if necessary, the
pipeline is reweighted.
CRC-Evans' products and services can be divided into five major areas: (a)
pipeline equipment and services; (b) automatic welding systems and services; (c)
pipe joint coating equipment and services; (d) pipeline weighting products and
services; and (e) rehabilitation equipment and services.
PIPELINE EQUIPMENT AND SERVICES
As a full-line provider of specialized equipment to the pipeline construction
industry, CRC-Evans designs, manufactures, sells, rents, refurbishes and
supports an extensive line of equipment used in the construction and
rehabilitation of oil and gas pipelines and water pipelines, including bending
machines, bending mandrels, pipe facing machines, line-up clamps and coating
equipment, as well as specialized equipment such as internal and external
coating plants, double-jointing plants and lay barge pipe handling equipment. In
addition, CRC-Evans' service technicians provide installation, training, field
operations, repair services
30
<PAGE>
and on-site support to ensure product reliability. As a complement to its
equipment and services, the company also operates a division which provides
pipeline contractors with basic pipeline construction supplies, such as pipe
beveling machines, tensile testers, coating defect detectors, external line-up
clamps, power tools, protective gear and miscellaneous tools and supplies.
The following is a listing of CRC-Evans' major specialized pipeline construction
equipment and its uses:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION/BENEFIT
- ----------------------------------------------------------------------------------
<S> <C>
Bending Machines............................. Bend pipe to follow the contour of
the ditch.
Bending Mandrels............................. Internally support the pipe during
bending.
Bending Sets................................. Allow a bending machine to bend pipes
of a specific diameter within the
bending machine's range.
Cleaning/Priming/Taping Machines............. Feature dual counter-rotating
cleaning heads with wire cup brushes,
scraper knives or a combination of
both to clean the full pipe
circumference and to perform pipe
cleaning, primer application and tape
wrapping simultaneously.
Coating/Wrapping Machines.................... Apply enamel-type coating and
reinforcing wrap to pipe.
Cradles...................................... Lift pipe string from skids and
provide support for pipe during
cleaning, coating, and lowering into
ditch after welding.
Cutting/Beveling Machines.................... Flame cut, bevel pipe, and cut
mechanical testing samples.
Double Jointing Systems...................... Using the submerged arc process, the
double jointer welds joints together
prior to pipeline construction,
thereby reducing the need for on-site
welding services.
Internal Pneumatic Line-Up
Clamps..................................... Align pipe joints for external
welding.
Pipe Coating Plants.......................... Systems used to transport, clean,
heat, apply coatings, cure coatings
and cool coated pipe; either
permanent facilities or for portable
plants.
Pipe Facing Machines......................... Produces any desired end bevel within
a tolerance of 0.005 inches.
Pipe Lay Barge Equipment..................... Transport and handle pipe on board a
pipe lay barge during offshore pipe
laying operations.
Pipeline Kettles............................. Heat large quantities of enamel-type
coating materials to a liquid state
for field or plant application.
Road Boring Machines......................... Machines for boring underneath roads
and installing pipe casing.
</TABLE>
CRC-Evans provides pipeline equipment throughout the world, with activity levels
depending on the level of pipeline construction in given regions. Historically,
the majority of the company's pipeline equipment-related revenues has come from
sales of equipment in markets outside North America, while it has typically
rented its equipment domestically. Although the company achieves higher margins
on rental equipment, pipeline contractors also prefer renting because they do
not have to make a capital investment in a wide variety of pipeline
diameter-specific equipment, and the equipment costs can be expensed to the
project.
AUTOMATIC WELDING SYSTEMS AND SERVICES
CRC-Evans is the world's largest provider of pipeline automatic welding systems.
The company designs, manufactures and rents these systems which are primarily
used on large diameter pipeline construction projects. CRC-Evans' automatic
welding systems include internal and external automatic welders, pipe facing
machines, all-weather protected welding enclosures, specialized equipment used
in conjunction with automatic welding, and consumables, such as welding wire.
Automatic welding systems are more economically suited for larger diameter,
longer distance pipeline projects and high strength steel pipelines used for
high pressure gas transmission. CRC-Evans designed the first commercially viable
pipeline automatic welding system in 1968. The company's automatic welding
systems have been used to complete, or are in the process of completing,
approximately 25,600 miles of pipe. Although some pipeline construction
companies provide their own automatic welding systems, CRC-Evans believes that
it is the largest provider of automatic welding systems and services used in the
onshore market and it also believes
31
<PAGE>
that it is the largest third-party provider of automatic welding systems and
services used in the offshore market.
CRC-Evans believes that its automatic welding systems are generally superior to
manual welding because they provide shorter weld times and more consistent and
higher quality welds. In addition to providing automatic welding equipment, the
Company develops and provides welding procedures, advises and instructs
contractors in the use of its equipment and maintains a staff of welding
technicians for assisting customers in project set-up, personnel training and
equipment maintenance.
CRC-Evans' automatic welding systems consist of a fine wire, gas-metal-arc
welding process developed specifically for the field welding of large diameter
pipelines. CRC-Evans' system is capable of producing consistently high quality,
lower cost welds with higher production rates than manual welding methods.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION/BENEFIT
- ----------------------------------------------------------------------------------
<S> <C>
Combination Internal Welder & Line-up
Clamp...................................... Applies the internal weld to the pipe
joints from inside the pipe. Internal
welders have four, six or eight
remotely controlled welding heads,
depending on the pipe diameter.
External Welders............................. Travel on alignment bands positioned
on the pipe and apply multiple
external weld layers.
Support Equipment............................ This equipment is designed to users'
specifications and includes items
such as welding rectifiers, welding
tractors and all-weather welding
enclosures.
Pipe Facing Machine.......................... Used to create new bevels on pipe
ends for either automatic or manual
welding.
</TABLE>
CRC-Evans has had most of its success in automatic pipeline welding outside of
the United States. Historically, the use of automatic welding onshore in the
United States has been limited. CRC-Evans believes, however, that there is an
increasing acceptance of automatic welding by the industry in the United States.
This acceptance is being dictated in part by the changing nature of pipelines
being constructed and the demands of pipeline owners. The increasing use of
higher strength alloy metal pipe that requires high quality welds with
properties that are not available or are difficult to achieve with manual
welding processes is expected to result in greater use of automatic welding in
pipeline projects both in the United States and internationally. In addition, on
larger diameter and longer distance pipeline construction projects, automatic
welding is often a lower cost alternative to manual welding. The project
engineers for the 1,900 mile Alliance Pipeline, which began construction in 1999
and is expected to begin piping gas from Canada to the United States in late
2000, have specified that the pipeline will be welded with automatic welding
systems. CRC-Evans has obtained orders to provide automatic welding systems for
major portions of the Alliance Pipeline. The majority of revenues associated
with CRC-Evans' automatic welding systems have been generated by equipment
rentals and associated services. Sales revenues are generated primarily from the
sale of welding wire, other consumable items and spare parts.
32
<PAGE>
PIPE JOINT COATING EQUIPMENT AND SERVICES
CRC-Evans is the leading provider of specialty pipe joint coating services
outside North America. CRC-Evans provides field-joint coating services, cleaning
and coating services, and rents post-weld heat treating equipment for pipeline
construction applications and resistance and thermal heat treating equipment and
services for power generation, refining, petrochemical, large fabrication and
refractory applications. CRC-Evans provides these products and services to a
wide range of onshore and offshore contractors.
<TABLE>
<CAPTION>
SERVICE/PRODUCT DESCRIPTION/BENEFIT
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
Fusion-Bond Epoxy Powder
Coating -- Onshore................. Specialized equipment for the application of fusion bonded epoxy
powder both in the field and plant.
Fusion-Bond Epoxy Powder
Coating -- Offshore................ Purpose-built equipment designed to work within the critical cycle
times demanded by the offshore pipeline construction contractor.
Heat Treatment Services.............. Induction pre/interpass and post-weld heat treatment services for
pipeline applications; resistance heat treatment services for
stress relieving applications and thermal heating for refractory
dry-outs.
Insulation Field-joint Systems....... Allow for the application of coating both on and offshore,
providing similar physical and insulation properties to the
factory applied coating.
Internal Field-joint Coating Application systems operate inside the pipeline during
System............................. construction, offering total corrosion protection to the internal
field-joint area.
Specialist Coatings.................. Liquid epoxy, polyurethane and three-layer coating systems that
are applied both onshore and offshore for the oil and gas and
civil construction industries. CRC-Evans also supplies joint
infill (e.g., foam) systems primarily for offshore pipelay
activities.
</TABLE>
CRC-Evans' pipe joint coating service personnel and equipment are dispatched
primarily from its offices in Burnley, England to pipeline construction sites
worldwide (with the exception of North America where the Company rents the
equipment to customers). The company conducts the majority of its fabrication
coating operations at a leased facility in Aberdeen, Scotland. CRC-Evans'
industrial heat treating operations are located at Didcot, England, which
provides ready access to its markets in the southern portion of the United
Kingdom. Historically, a significant portion of CRC-Evans' revenue for pipe end
coating equipment and services and industrial heat treatment has been generated
in the United Kingdom.
PIPELINE WEIGHTING PRODUCTS AND SERVICES
CRC-Evans is the industry leader in the United States in the on-site manufacture
of concrete weights for pipeline construction in wetlands or across rivers.
Pipeline weighting is accomplished through bolt-on weights, set-on weights or a
continuous coating of concrete applied to the exterior of the pipe. Continuous
concrete coating is also used for pipe casing under roads or railways. CRC-Evans
provides technical supervision personnel, molds and materials for the on-site
production of weights.
Since acquiring this line of business in April 1998, the company has begun to
focus on providing concrete weighting services to markets outside of the United
States using its foreign subsidiaries and sales force.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION/BENEFIT
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
Set-on Weights....................... Used primarily in wetland areas where there is no flowing water.
Bolt-on Weights...................... Constructed of two halves which circle the pipe. Bolt-on weights
are used where there is flowing water and may be attached before
the pipe is put in place.
Continuous Concrete Coating.......... Used in wetlands and river crossings. Provides protection and
negative buoyancy. Also used for pipeline casing under roads or
railways.
Plastic Pipe Weighting............... Used to weight plastic pipe.
</TABLE>
33
<PAGE>
REHABILITATION EQUIPMENT AND SERVICES
CRC-Evans believes that the pipeline rehabilitation sector should be a growing
business over the long term as pipelines around the world begin to reach the end
of their useful lives. The company's pipeline rehabilitation equipment applies
high pressure water (20,000 - 35,000 psi) to remove old and deteriorated
external coatings. Then the pipe surface is prepared for re-coating by using
steel shot/grit or sand blasting. New coatings are then applied using
specialized coating equipment. A key to CRC-Evans' success in this area is its
patented pipeline coating removal equipment. Most of CRC-Evans' current
rehabilitation rental revenue is derived in the United States and Canada, and
its sales are mainly international.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION/BENEFITS
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
High Pressure Waterblast Machine..... Removes deteriorated pipeline coating either in-plant or on-site.
Shot/Grit Mechanical and Airblast
Cleaning Systems................... Remove rust and prepare pipe surface for coating.
Plural Component Coating Systems..... Mix and apply plural component corrosion coatings to the pipeline
on-site.
Envirosystem......................... Collects, dewaters, and packages removed coatings for disposal.
</TABLE>
RESEARCH AND DEVELOPMENT
CRC-Evans conducts ongoing research and development of new products and services
to maintain its technological position. The company has approximately 145
patents relating to and covering various features of the many types of equipment
it manufactures for use in pipeline construction and rehabilitation. Of these
patents, 44 are U.S. patents and the remaining 101 are non-U.S. patents based on
corresponding U.S. patents or patent applications. In addition, CRC-Evans has 46
pending applications, of which two are U.S. applications. The Company's patents
have expiration dates ranging through 2015. No single patent or group of related
patents covers products that account for over 10% of the Company's revenues.
MARKETING AND SALES
CRC-Evans sells its products and services through its salesforce of 26
salespeople and approximately 27 independent international sales representatives
and distributors covering 70 countries. The company's sales offices are located
in Houston, Texas; Tulsa, Oklahoma; Toms River, New Jersey; Hoevelaken,
Netherlands; Edmonton, Alberta; Burnley, England and Didcot, England. CRC-Evans'
salespeople and representatives generally have over ten years of experience
selling the company's products and services and several international sales
representatives have represented the company for over 30 years. CRC-Evans
believes that due to the relatively small community of companies and people
involved in the construction of large diameter pipelines, the two factors that
are most important in marketing its products and services are its high quality,
dependable equipment and services, and the relationship between its management,
sales and technical personnel and its customers.
CRC-Evans believes that its Total Project SupportSM program is important in
marketing its products and services. The program helps the company's customers
achieve maximum efficiency and productivity on projects by making available to
its customers high-performance equipment, trained operating technicians, on-site
advisors, technical support and training programs throughout the entire project.
Total Project SupportSM helps CRC-Evans' customers keep expensive job downtime
to a minimum with an equipment backup fleet, international service teams and a
full spare parts inventory.
CUSTOMERS AND CONTRACTS
Although CRC-Evans' customers are broadly based in the worldwide pipeline
construction industry, the industry comprises relatively few companies around
the world. For the period ended March 31, 1998, ten of CRC-Evans' largest
customers were responsible for 45% of its revenues. One customer, Petroleum
Projects and Technical Consultation Co. (Petrojet), an Egyptian company,
accounted for approximately 11% of CRC-Evans' total revenues in the period from
June 12, 1997 to March 31, 1998. Ten customers were responsible for 33% of
CRC-Evans' total revenues in the fiscal year ended March 31, 1999. At any time
the relative significance of any customer or group of customers depends on the
type and location of
34
<PAGE>
pipeline construction projects in progress. As such, CRC-Evans' customer base
tends to change from year to year depending on these factors. CRC-Evans'
customers include pipeline construction contractors (onshore and offshore), pipe
coating contractors and, in the international market, state-owned gas and oil
pipeline companies. See "Risk Factors -- CRC-Evans has a limited number of
major customers."
