<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Date of Report): Date of earliest event reported: October 1, 1997
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-8038 04-2648081
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
TWO TOWER CENTER, TENTH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
(Address of Principal Executive Offices)
908/247-4822
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 1, 1997, Key Four Corners, Inc., a wholly owned subsidiary
of Key Energy Group, Inc. (the "Company"), completed an acquisition of
substantially all of the assets of Big A Well Service Co., Sunco Trucking Co.
and Justis Supply Co., Inc., each of which is a closely held New Mexico
corporation (collectively, the "Sellers"). The assets acquired from the Sellers
(the "Assets") consist of equipment and vehicles utilized in working over and
servicing oil and gas wells, oil field fluid sales and services, oil and gas
well drilling operations and the operation of a fabrication, repair and machine
shop in the Four Corners area of the Southwest as well as certain real property
and improvements located in Farmington, New Mexico. The consideration paid for
the Assets was $28 million, subject to certain adjustments based on the
Sellers' net working capital as of October 1, 1997, and 125,000 shares of
common stock, par value $.10 per share, of the Company. The amount of such
consideration, the cash portion of which was financed by the Company's credit
facility and available cash balances, was determined by negotiations between
the Company, the Sellers and the principal stockholder of Coleman Oil & Gas
Co., the sole stockholder of all of the issued and outstanding capital stock of
each of the Sellers. No material relationship exists between the Sellers or the
principal stockholder of Coleman Oil & Gas Co. and the Company or any of its
affiliates, any director or officer of the Company or any associate of any such
officer or director. The Company intends for the assets of the Sellers to be
used by Key Four Corners, Inc. in its well servicing operations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
(i) Report of Independent Auditors dated July 25, 1997
(ii) Coleman Oil & Gas, Inc. and Subsidiaries Balance Sheets
as of October 31, 1995 and 1996 and the Nine Months Ended July
31, 1997
(iii) Coleman Oil & Gas, Inc. and Subsidiaries Statements of
Earnings and Retained Earnings for the Years Ended October 31,
1995 and 1996 and the Nine Months Ended July 31, 1997 and 1996
(iv) Coleman Oil & Gas, Inc. and Subsidiaries Statements of
Cash Flows for the Years Ended October 31, 1995 and 1996 and
the Nine Months Ended July 31, 1997 and 1996
(v) Notes to Financial Statements
(b) Pro Forma Financial Information.
(i) Key Energy Group and Subsidiaries Unaudited Pro Forma
Combined Balance Sheet as of September 30, 1997
(ii) Key Energy Group and Subsidiaries Unaudited Pro Forma
Combined Statement of Operations for the Twelve Months Ended
June 30, 1997
<PAGE> 3
(iii) Key Energy Group and Subsidiaries Unaudited Pro Forma
Combined Statement of Operations for the Three Months Ended
September 30, 1997
(c) Exhibits.
The following exhibits, from which schedules have been omitted and
will be furnished to the Commission upon its request, are filed with this
report on Form 8-K.
*2.1 Asset Purchase Agreement Among Key Four Corners, Inc.,
Key Energy Group, Inc., Coleman Oil & Gas Co., Big A Well Service Co.,
Sunco Trucking Co., Justis Supply Co., Inc. and George E.
Coleman, dated September 2, 1997.
*2.2 Real Estate Purchase and Sale Agreement among Coleman
Oil & Gas Co., George E. Coleman and Key Four Corners, Inc., dated as
of October 1, 1997.
23.1 Consent of Chandler & Company LLP
- ---------------
* Previously filed.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 15, 1997 KEY ENERGY GROUP, INC.
