<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: September 1, 1997
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 1-8038 04-2648081
(State of Incorporation) (Commission File Number) (IRS Employer Identification No.)
</TABLE>
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.
Effective as of September 1, 1997, Yale E. Key, Inc., a wholly owned
subsidiary of Key Energy Group, Inc. (the "Company"), acquired all of the issued
and outstanding capital stock of Ram Oil Well Service, Inc. ("Ram") and Rowland
Trucking Co. Inc. ("Rowland"), two closely held New Mexico corporations. The
assets owned by Ram and Rowland consist of equipment and vehicles utilized in
working-over and servicing oil and gas wells in West Texas and Southeast New
Mexico. The consideration given by the Company for the issued and outstanding
capital stock of Ram and Rowland consists of cash in the amount of $21.5
million, which consideration was financed by the Company's credit facility and
available cash balances. The amount of such consideration was determined by
negotiations between the Company and the sole stockholder of all of the issued
and outstanding capital stock of Ram and Rowland. No material relationship
exists between the sole stockholder of Ram and Rowland 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 Ram and Rowland
to continue to be used in working-over and servicing oil and gas wells.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The following financial statements are filed herewith:
Report of Independent Certified Public Accountants dated January 23, 1997
Ram Balance Sheet at December 31, 1995 and 1996 and August 31, 1997
Ram Statements of Earnings and Retained Earnings for the years ended December
31, 1995 and 1996 and the Eight Months ended August 31, 1997
Ram Statements of Cash Flows for the years ended December 31, 1995 and 1996
and the Eight Months ended August 31, 1997
Notes to Financial Statements
Report of Independent Certified Public Accountants on Supplemental Information
dated January 23, 1997
Rowland Revenues for the years ended December 31, 1995 and 1996
Rowland Operating Expenses for the years ended December 31, 1995 and 1996
Report of Independent Certified Public Accountants dated February 7, 1997
Rowland Balance Sheet at December 31, 1995 and 1996 and August 31, 1997
Rowland Statements of Earnings for the years ended December 31, 1995 and
1996 and the Eight Months ended August 31, 1996 and 1997
Rowland Statements of Stockholder's Equity at January 1, 1995, December 31, 1995
and 1996 and August 31, 1996
Rowland Statements of Cash Flows for the years ended December 31, 1995 and
1996 and the Eight Months ended August 31, 1996 and 1997
Notes to Financial Statements
Report of Independent Certified Public Accountants on Supplemental Information
dated February 7, 1997
Ram Revenues for the years ended December 31, 1995 and 1996
Ram Operating Expenses for the years ended December 31, 1995 and 1996
2
<PAGE> 3
(b) Pro Forma Financial Information.
The following pro forma financial statements are filed
herewith:
Key Energy Group, Inc and Subsidiaries Unaudited Pro0 Forma Combined Balance
Sheet as of June 30, 1997
Key Energy Group, Inc. and Subsidiaries Unaudited Pro Forma Combined
Statements of Operations for the Twelve Months ended June 30, 1997
Key Energy Group, Inc. and Subsidiaries Unaudited Pro Forma Combined
Statements of Operations for the Three Months ended September 30, 1997
Notes to Unaudited Combined Financial Statements dated June 30 and 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 Stock Purchase Agreement (Rowland Trucking Co., Inc.) Among Yale E.
Key, Inc. and Robert D. Calhoun, dated as of September 1, 1997
*2.2 Stock Purchase Agreement (Ram Oil Well Services, Inc.) Among Yale E.
Key, Inc. and Robert D. Calhoun, dated as of September 1, 1997.
23.1 Consent of Johnson, Miller & Co.
- ---------
* Previously filed.
3
<PAGE> 4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Ram Oil Well Service, Inc.
Hobbs, New Mexico
We have audited the accompanying balance sheets of Ram Oil Well Service, Inc. as
of December 31, 1996 and 1995, and the related statements of earnings and
retained earnings, 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 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 financial position of Ram Oil Well Service, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
1
<PAGE> 5
Hobbs, New Mexico
January 23, 1997
2
<PAGE> 6
FINANCIAL STATEMENTS
<PAGE> 7
RAM OIL WELL SERVICE, INC.
===============================================================================
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 AUGUST 31
1996 1995 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash (NOTE H) $ 628,815 $ 1,105,195 $ 396,691
Accounts receivable 904,008 772,153 1,081,642
Inventory 6,082 5,298 5,032
Prepaid income taxes 74,312 -- --
Prepaid sandlines 52,558 44,189 50,918
Deposit - State of Texas 250 250 250
----------- ----------- -----------
From Related Company 500,000
----------- ----------- -----------
Total current assets 1,666,025 1,927,085 2,034,803
DEPRECIABLE ASSETS, AT COST (NOTE B)
Revenue and other equipment 4,244,793 3,471,416 3,687,476
Less accumulated depreciation (2,666,548) (2,528,596) (2,722,173)
=========== =========== ===========
1,578,245 942,820 965,303
TOTAL ASSESTS $ 3,244,270 $ 2,869,905 3,000,106
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 102,762 $ 55,278 $ 15,953
Salaries and wages payable 14,269 23,525 47,437
Workers' compensation insurance payable
(NOTE G) 53,149 18,414 38,962
Other taxes payable 47,836 25,023 73,014
Income taxes payable -- 83,509 18,028
Employee savings 960 510 2,340
Pension plan contribution payable (NOTE E) 14,581 13,534 39,191
----------- ----------- -----------
Total current liabilities 233,557 219,793 234,925
DEFERRED INCOME TAXES (NOTE D) 193,311 203,904 187,311
CONTINGENT LIABILITIES (NOTES C, F AND G) -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE> 8
RAM OIL WELL SERVICE, INC.