CRC-Evans attempts to mitigate financial and other risk through the terms of its
contracts with its customers. For instance, in its automatic welding rental
operations, the company generally requires the payment of all mobilization and
demobilization fees in cash before starting a project. In addition, CRC-Evans
mitigates its expropriation and force majeure risks by requiring the equipment
renter to be financially responsible for the return of all rented equipment
regardless of the reason for loss in its international automatic welding
contracts, which represent substantially all of CRC-Evans' international rental
contracts.
EQUIPMENT
CRC-Evans' pipeline construction equipment and automatic welding equipment is
manufactured at its Tulsa, Oklahoma facility. The company fabricates and
assembles its products using certain purchased components in addition to its own
manufactured components, and typically buys most of the high-volume machine
parts used in its products from vendors. CRC-Evans' production level varies with
pipeline construction activity and is frequently project-oriented in nature. The
company is able to satisfy sales demand for reconditioned equipment by selling
equipment out of its rental fleet and replacing the sold equipment with newly
manufactured or repurchased equipment. This enables CRC-Evans to maintain
relatively constant production staff levels using flexible work schedules.
CRC-Evans maintains a comprehensive rental equipment fleet and spare parts
inventory to meet the delivery requirements of its customers. The company's
equipment is manufactured, maintained and refurbished as necessary to satisfy
projected customer demand. CRC-Evans has maintenance facilities in Tulsa,
Oklahoma; Edmonton, Alberta; Burnley, England and Didcot, England, and performs
on-site maintenance to minimize downtime. CRC-Evans maintains a facility for
welding research and development in Houston, Texas.
COMPETITION
The specialized pipeline equipment sales, rental and services businesses are
highly competitive. Generally, CRC-Evans competes directly with smaller
companies and the in-house provision of products and services by general
contractors. Several of CRC-Evans' competitors within certain product lines have
greater financial resources than the company. CRC-Evans believes it is currently
the world's leading provider of specialized equipment and services used in the
construction and rehabilitation of gas and oil transmission pipelines. CRC-Evans
believes that in addition to long-standing relationships, competition is based
on price, customer service, including the availability of personnel in remote
locations, flexibility in meeting customer needs and the quality and reliability
of its equipment and related services.
FACILITIES
CRC-Evans owns a 29-acre equipment yard/manufacturing/maintenance facility and
supply warehouse in Tulsa, Oklahoma and a 9,800 square foot sales
office/warehouse/service facility in Edmonton, Canada. The company leases all
other facilities used in its operations, including its corporate offices in
Houston, Texas and various office facilities and equipment sites in the United
Kingdom and the Netherlands. The aggregate lease payments made by CRC-Evans for
its facilities were $458,000 for the fiscal year ended March 31, 1999.
GOVERNMENT REGULATION
GENERAL
Many aspects of CRC-Evans' operations are subject to government regulations in
the countries in which the company operates, including those relating to
currency conversion and repatriation, taxation of its earnings and the earnings
of its personnel, and its use of local employees and suppliers. In addition,
CRC-Evans depends on the demand for its services from the oil and gas pipeline
construction industry and, therefore, is affected by changing taxes, price
controls and laws and regulations relating to that industry generally. The
35
<PAGE>
adoption of laws and regulations by countries in which CRC-Evans operates
curtailing oil and gas exploration and development drilling for economic and
other policy reasons could adversely affect CRC-Evans' operations by limiting
demand for its services. CRC-Evans' operations are also subject to the risk of
changes in foreign and domestic laws and policies, including trade restrictions
and embargos, which may impose restrictions on the company that could have a
material adverse effect on its operations. Other types of government regulation
which could, if enacted or implemented, adversely affect CRC-Evans' operations
include expropriation or nationalization decrees, confiscatory tax systems,
primary or secondary boycotts directed at specific countries or companies,
embargoes, extensive import restrictions or other trade barriers, mandatory
sourcing rules and unrealistically high labor rate and fuel price regulation.
CRC-Evans cannot determine to what extent future operations and earnings of the
company may be affected by new legislation, new regulations or changes in, or
new interpretations of, existing regulations.
ENVIRONMENTAL
CRC-Evans' operations are subject to extensive federal, state and local
environmental laws and regulations. The company regularly works in and around
sensitive environmental areas such as rivers, lakes and wetlands. Significant
fines and penalties may be imposed for non-compliance with environmental laws
and regulations. Certain environmental laws including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601 ET SEQ., and analogous state statutes, provide for joint and several
strict liability for remediation of releases of hazardous substances, rendering
an owner or operator liable for environmental damage without regard to
negligence or fault. In addition, CRC-Evans may be subject to claims alleging
personal injury or property damage as a result of exposure to hazardous
substances. Such laws and regulations may expose the company to liability
arising out of the conduct of operations or conditions caused by others, or for
the acts of the company which were in compliance with all applicable laws at the
time such acts were performed.
CRC-Evans' operations may generate or transport both hazardous and non-hazardous
solid wastes that are subject to the requirements of the Resource Conservation
and Recovery Act, 42 U.S.C. 6901 ET SEQ., and comparable state statutes and
regulations. The operations of the company may also be subject to the Clean
Water Act, 33 U.S.C. 1251 ET SEQ., and the Clean Air Act, 42 U.S.C. 7401 ET
SEQ., and comparable state statutes and regulations. Additional environmental
laws, including but not limited to, the Oil Pollution Act of 1990, the
Endangered Species Act and the Toxic Substances Control Act may also impact
CRC-Evans' operations. To the company's knowledge, its operations are in
substantial compliance, and are expected to continue to comply in all material
respects, with applicable environmental laws, regulations and ordinances.
CRC-Evans does not believe that it will be required in the near future to expend
material amounts due to compliance with or liability under such environmental
laws and regulations.
In recent years, environmental requirements have become increasingly stringent.
Future developments, such as stricter environmental laws, regulations or
enforcement policies, could affect the handling, manufacture, use, emission or
disposal of substances by CRC-Evans.
INSURANCE
CRC-Evans maintains workers' compensation, employers' liability, general
liability, directors' and officers' liability, automobile liability and excess
liability insurance to provide benefits to employees and to protect it against
claims by third parties with policy limits adequate to meet its expected needs
and consistent with industry standards. Such insurance is underwritten by A+ or
better rated insurance companies (AM Best rating as to claims paying ability).
CRC-Evans also maintains physical damage insurance covering loss of or damage to
its property on a worldwide basis, with special insurance covering loss or
damage caused by political or terrorist risks in locations where such coverage
is deemed prudent. CRC-Evans maintains risk management and safety programs,
which have resulted in favorable loss ratios and cost savings. CRC-Evans
believes its risk management, safety and insurance programs are adequate to meet
its needs.
EMPLOYEES AND LABOR RELATIONS
As of May 1, 1999, CRC-Evans had approximately 399 permanent employees and 91
temporary employees for a total of approximately 490 employees. Of these
employees, approximately 362, 19, 102 and seven are located in the United
States, Canada, the United Kingdom and the Netherlands, respectively. No
permanent
36
<PAGE>
employees are represented by labor unions, and CRC-Evans believes that its
relations with its employees are satisfactory.
LEGAL PROCEEDINGS
CRC-Evans is involved in litigation incidental to the conduct of its business,
none of which management believes is, individually or in the aggregate, material
to the company's financial condition or results of operations.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The name, age and respective position of each executive officer and director of
CRC-Evans are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ------------------------------
<S> <C> <C>
D. Dale Wood....................... 60 Chairman and Chairman of the
Board of Directors
M. Timothy Carey................... 55 Chief Executive Officer and
Director
C. Paul Evans...................... 69 President and Director
Windell D. Norris, Jr.............. 55 Vice President -- Finance and
Administration
Norman R. Francis.................. 69 Chief Financial Officer,
Treasurer and Secretary
Richard L. Covington............... 41 Director
Gary L. Forbes..................... 55 Director
Kenneth A. Hersh................... 35 Director
Nolan Lehmann...................... 55 Director
</TABLE>
The following is a brief description of the background and principal occupation
of each executive officer and director:
D. DALE WOOD has been affiliated with CRC-Evans and its predecessors since 1971.
Prior to becoming Chairman and Chairman of the Board of Directors of CRC-Evans
in June 1997, Mr. Wood served as President and Chief Executive Officer of
Enterra Corporation (a predecessor) from March 1991 until October 1995 and
additionally as its Chairman of the Board of Directors from November 1991 until
October 1995. In October 1995, Mr. Wood left Enterra as the result of its merger
into Weatherford Enterra to pursue personal investments, including the formation
of the buy-out groups which acquired Container-Care International, Inc. in
February 1997 and CRC-Evans in June 1997. Mr. Wood devotes approximately 30% of
his working time to CRC-Evans. Mr. Wood is a certified public accountant.
M. TIMOTHY CAREY has been affiliated with the pipeline industry and CRC-Evans'
predecessors since 1972, during which time he ran the predecessors' automatic
welding division and held positions as Executive Vice President and President.
Prior to joining the company as Chief Executive Officer in June 1997, Mr. Carey
was President of the Oilfield Services and Equipment Group of Enterra from 1992
through October 1995. From October 1995 through March 1996, Mr. Carey served as
Sr. Vice President of Weatherford Enterra. From March 1996 through June 1997, he
was a private investor and a key participant in structuring the June 1997
buyout.
C. PAUL EVANS has been affiliated with the pipeline industry and CRC-Evans'
predecessors for 41 years. Prior to becoming President of CRC-Evans in June
1997, Mr. Evans served as President of a predecessor to CRC-Evans from October
1995 to June 1997, and as its Chairman of the Board of Directors, President and
Chief Executive Officer from 1992 to October 1995. From 1988 to 1995, Mr. Evans
was a member of the Board of Directors of Enterra.
WINDELL D. NORRIS, JR. has been in the energy and pipeline equipment business
for 31 years, including 26 years with CRC-Evans and its predecessors during
which time he held positions as President -- Pipeline Division, Vice
President -- Corporate Development and Executive Vice President until January
1996. He served as Chief Executive Officer of Wedge Dia-Log, Inc. from September
1996 to December 1996 and as an independent consultant for CRC-Evans and others
from January 1997 until June 1998, at which time he rejoined CRC-Evans as Vice
President -- Finance and Administration.
NORMAN R. FRANCIS has been affiliated with CRC-Evans and its predecessors since
1960. He became the Chief Financial Officer, Treasurer and Secretary of the
Company in June 1997. His prior experience with CRC-Evans' predecessors was as
Credit Manager, Controller, Assistant Treasurer, Vice President -- Finance and
Chief Financial Officer. Mr. Francis is a certified public accountant.
RICHARD L. COVINGTON has served as a director of CRC-Evans since June 1997.
Since February 1997, Mr. Covington has served as principal and general counsel
to the Natural Gas Partners investment funds. From
38
<PAGE>
1988 to February 1997, Mr. Covington was a senior stockholder and an associate
with the law firm of Thompson & Knight.
GARY L. FORBES has been a director of CRC-Evans since June 1997. Since 1991, Mr.
Forbes has served as a Vice President of Equus Capital Management, a registered
investment advisor, and as a Vice President of Equus. He serves as a director of
Consolidated Graphics, Inc., a consolidator of commercial printing companies,
Drypers Corporation, a manufacturer of disposable diapers, NCI Building Systems,
Inc., a manufacturer of prefabricated metal buildings, and Advanced Technical
Products, Inc., a manufacturer of high performance composite parts for the
aerospace and defense industries, all of which are public companies. Mr. Forbes
is a certified public accountant.
KENNETH A. HERSH has served as a director of CRC-Evans since June 1997. Since
1989, Mr. Hersh has been a manager of the Natural Gas Partners investment funds,
which were organized to make direct equity investments in the North American
energy industry. He is currently responsible for co-managing Natural Gas
Partners' overall investment portfolio. Mr. Hersh serves as a director of
Pioneer Natural Resources Company, Titan Exploration, Inc., HS Resources, Inc.,
Petroglyph Energy, Inc. and Vista Energy Resources, Inc., all of which are
public companies engaged in the oil and gas business.
NOLAN LEHMANN has been a director of CRC-Evans since June 1997. Since 1983, Mr.
Lehmann has served as the president and a director of Equus and Equus Capital
Management Corporation. Mr. Lehmann also serves as a director of Allied Waste
Industries, Inc., a solid waste management company, Drypers Corporation, a
manufacturer of disposable diapers, and Paracelsus Healthcare Corporation, a
hospital management company, all of which are public companies. Mr. Lehmann is a
certified public accountant.
Directors are elected at each annual meeting of stockholders. Effective upon
consummation of the offering, the Board of Directors will be divided into two
classes of directors, with directors serving staggered two-year terms, expiring
at the annual meeting of stockholders for fiscal years 1999 and 2000,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of two years to succeed to that class of
directors whose terms are expiring. Messrs. Hersh, Wood, Evans and Forbes will
serve for initial two-year terms and Messrs. Lehman, Carey and Covington will
serve for initial one-year terms.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the Chief
Executive Officer of CRC-Evans and the four other most highly compensated
executive officers for the fiscal year ended March 31, 1999 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------
AWARDS
-------------------------------
ANNUAL COMPENSATION SECURITIES PAYOUTS
------------------------------------ RESTRICTED UNDERLYING -------
OTHER ANNUAL STOCK OPTIONS LTIP
NAME/PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS(S) PLANS/SARS(#)(2) PAYOUTS
- ------------------------------------- -------- -------- ------------ ---------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
D. Dale Wood......................... $125,000 $ 63,000 $9,600 -- 65,720 --
M. Timothy Carey..................... 200,000 120,000 9,600 -- 82,280 --
C. Paul Evans........................ 145,000 76,125 9,600 -- 49,200 --
Windell D. Norris, Jr.(1)............ 95,000 50,750 7,600 -- 0 --
Norman R. Francis.................... 83,200 41,440 9,600 -- 8,200 --
<CAPTION>
ALL OTHER
NAME/PRINCIPAL POSITION COMPENSATION(3)
- ------------------------------------- ---------------
<S> <C>
D. Dale Wood......................... $ 515,318
M. Timothy Carey..................... 650,000
C. Paul Evans........................ 405,367
Windell D. Norris, Jr.(1)............ 190,936
Norman R. Francis.................... 68,321
</TABLE>
- ---------------------------
(1) Mr. Norris joined CRC-Evans in June 1998 and receives an annual salary of
$120,000.
(2) Consist solely of options to acquire shares of Common Stock.
