<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): AUGUST 5, 1996
ENERGY VENTURES, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-7265 04-2515019
(State of Incorporation) (Commission File No.) (I.R.S. Employer Identification No.)
</TABLE>
5 POST OAK PARK, SUITE 1760,
HOUSTON, TEXAS 77027-3415
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-8400
================================================================================
Page 1
Exhibit Index Appears on Page 5
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 5, 1996, Energy Ventures, Inc., a Delaware corporation (the
"Company"), completed the acquisition (the "TCA Acquisition") of all of the
capital stock of Tubular Corporation of America, a Delaware corporation
("TCA"), pursuant to an Agreement and Plan of Merger (the "TCA Merger
Agreement"). Under the terms of the TCA Merger Agreement, the Company acquired
TCA in exchange for the issuance of 500,000 shares of the Company's common
stock, $1.00 par value (the "Common Stock"), $14.35 million cash, a $650,000
note due January 1997 and assumed debt of approximately $15 million. The
purchase price was determined through negotiations with TCA. The cash
consideration paid in the TCA Acquisition was funded with a portion of the net
proceeds from the Company's recent public offering of Common Stock completed on
July 26, 1996.
TCA is a manufacturer of premium casing used in oil and gas
exploration and development. The Company intends to continue to operate the
business of TCA and integrate TCA's operations with those of the Company's
Grant Prideco tubular products division and to offer TCA's line of premium
casing products in conjunction with the Company's own line of engineered
connections and premium tubulars.
A copy of the press release announcing the closing of the TCA
Acquisition is filed as Exhibit 99.1 and is hereby incorporated herein by
reference.
Page 2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
The financial statements of TCA that are required for this
item were previously filed by the Company on June 24, 1996, under Item 5 of the
Company's Current Report on Form 8-K and are hereby incorporated herein by
reference.
(b) Pro forma financial information.
The acquisition of TCA by the Company will be accounted for as
a purchase and will require an allocation of the purchase price among the
acquired assets. The pro forma financial information relating to the TCA
Acquisition required pursuant to Article 11 of Regulation S-X is set forth on
pages 16 through 20 of the Company's prospectus filed pursuant to Rule
424(b)(4) on July 23, 1996, included in the Company's Registration Statement on
Form S-3 (Reg. No. 333-06715), as amended, and is hereby incorporated herein by
reference.
(c) Exhibits.
2.1 - Agreement and Plan of Merger dated as of June 21, 1996,
between Energy Ventures, Inc., TCA Acquisition, Inc. and
Tubular Corporation of America (incorporated by reference
to Exhibit 2.1 to Form 8-K, File 0-7265, filed June 24,
1996).
2.2 - Form of Stockholder Agreement and Representation Letter
dated June 21, 1996, between Energy Ventures, Inc. and the
stockholders of Tubular Corporation of America
(incorporated by reference to Exhibit 2.2 to Form 8-K,
File 0-7265, filed June 24, 1996).
23.1 - Consent of Arthur Andersen LLP, with respect to the
financial statements of Tubular Corporation of America.
99.1 - Press Release of the Company dated August 6, 1996,
announcing the closing of the TCA Acquisition.
99.2 - Financial statements of TCA.
99.3 - Pro forma financial information for the TCA Acquisition.
Page 3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENERGY VENTURES, INC.
Dated: August 7, 1996 /s/ FRANCES R. POWELL
-------------------------------------
Frances R. Powell
Vice President, Accounting
and Controller
Page 4
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
2.1 Agreement and Plan of Merger dated as of June 21, 1996, between Energy
Ventures, Inc., TCA Acquisition, Inc. and Tubular Corporation of America
(incorporated by reference to Exhibit 2.1 to Form 8-K, File 0-7265, filed
June 24, 1996).
2.2 Form of Stockholder Agreement and Representation Letter dated June 21,
1996, between Energy Ventures, Inc. and the stockholders of Tubular
Corporation of America (incorporated by reference to Exhibit 2.2 to Form 8-K,
File 0-7265, filed June 24, 1996).
23.1 Consent of Arthur Andersen LLP, with respect to the financial statements of
Tubular Corporation of America.
99.1 Press Release of the Company dated August 6, 1996, announcing the closing
of the TCA acquisition.
99.2 Financial statements of TCA.
99.3 Pro forma financial information for the TCA Acquisition.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 18, 1996 on our audits of the consolidated
financial statements of Tubular Corporation of America and subsidiary included
in the Energy Ventures, Inc. (the "Company") Form 8-K dated August 5, 1996,
into the Company's previously filed Registration Statement File Nos. 333-06715,
333-03407, 33-31662, 33-56384, 33-56386, 33-65790, 33-77960 and 33-64349. It
should be noted that we have not audited any financial statements of Tubular
Corporation of America and subsidiary subsequent to December 31, 1995 or
performed any audit procedures subsequent to the date or our report.
Arthur Andersen LLP
Tulsa, Oklahoma
August 5, 1996
<PAGE> 1
EXHIBIT 99.1
[EVI LETTERHEAD]
EVI ANNOUNCES THE COMPLETION OF TCA ACQUISITION
August 6, 1996, Houston, Texas -- Energy Ventures, Inc. (NYSE-EVI) today
announced that it had completed the previously announced acquisition of Tubular
Corporation of America ("TCA"), a manufacturer of premium casing used in oil
and gas exploration and development. The transaction closed on Monday, August
5, 1996 with EVI issuing 500,000 shares of its common stock and $15 million in
cash to the previous owners of TCA. In addition, EVI assumed approximately $15
million of Existing TCA debt.
