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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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, Suite 1760, Houston, Texas 77027-3415
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (713) 297-8400
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Title of each class Name of each exchange in which registered
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<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 1, 1996, was $335,864,880, based upon the closing
price on the New York Stock Exchange as of such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Title of Class Outstanding at March 1, 1996
-------------- ----------------------------
<S> <C>
Common Stock, $1.00 Par Value 18,428,582
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13, will be
included in the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
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PART I
ITEM 1. BUSINESS
GENERAL
Energy Ventures, Inc., a Delaware corporation (together with its
subsidiaries, the "Company"), is an international manufacturer and supplier of
oilfield equipment and contract drilling services. The Company operates
through two business segments: oilfield equipment and contract drilling. The
oilfield equipment segment manufactures high performance tubulars and a
complete line of artificial lift equipment as well as completion tools. The
Company's contract drilling segment consists primarily of barge rigs used by
major and large independent oil and gas companies for the exploration and
development of natural gas primarily in the U.S. Gulf Coast area. The
Company's tubular products and contract drilling operating divisions provide
products and services used primarily for natural gas exploration and
production. The artificial lift and completion tool product lines are related
to the maturation of oil producing formations.
Tubular products are provided through the Company's Grant Prideco tubular
products division ("Grant Prideco"). Tubular products are manufactured at nine
locations throughout the world, and distribution is effected through a
worldwide sales and service support system. This division's products consist
of proprietary drill pipe (H-Series(TM)), heavyweight drill pipe, casing and
premium tubulars (Atlas Bradford(TM)). As part of its premium tubular
business, Grant Prideco also designs, manufactures and markets Atlas Bradford
proprietary premium threaded connections for tubing and casing used in oil and
gas wells. Grant Prideco's products are designed and engineered for high
performance applications. Drill pipe serves as the principal mechanical
drilling tool needed to drill an oil or natural gas well. Drill pipe is
designed and manufactured to provide a reliable connection from the drilling
rig to the drill bit thousands of feet below the surface. Grant Prideco is the
largest manufacturer and supplier of drill pipe in the world and is one of the
two largest manufacturers of premium tubulars in North America. Grant Prideco
is also one of the two largest manufacturers of drill collars and heavyweight
drill pipe in the Americas.
The Company's EVI Oil Tools division manufactures artificial lift
equipment and completion tools used for the production of crude oil. EVI Oil
Tools was created in early 1996 through the consolidation of the operations of
the Company's Highland and Production Oil Tools divisions. The consolidation
was implemented to provide marketing advantages and manufacturing economies.
In conjunction with the consolidation, the Company sold Highland's United
States retail distribution network to Continental Emsco Company ("Continental
Emsco"). This disposition has allowed the Company to reduce its workforce by
over 170 employees and focus the operations of this division on manufacturing.
EVI Oil Tools provides a wide variety of proprietary and patented
products, including the RotaFlex(R) pumping unit, the Corod(R) continuous
sucker rod (through the Company's Corod unit ("Corod")), progressive cavity
pumps, Fluid Packed(TM) pumps, EL(R) sucker rods, Production Oil Tools packers,
Engemaq completion tools and Vitex flow control equipment. EVI Oil Tools is
one of the two largest manufacturers of rod lift equipment in the world and
provides the only integrated product line in this class of lift from the above
ground equipment to the tools submersed in the producing reservoir.
The Company's contract drilling operations are conducted through its
Mallard drilling and workover services division ("Mallard"). Mallard's
domestic operations are concentrated in the area of barge drilling and workover
in the shallow coastal and inland waters of the U.S. Gulf Coast where
conventional jack-up rigs cannot operate. The Company is the second largest
operator of barge rigs in this market. The Company's domestic barge rig fleet
consists of 16 drilling rigs and 19 workover rigs. The Company also has a
fleet of six platform rigs in the Gulf of Mexico. Internationally, Mallard
operates one barge rig in Nigeria, two platform rigs in Peru and four land rigs
in Argentina. The Company also owns a 49% interest in a joint venture that
owns two land rigs in Peru.
The Company made various acquisitions in 1995 designed to strengthen its
existing product lines and operations in each of its core businesses. The most
significant of the Company's acquisitions was the acquisition of Prideco, Inc.