(3) Includes a one-time bonus and additional taxable income due to a change in
the stockholders agreement of $505,403, $631,835, $378,971, $184,493 and
$60,064 for Messrs. Wood, Carey, Evans, Norris and Francis, respectively.
See "Certain Related Transactions -- Stockholders agreement."
39
<PAGE>
The following table sets forth certain information with respect to options
granted to the Named Executive Officers of CRC-Evans during the fiscal year
ended March 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/
OPTIONS/SARS SARS
GRANTED GRANTED TO EXERCISE OR MARKET
(# EMPLOYEES IN BASE PRICE PRICE EXPIRATION
SHARES)(1) FISCAL YEAR ($/SHARE) ($/SHARE)(2) DATE
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
D. Dale Wood............................ 65,720 11.9% $2.78 $15.00 May 31, 2003
M. Timothy Carey........................ 82,280 15.0% 2.78 15.00 May 31, 2003
C. Paul Evans........................... 49,200 8.9% 2.78 15.00 May 31, 2003
Windell D. Norris, Jr................... 0 0.0%
Norman R. Francis....................... 8,200 1.5% 2.78 15.00 May 31, 2003
<CAPTION>
POTENTIAL
REALIZABLE
VALUE
FOR OPTIONS
GRANTED(3)
------------
<S> <C>
D. Dale Wood............................ $ 803,098
M. Timothy Carey........................ 1,005,462
C. Paul Evans........................... 601,224
Windell D. Norris, Jr...................
Norman R. Francis....................... 100,204
</TABLE>
- ---------------------------
(1) Consist solely of options to acquire shares of Common Stock.
(2) The market price of shares of Common Stock has been determined in the past
by CRC-Evans' Board of Directors considering all relevent factors. The price
reflected in this table is the mid-point of the filing range for the initial
public offering.
(3) Potential realizable value illustrates the value that might be realized upon
exercise of the options and is based on the difference between the exercise
price and $15.00.
KEY MANAGEMENT COMPENSATION PLAN
The Company has a Key Management Incentive Compensation Plan effective June 13,
1997 by which certain employees may receive a maximum bonus between 15% to 60%
of their salary. The bonus plan year is from April 1 through March 31 and was
pro rated for the period from June 13, 1997 to March 31, 1998. The bonus plan
awards incentive bonuses to CRC-Evans' executive officers and certain key
employees. The bonuses are calculated by multiplying the employee's base salary
by a factor of 1 to 4, depending on the employee's level of responsibility, and
by CRC-Evans' percentage EBITDA return on total capitalization for the prior
fiscal year less 20%. The Board of Directors must ratify any bonus paid to
Messrs. Wood, Carey and Evans pursuant to the bonus plan.
If CRC-Evans' percentage EBITDA return on total capitalization is less than 20%
for such fiscal year, no bonuses are paid and the difference is carried forward
for up to two years to reduce the bonus percentage factor in those years. If the
percentage EBITDA return on total capitalization exceeds 35%, such percentage
factor is 15% and the excess carries forward for up to two years to increase the
percentage factor in those years. The bonuses are paid 50% upon completion of
the fiscal year-end audit report and 50% at the end of the following fiscal
year, if the employee has not voluntarily left CRC-Evans or been terminated for
cause.
DIRECTOR COMPENSATION
Directors who are employees of CRC-Evans are not compensated for their services
as directors. Non-employee directors receive an annual fee of $10,000. Directors
are reimbursed, however, for ordinary and necessary expenses incurred in
attending board or committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS; COMPENSATION COMMITTEE INTERLOCKS
CRC-Evans has an Audit Committee and a Compensation Committee. The Audit
Committee reviews and reports to the Board of Directors the scope and results of
audits by CRC-Evans' outside auditor. The committee also recommends the firm of
certified public accountants to serve as the Company's independent public
accountants, subject to nomination by the Board of Directors and approval of the
stockholders, authorizes all audit and other professional services rendered by
the auditor and periodically reviews the independence of the auditor. Membership
of the Audit Committee is restricted to those directors who are not active or
retired officers or employees of the Company. Messrs. Covington and Lehmann are
members of the Audit Committee.
The Compensation Committee will be established to oversee the compensation of
senior management and the incentive stock option plan to be adopted with the
effectiveness of this registration statement. The
40
<PAGE>
Compensation Committee is currently comprised of Messrs. Hersh and Forbes. At
the closing of the offering, no members of the Compensation Committee will be a
present or former officer or employee of CRC-Evans or any subsidiary.
No executive officer or director of CRC-Evans serves as an executive officer,
director, or member of a compensation committee of any other entity, for which
an executive officer of such entity is a member of the board of directors or the
Compensation Committee of CRC-Evans.
STOCK OPTION PLANS
INITIAL STOCK OPTIONS
As of June 12, 1997, CRC-Evans issued to certain employees options to purchase
up to 138,080 shares of CRC-Evans' common stock. With respect to these options,
certain stockholders have agreed to sell to CRC-Evans up to 18,080 shares at the
same price as the exercise price of such options if options to purchase more
than 120,000 shares are exercised. Each option has an exercise price of $2.78
per share and vests at the rate of 20% per year over five years, beginning with
the first anniversary of the date of the option agreement and continuing until
the fifth anniversary of the agreement, at which time the options are fully
vested. Each option expires on August 31, 2002.
CRC-Evans subsequently adopted a stock option plan on May 20, 1998. The May 1998
plan authorizes the issuance of options to purchase up to 550,160 shares of
common stock to certain employees, officers, contractors or consultants of
CRC-Evans, all of which options have been granted. The purposes of the May 1998
plan are to promote the interests of CRC-Evans and its stockholders by
attracting, retaining and stimulating the performance of selected individuals in
giving such individuals the opportunity to acquire a proprietary interest in
CRC-Evans and increasing personal interest in CRC-Evans' continued success and
progress. The May 1998 plan options constitute non-qualified options that are
not "incentive stock options" under Section 422 of the Internal Revenue Code
of 1986, as amended.
All options granted under the May 1998 plan have an exercise price of $2.78 per
share and vest at a rate of 33 1/3% per year over three years, beginning with
the first anniversary of the governing option agreement and continuing until the
third anniversary of the agreement, at which time the options are fully vested.
CRC-Evans currently intends to amend the June 1997 options and the May 1998
options to allow for immediate vesting of the outstanding stock options upon the
close of this offering.
The Board of Directors, which currently administers the May 1998 plan, has the
authority to set the number of shares of common stock to be covered by each
option granted under the plan, and to amend, modify, suspend or terminate the
plan, which by its terms will terminate on May 20, 2004. However, all available
options have been issued under the plan and the Board of Directors does not
intend to authorize the issuance of any additional options under the plan in
connection with the closing of this offering. All of the options currently
issued and outstanding under the plan expire on May 31, 2003, and will continue
to be recognized until expiration.
The June 1997 options and the May 1998 options are not transferable other than
by will or the laws of descent and distribution. Each option may be exercised
within the term of the option agreement pursuant to which it was granted, so
long as CRC-Evans continues to employ the optionee. In addition, within three
months after termination of an optionee's employment, an option may be exercised
as to vested shares, except in the case of termination for "cause" or an
optionee's voluntary termination, in which cases the initial option shall
automatically expire on termination, provided that CRC-Evans may redeem the
option by paying cash to the optionee equal to the excess of the book value of
the option shares over the exercise price of the option. In the event of an
optionee's death or disability, the options may remain outstanding and may be
exercised by the acquiror of the options, but only within one year following the
date of death or disability.
To date, none of the June 1997 or May 1998 options have been exercised.
STOCK INCENTIVE PLAN
CRC-Evans will adopt a stock incentive plan effective as of the effectiveness of
the registration statement. At such time, 575,000 shares of common stock will be
subject to issuance under the incentive plan.
41
<PAGE>
Concurrently with the offering, CRC-Evans intends to issue 40,000 stock options
under the incentive plan having an exercise price equal to the initial public
offering price. The incentive plan provides for the grant of stock options
(including incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options), stock
appreciation rights ("SARs") and other stock awards (including restricted
stock awards, dividend rights and stock bonuses) to any officer, director, or
employee of CRC-Evans or its subsidiaries, or any consultant or advisor engaged
by CRC-Evans or its subsidiaries. The purpose of the incentive plan is to
attract, retain and encourage qualified individuals to serve CRC-Evans with a
high degree of commitment by providing additional financial incentives.
The Compensation Committee currently administers the incentive plan and
recommends to the Board of Directors for its final approval the recipients who
are to receive grants of options, the terms and conditions of options and the
rules and regulations for administration of the incentive plan. The final
approval of the full Board of Directors is required for any options granted
under the incentive plan. Stock options may be granted under the incentive plan
on such terms, including vesting and payment forms, as the Board of Directors
deems appropriate in its discretion; provided that no option may be exercised
later than ten years after its grant, and the purchase price for the incentive
stock options and non-qualified stock options shall not be less than 100% of the
fair market value of the common stock on the grant date (110% in the case of an
incentive stock option granted to an individual owning more than 10% of the
voting stock of CRC-Evans or a subsidiary). SARs may be granted by the Board of
Directors on such terms, including payment in forms, as the Board of Directors
deems appropriate, provided that an SAR granted in connection with a stock
option shall become exercisable and lapse according to the same vesting schedule
and lapse rules established for the stock option (which shall not exceed ten
years from the date of grant). Unless terminated by the Board of Directors, the
incentive plan has no automatic termination date. Upon the occurrence of an
event constituting a change in control of CRC-Evans, all options and SARs under
certain incentive plan award agreements will become immediately exercisable,
restrictions on stock granted pursuant to a restricted stock award will lapse,
and other awards will be treated in the manner determined by the Board of
Directors on the grant date. The Board of Directors has not authorized the
granting of any options under the incentive plan.
EMPLOYMENT AGREEMENTS
D. Dale Wood, CRC-Evans' Chairman and Chairman of the Board of Directors, has
entered into an employment agreement, effective June 12, 1997, with a term of
five years, which establishes a base salary of $120,000 per year. Mr. Wood's
employment agreement also provides that, in certain circumstances, he will
receive severance payments equal to his then current base salary for up to two
years upon termination of his employment by CRC-Evans. Mr. Wood is subject to a
non-competition agreement for up to two years after a voluntary termination of
his employment and for eighteen months after an involuntary termination of his
employment.
M. Timothy Carey, CRC-Evans' Chief Executive Officer, has entered into an
employment agreement, effective June 10, 1997, with a term of five years, which
establishes a base salary of $200,000 per year. Mr. Carey's employment agreement
also provides that, in certain circumstances, he will receive severance payments
equal to his then current base salary for up to two years upon termination of
his employment by CRC-Evans. Mr. Carey is subject to a non-competition agreement
for up to two years after a voluntary termination of his employment and for
eighteen months after an involuntary termination of his employment.
C. Paul Evans, CRC-Evans' President, has entered into an employment agreement,
effective June 12, 1997, with a term of three years, which establishes a base
salary of $145,000 per year. Effective April 1, 1999 Mr. Evans' base salary was
increased to $160,000 per year. Mr. Evans' employment agreement also provides
that, in certain circumstances, he will receive severance payments equal to his
then current base salary for up to two years upon termination of his employment
by CRC-Evans. Mr. Evans is subject to a non-competition agreement for up to two
years after a voluntary termination of his employment and for eighteen months
after an involuntary termination of his employment.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of May 31, 1999 with
respect to the beneficial ownership of CRC-Evans' common stock by:
o each director of CRC-Evans,
o each Named Executive Officer,
o each other person known to beneficially own 5% or more of the outstanding
shares of common stock and
o all current executive officers (regardless of salary and bonus level) and
directors of CRC-Evans as a group.
Unless otherwise indicated, (a) the persons listed in the table below have sole
voting and investment powers with respect to the shares indicated and (b) each
person's address is 11601 N. Houston Rosslyn Road, Houston, Texas 77086.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
---------------------------
SHARES PRIOR TO AFTER THE
BENEFICIALLY OWNED THE OFFERING OFFERING
------------------- ------------- ----------
<S> <C> <C> <C>
D. Dale Wood(1)...................... 252,000 4.0% 2.7%
M. Timothy Carey(2).................. 305,640 4.8 3.3
C. Paul Evans(3)..................... 188,880 3.0 2.0
Windell D. Norris, Jr................ 68,000 1.1 *
Norman R. Francis(4)................. 31,480 * *
Kenneth A. Hersh(5).................. 2,395,640 38.1 25.8
Richard L. Covington................. -- -- --
Nolan Lehmann(6)..................... 2,395,640 38.1 25.8
Gary L. Forbes(7).................... 2,395,640 38.1 25.8
Natural Gas Partners IV, L.P......... 2,395,640 38.1 25.8
777 Main Street, Suite 2250
Fort Worth, Texas 76102
Equus II Incorporated................ 2,395,640 38.1 25.8
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
All directors and executive officers
as a group (9 persons)............. 5,637,280 86.7 59.3
</TABLE>
- ---------------------------
* Less than 1%
(1) Includes 65,720 shares of common stock issuable upon exercise of outstanding
stock options that will vest simultaneously with the close of this offering.
(2) Includes 82,280 shares of common stock issuable upon exercise of outstanding
stock options that will vest simultaneously with the close of this offering.
(3) Includes 49,200 shares of common stock issuable upon exercise of outstanding
stock options that will vest simultaneously with the close of this offering.
(4) Includes 8,200 shares of common stock issuable upon exercise of outstanding
stock options that will vest simultaneously with the close of this offering.
(5) All shares of common stock that Natural Gas Partners holds. Mr. Hersh, in
his capacity as one of the managing members of the general partner of
Natural Gas Partners, may be deemed to have indirect beneficial ownership of
the shares of common stock owned by Natural Gas Partners. Mr. Hersh
disclaims any such beneficial ownership.
(6) All shares of common stock that Equus holds. Mr. Lehmann, in his capacity as
president and director of Equus, may be deemed to have indirect beneficial
ownership of the shares of common stock owned by Equus. Mr. Lehmann
disclaims any such beneficial ownership.
(7) All shares of common stock that Equus holds. Mr. Forbes, in his capacity as
vice president of Equus, may be deemed to have indirect beneficial ownership
of the shares of common stock owned by Equus. Mr. Forbes disclaims any such
beneficial ownership.