================================================================================
<TABLE>
<S> <C> <C> <C>
STOCKHOLDER'S EQUITY
Common stock, $1 par value
Authorized - 500,000 shares
Issued and outstanding - 50,000 shares 50,000 50,000 50,000
Additional paid in capital 1,530,420 1,530,420 1,530,420
Treasury Stock -- -- (451,500)
Retained earnings 1,236,982 865,788 1,448,950
----------- ----------- -----------
Total stockholder's equity 2,817,402 2,446,208 2,577,870
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,244,270 $ 2,869,905 $ 3,000,106
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 9
RAM OIL WELL SERVICE, INC.
===============================================================================
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED YEAR ENDED MONTHS ENDED
DECEMBER 31 DECEMBER 31 AUGUST 31
1996 1995 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
REVENUE $ 4,789,707 $ 4,739,589 $ 3,870,855
COSTS AND EXPENSES
Direct expenses including depreciation of
$184,363 in 1996 and $200,637 in 1995 3,296,774 2,971,747 2,380,517
Indirect expenses including depreciation of
$107,533 in 1996 and $72,016 in 1995 1,070,919 1,045,448 1,210,910
----------- ----------- -----------
Total costs and expenses 4,367,693 4,017,195 3,591,427
EARNINGS FROM OPERATIONS 422,014 722,394 279,428
OTHER INCOME (EXPENSE)
Gain on sale of assets 139,149 6,054 29,779
Interest income 34,502 26,024 32,364
Interest expense -- (525) --
----------- ----------- -----------
Total other income 173,651 31,553 62,143
EARNINGS BEFORE INCOME TAXES 595,665 753,947 341,571
INCOME TAXES (NOTE D) 224,471 288,464 129,603
----------- ----------- -----------
NET EARNINGS 371,194 465,483 211,968
RETAINED EARNINGS AT BEGINNING OF PERIOD 865,788 400,305 1,236,982
----------- ----------- -----------
RETAINED EARNINGS AT END OF PERIOD $ 1,236,982 $ 865,788 $ 1,448,950
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 10
RAM OIL WELL SERVICE, INC
===============================================================================
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED YEAR ENDED MONTHS ENDED
DECEMBER 31 DECEMBER 31 AUGUST 31
1996 1995 1997
----------- ----------- -----------
unaudited
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 371,194 $ 465,483 $ 211,968
Depreciation 291,896 272,653 250,445
(Gain) on disposal of assets (139,149) (6,054) (29,779)
(Increase) Decrease in accounts receivable (131,855) 4,773 (177,634)
(Increase) in inventory (784) (694) 1,050
(Increase) in prepaid sandlines (8,369) (3,182) 1,640
(Increase) in prepaid income taxes (74,312) -- 74,312
Increase (Decrease) in accounts payable 47,484 (18,403) (86,806)
(Decrease) in salaries and wages payable (9,256) (11,478) 33,168
Increase (Decrease) in workers' compensation
insurance payable 34,735 (20,883) (14,187)
Increase (Decrease) in other taxes payable 22,813 (14,471) 25,178
(Decrease) Increase in income taxes payable (83,509) 31,045 18,028
Increase in employee savings 450 25 1,380
Increase in pension plan contribution payable 1,047 4,556 24,610
(Decrease) in deferred income taxes (10,593) (20,829) (6,000)
----------- ----------- -----------
Net cash provided by operating activities 311,792 682,541 327,373
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 11
RAM OIL WELL SERVICE, INC
================================================================================
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,069,428) (22,218) (59,227)
Proceeds from sale of assets 281,256 11,814 --
Loan to related party (NOTE C) -- (600,000) (500,000)
Collection of loan to related party (NOTE C) -- 600,000 --
----------- ----------- -----------
Net cash used by investing activities (788,172) (10,404) (559,227)
Net (decrease) increase in cash and cash equivalents (476,380) 672,137 (231,854)
Cash and cash equivalents at beginning of year 1,105,195 433,058 628,815
=========== =========== ===========
Cash and cash equivalents at end of year $ 628,815 $ 1,105,195 $ 396,961
=========== =========== ===========
Income taxes paid $ 392,935 $ 279,546 $ 111,625
=========== =========== ===========
Interest paid $ -- $ 525 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 12
RAM OIL WELL SERVICE, INC.
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies of Ram Oil Well Service, Inc.
(the Company) is presented to assist in understanding the Company's
financial statements. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
1. NATURE OF OPERATIONS
The Company has been in operation in Hobbs, New Mexico since
incorporation in 1981. The Company derives its revenue from the
operation of 17 well servicing units primarily in southeastern
New Mexico.
2. INVENTORY
Inventory consists of fuel which is stated at cost.
3. DEPRECIATION
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives. The straight-line method of depreciation is
utilized for substantially all assets for financial reporting
purposes. Accelerated methods are used for income tax reporting
purposes.
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency on hand and demand
deposits with financial institutions.
5. INCOME TAXES
The Company provides for income taxes based on income reported
for financial statement purposes. Depreciation charges to
earnings differ as to timing from those deducted for tax
purposes and the tax effects of these differences are recorded
as deferred income taxes.
6. ACCOUNTS RECEIVABLE
The majority of the accounts receivable as of December 31, 1996
and 1995, and sales for the years then ended were with major oil
producing companies involved in the oil and gas industry in the
Permian Basin.
The Company considers accounts receivable to be fully
collectible; accordingly,
7
<PAGE> 13
RAM OIL WELL SERVICE, INC.
================================================================================
no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when
that determination is made.
7. USE OF ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the period. Actual results could
differ from those estimates.
8. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
8
<PAGE> 14
RAM OIL WELL SERVICE, INC.
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE B - DEPRECIABLE ASSETS, AT COST
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Pulling units $2,571,024 $2,571,024
Swab units 612,824 360,734
Other equipment 684,527 301,119
Automobiles 282,877 144,998
Shop equipment 42,873 42,873
Radio equipment 26,720 26,720
Office equipment 22,673 22,673
Rental tools 1,275 1,275
---------- ----------
$4,244,793 $3,471,416
========== ==========
</TABLE>
NOTE C - RELATED PARTY TRANSACTIONS
Robert D. Calhoon is the president and sole shareholder of Ram
Oil Well Service, Inc. and Rowland Trucking Co., Inc.