The TCA line of premium casing products will be integrated with the existing
line of engineered connections and premium tubulars currently manufactured and
marketed by EVI's tubular subsidiary, Grant Prideco. Premium casing are wide
diameter seamless tubulars whose chemistry, molecular structure and engineered
connections are designed to withstand pressure, temperature and corrosion such
as can be encountered in hostile downhole conditions, typically found in deep
offshore and gas wells worldwide.
EVI is an international oilfield service and equipment company with
manufacturing and rig operations in nine countries. The Company manufactures
drill pipe and premium tubulars, production equipment and provides rig
contracting services.
Contact:
James G. Kiley
Vice President and
Chief Financial Officer
(713) 297-8400
<PAGE> 1
EXHIBIT 99.2
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
Report of Independent Public Accountants ................................ 2
Consolidated Balance Sheets -- December 31, 1995 and 1994 ............. 3
Consolidated Statements of Income, for each of two years in the
period ended December 31, 1995 ...................................... 4
Consolidated Statements of Stockholders' Investment, for each of the
two years in the period ended December 31, 1995 ..................... 5
Consolidated Statements of Cash Flows, for each of the two years
in the period ended December 31, 1995 ............................... 6
Notes to Consolidated Financial Statements ............................ 7
Unaudited Consolidated Balance Sheet -- March 31, 1996 .................. 16
Unaudited Consolidated Statements of Income for the three
month periods ended March 31, 1996 and 1995 ........................... 17
Unaudited Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1996 and 1995 ........................... 18
Notes to Unaudited Consolidated Financial Statements .................... 19
</TABLE>
Page 1
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Tubular Corporation of America:
We have audited the accompanying consolidated balance sheets of Tubular
Corporation of America (a Delaware corporation) and subsidiary as of December
31, 1995 and 1994 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tubular Corporation of America
and subsidiary as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Tulsa, Oklahoma
April 18, 1996
Page 2
<PAGE> 3
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 41,004 $ 639,785
Investment securities (Note 2) 63,797 54,281
Accounts receivable, less allowance of $85,000
and $75,000 in 1995 and 1994,
respectively (Note 4) 6,372,975 4,458,625
Inventories (Notes 2 and 4) 4,785,420 4,170,116
Warehouse supplies 690,153 560,833
Prepaid expenses and deposits 351,828 327,240
-------------- --------------
Total current assets 12,305,177 10,210,880
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 3) 28,890,659 27,075,316
Less-accumulated depreciation 10,689,380 9,035,220
-------------- --------------
Net property, plant and equipment 18,201,279 18,040,096
-------------- --------------
OTHER ASSETS 135,799 147,576
-------------- --------------
Total assets $ 30,642,255 $ 28,398,552
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3) $ 3,443,412 $ 2,655,068
Short-term borrowings (Note 4) 1,284,383 229,043
Accounts payable 6,561,279 6,078,183
Accrued liabilities 1,819,142 1,692,722
Advance payments on contracts (Note 2) 30,911 750,000
-------------- --------------
Total current liabilities 13,139,127 11,405,016
-------------- --------------
LONG-TERM DEBT, less current maturities above (Note 3) 8,987,148 11,018,736
------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
SHAREHOLDERS' EQUITY (Note 5):
Common stock, $1 par value, 100,000 authorized
shares; 62,694 shares issued and outstanding
in 1995 and 1994 62,694 62,694
Additional paid-in capital 8,973,749 8,973,749
Accumulated deficit (520,463) (3,061,643)
-------------- --------------
Total shareholders' equity 8,515,980 5,974,800
-------------- --------------
Total liabilities and shareholders' equity $ 30,642,255 $ 28,398,552
============== ==============
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
Page 3
<PAGE> 4
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
NET SALES (Note 2) $ 49,232,570 $ 37,759,782
OPERATING COSTS AND EXPENSES:
Cost of goods sold 41,910,427 32,732,642
Administrative and selling expenses 1,815,886 1,473,959
Depreciation and amortization 1,763,233 1,805,098
-------------- --------------
Total operating costs and expenses 45,489,546 36,011,699
-------------- --------------
OPERATING INCOME 3,743,024 1,748,083
-------------- --------------
OTHER EXPENSE (INCOME):
Interest and fees paid 1,175,236 1,427,784
Interest income (3,392) (43,710)
-------------- --------------
1,171,844 1,384,074
-------------- --------------
INCOME BEFORE INCOME TAX PROVISION 2,571,180 364,009
INCOME TAX PROVISION (Note 7) 30,000 --
-------------- --------------
NET INCOME $ 2,541,180 $ 364,009
============== ==============
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 38.03 $ 5.45
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
Page 4
<PAGE> 5
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit
--------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 62,694 $ 62,694 $ 8,973,749 $ (3,425,652)
Net Income -- -- -- 364,009
------ -------- ----------- ------------
Balance at December 31, 1994 62,694 $ 62,694 $ 8,973,749 $ (3,061,643)
Net Income -- -- -- 2,541,180
------ -------- ----------- ------------
Balance at December 31, 1995 62,694 $ 62,694 $ 8,973,749 $ (520,463)
====== ======== =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
Page 5
<PAGE> 6
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION> 1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,541,180 $ 364,009
Adjustments to reconcile net income to net cash
used in operating activities-
Depreciation and amortization 1,763,233 1,805,098
Changes in assets and liabilities-
Increase in accounts receivable, net (1,914,350) (291,417)
Increase in inventories and supplies (744,624) (370,596)
(Increase) decrease in prepaid expenses and
deposits (24,588) 103,776
Increase in accounts payable 483,096 872,166
Increase in accrued liabilities 126,420 133,195
(Decrease) increase in advance payments
on contracts (719,089) 708,061
-------------- --------------
Net cash provided by operating activities 1,511,278 3,324,292
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (504,879) (240,930)
Proceeds from sale of assets 3,085 --
Investments in marketable securities (9,516) (54,281)