("Prideco"). The Prideco acquisition enhanced the Company's tubular product
line by adding drill collars, heavyweight drill pipe and premium casing to its
already extensive line of tubular products. Prideco was the second largest
manufacturer of drill pipe in the U.S. and one of the two largest manufacturers
of drill collars and heavyweight drill pipe in the Americas. The Company is
currently seeking to expand internationally the market for Grant Prideco's
drill collars and heavyweight drill pipe. The Company has also begun to market
Grant Prideco's premium casing with the Company's previously introduced
TC-II(TM) line of premium casing connectors. The
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Company intends to substantially increase production of this product during
1996.
The Company's acquisition of Prideco has further strengthened the
Company's position as the leader in the worldwide drill pipe market. The
acquisition is also expected to increase the profitability of the Company's
tubular business by providing it with greater manufacturing and marketing
efficiencies through a consolidation of overhead and a rationalization of
manufacturing operations. The Company is currently in the process of
consolidating the manufacturing of drill pipe and other tubular products to the
most efficient manufacturing locations for those products and is actively
marketing the acquired Prideco product lines internationally through the
Company's existing international sales force and distribution system.
In July 1995, the Company acquired Engemaq S.A., ("Engemaq") a
manufacturer of completion tools. Engemaq manufactures and markets packers in
South America. The business of Engemaq has been incorporated into EVI Oil
Tools.
From the Company's inception in 1972 through early 1986, the Company was
primarily an oil and gas exploration and production company. In January 1986,
the Company disposed of substantially all of its oil and gas properties other
than a minority interest in a joint venture ("COLEVE") with Columbia Gas
Development Corporation ("Columbia"). In 1990, the Company dissolved COLEVE
and in 1992, the Company sold its remaining oil and gas properties (other than
an overriding royalty interest and certain related rights with respect to the
properties received on dissolution of COLEVE) and discontinued its exploration
and production segment.
In 1993, the Company disposed of its Eastman Cherrington environmental
services group. The results of Eastman Cherrington are reflected in the
Company's Consolidated Statements of Income as a discontinued operation. See
discussion in Note 5 to Consolidated Financial Statements for further
information. Financial information with respect to revenues, operating profit
and identifiable assets for each segment is contained in Note 14 to
Consolidated Financial Statements.
The Company was incorporated in 1972 as a Massachusetts Corporation and
was reincorporated in Delaware in 1980. The Company's corporate office is
located at 5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415, and its
telephone number is 713/297-8400.
OILFIELD EQUIPMENT
The Company's oilfield equipment segment manufactures and markets tubular
products and services through Grant Prideco and manufactures and markets
artificial lift and completion tool equipment and services through EVI Oil
Tools.
TUBULAR PRODUCTS
Grant Prideco manufactures and markets two tubular product lines: (i)
drill pipe and related products and (ii) the Atlas Bradford and Prideco lines
of premium tubulars and premium connections. Grant Prideco operates through
nine manufacturing facilities of which seven are located in the U.S., one in
India and one in Mexico. Grant Prideco also has over 90 worldwide licensed
manufacturing and repair locations. Grant Prideco markets its product lines
through ten technical support sales offices and a worldwide network of agents
and suppliers. Grant Prideco tubular products are either used for drilling and
completion of oil and gas wells or for production of oil and natural gas.
Grant Prideco's drilling products include drill pipe, drill collars,
heavyweight drill pipe and kellys. These products constitute all components of
the drill stem used to drill a well from the rig to the drill bit. Grant
Prideco's production tubulars are primarily premium tubing, casing and
connections.
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with Oil Country Tubular, Ltd. ("OCTL"), an India-based
manufacturer of drill pipe and premium tubulars. 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 will be used 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 coupled with OCTL's low
manufacturing costs and proximity to major Eastern Hemisphere markets will
accomplish this objective. This expansion is intended to substantially
increase the Company's sales into the growing Eastern Hemisphere markets, which
over the last few years have represented less than 5% of the Company's total
revenues. Manufacturing operations on behalf of the Company are expected to
commence during the second quarter of 1996.
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Under the terms of the OCTL agreement, the Company has a right to
terminate the agreement on an annual basis. The agreement is for an initial
five-year term renewable for successive five-year terms. The agreement may be
terminated by OCTL only under certain limited circumstances, including,
beginning December 31, 2000, if certain minimum orders have not been placed
through OCTL and minimum payments have not been made by the Company. Under the
terms of the agreement with OCTL, the Company made a one-time payment of $8
million for the exclusive right to have Grant Prideco's products manufactured
at the facility. The Company is also required to pay all direct operating
expenses relating to the facility, including the cost of inventory and raw
materials used for the manufacture of the Company's products.
