<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 September 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:
<TABLE>
<CAPTION>
Title of Class Outstanding at November 6, 1995
-------------- --------------------------------
<S> <C>
Common Stock, par value $1.00 18,497,183
</TABLE>
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ----------
ASSETS (in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . $ 9,373 $ 3,144
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $768,000 at September 30, 1995 and $564,000
at December 31, 1994 . . . . . . . . . . . . . . . . . . . . 95,570 72,790
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 109,759 74,938
Materials and Supplies . . . . . . . . . . . . . . . . . . . 9,518 7,687
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . 9,162 6,244
-------- --------
233,382 164,803
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION . . . . . . . . . . . . . . . 182,191 150,895
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE
ASSETS OF BUSINESSES ACQUIRED, NET . . . . . . . . . . . . . 32,614 15,606
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,690 12,930
-------- --------
$460,877 $344,234
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines
of Credit . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,993 $ 17,265
Current Maturities of Long-Term Debt . . . . . . . . . . . . 5,676 3,189
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 43,793 30,741
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . 23,235 19,270
-------- --------
77,697 70,465
-------- --------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . 128,559 125,690
DEFERRED INCOME TAXES, NET . . . . . . . . . . . . . . . . . . . . 31,990 30,785
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 6,843 6,381
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 18,047 12,754
Capital in Excess of Par Value . . . . . . . . . . . . . . . 149,189 55,142
Retained Earnings . . . . . . . . . . . . . . . . . .. . . . . 55,796 48,856
Cumulative Foreign Currency Translation Adjustment . . . . . (5,573) (4,536)
Treasury Stock, at Cost . . . . . . . . . . . . . . . . . . . (1,671) (1,303)
-------- --------
215,788 110,913
-------- --------
$460,877 $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 Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1995 1994 1995 1994
------- ------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $93,797 $68,079 $246,204 $173,763
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of Sales . . . . . . . . . . . . . . . . . 69,541 49,390 182,347 125,273
Selling, General and Administrative Attributable
to Segments . . . . . . . . . . . . . . . . 13,804 11,275 37,260 31,897
Corporate General and Administrative . . . . . 1,257 1,252 3,861 3,508
------- ------- -------- --------
OPERATING INCOME . . . . . . . . . . . . . . . . . . 9,195 6,162 22,736 13,085
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense, Net . . . . . . . . . . . . . (4,722) (3,836) (12,883) (9,681)
Other, Net . . . . . . . . . . . . . . . . . . 212 372 205 825
------- ------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE . . . . . . . . . . . . . . . 4,685 2,698 10,058 4,229
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . 1,129 1,019 3,118 1,568
------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE . . . . . . . . . 3,556 1,679 6,940 2,661
EXTRAORDINARY CHARGE, NET OF TAXES . . . . . . . . . --- --- --- (3,784)
------- ------- -------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . $ 3,556 $ 1,679 $ 6,940 $ (1,123)
======= ======= ======== ========
EARNINGS PER SHARE:
Income Before Extraordinary Charge . . . . . . $.24 $ 0.13 $ .51 $0.21
Extraordinary Charge . . . . . . . . . . . . . --- --- --- (0.30)
------- ------- -------- --------
Net Income (Loss) Per Share . . . . . . . . . . $ .24 $ 0.13 $ .51 $ (0.09)
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING . . . . . . . . . 15,099 12,673 13,490 12,616
======= ======= ======== ========
</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>
Nine Months Ended September 30,
------------------------------------
1995 1994
-------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . $ 6,940 $ (1,123)
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operations:
Depreciation and Amortization . . . . . . . . . . . 14,363 9,990
Deferred Income Tax Provision (Benefit). . . . . . . 638 (2,910)
Extraordinary Charge on Prepayment of Debt, Net . . --- 3,784
Insurance Settlement, Net . . . . . . . . . . . . . --- 23,000
(Gain) Loss on Sale of Assets . . . . . . . . . . . 27 (127)
Provision for Doubtful Accounts Receivable . . . . . 300 132
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired . . . . . . . . . . . . . (43,480) (37,752)
---------- --------