-------------- --------------
Net cash used in investing activities (511,310) (295,211)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on long-term debt -- --
Payments on long-term debt (2,593,244) (1,359,404)
Deferred financing charges (60,845) --
Proceeds from short-term borrowings 50,114,772 37,905,251
Payments on short-term borrowings (49,059,432) (41,494,458)
-------------- --------------
Net cash used in financing activities (1,598,749) (4,948,611)
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (598,781) (1,919,530)
CASH AND CASH EQUIVALENTS:
Beginning of year 639,785 2,559,315
-------------- --------------
End of year $ 41,004 $ 639,785
============== ==============
NONCASH INVESTING AND FINANCING ACTIVITY
Equipment lease $ 1,350,000 $ --
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest $ 1,485,193 $ 1,820,956
Cash paid during the year for income taxes $ 18,500 $ --
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
Page 6
<PAGE> 7
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND BUSINESS:
Tubular Corporation of America (the Company) was incorporated in Delaware in
July 1989. The Company is a processor of high-strength, high-quality, tubular
goods used in oil and gas exploration and development and a provider of tubular
inspection services. Using the "quench and temper" process, the Company
converts purchased semi-finished steel pipe "green tubes" into specialized
seamless casing through heat treating, re-sizing, straightening, nondestructive
testing and threading processes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Muskogee Inspection Company (MICO). All material
intercompany transactions and accounts have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Substantially all cash is temporarily invested in highly liquid instruments
with maturities of three months or less.
INVESTMENT SECURITIES
All of the Company's investment securities are classified as trading securities
and are accounted for in accordance with the provisions of Statement of
Financial Accounting Standards No. 115.
Page 7
<PAGE> 8
INVENTORIES
Inventories are valued at the lower of cost or market using a weighted average
method and are comprised of the following components:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Raw materials $ 1,929,973 $ 1,088,273
Work-in-process 1,559,908 2,097,607
Finished goods 1,295,539 984,236
------------- -------------
$ 4,785,420 $ 4,170,116
============= =============
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
The Company capitalizes additions or betterments to its property, plant and
equipment accounts at cost. Depreciation is computed using the straight-line
method for financial reporting purposes. The components of property, plant and
equipment and estimated useful lives are as follows:
<TABLE>
<CAPTION>
Life in
Years 1995 1994
------ ---------- ----------
<S> <C> <C> <C>
Buildings and improvements 5-25 $ 4,484,358 $ 4,482,808
Machinery and equipment 3-20 24,259,863 22,440,485
Furniture and fixtures 3-5 15,061 12,754
Construction in progress -- 131,377 139,269
------------- ------------
$ 28,890,659 $ 27,075,316
============= ============
</TABLE>
FAIR VALUE
The carrying amounts of accounts receivable and accounts payable approximate
their fair value. Based on the estimated borrowing rates currently available
to the Company for the long-term loans with similar terms and average
maturities, the aggregate fair value at December 31, 1995 of the Company's
long-term debt approximates the aggregate carrying amount, excluding the impact
of the accrued charges (see Note 3).
REVENUE RECOGNITION
Revenue is recognized upon passage of title to the customer which coincides
with either shipment or acceptance. The Company processes casing for certain
customers under sales contracts which require advance payments. Recognition of
income on these sales contracts is deferred until either shipment or
acceptance.
CUSTOMER CONCENTRATION
The Company enters the market through a distribution channel of oil country,
tubular-goods distributors and selected end users. During 1995 and 1994, three
and two customers,
Page 8
<PAGE> 9
respectively, individually accounted for more than 10% of the Company's
consolidated net sales. In total, sales to these customers comprised 64% and
33%, respectively, of the Company's sales. Credit risk arising from customer
concentration is directly impacted by changes in the price and demand for
oilfield equipment, however, management considers such credit risk to be
limited.
EARNINGS PER COMMON SHARE
Earnings per common and common equivalent share are computed by dividing net
income by the weighted average number of common and common equivalent shares,
when dilutive, outstanding during the year. The weighted average number of
common and common equivalent shares outstanding was 66,829 in 1995 and 1994.
3. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Term Loan, payable to a bank, secured by fixed assets pari passu to the Convertible Term
Notes, interest at 1-1/2% above either the Toronto Dominion New York prime or LIBOR (7.2% at
December 31, 1995), with maximum quarterly payments of $285,750 plus an annual sweep payment,
which are dependent on cash flow as defined in the credit agreement, and a final balloon
payment on January 1, 1997. $ 5,557,111
Convertible term notes, payable to shareholders, secured by fixed assets pari passu to the
Term Loan, interest at the higher of 12% or 1-1/2% above either the Toronto Dominion New York
prime or LIBOR (12% at December 31, 1995), with maximum quarterly payments of $225,000 plus
an annual sweep payment, which are dependent on cash flow as defined in the credit agreement,
and a final balloon payment on January 1, 1997. 3,070,492
Capitalized equipment lease, interest at 8%, with monthly payments of $16,134 through May
2005. 1,289,687
Subordinated building and equipment loans, interest at rates ranging from 4.8% to 6% payable
to a government organization, with annual payments of $120,000 through December 2002. 917,075
10% subordinated building loan, payable to a government organization, with fixed monthly
principal and interest payments of $11,076 through November 1997 and a balloon payment in
December 1997. 808,823
8% note, payable to a corporation, secured by a second lien on certain equipment, with
variable monthly payments based on production levels. 360,000
</TABLE>
Page 9
<PAGE> 10
<TABLE>
<S> <C>
Accrued charges on Term Loan and 10% subordinated building loan recorded in accordance with
Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for
Troubled Debt Restructurings (SFAS 15).