By: /s/ Francis D. John
-----------------------------
Francis D. John, President
<PAGE> 5
Independent Auditors' Report
Board of Directors
Coleman Oil & Gas, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Coleman Oil & Gas, Inc. and Subsidiaries, as of October 31, 1996 and 1995, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial position of
Coleman Oil & Gas, Inc. and Subsidiaries as of October 31, 1996 and 1995, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Farmington, New Mexico
July 25, 1997
<PAGE> 6
Coleman Oil & Gas, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
and July 31, 1997
<TABLE>
<CAPTION>
ASSETS
1996 1995 July 31, 1997
----------- ----------- -----------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 1,462,636 $ 922,280 $ 1,320,143
Accounts receivable, net of $12,290, $3,727 and
$13,525 allowance for doubtful accounts 4,696,863 4,637,593 6,568,381
Inventory 1,611,091 1,629,972 2,016,015
Deposits 83,892 87,593 127,965
Income tax deposits 59,039 10,836 1,055,415
Current maturities on notes receivable -- 33,605 --
Other current assets 109,669 90,861 179,700
----------- ----------- -----------
Total current assets 8,023,190 7,412,740 11,267,619
PROPERTY AND EQUIPMENT - AT COST, net 10,793,720 10,043,170 11,994,513
OTHER ASSETS
Investments 146,682 67,326 125,935
Notes receivable, less current maturities -- 4,039 --
Goodwill, net 96,507 103,930 90,939
Due from affiliates 187,768 375,179 --
----------- ----------- -----------
Total other assets 430,957 550,474 216,874
----------- ----------- -----------
$19,247,867 $18,006,384 $23,479,006
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 862,878 $ 1,112,211 $ 1,449,585
Accrued liabilities 958,892 818,872 1,863,682
Due to affiliates -- -- 75,245
Current maturities of long-term debt 220,363 368,809 781,436
----------- ----------- -----------
Total current liabilities 2,042,133 2,299,892 4,169,948
LONG-TERM DEBT, net of current maturities 660,526 920,083 672,997
DEFERRED TAXES 2,044,000 2,009,000 2,044,250
OTHER LONG-TERM LIABILITIES 33,333 16,667 45,833
CONTINGENCIES AND COMMITMENTS -- -- --
STOCKHOLDERS' EQUITY
Common stock - authorized 50,000 shares of $1
par value; issued and outstanding 1,000 shares 1,000 1,000 1,000
Additional paid-in capital 377,560 377,560 377,560
Net unrealized holding gain on securities
available for sale 41,344 -- 41,344
Retained earnings 14,047,971 12,382,182 16,126,074
----------- ----------- -----------
Total stockholders' equity 14,467,875 12,760,742 16,545,978
----------- ----------- -----------
$19,247,867 $18,006,384 $23,479,006
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
Coleman Oil & Gas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended October 31, 1996 and 1995
and Nine Months Ended July 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended
July 31
--------------------------
1996 1995 1997 1996
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenue $28,973,229 $25,493,245 $26,608,946 $20,855,827
Cost of sales and operating expenses 23,594,909 21,122,119 20,884,641 17,195,523
----------- ----------- ----------- -----------
Gross profit 5,378,320 4,371,126 5,724,305 3,660,304
General and administrative expenses 3,034,845 2,844,374 2,564,582 2,189,295
----------- ----------- ----------- -----------
Operating income 2,343,475 1,526,752 3,159,723 1,471,009
Other income and (expense)
Dividend and interest income 109,634 70,042 77,976 66,104
Interest expense (99,145) (120,597) (20,202) (30,734)
Gain on disposal of assets 508 36,334 33,983 508
Other income 276,317 160,310 177,623 203,861
----------- ----------- ----------- -----------
287,314 146,089 269,380 239,739
----------- ----------- ----------- -----------
Earnings before income taxes 2,630,789 1,672,841 3,429,103 1,710,748
Income taxes 965,000 540,000 1,351,000 673,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,665,789 $ 1,132,841 $ 2,078,103 $ 1,037,748
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
Coleman Oil & Gas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended October 31, 1996 and 1995
and Nine Months Ended July 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended
July 31
--------------------------
1996 1995 1997 1996
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Common stock
Beginning balance $ 1,000 $ 1,000 $ 1,000 $ 1,000
----------- ----------- ------------ -----------
Ending balance 1,000 1,000 1,000 1,000
----------- ----------- ------------ -----------
Additional paid-in capital
Beginning balance 377,560 377,560 377,560 377,560
----------- ----------- ------------ -----------
Ending balance 377,560 377,560 377,560 377,560
----------- ----------- ------------ -----------
Retained earnings
Beginning balance 12,382,182 11,249,341 14,047,971 12,382,182
Net earnings 1,665,789 1,132,841 2,078,103 1,037,748
----------- ----------- ------------ -----------
Ending balance 14,047,971 12,382,182 16,126,074 13,419,930
----------- ----------- ------------ -----------
Unrealized holding gains (net)
Beginning balance -- -- -- --
Net change during year or period 41,344 -- 41,344 --
