<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-7265
ENERGY VENTURES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 04-2515019
---------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027-3415
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 297-8400
--------------------------------------------------
(Registrant's telephone number, include area code)
NONE
--------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Title of Class Outstanding at August 3, 1995
-------------- -----------------------------
Common Stock, par value $1.00 15,047,183
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ........................................ $ 2,309 $ 3,144
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $794,000 at June 30, 1995 and $564,000
at December 31, 1994 ............................................ 83,692 72,790
Inventories ...................................................... 101,722 74,938
Materials amd Supplies ........................................... 8,455 7,687
Prepaid Expenses and Other ....................................... 8,716 6,244
------------ ------------
204,894 164,803
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION................................... 178,299 150,895
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE
ASSETS OF BUSINESSES ACQUIRED, NET................................ 32,227 15,606
OTHER ASSETS ...................................................... 13,165 12,930
------------ ------------
$ 428,585 $ 344,234
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines
of Credit ...................................................... $ 34,016 $ 17,265
Current Maturities of Long-Term Debt ............................. 4,556 3,189
Accoounts Payable ................................................ 50,722 30,741
Other Accrued Liabilities ........................................ 24,985 19,270
------------ ------------
114,279 70,465
------------ ------------
LONG-TERM DEBT .................................................... 125,693 125,690
DEFERRED INCOME TAXES ............................................. 32,014 30,785
OTHER LIABILITIES ................................................. 7,725 6,381
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock ..................................................... 15,047 12,754
Capital in Excess of Par Value ................................... 88,571 55,142
Retained Earnings ................................................ 52,240 48,856
Cumulative Foreign Currency Translation Adjustment ............... (5,430) (4,536)
Treasury Stock, at Cost .......................................... (1,554) (1,303)
------------ ------------
148,874 110,913
------------ ------------
$ 428,585 $ 344,234
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE> 3
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES .............................................. $ 79,747 $ 50,566 $ 152,407 $ 105,684
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of Sales ..................................... 59,651 35,692 112,806 75,883
Selling, General and Administrative Attributable
to Segments ..................................... 11,861 10,173 23,456 20,622
Corporate General and Administrative............... 1,348 1,200 2,604 2,256
---------- ---------- ---------- ----------
OPERATING INCOME ...................................... 6,887 3,501 13,541 6,923
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest Expense, Net ............................. (4,196) (3,460) (8,161) (5,845)
Other, Net......................................... 52 154 (7) 453
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE .............................. 2,743 195 5,373 1,531
PROVISION FOR INCOME TAXES ............................ 990 68 1,989 549
---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY CHARGE .................... 1,753 127 3,384 982
EXTRAORDINARY CHARGE, NET OF TAXES .................... --- --- --- (3,784)
---------- ---------- ---------- ----------
NET INCOME (LOSS) ..................................... $ 1,753 $ 127 $ 3,384 $ (2,802)
========== ========== ========== ==========
EARNINGS PER SHARE:
Income Before Extraordinary Charge ................ $ .14 $ .01 $ .27 $ .08
Extraordinary Charge............................... --- --- --- (.30)
---------- ---------- ---------- ----------
Net Income (Loss) Per Share ....................... $ .14 $ .01 $ .27 $ (.22)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING ................... 12,684 12,680 12,672 12,588
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE> 4
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .................................................. $ 3,384 $ (2,802)
---------- ----------
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operations:
Depreciation and Amortization .................................. 8,697 6,434
Deferred Income Tax Provision (Benefit) ........................ 309 (2,594)
Extraordinary Charge on Prepayment of Debt, Net ................ --- 3,784
Gain on Sale of Assets ......................................... (39) (92)
Provision for Doubtful Accounts Receivable ..................... 170 97
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired ....................................... (13,227) (21,747)
---------- ----------
Net Cash Used by Operating Activities ............................ (706) (16,920)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired .................... (4,336) (1,485)
Capital Expenditures for Property, Plant and Equipment ............. (11,739) (13,355)
Other, Net ......................................................... 701 98
---------- ----------
Net Cash Used by Investing Activities ............................ (15,374) (14,742)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt ........................... --- 120,000
Borrowings (Repayments) Under Revolving Lines of Credit............. 16,751 (40,228)
Borrowings Under Term Debt ......................................... 9 3,181
Repayments on Term Debt ............................................ (1,839) (45,074)
Penalty on Early Retirement of Debt ................................ --- (4,872)
Debt Issuance Costs ................................................ --- (4,155)
Other, Net ......................................................... 196 (159)
---------- ----------
Net Cash Provided by Financing Activities ........................ 15,117 28,693
---------- ----------
EFFECT OF TRANSLATION ADJUSTMENT
ON CASH ............................................................ 128 (266)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS ................................................... (835) (3,235)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .......................................................... 3,144 4,799
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD .......................................................... $ 2,309 $ 1,564
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, Net of Amounts Capitalized .......................... $ 7,740 $ 3,534
Income Taxes Paid .................................................. $ 1,127 $ 1,829
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE> 5
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) General
The unaudited consolidated condensed financial statements included
herein have been prepared by Energy Ventures, Inc. (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission.
These financial statements reflect all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for the fair
presentation of such financial statements for the interim periods presented.
Although the Company believes that the disclosures in these financial
statements are adequate to make the interim information presented not
misleading, certain information relating to the Company s organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed
or omitted in this Form 10-Q pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company s Annual Report on Form
10-K for the year ended December 31, 1994. The results of operations for the
three and six months ended June 30, 1995 are not necessarily indicative of the
results expected for the full year.
(2) Inventories
Major components of inventories include:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- ------------
(in thousands)
<S> <C> <C>
Raw materials and components ......... $ 47,220 $ 34,759
Work in process....................... 19,119 12,861
Finished goods ....................... 35,383 27,318
-------- --------
$101,722 $ 74,938
======== ========
</TABLE>
(3) Acquisitions
On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares
of Common Stock. The acquisition is expected to provide the Company with
greater manufacturing and marketing efficiencies by allowing for a
consolidation of overhead, reduced distribution and marketing costs and a
rationalization of manufacturing operations.
The Prideco acquisition was accounted for using the purchase method of
accounting. Accordingly, the respective assets and liabilities have been
recorded at their estimated fair values at the date of acquisition. The
allocation of the purchase price is based on the best estimates of the Company
using information currently available. Certain adjustments relating to the
acquisition are subject to change based upon final appraisals and determination
of the fair values of the assets acquired and liabilities assumed.
5
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The following table presents selected consolidated financial
information for the Company on a pro forma basis assuming that the Prideco
acquisition had occurred on January 1, 1994. The pro forma information is not
necessarily indicative of the results that might have occurred had such
transaction actually taken place at the beginning of the period specified and
is not intended to be a projection of future results.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1995 1994
-------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
Revenues ........................................ $181,955 $130,648
Income Before Extraordiary Charge ............... $ 4,547 $ 2,114
Net Income (Loss) ............................... $ 4,547 $ (1,670)
Earnings Per Share From Continuing Operations ... $ .30 $ .14
Net Income (Loss) Per Share ..................... $ .30 $ (.11)
</TABLE>
(4) Long-Term Debt
On March 24, 1994, the Company sold pursuant to a private placement
$120 million of 10.25% Senior Notes due 2004. In July 1994, substantially all
of these notes were exchanged for a substantially identical series of 10.25%
Senior Notes due 2004 with semi-annual interest payments in March and
September. Both issues of Senior Notes were issued pursuant to the terms of an
Indenture dated as of March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
See Note 7. The placement of the $120 million Senior Notes provided the Company
with $116 million in net proceeds that were used to prepay the $34 million
12.25% senior notes due 1997 and to repay substantially all of the Company's
outstanding indebtedness other than the Senior Notes. The remaining funds were
used for working capital and other general purposes. In connection with the
early retirement, the Company incurred in the first quarter of 1994 an
extraordinary charge of approximately $3.8 million, net of taxes of
approximately $1.9 million, or $.30 per share. The extraordinary charge
represented the difference between the reacquisition price and the net carrying
value of the $34 million senior notes, including unamortized debt issuance
costs.
Accrued interest payable, which is included in Other Accrued Liabilities
in the financial statements, was approximately $3.7 million and $3.7 million at
June 30, 1995 and December 31, 1994, respectively.