286,535
Other 140,837
-------------
12,430,560
Less - current maturities 3,443,412
-------------
Total long-term debt, including accrued charges $ 8,987,148
=============
</TABLE>
Long-term debt will mature as follows:
<TABLE>
<S> <C>
1996 $ 3,410,487
1997 6,769,152
1998 300,129
1999 309,262
Thereafter 1,641,530
--------------
$ 12,430,560
==============
</TABLE>
The accrued charges recorded in accordance with SFAS 15 above are being
amortized by reducing interest expense over the life of the respective loans
which resulted in an effective interest rate of 3.4% and 4.6% for the Term Loan
and the 10% Subordinated Building Loan, respectively, during 1995.
Certain shareholders have provided personal guarantees totaling $4,227,000 as
further security for the Term Loan and Subordinated Building Loan.
The Term Loan and Convertible Term Note agreements contain certain financial
covenants which require, among other things, (1) a ratio of at least 1 to 1
between current assets and current liabilities excluding current maturities of
long-term debt; (2) a ratio of no less than 1.4 to 1 between earnings before
interest, taxes and depreciation and net interest expense; (3) maximum spending
limits for administrative and selling expenses and (4) a minimum net worth of
$6,000,000 in 1996 and $7,000,000 in 1997.
The Convertible Term Notes are owned by shareholders and are convertible into
common stock for a limited period of time, at a per share price of one half of
the book value of the Company's common stock, if the Company's quarterly
principal payment made is less than the $225,000 maximum as outlined in the
Term Note agreement.
Substantially all assets of the Company are pledged as collateral on the above
debt.
Subsequent to December 31, 1995, the Company entered into negotiations with a
financial institution to refinance the Term Loan, Convertible Term Notes and
the 10% Subordinated Building Loan. The financial institution has issued a
commitment letter, which is subject to satisfactory appraisals, which provides
for an $8,000,000 five year term loan, a revolving line of credit and a line
exclusively for the issuance of standby letters of credit all with prime or
LIBOR based interest rates.
Page 10
<PAGE> 11
4. SHORT-TERM BORROWINGS:
The Company has a credit line facility with a financial institution which
provides for borrowings and the issuance of standby letters of credit up to
$7,000,000 with interest at 2.5% above Philadelphia National Bank prime (11.0%
at December 31, 1995) on borrowings and 4% on the letters of credit. At
December 31, 1995, $1,048,113 of borrowings were outstanding and $3,000,000 of
the credit line facility was utilized for a standby letter of credit. The
maximum additional borrowings available, which is based on a percentage of
eligible accounts receivable and inventory, was $2,200,181 at December 31,
1995. The credit line is secured by the accounts receivable and inventory used
in computing the maximum borrowing amount and expires on July 11, 1996.
Short-term borrowings also include a $236,270 note with interest at 8.85%
payable to a financial institution at December 31, 1995. Such note financed
the Company's insurance premiums and is secured by the related return premiums.
The weighted average interest rate on short-term borrowings for the year ended
December 31, 1995 was 10.79%.
Three of the Company's shareholders owned junior participations in the credit
line facility totaling to $650,000 until February 8, 1995 and were paid
supplemental fees of $11,842 and $65,236, in 1995 and 1994, respectively. In
1994 the Company paid $47,871 of fees to a shareholder for a supplemental
credit support agreement which provided a $1,000,000 standby letter of credit
to support raw material purchases.
5. SHAREHOLDERS' EQUITY:
The Company's authorized common stock consists of 100,000 shares with a par
value of $1 per share. The Company's authorized preferred stock consists of
20,000 shares, with a par value of $1 per share of which none is outstanding.
The Company has a Stock Option Plan which provides for the issuance of options
for 5,078 shares of common stock to employees of which 4,135 stock options are
outstanding. Such options have an exercise price of $95.29 per share and
expire in 1996.
The Company has Stockholder Agreements with all of its shareholders which
specify the procedures governing certain voting and the sale or transfer of all
currently issued and outstanding common stock. The Stockholder Agreements,
among other things, specify that the shareholders must provide the Company and
certain shareholders with the opportunity to match a bona fide third party
offer for the sale of their stock. In addition, the circumstances under which
employee shareholders are required to offer to sell their stock to the Company
or a shareholder designated by the Company (generally when employment is
terminated) at fair market value are defined together with the procedures to
determine the fair market value of the stock. All common stock currently owned
or subsequently issued in a non public stock sale is subject to these
agreements.
Page 11
<PAGE> 12
6. COMMITMENTS:
LAND LEASES
The Company has operating land leases which require payments totaling $107,975
annually through 2006. The Company has an option to renew the leases for an
additional 25 years with quarterly payments no greater than $46,000. The
Company's total commitments for these agreements are as follows:
<TABLE>
<S> <C>
1996 $ 107,975
1997 107,975
1998 107,975
1999 107,975
Thereafter 741,744
-------------
$ 1,173,644
=============
</TABLE>
SUPPLY CONTRACT
The Company has a long-term steel supply agreement with a major integrated
steel producer which provides for the supply of seamless semi-finished steel
pipe "green tube" casing and has established a $3,000,000 standby letter of
credit to guarantee its payments. The volumes provided for under this
contract, which does not require minimum purchases, are sufficient to supply
the Company's current requirements.