----------- ----------- ----------- ------------
Ending balance 41,344 -- 41,344 --
----------- ----------- ----------- -----------
Total stockholders' equity $14,467,875 $12,760,742 $16,545,978 $13,798,490
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
Coleman Oil & Gas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31, 1996 and 1995
and Nine Months Ended July 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended
July 31
--------------------------
1996 1995 1997 1996
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Cash received from customers $ 29,358,879 $ 25,517,573 $25,126,101 $21,726,100
Cash paid to suppliers and employees (24,993,391) (22,295,041) (22,566,613) (18,740,462)
Interest and dividends received 109,634 70,042 77,976 66,104
Interest paid (101,336) (129,769) (20,680) (33,403)
Income taxes paid (1,003,333) (430,178) (1,076,492) (659,316)
------------ ------------ ----------- -----------
Net cash provided by operating activities 3,370,453 2,732,627 1,540,292 2,359,023
Cash flows from investing activities
Proceeds on notes receivable 37,644 37,728 -- --
Proceeds from disposal of assets 29,858 142,080 -- 37,644
Proceeds from sale of investments -- 81,005 -- 7,865
Proceeds from sale of securities -- -- 20,747 --
Purchase of available-for sale securities (12,882) -- -- --
Purchase of property and equipment (2,376,714) (1,320,407) (2,277,077) (1,877,672)
------------ ------------ ----------- -----------
Net cash used by investing activities (2,322,094) (1,059,594) (2,256,330) (1,832,163)
Cash flows from financing activities
Principal payments of note payable - bank -- (300,000) -- --
Principal payments of long-term debt (508,003) (892,459) (226,445) (232,139)
Proceeds from issuance of long-term debt -- 200,000 800,000 --
------------ ------------ ----------- -----------
Net cash used by financing activities (508,003) (992,459) 573,545 (232,139)
------------ ------------ ----------- -----------
Net increase in cash and cash equivalents
540,356 680,574 (142,493) 294,721
Cash and cash equivalents at beginning of year 922,280 241,706 1,462,636 922,280
------------ ------------ ----------- -----------
Cash and cash equivalents at end of year $ 1,462,636 $ 922,280 $ 1,320,143 $ 1,217,001
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 10
Coleman Oil & Gas, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended October 31, 1996 and 1995
and Nine Months Ended July 31, 1997 and 1996
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
July 31
--------------------------
1996 1995 1997 1996
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Net earnings $1,665,789 $1,132,841 $2,078,103 $1,037,748
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 1,704,236 1,668,159 1,115,835 1,268,186
Gain on retirement of assets (508) (36,334) (33,983) (508)
Deferred taxes 9,870 (128,000) 250 --
Decrease (increase) in assets
Accounts receivable (59,270) (123,356) (1,967,369) 481,769
Inventories 18,881 (493,291) (404,924) (51,941)
Deposits 3,701 35,921 (44,073) (52,707)
Other assets 120,400 208,986 (707,543) (537,634)
Increase (decrease) in liabilities
Accounts payable (249,332) 543,465 586,706 35,792
Accrued expenses 140,020 (92,431) 904,790 165,818
Other long-term liabilities 16,666 16,667 12,500 12,500
---------- ---------- ---------- ----------
Net cash provided by operating activities $3,370,453 $2,732,627 $1,540,292 $2,359,023
========== ========== ========== ==========
</TABLE>
Non-cash investing activities
During the years ending October 31, 1996 and 1995, the company
financed the purchase of fixed assets in the amounts of $100,000 and
$815,040.
The accompanying notes are an integral part of these statements.
<PAGE> 11
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996 and 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Coleman Oil & Gas, Inc. is a producer of oil and gas properties. Its
subsidiaries provide various services to the oil and gas industry in
northwest New Mexico and surrounding states. These services include
drilling, well servicing, trucking, water disposal and the sale of
oilfield equipment and supplies.
This summary of significant accounting policies of Coleman Oil & Gas, Inc.
and Subsidiaries (the company) is presented to assist in understanding the
company's consolidated financial statements. These accounting policies,
which conform to generally accepted accounting principles, have been
consistently applied in the preparation of the consolidated financial
statements. The consolidated financial statements and notes are
representations of the company's management, who is responsible for their
integrity and objectivity.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
1. Principles of Consolidation
The consolidated financial statements include the accounts of Coleman Oil
& Gas, Inc. and its subsidiaries, Big A Well Service Co., Sunco Trucking
Co., Justis Supply Co., Inc., and O & G Supply, Inc. All significant
intercompany transactions have been eliminated.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in-first-out method.