Net Cash Used by Operating Activities . . . . . . . . . (21,212) (5,006)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired . . . . . (8,263) (17,081)
Capital Expenditures for Property, Plant and Equipment . . (17,559) (17,233)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . 917 144
---------- --------
Net Cash Used by Investing Activities . . . . . . . . . (24,905) (34,170)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net . . . . . . . . . . . . . . . 63,618 ---
Proceeds from Issuance of Long-Term Debt . . . . . . . . . --- 120,000
Repayments Under Revolving Lines of Credit, Net . . . . . . (12,272) (31,261)
Borrowings Under Term Debt . . . . . . . . . . . . . . . 3,847 2,275
Repayments on Term Debt . . . . . . . . . . . . . . . . . . (3,067) (45,670)
Penalty on Early Retirement of Debt . . . . . . . . . . . . --- (4,872)
Debt Issuance Costs . . . . . . . . . . . . . . . . . . --- (4,155)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . 78 (259)
---------- --------
Net Cash Provided by Financing Activities . . . . . . 52,204 36,058
---------- --------
EFFECT OF TRANSLATION ADJUSTMENT
ON CASH . . . . . . . . . . . . . . . . . . . . . . . . 142 (14)
---------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . 6,229 (3,132)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . 3,144 4,799
---------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9,373 $ 1,667
========== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, Net of Amounts Capitalized . . . . . . . . . $ 15,355 $ 9,903
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . $ 1,660 $ 1,938
</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 nine months ended September 30, 1995 are not necessarily indicative
of the results expected for the full year.
(2) Inventories
Major components of inventories include:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials and components . . . . . $ 51,170 $ 34,759
Work in process . . . . . . . . . . . . 18,583 12,861
Finished goods. . . . . . . . . . . . . 40.006 27,318
--------- --------
$ 109,759 $ 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 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>
Nine Months
Ended September 30,
--------------------------
1995 1994
------- ------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues $ 275,752 $ 211,627
Income Before Extraordinary Charge $ 8,278 $ 4,314
Net Income $ 8,278 $ 530
Earnings Per Share From Continuing Operations $ .55 $ .29
Net Income Per Share $ .55 $ .04
</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 $.8 million and $3.7 million at
September 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
<PAGE> 7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(6) Public Stock Offering
In September 1995, the Company completed the sale of 3,000,000 shares of
its Common Stock in a public offering and received cash proceeds of
approximately $63.6 million, net of expenses. On October 3, 1995, the Company
sold an additional 450,000 shares of its Common Stock pursuant to the exercise
of the underwriters' over-allotment option and received cash in the amount of
approximately $9.5 million, net of expenses.
(7) Reclassifications
Certain reclassifications of prior period balances have been made to
conform such amounts to appropriate September 30, 1995 classifications.
7
<PAGE> 8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(8) 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 September 30, 1995 and December 31, 1994 and
the related condensed consolidating statements of income for the three and nine
month periods ended September 30, 1995 and 1994, and cash flows for the nine
month period ended September 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
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . $ 5,874 $ 2,850 $ 649 $ --- $ 9,373
Other Current Assets . . . . . . . . . . . 2,148 189,822 32,039 --- 224,009
--------- --------- -------- --------- ---------
8,022 192,672 32,688 --- 233,382
--------- --------- -------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . . . . . . 180 168,846 13,165 --- 182,191
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . . . . . . 320,732 (176,159) 16,547 (161,120) ---
OTHER ASSETS . . . . . . . . . . . . . . . . 4,798 41,248 (742) --- 45,304
--------- --------- -------- ---------- ---------
$ 333,732 $ 226,607 $ 61,658 $ (161,120) $ 460,877
========= ========= ======== ========== =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings. . . . . . . . . . . $ --- $ --- $ 4,993 $ --- $ 4,993
Current Maturities of Long-Term Debt . . . --- 4,955 721 --- 5,676
Accounts Payable and Other Accrued
Liabilities. . . . . . . . . . . . . . . (1,221) 60,689 7,560 --- 67,028
--------- -------- ------- ---------- --------
(1,221) 65,644 13,274 --- 77,697
--------- -------- ------- ---------- --------
LONG-TERM DEBT . . . . . . . . . . . . . . . 120,000 7,043 1,516 --- 128,559