43
<PAGE>
CERTAIN RELATED TRANSACTIONS
SUBORDINATED PROMISSORY NOTES
In connection with the June 1997 buyout, the Company borrowed $1.9 million from
Natural Gas Partners and Equus under subordinated promissory notes due June 30,
2002, each in the original principal amount of $959,700, and each bearing
interest at a rate of 12% per annum. These notes will be repaid with a portion
of the proceeds from the offering.
PROMISSORY NOTES
In connection with the June 1997 buyout, certain officers, directors and key
employees borrowed, in the aggregate, $1.9 million from CRC-Evans under
promissory notes due June 30, 2002, all of which bear interest at a rate of
6.75% per annum. The following directors and executive officers borrowed the
following amounts: Mr. Wood, $255,920; Mr. Carey, $319,900; and Mr. Evans,
$191,940.
FEE AGREEMENTS
In connection with the June 1997 buyout, CRC-Evans paid each of Natural Gas
Partners and Equus a financing fee of $70,000 along with reimbursement of
out-of-pocket costs. Pursuant to this agreement, the company also paid Mr.
Covington $77,577 for acting as legal counsel to the purchasers in the June 1997
buyout.
NORRIS PROMISSORY NOTE
In connection with a purchase of 68,000 shares of common stock, Mr. Norris
borrowed $155,380 from CRC-Evans under a promissory note dated June 15, 1998,
due June 30, 2002, and bearing interest at a rate of 6.75% per annum.
INDEMNITY AGREEMENTS
CRC-Evans has entered into indemnification agreements with each of its
directors, affiliates and/or "controlling persons," within the meaning of
applicable securities laws, and certain of its executive officers. The
indemnification agreements provide that CRC-Evans shall indemnify these
individuals against certain liabilities, including settlements, and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation, other than actions brought by
or in the right of CRC-Evans, to which any of them is, or is threatened to be,
made a party by reason of their status as a director, officer or agent of
CRC-Evans. However, with respect to a civil, administrative or non-criminal
investigative action, such individual must have acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of CRC-Evans, and with respect to any criminal proceedings, he or she
must have had no reasonable cause to believe his or her conduct was unlawful.
With respect to any action brought by or in the right of CRC-Evans, such
individuals may be indemnified, to the extent not prohibited by applicable laws
or as determined by a court of competent jurisdiction, against expenses actually
and reasonably incurred by them in connection with such action if they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of CRC-Evans. The agreements also require indemnification of
such individuals for all reasonable expenses incurred in connection with the
successful defense of any action or claim and provide for partial
indemnification in the case of any partially successful defense.
STOCKHOLDERS AGREEMENT
All of CRC-Evans' stockholders were parties to a Stockholders Agreement that
contained provisions whereby CRC-Evans had the right to buy back the shares of
the management and employee stockholders at the lesser of book value or his cost
if his employment was terminated voluntarily or for cause. Effective March 31,
1999, the Stockholders Agreement was amended to modify those provisions such
that CRC-Evans has the right to buy back the shares of the management and
employee stockholders at fair market value as determined in good faith by the
Board of Directors if his employment is terminated voluntarily or for cause, and
this change resulted in taxable income for those management and employee
stockholders. As a result, the Board declared a special one-time bonus of
$187,609, $234,542, $140,677, $68,485, $117,230 and $117,230 for Messrs. Wood,
Carey, Evans, Norris, Richard L. Jones and Robert A. Williams, respectively, to
reimburse them for the tax effect of this amendment. The amended stockholders
agreement will terminate upon the close of this offering.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of CRC-Evans consists of 25,000,000 shares of
common stock, of which 9,294,520 shares will be outstanding immediately
following the offering and of which no shares will be held as treasury stock,
and 2,500,000 shares of preferred stock, par value $.01 per share, none of which
are outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all matters to
be voted on by stockholders of CRC-Evans. Subject to any preferential rights of
any outstanding series of preferred stock designated by the Board of Directors,
the holders of common stock are entitled to receive, ratably, such dividends, if
any, as may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of CRC-Evans, the holders of common stock are entitled to receive pro
rata all assets of the company available for distribution to such holders after
distribution in full of the preferential amount to be distributed to holders of
shares of the preferred stock, if any. CRC-Evans' Amended and Restated
Certificate of Incorporation denies cumulative voting. The common stock has no
conversion rights or other subscription rights and there are no redemption or
sinking fund provisions applicable to the common stock, other than those
described under "Certain Related Transactions -- Stockholders agreement."
PREFERRED STOCK
The preferred stock may be issued from time to time by the Board of Directors as
shares of one or more classes or series. Subject to the provisions of CRC-Evans'
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions of any class or series of shares,
including dividend rights, dividend rates, terms of redemption, redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the preferred stock, in each case without any further
action or vote by the stockholders. CRC-Evans has no current plans to issue any
shares of preferred stock of any class or series.
One of the effects of undesignated preferred stock may be to enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of CRC-Evans by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of CRC-Evans' management. The issuance of
shares of preferred stock pursuant to the Board of Directors' authority
described above may adversely affect the rights of the holders of common stock.
For example, preferred stock issued by CRC-Evans may rank prior to the common
stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the common stock at a premium or may otherwise adversely affect the market price
of the common stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE BYLAWS
CRC-Evans' Certificate of Incorporation divides the Board of Directors into two
classes, with one class of three directors and one class of four directors,
serving staggered two-year terms. As a result, only one class of directors will
be elected at each annual meeting of stockholders of the company with the other
class continuing for the remainder of its two-year term. Pursuant to the
Certificate of Incorporation, the Board of Directors is also authorized to issue
shares of "blank check" preferred stock. The Certificate of Incorporation also
provides that directors may only be removed with cause by a majority of the
stockholders.
Equus, Natural Gas Partners and Messrs. Wood, Carey and Evans have agreed to
approve an amended and restated Certificate of Incorporation providing for two
classes of directors to be elected to staggered terms, and amended and restated
bylaws to eliminate the need for special Board approval for certain actions and
to allow for the Bylaws to be more easily amended. These documents will be
adopted simultaneous with the effectiveness of the registration statement.
45
<PAGE>
The company's Bylaws permit stockholders to nominate a person for election as a
director before an annual stockholder meeting only if written notice of such
intent is provided to CRC-Evans at least 90 days prior to the meeting. Such
notice of intent to nominate a person for election as a director is required to
set forth the same kind of information respecting such nominee as would be
required under the proxy rules of the Commission, including the written consent
of the nominee to serve as a director, if elected, and the name and address of
the stockholder making the nomination as well as the number of shares owned by
such stockholder. In the case of other proposed business at an annual
stockholder meeting, the notice must be filed with the secretary of CRC-Evans
not less than 60 nor more than 120 days prior to the meeting, and must set forth
a brief description of each matter proposed, the name and address of the
stockholder proposing the matter, and the number of shares owned by such
stockholder.
The foregoing provisions may tend to deter any potential unfriendly offers or
other efforts to obtain control of CRC-Evans that are not approved by the Board
of Directors and thereby deprive the stockholders of opportunities to sell
shares of common stock at prices higher than the prevailing market price. On the
other hand, these provisions may tend to ensure continuity of management and
corporate policies and to induce any person seeking control of CRC-Evans or a
business combination with CRC-Evans to negotiate on terms acceptable to the then
elected Board of Directors.
DELAWARE ANTITAKEOVER LAW
CRC-Evans is subject to Section 203 of the Delaware General Corporation Law,
which prohibits Delaware corporations from engaging in a wide range of specified
transactions with any interested stockholder. "Interested stockholders"
include any person, other than such corporation and any of its majority-owned
subsidiaries, who owns 15% or more of any class or series of stock entitled to
vote generally in the election of directors, unless, among other exceptions, the
transaction is approved by (a) the Board of Directors prior to the date the
interested stockholder obtained such status or (b) the holders of two-thirds of
the outstanding shares of each class or series of stock entitled to vote
generally in the election of directors, not including those shares owned by the
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank.
REGISTRATION RIGHTS AGREEMENT
CRC-Evans entered into a Registration Rights Agreement dated June 12, 1997 with
Natural Gas Partners, Equus and Messrs. Wood, Evans and Carey. Approximately
5,350,120 shares of common stock have the benefit of "demand" registration
rights that may be exercised by the holders of not less than 20% of the stock
owned by the parties to the agreement and the employees of CRC-Evans on up to
three separate occasions that allow the holder to require CRC-Evans, subject to
certain limitations, to file a registration statement under the Securities Act
at CRC-Evans' expense covering all or part of such securities. In addition, all
of the parties to the agreement and all employee owners of these securities have
the benefit of "piggyback" registration rights that allow the holders thereof
to require CRC-Evans to register the underlying shares of common stock if
CRC-Evans files a registration statement under the Securities Act. If such
registration statement is with respect to an underwritten offering, the
underwriter may reduce the amount of "piggyback" shares to be registered in
the underwriting in its discretion. The registration rights agreement includes
traditional covenants and indemnification provisions, including the
indemnification of the selling stockholders for violations of the Securities
Act.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
When the offering is completed, CRC-Evans will have a total of 9,294,520 shares
of common stock outstanding. The 3,000,000 shares offered by this prospectus
will be freely tradable unless they are purchased by "affiliates" of
CRC-Evans, as defined in Rule 144 under the Securities Act. The remaining
6,294,520 shares are "restricted," which means they were originally sold in
certain types of offerings that were not subject to a registration statement
filed with the Commission. These restricted shares may be resold only through
registration under the Securities Act or under an available exemption from
registration, such as provided through Rule 144. Under Rule 144, all of the
restricted shares that are subject to the "lock-up" may be sold after the
180-day "lock-up" period.
In addition, 670,160 shares are issuable upon exercise of employee options, all
of which will be exercisable upon close of the offering. In addition, the
Company intends to issue 40,000 stock options concurrently with the close of
this offering. If any options are exercised, the shares issued upon exercise
will also be restricted, but may be sold under Rule 144 after the shares have
been held for one year. Sales under Rule 144 may be subject to certain volume
limitations and other conditions.
The holders of 5,441,400 shares of common stock have agreed to a 180-day
"lock-up" with respect to these shares. This generally means that they cannot
sell these shares during the 180 days following the date of this prospectus.
After the 180-day lock-up period, these shares subject to lock-up may be sold in
accordance with Rule 144. See "Underwriting" for additional details.
A total of 1,245,160 shares of common stock have been reserved for issuance
under CRC-Evans' outstanding options and option plans. CRC-Evans will register
on Form S-8 under the Securities Act the offering and sale of common stock
issuable under its option plans.
47
<PAGE>
UNDERWRITING
CRC-Evans has entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., Deutsche Bank Securities Inc. and Simmons &
Company International are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------- ---------
<S> <C>
CIBC World Markets Corp.................
Deutsche Bank Securities Inc............
Simmons & Company International.........
---------
Total.............................. 3,000,000
=========
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The shares should be ready for delivery on or about _______________, 1999
against payment in immediately available funds. The representatives have advised
CRC-Evans that the underwriters propose to offer the shares directly to the
public at the public offering price that appears on the cover page of this
prospectus. In addition, the representatives may offer some of the shares to
certain securities dealers at such price less a concession of $ per share.
The underwriters may also allow, and such dealers may reallow, a concession not
in excess of $ per share to other dealers. If all of the shares are not sold
at the initial public offering price, the representatives may change the public
offering price and the other selling terms.
CRC-Evans has granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 450,000 additional shares from
CRC-Evans to cover over-allotments. If the underwriters exercise all or part of
this option, they will purchase shares covered by the option at the initial
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full, the total price
to the public will be $ and the total proceeds to CRC-Evans will be
$ . The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriters' initial amount reflected in
the foregoing table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by CRC-Evans:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ------------------------- ---------------------------
<S> <C> <C> <C>
CRC-Evans International, Inc............ $ $ $
</TABLE>
CRC-Evans estimates that its total expenses of the offering, excluding the
underwriting discount, will be approximately $ .
48
<PAGE>
CRC-Evans has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
CRC-Evans, its officers and directors and some other stockholders have agreed to
a 180-day "lock-up" with respect to 5,441,400 shares of common stock that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that for a period of 180 days following the date of
this prospectus, CRC-Evans and such persons may not offer, sell, pledge or
otherwise dispose of these CRC-Evans securities without the prior written
consent of CIBC World Markets Corp.
The representatives have informed CRC-Evans that they do not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
CRC-Evans intends to use more than ten percent of the net proceeds of the sale
of the shares to repay indebtedness it owes to Bankers Trust Company, an
affiliate of one of the underwriters. Therefore, the offering is being made in
compliance with the requirements of Rule 2710(c)(8) of the National Association
of Securities Dealers, Inc. Conduct Rules. Under this rule, if more than ten
percent of the net proceeds from the sale of the shares, not including
underwriting compensation, is paid to the underwriters or their affiliates, the
initial public offering price of the stock can be no higher than that
recommended by a "qualified independent underwriter." In accordance with this
requirement, CIBC World Markets Corp. is assuming the responsibilities of acting
as a qualified independent underwriter in pricing the offering and conducting
due diligence. The price of the shares will be no higher than the price
recommended by
CIBC World Markets Corp.
There is no established trading market for the shares. The offering price for
the shares has been determined by CRC-Evans and the representatives, based on
the following factors:
o CRC-Evans' historical performance
o Estimates of the earnings prospects of CRC-Evans
o Prevailing capital markets conditions
o Market valuation of companies in related businesses
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
o Stabilizing transactions -- The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the price of
the shares, so long as stabilizing bids do not exceed a specified
maximum.
o Over-allotments and syndicate covering transactions -- The underwriters
may create a short position in the shares by selling more shares than are
set forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
o Penalty bids -- If the representatives purchase shares in the open market
in a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither CRC-Evans nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
49
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the common stock offered
hereby are being passed upon for CRC-Evans by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., and for the underwriters by Andrews & Kurth L.L.P.