3. Depreciation and Amortization
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives using both accelerated and straight-line methods. Goodwill
on acquisition of subsidiaries is amortized over 15 years.
4. Income Taxes
The company has adopted Statement of Financial Accounting Standards (SFAS)
109, "Accounting for Income Taxes,", and all disclosures are made in
accordance with those rules.
<PAGE> 12
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
5. Statement of Cash Flows
For purposes of the Statement of Cash Flows, the company considers all
highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
6. Investments
On November 1, 1995 the company adopted Statement of Financial Accounting
Standard 115. Investments consist of marketable equity securities. These
securities are available for sale and stated at estimated fair value. Any
unrealized holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of stockholders' equity.
7. Oil and Gas Properties
The company uses the successful efforts method of accounting for oil and
gas producing activities. Costs to acquire mineral interests in oil and
gas properties, to drill and equip exploratory wells that find proved
reserves, and to drill and equip development wells are capitalized. Costs
to drill exploratory wells that do not find proved reserves, geological
and geophysical costs, and costs of carrying and retaining unproved
properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at
the time of impairment by providing an impairment allowance. Other
unproved properties are amortized based on the company's experience of
successful drilling and average holding period. Capitalized costs of
producing oil and gas properties, after considering estimated
dismantlement and abandonment costs and estimated salvage values, are
depreciated and depleted by the unit-of-production method. Support
equipment and other property and equipment are depreciated over their
estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the
cost and related accumulated depreciation, depletion and amortization are
eliminated from the property accounts, and the resultant gain or loss is
recognized. On the retirement or sale of a partial unit of proved
property, the cost is charged to accumulated depreciation, depletion and
amortization with a resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into
consideration the amount of any recorded impairment if the property had
been assessed individually. If a partial interest in an unproved property
is sold, the amount received is treated as a reduction of the cost of the
interest retained.
<PAGE> 13
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
NOTE B - INVESTMENT SECURITIES
Cost of available-for-sale securities was $80,208 and $67,326 at October
31, 1996 and 1995. At October 31, 1996 unrealized gains were $66,474.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Assets at cost
Land $ 353,509 $ 353,509
Buildings 1,080,673 733,029
Equipment, furniture and fixtures 28,543,760 27,019,759
Capitalized oil and gas properties 1,387,447 952,845
------------- ------------
31,365,389 29,059,142
Accumulated depreciation and depletion 20,571,669 19,015,972
------------- ------------
$ 10,793,720 $ 10,043,170
============= ============
</TABLE>
<PAGE> 14
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
NOTE D - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
7.9% to 9.75% notes payable, due in monthly
installments totaling $7,773, including
interest and annual installments of $16,200,
maturities vary through September 1996, secured
by trucks $ -- $ 7,401
Prime + 0.55% (9.3%) note payable due in monthly
installments of $10,279, including interest,
through May 1997, secured by equipment -- 194,527
Prime + 0.55% (9.3%) note payable due in monthly
installments of $5,341, including interest
through November 1995, secured by equipment,
inventory and accounts receivable -- 62,230
Prime + 0.55% (8.3%) note payable due in monthly
installments of $1,554, including interest,
through May 1997, secured by truck -- 28,651
Prime + 0.55% (9.3%) note payable due in monthly
installments of $1,963, including interest,
through October 1996, secured by truck -- 23,140
Prime + 0.25% (8.5%) note payable due in monthly
installments of $1,845, including interest,
through September 1997, secured by truck 19,733 39,407
Prime + 0.55% (8.8%) note payable due in monthly
installments of $1,878, including interest,
through May, 1998, secured by truck 32,860 --
Prime + 0.55% (8.8%) note payable due in monthly
installments of $1,885, including interest,
through July, 1998, secured by truck 36,201 --
Prime + 0.55% (9.3%) note payable due in monthly
installments of $6,064, including interest,
through September 1997, secured by building,