Robert D. Calhoon leases the yard and the building to Ram Oil Well Service,
Inc. on a month-to-month lease with no written agreement. The lease expense
for the years ended December 31, 1996 and 1995, was $60,000 for each year.
During 1995, Ram Oil Well Service, Inc. loaned $600,000 to
Rowland Trucking Co., Inc. which was repaid in December, 1995
with interest.
NOTE D - INCOME TAXES
Deferred income taxes result from utilizing accelerated depreciation methods
for income tax reporting and the straight-line method for financial
reporting resulting in temporary differences.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Income tax expense consists of:
Current income tax expense $ 235,064 $ 309,293
Deferred income tax (benefit) (10,593) (20,829)
---------- ----------
$ 224,471 $ 288,464
========== ==========
</TABLE>
9
<PAGE> 15
RAM OIL WELL SERVICE, INC.
================================================================================
NOTE E - PENSION PLAN
In January 1992, the Company established a qualified employee profit sharing
plan under Internal Revenue Code Section 401(k) to which both the Company
and eligible employees contribute. All employees are eligible to participate
in the plan when they have reached twenty-one years of age and have
completed twelve months of service with the Company. Company contributions
are at the discretion of the Board of Directors. Pension plan expense was
$38,234 for the year ended December 31, 1996 and $36,756 for the year ended
December 31, 1995.
10
<PAGE> 16
RAM OIL WELL SERVICE, INC.
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE F - OPERATING LEASES
In 1991 the Company began leasing several vehicles under operating leases
which are cancelable at various dates. At the end of the lease terms, the
leases provide for renewal for various periods at stipulated rates. Rental
expense for these leases was $34,379 for the year ended December 31, 1996
and $49,948 for the year ended December 31, 1995. The minimum lease payments
are:
<TABLE>
<S> <C>
Year ending December 31,
1997 $ 4,823
----------
Total minimum payments required $ 4,823
==========
</TABLE>
NOTE G - WORKERS' COMPENSATION INSURANCE PAYABLE
The Company has a Certificate of Self-Insurance under provisions of the New
Mexico Workers' Compensation Act. Liability for claims and estimated losses
are recorded monthly. The Company self-insures up to $250,000 on individual
claims and on aggregate claims up to $500,000 within a year and carries an
insurance policy for claims and losses in excess of these amounts. The
estimated self-insurance liability is based upon a review by the Company and
an independent insurance broker of claims filed and claims incurred but not
reported. The Company has a standby letter of credit of $200,000 that can be
used by the State Workers' Compensation Administration if the Company fails
to pay claims as provided by regulations.
NOTE H - CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances at financial institutions located in
Hobbs, New Mexico. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. Balances at one of the financial
institutions totaled $191,800 at December 31, 1996 and $1,134,688 at
December 31, 1995.
11
<PAGE> 17
SUPPLEMENTAL INFORMATION
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL INFORMATION
Board of Directors
Ram Oil Well Service, Inc.
Hobbs, New Mexico
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole of Ram Oil Well Service, Inc. for the
years ended December 31, 1996 and 1995, which are presented in the preceding
section of this report. This supplemental information is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the audit procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the basic financial statements
taken as a whole.
Hobbs, New Mexico
January 23, 1997
8
<PAGE> 19
RAM OIL WELL SERVICE, INC.
================================================================================
DIRECT EXPENSES
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31
1996 1995
---------- ----------
<S> <C> <C>
Salaries and wages $1,620,038 $1,613,856
Repairs 417,819 383,178
Depreciation 184,363 200,637
Fuel, oil and lubricants 179,083 149,316
Supplies 170,874 84,337
Payroll taxes 142,335 137,614
Payroll insurance 115,072 5,189
Sandline expense 106,490 87,624
Swab cups and rubbers 89,512 86,376
Safety maintenance 60,671 35,751
Group insurance 55,037 63,217
Field expense 46,770 10,810
Tires and tubes 32,293 25,618
Pension plan contribution 25,645 25,654
Radio expense 22,187 16,114
Uniforms 13,984 19,561
Rental and lease equipment 13,627 23,463
License and fees 974 --
Drilling line expense -- 3,432
---------- ----------
$3,296,774 $2,971,747
========== ==========
</TABLE>
9
<PAGE> 20
RAM OIL WELL SERVICE, INC.
================================================================================
INDIRECT EXPENSES
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31
1996 1995
----------- -----------
<S> <C> <C>
Salaries and wages $ 448,869 $ 483,902
Depreciation 107,533 72,016
Repairs 79,912 64,680
Liability insurance 70,129 53,087
Rent - building and yard 60,000 60,000
Supplies 44,808 32,989
Taxes 36,292 38,706
Lease expense 33,775 39,596
Fuel, oil and lubricants 28,175 26,645
Customer solicitation 24,799 29,145
Legal and accounting 18,690 20,242
Safety maintenance 18,218 9,094
Radio expense 13,466 10,241
Pension plan contribution 12,589 11,102
Telephone and answering service 12,065 8,351
Janitor expense 10,056 9,363
Donations 7,852 4,040
Utilities 7,302 6,809
Payroll insurance 7,275 7,445
Uniforms 5,287 5,387
Dues and subscriptions 5,212 4,088
License and fees 4,228 9,050
Advertising 3,600 2,862
Discounts 2,323 -
Tires and tubes 2,302 4,403
Field expense 2,295 2,029
Group insurance 2,101 8,201
Bank charges 1,306 -
Flowers and gifts 460 175
Bad debts - 21,800
------------ -------------
$ 1,070,919 $ 1,045,448
============ =============
</TABLE>
10
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rowland Trucking Co., Inc.
Hobbs, New Mexico
We have audited the accompanying balance sheets of Rowland Trucking Co., Inc. as
of December 31, 1996 and 1995, and the related statements of earnings,
stockholder's 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 audit.
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 financial position of Rowland Trucking Co., Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
1
<PAGE> 22
[CLOVER LEAF, DIAMOND, HEART & SPADE LOGO]
Hobbs, New Mexico
February 7, 1997
2
<PAGE> 23
FINANCIAL STATEMENTS
<PAGE> 24
ROWLAND TRUCKING CO., INC.