LONG-TERM PROCESSING CONTRACT
In 1990, the Company entered into a long-term processing contract with USS/Kobe
Steel Company, a partnership between Kobe Steel Ltd. of Japan and United States
Steel Division (USS) of USX Corporation, to provide heat treating, sizing and
straightening on all of USS/Kobe's domestic production of 10 3/4" through 14
3/8" high-strength, seamless casing.
EBDIT SHARING PLAN
The Company has established the Tubular Corporation of America EBDIT (Earnings
Before Depreciation, Interest and Taxes) Sharing Plan (EBDIT Plan). All
full-time employees who have completed six months of employment are eligible to
participate in the EBDIT Plan. Amounts awarded under the EBDIT Plan are
calculated as a percentage of the EBDIT pool, as defined, which is determined
by the Compensation Committee of the Board of Directors. Earnings by employees
under the EBDIT Plan were $619,000 and $274,000 in 1995 and 1994, respectively.
LONG TERM SECURITY 401(k) PLAN
The Company has established the Tubular Corporation of America Long Term
Security Plan for all eligible employees of the Company and its subsidiary.
The plan is a qualified defined contribution plan under section 401(k) of the
Internal Revenue Code. Contribution levels are determined by the Company's
Board of Directors annually. The Company contributed 2% of each eligible
employee's base compensation plus a matching contribution of 33 1/3 cents for
Page 12
<PAGE> 13
each dollar of employee contributions on up to 6% of their base compensation
(maximum cost to the Company is 4% of base compensation) in 1995. Total
expense recorded was $117,706 and $74,169 in 1995 and 1994, respectively.
7. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting. The
difference between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets and liabilities
are computed for those differences that have future tax consequences using
currently enacted tax laws and rates that apply to the periods in which they
are expected to affect taxable income.
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994
------ -------
<S> <C> <C>
Current:
Federal $30,000 $ --
State -- --
------- --------
30,000 --
------- --------
Deferred:
Federal -- --
State -- --
------- --------
-- --
------- --------
$30,000 $ --
======= ========
</TABLE>
The reconciliation of income tax computed at the federal statutory rate to the
effective rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994
------ ------
<S> <C> <C>
Statutory rate 34.0% 34.0%
Alternative minimum tax 1.2 -
Recognition of previously reserved deferred tax assets (36.1) (45.5)
Nondeductible expenses 2.1 11.5
------ ------
Effective rate 1.2% 0.0%
====== ======
</TABLE>
The significant components of the Company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Tax Benefit Transfer Leases $ 5,457,895 $ 5,995,491
Net operating loss carryforward (NOLCF) 2,877,321 3,257,784
Tax credit carryforward 828,976 852,295
Accruals and reserves not currently deductible 300,271 356,375
Accrued SFAS 15 charges not currently deductible 106,878 207,796
Difference in basis of assets acquired from predecessor company 87,495 534,096
Other 5,814 5,029
------------- --------------
Total gross deferred tax assets 9,664,650 11,208,866
</TABLE>
Page 13
<PAGE> 14
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation on property, plant and equipment $ (4,335,015) $ (4,668,927)
------------- --------------
Net deferred tax asset 5,329,635 6,539,939
Less - valuation allowance (5,329,635) (6,539,939)
------------- --------------
Net deferred tax assets $ -- $ --
============= ============
</TABLE>
The current income tax provision differs from the amount computed using the
statutory federal income tax rate due to alternative minimum taxes and
utilization of a portion of the NOLCF.
The deferred tax asset for the Tax Benefit Transfer Leases (the Leases) is
related to transactions in 1982 by the Company's predecessor company that
increased taxable income to the Company over the initial years of the Leases
and are now decreasing taxable income and the related taxes payable. The
Company has Federal NOLCF's totaling approximately $7,700,000 at December 31,
1995 which begin to expire in 2006 and include approximately $2,500,000 that is
subject to statutory limitations (resulting from a change in ownership that
occurred in 1991) which limit the amount that can be used each year. In
addition, the Company has an investment tax credit eligible for carryforward
for state tax reporting purposes of approximately $829,000 which begins to
expire in 2003.
The Company has established a valuation allowance of $5,329,635 at December 31,
1995, which has been applied against the net deferred tax asset. At such time
when the Company has experienced a longer trend of consistent earnings which
are reasonably expected to continue, it will establish all or part of the net
deferred tax asset and will record the related income tax benefit.
8. CONTINGENCIES:
CLAIMS
The Company is aware of certain potential claims arising out of operations in
the normal course of business. In the opinion of management, the ultimate
outcome of the claims should not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
The Company did not have any pending or threatened product liability claims
open at December 31, 1995, but carries insurance to cover significant claims
should they arise.
TAX BENEFIT TRANSFER LEASES
The Company assumed responsibility for the continuation of certain irrevocable
letters of credit that were obtained by its predecessor company in connection
with the sale of tax benefits on certain leases in 1982. Any disbursements
from these letters of credit, of which $1,436,500 was outstanding at December
31, 1995, to the purchasers of the tax benefits would be in accordance with
established escrow agreements and could result if the related assets are
improperly sold or removed from service.
Page 14
<PAGE> 15
CHANGE IN CONTROL AGREEMENTS
The Company has agreements with several officers whereby the Company will
provide the officers with salary continuation in the event they are terminated
without cause during the 18-month period following a change in control of the
Company. The total contingency is approximately $720,000.