inventory, receivables, and equipment 421,000 453,674
Prime + 0.55% (9.3%) note payable due in monthly
installments of $7,316, including interest,
through July 1999, secured by oil and gas
mortgage 214,593 279,862
Prime + 0.55% (9.3%) note payable due in monthly
installments of $5,034, including interest,
through October 1999, secured by inventory,
equipment, and accounts receivable 156,502 200,000
--------- ----------
880,889 1,288,892
Less current maturities 220,363 368,809
--------- ----------
$ 660,526 $ 920,083
========= ==========
</TABLE>
<PAGE> 15
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
NOTE D - LONG-TERM DEBT - Continued
Annual long-term debt maturities for the next five years follow:
<TABLE>
<S> <C>
1997 $219,399
1998 203,057
1999 163,320
2000 49,589
Later years 191,551
--------
$880,889
========
</TABLE>
NOTE E - INCOME TAXES
Components of income tax expense follow:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current
Federal tax expense $ 811,860 $ 549,000
State tax expense 143,270 119,000
--------- ---------
955,130 668,000
Deferred
Federal tax expense (benefit) 8,390 (108,000)
State expense (benefit) 1,480 (20,000)
--------- ---------
9,870 (128,000)
--------- ---------
$ 965,000 $ 540,000
========= =========
</TABLE>
Income tax expense differs from the expected tax expense (computed using
statutory rates) as a result of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Computed "expected" tax expense $ 894,468 $ 568,799
State income tax, net of Federal benefit 99,004 65,138
Other (28,472) (93,937)
$ 965,000 $(540,000)
========= =========
</TABLE>
<PAGE> 16
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
NOTE E - INCOME TAXES - Continued
Deferred tax expense results from timing differences in the recognition of
income and expense for income tax and financial statement purposes. The
sources of these differences and their tax effects follow:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Tax depreciation over (under) book depreciation $ (51,013) $ (191,008)
Other, net 60,883 63,008
---------- ----------
$ 9,870 $ (128,000)
========== ==========
</TABLE>
Deferred tax liabilities as of October 31, 1996 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred taxes
Property and equipment $1,827,777 $1,882,756
Other 216,223 126,244
---------- ----------
$2,044,000 $2,009,000
========== ==========
</TABLE>
NOTE F - EMPLOYEE BENEFIT PLANS
The company has a profit sharing plan covering substantially all
employees. Annual contributions are made at the discretion of the Board
of Directors. Contributions were $325,000 and $200,000 for the years
ending October 31, 1996 and 1995.
Effective November 1, 1995, the company established a 401(k) plan covering
substantially all employees. Contributions to this plan are made
exclusively by employees.
The subsequent sale of subsidiary assets, discussed in Note L, will result
in the termination of these employee benefit plans. The terminations are
not anticipated to have any significant effect on the financial statements
of the company.
NOTE G - TRANSACTIONS WITH RELATED PARTIES
The Coleman Oil & Gas, Inc. and Subsidiaries consolidated balance sheet
includes the following balances involving related parties:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Due from affiliate
Major stockholder $ 123,166 $ 126,460
Montezuma Well Service, Inc. 64,602 248,719
</TABLE>
<PAGE> 17
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
NOTE G - TRANSACTIONS WITH RELATED PARTIES - Continued
Montezuma Well Service, Inc. is a corporation owned, in part, by the major
stockholder of Coleman Oil & Gas, Inc. Montezuma Well Service, Inc. pays
Coleman Oil & Gas, Inc. administrative fees amounting to $66,300 in the
years ending in 1996 and 1995. Leases involving related parties are
discussed in note K.
NOTE H - CONCENTRATION OF RISK
The company grants credit to its customers in the ordinary course of
business. Accounts receivable are concentrated in the oil and gas
industry. Generally, the company does not require collateral for these
accounts receivable.
NOTE I - CONTINGENCIES AND COMMITMENTS
The company has been named as a "potentially responsible party" by the
Environmental protection Agency (EPA) in their investigation of
contamination of a local landfill. The EPA has indicated that they have no
evidence the company ever used the landfill, but have identified several
local oilfield trucking companies, as well as other local entities, as
"potentially responsible parties". There has been no activity on this
issue since January 1994. Future liability of the company for cleanup
costs is unknown. Accordingly, these financial statements do not reflect
any provision for loss relating to this matter.