Drill Pipe
Drill pipe is manufactured within specific metallurgical and engineering
guidelines to meet stringent requirements necessary for its use in the drilling
of oil and natural gas wells. Oil and gas companies consider drill pipe to be
a material portion of their overall drilling costs. Accordingly, purchasing
decisions are sensitive to price, quality, operational needs and fluctuations
in oil and gas prices.
Grant Prideco's drill pipe product line consists primarily of specialty
pipe that is marketed under the H-Series trade name. The H-Series product line
combines the proprietary and patented technology of the Hughes Tool Joint drill
pipe fabrication system (acquired from Baker Hughes, Incorporated ("Baker
Hughes") in 1990) with the Company's original drill pipe manufacturing
capabilities. Grant Prideco owns a number of patents on tool joint design and
drill pipe manufacturing processes and has licensed a number of foreign drill
pipe manufacturers for the use of Grant Prideco's H-Series patents,
technologies and hardware.
Drill Collars and Heavyweights
Drill collars are the component of the drill stem generally located
directly above the drill bit in a vertical well. A drill collar is machined
from a solid steel bar and is used to provide weight on the drill bit. Grant
Prideco's heavyweight drill pipe is a seamless tubular product that is less
rigid than a drill collar and provides a transitional zone between the drill
collar in a vertical well and the more flexible drill pipe. Heavyweight drill
pipe also serves to apply weight to the drill bit in a directional well. The
Company's drill collar and heavyweight drill pipe product lines were acquired
through the acquisition of Prideco.
Premium Tubulars and Connections
Grant Prideco's premium tubular product line consists of premium tubing,
casing and premium connections. The product line is marketed under the trade
name Atlas Bradford and utilizes a number of proprietary and patented processes
for threading and manufacturing premium tubulars. Atlas Bradford was a pioneer
in the development of high performance connections for premium tubulars.
Premium tubulars, like the lower performance variety known as API tubulars, are
made up of casing and tubing, products that respectively line the walls of a
wellbore and serve as a conduit for hydrocarbons up the wellbore. Grant
Prideco's casing products consist of larger outside diameter, thinner walled,
seamless tubular products previously manufactured by Prideco. Casing is used
to line and maintain the integrity of a wellbore. The term "premium" refers to
high alloy, seamless tubulars with specific molecular structure and highly
engineered connections. Such tubulars, whether casing or tubing, are designed
and engineered to withstand deep, high pressure, high temperature and highly
corrosive well environments. Premium tubulars are generally used in deep
natural gas and offshore wells.
In 1994, the Company introduced a new line of premium connections by
Atlas Bradford known as the TC-II line. The TC-II line is a highly engineered
and technologically advanced line of premium connections. The product line is
the result of two and a half years of product development and testing. The
TC-II product line was developed to provide the worldwide oil and gas industry
with the premium performance and design incorporating economical threading
using high alloy materials. The significance in developing and introducing the
TC-II line was to enhance Grant Prideco's ability to better compete in
international markets, which currently represents three times the volume of the
domestic market. Before the introduction of the TC-II line, Grant Prideco's
primary market for its premium tubulars was in the U.S. and Canada. Although
TC-II testing will continue through 1996, this product line is now being
marketed for selected commercial applications. The Company intends to market
its TC-II line in conjunction with Grant Prideco's casing product line in order
to provide its customers with a uniform casing product.
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Sales and Backlog
Total sales of drill pipe and tubular products for years ended December
31, 1995, 1994 and 1993 were $157.8 million, $97.2 million and $74.6 million,
respectively, representing approximately 45%, 39% and 30% of the Company's
total sales. The sales backlog for drill pipe and other tubular products at
December 31, 1995, totaled approximately $78.4 million, compared to
approximately $35.2 million at December 31, 1994. The increase in the 1995
backlog was primarily due to a large increase in demand for drill pipe during
1995 and the effects of the Prideco acquisition. The Company anticipates that
all of the backlog existing at December 31, 1995, will be shipped during 1996.
The Company is currently taking action to reduce its backlog of drill pipe by
increasing its current production rates at its facilities. Production at the
OCTL facility is also expected to reduce the backlog.