EXPERTS
The consolidated financial statements of CRC Holdings Corp. and subsidiaries as
of March 31, 1998 and 1999 and for the period from June 12, 1997 (date of
inception) to March 31, 1998 and for the year ended March 31, 1999 and the
financial statements of CRC Holdings Corp. Predecessor Businesses for the year
ended March 31, 1997 and for the period from April 1, 1997 to June 11, 1997 have
been included herein and in the registration statement in reliance upon the
reports of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
CRC-Evans has filed a registration statement on Form S-1 with the Securities and
Exchange Commission. In addition, upon completion of the offering, CRC-Evans
will be required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy the registration statement and any other documents filed by CRC-Evans
at the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the Public Reference
Room. CRC-Evans' Securities and Exchange Commission filings are also available
to the public at the Securities and Exchange Commission's Internet site at
http://www.sec.gov.
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of CRC-Evans, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CRC Holdings Corp., and Subsidiaries:
Independent Auditors' Report.... F-2
Consolidated Balance
Sheets -- March 31, 1998 and
1999........................... F-3
Consolidated Statements of
Earnings -- Period from June
12, 1997
to March 31, 1998 and for the
year ended March 31, 1999...... F-4
Consolidated Statements of
Stockholders' Equity--Period
from June 12, 1997 to March 31,
1998 and for the year ended
March 31, 1999................. F-5
Consolidated Statements of Cash
Flows -- Period from June 12,
1997 to
March 31, 1998, and the year
ended March 31, 1999........... F-6
Notes to Consolidated Financial
Statements..................... F-7
CRC Holdings Corp. Predecessor
Business:
Independent Auditors' Report.... F-17
Statements of Earnings of Net
Assets Acquired -- Year ended
March 31, 1997
and for the period from April
1, 1997 to June 11, 1997....... F-18
Statements of Equity in Net
Assets Acquired -- Year ended
March 31, 1997 and for the
period from April 1, 1997 to
June 11, 1997.................. F-19
Statements of Cash Flows -- Year
ended March 31, 1997 and for
the
period from April 1, 1997 to
June 11, 1997.................. F-20
Notes to Financial Statements... F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
When the transaction referred to in Note 14 of the Notes to the Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
The Board of Directors
CRC Holdings Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of CRC Holdings
Corp. and subsidiaries as of March 31, 1998 and 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
period from June 12, 1997 (date of inception) to March 31, 1998 and for the year
ended March 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CRC Holdings Corp.
and subsidiaries as of March 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from June 12, 1997 (date of
inception) to March 31, 1998 and for the year ended March 31, 1999, in
conformity with generally accepted accounting principles.
Tulsa, Oklahoma
May 11, 1999, except Note 14
which is as of [date].
F-2
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................ $ 1,558,837 $ 7,724,327
Accounts receivable, net of
allowance for doubtful accounts
of $317,490 and $491,862 at
March 31, 1998 and 1999,
respectively................... 15,968,674 20,039,225
Inventories..................... 18,281,331 21,246,406
Prepaid expenses and other
current assets................. 658,302 2,060,397
Deferred income taxes........... 351,243 2,368,992
Deferred costs.................. 2,971,685 2,917,401
------------- -------------
Total current assets....... 39,790,072 56,356,748
------------- -------------
Rental assets, net of accumulated
depreciation of $1,776,359 and
$4,209,286 at March 31, 1998 and
1999, respectively................. 9,836,440 19,200,799
Net property, plant and equipment.... 4,717,621 5,951,769
Debt issue costs, net of accumulated
amortization of $231,078 and
$562,542, at March 31, 1998 and
1999, respectively................. 1,509,360 1,361,611
Goodwill, net of accumulated
amortization of $144,122........... -- 3,124,790
Deferred income taxes................ 273,110 1,795,173
Other assets......................... 225,475 468,220
------------- -------------
$ 56,352,078 $ 88,259,110
============= =============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current installments of
long-term debt................. $ 2,387,704 $ 3,517,858
Bank overdraft.................. 782,951 --
Accounts payable -- trade....... 3,765,307 6,679,755
Income taxes payable............ 635,645 1,067,992
Accrued liabilities............. 6,019,850 8,221,809
Deferred revenue................ 2,134,545 7,705,859
------------- -------------
Total current
liabilities............. 15,726,002 27,193,273
Long-term debt, excluding current
installments....................... 29,019,192 31,822,515
Accrued stock compensation........... -- 4,424,763
------------- -------------
12% subordinated notes due 2002...... 1,919,400 1,919,400
Deferred income taxes................ 83,100 820,669
------------- -------------
Total liabilities.......... 46,747,694 66,180,620
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value,
2,500,000 shares authorized,
none issued and outstanding.... -- --
Common stock, $.01 par value,
25,000,000 shares authorized;
4,000,000 and 6,294,520 shares
issued at March 31, 1998 and
March 31, 1999, respectively... 40,000 62,945
Additional paid-in capital...... 9,100,000 15,159,777
Retained earnings............... 2,342,515 9,150,727
Accumulated other comprehensive
income (loss).................. 41,269 (266,793)
------------- -------------
11,523,784 24,106,656
Less notes receivable from
stockholders................... 1,919,400 2,028,166
------------- -------------
Total stockholders'
equity.................. 9,604,384 22,078,490
Commitments and contingencies
(Notes 12, 14 and 15)..........
------------- -------------
$ 56,352,078 $ 88,259,110
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 12, 1997
TO YEAR ENDED
MARCH 31, 1998 MARCH 31, 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Sales revenue................... $23,849,375 $33,777,054
Rental and service revenue...... 28,254,107 63,925,835
--------------- ---------------
Total revenues............. 52,103,482 97,702,889
--------------- ---------------
Cost of revenues:
Cost of equipment sales......... 16,096,239 22,898,295
Cost of rentals and service..... 18,573,383 34,518,931
--------------- ---------------
Total cost of revenues..... 34,669,622 57,417,226
--------------- ---------------
Gross profit............... 17,433,860 40,285,663
Operating expenses:
Selling, general and
administrative................ 10,113,322 20,620,547
Stock compensation expense...... -- 4,424,763
Research and development........ 951,180 1,687,925
Other expenses (income)......... 79,148 (530,197)
--------------- ---------------
11,143,650 26,203,038
--------------- ---------------
Operating income........... 6,290,210 14,082,625
Interest expense..................... 2,411,405 3,098,313
--------------- ---------------
Income before income
taxes.................... 3,878,805 10,984,312
Income tax expense................... 1,536,290 4,176,100
--------------- ---------------
Net income................. $ 2,342,515 $ 6,808,212
=============== ===============
Net earnings per share:
Basic........................... $ .59 $ 1.14
=============== ===============
Diluted......................... $ .57 $ 1.04
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED NOTES
COMMON STOCK CAPITAL IN OTHER RECEIVABLE
---------------------- EXCESS OF RETAINED COMPREHENSIVE FROM
SHARES PAR VALUE PAR VALUE EARNINGS INCOME (LOSS) STOCKHOLDERS
--------- --------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 12, 1997............... -- $ -- $ -- $ -- $ -- $ --
Issuance of stock.................. 4,000,000 40,000 9,100,000 -- -- (1,919,400)
Comprehensive income:
Net income....................... -- -- -- 2,342,515 -- --
Translation adjustments.......... -- -- -- -- 41,269 --
Total comprehensive
income....................
--------- --------- ------------ ----------- ------------- ------------
Balance, March 31, 1998.............. 4,000,000 40,000 9,100,000 2,342,515 41,269 (1,919,400)
Issuance of stock.................. 2,294,520 22,945 5,170,033 -- -- (108,766)
Comprehensive income:
Net income....................... -- -- -- 6,808,212 -- --
Translation adjustments.......... -- -- -- -- (308,062) --
Total comprehensive
income....................
Tax effect of management stock
valuation........................ -- -- 889,744 -- -- --
--------- --------- ------------ ----------- ------------- ------------
Balance, March 31, 1999.............. 6,294,520 $62,945 $ 15,159,777 $ 9,150,727 $(266,793) $(2,028,166)
========= ========= ============ =========== ============= ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, June 12, 1997............... $ --
Issuance of stock.................. 7,220,600
Comprehensive income:
Net income....................... 2,342,515
Translation adjustments.......... 41,269
-------------
Total comprehensive
income.................... 2,383,784
-------------
Balance, March 31, 1998.............. 9,604,384
Issuance of stock.................. 5,084,212
Comprehensive income:
Net income....................... 6,808,212
Translation adjustments.......... (308,062)
-------------
Total comprehensive
income.................... 6,500,150
Tax effect of management stock
valuation........................ 889,744
-------------
Balance, March 31, 1999.............. $22,078,490
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 12,
1997 TO YEAR ENDED
MARCH 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................... $ 2,342,515 $ 6,808,212
Adjustments to reconcile net income
to net cash
provided by operating
activities:
Depreciation and
amortization............... 2,341,344 4,000,009
Retirements of property and
rental assets.............. 9,717 903,938
Deferred income tax benefit... (224,000) (1,912,499)
Deferred stock compensation... -- 4,424,763
(Increase) decrease in assets:
Accounts receivable........ (599,867) (2,307,080)
Inventories................ (10,981) (2,146,167)
Prepaid expenses and other
assets................... (666,113) (1,936,673)
Deferred costs............. (2,885,960) 54,284
Increase (decrease) in
liabilities:
Accounts
payable -- trade......... (1,375,868) 2,328,793
Accrued liabilities........ 1,301,109 1,990,658
Income taxes payable....... 635,645 (236,793)
Deferred revenue........... 2,134,545 5,571,314
----------- -----------
Net cash provided by
(used in) operating
activities............ 3,002,086 17,542,579
----------- -----------
Cash flows from investing activities:
Capital expenditures............... (1,082,942) (7,164,096)
Payment for acquired business...... (39,963,985) (11,955,954)
----------- -----------
Net cash used in
investing
activities............ (41,046,927) (19,120,050)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt....... 32,889,959 20,872,104
Principal payments on long-term
debt............................ (1,510,063) (16,938,627)
Increase (decrease) in bank
overdraft....................... 782,951 (782,951)
Debt issuance costs................ (1,740,438) (183,715)
Loans to stockholders, net......... -- (108,766)
Proceeds from issuance of common
stock........................... 9,140,000 5,192,978
----------- -----------
Net cash provided by
financing
activities............ 39,562,409 8,051,023
Effect of exchange rate changes on
cash............................... 41,269 (308,062)
----------- -----------
Net increase in cash................. 1,558,837 6,165,490
Cash at beginning of period.......... -- 1,558,837
----------- -----------
Cash at end of period................ $ 1,558,837 $ 7,724,327
=========== ===========
Supplementary disclosure of cash flow
information:
Cash paid for interest............. $ 2,411,405 $ 3,098,313
=========== ===========
Income taxes....................... $ 1,056,859 $ 5,656,252
=========== ===========
Supplemental disclosure of non-cash
financing information --
Notes receivable from stockholders
for common stock................ $ 1,919,400 $ 108,766
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
CRC Holdings Corp. and subsidiaries (the Company) designs, manufactures, sells,
and rents specialized equipment to the pipeline construction and rehabilitation
industry. The Company operates on a world wide basis through wholly owned
subsidiaries with principal operations located in Tulsa, Oklahoma; Houston,
Texas; Edmonton, Alberta; Burnley, United Kingdom; and Hoevelaken, the
Netherlands.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of CRC
Holdings Corp. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method for all inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Betterments and renewals that extend the life of the asset are capitalized;
other repairs and maintenance are expensed.
The estimated useful lives for determining depreciation for the major classes of
assets are:
<TABLE>
<S> <C>
Buildings and improvements.............. 20 to 40 years
Machinery and equipment................. 7 years
Furniture and fixtures.................. 7 years
Automobiles and trucks.................. 5 years
Computer equipment...................... 5 years
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets carrying amount. The impairment is measured by comparing the
fair value of the asset to its carrying amount. Fair values are based on
discounted future cash flows or information provided by sales and purchases of
similar assets.
DEBT ISSUANCE COSTS
Debt issuance costs are initially capitalized as intangible assets and are
amortized over the term of the debt to which they relate.
REVENUE RECOGNITION
Equipment sales revenue is recognized when the equipment is shipped. Equipment
rental revenue is deferred and recognized ratably over the term of the rental
agreement. Service revenue is recognized upon customer billing which occurs at
the time the services have been rendered. Cost associated with refurbishing
rental equipment is incurred and deferred at the time the equipment is readied
for use. Such costs are amortized during the rental period.
F-7
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected period
to be benefited which is 15 years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the balance over its
remaining life can be recovered through undiscounted future cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
All significant asset and liability accounts stated in currencies other than
United States dollars are translated into United States dollars at year end
exchange rates. Translation adjustments are accumulated in a separate component
of stockholders' equity. Revenue and expense accounts are converted at
prevailing rates throughout the year.
EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) plan which covers substantially
all employees. This plan invests in a variety of mutual funds, each with
different objectives. For the first 6% of annual salary an employee contributes
to the plan, the Company makes a 50% matching contribution. The total
contributions made to the plan by the Company during the period ended March 31,
1998 and the year ended March 31, 1999 were $61,000 and $500,000, respectively.
STOCK OPTION PLAN
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK-BASED COMPENSATION, and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
ENVIRONMENTAL REMEDIATION OBLIGATIONS
The Company accrues for losses associated with environmental remediation
obligations, if any, when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental remediation
obligations are not discounted to their present value. Recoveries of
environmental remediation costs from other parties, if any, are recorded as
assets when their receipt is deemed probable.
F-8
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
130, REPORTING COMPREHENSIVE INCOME, in 1998. The statement requires reporting
of comprehensive income, which includes all changes in stockholders' equity
other than additional investments by stockholders or distributions to
stockholders. There are no related tax effects associated with the Company's
calculations of comprehensive income.
(2) FORMATION AND ACQUISITION
The Company was formed to acquire the net assets of CRC-Evans Pipeline
International, Inc. and the issued and outstanding shares of CRC-Evans Canada
Ltd. and Pipeline Induction Heat Ltd., wholly owned subsidiaries of the Company.
The aggregate purchase price after working capital adjustments was $41,930,000,
including debt issue costs of $1,600,000 and cash acquired of $366,251. The
transaction was effective June 12, 1997. Other than the issuance of capital
stock and debt on June 12, 1997 the Company had no operations prior to June 12,
1997.