NOTE J - WATER DISPOSAL SITE
Sunco Trucking Co., a subsidiary of the company, operates a water disposal
site where oil field waste water is accepted for treatment. The cost of
this disposal site is being depreciated over its expected life. The
company has estimated it will cost $250,000 to close the site at the end
of its expected life. The company is accumulating funds to pay these
closing costs, and accruing the related liability over a term of 15 years.
This accrued liability is included in the financial statements in other
long-term liabilities.
NOTE K - LEASES
The company leases property from the major stockholder. The total lease
payments made to the major stockholder during the years ending October 31,
1996 and 1995, were $371,276 and $253,579. Leases with the major
stockholder are month-to-month with a 90-day cancellation clause. Minimum
future lease payments on these leases total $91,942.
<PAGE> 18
Coleman Oil & Gas, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 1996 and 1995
NOTE L - SUBSEQUENT EVENTS
On July 17, 1997, the corporation signed a letter of intent to sell
substantially all of the assets of Big A Well Service, Inc., Sunco
Trucking Company, Inc., and Justis Supply, Inc. The sale is expected to
be effective in August, 1997. The assets will be sold at a price in excess
of book value. No adjustment has been made to these financial statements
to reflect the proposed sale.
<PAGE> 19
Key Energy Group, Inc.
Unaudited Pro Forma Combined Financial Statements
The Unaudited Pro Forma Combined Financial Statements of Key Energy Group, Inc.
("Key" or the "Company") have been prepared to give effect to the acquisition
of primarily all the assets and liabilities of Coleman Oil and Gas, Inc.
("Coleman"), and all of the capital stock of Ram Oilwell Service, Inc. and
Rowland Trucking Co. Inc. (collectively "Ram/Rowland") and Well-Co Oil Service,
Inc. ("Wellco") as if such transactions had taken place on September 30, 1997
for purposes of the Unaudited Pro Forma Condensed Balance Sheet and as of July
1, 1996 for purposes of the Unaudited Pro Forma Condensed Statements of
Operations. The Unaudited Pro Forma Combined Financial Statements of the
Company are not necessarily indicative of the financial results for the periods
presented had Coleman, Ram/Rowland and Wellco taken place on July 1, 1996 or
July 1, 1997. In addition, future results may vary significantly from the
results reflected on the accompanying Unaudited Pro Forma Combined Financial
Statements because of, among other factors, changes in products and service
prices, future oil and gas production declines and future acquisitions. This
information should be read in conjunction with the consolidated financial
statements of Key (and related footnotes) and the financial statements of
Coleman, Ram/Rowland and Wellco.
<PAGE> 20
Key Energy Group and Subsidiaries
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Coleman Entries Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash $ 49,276 $ 1,808 $ (922)(a) $ 50,162
Accounts receivable, net 64,909 7,327 (487)(a) 71,420
(329)(b)
Inventories 6,421 2,032 (17)(a) 8,436
Prepaid expenses and other 995 1,215 (1,135)(a) 995
(80)(c)
--------- -------- --------
Total Current Assets 121,601 12,382 131,013
Property and Equipment:
Oilfield service equipment 301,313 26,506 (1,541)(c) 326,278
Oil and gas well drilling equipment 6,658 -- 6,658
Motor vehicles 11,848 1,656 (942)(c) 12,562
Oil and gas properties and related equipment,
successful efforts method 25,680 4,179 (4,179)(a) 25,680
Furniture and equipment 1,980 281 (189)(c) 2,072
Buildings and land 10,059 616 (307)(c) 10,368
Accumulated depreciation and depletion (23,890) (21,259) 586 (a) (23,890)
20,673 (c)
--------- -------- --------
Net property and equipment 333,648 11,979 359,728
Other assets 45,979 3,832 (241)(a) 45,979
(3,591)(c)
--------- -------- --------
Total Assets $ 501,228 $ 28,193 $536,720
========= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 21
Key Energy Group and Subsidiaries