Competition
Grant Prideco is the largest manufacturer and supplier of drill pipe in
the world and the second largest manufacturer of premium tubulars in North
America. Grant Prideco is one of the two largest manufacturers of drill
collars and heavyweight drill pipe in the Western Hemisphere.
Grant Prideco operates in a highly competitive industry that has
experienced depressed demand, overcapacity and excess supplies for the past
several years. Competition is based on price, quality and service. The market
for the Company's drill pipe is essentially worldwide and the Company competes
with four large international and domestic manufacturers, some of whom are
licensees of the Company, as well as manufacturing operations in China and the
Commonwealth of Independent States ("CIS"). Other large domestic and
international manufacturers not currently in the market also have the ability
of competing with the Company. Market conditions for drill pipe in recent
years have been highly competitive. During 1995, prices for drill pipe began
to improve with the decline in excess inventories of used pipe and the
associated increase in demand for new drill pipe.
In the United States, the Company competes with approximately four
manufacturers of premium tubular products. Competitors include large domestic
and foreign corporations and small specialty manufacturers. Internationally,
the Company competes with five manufacturers of premium tubing. Many of the
Company's competitors have greater financial resources than the Company. The
Company continues to expand its market for premium tubulars outside the U.S.
through the opening of new sales and service centers.
The market for casing is limited to some extent by transportation costs.
As a result, the Company's current market for these products is primarily in
North and South America. The Company competes with over four other
manufacturers of these products in these locations. Casing is currently
manufactured by over five large manufacturing companies.
Raw Materials
The Company uses plain end "green" steel tubing stock as raw material in
the manufacture of drill pipe, casing and premium tubing. The primary raw
material for drill collars is solid steel bars. Heavyweight drill pipe is
manufactured from heavy wall tubular products. The Company's suppliers are
major domestic and international steel mills. The Company has established
relations with several domestic and foreign mill sources that provide a
competitive availability of "green" tubing stock supplies. Prices for "green"
tubing have recently increased. The Company, however, has been able, to date,
to pass through these increased costs to its customers.
Facilities
The Company's drill pipe and premium tubulars are manufactured
domestically at seven locations in Texas, one location in Mexico and one
location in India. The Company continues to focus on product development and
manufacturing efficiencies. The Company also has sales offices in Houston and
Dallas, Texas; New Orleans, Louisiana; Abu Dhabi, United Arab Emirates;
Aberdeen, Scotland; Moscow, Russia; Caracas, Venezuela; The Hague, The
Netherlands; Kuala Lumpur, Malaysia and Shanghai, China.
Customers and Markets
The customers for the Company's tubular products include both domestic
and international oil and gas companies and distributors of oilfield supplies.
Because the Company's tubular products are designed primarily for drilling and
production in deep wells and harsh environments, they are generally used in
connection with the
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exploration and production of natural gas and international exploration.
Accordingly, sales of these products are sensitive to fluctuations in the price
outlook for natural gas and related levels of exploration activity.
ARTIFICIAL LIFT AND COMPLETION TOOL EQUIPMENT
Artificial lift products and completion systems are manufactured by EVI
Oil Tools. EVI Oil Tools represents a combination of the Company's Highland
and Production Oil Tools divisions. EVI Oil Tools' products are used in the
production segment of the oil and gas industry, with an emphasis on the
production of oil. Products manufactured by the EVI Oil Tools division include
a complete line of artificial lift equipment and parts and a line of high
performance packers and related downhole tools for use by service companies.
The Company's artificial lift equipment emphasizes rod lift products and
utilizes various proprietary and patented technology. Rod lift is one of four
artificial lift technologies currently used for recovering oil from maturing
fields, which lack sufficient pressure to flow under their own power. These
methods and related equipment are designed to sustain the flow of oil
production from such fields. Artificial lift technologies include electrical
submersible lift, gas lift and hydraulic lift. Rod lift is a form of
artificial lift technology in which oil is recovered through a suction process
utilizing an above ground drive system connected by sucker rods to a downhole
pump placed in the reservoir. Rod lift is particularly suited for older oil
wells with depths of up to 10,000 feet and with production rates of up to 1,000
barrels per day. The Company estimates that rod lift represents approximately
50% of the total artificial lift market in the world, with electrical
submersible lift having the next largest share at approximately 40%.