The purchase price net of cash acquired was allocated to the assets acquired and
liabilities assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable.................. $ 15,368,807
Inventories.......................... 18,270,350
Rental assets........................ 10,721,613
Property, plant and equipment........ 4,869,489
Deferred income taxes................ 317,253
Other assets......................... 303,389
Accounts and notes payable........... (5,168,175)
Accrued liabilities.................. (4,718,741)
--------------
Net assets acquired............. $ 39,963,985
==============
</TABLE>
In connection with the original issuance of the capital stock the Company also
issued subordinated debentures to certain of its shareholders. The proceeds were
utilized to allow other shareholders to purchase capital stock. The loan is
subordinated, bears interest at 12% and is payable in 2002. The notes receivable
bear interest at 6.75%, are repayable in 2002 and are secured by the common
stock of the Company.
(3) BUSINESS AND CREDIT CONCENTRATIONS
The Company has a concentration of customers in the oil and gas pipeline
construction industry which expose the Company to a concentration of credit risk
within an industry. Receivables are generally not collateralized. The Company
believes that the allowance for bad debts is adequate.
Ten customers were responsible for 45% of the Company's total revenue in the
period ended March 31, 1998. In addition, one customer accounted for
approximately 11% of the Company's total revenues in the period ended March 31,
1998. Ten customers were responsible for 33% of the Company's total revenue in
the year ended March 31, 1999.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, bank overdraft, trade
accounts payable, income taxes payable, and accrued liabilities approximate fair
value due to the short maturity of these instruments.
F-9
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts of notes receivable from shareholders, long-term debt, and
notes payable to shareholders approximate fair value as the interest rates and
terms of the agreements approximate those available to the Company in the
marketplace.
(5) INVENTORIES
Inventories at March 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Raw materials........................... $ 8,661,523 $ 10,228,019
Work-in-process......................... 2,244,875 3,057,198
Finished goods.......................... 7,374,933 7,961,189
------------- -------------
$ 18,281,331 $ 21,246,406
============= =============
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, at March 31, 1998 and 1999 consists of:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Property, plant and equipment:
Land and improvements.............. $ 1,026,228 $ 1,316,925
Buildings and improvements......... 2,591,995 2,569,917
Machinery and equipment............ 325,021 618,863
Furniture and fixtures............. 83,165 168,613
Automobiles and trucks............. 379,345 486,186
Leasehold improvements............. 295,940 291,375
Computer equipment................. 344,179 1,120,079
------------ ------------
5,045,873 6,571,958
Less accumulated depreciation and
amortization.......................... (328,252) (620,189)
------------ ------------
Net property, plant and
equipment........................ $ 4,717,621 $ 5,951,769
============ ============
</TABLE>
(7) GEOGRAPHIC DATA
The Company believes that all of its operations are part of the pipeline
construction and rehabilitation industry and accordingly reports as a single
industry segment. Worldwide operations are conducted through the Company's
principal subsidiaries located in the United States, the United Kingdom and
Canada. Information relating to the Company's operations is set forth in the
following table. Identifiable assets consist of accounts receivable,
inventories, fixed assets and rental equipment. Cost of rental equipment has
been allocated to geographical locations based on the insured value of the
equipment attributable to specific rental contracts.
F-10
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM JUNE 12, 1997 YEAR ENDED
TO MARCH 31, 1998 MARCH 31, 1999
----------------------------- -----------------------------
IDENTIFIABLE IDENTIFIABLE
REVENUES ASSETS REVENUES ASSETS
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Algeria.............................. $ 794,000 $ -- $ 3,943,000 $ 45,000
Brazil............................... 2,040,000 1,111,000 3,915,000 914,000
Canada............................... 5,521,000 3,977,000 20,658,000 4,734,000
France............................... 2,772,000 64,000 767,000 60,000
Russia............................... 3,955,000 -- 260,000 8,000
United Kingdom....................... 3,470,000 6,703,000 6,494,000 6,440,000
United States........................ 14,069,000 31,209,000 34,055,000 47,031,000
All other............................ 19,482,000 5,740,000 27,611,000 7,506,000
------------- ------------ ------------- ------------
$ 52,103,000 $48,804,000 $ 97,703,000 $66,738,000
============= ============ ============= ============
</TABLE>
(8) LONG-TERM DEBT
Long-term debt at March 31, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Note payable to bank, bearing
interest at either (i) a base rate
equal to the lendor's base rate or
0.5% above the Federal funds
effective rate, plus 0.25% to 1%,
or (ii) the Eurodollar rate plus
the applicable margin ranging from
1.75% to 2.50% (8.1875% and 6.75%
at March 31, 1998 and 1999,
respectively); payable in
escalating quarterly installments;
secured by substantially all assets
of the Company. (a)................ $ 18,500,000 $ 16,125,000
Notes payable to bank under
$5,000,000 line of credit and
$2,500,000 acquisition facility,
bearing interest at a floating rate
equal to LIBOR plus 1% (10.0389%
and 7.9457% at March 31, 1998 and
1999, respectively); secured by
substantially all assets of the
Company. (a), (b).................. 2,389,959 4,860,180
Note payable to bank under
$25,000,000 line of credit,
$2,500,000 and $3,000,000 bearing
interest at (9.5% and 8.0% at March
31, 1998 and 1999, respectively);
$8,000,000 bearing interest at
either (i) a base rate equal to the
higher of the Lendor's base rate or
0.5% above the Federal funds
effective rate, plus 0.25% to 1%,
or (ii) the Eurodollar rate plus
the applicable margin ranging from
1.75% to 2.50% (8.1875% and 6.75%
at March 31, 1998 and 1999,
respectively) secured by
substantially all assets of the
Company. (a), (b).................. 10,500,000 3,000,000
Note payable to bank, under
$17,500,000 acquisition facility,
bearing interest either (i) a base
rate equal to the higher of the
Lendor's base rate or 0.5% above
the Federal funds effective rate,
plus 0.25% to 1%, or (ii) the
Eurodollar rate plus the applicable
margin ranging from 1.75% to 2.50%
(6.75% at March 31, 1999) secured
by all assets of the Company. (a),
(b)................................ -- 11,000,000
Other installment notes.............. 16,937 355,193
------------- -------------
Total long-term debt................. 31,406,896 35,340,373
Less current installments............ (2,387,704) (3,517,858)
------------- -------------
Total long-term debt, excluding
current installments............... $ 29,019,192 $ 31,822,515
============= =============
</TABLE>
- ---------------------------
(a) The loan agreement which expires June 12, 2003, contains various covenants,
including, but not limited to, maintenance of minimum net worth and a ratio
of liabilities to net worth, as defined in the agreement.
(b) The Company is required to pay a commitment fee ranging from 0.25% to 0.50%
of the unused portion of the revolving line of credit. The commitment fee
varies based upon the ratio of average funded debt to earnings before
interest, taxes, depreciation, and amortization.
F-11
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000................................. $ 3,517,858
2001................................. 5,654,193
2002................................. 6,984,707
2003................................. 8,965,605
2004................................. 10,218,010
</TABLE>
(9) INCOME TAXES
Income tax expense (benefit) for the period from June 12, 1997 to March 31, 1998
and the year ended March 31, 1999 consists of the following:
<TABLE>
<CAPTION>
1998 CURRENT DEFERRED TOTAL
- ------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Federal.............................. $ 1,133,323 (191,265) 942,058
State................................ 162,038 (17,735) 144,303
International........................ 464,929 (15,000) 449,929
------------ ------------- ------------
$ 1,760,290 (224,000) 1,536,290
============ ============= ============
<CAPTION>
1999 CURRENT DEFERRED TOTAL
- ------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Federal.............................. $ 3,360,181 $ (1,851,251) $ 1,508,930
State................................ 475,797 (167,257) 308,540
International........................ 2,252,621 106,009 2,358,630
------------ ------------- ------------
$ 6,088,599 $ (1,912,499) $ 4,176,100
============ ============= ============
</TABLE>
Total income tax expense differs from the amounts computed by applying the U.S.
federal statutory income tax rates of 35% to income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Computed "expected" income tax
expense............................ $ 1,357,582 $ 3,844,509
Increase (decrease) in income taxes
resulting from:
State income taxes, net of
federal income tax benefit.... 173,678 200,551
Foreign income taxes............ (31,699) 71,193
Expenses not deductible for
income tax purposes........... 121,243 256,915
Other........................... (84,514) (197,068)
------------ ------------
$ 1,536,290 $ 4,176,100
============ ============
</TABLE>
F-12
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets (liabilities) at March 31, 1998 and 1999 are
presented below:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Inventories, principally due to
additional costs capitalized
for tax purposes and the
allowance for obsolete
inventory..................... $ 49,708 $ 36,681
Accrued liabilities not
deductible until paid......... 768,420 1,085,093
Management stock compensation... -- 889,744
Deferred revenue taxable when
received...................... 610,644 1,323,016
Deferred compensation costs for
book purposes................. -- 1,660,329
Rental costs deferred for book
purposes...................... (1,077,529) (1,077,600)
Property and equipment,
principally due to differences
in depreciation............... 120,260 (684,744)
Other........................... 69,750 110,977
------------- -------------
Net deferred tax assets.... $ 541,253 $ 3,343,496
============= =============
</TABLE>
During 1999, the Company amended certain provisions of the shareholders
agreement which resulted in taxable income to the shareholders and a
corresponding tax benefit to the Company of approximately $890,000, which has
been credited to additional paid-in capital.
Management believes that it is more likely than not that the Company will
realize the benefit of the deferred tax assets in future periods.
(10) EARNINGS PER SHARE
The following information reconciles the number of shares used to compute basic
earnings per share to those used to compute diluted earnings per share:
<TABLE>
<CAPTION>
PERIOD FROM JUNE 12,
1997 YEAR ENDED
TO MARCH 31, 1998 MARCH 31, 1999
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net Income........................... $ 2,342,515 $ 6,808,212
Weighted average shares of common
stock outstanding.................. 4,000,000 5,981,645
Basic earnings per share........ $ .59 $ 1.14
============ ============
Effect of dilutive
securities -- stock options........ 120,000 585,259
---------- ----------
4,120,000 6,566,904
========== ==========
Diluted earnings per share...... $ .57 $ 1.04
============ ============
</TABLE>
(11) STOCK OPTION PLANS
As of June 12, 1997, the Company issued to certain employees options to purchase
up to 138,080 shares of the Company's common stock (the June 1997 Plan). Options
granted under the June 1997 Plan have an exercise price of $2.78 per share and
vest at the rate of 20% per year over five years, beginning with the first
anniversary of the date of the option agreement and continuing until the fifth
anniversary of the agreement, at which time the options are fully vested. Each
option expires on August 31, 2002.
The Company adopted a stock option plan on May 20, 1998 (the May 1998 Plan). The
May 1998 Plan authorizes the issuance of additional options to purchase up to
550,160 shares of common stock to certain employees, officers, contractors or
consultants of the Company. Options granted under the May 1998 Plan have an
exercise price of $2.78 per share and vest at a rate of 33 1/3% per year over
three years, beginning with the first anniversary of the agreement and
continuing until the third anniversary of the agreement, at which time the
options are fully vested. Each option expires on May 31, 2003.
F-13
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options are not transferable other than by will or the laws of descent and
distribution. Each option may be exercised within the term of the option
agreement pursuant to which it was granted, so long as the Company continues to
employ the optionee.
In connection with the issuance of these options the Company has recognized
compensation expense of approximately $4,425,000 representing the difference
between the estimated fair value per share of $15.00 and the option exercise
price of $2.78 per share. Compensation expense remaining to be recognized over
the service period according to the original vesting schedule is approximately
$3,767,943. Upon successful completion of the transaction referred to in Note
14, the Company intends to vest all of the options immediately. In this case,
the entire amount of remaining compensation expense would be recognized in
fiscal year 2000.
Shares purchased upon exercise of vested options will require substantive
investment on the part of the option holders. Options or shares cannot be put
back to the Company other than upon termination and significant restrictions
exist on the part of the option holders ability to sell options or shares back
to the Company upon termination. As such, all option plans are fixed plans and
are accounted for using the intrinsic value method.
The Company applies APB 25 and related Interpretations in accounting for its
stock option plans. Had compensation cost been determined consistent with FASB
No. 123, the Company's compensation expense would be reduced by approximately
$3,741,000 in 1999. Net income would have been increased by approximately
$2,359,000 ($.35 per share) in 1999.
The per share weighted-average fair value of options granted is calculated using
the Black Scholes option-pricing model, assuming the options have a remaining
life of 2 years, the weighted-average risk-free interest rate at the dates of
grant is 5.42% percent and volatility of 45%. The weighted average fair value of
options is $12.50 per share.
The Company's stock option activity and related information consist of:
<TABLE>
<CAPTION>
PERIOD FROM JUNE 12, 1997 YEAR ENDED
TO MARCH 31, 1998 MARCH 31, 1999
---------------------------- ----------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year....... -- $-- 138,080 $ 2.78
Granted.............................. 138,080 2.78 550,160 2.78
Exercised............................ -- -- -- --
--------- -------------- --------- --------------
Outstanding, end of year............. 138,080 $ 2.78 688,240 $ 2.78
========= ============== ========= ==============
Exercisable at end of year........... -- $ 2.78 27,616 $ 2.78
========= ============== ========= ==============
</TABLE>
To date, no options have been exercised.
(12) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company provides warranties on parts and
equipment sold and rented.
In addition to these warranties, the Company has warranted specific systems and
components provided for an oceangoing pipe laying vessel. The Company was liable
for all items, systems, components, and spare parts through October 1998 and
remains liable for design failure through June 2000. The Company's liability on
design failure is limited to the amount required to correct the design failure,
including replacement, reassembly, and technical support. The Company is not
liable for loss of business or revenue. The vessel is undergoing tests and no
claims have been made to date under the warranty provisions of the contract. The
Company has accrued an estimated amount for its liability under the warranty
provisions. The
F-14
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate amount of warranty claims, if any, cannot be determined. Payments of
claims significantly in excess of amounts accrued, if any, could have an adverse
effect on the Company's consolidated financial position, results of operations,
and liquidity.
The Company has entered into agreements with certain stockholders to acquire
18,080 shares of common stock at a price determined in accordance with the
provisions of the Company's stock option plan.