DEFERRED INCOME TAXES, NET. . . . . . . . . (1,476) 17,860 15,606 --- 31,990
OTHER LIABILITIES . . . . . . . . . . . . . 641 5,119 1,083 --- 6,843
--------- --------- -------- ---------- ---------
STOCKHOLDERS' INVESTMENT . . . . . . . . . . 215,788 130,941 30,179 (161,120) 215,788
--------- --------- -------- ---------- ---------
$ 333,732 $ 226,607 $ 61,658 $ (161,120) $ 460,877
========= ========= ======== ========== =========
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(8) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
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 INCOME 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>
9
<PAGE> 10
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(8) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES. . . . . . . . . . . . . . . . . . . . . $ --- $ 203,761 $ 42,443 $ --- $ 246,204
COSTS AND EXPENSES. . . . . . . . . . . . . . . . 3,861 184,757 34,850 --- 223,468
-------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . (3,861) 19,004 7,593 --- 22,736
-------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net. . . . . . . . (6,332) (6,475) 10 --- (12,797)
Equity in Subsidiaries, Net of Taxes. . . . . 13,936 --- --- (13,936) ---
Other, Net . . . . . . . . . . . . . . . . . 57 396 (334) --- 119
-------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 3,800 12,925 7,269 (13,936) 10,058
PROVISION (BENEFIT) FOR INCOME TAXES. . . . . . . (3,140) 3,348 2,910 --- 3,118
-------- --------- --------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ 6,940 $ 9,577 $ 4,359 $ (13,936) $ 6,940
======== ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES. . . . . . . . . . . . . . . . . . . . . . $ --- $ 147,454 $ 26,309 $ --- $ 173,763
COSTS AND EXPENSES. . . . . . . . . . . . . . . . . 3,508 133,969 23,201 --- 160,678
-------- --------- -------- -------- ---------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . (3,508) 13,485 3,108 --- 13,085
-------- --------- -------- -------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . . . . . . . . . (3,495) (6,231) 208 --- (9,518)
Equity in Subsidiaries, Net of Taxes . . . . . 6,991 --- --- (6,991) ---
Other, Net . . . . . . . . . . . . . . . . . . 86 138 438 --- 662
-------- --------- -------- -------- ---------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . 74 7,392 3,754 (6,991) 4,229
PROVISION (BENEFIT) FOR INCOME TAXES. . . . . . . . (2,587) 2,587 1,568 --- 1,568
-------- --------- -------- -------- ---------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . 2,661 4,805 2,186 (6,991) 2,661
EXTRAORDINARY CHARGE, NET . . . . . . . . . . . . .
OF TAXES. . . . . . . . . . . . . . . . . . . . . (3,784) --- --- --- (3,784)
-------- --------- -------- -------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ (1,123) $ 4,805 $ 2,186 $ (6,991) $ (1,123)
======== ========= ======== ======== =========
</TABLE>
10
<PAGE> 11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(8) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES. . . . . . . . . . . . . . . . . . . . . $ --- $ 77,311 $ 16,486 $ --- $ 93,797
COSTS AND EXPENSES. . . . . . . . . . . . . . . . 1,257 69,994 13,351 --- 84,602
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . (1,257) 7,317 3,135 --- 9,195
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net. . . . . . . . (2,101) (2,521) (14) --- (4,636)
Equity in Subsidiaries, Net of Taxes. . . . . 5,823 --- --- (5,823) ---
Other, Net. . . . . . . . . . . . . . . . . . 24 98 4 --- 126
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . 2,489 4,894 3,125 (5,823) 4,685
PROVISION (BENEFIT) FOR INCOME TAXES. . . . . . . (1,067) 1,041 1,155 --- 1,129
-------- -------- -------- -------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ 3,556 $ 3,853 $ 1,970 $ (5,823) $ 3,556
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES. . . . . . . . . . . . . . . . . . . . . . $ --- $ 57,903 $ 10,176 $ --- $ 68,079
COSTS AND EXPENSES. . . . . . . . . . . . . . . . . 1,252 51,733 8,932 --- 61,917
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . (1,252) 6,170 1,244 --- 6,162
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . . . . . . . . . (1,535) (2,376) 91 --- (3,820)
Equity in Subsidiaries, Net of Taxes . . . . . 3,181 --- --- (3,181) ---
Other, Net . . . . . . . . . . . . . . . . . . 161 (25) 220 --- 356
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . 555 3,769 1,555 (3,181) 2,698
PROVISION (BENEFIT) FOR INCOME TAXES. . . . . . . . (1,124) 1,283 860 --- 1,019
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . 1,679 2,486 695 (3,181) 1,679
EXTRAORDINARY CHARGE, NET
OF TAXES. . . . . . . . . . . . . . . . . . . . . --- --- --- --- ---
-------- -------- -------- -------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 1,679 $ 2,486 $ 695 $ (3,181) $ 1,679