EVI Oil Tools' packers and downhole tools include cement retainers,
remedial service tools, production packers and flow control equipment.
Downhole packers are used in the completion and production of oil and gas
wells. Packers maintain the separation between productive zones and seal off
the space between the tubing and casing.
EVI Oil Tools distinguishes itself from its competitors in that it has a
fully integrated product line and utilizes new technologies for the production
of oil using artificial lift. EVI Oil Tools' integrated product line offers
all artificial lift equipment from the wellhead to the reservoir. To the
Company's knowledge, none of its competitors has as broad a product line. EVI
Oil Tools' principal products include: (i) RotaFlex pumping units, (ii) Corod
continuous sucker rods and EL sucker rods, (iii) progressive cavity pump
systems, (iv) Fluid Packed pumps, (v) Production Oil Tools packers, (vi)
Engemaq completion tools and (vii) Vitex flow control equipment.
EVI Oil Tools' products have traditionally been principally marketed in
the oil producing regions of North America through its own extensive U.S. store
system. Recently, the Company made a strategic decision to dispose of that
system to Continental Emsco, and in connection with that disposition, entered
into a supply agreement under which the Company's products will be sold through
the more extensive Continental Emsco distribution network in the U.S. The
Company believes that this arrangement, together with arrangements that the
Company has with other major distributors, will permit a broader distribution
of the Company's products while saving the Company the overhead cost of
maintaining its own retail distribution network. The Company has retained its
Canadian distribution system that is used to service and support its Corod and
other product lines. With the opening of the world oil markets in China, the
CIS and South America, EVI Oil Tools has been taking steps to introduce its
products into these markets where modern artificial lift equipment and
completion tools are both needed and actively sought. The Company believes
that these markets should provide significant opportunities for the Company.
EVI Oil Tools' products are focused on the production side of the oil and
gas industry, which the Company believes is less volatile than the exploration
segment of the industry. The Company further believes that the crude oil
production side of the industry is a growing market for artificial lift
products in that there is an increasing need for artificial lift to aid
production as oil fields mature worldwide. Thus, although domestic exploration
for crude oil has declined in recent years, this decline is not expected to
materially affect the demand for EVI Oil Tools' products. However, declines in
prices of oil may reduce demand for EVI Oil Tools' products due to reduced
capital expenditures by customers and decisions by customers not to pursue
additional work on marginal wells.
RotaFlex "Pumping Unit"
RotaFlex is a 100% mechanical, long-stroke surface drive pump unit used
to artificially lift oil from deep or high-volume wells as opposed to
low-volume stripper wells. The unique patented design is greater than 20% more
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efficient than the conventional pump drive unit that has been in use for over
50 years. The Company has actively marketed the RotaFlex system for
approximately three years with increasing market acceptance. The Company also
markets the RotaFlex system in the Canadian, South American and Chinese
markets.
The Company's RotaFlex line is marketed in the United States on an
exclusive basis through Continental Emsco. International sales are made
through the Company's own sales force and third party distributors.
Progressive Cavity Pumps and Fluid Packed Pumps
Downhole pumps in rod lift come in one of two forms: progressive cavity
pumps and rod pumps. Progressive cavity pumps lift by using a rotating motion
and elastomer lined cavities. Rod pumps lift by using a vertical motion and a
set of mechanical valves. Both are connected to the prime mover above ground
by either traditional coupled rods or Corod continuous rods. The Company
produces and distributes a complete line of progressive cavity pump systems
using proprietary hydraulic gear boxes and patented vertical electric drives.
The Company's progressive cavity pump is particularly suited for shallow to
medium depth wells with high volumes of produced water, low gravity crude or
sandy conditions. The Company believes that the progressive cavity pump
provides a desirable alternative to the traditional rod pump and electric
submersible pumps in these applications. The rotor and stator components of
the Company's progressive cavity pump are currently manufactured for the
Company by Robbins & Myers, Inc. ("Robbins & Myers"). As a result of the
Company's disposition of its U.S. store distribution network to Continental
Emsco, the Company and Robbins & Myers are in the process of negotiating a new
supply arrangement under which Robbins & Myers would provide the Company with
rotors and stators.