===============================================================================
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 December 31 August 31
1996 1995 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 1,006,431 $ 1,309,154 $ 338,503
----------- ----------- -----------
Trade accounts receivable 3,149,054 2,622,518 3,602,268
Inventory 38,308 23,028 26,269
Prepaid expenses 7,280 15,571 7,280
Total current assets 4,201,073 3,970,271 4,054,320
----------- ----------- -----------
PROPERTY AND EQUIPMENT (NOTES C AND D)
Property and equipment 8,831,861 8,258,490 9,619,692
Less accumulated depreciation (5,772,155) (4,349,460) 6,621,300
----------- ----------- -----------
3,059,706 3,909,030 2,998,392
OTHER ASSETS 717 412 717
TOTAL ASSETS $ 7,261,496 $ 7,879,713 $ 7,053,429
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable (NOTE E) $ 561,750 $ 421,099 $ 596,274
Salaries and wages payable 114,253 79,186 106,341
Workers' compensation and insurance payable
(NOTE F) 179,125 176,458 76,940
Other accrued liabilities 134,224 142,818 97,281
Due to stockholder (NOTE E) -- 700,000 500,000
Notes payable (NOTE D) 200,000 2,000,000 --
----------- ----------- -----------
Total current liabilities 1,189,352 3,519,561 1,376,836
STOCKHOLDER'S EQUITY
Common stock, $1 par value
Authorized, issued and outstanding
- 500,000 shares 500,000 500,000 500,000
Additional paid in capital 2,459,708 2,459,708 2,459,708
Retained earnings 3,112,436 1,400,444 2,716,885
----------- ----------- -----------
Total stockholder's equity 6,072,144 4,360,152 5,676,593
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 7,261,496 $ 7,879,713 $ 7,053,429
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 25
ROWLAND TRUCKING CO., INC.
===============================================================================
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended Year Ended Eight Months Ended
December 31 December 31 August 31,
1996 1995 1996 1997
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE $ 15,584,251 $ 12,260,865 $ 9,853,735 $ 12,023,461
OPERATING EXPENSES (including depreciation of
$1,583,139 in 1996 and $1,185,154 in 1995) 13,585,959 10,893,737 8,714,353 9,663,322
------------ ------------ ------------ ------------
EARNINGS FROM OPERATIONS 1,998,292 1,367,128 1,139,382 2,360,139
OTHER INCOME (EXPENSE)
Interest income 36,333 61,412 20,424 49,592
------------ ------------ ------------ ------------
Gain (loss) on disposal of assets 16,335 (60,326) 21,236 9,957
Miscellaneous income 8,265 -- 15,888 25,852
------------ ------------ ------------ ------------
Interest expense (47,233) (100,305) (59,673) (1,091)
------------ ------------ ------------ ------------
Total other income (expense) 13,700 (99,219) (2,125) 84,310
------------ ------------ ------------ ------------
NET EARNINGS BEFORE INCOME TAXES 2,011,992 1,267,909 1,137,257 2,444,449
INCOME TAXES (NOTE B) -- 87,172 -- --
============ ============ ============ ============
NET EARNINGS $ 2,011,992 $ 1,180,737 $ 1,137,257 $ 2,444,449
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 26
ROWLAND TRUCKING CO., INC.
===============================================================================
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Additional Total
Stock Paid-in Retained Treasury Stockholder's
Par Value Capital Earnings Stock Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 $ 250,000 $ 750,000 $ 648,206 $(1,100,000) $ 548,206
CANCEL TREASURY STOCK (NOTE I) (200,000) (600,000) (300,000) 1,100,000 --
POOLING OF INTERESTS BUSINESS
COMBINATION (NOTE B) 450,000 999,600 1,181,609 -- 2,631,209
CAPITALIZE RETAINED EARNINGS OF
COMBINED COMPANY -- 1,310,108 (1,310,108) -- --
NET EARNINGS -- -- 1,180,737 -- 1,180,737
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995 500,000 2,459,708 1,400,444 -- 4,360,152
STOCKHOLDER DISTRIBUTIONS -- -- (300,000) -- (300,000)
NET EARNINGS -- -- 2,011,992 -- 2,011,992
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996 $ 500,000 $ 2,459,708 $ 3,112,436 $ -- $ 6,072,144
=========== =========== =========== =========== ===========
(unaudited)
STOCKHOLDER DISTRIBUTIONS -- -- (2,840,000) -- (2,840,000)
NET EARNINGS -- -- 2,444,449 -- 2,444,449
----------- ----------- ----------- ----------- -----------
BALANCES AT AUGUST 31, 1997 $ 500,000 $ 2,459,708 $ 2,716,885 $ -- $ 5,676,593
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 27
ROWLAND TRUCKING CO., INC.