(5) Contingencies
In August of 1994, the Company received a letter from the IRS proposing
to increase the gain recognized by the Company upon the dissolution in October
1990 of the Company's joint venture ("COLEVE") with Columbia Gas and Development
Corporation. In general, the IRS' proposal seeks payment of a tax liability of
approximately $14.1 million plus accrued interest thereon, and includes $3.4
million of taxes relating to the proposed disallowance of certain interest
deductions taken by the Company with respect to COLEVE that was the subject of a
similar letter received by the Company in the fourth quarter of 1993. The tax
liability with respect to these matters has been previously provided for as a
deferred tax liability in the Company's financial statements. The Company
disagrees with the IRS' position and is currently pursuing its rights of
administrative review and appeal and intends to vigorously contest this matter.
Although the resolution of this matter could affect the timing of the payment of
previously accrued tax liabilities and require the use of a portion of its
available capital, the Company does not believe that the results of the audit or
the ultimate resolution of the IRS' proposed adjustments will have a material
impact on its results of operations or financial position.
(6) Reclassifications
Certain reclassifications of prior period balances have been made to
conform such amounts to appropriate June 30, 1995 classifications.
6
<PAGE> 7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements
The $120 million Senior Notes which are described in Note 4 are
unconditionally guaranteed on a joint and several basis, by certain subsidiaries
of the Company. Accordingly, the following condensed consolidating balance
sheets as of June 30, 1995 and December 31, 1994 and the related condensed
consolidating statements of income for the three and six month periods ended
June 30, 1995 and 1994, and cash flows for the six month period ended June 30,
1995 and 1994 have been provided. The condensed consolidating financial
statements herein are followed by notes which are an integral part of these
statements.
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Non-
Parent Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ............................... $ 156 $ 808 $ 1,345 $ --- $ 2,309
Other Current Assets .................................... 1,852 170,962 29,771 --- 202,585
---------- ---------- ---------- ---------- ----------
2,008 171,770 31,116 --- 204,894
---------- ---------- ---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ............................................ 191 165,453 12,655 --- 178,299
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET .................................... 263,922 (159,997) 16,373 (120,298) ---
OTHER ASSETS .............................................. 4,468 39,890 1,034 --- 45,392
---------- ---------- ---------- ---------- ----------
$ 270,589 $ 217,116 $ 61,178 $ (120,298) $ 428,585
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings ................................... $ --- $ 29,862 $ 4,154 $ --- $ 34,016
Current Maturities of Long-Term Debt .................... --- 3,619 937 --- 4,556
Accounts Payable and Other Accrued
Liabilities ........................................... 2,905 63,592 9,210 --- 75,707
---------- ---------- ---------- ---------- ----------
2,905 97,073 14,301 --- 114,279
---------- ---------- ---------- ---------- ----------
LONG-TERM DEBT ............................................ 120,000 4,020 1,673 --- 125,693
DEFERRED TAXES, NET ....................................... (1,805) 18,213 15,606 --- 32,014
OTHER LIABILITIES ......................................... 615 5,841 1,269 --- 7,725
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' INVESTMENT .................................. 148,874 91,969 28,329 (120,298) 148,874
---------- ---------- ---------- ---------- ----------
$ 270,589 $ 217,116 $ 61,178 $ (120,298) $ 428,585
========== ========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ............................ $ 166 $ 1,593 $ 1,385 $ --- $ 3,144
Other Current Assets ................................. 1,549 135,170 24,940 --- 161,659
---------- ---------- ---------- ---------- ----------
1,715 136,763 26,325 --- 164,803
---------- ---------- ---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ......................................... 230 140,024 10,641 --- 150,895
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET ................................. 229,873 (134,749) 18,058 (113,182) ---
OTHER ASSETS .......................................... 4,124 23,496 916 --- 28,536
---------- ---------- ---------- ---------- ----------
$ 235,942 $ 165,534 $ 55,940 $ (113,182) $ 344,234
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings ............................... $ --- $ 13,627 $ 3,638 $ --- $ 17,265
Current Maturities of Long-Term Debt ................ --- 1,480 1,709 --- 3,189
Accounts Payable and Other Accrued
Liabilities ....................................... 5,291 37,748 6,972 --- 50,011
---------- ---------- ---------- ---------- ----------
5,291 52,855 12,319 --- 70,465
---------- ---------- ---------- ---------- ----------
LONG-TERM DEBT ........................................ 120,062 4,605 1,023 --- 125,690
DEFERRED TAXES, NET ................................... (1,903) 18,161 14,527 --- 30,785
OTHER LIABILITIES ..................................... 1,579 3,668 1,134 --- 6,381
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' INVESTMENT .............................. 110,913 86,245 26,937 (113,182) 110,913
---------- ---------- ---------- ---------- ----------
$ 235,942 $ 165,534 $ 55,940 $ (113,182) $ 344,234
========== ========== ========== ========== ==========
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................................. $ --- $ 126,450 $ 25,957 $ --- $ 152,407
COSTS AND EXPENSES ....................................... 2,604 114,763 21,499 --- 138,866
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) .................................. (2,604) 11,687 4,458 --- 13,541
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net ......................... (4,231) (3,954) 24 --- (8,161)
Equity in Subsidiaries, Net Taxes ...................... 8,113 --- --- (8,113) ---
Other, Net ............................................. 33 298 (338) --- (7)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............................... 1,311 8,031 4,144 (8,113) 5,373
PROVISION (BENEFIT) FOR INCOME TAXES ..................... (2,073) 2,307 1,755 --- 1,989
---------- ---------- ---------- ---------- ----------
NET INCOME ............................................... $ 3,384 $ 5,724 $ 2,389 $ (8,113) $ 3,384
========== ========== ========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................................. $ --- $ 89,551 $ 16,133 $ --- $ 105,684
COSTS AND EXPENSES ....................................... 2,256 82,236 14,269 --- 98,761
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) .................................. (2,256) 7,315 1,864 --- 6,923
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net ......................... (1,960) (3,855) 117 --- (5,698)
Equity in Subsidiaries, Net Taxes ...................... 3,810 --- --- (3,180) ---
Other, Net ............................................. (75) 163 218 --- 306
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............................... (481) 3,623 2,199 (3,810) 1,531
PROVISION (BENEFIT) FOR INCOME TAXES ..................... (1,463) 1,304 708 --- 549
---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ........................ 982 2,319 1,491 (3,810) 982
EXTRAORDINARY CHARGE, NET
OF TAXES ............................................... (3,784) --- --- --- (3,784)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) ........................................ $ (2,802) $ 2,319 $ 1,491 $ (3,810) $ (2,802)
========== ========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................................. $ --- $ 66,037 $ 13,710 $ --- $ 79,747
COSTS AND EXPENSES ....................................... 1,348 60,226 11,286 --- 72,860
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) .................................. (1,348) 5,811 2,424 --- 6,887
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net ......................... (2,098) (2,027) (71) --- (4,196)
Equity in Subsidiaries, Net Taxes ...................... 4,031 --- --- (4,031) ---
Other, Net ............................................. 30 140 (118) --- 52
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............................... 615 3,924 2,235 (4,031) 2,743
PROVISION (BENEFIT) FOR INCOME TAXES ..................... (1,138) 836 1,292 --- 990
---------- ---------- ---------- ---------- ----------
NET INCOME ............................................... $ 1,753 $ 3,088 $ 943 $ (4,031) $ 1,753
========== ========== ========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months ended June 30, 1994
(in thousands)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................................. $ --- $ 43,055 $ 7,511 $ --- $ 50,566
COSTS AND EXPENSES ....................................... 1,200 39,154 6,711 --- 47,065
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) .................................. (1,200) 3,901 800 --- 3,501
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net ......................... (1,736) (1,738) 104 --- (3,370)
Equity in Subsidiaries, Net Taxes ...................... 2,106 --- --- (2,106) ---
Other, Net ............................................. (64) 121 7 --- 64
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............................... (894) 2,284 911 (2,106) 195
PROVISION (BENEFIT) FOR INCOME TAXES ..................... (1,021) 802 287 --- 68