Page 15
<PAGE> 16
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 163,496
Investment securities 66,590
Accounts receivable less allowance of $89,910 6,428,014
Inventories 8,239,706
Warehouse supplies 746,270
Prepaid expenses and deposits 211,144
-----------
Total current assets 15,855,220
-----------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION 17,921,839
OTHER ASSETS 116,601
-----------
Total assets $33,893,660
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,705,523
Short-term borrowings 4,154,423
Accounts payable 7,943,580
Accrued liabilities 1,443,452
Advance payments on contracts 79,578
-----------
Total current liabilities 21,326,556
-----------
LONG-TERM DEBT, less current maturities 3,189,025
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 100,000 authorized shares;
62,694 shares issued and outstanding at
March 31, 1996 62,694
Additional paid-in capital 8,973,749
Retained earnings 341,636
-----------
Total shareholders' equity 9,378,079
-----------
Total liabilities and shareholders' equity $33,893,660
===========
The accompanying notes are an integral part
of this unaudited consolidated balance sheet.
Page 16
<PAGE> 17
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
MARCH 31, MARCH 31,
1996 1995
----------- -----------
NET SALES $12,462,779 $10,357,507
OPERATING COSTS AND EXPENSES:
Cost of goods sold 10,330,669 8,663,662
Administrative and selling expenses 487,176 436,072
Depreciation and amortization 467,297 421,640
----------- -----------
Total operating costs and expenses 11,285,142 9,521,374
----------- -----------
OPERATING INCOME 1,177,637 836,133
----------- -----------
OTHER EXPENSE (INCOME):
Interest expense 300,953 294,099
Interest income (415) (2,915)
----------- -----------
300,538 291,184
----------- -----------
INCOME BEFORE INCOME TAX PROVISION 877,099 544,949
INCOME TAX PROVISION (Note 7) 15,000 7,500
----------- -----------
NET INCOME $ 862,099 $ 537,449
=========== ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE $12.90 $8.04
====== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 66,829 66,829
====== ======
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
Page 17
<PAGE> 18
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 862,099 $ 537,449
Adjustments to reconcile net income to net cash
provided by (used in) operating activities -
Depreciation and amortization 467,297 421,640
Changes in assets and liabilities -
(Increase) decrease in accounts receivable, net (55,039) 472,629
Increase in inventories and supplies (3,510,403) (1,527,541)
Decrease in prepaid expenses and deposits 140,684 93,922
Increase in accounts payable 1,382,301 255,450
Decrease in accrued liabilities (375,690) (78,423)
Increase in advance payments on contracts 48,667 431,290
----------- -----------
Net cash provided by (used in) operating activities (1,040,084) 606,416
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (168,659) (156,904)
Investments in investment securities (2,793) (2,002)
----------- -----------
Net cash used in investing activities (171,452) (158,906)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,468,791) (614,384)
Deferred financing charge (67,221) (67,884)
Proceeds from short-term borrowings 14,960,814 12,126,980
Payments on short-term borrowings (12,090,774) (12,137,845)
----------- -----------
Net cash provided by (used in) financing activities 1,334,028 (693,133)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 122,492 (245,623)
CASH AND CASH EQUIVALENTS:
Beginning of period 41,004 639,785
----------- -----------
End of period $ 163,496 $ 394,162
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 301,738 $ 274,750
Cash paid during the period for income taxes $ 9,000 $ --
</TABLE>
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
Page 18
<PAGE> 19
TUBULAR CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The unaudited consolidated financial statements included herein have
been prepared by Tubular Corporation of America and Subsidiary (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 origination and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted in the Form 8-K
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
included elsewhere herein. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results expected for the
full year.
2. INVENTORIES:
Major components of inventories at March 31, 1996 include:
Raw materials .................. $3,821,634
Work-in-process ................ 2,734,457
Finished goods ................. 1,683,615
----------
$8,239,706
==========
3. CONTINGENCIES:
Claims
The Company is aware of certain potential claims arising out of
operations in the normal course of business. In the opinion of management, the
ultimate outcome of the claims should not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
The Company did not have any pending or threatened product liability
claims open at March 31, 1996, but carries insurance to cover significant
claims should they arise.
4. SUBSEQUENT EVENT:
On May 29, 1996, the Company signed a credit agreement with a financial
institution to refinance substantially all of its outstanding debt. The credit
agreement provides for a $5,000,000 revolving credit note and an $8,000,000
term note. In addition, the financial institution will provide a $3,000,000
standby letter of credit facility. All of the facilities have prime or LIBOR
based interest rates.
Page 19
<PAGE> 1
EXHIBIT 99.3
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma condensed
consolidated balance sheet as of March 31, 1996, and statements of income for
the Company for the year ended December 31, 1995, and the three months ended
March 31, 1996, after giving effect to (i) the Company's acquisition on June 30,
1995, of Prideco, for consideration of approximately 2.25 million shares of
Common Stock, (ii) the proposed acquisition of TCA and (iii) this Offering. The
unaudited pro forma condensed consolidated statements of income assume that the
Prideco and TCA acquisitions and this Offering occurred as of January 1, 1995,
and the unaudited pro forma condensed consolidated balance sheet assumes that
the TCA acquisition and this Offering occurred as of March 31, 1996. The pro
forma financial information also assumes that the TCA acquisition will be
accounted for using the purchase method of accounting. The Prideco acquisition
was accounted for using the purchase method of accounting.
The unaudited pro forma condensed consolidated financial statements are
based upon estimates and assumptions related to the accounting for the proposed
TCA acquisition which are subject to subsequent determination and more detailed
analyses, appraisals and evaluations of the specific assets and liabilities. The
final allocation of the purchase price of the acquisition may differ from the
amounts contained in these unaudited pro forma condensed consolidated financial
statements.