===============================================================================
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Eight Months Ended
December 31 December 31 August 31,
1996 1995 1996 1997
----------- ----------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,011,992 $ 1,180,737 $ 1,137,257 $ 2,444,449
Depreciation 1,583,139 1,185,154 1,016,411 875,318
(Gain) loss on disposal of assets (16,335) 60,326 (21,286) (9,957)
(Increase) in accounts receivable (526,536) (456,655) (255,830) (533,214)
(Increase) decrease in inventory (15,280) 2,783 (9,947) 12,039
Decrease in prepaid expenses 8,291 163,259 (140,764) --
(Increase) in other assets (305) (352) (305) --
Increase (decrease) in accounts payable 140,651 (59,004) 84,753 34,524
Increase in salaries and wages payable 35,067 16,483 5,645 (7,912)
Increase in workers' compensation
insurance payable 2,667 2,618 117,827 (102,185)
(Decrease) increase in other accrued liabilities (8,594) 41,469 (32,384) (36,943)
(Decrease) in income taxes payable -- (215,178) -- --
----------- ----------- ----------- -------------
Net cash provided by operating activities 3,214,757 1,921,640 1,901,407 2,676,119
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (753,997) (847,742) (361,480) (846,547)
Proceeds from sale of assets 36,517 57,918 31,000 42,500
----------- ----------- ----------- -------------
Net cash (used) by investing activities (717,480) (789,824) (330,480) (804,047)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds -- 480,000 -- --
Repayment of loan (1,800,000) (1,041,257) (2,000,000) --
Related party loan proceeds 300,000 600,000 -- 500,000
Repayment of related party loan (1,000,000) (600,000) (200,000) (200,000)
Stockholder distributions (300,000) -- (150,000) (2,840,000)
----------- ----------- ----------- -------------
Net cash (used) by financing activities (2,800,000) (561,257) (2,350,000) (2,540,000)
----------- ----------- ----------- -------------
Net (decrease) increase in cash and cash
equivalents (302,723) 570,559 (779,073) (667,928)
Cash and cash equivalents at beginning of year 1,309,154 738,595 1,309,154) 1,006,431
----------- ----------- ----------- -------------
Cash and cash equivalents at end of year $ 1,006,431 $ 1,309,154 $ 530,081 $ 338,503
----------- ----------- ----------- -------------
Income tax refunds received $ -- $ 52,632 $ -- $ --
=========== =========== =========== =============
Interest paid $ 47,233 $ 67,685 $ 59,673 $ 1,091
=========== =========== =========== =============
</TABLE>
===============================================================================
The accompanying notes are an integral part of the financial statements
7
<PAGE> 28
ROWLAND TRUCKING CO., INC.
===============================================================================
NON-CASH INVESTING AND FINANCING ACTIVITY
During the year ended December 31, 1995, the Company acquired McCasland
Services, Inc. for 450,000 shares of common stock in a business combination
accounted for as a pooling of interests. (NOTE B)
The Company issued a note payable in the amount of $1,500,000 as part of the
purchase of substantially all the assets of Two State Tank Rental, Inc. during
the year ended December 31, 1995. (NOTE B)
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 29
ROWLAND TRUCKING CO., INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies of Rowland Trucking Co., Inc. (the
Company) is presented to assist in understanding the Company's
financial statements. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in
the preparation of the financial statements.
1. NATURE OF OPERATIONS
Rowland Trucking Co., Inc. provides trucking services and portable
oil field drilling fluid and storage tank rentals to the oil and gas
industry in southeastern New Mexico and west Texas. The Company
provides these services from locations in Hobbs, Eunice, and
Carlsbad, New Mexico.
2. INVENTORY
Inventory consists of fuel which is stated at cost.
3. DEPRECIATION
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives. Accelerated methods are used for financial reporting
and for income tax reporting purposes.
4. ACCOUNTS RECEIVABLE
The majority of the accounts receivable as of December 31, 1996 and
1995, and sales for the years then ended were with major oil
producing companies involved in the oil and gas industry in the
Permian Basin.
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If
amounts become uncollectible, they will be charged to operations
when that determination is made.
5. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
cash and cash equivalents to include all demand deposit accounts,
demand interest bearing deposits, and other interest bearing
deposits with a maturity of three months or less.
The Company maintains its cash balances in one financial institution
located in Lea County, New Mexico. These balances are insured by the
Federal Deposit Insurance Corporation up to $100,000.
6. INCOME TAXES
Income taxes on net earnings are payable personally by the
stockholder pursuant to an election under Subchapter S of the
Internal Revenue Code not to have the Company taxed as a
corporation. Accordingly, no provision has been made for federal or
state income taxes. The income taxes assumed payable had this
election not been made amount to $684,077 in 1996 and $357,761 in
1995.
9
<PAGE> 30
ROWLAND TRUCKING CO., INC.
- --------------------------------------------------------------------------------
7. USE OF ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the period. Actual results could differ from those
estimates.
NOTES TO FINANCIAL STATEMENTS
NOTE B - BUSINESS COMBINATIONS
McCasland Services, Inc. On July 1, 1995, the businesses of the Company
and McCasland Services, Inc., a related trucking company in
southeastern New Mexico, were merged upon the exchange of 450,000
shares of the Company's common stock for all of the outstanding common
shares of McCasland Services, Inc. This transaction has been accounted
for as a pooling of interests. Accordingly, the financial statements
presented include the accounts and operations of McCasland Services,
Inc. as if the transaction occurred on January 1, 1995. Separate
operating results for the period January 1, 1995 to consummation of the
combination (July 1, 1995), included in the 1995 statement of earnings,
are as follows:
<TABLE>
<CAPTION>
REVENUE NET
EARNINGS
----------- ----------
<S> <C> <C>
January 1, 1995 through June 30, 1995
Rowland Trucking Co., Inc. $ 2,931,259 $ 168,197
McCasland Services, Inc. 2,716,145 128,499
----------- ----------
5,647,404 296,696
July 1, 1995 through December 31, 1995
Rowland Trucking Co., Inc. 6,613,461 884,041
----------- ----------
$12,260,865 $1,180,737
=========== ==========
</TABLE>
As a result of the pooling of interests, the Company is reporting
income taxes of $87,172 for the year ended December 31, 1995. This is
the income tax expense incurred by McCasland Services, Inc. for the
period January 1, 1995 to consummation of the combination (July 1,
1995).
Two State Tank Rental, Inc.
On September 29, 1995, the Company purchased substantially all of the
assets of Two State Tank Rental, Inc., which rents portable oil field
drilling fluid and storage tanks throughout New Mexico and west Texas,
for $2,120,000 with a $620,000 down payment and the remaining $1.5
million due January 2, 1996. The acquisition has been accounted for as
a purchase and the accounts of Two State Tank Rental, Inc. have been
included in the accompanying financial statements for the period
September 29, 1995 through December 31, 1995.
10
<PAGE> 31
ROWLAND TRUCKING CO., INC.