In 1994, the Company added the Fluid Packed line of rod pumps, parts and
accessories and the EL sucker rod business, previously owned by
National-Oilwell, to EVI Oil Tools' product line. As part of this addition,
the Company acquired leased and owned manufacturing facilities in Woodward,
Oklahoma and Santa Teresa, New Mexico, respectively. The Fluid Packed line
offers a wide variety of API pumps, specialty rod pumps and unique accessories.
The Fluid Packed line of specialty rod pumps is designed for pumping
applications to meet special well conditions. The sucker rod business includes
both API grades and the premium Electra(R) Series EL line.
Corod "Continuous Sucker Rods"
The Company manufactures the only continuous sucker rod available in the
industry through its Corod unit located in Canada. A sucker rod is an integral
part of any sucker rod pumping system and is used to connect the surface drive
unit of an oil well, such as the RotaFlex system or a traditional drive system,
to a subsurface pump. The typical sucker rod requires a coupling every
twenty-five to thirty feet. Corod's semi-elliptical smooth and continuous
sucker rod does not have such couplings, which reduces wear and torque and
produces a more efficient and economical form of artificial lift. The
manufacturing process of Corod is proprietary and the servicing process is
patented. The Company continues to market Corod's products in foreign markets
such as Venezuela and China.
Production Oil Tools and Engemaq Completion Equipment and Vitex Flow
Control Equipment
The Company manufactures downhole packers and completion equipment
through its Production Oil Tools and Engemaq product lines. Downhole packers
and flow control equipment are used in the completion and production process of
oil and gas wells. Packers maintain the separation between productive zones in
oil and gas wells and seal off the space between the tubing and casing to
protect the casing from reservoir pressures and corrosive formation fluids.
The Production Oil Tools and Engemaq downhole packers are compatible with
the packers manufactured by Baker Hughes which is the largest manufacturer of
packers in the industry. The Company believes that Production Oil Tools and
Engemaq packers are the only ones in the industry that have such compatibility
characteristics. The Company considers this compatibility as an important
competitive attribute in that much of the packer business is in the repair or
replacement of existing installations and over half of the existing packers are
believed to be Baker Hughes products. The Company believes that its packers
provide its customers with a viable cost effective alternative to those
manufactured by Baker Hughes.
The Company manufactures packers at its facilities in Powell, Wyoming;
Arlington, Texas and Caxias do Sul, Brazil. Distribution is effected through
sales directly to the customer and through third party distributors. The
Company is currently reviewing opportunities to expand this product line
internationally.
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Other Products and Repair Services
Through its Leamco(TM) division, EVI Oil Tools also manufactures and
installs pumping unit replacement parts, primarily bearings and gearboxes, for
both EVI Oil Tools' products and products sold by competitors. Among the
products provided by Leamco is a proprietary line of self-lubricating Teflon(R)
bearings. The Leamco unit repairs, installs and services oilfield pumping
units at 15 locations in Texas, Oklahoma and New Mexico. The market for repair
of pumping units is very fragmented in North America. The Company, however,
believes Leamco is the largest domestic provider of these services. EVI Oil
Tools produces a full line of motor and control units used in connection with
oilfield pumping units. These units include the Sargent(TM) line of ultra
high-slip electric motors and controls that maximize the lift capacity of beam
pumping units while reducing unit load.
Product Sales
Total sales for the Company's subsurface pump group for the years ended
December 31, 1995, 1994 and 1993 were $83 million, $59 million and $56 million,
respectively, representing 24%, 24% and 23% of the Company's total sales during
such periods.
Competition
The market for artificial lift and completion tool equipment, equipment
parts and repair is very competitive. Competition is based on product design
and quality, ability to meet delivery requirements and pricing. The RotaFlex
system competes with conventional pumping units, which are manufactured by
Lufkin Industries. Corod's continuous sucker rods compete with conventional
sucker rods, which are manufactured and sold by both EVI Oil Tools and three
major competitors. The Company's progressive cavity pumps compete with five
major competitors. EVI Oil Tools has identified in the industry six large
competitors that individually have significant shares of the entire artificial
lift equipment market (inclusive of all other forms of lift). The Company
believes that it currently has the second or third largest market share in the
world, although its market share varies depending on the type of product.
Customers and Markets
EVI Oil Tools' products and services are designed primarily for oil
production from maturing fields. Demand is, therefore, not significantly
affected by short-term changes in exploration and drilling activity. As the
average age of oil wells worldwide increases, the market for the Company's
artificial lift equipment is expected to increase. Currently, most of the
Company's artificial lift equipment is sold in the United States and Canada.