The following unaudited pro forma condensed consolidated statements should
be read in conjunction with (i) the Consolidated Financial Statements of the
Company and the related notes thereto included elsewhere herein, (ii) the
historical financial statements of TCA for the year ended December 31, 1995, and
the quarter ended March 31, 1996, and the related notes thereto, included in the
Company's Current Report on Form 8-K dated June 24, 1996, which is incorporated
herein by reference, and (iii) the audited consolidated financial statements of
Prideco for the fiscal year ended June 30, 1995, and related notes filed with
the Company's Current Report on Form 8-K/A dated August 17, 1995, as amended by
Amendment No. 2 to the Form 8-K/A dated May 7, 1996, which is incorporated
herein by reference. The historical results of Prideco contained in the
unaudited pro forma condensed consolidated statement of income for the
twelve-month period ended December 31, 1995 reflects only the results of
operations for the six-month period ended June 30, 1995, the date on which the
Company acquired Prideco, which differs from the audited June 30, 1995 fiscal
year financial statements of Prideco.
The pro forma information is not necessarily indicative of the results that
might have occurred had the transactions taken place at the beginning of the
period specified and is not intended to be a projection of future results.
1
<PAGE> 2
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ENERGY PRO FORMA ADJUSTMENTS
VENTURES, INC. ------------------------------
HISTORICAL TCA TCA THIS PRO FORMA
CONSOLIDATED HISTORICAL ACQUISITION(A) OFFERING(B) CONSOLIDATED
-------------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 5,924 $ 163 $(14,350)(c) $ 56,650 $ 48,387
Accounts receivable, net......... 98,450 6,428 -- -- 104,878
Inventories...................... 117,585 8,986 -- -- 126,571
Prepaid expenses and other....... 24,869 278 (212) -- 24,935
-------- ------- -------- -------- --------
Total current assets..... 246,828 15,855 (14,562) 56,650 304,771
-------- ------- -------- -------- --------
Property, plant and equipment,
net........................... 192,988 17,922 7,078 -- 217,988
Excess of cost over fair value of
net tangible assets of
businesses acquired, net...... 37,419 -- 13,818 (d) -- 51,237
Other assets..................... 18,660 117 7,400 (e) -- 26,177
-------- ------- -------- -------- --------
$495,895 $ 33,894 $ 13,734 $ 56,650 $600,173
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings, primarily
under revolving lines of
credit........................ $ 20,772 $ 4,005 $ 650 $ (20,951)(f) $ 4,476
Current maturities of long-term
debt.......................... 4,125 7,658 -- (7,658)(f) 4,125
Accounts payable................. 50,828 7,944 -- -- 58,772
Other accrued liabilities........ 23,740 1,719 200 -- 25,659
-------- ------- -------- -------- --------
Total current
liabilities............ 99,465 21,326 850 (28,609) 93,032
-------- ------- -------- -------- --------
Long-term debt................... 124,838 3,166 -- (3,166)(f) 124,838
-------- ------- -------- -------- --------
Deferred income taxes, net....... 33,018 -- 6,700 (e) -- 39,718
Other liabilities................ 6,172 23 -- -- 6,195
-------- ------- -------- -------- --------
Stockholders' Investment:
Common stock..................... 18,542 63 437 (c) 3,000 22,042
Capital in excess of par value... 158,297 8,974 6,089 (c) 85,425 258,785
Retained earnings................ 64,514 342 (342)(c) -- 64,514
Cumulative foreign currency
translation adjustment........ (7,047) -- -- -- (7,047)
Treasury stock, at cost.......... (1,904) -- -- -- (1,904)
-------- ------- -------- -------- --------
Total stockholders'
investment............. 232,402 9,379 6,184 88,425 336,390
-------- ------- -------- -------- --------
$495,895 $ 33,894 $ 13,734 $ 56,650 $600,173
======== ======= ======== ======== ========
</TABLE>
2
<PAGE> 3
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIDECO PRO FORMA
ENERGY HISTORICAL ADJUSTMENTS
VENTURES, INC. FOR THE --------------------------------
HISTORICAL SIX MONTHS ENDED TCA THIS PRO FORMA
CONSOLIDATED JUNE 30, 1995 HISTORICAL PRIDECO TCA OFFERING CONSOLIDATED
-------------- ---------------- ---------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $351,587 $ 29,548 $ 49,233 $ -- $ -- $ -- $430,368
-------- ------- ------- ------ ------- ------ --------
Costs and expenses:
Cost of sales............... 262,293 25,301 43,552 650 (g) 708(g) -- 332,504
Selling, general and
administrative
attributable to
segments.................. 51,731 1,981 1,938 257 (h) 378(h) -- 56,285
Corporate, general and
administrative.............. 5,123 -- -- -- -- -- 5,123
-------- ------- ------- ------ ------- ------ --------
319,147 27,282 45,490 907 1,086 -- 393,912
-------- ------- ------- ------ ------- ------ --------
Operating income (loss)....... 32,440 2,266 3,743 (907 ) (1,086) -- 36,456
-------- ------- ------- ------ ------- ------ --------
Other income (expense):
Interest expense............ (16,723) (700) (742) 685 (i) 742(j) 4,438 (j) (12,300)
Interest income............. 118 -- 3 -- -- -- 121
Other, net.................. 556 (1,502) (433) 1,417 (k) -- -- 38
-------- ------- ------- ------ ------- ------ --------
(16,049) (2,202) (1,172) 2,102 742 4,438 (12,141)
-------- ------- ------- ------ ------- ------ --------
Income (loss) before income
taxes....................... 16,391 64 2,571 1,195 (344) 4,438 24,315
(Provision) benefit for income
taxes....................... (5,080) (378) (30) (418 )(l) 120(l) (1,553 )(l) (7,339)
-------- ------- ------- ------ ------- ------ --------
Income (loss) from continuing
operations.................. $ 11,311 $ (314) $ 2,541 $ 777 $ (224) $ 2,885 $ 16,976
======== ======= ======= ====== ======= ====== ========
Earnings per share from