---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ........................ 127 1,482 624 (2,106) 127
EXTRAORDINARY CHARGE, NET
OF TAXES ............................................... --- --- --- --- ---
---------- ---------- ---------- ---------- ----------
NET INCOME ............................................... $ 127 $ 1,482 $ 624 $ (2,106) $ 127
========== ========== ========== ========== ==========
</TABLE>
10
<PAGE> 11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months ended June 30, 1995
(in thousands)
<TABLE>
<CAPTION> Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................ $ 3,384 $ 5,724 $ 2,389 $ (8,113) $ 3,384
Equity in Earnings of Subsidiaries .................... (8,113) -- -- 8,113 --
Other Adjustments and Changes ......................... (2,932) (1,035) (123) -- (4,090)
------- ------- ------- -------- --------
Net Cash Provided (Used) by Operations .............. (7,661) 4,689 2,266 -- (706)
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses ............................. -- (4,336) -- -- (4,336)
Proceeds from Sale of Business and Assets ............. -- 626 75 -- 701
Capital Expenditures for Property, Plant
and Equipment ....................................... (5) (9,552) (2,182) -- (11,739)
------- ------- ------- -------- --------
Net Cash Used by Investing Activities .................. (5) (13,262) (2,107) -- (15,374)
------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Borrowings, Net ............................ -- 16,235 516 -- 16,751
Repayments on Term Debt, Net .......................... -- (1,483) (347) -- (1,830)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net .............................. 7,460 (7,004) (456) -- --
Other, Net ............................................ 196 -- -- -- 196
------- ------- ------- -------- --------
Net Cash Provided (Used) by Financing
Activities ........................................ 7,656 7,748 (287) -- 15,117
------- ------- ------- -------- --------
Effect of Translation Adjustment on Cash ................ -- 40 88 -- 128
------- ------- ------- -------- --------
Net Decrease in Cash and Cash Equivalents ............... (10) (785) (40) -- (835)
Cash and Cash Equivalents at Beginning of Period ........ 166 1,593 1,385 -- 3,144
------- ------- ------- -------- --------
Cash and Cash Equivalents at End of Period .............. $ 156 $ 808 $ 1,345 $ -- $ 2,309
======= ======= ======= ======== ========
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months ended June 30, 1994
(in thousands)
<TABLE>
<CAPTION> Non-
Parent Guarantors Guarantors Eliminations Consolidated
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)...................................... $ (2,802) $ 2,319 $ 1,491 $ (3,810) $ (2,802)
Equity in Earnings of Subsidiaries .................... (3,810) -- -- 3,810 --
Other Adjustments and Changes ......................... 4,517 (20,126) 1,491 -- (14,118)
-------- ------- ------- -------- ---------
Net Cash Provided (Used) by Operations .............. (2,095) (17,807) 2,982 -- (16,920)
-------- ------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses ............................. -- 15 (1,500) -- (1,485)
Capital Expenditures for Property, Plant
and Equipment ....................................... (9) (10,726) (2,620) -- (13,355)
Other, Net ............................................ -- 80 18 -- 98
-------- ------- ------- -------- ---------
Net Cash Used by Investing Activities .............. (9) (10,631) (4,102) -- (14,742)
-------- ------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Borrowings, Net ............................ -- (37,207) (3,021) -- (40,228)
Borrowings of Debt .................................... 120,000 2,654 527 -- 123,181
Repayments of Debt .................................... (34,000) (9,117) (1,957) -- (45,074)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net .............................. (76,081) 70,676 5,405 -- --
Other, Net ............................................ (9,186) -- -- -- (9,186)
-------- ------- ------- -------- ---------
Net Cash Provided by Financing Activities ............. 733 27,006 954 -- 28,693
-------- ------- ------- -------- ---------
Effect of Translation Adjustment on Cash ................ -- -- (266) -- (266)
-------- ------- ------- -------- ---------
Net Decrease in Cash and Cash Equivalents ............... (1,371) (1,432) (432) -- (3,235)
Cash and Cash Equivalents at Beginning of Period ........ 1,444 2,200 1,155 -- 4,799
-------- ------- ------- -------- ---------
Cash and Cash Equivalents at End of Period .............. $ 73 $ 768 $ 723 $ -- $ 1,564
======== ======= ======= ======== =========
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(7) Condensed Consolidating Financial Statements - (Continued)
A. Significant Accounting Policies
Reclassifications
Certain reclassifications of prior year balances have been made to
conform such amounts to appropriate 1995 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. Other
Notes 1 through 6 should be read in conjunction with the Condensed
Consolidating Financial Statements.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The Company manufactures and markets drill pipe and premium tubular
products, artificial lift and completion systems through its Oilfield Equipment
Segment and provides rig contract drilling and workover services through its
Contract Drilling Segment for use in the exploration and production of oil and
natural gas. The level of exploration and production activity is influenced by
worldwide economic conditions, supply and demand and the political stability of
oil producing countries. However, natural gas and oil prices historically have
been the prevalent factor in determining the level of worldwide exploration and
production.
For the second quarter of 1995, revenues and operating income increased
58% and 97%, respectively, from 1994 levels, and revenues and operating income
for the first six months of 1995 increased 44% and 96%, respectively, from 1994
levels, with increases realized in each of the Company's principal operating
divisions. The results reflect improved industry conditions, higher
international revenues and the Company's continuing internal cost savings
efforts.
Demand for the Company's tubular products and contract drilling services
benefited during the first six months of 1995 from a continuing reduction in the
worldwide inventory of used drill pipe, increased demand for barge rigs in the
U.S. Gulf Coast area and industry consolidation. These trends have resulted in
increased drill pipe demand in the Company's tubular division and increased day
rates in the contract drilling segment.
Sales of the Company's artificial lift products benefited from increased
sales attributable to the Company's acquisition of the Fluid Packed(TM) pump and
sucker rod businesses acquired from National Oilwell in August 1994 and higher
RotaLift(TM) sales in Canada.
The Company currently expects that the current trends benefiting its
tubular and domestic contract drilling businesses should continue through 1996.
The Company also expects that its recent acquisition of Prideco, Inc.
("Prideco") should materially benefit results in the oilfield equipment
segment through increased revenues and consolidation savings. The Company's
operations, however, will continue to be subject to prevailing industry
conditions and future results will be dependent on and affected by price levels
for oil and natural gas and other factors affecting levels of exploration and
development. Accordingly, there can be no assurance as to future results or
profitability.
PRIDECO ACQUISITION
On June 30, 1995, the Company acquired Prideco for approximately 2.25
million shares of Common Stock. Prideco was the second largest manufacturer of
drill pipe in the Western Hemisphere and one of the two largest manufacturers of
drill collars and heavyweight drill pipe in the world. The Prideco acquisition
complemented the Company's tubular product line by adding drill collars,
heavyweight drill pipe and premium casing to its already extensive line of
tubular products. The Company currently intends to expand the market for
Prideco's drill collars and heavyweight drill pipe internationally. The Company
also intends to jointly market Prideco's premium casing with the Company's
existing Atlas Bradford(TM) line of premium connectors.
The Company's acquisition of Prideco strengthened the Company's position
as the worldwide leader in drill pipe. The Company also expects to realize over
$6 million in annual savings from the Prideco acquisition through a
consolidation of overhead and a rationalization of manufacturing operations once
the operations of Prideco have been fully integrated with those of the Company.
Revenues and operating income of Prideco for its fiscal year ended June 30,
1995, were $55.2 million and $4.2 million, respectively.
14
<PAGE> 15
YPF CONTRACT AND ARTIFICIAL LIFT EXPANSION
In March 1995, the Company entered into a two-year land drilling
contract with Yacimientos Petroliferos Fiscales Sociedad Anonima ("YPF") in
Argentina, covering four drilling rigs. Drilling operations under this contract
began in June 1995 and are expected to benefit results for the remainder of
1995. Under the terms of the Company's contract with YPF, the Company receives a
posted day rate of approximately $9,000 per day for each operating rig.
The Company is also currently negotiating an agreement with YPF in
Argentina to provide workover services. The Company expects to execute such
agreement by the end of August 1995. The agreement contemplates a two-year
contract for five workover rigs. YPF has also advised the Company of its desire
for the Company to provide it with up to an additional five drilling rigs over
the next 12 months as conditions merit.