======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(8) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 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 (Loss) . . . . . . . . . . . . . . . . $ 6,940 $ 9,577 $ 4,359 $ (13,936) $ 6,940
Equity in Earnings of Subsidiaries. . . . . . . (13,936) --- --- 13,936 ---
Other Adjustments and Changes . . . . . . . . . (5,160) (16,521) (6,471) --- (28,152)
--------- --------- -------- --------- ---------
Net Cash Used by Operations. . . . . . . (12,156) (6,944) (2,112) --- (21,212)
--------- --------- -------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired. . . . . . . . . . . . . . . . . . . . --- (8,263) --- --- (8,263)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . . . . . . . . (17) (14,624) (2,918) --- (17,559)
Other, Net. . . . . . . . . . . . . . . . . . . . --- 797 120 --- 917
--------- --------- -------- --------- ---------
Net Cash Used by Investing Activities . . . . . (17) (22,090) (2,798) --- (24,905)
--------- --------- -------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock. . . . . . . . . . . . . 63,618 --- --- --- 63,618
Borrowings (Repayments) Under Revolving
Lines of Credit, Net. . . . . . . . . . . . . . --- (13,627) 1,355 --- (12,272)
Borrowings Under Term Debt. . . . . . . . . . . . --- 3,844 3 --- 3,847
Repayments On Term Debt . . . . . . . . . . . . . --- (2,225) (842) --- (3,067)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net. . . . . . . . . . . . . (45,815) 42,254 3,561 --- ---
Other, Net. . . . . . . . . . . . . . . . . . . . 78 --- --- --- 78
--------- --------- -------- --------- ---------
Net Cash Provided by Financing Activities . . . 17,881 30,246 4,077 --- 52,204
--------- --------- -------- --------- ---------
Effect of Translation Adjustment on Cash. . . . . . --- 45 97 --- 142
--------- --------- -------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . . . . 5,708 1,257 (736) --- 6,229
Cash and Cash Equivalents at Beginning of
Period. . . . . . . . . . . . . . . . . . . . . . 166 1,593 1,385 --- 3,144
--------- --------- -------- --------- ---------
Cash and Cash Equivalents at End of Period. . . . . $ 5,874 $ 2,850 $ 649 $ --- $ 9,373
========= ========= ======== ========= =========
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(8) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 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) . . . . . . . . . . . . . . . . . $ (1,123) $ 4,805 $ 2,186 $ (6,991) $ (1,123)
Equity in Earnings of Subsidiaries. . . . . . . . . (6,991) --- --- 6,991 ---
Other Adjustments and Changes . . . . . . . . . . . 6,826 (5,534) (5,175) --- (3,883)
--------- --------- -------- -------- ---------
Net Cash Used by Operations . . . . . . . . . . . (1,288) (729) (2,989) --- (5,006)
--------- --------- -------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired. . . . . . . . . . . . . . . . . . . . . . --- (17,081) --- --- (17,081)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . . . . . . . . . . (78) (14,351) (2,804) --- (17,233)
Other, Net. . . . . . . . . . . . . . . . . . . . . . --- 126 18 --- 144
--------- --------- -------- -------- ---------
Net Cash Used by Investing Activities . . . . . . . (78) (31,306) (2,786) --- (34,170)
--------- --------- -------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Issuance of Long-Term Debt. . . . . . . 120,000 --- --- --- 120,000
Repayments Under Revolving Lines of
Credit, Net . . . . . . . . . . . . . . . . . . . . --- (29,630) (1,631) --- (31,261)
Borrowings Under Term Debt. . . . . . . . . . . . . . --- 667 1,608 --- 2,275
Repayments on Term Debt . . . . . . . . . . . . . . . (34,000) (9,544) (2,126) --- (45,670)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net. . . . . . . . . . . . . . . (76,792) 64,896 11,896 --- ---
Other, Net. . . . . . . . . . . . . . . . . . . . . . (9,286) --- --- --- (9,286)
--------- --------- -------- -------- ---------
Net Cash Provided (Used) by Financing
Activities. . . . . . . . . . . . . . . . . . . . (78) 26,389 9,747 --- 36,058
--------- --------- -------- -------- ---------
Effect of Translation Adjustment on Cash. . . . . . . . --- --- (14) --- (14)
--------- --------- -------- -------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . . . . . . (1,444) (5,646) 3,958 --- (3,132)
Cash and Cash Equivalents at Beginning of
Period. . . . . . . . . . . . . . . . . . . . . . . . 1,444 2,200 1,155 --- 4,799
--------- --------- -------- -------- ---------
Cash and Cash Equivalents at End of Period. . . . . . . $ --- $ (3,446) $ 5,113 $ --- $ 1,667
========= ========= ======== ======== =========
</TABLE>
13
<PAGE> 14
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(8) 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 7 should be read in conjunction with the Condensed
Consolidating Financial Statements.