- --------------------------------------------------------------------------------
NOTE C - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Rental equipment $2,382,667 $2,382,667
Construction equipment 1,335,431 1,126,676
Vacuum trucks and trailers 1,105,626 1,105,626
Transports and trailers 823,128 823,128
Brine stations and salt water disposal wells 760,554 760,554
Pump trucks 611,385 540,938
Buildings 458,253 326,418
---------- ----------
Hot oil units 440,385 487,583
Vehicles 362,119 181,903
Shop equipment 210,980 194,705
Office equipment 179,405 107,118
Leasehold improvements 59,532 59,532
Construction in progress 30,115 89,361
Communication equipment 23,281 23,281
Land 49,000 49,000
---------- ----------
$8,831,861 $8,258,490
</TABLE>
11
<PAGE> 32
ROWLAND TRUCKING CO., INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE D - NOTES PAYABLE
The Company has outstanding advances of $200,000 and $500,000 on a
$500,000 line of credit at December 31, 1996 and 1995 respectively.
Interest at the rate of 1% above the Chase Manhattan Bank N.A. prime
lending rate is payable monthly. The outstanding balance is secured by
mortgages on certain real property in Lea and Eddy Counties, New Mexico
and by guarantees of the sole stockholder and the Company. This line of
credit expires April 26, 1997.
The Company had a note payable to Two State Tank Rental, Inc. of
$1,500,000 at December 31, 1995. The note with interest of 8.75% was
paid on January 2, 1996. It was secured by substantially all assets
purchased from Two State Tank Rental, Inc. on September 29, 1995. (NOTE
B)
NOTE E - RELATED PARTY TRANSACTIONS
1. Robert D. Calhoon is the president and sole shareholder of Rowland
Trucking Co., Inc. and Ram Oil Well Service, Inc. at December 31,
1996 and 1995. He was also the president and sole shareholder of
McCasland Services, Inc. through June 30, 1995 when that company was
merged into Rowland Trucking Co., Inc. (NOTE B)
2. Robert D. Calhoon leases the Eunice, New Mexico yard and building to
Rowland Trucking Co., Inc. on a month-to-month lease with no written
agreement. The lease expense for the year ended December 31, 1996
and 1995, was $60,000.
3. During 1995, Ram Oil Well Service, Inc. loaned $600,000 to Rowland
Trucking Co., Inc. which was repaid in December, 1995 with interest.
Rowland Trucking Co., Inc. also paid Ram Oil Well Service, Inc.
$15,481 and $9,128 for services performed during the years ended
December 31, 1996 and 1995. Ram Oil Well Service, Inc. paid Rowland
Trucking Co., Inc. $5,917 and $856 for services performed during the
years ended December 31, 1996 and 1995.
4. At December 31, 1995, the Company had an unsecured liability to its
president and sole shareholder in the amount of $700,000 which is
due on demand. The liability was paid in full during the year ended
December 31, 1996.
5. Sims-McCasland Water is 50% owned by Robert D. Calhoon. Rowland
Trucking Co., Inc. paid Sims- McCasland Water $150,828 and $98,298
for purchases during the years ended December 31, 1996 and 1995 and
owed Sims-McCasland Water $9,413 and $11,162 at December 31, 1996
and 1995.
6. McCasland Disposal is 70% owned by Robert D. Calhoon. Rowland
Trucking Co., Inc. paid McCasland Disposal $103,876 and $83,195
during the years ended December 31, 1996 and 1995 and owed McCasland
Disposal $13,718 and $6,877 at December 31, 1996 and 1995.
7. Continental Water Sales is 50% owned by Robert D. Calhoon. Rowland
Trucking Co., Inc. paid Continental Water Sales $14,738 and $2,677
during the years ended December 31, 1996 and 1995 and owed
Continental Water Sales $59 at December 31, 1995.
12
<PAGE> 33
ROWLAND TRUCKING CO., INC.
- --------------------------------------------------------------------------------
8. McCasland Disposal paid Rowland Trucking Co., Inc. $21,843 and
$24,343 during the years ended December 31, 1996 and 1995 for
billing services performed by Rowland Trucking Co., Inc.
13
<PAGE> 34
ROWLAND TRUCKING CO., INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE F - WORKERS' COMPENSATION INSURANCE PAYABLE
The Company became self-insured for workers' compensation insurance on
November 1, 1995 and was issued a Certificate of Self-Insurance under
provisions of the New Mexico Workers' Compensation Act. The Company
self-insures up to $250,000 on individual claims and on aggregate
claims up to $1,000,000 within a year and carries an insurance policy
for claims and losses in excess of these amounts.
The estimated self-insurance liability is based upon a review by the
Company and an independent insurance broker of claims filed and claims
incurred but not reported. The liability for claims and estimated
losses is recorded monthly.
The Company has a standby letter of credit of $200,000 that can be used
by the State Workers' Compensation Administration if the Company fails
to pay claims as provided by regulations.
NOTE G - OPERATING LEASES
The Company leases vehicles under operating leases which are cancelable
at various dates. At the end of the lease terms, the leases provide for
renewal for various periods at stipulated rates. The Company also has
several month to month leases for equipment, vehicles, buildings, and
surface rights to property. Rental expense for all these leases was
$166,297 and $211,149 for the years ended December 31, 1996 and 1995.
The minimum lease payments on the vehicle leases are:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
1997 $ 27,728
1998 5,084
----------------
Total minimum payments required $ 32,812
================
</TABLE>
NOTE H - PROFIT SHARING PLAN
Effective April 1, 1993, the Company adopted a qualified employee
profit sharing plan under Internal Revenue Code Section 401(k) to which
both the Company and eligible employees contribute. To be eligible for
the plan, employees must have worked for the Company for one year and
be at least twenty-one years old. Company contributions are at the
discretion of the Board of Directors. The Company made contributions to
the plan totaling $72,381 and $157,044 for the years ended December 31,
1996 and 1995.
NOTE I - TREASURY STOCK
On December 23, 1994, the Company and its shareholders entered into a
Redemption Agreement where the Company redeemed 200,000 shares of its
outstanding stock for $1,100,000 pending releases of all corporate and
personal bank loan guarantees of the former shareholders and their
related companies. The releases were received by the former
shareholders in January, 1995. As a result of this transaction, a sole
shareholder owns 100% of the outstanding stock. The treasury stock was
canceled during 1995.