The expansion of the Company's operations in Argentina presents the
Company with a unique opportunity for international expansion of the Company's
artificial lift products. Argentina is South America's fastest growing and
largest market for artificial lift products. The Company intends to utilize the
infrastructure of its drilling and workover operations as a base for the sale
and service of its artificial lift products in Argentina. The use of shared
locations is expected to provide the artificial lift division with a cost
effective means of penetrating the Argentina market.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 VERSUS THREE
MONTHS ENDED JUNE 30, 1994
For the second quarter of 1995, income from continuing operations was
$1.8 million or $.14 per share on revenues of $79.7 million compared to income
from continuing operations of $127,000 or $.01 per share on revenues of $50.6
million in 1994. Operating income for the second quarter of 1995 was $6.9
million compared to $3.5 million for the second quarter of 1994.
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were
$61.2 million and $4.6 million, respectively, for the second quarter ended June
30, 1995, as compared to $38.8 million and $1.9 million, respectively, for the
second quarter ended June 30, 1994.
Sales of tubular products in the second quarter of 1995 were $31.7
million compared to $20.2 million in the second quarter of 1994. The Company
believes that the increased drill pipe sales in the second quarter of 1995 are
indicative of a reduction in the worldwide inventory of used drill pipe and the
continuing consolidation of the industry. Evidence of this improvement is
reflected in the 57% increase in sales for the second quarter of 1995 compared
to 1994 despite lower natural gas prices and a near record low domestic and
worldwide rig count. Also indicative of the decline in available used drill pipe
were several large purchases of drill pipe during the first six months of 1995
by customers who have historically acquired used drill pipe for their needs.
Demand for drill pipe continues to be strong, with the Company's backlog for
drill pipe at June 30, 1995, being $69.8 million compared to $35.2 million at
December 31, 1994. This increase includes Prideco's backlog of approximately
$14.6 million. Prideco's backlog at December 31, 1994, was $10.5 million. The
Company anticipates that all of the backlog existing at June 30, 1995, will be
shipped during the next 12 months.
The oilfield equipment segment also benefited from lower average
manufacturing costs for its tubulars associated with increased sales and higher
gross margins at the Company's Mexican facility, which has a lower cost base
than the United States facilities.
The Company has recently experienced increases in its cost of green
tubing, the primary material used by it in the production of its tubular goods.
To date, the Company has generally been able to pass through the additional
costs of this raw material to its customers. However, there can be no assurances
that it will continue to be able to do so.
15
<PAGE> 16
The Company's recent acquisition of Prideco is expected to further
benefit results in this segment through higher revenues and improved margins
from reductions in per unit costs for tubular goods. Although there can be no
assurance as to the ultimate savings that may be realized as a result of the
acquisition, the Company currently expects to realize annual savings in overhead
and distribution costs in excess of $6 million once the operations of Prideco
are fully integrated into those of the Company. The Company expects this
integration to be completed by the middle of 1996.
Revenues and operating income associated with the Company's artificial
lift division were $27.6 million and $2 million, respectively, for the second
quarter ended June 30, 1995, compared to $17.7 million and $1.5 million,
respectively, for the second quarter ended June 30, 1994. The increase in
revenues was primarily attributable to the Company's addition of the
Fluid Packed pump and sucker rod businesses acquired from National Oilwell and
higher Canadian RotaLift sales. The increase in operating income was primarily
attributable to the improvement in revenues noted above, however, the increase
in revenues was substantially offset by increased selling, general and
administrative expenses. The Company is actively pursuing cost savings at the
artificial lift division through the consolidation of sales locations and
distribution centers and the rationalization of manufacturing operations at the
various facilities. Savings from this effort are expected to be fully realized
in 1996.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were
$18.5 million and $3.7 million, respectively, for the second quarter ended June
30, 1995, as compared to $11.8 million and $2.8 million, respectively, for the
second quarter ended June 30, 1994. The improved results in this segment reflect
higher international operating income in the 1995 period as new contracts in
Peru and Nigeria did not take effect until late in the second quarter of 1994.
The operations in Nigeria and Peru contributed $5.3 million in revenues and $1.1
million in operating income for the second quarter of 1995.
The Company's platform drilling operations in Peru were recently placed
on standby at the request of the customer in an effort to reduce the customer's
operating expenses. Although the Company is currently receiving a standby rate
for these rigs and has been advised by the customer that it intends to resume
drilling at a later date, there can be no assurance that such standby rate will
continue to be paid or that the rigs will resume drilling operations. If the
Company were not to receive the standby rate or the rigs were not to resume
drilling operations, revenues and operating income from international drilling
could be materially affected. The impact of such an event in future periods,
however, would be more than offset by the anticipated increased revenues and
operating income from the Company's four land drilling operations in Argentina
that commenced in June 1995.
The Company's Nigerian rig was damaged during operations in May 1995,
and was out of operation for approximately 40 days for repairs. Nigerian
operating income for the second quarter ended June 30, 1995 was $476,000 less
than operating income for the first quarter of 1995. This reduction was
primarily due to the damage sustained by the Nigerian rig. The decrease in
Nigerian operating income was partially offset by strong domestic results and
results from the Company's Peruvian operations. The Company's Nigerian
drilling contract was recently extended through August 1996.
Domestic revenues and operating profit benefited from increased
utilization rates and improved day rates related to increased demand for the
Company's contract drilling services in the Gulf Coast. Demand increases
reflected greater three-dimensional seismic survey activity and attractive deep
natural gas prospects in the inland and coastal waters of the Gulf Coast and
increased lease activity in that region following the settlement in mid-1994 of
a production royalty suit between Texaco and the State of Louisiana. Texaco is
currently the Company's largest domestic barge rig customer.
16
<PAGE> 17
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover drilling
contract with the National Iranian Oil Company ("NIOC"). Under the terms of the
settlement with the Company's insurance carriers, the Company received a net
cash payment of $23 million and retained all rights to any funds collected or
recovered by the Company from NIOC and to the rigs and equipment deployed in
Iran. The Company has since sold or redeployed to Argentina the rigs and
equipment that were in Iran as well as certain of the retained receivables.
Although the Company has been receiving payments on the retained obligations
under a four year extended payment arrangement reached with the Central Bank of
Iran and other local banks, the timing and ultimate recovery is subject to
various risks relating to Iran, including the impact of the recently imposed
United States sanctions on and restrictions on trade with Iran. The net carrying
value after reserves of these obligations as of July 31, 1995, was approximately
$3 million.
Results for the balance of 1995 and into 1996 are expected to continue
to benefit from the current domestic trends in the industry. Demand for the
Company's domestic contract drilling and workover services, however, will
continue to be materially dependent on levels of exploration and development in
the Gulf of Mexico and the coastal waters of Louisiana. Because much of the
exploration in these areas relates to natural gas, prevailing prices for natural
gas will be a material factor affecting that demand. International operations
are expected to continue to improve for the remainder of 1995 with the level of
improvement being dependent upon the status of the Company's Peruvian rigs.
General
Selling, general and administrative expenses increased approximately
16.1% to approximately $13.2 million in the second quarter of 1995 from
approximately $11.4 million in the second quarter of 1994. The increase in 1995
was principally attributable to substantially increased sales and international
expansion.
Interest expense increased during the second quarter of 1995 to $4.2
million from $3.5 million for the second quarter of 1994. The increase in
interest expense is attributable to higher levels of indebtedness under the
Company's working capital lines of credit due to increases in the level of the
Company's business.
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 VERSUS SIX MONTHS
ENDED JUNE 30, 1994
For the first six months of 1995, income from continuing operations was
$3.4 million or $.27 per share on revenues of $152.4 million compared to income
from continuing operations of $982,000 or $.08 per share on revenues of $105.7
million for the first six months of 1994. Operating income for the first half of
1995 was $13.5 million compared to $6.9 million for the first half of 1994.
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were
$114.5 million and $8.6 million, respectively, for the six months ended June 30,
1995, as compared to $81.3 million and $4.7 million, respectively, for the six
months ended June 30, 1994. The increase in revenues and operating income was
primarily attributable to the contribution from increased drill pipe sales,
higher Canadian RotaLift sales and the addition of the Fluid Packed pump and
sucker rod businesses acquired from National Oilwell in August 1994.
Sales of tubular products in the first six months of 1995 were $58.1
million compared to $43.2 million in the first six months of 1994. The Company
believes that the increased drill pipe sales realized by it during the first
half of 1995 are indicative of a reduction in the worldwide inventory of used
drill pipe and the continuing consolidation of the industry.