14
<PAGE> 15
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.
Operating income for the three and nine months ended September 30,
1995 was $9,195,000 and $22,736,000, respectively, as compared to $6,162,000
and $13,085,000, respectively, for the three and nine months ended September
30, 1994. The increase in operating income for 1995 reflects improvements in
each of the Company's operating divisions and the contribution of operating
income attributable to the acquisition of Prideco, Inc. ("Prideco") on June 30,
1995. The results also 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 nine 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. The
Company's contract drilling revenues also benefited in the first nine months of
1995 from drilling contracts in Peru and Nigeria. However, revenues from Peru
have recently declined as a result of the Company's customer curtailing
operations in that region.
Sales of the Company's artificial lift products benefited from
increased sales attributable to the Company's acquisition of the Fluid Packed
pump and sucker rod businesses acquired from National Oilwell in August 1994
and higher pump 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'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.
Early in the fourth quarter 1995, the Company completed a public
offering of 3,450,000 shares of its Common Stock ("Public Offering"). The net
proceeds of this offering were approximately $73.1 million. A portion of such
proceeds was used to reduce the Company's outstanding revolving lines of
credit, with the remainder being invested in short-term securities. The funds
from the offering will be used to finance the expansion of the Company's
domestic and international tubular operations and for general and corporate
purposes. The offering has resulted in a reduction in the Company's debt to
total capitalization ratio to approximately 38%.
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 and will be marketed under the name Grant Prideco.
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.
15
<PAGE> 16
INTERNATIONAL TUBULAR EXPANSION
The Company recently entered into a letter of intent with Oil Country
Tubular Ltd. ("OCTL") regarding an arrangement under which drill pipe and
certain of the Company's other tubular products would be manufactured at OCTL's
tubular facility located in Narketpally, India on a continuing basis. The OCTL
facility was built in 1990 under the direction of personnel who are currently
employed by Grant Prideco and is the most modern tubular fabricating facility
in the world. The facility would be utilized by the Company to pursue a
strategic expansion of its sales and operations in the Eastern Hemisphere. The
Company believes that the combination of Grant Prideco's product line with
OCTL's low manufacturing costs and proximity to major Eastern Hemisphere
markets should accomplish this objective. This expansion is intended to
substantially increase the Company's sales into the growing Eastern Hemisphere
market, which over the last few years has represented only approximately 5% of
the Company's total revenues.
The terms of the OCTL letter of intent contemplate a long-term arrangement
subject to an ongoing right of termination by the Company. The Company would
be required to make an initial deposit of $8 million for the right to have
products manufactured at the facility and would thereafter make annual
payments of $6 million plus certain production payments based on the
volume of products produced at the facility. The Company would pay all
operating costs and provide all working capital required to run the OCTL
facility. To date, no definitive agreement with OCTL has been reached and any
agreement would be subject to various conditions, including the receipt of any
required governmental and other approvals. Accordingly, there can be no
assurance that a definitive agreement with OCTL will be entered into or as to
the ultimate timing and terms thereof.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS THREE MONTHS ENDED
SEPTEMBER 30, 1994
For the three months ended September 30, 1995, income from continuing
operations was $3.6 million or $.24 per share on revenues of $93.8 million
compared to income from continuing operations of $1.7 million or $.13 per share
on revenues of $68.1 million for the three months ended September 30, 1994.
Operating income for the three months ended September 30, 1995, was $9.2
million compared to $6.2 million for the three months ended September 30, 1994.