The Company is obligated under various noncancelable operating leases for
certain operating facilities, automobiles, and equipment. The remaining terms of
the leases range from one to sixteen years. Future minimum lease payments as of
March 31, 1999 are:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C>
2000....................... $ 266,206
2001....................... 257,291
2002....................... 229,936
2003....................... 161,313
2004....................... 161,313
Thereafter...................... 1,350,456
</TABLE>
Rent expense was approximately $290,385 and $804,000 for the period from June
12, 1997 to March 31, 1998 and the year ended March 31, 1999, respectively.
The Company has outstanding standby letters of credit aggregating $897,000 to
guarantee performance to third parties under certain contracts.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
(13) BUSINESS ACQUISITIONS
In April 1998, the Company acquired substantially all of the business assets of
B.L. Key Services LLC (B. L. Key), a manufacturer and seller of concrete
pipeline weights. The purchase price of the assets acquired totaled
approximately $3,160,000 of which $1,029,000 was paid in cash and $2,131,000 was
financed with a short-term note payable due July 1998. The excess of purchase
price over fair value of net assets acquired, is amortized on a straight-line
basis over 15 years.
The estimated fair value of assets acquired consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Inventory............................ $ 119,000
Property and equipment............... 1,193,000
Other................................ 29,000
------------
Fair value of net assets
acquired...................... 1,341,000
Excess of purchase price paid over
fair value of assets acquired...... 1,819,000
------------
$ 3,160,000
============
</TABLE>
The purchase agreement includes an earnout component, whereby the Company is
obligated to pay previous owners up to $5,500,000 based on earnings of B. L.
Key. The Company accrued $68,423 during 1999 in connection with the agreement.
In May 1998, the Company acquired substantially all of the pipeline equipment
assets of Hamilton Heavy Equipment, Inc. and Jerry Hamilton dba HHC
International. The purchase price of the assets was $6,093,000 of which
$5,693,000 was paid in cash at closing, and $400,000 was financed with an
installment note payable due May 2003.
F-15
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of the assets acquired consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Rental assets........................ $ 5,590,000
Inventory............................ 449,000
Property and equipment............... 54,000
------------
$ 6,093,000
============
</TABLE>
In November 1998, the Company acquired substantially all of the business assets
of Didcot Heat Treatment Limited (Didcot) for an aggregate purchase price of
$2,702,000. Didcot performs resistance heat treating services, with its primary
markets in the United Kingdom and Western Europe. The estimated fair value of
assets acquired aggregated $1,700,000. The excess of the purchase price paid
over the fair value of the assets acquired was $1,002,000 and is being amortized
on a straight-line basis over 15 years.
Management believes the effect of disclosing pro forma results of these
acquisitions to be immaterial.
(14) INITIAL PUBLIC OFFERING
The Company has filed a registration statement with the Securities and Exchange
Commission relating to the initial public offering (IPO) of 3,000,000 shares of
its common stock. The Company intends to use the net proceeds from the offering,
estimated to be $40,769,000 to repay indebtedness and to provide working capital
for general corporate purposes, including strategic acquisitions. At or before
the effective date of this registration statement, the Company intends to effect
a 40-for-1 split of its common stock. The share and per share amounts in the
accompanying financial statements have been adjusted to reflect the common stock
split for all periods presented.
The Company will adopt a stock incentive plan effective as of the effectiveness
of the registration statement. At such time, 575,000 shares of common stock will
be subject to issuance under the incentive plan. The incentive plan provides for
the grant of stock options, stock appreciation rights, and other stock awards
(including restricted stock awards, dividend rights and stock bonuses) to any
officer, director, or employee of CRC-Evans or its subsidiaries, or any
consultant or advisor engaged by CRC-Evans or its subsidiaries. The Company
intends to issue an additional 40,000 options concurrently with the close of the
offering.
(15) YEAR 2000
The Company uses a number of computer programs across its entire operation both
in application software (IT applications) and in plant and equipment (embedded
technology). In view of the potential adverse impact of the Year 2000 issue on
its business, operations, and financial condition, the Company has established a
central function to coordinate and report on a continuing basis with regard to
the assessment, remediation planning, and plan implementation processes of the
Company directed to Year 2000 issues in the IT application and embedded
technology contexts.
The Company has completed surveying its major vendors and customers and has
checked its products' computers (particularly its automated welding system) for
Year 2000 compliance. The Company believes that the Year 2000 assessment,
remediation planning and plan implementation will be completed by September 30,
1999.
Costs to date incurred in connection with the Year 2000 assessment, remediation,
planning and plan implementation are approximately $600,000 of which $100,000
has been expensed (the remaining costs being capital items). Aggregate cost to
the Company, including estimated cost of $600,000 associated with the
acquisition and installation of a new business software system, is estimated to
be $900,000. Substantially all of these costs are expected to be funded with
working capital and have been used to replace rather than repair the Company's
software and hardware. The Company is continuing its assessment of the impact of
Year 2000 across its business and operations, but currently believes that the
costs of addressing this issue will not have a material adverse impact on the
Company's financial position.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CRC Holdings Corp.:
We have audited the statements of earnings of net assets acquired, equity in net
assets acquired and cash flows of CRC Holdings Corp. Predecessor Businesses for
the year ended March 31, 1997 and for the period from April 1, 1997 to June 11,
1997. These financial statements are the responsibility of the management of CRC
Holdings Corp. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of CRC Holdings
Corp. Predecessor Businesses for the year ended March 31, 1997 and for the
period from April 1, 1997 to June 11, 1997, in conformity with generally
accepted accounting principles.
Tulsa, Oklahoma
October 3, 1998
F-17
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENTS OF EARNINGS OF NET ASSETS ACQUIRED
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
MARCH 31, APRIL 1, 1997
1997 TO JUNE 11, 1997
------------- -----------------
<S> <C> <C>
Revenues:
Sales revenue................... $ 26,081,330 $ 5,686,973
Rental and service revenue...... 43,293,159 6,928,325
------------- -----------------
Total revenues............. 69,374,489 12,615,298
------------- -----------------
Cost of revenues:
Cost of sales revenue........... 18,372,975 3,712,139
Cost of rental and service
revenue....................... 28,302,656 5,450,835
------------- -----------------
Total cost of revenues..... 46,675,631 9,162,974
------------- -----------------
Gross profit............... 22,698,858 3,452,324
------------- -----------------
Operating expenses:
Selling, general and
administrative................ 13,017,645 3,015,862
Research and development........ 753,919 152,928
Other expenses (income)......... 367,135 (152,674)
------------- -----------------
Operating income........... 8,560,159 436,208
Interest income...................... 688,714 49,676
------------- -----------------
Income before income
taxes...................... 9,248,873 485,884
Income tax expense................... 3,359,203 207,108
------------- -----------------
Net income................. $ 5,889,670 $ 278,776
============= =================
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENTS OF EQUITY IN NET ASSETS ACQUIRED
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997
MARCH 31, TO JUNE 11,
1997 1997
---------- ----------------
<S> <C> <C>
Equity in net assets acquired at
beginning of period.................. $27,841,772 $34,861,903
Comprehensive income:
Net income................. 5,889,670 278,776
Effect of exchange rate
changes.................. 306,999 297,725
---------- ----------------
Total comprehensive
income.............. 6,196,669 576,501
Net capital contributions
(withdrawals)................. 823,462 (2,948,148)
---------- ----------------
Equity in net assets at end of
period............................. $34,861,903 $32,490,256
========== ================
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997
MARCH 31, TO JUNE 11,
1997 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................... $ 5,889,670 $ 278,776
Adjustments to reconcile net income
to net cash
provided by operating
activities:
Depreciation and
amortization................. 2,287,012 387,560
Other......................... 153,451 (25,740)
Deferred income tax expense
(benefit).................... (417,356) 3,027
(Increase) decrease in assets:
Accounts receivable........ (2,107,661) 1,789,726
Inventories................ (2,928,757) (3,012,645)
Prepaid expenses and other
assets.................. (152,757) 187,770
Deferred costs............. (903,350) (683,481)
Increase (decrease) in
liabilities:
Accounts
payable -- trade........ 413,025 483,449
Accrued liabilities........ (1,551,140) 155,028
Income taxes payable....... (324,381) (326,208)
Deferred income............ 2,703,531 531,436
------------- -------------
Net cash provided by
(used in) operating
activities........... 3,061,287 (231,302)
------------- -------------
Cash flows from investing
activities --
Capital expenditures............... (2,366,731) (37,147)
------------- -------------
Net cash used in
investing
activities........... (2,366,731) (37,147)
------------- -------------
Cash flows from financing activities:
Principal payments on debt......... (8,957) (2,121)
Net increase (decrease) in equity
in net assets acquired.......... 823,462 (2,948,148)
------------- -------------
Net cash provided by
(used in) financing
activities........... 814,505 (2,950,269)
------------- -------------
Effect of exchange rate changes on
cash............................... 306,999 297,725
------------- -------------
Net increase (decrease) in cash...... 1,816,060 (2,920,993)
Cash at beginning of period.......... 945,316 2,761,376
------------- -------------
Cash at end of period................ $ 2,761,376 $ (159,617)
============= =============
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective June 12, 1997 CRC Holdings Corp. (Holdings) acquired from Weatherford
Enterra, Inc. (Weatherford) the net assets of CRC-Evans Pipeline International,
Inc. and the issued and outstanding shares of CRC-Evans Canada, Ltd, and
Pipeline Induction Heat, Ltd. (collectively the Predecessor Businesses). Prior
to the acquisition the Predecessor Businesses were operated as a business unit
by Weatherford.
The accompanying financial statements have been prepared from records maintained
by Weatherford and may not necessarily be indicators of the conditions which
could have existed if the Predecessor Businesses had been operated as an
independent entity.
DESCRIPTION OF BUSINESS
The Predecessor Businesses design, manufacture, sell, and rent specialized
equipment to the pipeline construction and rehabilitation industry. The
Predecessor Businesses operate on a world wide basis with principal operations
located in Tulsa, Oklahoma; Houston, Texas; Edmonton, Alberta; Burnley, United
Kingdom; and Hoevelaken, the Netherlands.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Betterments and renewals that extend the life of the asset are capitalized;
other repairs and maintenance are expensed.
The estimated useful lives for determining depreciation for the major classes of
assets are:
<TABLE>
<S> <C>
Buildings and improvements........... 20 to 40 years
Machinery and equipment.............. 7 years
Furniture and fixtures............... 7 years
Automobiles and trucks............... 5 years
Computer equipment................... 5 years
</TABLE>
REVENUE RECOGNITION
Equipment sales revenue is recognized when the equipment is shipped. Equipment
rental revenue is recognized during the period of customer usage. Rental revenue
derived from equipment located outside of the continental United States is
deferred and recognized ratable over the term of the rental agreement. Service
revenue is recognized upon customer billing which occurs at the time the
services have been rendered. Cost associated with refurbishing rental equipment
is incurred and deferred at the time the equipment is readied for use. Such
costs are amortized during the rental period.
INCOME TAXES
The results of operations of the Predecessor Businesses are included in
Weatherford's consolidated federal and state income tax returns. Income tax
expense or benefit has been determined as if the Predecessor Businesses filed a
separate federal and state tax return.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-21
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
All significant asset and liability accounts stated in currencies other than
United States dollars are translated into United States dollars at year end
exchange rates. Translation adjustments are accumulated in a separate component
of stockholders' equity. Revenue and expense accounts are converted at
prevailing rates throughout the year.
EMPLOYEE BENEFIT PLAN
The Predecessor Businesses have a defined contribution pension plan covering
substantially all of their employees.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) BUSINESS AND CREDIT CONCENTRATIONS
The Predecessor Businesses have a concentration of customers in the oil and gas
pipeline construction industry which exposes the Predecessor Businesses to a
concentration of credit risk within an industry, including one customer which
accounts for approximately 10% of total revenues.
(3) GEOGRAPHIC DATA
The Predecessor Business believes that all of its operations are part of the
pipeline construction and rehabilitation industry and accordingly reports as a
single industry segment. Worldwide operations are conducted through entities
located in the United States, the United Kingdom and Canada. Information
relating to the Predecessor Business operations is set forth in the following
table:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997 TO
MARCH 31, 1997 JUNE 11, 1997
REVENUES REVENUES
-------------- ----------------
<S> <C> <C>
Algeria.............................. $9,109,000 $ 695,000
Brazil............................... 623,000 13,000
Canada............................... 8,297,000 555,000
France............................... 2,413,000 1,332,000
Russia............................... 5,640,000 1,152,000
United Kingdom....................... 4,466,000 955,000
United States........................ 13,033,000 3,102,000
All other............................ 25,793,000 4,811,000
-------------- ----------------
$69,374,000 $12,615,000
============== ================
</TABLE>
F-22
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) INCOME TAXES
Income tax expense (benefit) consists of the following for the year ended March
31, 1997 and the period from April 1, 1997 to June 11, 1997:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
March 31, 1997:
Federal......................... $ 2,252,715 $ (430,483) $ 1,822,232
State........................... 414,861 (43,617) 371,244
Foreign......................... 1,108,983 56,744 1,165,727
------------ ----------- ------------
$ 3,776,559 $ (417,356) $ 3,359,203
============ =========== ============
June 11, 1997:
Federal......................... $ 171,979 $ 48,919 $ 220,898
State........................... 38,962 4,957 43,919
Foreign......................... (6,860) (50,849) (57,709)
------------ ----------- ------------
$ 204,081 $ 3,027 $ 207,108
============ =========== ============
</TABLE>
Total income tax expense differs from the amounts computed by applying the U.S.
federal statutory income tax rates of 34% to income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997
MARCH 31, 1997 JUNE 11, 1997
--------------- ---------------
<S> <C> <C>
Computed "expected" income tax
expense.............................. $3,144,617 $ 165,201
Increase (decrease) in income taxes
resulting from:
State income taxes, net of
federal income tax benefit.... 245,021 28,987
Expenses not deductible for
income tax purposes........... 87,961 17,197
Other........................... (118,396) (4,277)
--------------- ---------------
$3,359,203 $ 207,108
=============== ===============
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Predecessor Businesses provide
warranties on parts and equipment sold and rented.
In addition to these warranties, the Predecessor Businesses have warranted
specific systems and components provided for an oceangoing pipe laying vessel.
The Predecessor Businesses are liable for design failure through October 2001.