17
<PAGE> 18
Revenues and operating income associated with the Company's artificial
lift division were $54.1 million and $4.8 million, respectively, for the six
months ended June 30, 1995, compared to $36.6 million and $2.4 million,
respectively, for the six months ended June 30, 1994. The increase in revenues
and operating income was primarily attributable to the Company's addition of the
Fluid Packed pump and sucker rod businesses acquired from National Oilwell and
higher Canadian RotaLift sales.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were
$37.9 million and $7.6 million, respectively, for the six months ended June 30,
1995, as compared to $24.4 million and $4.5 million, respectively, for the six
months ended June 30, 1994. The improved results in this segment reflect higher
international operating income in the 1995 period as new contracts in Peru and
Nigeria did not take effect until late in the second quarter of 1994. The
operations in Nigeria and Peru contributed $12.3 million in revenues and $2.6
million in operating income for the 1995 period.
General
Selling, general and administrative expenses increased approximately
13.9% to approximately $26.1 million in the first six months of 1995 from
approximately $22.9 million in the first six months of 1994. The increase in
1995 was principally attributable to substantially increased sales and
international expansion.
Interest expense increased during the first six months of 1995 to $8.2
million from $5.8 million for the first six months of 1994. The increase in
interest expense is attributable to higher levels of indebtedness due to
increases in the level of the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had cash and cash equivalents of
approximately $2.3 million compared to approximately $3.1 million at December
31, 1994. At June 30, 1995, the Company's working capital was approximately $91
million compared to approximately $94 million at December 31, 1994.
At June 30, 1995 and December 31, 1994, the Company had in place various
working capital lines of credit secured by the inventory and receivables of the
Company's subsidiaries, providing for borrowings up to $55.5 million, subject to
availability requirements. Borrowings under the Company's lines of credit are
generally based on the lender's determination of the collateral value of the
current assets securing the lines of credit. The lines of credit bear interest
at floating rates ranging from prime to prime plus 1 1/4% and are secured by
substantially all of the borrowing subsidiary's accounts receivable and
inventory. The Company and its subsidiaries are required to comply with various
affirmative and negative covenants relating to working capital, earnings and net
worth. The facilities also impose certain limitations on the use of funds by the
Company and its subsidiaries for acquisitions and capital expenditures, the
incurrence of additional indebtedness and other operational matters and certain
expenditures, and certain prohibitions on the declaration or payment of
dividends by the Company. At June 30, 1995 and December 31, 1994, approximately
$34 million and $17.3 million, respectively, had been borrowed under the
revolving lines of credit and approximately $3.4 million and $1 million,
respectively, had been used to support outstanding letters of credit. At June
30, 1995 and December 31, 1994, $18.1 million and $35.6 million, respectively,
was available for additional borrowing under these credit facilities. The
average interest rate under these facilities was 8.8% for 1994 and 10.5% for the
first half of 1995.
The Company currently has outstanding $120 million of Senior Notes with
semi-annual interest payments in March and September. The Senior Notes were
issued pursuant to the terms of an Indenture dated as of March 15, 1994. Certain
subsidiaries of the Company have unconditionally guaranteed the Company's
obligations under the Senior Notes. The Indenture relating to the Senior Notes
contains various customary affirmative and negative covenants that, among other
things, limit the ability of the Company and certain of its subsidiaries to (i)
incur certain additional indebtedness unless the Company's Consolidated Fixed
Charge Coverage Ratio (as defined in the
18
<PAGE> 19
Indenture) is at least 2.0 to 1.0, (ii) make dividends, distributions and
certain other restricted payments, (iii) create certain liens, (iv) engage
in certain transactions with its affiliates, (v) engage in sale and leaseback
transactions, (vi) make certain asset dispositions and (vii) merge or
consolidate with, or transfer all or substantially all of its assets to another
person. The Indenture also limits the ability of the Company and certain of its
subsidiaries to issue preferred stock and creates restrictions on the ability of
certain of its subsidiaries to pay dividends and make other distributions.
In August 1994, the Company received a letter from the IRS proposing to
increase the gain recognized by the Company upon the dissolution in October 1990
of the Company's joint venture ("COLEVE") with Columbia Gas and Development
Corporation. In general, the IRS' proposal seeks payment of a tax liability of
approximately $14.1 million plus accrued interest thereon, and includes $3.4
million of taxes relating to the proposed disallowance of certain interest
deductions taken by the Company with respect to COLEVE that was the subject of a
similar letter received by the Company in the fourth quarter of 1993. The tax
liability with respect to these matters has been previously provided for as a
deferred tax liability in the Company's financial statements. The Company
disagrees with the IRS' position and is currently pursuing its rights of
administrative review and appeal and intends to vigorously contest this matter.
Although the resolution of these remaining issues could affect the timing of the
payment of previously accrued tax liabilities and require the use of a portion
of its available capital, the Company does not believe that the results of the
audit or the ultimate resolution of the IRS' proposed adjustments will have a
material impact on its results of operations or financial position.
The demand for the Company's tubular products and contract drilling
services are particularly affected by the price of natural gas and oil and gas
exploration activity while the demand for the Company's artificial lift
equipment is directly dependent on oil production activity. Although the
Company's international contract drilling services are affected by the level of
exploration activity in the countries in which it provides those services, its
domestic drilling operations are materially dependent on the level of
exploration activity in the Gulf Coast and domestic natural gas prices. Sales of
the Company's artificial lift products are currently concentrated in North
America and are affected by the level of oil production from older wells as well
as oil prices.
The Company's current sources of capital are cash generated from
operations and borrowings under its working capital lines of credit. The Company
believes that current reserves of cash and short-term investments, access to
existing credit lines and internally generated cash from operations are
sufficient to finance the projected cash requirements of its current operations.
The Company is continually evaluating new acquisitions with a focus on
proprietary technology and under-utilized assets to enhance operations. Future
acquisitions may be funded through cash flow from operations and other
borrowings and financings.
CAPITAL EXPENDITURES AND ACQUISITIONS
On June 30, 1995, the Company acquired Prideco in a transaction which
involved the issuance of approximately 2.25 million shares of Common Stock. The
acquisition is expected to provide the Company with greater manufacturing and
marketing efficiencies by allowing for a consolidation of overhead, reduced
distribution and marketing costs and a rationalization of manufacturing
operations. Revenues and operating income at Prideco for its fiscal year ended
June 30, 1995, were $55.2 million and $4.2 million, respectively. The Company's
acquisition of Prideco with shares of Common Stock reduced the Company's debt to
total capitalization ratio from 57% at December 31, 1994, to 52% at June 30,
1995.
In addition to funds used to finance acquisitions, capital expenditures
by the Company during the six months ended June 30, 1995 totaled approximately
$11.7 million. During the first six months of 1995, capital expenditures
included approximately $4.5 million relating to the acquisition of a land rig
deployed to Argentina and equipment additions to the three existing land rigs in
Argentina.
Ongoing routine capital expenditures for the next 12 months are budgeted
at approximately $14 million. In addition, the Company is proposing to expend
approximately $4 million for the acquisition and deployment of five workover
rigs to Argentina and $5 million for rig upgrades to its domestic fleet. Capital
expenditures are expected to be funded with available cash, cash flow from
operations, borrowings under lines of credit and other facilities and equity
issuance if desirable.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 19, 1995,
the stockholders of the Company approved: (i) the election of six directors to
serve until the next Annual Meeting of Stockholders, and (ii) various amendments
to the Company's Non-Employee Director Stock Option Plan. The following sets
forth the results of the voting with respect to each such matter. There were no
broker non-votes.
<TABLE>
<CAPTION>
Withheld/
Item For Against Abstained
- ---- ---------- -------- ---------
<S> <C>
Election of Directors:
David J. Butters 10,114,863 4,407
Bernard J. Duroc-Danner 10,113,363 5,907
Uriel E. Dutton 10,114,847 4,423
Eliot M. Fried 10,114,779 4,491
Robert B. Millard 10,113,347 5,923
Robert A. Rayne 10,113,347 5,923
Amendments to Non-Employee Director
Stock Option Plan 9,618,457 163,648 379,021
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Page
----
10.1 Amended and Restated Non-Employee Director
Stock Option Plan ................................... 22
(b) Reports on Form 8-K:
Report on Form 8-K dated June 30, 1995, reporting the acquisition
by the Company of all of the outstanding capital stock of Prideco,
Inc.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY VENTURES, INC.