14
<PAGE> 35
SUPPLEMENTAL INFORMATION
<PAGE> 36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL INFORMATION
Board of Directors
Rowland Trucking Co., Inc.
Hobbs, New Mexico
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole of Rowland Trucking Co., Inc. for the
years ended December 31, 1996 and 1995, which are presented in the preceding
section of this report. This supplemental information is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the audit procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the basic financial statements
taken as a whole.
[CLOVER LEAF, DIAMOND, HEART, AND SPADE SYMBOLS]
Hobbs, New Mexico
February 7, 1997
10
<PAGE> 37
RAM OIL WELL SERVICE, INC.
- --------------------------------------------------------------------------------
REVENUES
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31
1996 1995
----------- -----------
<S> <C> <C>
Transports $ 3,037,491 $ 3,428,338
Vacuum trucks 2,847,932 1,971,760
Frac tanks 1,959,290 791,419
Dirt work 1,933,139 1,202,598
Kill trucks 1,784,896 1,404,202
Hot oil 983,259 944,693
Chemical 801,614 760,648
Winch trucks 600,125 406,879
Disposal 536,557 562,274
Fresh water 506,952 351,525
Brine water 324,078 186,460
Miscellaneous 155,507 113,584
Oil resale 113,411 136,485
----------- -----------
$15,584,251 $12,260,865
=========== ===========
</TABLE>
11
<PAGE> 38
RAM OIL WELL SERVICE, INC.
- --------------------------------------------------------------------------------
OPERATING EXPENSES
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31
1996 1995
----------- -----------
<S> <C> <C>
Salaries and wages $ 4,931,439 $ 3,872,203
Cost of water, chemical, disposal and dirt work 1,791,723 1,392,517
Repairs 1,727,960 989,280
Depreciation 1,583,139 1,185,154
Fuel 899,228 699,661
Supplies 471,093 641,971
Payroll taxes 407,427 351,715
Tires and tubes 304,523 293,083
Workers' compensation insurance and claims 232,366 254,738
Meals and entertainment 208,918 185,905
Lease expense 166,297 211,149
Group health and life insurance 144,945 115,170
Telephone and answering service 119,600 89,900
Auto and general liability insurance 107,813 88,299
Fuel taxes 84,660 58,774
Profit sharing plan 72,381 157,044
Utilities 67,311 102,004
Professional services 60,098 65,334
License, fees and permits 50,431 36,260
Uniforms and laundry 43,391 35,157
Bad debts 40,104 --
Royalty expense 21,091 18,015
Property and other taxes 14,753 17,800
Advertising 8,732 6,413
Dues and subscriptions 8,731 9,756
Donations 8,063 6,999
Postage 6,449 8,005
Bank charges 2,299 34
Flowers and gifts 994 226
Penalties and fines -- 1,171
----------- -----------
$13,585,959 $10,893,737
=========== ===========
</TABLE>
12
<PAGE> 39
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 acquisitions
of the assets of Ram Oilwell Service, Inc. and Rowland Trucking Co. Inc.
(collectively "Ram/Rowland") in September 1997. The Unaudited Pro Forma Combined
Financial Statements of the Company are not necessarily indicative of the
financial results for the periods presented had the acquisition of Ram/Rowland
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 Ram/Rowland.
<PAGE> 40
Key Energy Group, Inc. and Subsidiaries
Unaudited Pro Forma Combined Balance Sheet
as of June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Ram/Rowland Entries Combined
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash 41,067 2,616 43,683
Short term investments -- -- --
Restricted cash 637 -- 637
Accounts receivable, net 45,230 4,303 (200) (a) 49,333
Inventories 5,171 37 150 (a) 5,358
Prepaid expenses and other 1,228 169 1,397
-------- -------- --------
Total Current Assets 93,333 7,125 100,408
Property and Equipment:
Oilfield service equipment 176,326 9,242 17,058 (b) 202,626
Oil and gas well drilling
equipment 6,319 -- 6,319
Motor vehicles 10,569 713 (394) (b) 10,888
Oil and gas properties and related
equipment, successful efforts
method 23,622 -- 23,622
Furniture and equipment 1,661 506 (446) (b) 1,721
Buildings and land 8,758 3,078 (2,589) (b) 9,247
Accumulated depreciation and
depletion (19,069) (9,685) 9,685 (b) (19,069)
-------- -------- --------
Net property and equipment 208,186 3,854 235,354
Other assets 18,576 1 18,577
-------- -------- --------
Total Assets 320,095 10,980 354,339
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 41
Key Energy Group, Inc. and Subsidiaries
Unaudited Pro Forma Combined Balance Sheet
as of June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
The Pro Forma Proforma
Company Ram/Rowland Entries Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Liabilities and Stockholders'
Equity:
Current Liabilities:
Accounts payable 15,339 1,657 16,996
Other accrued liabilities 12,507 -- 145 (a) 12,652
Accrued interest 2,102 -- 2,102
Accrued income taxes 1,664 -- 1,664
Deferred tax liability 126 -- 126
Current portion of long-term debt 1,404 -- 1,404
--------- --------- ---------
Total Current Liabilities 33,142 1,657 34,944
Long-term debt 172,763 -- 22,350 (c) 195,113
Deferred income taxes 35,738 -- 10,092 (d) 45,830
Non-current accrued expenses 4,017 -- 4,017
Minority interest 1,256 -- 1,256
Commitments and contingencies -- -- --
Total Stockholders' Equity:
Common stock 1,230 550 (550) (b) 1,230
Additional paid-in capital 55,031 3,990 (3,990) (b) 55,031
Retained earnings 16,918 4,783 (4,783) (b) 16,918
--------- --------- ---------
Total Stockholders' equity 73,179 9,323 73,179
Total Liabilities Stockholders'
Equity 320,095 10,980 354,339
========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 42
Key Energy Group, Inc. 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 Ram/Rowland Entries Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Oilfield services 144,385 22,663 167,048
Oil and gas 8,180 -- 8,180
Oil and gas well drilling 9,956 -- 9,956
Other, net 1,109 198 (198) (f) 1,109