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Coleman Entries Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 17,149 $ 1,686 $ (154)(c) $ 18,681
Other accrued liabilities 20,947 572 200 (b) 21,719
Accrued interest 273 -- 273
Accrued income taxes 3,943 3,416 (1,779)(a) 3,943
(1,637)(c)
Deferred tax liability 126 -- 126
Current portion of long-term debt 1,270 152 1,422
--------- -------- ---------
Total Current Liabilities 43,708 5,826 46,164
Long-term debt 263,712 1,964 26,993 (d) 292,669
Deferred income taxes 61,957 1,757 (1,757)(c) 61,957
Non-current accrued expenses 4,015 49 (49)(c) 4,015
Minority interest -- -- --
Commitments and contingencies -- -- --
Total Stockholders' Equity:
Common stock 1,795 166 (1)(a) 1,808
(165)(c)
13 (e)
Additional paid-in capital 104,185 1,323 (378)(a) 108,251
(945)(c)
4,066 (e)
Retained earnings 21,856 17,108 (4,083)(a) 21,856
(13,025)(c)
--------- -------- ---------
Total Stockholders' equity 127,836 18,597 131,915
Total Liabilities and Stockholders' Equity $ 501,228 $ 28,193 $ 536,720
========= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 22
Key Energy Group and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
Twelve Months Ended 6/30/97
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Wellco Ram/Rowland Coleman Entries Combined
--------- -------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Oilfield services $ 144,385 $ 23,007 $ 22,663 $ 33,458 $ 223,513
Oil and gas 8,180 -- -- 603 (603)(a) 8,180
Oil and gas well drilling 9,956 -- -- -- 9,956
Other, net 1,109 206 198 378 (122)(a) 1,769
--------- -------- -------- -------- ---------
163,630 23,213 22,861 34,439 243,418
Costs and Expenses:
Oilfield service 100,366 17,937 15,394 24,954 158,651
Oil and gas 3,030 -- -- 307 (307)(a) 3,030
Oil and gas well drilling 8,155 -- -- -- 8,155
Depreciation, depletion and amortization 11,420 1,197 1,672 1,560 1,209 (f) 17,058
General and administrative 18,522 1,522 2,157 3,330 (449)(a) 24,183
(899)(g)
Interest 7,535 342 47 88 (62)(a) 12,219
4,269 (h)
--------- -------- -------- -------- ---------
149,028 20,998 19,270 30,239 223,296
Income before income taxes and minority interest 14,602 2,215 3,591 4,200 20,122
Income tax expense 5,500 889 224 1,585 (620)(i) 7,578
Minority interest in net loss 4 -- -- -- 4
--------- -------- -------- -------- ---------
Net Income $ 9,098 $ 1,326 $ 3,367 $ 2,615 $ 12,540
========= ======== ======== ======== =========
Earnings Per Share:
Income before income taxes and minority interest $ 1.20 $ 1.60
Net Income $ 0.75 $ 1.00
Weighted average shares outstanding 12,205 240 125 12,570
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 23
Key Energy Group and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
Three Months Ended 9/30/97
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Ram/Rowland Coleman Entries Combined
-------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Oilfield services $ 69,498 $ 3,690 $ 10,002 $ 83,190
Oil and gas 2,154 -- 140 (140)(a) 2,154
Oil and gas well drilling 2,823 -- -- 2,823
Other, net 1,081 16 18 45 (a) 1,160
-------- -------- -------- --------
75,556 3,706 10,160 89,327
Costs and Expenses:
Oilfield service 48,239 2,442 7,083 57,764
Oil and gas 937 -- (22) 22 (a) 937
Oil and gas well drilling 2,263 -- -- 2,263
Depreciation, depletion and amortization 5,147 272 587 6,006
General and administrative 7,701 174 1,341 (222)(a) 8,925
(69)(g)
Interest 3,438 -- 9 855 (h) 4,302
-------- -------- -------- --------
67,725 2,888 8,998 80,197
Income before income taxes and minority interest 7,831 818 1,162 9,130
Income tax expense 2,893 -- 447 98 (i) 3,438
Minority interest in net loss -- -- -- --
-------- -------- -------- --------
Net Income $ 4,938 $ 818 $ 715 $ 5,692
======== ======== ======== ========
Earnings Per Share:
Income before income taxes and minority interest $ 0.50 $ 0.58
Net Income $ 0.32 $ 0.36
Weighted average shares outstanding 15,665 125 15,790
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 24
Key Energy Group, Inc.