By: /s/ James G. Kiley
------------------------------------------
James G. Kiley
Vice President, Finance and Treasurer
(Principal Financial Officer)
By: /s/ Frances R. Powell
-----------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: August 11, 1995
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Name Page
- ------- ---- ----
<S> <C> <C>
10.1 Amended and Restated Non-Employee Director Stock Option Plan ..... 22
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
ENERGY VENTURES, INC.
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This Amended and Restated Non-Employee Director Stock
Option Plan (the "Plan") of Energy Ventures, Inc., a Delaware corporation (the
"Company"), is adopted for the benefit of the directors of the Company who at
the time of their service are not employees of the Company or any of its
subsidiaries ("Non-Employee Directors"), and is intended to advance the
interests of the Company by providing the Non-Employee Directors with
additional incentive to serve the Company by increasing their proprietary
interest in the success of the Company.
2. Administration. The Plan shall be administered by a committee of
the Board of Directors of the Company (the "Committee"), the members of which
shall consist solely of directors who are employees of the Company. For the
purposes of the Plan, a majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of those members present at any meeting shall decide any question brought
before that meeting. In addition, the Committee may take any action otherwise
proper under the Plan by the affirmative vote, taken without a meeting, of a
majority of its members. No member of the Committee shall be liable for any
act or omission of any other member of the Committee or for any act or omission
on his own part, including but not limited to the exercise of any power or
discretion given to him under the Plan, except those resulting from his own
gross negligence or willful misconduct. Except as otherwise expressly provided
for herein, all questions of interpretation and application of the Plan, or as
to options granted hereunder (the "Options"), shall be subject to the
determination, which shall be final and binding, of a majority of the whole
Committee. Notwithstanding the above, the selection of Non-Employee Directors
to whom Options are to be granted, the number of shares subject to any Option,
the exercise price of any Option and the term of any Option shall be as
hereinafter provided and the Committee shall have no discretion as to such
matters.
3. Option Shares. The stock subject to the Options and other
provisions of the Plan shall be shares of the Company's Common Stock, $1.00 par
value (or such other par value as may be designated by act of the Company's
stockholders) (the "Common Stock"). The total amount of the Common Stock with
respect to which Options may be granted shall not exceed in the aggregate
500,000 shares; provided, that the class and aggregate number of shares which
may be subject to the Options granted hereunder shall be subject to adjustment
in accordance with the provisions of Paragraph 12 hereof. Such shares may be
treasury shares or authorized but unissued shares.
In the event that any outstanding Option for any reason shall expire or
terminate by reason of the death of the optionee or the fact that the optionee
ceases to be a director, the surrender of any such Option, or any other cause,
the shares of Common Stock allocable to the unexercised portion of such Option
may again be subject to an Option under the Plan.
4. Grant of Options. Subject to the provisions of Paragraph 16 and
the availability under the Plan of a sufficient number of shares of Common
Stock that may be issuable upon the exercise of outstanding Options, there
shall be granted the following Options:
(a) To each Non-Employee Director as the date he is first elected as a
director of the Company, an Option to purchase 5,000 shares of Common Stock at
a purchase price per share of Common Stock (the "Option Price") equal to the
fair market value of the Common Stock as defined in Paragraph 7 hereof as of
the date of grant; and
(b) Commencing on the date of the Annual Meeting of Stockholders of
the Company held in 1994 to each Non-Employee Director as of the date he is
reelected as a director of the Company, an Option to purchase 5,000 shares of
Common Stock at an Option Price equal to the fair market value of the Common
Stock as defined in Paragraph 7 hereof as of the date of grant.
No Option shall be granted pursuant to the Plan after May 12, 2005.
<PAGE> 2
5. Duration of Options. Each Option granted under the Plan shall be
exercisable for a term of ten years from the date of grant, subject to earlier
termination as provided in Paragraph 9 hereof.
6. Amount Exercisable. Each Option granted pursuant to the Plan
shall not be exercisable for a period of one year from the date of grant.
After such time, such Option shall be fully vested and exercisable throughout
the term of the Option. Notwithstanding the foregoing, no Option granted by
virtue of the amendments effected by this Plan shall be exercisable for a
period of six months following stockholder approval of such amendments.
7. Exercise of Options. An optionee may exercise such optionee's
Option by delivering to the Company a written notice stating (i) that such
optionee wishes to exercise such Option on the date such notice is so
delivered, (ii) the number of shares of stock with respect to which such Option
is to be exercised, (iii) the address to which the certificate representing
such shares of stock should be mailed, and (iv) the social security number of
such optionee. In order to be effective, such written notice shall be
accompanied by (i) payment of the Option Price of such shares of stock and (ii)
if applicable, payment of an amount of money necessary to satisfy any
withholding tax liability that may result from the exercise of such Option.
Each such payment shall be made by cashier's check drawn on a national banking
association and payable to the order of the Company in United States dollars.
If, at the time of receipt by the Company of such written notice, (i)
the Company has unrestricted surplus in an amount not less than the Option
Price of such shares of stock, (ii) all accrued cumulative preferential
dividends and other current preferential dividends on all outstanding shares of
preferred stock of the Company have been fully paid, (iii) the acquisition by
the Company of its own shares of stock for the purpose of enabling such
optionee to exercise such Option is otherwise permitted by applicable law and
without any vote or consent of any stockholder of the Company, and (iv) there
shall have been adopted, and there shall be in full force and effect, a
resolution of the Board of Directors of the Company authorizing the acquisition
by the Company of its own shares of stock for such purpose, then such optionee
may deliver to the Company, in payment of the Option Price of the shares of
stock with respect to which such Option is exercised, (x) certificates
registered in the name of such optionee that represent a number of shares of
stock legally and beneficially owned by such optionee (free of all liens,
claims and encumbrances of every kind) and having a fair market value on the
date of receipt by the Company of such written notice that is not greater than
the Option Price of the shares of stock with respect to which such Option is to
be exercised, such certificates to be accompanied by stock powers duly endorsed
in blank by the record holder of the shares of stock represented by such
certificates, with the signature of such record holder guaranteed by a national
banking association (or, in lieu of such certificates, other arrangements for
the transfer of such shares to the Company which are satisfactory to the
Company) and (y) if the Option Price of the shares of stock with respect to
which such Options are to be exercised exceeds such fair market value, a
cashier's check drawn on a national banking association and payable to the
order of the Company in an amount, in United States dollars, equal to the
amount of such excess plus the amount of money necessary to satisfy any
withholding tax liability that may result from the exercise of such Option.
Notwithstanding the provisions of the immediately preceding sentence, the
Committee, in its sole discretion, may refuse to accept shares of stock in
payment of the Option Price of the shares of stock with respect to which such
Option is to be exercised and, in that event, any certificates representing
shares of stock that were received by the Company with such written notice
shall be returned to such optionee, together with notice by the Company to such
optionee of the refusal of the Committee to accept such shares of stock. The
Company may, at its option and upon approval by the Board of Directors of the
Company, retain shares of Common Stock which would otherwise be issued upon
exercise of an Option to satisfy any withholding tax liability that may result
from the exercise of such Option, which shares shall be valued for such purpose
at their then fair market value. If, at the expiration of seven business days
after the delivery to such optionee of such written notice from the Company,
such optionee shall not have delivered to the Company a cashier's check drawn
on a national banking association and payable to the order of the Company in an
amount, in United States dollars, equal to the Option Price of the shares of
stock with respect to which such Option is to be exercised, such written notice
from the optionee to the Company shall be ineffective to exercise such Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the optionee, (ii) payment, in the form required by the
foregoing provisions of this Paragraph 7, of the Option Price of the shares of
stock with respect to which such Option is to be exercised, and (iii) payment,
if required, in the form required by the foregoing provisions of this Paragraph
7, of an amount necessary to satisfy any withholding tax liability that may
result from the exercise of such Option, a certificate representing the number
of shares of stock with respect to which such
<PAGE> 3
Option has been so exercised, reduced, to the extent applicable by the number
of shares retained by the Company to pay any required withholding tax, such
certificate to be registered in the name of such optionee, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such optionee at the address specified for
such purpose in such written notice from the optionee to the Company.