However, the Company believes that significant opportunities exist for its
products in other areas with maturing fields such as South America, the CIS and
China. In recognition of this opportunity, the Company has taken extensive
efforts to expand EVI Oil Tools' products internationally. Approximately 8% of
the Company's revenues from the sale of artificial lift equipment for 1995,
1994 and 1993 were derived from sales of equipment provided outside the United
States and Canada.
Facilities
EVI Oil Tools' products are manufactured at seven locations in the United
States, one location in Canada and one in Brazil.
Backlog
Backlog of artificial lift equipment is generally not considered to be a
meaningful indication of future sales or results due to the nature of the
business.
CONTRACT DRILLING
The Company's contract drilling segment in the United States is
primarily concentrated in the area of barge drilling and workover in the
shallow coastal and inland waters of the U.S. Gulf Coast where conventional
jack-up rigs cannot operate. Mallard is the second largest operator of barge
rigs in this market. Mallard's domestic barge rig fleet consists of 16
drilling rigs and 19 workover rigs. Mallard also has a fleet of six platform
rigs in the Gulf of Mexico.
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The domestic barge rig market has for more than a decade been
characterized by overcapacity and a heavy dependence on natural gas drilling.
These market conditions, combined with depressed and volatile natural gas
prices, created an operating environment that was characterized by low day
rates and rig utilization, and precipitated a consolidation in the industry.
Since the early 1980's, the number of rigs in existence has declined from over
200 to less than 100, and the number of contractors has declined from over 20
to less than five. As one of the two major surviving contractors, Mallard has
begun to benefit from these conditions through increased revenues and rig
utilization. These market improvements have occurred notwithstanding continued
low natural gas prices and a low domestic rig count. The Company expects
domestic results to continue to benefit from these conditions as well as from
increased demand in the U.S. Gulf Coast. These changes in demand stem from an
increase in three-dimensional seismic survey activity, resulting in the
identification of attractive deep natural gas prospects in the inland and
coastal water of Louisiana, and increased lease activity in these areas
following the 1994 settlement of a production royalty dispute between the State
of Louisiana and Texaco, Inc. ("Texaco"), Mallard's largest barge rig customer.
Internationally, Mallard operates three rigs in the coastal and offshore
waters of Nigeria and Peru and four land rigs in Argentina. International
drilling contracts are generally for longer periods than domestic contracts and
at more favorable rates. International drilling operations represented
approximately 31% and 25% of the revenue and operating income, respectively,
for this segment during 1995.
Mallard owns all of its rigs and has a 49% interest in a joint venture
that owns two land rigs in Peru. From its inception in 1987, Mallard has
devoted substantial efforts toward establishing itself as a leader in quality
by upgrading and refurbishing its rigs.
The Company's fleet of barge and other rigs was acquired through a number
of acquisitions affected during the last ten years. These acquisitions were
concentrated on barge rigs that could be easily integrated into Mallard's
fleet. Because most of the purchases were made at a time during which there
existed substantial overcapacity and low demand in the barge drilling market
and from companies desiring to leave the market, the rigs were acquired at what
the Company believes to be favorable prices substantially below replacement
cost.
FLEET
As of December 31, 1995, Mallard's fleet consisted of the following
general types of rigs located in the following regions:
<TABLE>
<CAPTION>
TOTAL
FLEET
-----
<S> <C>
Inland Barge:
Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Platform:
Gulf of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Land:
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Peru* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
==
</TABLE>
*The Company has a 49% interest in two land rigs in Peru.