--------- --------- ---------
163,630 22,861 186,293
Costs and Expenses:
Oilfield service 100,366 15,394 (398) (e) 115,362
Oil and gas 3,030 -- 3,030
Oil and gas well drilling 8,155 -- 8,155
Depreciation, depletion and
amortization 11,420 1,672 13,092
General and administrative 18,522 2,157 (1,113) (e) 19,566
Interest 7,535 47 1,565 (c) 9,147
--------- --------- ---------
149,028 19,270 168,352
Income before income taxes
and minority interest 14, 602 3,591 17,941
Income tax expense 5,500 224 1,033 (g) 6,757
Minority interest in net loss 4 -- 4
--------- --------- ---------
Net Income 9,098 3,367 11,180
========= ========= =========
Earning Per Share:
Income before income taxes and
minority interest 1.20 1.47
Net Income 0.75 0.92
Weighted average shares
outstanding 12,205 12,205
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 43
Key Energy Group, Inc. 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 Entries Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Oilfield services 69,498 3,690 73,188
Oil and gas 2,154 -- 2,154
Oil and gas well drilling 2,823 -- 2,823
Other, net 1,081 16 (16) (f) 1,081
--------- --------- ---------
75,556 3,706 79,246
Costs and Expenses:
Oilfield service 48,239 2,442 50,681
Oil and gas 937 -- 937
Oil and gas well drilling 2,263 -- 2,263
Depreciation, depletion and
amortization 5,147 272 5,419
General and administrative 7,701 174 7,875
Interest 3,438 -- 262 (c) 3,700
--------- --------- ---------
67,725 2,888 70,875
Income before income taxes and
minority interest 7,831 818 8,371
Income tax expense 2,893 -- 260 (g) 3,153
Minority interest in net loss -- -- --
--------- --------- ---------
Net Income 4,938 818 5,218
========= ========= =========
Earnings Per Share:
Income before income taxes and
minority interest 0.50 0.53
Net Income 0.32 0.33
Weighted average shares
outstanding 15,665 15,665
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 44
Key Energy Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Combined Financial Statements
June 30 and September 30, 1997
1. Basis of Presentation
The accompanying unaudited pro forma combined financial information of Key
Energy Group, Inc. ("Key or the "Company") is presented to reflect the
acquisitions of the assets of Ram Oilwell Service, Inc. and Rowland Trucking Co.
Inc. (collectively "Ram/Rowland") in September 1997. These acquisitions are
being filed together as they are considered related businesses within the
context of Regulation S-X. The Unaudited Pro Forma Combined Balance Sheet is
presented as if the acquisition of Ram/Rowland occurred at the balance sheet
date. The Unaudited Pro Forma Combined Statements of Operations are presented as
if the acquisitions had occurred on July 1, 1996 and July 1, 1997.
The Company - Represents the Consolidated Balance Sheet of Key Energy Group,
Inc. as of June 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.
Ram/Rowland - Represents the Balance Sheets of Ram Oilwell Service, Inc. and
Rowland Trucking Co. Inc. as of December 31, 1996, the Statement of Operations
of Ram Oilwell Service, Inc. and Rowland Trucking Co. Inc. for the year ended
June 30, 1997 (which was derived by certain calculations involving the Statement
of Operations of Ram Oilwell Service, Inc. and Rowland Trucking Co. Inc. for the
years ended December 31, 1996 and June 30, 1996 and 1997) and the Statement of
Operations for the three months ended September 30, 1997 (which was derived by
certain calculations involving the Statement of Operations of Ram Oilwell
Service, Inc. and Rowland Trucking Co. Inc. for the month ended September 30,
1997).
2. Pro Forma Entries
(a) To adjust the bad debt reserve, other current assets and other accrued
liabilities for items not recorded in the acquisition balances.
(b) To record the acquisition of Ram Oilwell Service, Inc. and Rowland Trucking
Co. Inc. using the purchase method of accounting. The allocations of the
purchase price to the acquired assets and liabilities of Ram Oilwell Service,
Inc. and Rowland Trucking Co. Inc. is preliminary, and therefore, subject to
adjustment.
(c) To record the additional debt of the company as a result of the cash
consideration paid to Ram Oil Service, Inc. and Rowland Trucking Co. Inc. and
the related interest.
(d) To record the deferred tax liability related to the acquired assets of Ram
Oilwell Service, Inc. and Rowland Trucking Co. Inc.
(e) To record the estimated savings in operating costs and general and
administrative expenses due to the acquisitions. The estimated savings is solely
a result of efficiencies gained by the consummation of the acquisitions and
operational improvements.
(f) To eliminate other miscellaneous revenue of Ram Oilwell Service, Inc. and
Rowland Trucking Co. Inc. that is not expected to reoccur.
(g) To record additional tax on acquisitions income.
<PAGE> 45
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: November 17, 1997 KEY ENERGY GROUP, INC.
By: /s/ Francis D. John
----------------------------------
Francis D. John, President
4
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
*2.1 Stock Purchase Agreement (Rowland Trucking Co., Inc.) Among Yale E.
Key, Inc. and Robert D. Calhoun, dated as of September 1, 1997
*2.2 Stock Purchase Agreement (Ram Oil Well Services, Inc.) Among Yale E.
Key, Inc. and Robert D. Calhoun, dated as of September 1, 1997.
23.1 Consent of Johnson, Miller & Co.
</TABLE>
- ---------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Current Report of Key Energy Group, Inc. on
Form 8-K of our reports dated January 23, 1997 and February 7, 1997, on our
audits of the financial statements of Ram Oil Well Service, Inc. as of December
31, 1995 and 1996 and Rowland Trucking Co. Inc. as of December 31, 1995 and
1996, respectively.
/s/ JOHNSON, MILLER & CO.
Johnson, Miller & Co.
Hobbs, New Mexico
November 17, 1997