For purposes of this Paragraph 7, the "fair market value" of a share of
stock as of any particular date shall mean the closing sale price of a share of
Common Stock on that date as reported by the principal national securities
exchange on which the Common Stock is listed if the Common Stock is then listed
on a national securities exchange, or if the Common Stock is not so listed, the
average of the bid and asked price of a share of Common Stock on that date and
reported in the National Association of Securities Dealers Automated Quotation
system (the "NASDAQ System"); provided that if no such closing price or quotes
are so reported on that date or if in the discretion of the Committee another
means of determining the fair market value of a share of stock at such date
shall be necessary or advisable, the Committee may provide for another means
for determining such fair market value.
8. Transferability of Options. Options shall not be transferable by
the optionee otherwise than by will or under the laws of descent and
distribution, and shall be exercisable, during his lifetime, only by him.
9. Termination. Except as may be otherwise expressly provided
herein, each Option, to the extent it shall not previously have been exercised,
shall terminate on the earlier of the following:
(a) On the last day within the three month period commencing on the
date on which the optionee ceases to be a member of the Company's
Board of Directors, for any reason other than the death, disability
or retirement of the optionee, during which period the optionee
shall be entitled to exercise all Options fully vested as
described in Paragraph 6 by the optionee on which the optionee
ceased on the date on which the optionee ceased be a member of the
Company's Board of Directors;
(b) On the last day within the one year period commencing on the date
on which the optionee ceases to be a member of the Company's Board
of Directors because of permanent disability, during which period
the optionee shall be entitled to exercise all Options fully
vested as described in Paragraph 6 by the optionee on the date on
which the optionee ceased to be a member of the Company's Board of
Directors because of such disability;
(c) On the last day within the one year period commencing on the date
of the optionee's death while serving as a member of the Company's
Board of Directors, during which period the executor or
administrator of the optionee's estate or the person or persons
to whom the optionee's Option shall have been transferred by will
or the laws of descent or distribution, shall be entitled to
exercise all Options in respect of the number of shares that the
optionee would have been entitled to purchase had the optionee
exercised such Options on the date of his death;
(d) On the last day within the one year period commencing on the date
an optionee who has had at least five years of service on the
Board of Directors of the Company retires from the Board of
Directors of the Company, during which period the optionee, or
the executor or administrator of the optionee's estate or the
person or persons to whom such Option shall have been transferred
by the will or the laws of descent or distribution in the event of
the optionee's death within such one year period, as the case may
be, shall be entitled to exercise all Options in respect of the
number of shares that the optionee would have been entitled to
purchase had the optionee exercised such Options on the date of
such retirement; and
(e) Ten years after the date of grant of such Option.
10. Requirements of Law. The Company shall not be required to sell or
issue any shares under any Option if the issuance of such shares shall
constitute a violation by the optionee or the Company of any provisions of any
law or regulation of any governmental authority. Each Option granted under the
Plan shall be subject to the requirements that,
<PAGE> 4
if at any time the Board of Directors of the Company or the Committee shall
determine that the listing, registration or qualification of the shares
subject thereto upon any securities exchange or under any state or federal law
of the United States or of any other country or governmental subdivision
thereof, or the consent or approval of any governmental regulatory body, or
investment or other representations, are necessary or desirable in connection
with the issue or purchase of shares subject thereto, no such Option may be
exercised in whole or in part unless such listing, registration, qualification,
consent, approval or representation shall have been effected or obtained free
of any conditions not acceptable to the Board of Directors. If required at any
time by the Board of Directors or the Committee, an Option may not be exercised
until the optionee has delivered an investment letter to the Company. In
addition, specifically in connection with the Securities Act of 1933 (as now in
effect or hereafter amended), upon exercise of any Option, the Company shall
not be required to issue the underlying shares unless the Committee has
received evidence satisfactory to it to the effect that the holder of such
Option will not transfer such shares except pursuant to a registration
statement in effect under such Act or unless an opinion of counsel satisfactory
to the Company has been received by the Committee to the effect that such
registration is not required. Any determination in this connection by the
Committee shall be final, binding and conclusive. In the event the shares
issuable on exercise of an Option are not registered under the Securities Act
of 1933, the Company may imprint on the certificate for such shares the
following legend or any other legend which counsel for the Company considers
necessary or advisable to comply with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws
of any state and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of counsel
satisfactory, in form and substance to the Corporation, that
registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) and, in the event any shares are so registered, the Company
may remove any legend on certificates representing such shares. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
11. No Rights as Stockholder. No optionee shall have rights as a
stockholder with respect to shares covered by his Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Paragraph 12 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date therefor is prior to the date of issuance of
such certificate.
12. Changes in the Company's Capital Structure. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Company on, its Common Stock, or other increase
or reduction of the number of shares of the Common Stock without receiving
consideration therefor in money, services, or property, or the reclassification
of its Common Stock, in whole or in part, into other equity securities of the
Company, then (a) the number, class and per share price of shares of stock
subject to outstanding Options hereunder shall be appropriately adjusted (or in
the case of the issuance of equity securities as a dividend on, or in a
reclassification of, the Common Stock, the Options shall extend to such other
securities) in such a manner as to entitle an optionee to receive, upon
exercise of an Option, for the same aggregate cash compensation, the same total
number and class or classes of shares (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) he would
have held after such adjustment if he had exercised his Option in full
immediately prior to the event requiring the adjustment, or, if applicable, the
record date for determining stockholders to be affected by such adjustment; and
(b) the number and class of shares then reserved for issuance under the Plan
(or in the case of a dividend of, or reclassification into, other
<PAGE> 5
equity securities, such other securities) shall be adjusted by substituting for
the total number and class of shares of stock then received, the number and
class or classes of shares of stock (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) that
would have been received by the owner of an equal number of outstanding shares
of Common Stock as the result of the event requiring the adjustment.
Comparable rights shall accrue to each optionee in the event of successive
subdivisions, consolidations, capital adjustment, dividends or
reclassifications of the character described above.
If the Company shall distribute to all holders of its shares of Common
Stock (including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Common Stock continue to hold
shares of Common Stock after such merger or consolidation) evidences of
indebtedness or cash or other assets (other than cash dividends payable out of
consolidated retained earnings not in excess of, in any one year period, the
greater of (a) $1.00 per share of Common Stock and (b) two times the aggregate
amount of dividends per share paid during the preceding calendar year and
dividends or distributions payable in shares of Common Stock or other equity
securities of the Company described in the immediately preceding paragraph),
then in each case the Option Price shall be adjusted by reducing the Option
Price in effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by the fair market value, as
determined in good faith by the Board of Directors of the Company (whose
determination shall be described in a statement filed in the Company's
corporate records and be available for inspection by any holder of an Option)
of the portion of the evidence of indebtedness or cash or other assets so to be
distributed applicable to one share of Common Stock; provided that in no event
shall the Option Price be less than the par value of a share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of the distribution retroactive to the record date
for the determination of the stockholders entitled to receive such
distribution. Comparable adjustments shall be made in the event of successive
distributions of the character described above.
After the Company shall make a tender offer for, or grant to all of its
holders of its shares of Common Stock the right to require the Company to
acquire from such stockholders shares of, Common Stock, at a price in excess of
the Current Market Price (a "Put Right") or the Company shall grant to all of
its holders of its shares of Common Stock the right to acquire shares of Common
Stock for less than the Current Market Price (a "Purchase Right") then, in the
case of a Put Right, the Option Price shall be adjusted by multiplying the
Option Price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such Put Right by a fraction,
the numerator of which shall be the number of shares of Common Stock then
outstanding minus the number of shares of Common Stock which could be purchased
at the Current Market Price for the aggregate amount which would be paid if all
Put Rights are exercised and the denominator of which is the number of shares
of Common Stock which would be outstanding if all Put Rights are exercised;
and, in the case of a Purchase Right, the Option Price shall be adjusted by
multiplying the Option Price in effect immediately prior to the record date for
the determination of the stockholders entitled to receive such Purchase Right
by a fraction, the numerator of which shall be the number of shares of Common
Stock then outstanding plus the number of shares of Common Stock which could be
purchased at the Current Market Price for the aggregate amount which would be
paid if all Purchase Rights are exercised and the denominator of which is the
number of shares of Common Stock which would be outstanding if all Purchase
Rights are exercised. In addition, the number of shares subject to the Option
shall be increased by multiplying the number of shares then subject to the
Option by a fraction which is the inverse of the fraction used to adjust the
Option Price. Notwithstanding the foregoing if any such Put Rights or Purchase
Rights shall terminate without being exercised, the Option Price and number of
shares subject to Option shall be appropriately readjusted to reflect the
Option Price and number of shares subject to the Option which would have been
in effect if such unexercised Rights had never existed. Comparable adjustments
shall be made in the event of successive transactions of the character
described above.