The Predecessor Businesses' liability on design failure is limited to the amount
required to correct the design failure, including replacement, reassembly, and
technical support. The Predecessor Businesses are not liable for loss of
business or revenue. The vessel is undergoing tests and no claims have been made
through June 11, 1997, under the warranty provisions of the contract. The
Predecessor Businesses have accrued an estimated amount for its liability under
the warranty provisions. The aggregate amount of warranty claims, if any, cannot
be determined. Payments of claims significantly in excess of amounts accrued, if
any, could have an adverse effect on the Predecessor Businesses' financial
position, results of operations, and liquidity.
F-23
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Predecessor Businesses are obligated under various noncancelable operating
leases for certain operating facilities, automobiles, and equipment. The
remaining terms of the leases range from one to sixteen years. Future minimum
lease payments as of March 31, 1997 are:
<TABLE>
<S> <C>
Year ending March 31:
1998.......................... $ 182,000
1999.......................... 182,000
2000.......................... 165,000
2001.......................... 158,000
Thereafter.................... 1,910,000
</TABLE>
Rent expense was approximately $91,862, and $170,948 for the year ended March
31, 1997 and the period from April 1, 1997 to June 11,1997.
The Predecessor Businesses are involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Predecessor Businesses' financial position, results of operations, or
liquidity.
F-24
<PAGE>
SCHEDULE IIA
CRC HOLDINGS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JUNE 12, 1997 TO MARCH 31, 1998 AND THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
AMOUNTS
BALANCE CHARGED TO BALANCE
JUNE 12, COST AND DEDUCTIONS/ MARCH 31,
1997 EXPENSE WRITEOFFS 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 369,055 $ 13,975 $ 65,540 $ 317,490
========== ========== =========== ==========
<CAPTION>
AMOUNTS
BALANCE CHARGED TO BALANCE
MARCH 31, COST AND DEDUCTIONS/ MARCH 31,
1998 EXPENSE WRITEOFFS 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 317,490 $310,710 $ 136,338 $ 491,862
========== ========== =========== ==========
</TABLE>
<PAGE>
SCHEDULE IIB
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED MARCH 31, 1997 AND THE PERIOD FROM APRIL 1, 1997 TO JUNE 11, 1997
<TABLE>
<CAPTION>
AMOUNTS
BALANCE CHARGED TO BALANCE
APRIL 1, COST AND DEDUCTIONS/ MARCH 31,
1996 EXPENSE WRITEOFFS 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 335,923 $305,081 $ 22,920 $ 618,084
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
BALANCE CHARGED TO BALANCE
APRIL 1, COST AND DEDUCTIONS/ JUNE 11,
1997 EXPENSE WRITEOFFS 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 618,084 $ 1,354 $ 250,383 $ 369,055
========== ========== =========== ==========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
CRC-EVANS INTERNATIONAL, INC.
3,000,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
, 1999
CIBC WORLD MARKETS
DEUTSCHE BANC ALEX. BROWN
SIMMONS & COMPANY
INTERNATIONAL
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25
DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are set forth in the following table. The company shall pay the estimated
expenses of issuance and distribution in proportion to the respective number of
shares sold by it in the offering. Each amount, except for the Securities and
Exchange Commission and National Association of Securities Dealers, Inc. fees,
is estimated.
<TABLE>
<S> <C>
SEC registration fees................ $ 13,000
NASD filing fees..................... $ 5,000
Nasdaq application and listing
fees................................. $ *
Transfer agent's and registrar's fees
and expenses......................... $ *
Printing and engraving expenses...... $ *
Legal fees and expenses.............. $ *
Accounting fees and expenses......... $ *
Blue sky fees and expenses........... $ *
Miscellaneous........................ $ *
---------
Total........................... $ *
=========
</TABLE>
- ---------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") empowers a Delaware corporation to indemnify any person who was or is
a party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation) by
reason of the fact that such person is or was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. A Delaware
corporation may indemnify past or present officers and directors of such
corporation or of another corporation or other enterprise at the former
corporation's request, in an action by or in the right of the corporation to
procure a judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in defense of any action
referred to above, or in defense of any claim, issue or matter therein, the
corporation must indemnify such person against the expenses (including
attorneys' fees) which such person actually and reasonably incurred in
connection therewith. Section 145 further provides that any indemnification
shall be made by the corporation only as authorized in each specific case upon a
determination that indemnification of such person is proper because he has met
the applicable standard of conduct by the (i) stockholders, (ii) board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, (iii) committee of directors who are
not parties to such action, suit or proceeding designated by majority vote by
such disinterested directors even if less than a quorum, or (iv) independent
legal counsel, if there are no such disinterested directors, or if such
disinterested directors so direct. Section 145 further provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
II-1
<PAGE>
CRC-Evans has entered into indemnification agreements with each of its directors
and certain of its executive officers. The indemnification agreements provide
that CRC-Evans shall indemnify each of its directors and his affiliates and any
"controlling person" (within the meaning of applicable securities laws) and
each indemnified officer against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of CRC-Evans) to which any of them is, or is
threatened to be, made a party by reason of their status as a director,
affiliate, "controlling person," officer or agent of CRC-Evans; PROVIDED that,
with respect to a civil, administrative or investigative (other than criminal)
action, such individual acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of CRC-Evans, and with
respect to any criminal proceedings, he or she had no reasonable cause to
believe his or her conduct was unlawful. With respect to any action brought by
or in the right of CRC-Evans, such individuals may be indemnified, to the extent
not prohibited by applicable laws or as determined by a court of competent
jurisdiction, against expenses actually and reasonably incurred by them in
connection with such action if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of
CRC-Evans. The agreements also require indemnification of such individuals for
all reasonable expenses incurred in connection with the successful defense of
any action or claim and provide for partial indemnification in the case of any
partially successful defense.
CRC-Evans has obtained an insurance policy providing for indemnification of its
officers and directors and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions. CRC-Evans has entered into separate indemnification
agreements with each of its directors which may require CRC-Evans, among other
things, to indemnify such directors against certain liabilities that may arise
by reason of their status or service as directors to the maximum extent
permitted under Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All of the following issuances reflect figures prior to CRC-Evans' 40-for-1
stock split. Since its inception on June 12, 1997, CRC-Evans issued and sold the
following unregistered securities:
(1) On June 12, 1997, CRC-Evans issued 35,000 shares of common stock to
Natural Gas Partners in connection with the management buyout for $91.40
per share. On June 12, 1997, CRC-Evans issued a subordinated promissory
note to Equus, due June 30, 2002, in the original principal amount of
$959,700, and bearing interest at 12% per annum. On May 20, 1998,
CRC-Evans issued an additional 24,891 shares of common stock to Natural
Gas Partners for $91.40 per share. All of these issuances were exempt
from registration under Section 4(2) of the Securities Act.
(2) On June 12, 1997, CRC-Evans issued 35,000 shares of common stock to
Equus, in connection with the management buyout for $91.40 per share. On
June 12, 1997, CRC-Evans issued a subordinated promissory note to Natural
Gas Partners, due June 30, 2002, in the original principal amount of
$959,700, and bearing interest at 12% per annum. On May 20, 1998,
CRC-Evans issued an additional 24,891 shares of common stock to Equus for
$91.40 per share. All of these issuances were exempt from registration
under Section 4(2) of the Securities Act.
(3) On June 12, 1997, CRC-Evans issued 30,000 shares of common stock to
members of management and certain employees, in connection with the
management buyout for $91.40 per share. On May 20, 1998, CRC-Evans issued
an additional 5,881 shares of common stock to members of management and
certain employees for $91.40 per share. Both issuances were exempt from
registration under Section 4(2) of the Securities Act.
(4) On June 15, 1998, CRC-Evans issued 1,700 shares of common stock to
Windell D. Norris, Jr. for $91.40 per share. This issuance was exempt
from registration under Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------------------------------------------------
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1* -- Form of Amended and Restated
Certificate of Incorporation of
CRC-Evans.
3.2* -- Form of Amended and Restated Bylaws
of CRC-Evans.
4.1* -- Specimen of Stock Certificate.
4.2+ -- Registration Rights Agreement, dated
June 12, 1997, among CRC-Evans and
Natural Gas Partners, Equus and
Messrs. Wood, Evans and Carey.
5.1* -- Opinion of Akin, Gump, Strauss, Hauer
& Feld, L.L.P.
10.1+ -- Form of Indemnity Agreement entered
into by CRC-Evans in favor of members
of the Board of Directors and certain
executive officers.
10.2+ -- Revolving Credit and Term Loan
Agreement dated June 12, 1997, by and
among CEPI Holdings, Inc., CRC-Evans
and a syndicate of banks led by
BankBoston.
10.3+ -- Facility Agreement dated June 12,
1997, by and among Pipeline Induction
Heat Limited and a syndicate of banks
led by BankBoston.
10.4+ -- First Amendment to Revolving Credit
and Term Loan Agreement, dated July
3, 1998, by and among CRC-Evans
Pipeline International, Inc., CRC
Holdings Corp., BankBoston and
Bankers Trust Company.
10.5+ -- Supplemental Agreement dated July 3,
1998, amending Facility Agreement
dated June 12, 1997, among Pipeline
Induction Heat Limited and
BankBoston.
10.6 -- Reserved.
10.7+ -- Form of Employment Agreement,
executed June 1997, by and among
CRC-Evans, the predecessor business
and Messrs. Carey, Wood and Evans.
10.8+ -- Amended and Restated Asset Purchase
Agreement dated as of January 31,
1997, by and among the predecessor
business, Weatherford Enterra, Inc.
and CRC-Evans.
10.9+ -- Share Transfer Agreement dated June
12, 1997, between Weatherford Enterra
Canada Ltd. and CRC-Evans.
10.10+ -- Agreement of Purchase and Sale dated
as of April 24, 1998, by and among
CRC-Evans Pipeline International,
Inc., Tulsa Pipeline Equipment &
Supply, Inc., Hamilton Heavy
Equipment, Inc., and Jerry Hamilton,
individually and d/b/a/ HHC
International.
10.11+ -- Amendment to Agreement of Purchase
and Sale dated as of April 24, 1998,
by and among CRC-Evans Pipeline
International, Inc., Tulsa Pipeline
Equipment & Supply, Inc., Hamilton
Heavy Equipment, Inc., and Jerry
Hamilton, individually and d/b/a/ HHC
International.
10.12+ -- Asset Purchase Agreement dated as of
March 31, 1998, by and among CRC-Key,
Inc. and B.L. Key Services, L.L.C.,
Bobby L. Key, James C. McGill, the
James C. McGill Revocable Living
Trust and James Michael McGill
10.13+ -- Form of Option Agreement granting
options to certain employees of
CRC-Evans, dated June 12, 1997.
10.14+ -- Option Plan, dated May 20, 1998.
10.15+ -- Form of Option Agreement issued under
the Option Plan.
10.16+ -- Amendment No. 1 to Option Plan, dated
June 15, 1998.
10.17+ -- Agreement for the Sale and Purchase
of the whole of the Issued Share
Capital of Ditcot Heat Treatment
Limited, dated November 18, 1998,
among Andrew Maxwell Anderson, Hilda
Jane Anderson and Pipeline Induction
Heat Limited.
10.18* -- Form of Stock Incentive Plan.
10.19+ -- Form of Promissory Note, dated June
12, 1997, made by Messrs. Wood,
Carey, Evans and Francis, James F.
Reed, Jr., P.M. Bond, B.C. Goff,
Richard L. Jones, Brian S. Laing,
Geurt W. Meijer, Dale Roland, M.P.
Smith, Sidney A. Taylor and Robert A.
Teale, to the order of CRC-Evans.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------------------------------------------------
<C> <S>
10.20+ -- Promissory Note, dated June 15, 1998,
made by Mr. Norris to the order of
CRC-Evans.
10.21+ -- Key Management Incentive Compensation
Plan, dated as of June 13, 1997.
10.22+ -- Fee Agreement, dated June 12, 1997,
between CRC-Evans and Natural Gas
Partners.
10.23+ -- Fee Agreement, dated June 12, 1997,
between CRC-Evans and Equus.
10.24* -- Form of Promissory Note, dated June
12, 1997, made by CRC-Evans to the
order of each of Natural Gas Partners
and Equus.
21.1+ -- List of subsidiaries of CRC-Evans.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2* -- Consent of Akin, Gump, Strauss, Hauer
& Feld, L.L.P. (contained in Exhibit
5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.
</TABLE>
- ---------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Data Schedules
Schedule IIa -- Valuation and Qualifying Accounts -- CRC Holding
Corp. and Subsidiaries
Schedule IIb -- Valuation and Qualifying Accounts -- CRC Holding
Corp. Predecessor Businesses
All other Schedules have been omitted since the required information is not
present or the amounts are not sufficient to require submission of the Schedule
or because the information required is included in the respective financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to Item 14 herein, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON JUNE 17, 1999.
CRC-EVANS INTERNATIONAL, INC.
By: /s/ NORMAN R. FRANCIS
NORMAN R. FRANCIS,
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT THIS REGISTRATION STATEMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON JUNE 17,
1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- -------------
<C> <S> <C>
* Chairman and Chairman of the Board of June 17, 1999
(D. DALE WOOD) Directors
* Chief Executive Officer and Director June 17, 1999
(M. TIMOTHY CAREY) (Principal Executive Officer)
* President and Director June 17, 1999
(C. PAUL EVANS)
/s/NORMAN R. FRANCIS Chief Financial Officer, Treasurer and June 17, 1999
(NORMAN R. FRANCIS) Secretary (Principal Accounting and
Financial Officer)
* Director June 17, 1999
(KENNETH A. HERSH)
* Director June 17, 1999
(RICHARD L. COVINGTON)
* Director June 17, 1999
(NOLAN LEHMANN)
* Director June 17, 1999
(GARY L. FORBES)
/s/NORMAN R. FRANCIS June 17, 1999
*ATTORNEY-IN-FACT
</TABLE>
II-5
EXHIBIT 23.1
The Board of Directors
CRC Holdings Corp.:
The audits referred to in our reports dated May 11, 1999, except Note 14 which
is as of (date), and October 3, 1998, included the related financial statement
schedules for the year ended March 31, 1999, the period from June 12, 1997 to
March 31, 1998, the period from April 1, 1997 to June 12, 1997 and the year
ended March 31, 1997, included in the registration statement. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Tulsa, Oklahoma
June 16, 1999