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were
$72.2 million and $6.2 million, respectively, for the third quarter ended
September 30, 1995, as compared to $51.5 million and $1.2 million,
respectively, for the third quarter ended September 30, 1994. The increases in
revenues and operating income were primarily attributable to the contributions
from increased drill pipe sales, higher Canadian pump sales and the addition of
the Fluid PackedO pump and sucker rod businesses acquired from National Oilwell
in August 1994.
Sales of tubular products in the third quarter of 1995 were $43.1 million
compared to $27.9 million in the third quarter of 1994. The increase in sales
for the third quarter of 1995 results from the acquisition of Prideco on June
30, 1995 and the overall increase in demand for drill pipe. Evidence of the
improved demand for drill pipe is the Company's tubular backlog at September
30, 1995, being $90 million compared to $35.2 million at December 31, 1994.
The Company anticipates that all of the backlog existing at September 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.
16
<PAGE> 17
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 $29.1 million and $1.3 million, respectively, for the third
quarter ended September 30, 1995, compared to $23.6 million and $400,000,
respectively, for the third quarter ended September 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(R) and Corod sales. The increase in operating income was
primarily attributable to the RotaLift and Corod product lines 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.
Contract Drilling Segment
Revenues for the contract drilling segment were $21.6 million for the
third quarter ended September 30, 1995, as compared to $16.6 million for the
third quarter ended September 30, 1994. The improved results in this segment
reflect higher international revenues in the 1995 period as new contracts in
Peru and Nigeria did not take effect until late in the third quarter of 1994.
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 continue to benefit results for the remainder of
1995. The operations in Nigeria, Peru and Argentina contributed $6.5 million
in revenues and $1.2 million in operating income for the third quarter of 1995.
Operating income for the contract drilling segment was $4.2 million
for the third quarter ended September 30, 1995. Operating income for the third
quarter ended September 30, 1994 was $6.3 million and included a $2.8 million
increase in operating income resulting from an insurance settlement covering
the workover drilling contract with the National Iranian Oil Company ("NIOC").
The Company's platform drilling operations in Peru were placed on standby in
July 1995 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.
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.
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 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.
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 September 30, 1995,
was approximately $3 million.
17
<PAGE> 18
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.
General
Selling, general and administrative expenses increased approximately 20% to
$15.1 million in the third quarter of 1995 from $12.5 million in the third
quarter of 1994. The increase in 1995 was attributable to the Prideco
acquisition and to increased sales and international expansion.
Interest expense increased during the third quarter of 1995 to $4.7 million
from $3.8 million for the third quarter of 1994. The increase in interest
expense is attributable to higher levels of indebtedness during the third
quarter of 1995 under the Company's working capital lines of credit due to
increases in the level of the Company's business. The Company's interest
expense is expected to decline in the fourth quarter as a result of the
reduction in debt following its recent Public Offering.
The Company's effective tax rate for the three months ended September 30,
1995 was approximately 24% compared approximately 38% for the comparative
period in 1994. The decline in such rate reflected the impact of certain tax
benefits associated with one time adjustments.
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 NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1994
For the first nine months of 1995, income from continuing operations was
$6.9 million or $.51 per share on revenues of $246.2 million compared to income
from continuing operations of $2.7 million or $.21 per share on revenues of
$173.8 million for the first nine months of 1994. Operating income for the
nine months of 1995 was $22.7 million compared to $13.1 million for the nine
months of 1994.
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were $186.7
million and $14.8 million, respectively, for the nine months ended September
30, 1995, as compared to $132.8 million and $5.8 million, respectively, for the
nine months ended September 30, 1994. The increases in revenues and operating
income were primarily attributable to the contribution from increased drill
pipe sales through the Prideco acquisition as well as from increased demand for
drill pipe, higher Canadian pump 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 nine months of 1995 were $100.0
million compared to $70.4 million in the first nine months of 1994. The
Company believes that the increased drill pipe sales realized by it during the
nine months of 1995 are indicative of a reduction in the worldwide inventory of
used drill pipe and the continuing consolidation of the industry.
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.
18
<PAGE> 19
Revenues and operating income associated with the Company's artificial lift
division were $86.7 million and $5.8 million, respectively, for the nine months
ended September 30, 1995, compared to $62.4 million and $2.8 million,
respectively, for the nine months ended September 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 and Corod sales. The increase in
operating income was primarily attributable to the RotaLift and Corod product
lines offset by increased selling, general and administrative expenses.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were $59.5
million and $11.8 million, respectively, for the nine months ended September
30, 1995, as compared to $41.0 million and $10.8 million, respectively, for the
nine months ended September 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 Company's operations in Argentina began in June 1995.