Notes to Unaudited Combined Financial Statements
June 30 and September 30, 1997
1. Basis of Presentation
The accompanying Unaudited Pro Forma Combined Financial Statements of Key
Energy Group, Inc. ("Key" or the "Company") have been prepared to give effect
to the acquisition of primarily all the assets and liabilities of Coleman Oil
and Gas, Inc. ("Coleman"), and all of the capital stock of Ram Oilwell Service,
Inc. and Rowland Trucking Co. Inc. (collectively "Ram/Rowland") and Well-Co Oil
Service, Inc. ("Wellco"), as if such acquisitions had taken place on September
30, 1997 for purposes of the Unaudited Pro Forma Condensed Balance Sheet (with
the exception of the Ram/Rowland and Wellco acquisitions which was previously
reflected in the balance sheet of the Company) and as of July 1, 1996 for
purposes of the Unaudited Pro Forma Condensed Statement of Operations (with the
exception of the Wellco acquisition which was previously reflected in the
September 30, 1997 statement of operations). The Coleman, Ram/Rowland and
Wellco acquisitions are accounted for by the purchase method.
The Company - Represents the consolidated balance sheet of Key Energy Group,
Inc. as of September 30, 1997 and the consolidated statements of operations of
Key Energy Group, Inc. for the year ended June 30, 1997 and the 3 months ended
September 30, 1997.
Coleman - Represents the consolidated balance sheet of Coleman Oil and Gas,
Inc. and subsidiaries, which include Big A Well Service Co., Sunco Trucking
Co. and Justis Supply Co. as of September 30, 1997, the combined statement of
operations of Coleman Oil and Gas, Inc. and subsidiaries, which include Big A
Well Service Co., Sunco Trucking Co. and Justis Supply Co. for the year ended
June 30, 1997 and the combined statement of operations for the three months
ended September 30, 1997. The individual entities of Coleman are being reported
together, as they are considered related businesses. Only the assets and
liabilities of Big A Well Service Co., Sunco Trucking Co. and Justis Supply Co.
were acquired by the Company.
Ram/Rowland - Represents the combined statement of operations of Ram Oilwell
Service, Inc. and Rowland Trucking Co. Inc. for the year ended June 30, 1997
and the combined statement of operations for the three months ended September
30, 1997. The individual entities of Ram/Rowland are being reported together,
as they are considered related businesses.
Wellco - Represents the statement of operations of Well-Co Oil Service, Inc.
for the year ended June 30, 1997.
2. Pro Forma Entries
(a) To eliminate the assets, liabilities, revenues and expenses associated
with Coleman's oil and gas operations, which were not acquired by the Company.
(b) To adjust the bad debt reserve for uncollectible balances and other
accrued liabilities for unrecorded acquisition costs.
(c) To record the allocation of the purchase price to the assets acquired
and liabilities assumed from Coleman using the purchase method of accounting.
The allocation of the purchase price to the assets acquired and liabilities
assumed is preliminary, and therefore, subject to change.
(d) To record the additional borrowings under the Company's existing
credit facility, proceeds of which were used to make the Coleman acquisition.
<PAGE> 25
(e) To reflect the issuance of 125,000 shares of .10 par value common
stock at a price of $32.625 per share.
(f) To record the estimated incremental depreciation for the property,
plant and equipment acquired in the Coleman, Ram/Rowland and Wellco
acquisitions.
(g) To record specifically identifiable decreases in general and
administrative expenses related to the termination of individual employees and
closure of facilities.
(h) To record incremental interest on the borrowings to finance the
Coleman, Ram/Rowland and Wellco acquisitions.
(i) To adjust pro forma income tax expense.
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
*2.1 Asset Purchase Agreement Among Key Four Corners, Inc., Key
Energy Group, Inc., Coleman Oil & Gas Co., Big A Well Service
Co., Sunco Trucking Co., Justis Supply Co., Inc. and George E.
Coleman, dated September 2, 1997.
*2.2 Real Estate Purchase and Sale Agreement among Coleman Oil & Gas
Co., George E. Coleman and Key Four Corners, Inc., dated as of
October 1, 1997.
23.1 Consent of Chandler & Company LLP
</TABLE>
- -----------
* Previously filed.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Key Energy Group, Inc.
We consent to the inclusion in this current report of Key Energy Group, Inc. on
Form 8-K/A (Amendment No. 1) of our report dated July 25, 1997, on our audits
of the consolidated balance sheets of Coleman Oil & Gas, Inc. and Subsidiaries
as of October 31, 1996 and 1995, and the related statements of earnings,
stockholders' equity, and cash flows for the years then ended.
/s/ Chandler & Company LLP
Farmington, New Mexico
December 13, 1997