continuing operations....... $ 0.77 $ 0.88
======== ========
Weighted average shares
outstanding................. 14,724 19,336
======== ========
Other Data:
EBITDA(m)................... $ 53,820 $ 61,575
Depreciation and
amortization.............. 20,824 25,081
</TABLE>
3
<PAGE> 4
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ENERGY ADJUSTMENTS
VENTURES, INC. -----------------------
HISTORICAL TCA THIS PRO FORMA
CONSOLIDATED HISTORICAL TCA OFFERING CONSOLIDATED
-------------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $110,042 $ 12,463 $ -- $ -- $122,505
-------- ------- ----- ----- --------
Costs and expenses:
Cost of sales....................... 83,540 10,765 177(g) -- 94,482
Selling, general and administrative
attributable to segments......... 14,368 520 95(h) -- 14,983
Corporate, general and
administrative................... 1,364 -- -- -- 1,364
-------- ------- ----- ----- --------
99,272 11,285 272 -- 110,829
-------- ------- ----- ----- --------
Operating income (loss)............... 10,770 1,178 (272) -- 11,676
-------- ------- ----- ----- --------
Other income (expense):
Interest expense.................... (3,973) (301) 301(j) 898(j) (3,075)
Interest income..................... 29 -- -- -- 29
Other, net.......................... (140) -- -- -- (140)
-------- ------- ----- ----- --------
(4,084) (301) 301 898 (3,186)
-------- ------- ----- ----- --------
Income before income taxes............ 6,686 877 29 898 8,490
Provision for income taxes............ (2,339) (15) (10)(l) (314)(l) (2,678)
-------- ------- ----- ----- --------
Income from continuing operations..... $ 4,347 $ 862 $ 19 $ 584 $ 5,812
======== ======= ===== ===== ========
Earnings per share from continuing
operations.......................... $ 0.24 $ 0.27
======== ========
Weighted average shares outstanding... 18,421 21,921
======== ========
Other Data:
EBITDA(m)........................... $ 16,810 $ 18,455
Depreciation and amortization....... 6,180 6,919
</TABLE>
4
<PAGE> 5
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The following notes set forth the assumptions used in preparing the
unaudited pro forma condensed consolidated financial statements. The pro forma
adjustments are based on estimates made by the Company's management using
information currently available. For purposes of preparing these unaudited pro
forma condensed consolidated financial statements, certain assumptions have been
made in allocating the purchase price of TCA to the assets to be acquired and
liabilities to be assumed. As a result, the pro forma adjustments discussed
below are subject to change pending the completion of the acquisition and of the
detailed evaluation and appraisal of the assets to be acquired and a detailed
evaluation of liabilities to be assumed.
PRO FORMA ADJUSTMENTS
The adjustments to the accompanying unaudited pro forma condensed
consolidated balance sheet as of March 31, 1996, are described below:
(a) To adjust the TCA assets to be acquired to their estimated fair
market value and to adjust the TCA liabilities to be assumed.
(b) To record the sale by the Company of 3,000,000 shares of Common
Stock at $31 1/8 per share in this Offering, after deducting estimated
underwriting discounts and commissions and offering expenses of $4,500,000
and $450,000, respectively.
(c) To record the issuance by the Company of 500,000 shares of Common
Stock at a price of $31 1/8 per share and payment of $14.35 million cash
and a note for $650,000 for the acquisition of TCA and to eliminate TCA's
historical stockholders' investment. Under the terms of the agreement for
the acquisition of TCA, the TCA stockholders may elect to receive up to $5
million of the cash consideration in the form of a note due January 1997.
The unaudited pro forma balance sheet assumes the election is not made.
(d) To record the estimated excess of cost over fair value of net
tangible assets of TCA to be acquired.
(e) To record the deferred tax assets of $7.4 million relating to tax
benefits of TCA and to record the deferred tax liability of $6.7 million
relating to differences in the book and tax basis of the net assets of TCA.
(f) To record the assumed reduction of indebtedness of TCA and the
Company through the application of a portion of the net proceeds to the
Company from this Offering.
The adjustments to the accompanying unaudited pro forma condensed
consolidated statements of income are described below:
(g) To adjust the historical amounts for changes in depreciation
expense as a result of the purchase price allocations to property, plant
and equipment of Prideco and the assumed purchase price allocations to
property, plant and equipment of TCA.
(h) To record amortization expense relating to the estimated excess of
cost over fair value of net tangible assets acquired in connection with the
acquisition of Prideco and the proposed TCA acquisition.
(i) To reduce interest expense to reflect the retirement of Prideco's
outstanding debt at the date of acquisition, including revolving lines of
credit.
(j) To reduce interest expense of TCA and of the Company through the
assumed reduction of indebtedness from the application of a portion of the
net proceeds to the Company from this Offering.
(k) To eliminate expenses incurred by Prideco relating to the
Company's acquisition of Prideco.
(l) To record the income tax provision related to the effect of the
pro forma adjustments.
(m) EBITDA, or "earnings from continuing operations before interest
expense, interest income, income taxes, extraordinary items, depreciation
and amortization", is a supplemental financial measurement used by the
Company in the evaluation of its business and should not be construed as an
alternative to income from operations or to cash flow from operations and
is presented solely as a supplemental disclosure.
5