The operations in Nigeria, Peru, and Argentina contributed $19.0 million in
revenues and $3.8 million in operating income for the 1995 period. Factors
affecting nine month results were essentially the same as those affecting
results in the third quarter of 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 Company's Nigerian
drilling contract was recently extended through August 1996.
General
Selling, general and administrative expenses increased approximately 16% to
$41.1 million in the first nine months of 1995 from $35.4 million in the first
nine months of 1994. The increase in 1995 was attributable to the Prideco
acquisition and to increased sales and international expansion.
Interest expense increased during the first nine months of 1995 to $12.9
million from $9.7 million for the first nine months of 1994. The increase in
interest expense is attributable to higher levels of indebtedness during the
nine months of 1995 due to increases in the level of the Company's business.
The Company's effective tax rate for the nine months ended September 30,
1995, was approximately 31% compared to approximately 37% for the comparative
period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Early in the fourth quarter 1995, the Company completed a public offering of
3,450,000 shares of its Common Stock. The net proceeds of this offering were
approximately $73.1 million. A portion of such proceeds was used to reduce the
Company's outstanding revolving lines of credit, with the remainder being
invested in short- term securities. The funds from the offering will be used
to finance the expansion of the Company's domestic and international tubular
operations and for general and corporate purposes. The offering has resulted
in a reduction in the Company's debt to total capitalization ratio to
approximately 38%.
At September 30, 1995, the Company had cash and cash equivalents of
approximately $9.4 million compared to approximately $3.1 million at December
31, 1994. At September 30, 1995, the Company's working capital was
approximately $156 million compared to approximately $94 million at December
31, 1994. The increase in working capital was primarily the result of the
recent Public Offering.
19
<PAGE> 20
At September 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 $65.5
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 September 30, 1995 and December 31, 1994, approximately $5 million and $17.3
million, respectively, had been borrowed under the revolving lines of credit
and approximately $3.2 million and $1 million, respectively, had been used to
support outstanding letters of credit. At September 30, 1995 and December 31,
1994, $57.4 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 1/4% for the first nine months
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 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 and future 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 existing cash, cash flow from operations and
other borrowings and financings.
20
<PAGE> 21
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 of Prideco for its fiscal year ended
June 30, 1995, were $55.2 million and $4.2 million, respectively.
Any expansion utilizing the OCTL facility would likely require a first-year
investment of between $25 million and $30 million to fund the $8 million
deposit as well as working capital requirements. Funds for utilization of the
OCTL facility would likely be financed with existing cash, net proceeds from
the Public Offering and borrowings under lines of credit and other facilities.
In addition to funds used to finance acquisitions, capital expenditures by
the Company during the nine months ended September 30, 1995 totaled
approximately $17.6 million. During the first nine months of 1995, capital
expenditures included approximately $5.8 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 $15 million. In addition, the Company is proposing
to expend approximately $5 million for rig upgrades to its domestic fleet.
Capital expenditures are expected to be funded with available cash, cash flow
from operations and borrowings under lines of credit and other facilities.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(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., as amended by the Company's Form 8-K/A.
22
<PAGE> 23
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: November 9, 1995
23
<PAGE> 24
Index to Exhibits
Exhibit 27 Financial Data Schedule Ended September 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 9,373
<SECURITIES> 0
<RECEIVABLES> 95,570
<ALLOWANCES> 768
<INVENTORY> 109,759
<CURRENT-ASSETS> 233,382
<PP&E> 182,191
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 460,877
<CURRENT-LIABILITIES> 77,697
<BONDS> 128,559
<COMMON> 18,047
0
0
<OTHER-SE> 197,741
<TOTAL-LIABILITY-AND-EQUITY> 460,877
<SALES> 246,204<F2>
<TOTAL-REVENUES> 246,204
<CGS> 182,347<F2>
<TOTAL-COSTS> 182,347
<OTHER-EXPENSES> 41,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,883
<INCOME-PRETAX> 10,058
<INCOME-TAX> 3,118
<INCOME-CONTINUING> 6,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,940
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<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
dislosed 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>