After the merger of one or more corporations into the Company, after
any consolidation of the Company and one or more corporations, or after any
other corporate transaction described in Section 424(a) of the Internal Revenue
Code of 1986, as amended (the "Code") in which the Company shall be the
surviving corporation, each optionee, at no additional cost, shall be entitled
to receive, upon any exercise of his Option, in lieu of the number of shares as
to which the Option shall then be so exercised, the number and class of shares
of stock or other equity securities to which the optionee would have been
entitled pursuant to the terms of the agreement of merger or consolidation if
at the time of such merger or consolidation such optionee had been a holder of
a number of shares of Common Stock equal to the number
<PAGE> 6
of shares as to which the Option shall then be so exercised and, if as a result
of such merger, consolidation or other transaction, the holders of Common Stock
are not entitled to receive any shares of Common Stock pursuant to the terms
thereof, each optionee, at no additional cost, shall be entitled to receive,
upon exercise of his Option, such other assets and property, including cash, to
which he would have been entitled if at the time of such merger, consolidation
or other transaction he had been the holder of the number of shares of Common
Stock equal to the number of shares as to which the Option shall then be so
exercised. Comparable rights shall accrue to each optionee in the event of
successive mergers or consolidations of the character described above.
After a merger of the Company into one or more corporations, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in Section 424(a) of the Code in which
the Company is not the surviving corporation, each optionee shall, at no
additional cost, be entitled at the option of the surviving corporation, (i) to
have his then existing Option assumed or to have a new option substituted for
the existing Option by the surviving corporation to the transaction which is
then employing him, or a parent or subsidiary of such corporation, on a basis
where the excess of the aggregate fair market value of the shares subject to
the option immediately after the substitution or assumption over the aggregate
option price of such option is equal to the excess of the aggregate fair market
value of all shares subject to the option immediately before such substitution
or assumption over the aggregate option price of such shares, provided that the
shares subject to the new option must be traded on the New York Stock Exchange
or the American Stock Exchange or quoted on the NASDAQ, or (ii) to receive upon
any exercise of his Option, in lieu of the number of shares as to which the
Option shall then be so exercised, the securities, property and other assets,
including cash, to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger or consolidation or the agreement giving rise
to the other corporate transaction if at the time of such merger, consolidation
or other transaction such optionee had been the holder of the number of shares
of Common Stock equal to the number of shares as to which the Option shall then
be so exercised.
If a corporate transaction described in Section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall
be cancelled by the Board of Directors as of the effective date of any such
corporate transaction but before the date each optionee shall be provided with
a notice of such cancellation and each optionee shall have the right to
exercise such Option in full (without regard to any limitations set forth in or
imposed pursuant to Paragraph 9 of the Plan) to the extent it is then still
unexercised during a 30-day period preceding the effective date of such
corporate transaction.
For purposes of this Paragraph 12, "Current Market Price per share of
Common Stock" shall mean the closing price of a share of Common Stock on the
principal national securities exchange on which the Common Stock is listed or,
if the Common Stock is not so listed, the average bid and asked price of a
share of Common Stock as reported in the NASDAQ System, in each case on the
trading day immediately preceding the first trading day on which, as a result
of the establishment of a record date or otherwise, the trading price reflects
that an acquiror of Common Stock in the public market will not participate in
or receive the payment of any applicable dividend or distribution.
Except a hereinbefore expressly provided, the issue by the Company of
shares of Common Stock of any class, or securities convertible into shares of
stock of any class, for cash or property, or for labor or services either upon
direct sale or upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into
such shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock then subject to outstanding Options.
13. Amendment or Termination of Plan. The Board of Directors may
modify, revise or terminate the Plan at any time and from time to time;
provided, however, that without the further approval of the holders of a
majority of the outstanding shares of voting stock, or if the provisions of the
corporate charter, by-laws or applicable state law prescribes a greater degree
of stockholder approval for this action, without the degree of stockholder
approval thus required, the Board of Directors may not (a) change the aggregate
number of shares which may be issued under Options pursuant to the provisions
of the Plan; (b) reduce the option price permitted for the Options; (c) extend
the term during which an option may be exercised or the termination date of the
Plan; or (d) materially increase any other benefits accruing to directors under
the Plan or materially modify the requirements as to eligibility for
participation in the Plan unless, in each such case, the Board of Directors of
the Company shall have obtained an opinion of legal counsel to the
<PAGE> 7
effect that stockholder approval of the amendment is not required (i) by law,
(ii) by the applicable rules and regulations of, or any agreement with,
any national securities exchange that the Common Stock is then listed on or if
the Common Stock is not so listed, the rules and regulations, or any agreement
with, the National Association of Securities Dealers, Inc., and (iii) in order
to make available to the optionee with respect to any option granted under the
Plan, the benefits of Rule 16b-3 of the Rules and Regulations under the
Securities Exchange Act of 1934, or any similar or successor rule. In
addition, the terms of the Plan relating to the number of shares that may be
subject to an Option, the times at which Options shall be granted, and the
means by which the Option Price for Options granted is to be determined shall
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act or the rules
thereunder.
14. Written Agreement. Each Option granted hereunder shall be
embodied in a written option agreement, which shall be subject to the terms and
conditions prescribed above, and shall be signed by the optionee and by the
appropriate officer of the Company for and in the name and on behalf of the
Company. Such an option agreement shall contain such other provisions as the
Committee in its discretion shall deem advisable.
15. Indemnification of Committee. The Company shall indemnify each
present and future member of the Committee against, and each member of the
Committee shall be entitled without further act on his part to indemnity from
the Company for, all expenses (including the amount of judgments and the amount
of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee, whether or not he continues to be such member of the Committee at
the time of incurring such expenses; provided, however, that such indemnity
shall not include any expenses incurred by any such member of the Committee (a)
in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee, or
(b) in respect of any matter in which any settlement is effected, to an amount
in excess of the amount approved by the Company on the advice of its legal
counsel; and provided further, that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee unless, within sixty (60) days after institution of any
such action, suit or proceeding, he shall have offered the Company, in writing,
the opportunity to handle and defend same at its own expense. The foregoing
right of indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and shall be in addition to
all other rights to which such member of the Committee may be entitled to as a
matter of law, contract, or otherwise. Nothing in this Section 15 shall be
construed to limit or otherwise affect any right to indemnification, or payment
of expense, or any provisions limiting the liability of any officer or director
of the Company or any member of the Committee, provided by law, the Certificate
of Incorporation of the Company or otherwise.
16. Effective Date of Plan. The amendments effected by this Amended
and Restated Non-Employee Director Stock Option Plan shall be deemed to have
been adopted and effective on May 12, 1994, when and if approved by the holders
of a majority of the outstanding shares of voting stock of the Company at the
Company's Annual Meeting of Stockholders to be held in 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,309
<SECURITIES> 0
<RECEIVABLES> 83,692
<ALLOWANCES> 794
<INVENTORY> 101,722
<CURRENT-ASSETS> 204,894
<PP&E> 178,299
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 428,585
<CURRENT-LIABILITIES> 114,279
<BONDS> 125,693
<COMMON> 15,047
0
0
<OTHER-SE> 133,827
<TOTAL-LIABILITY-AND-EQUITY> 428,585
<SALES> 152,407<F2>
<TOTAL-REVENUES> 152,407
<CGS> 112,806<F2>
<TOTAL-COSTS> 112,806
<OTHER-EXPENSES> 26,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,161
<INCOME-PRETAX> 5,373
<INCOME-TAX> 1,989
<INCOME-CONTINUING> 3,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,384
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<FN>
<F1>This amount is not disclosed in the financial statements and thus a value of
zero has been shown for purposes of this financial data schedule.
<F2>These line items include certain amounts related to non-tangible products
(i.e.,) services, however, since the amounts related to services are not
disclosed in the financial statements, the total revenue and CGS figures,
respectively, have been shown on these line items for purposes of this
financial data schedule.
</FN>
</TABLE>