8
<PAGE> 10
More detailed information with respect to Mallard's fleet of drilling rigs,
as of December 31, 1995, is set forth in the following table:
<TABLE>
<CAPTION>
YEAR BUILT MAXIMUM
OR LAST DRILLING
HORSEPOWER REFURBISHED DEPTH (FEET)
---------- ----------- ------------
<S> <C> <C> <C>
Inland Barge:
Deep Drilling
Rig No. 50 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 25,000
Rig No. 51 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 25,000
Rig No. 52 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 25,000
Rig No. 53 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1995 20,000
Rig No. 54 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1995 30,000
Rig No. 55 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 30,000
Rig No. 56 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1992 30,000
Rig No. 57 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1980 30,000
Rig No. 58 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1982 30,000
Rig No. 59 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1972 30,000
Rig No. 60 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1981 30,000
Rig No. 71(a) . . . . . . . . . . . . . . . . . . . . . . 3,000 1994 30,000
Intermediate Drilling
Rig No. 8 . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1995 15,000
Rig No. 11 . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1994 15,000
Rig No. 12 . . . . . . . . . . . . . . . . . . . . . . . . 1,200 1990 14,000
Rig No. 17 . . . . . . . . . . . . . . . . . . . . . . . . 1,200 1993 13,000
Rig No. 21 . . . . . . . . . . . . . . . . . . . . . . . . 1,200 1995 14,000
Heavy Workover and Shallow Drilling
Rig No. 15 . . . . . . . . . . . . . . . . . . . . . . . . 800 1991 11,500
Rig No. 16 . . . . . . . . . . . . . . . . . . . . . . . . 800 1994 11,500
Rig No. 18 . . . . . . . . . . . . . . . . . . . . . . . . 800 1993 11,500
Rig No. 19 . . . . . . . . . . . . . . . . . . . . . . . . 800 1993 11,500
Rig No. 20 . . . . . . . . . . . . . . . . . . . . . . . . 800 1995 11,500
Rig No. 23 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1993 13,000
Rig No. 24 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1992 13,000
Rig No. 25 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1993 13,000
Rig No. 26 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1981 13,000
Workover and Other
Rig No. 1 . . . . . . . . . . . . . . . . . . . . . . . . 1,100 1980 --
Rig No. 3 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1980 --
Rig No. 4 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1990 --
Rig No. 5 . . . . . . . . . . . . . . . . . . . . . . . . 800 1991 --
Rig No. 6 . . . . . . . . . . . . . . . . . . . . . . . . 800 1995 --
Rig No. 7 . . . . . . . . . . . . . . . . . . . . . . . . 800 1995 --
Rig No. 9 . . . . . . . . . . . . . . . . . . . . . . . . 800 1992 --
Rig No. 10 . . . . . . . . . . . . . . . . . . . . . . . . 800 1978 --
Rig No. 27 . . . . . . . . . . . . . . . . . . . . . . . . 800 1987 11,500
Rig No. 28 . . . . . . . . . . . . . . . . . . . . . . . . 800 1987 11,500
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
YEAR BUILT MAXIMUM
OR LAST DRILLING
HORSEPOWER REFURBISHED DEPTH (FEET)
---------- ----------- ------------
<S> <C> <C> <C>
Platform:
Rig No. 36 . . . . . . . . . . . . . . . . . . . . . . . . 500 1977 --
Rig No. 41 . . . . . . . . . . . . . . . . . . . . . . . . 950 1993 11,000
Rig No. 42 . . . . . . . . . . . . . . . . . . . . . . . . 950 1993 11,000
Rig No. 43 . . . . . . . . . . . . . . . . . . . . . . . . 650 1994 --
Rig No. 46 . . . . . . . . . . . . . . . . . . . . . . . . 650 1988 --
Rig No. 47 . . . . . . . . . . . . . . . . . . . . . . . . 750 1993 --
Rig No. 40(b) . . . . . . . . . . . . . . . . . . . . . . 950 1992 11,000
Rig No. 48(b) . . . . . . . . . . . . . . . . . . . . . . 950 1992 11,000
Land:
Rig No. 301(c) . . . . . . . . . . . . . . . . . . . . . . 800 1995 10,000
Rig No. 302(c) . . . . . . . . . . . . . . . . . . . . . . 800 1995 10,000
Rig No. 303(c) . . . . . . . . . . . . . . . . . . . . . . 1,300 1995 11,500
Rig No. 305(c) . . . . . . . . . . . . . . . . . . . . . . 1,300 1995 11,500
Rig No. 8(d) . . . . . . . . . . . . . . . . . . . . . . . 750 1983 12,000
Rig No. 9(d) . . . . . . . . . . . . . . . . . . . . . . . 750 1983 12,000
Total Rigs . . . . . . . . . . . . . . . . . . . . . . 50
- --------------------- ==
</TABLE>
(a) Located in Nigeria.
(b) Located in Peru.
(c) Located in Argentina.
(d) Located in Peru. The Company has a 49% interest in a joint venture that
owns these rigs.
Mallard's domestic operations are primarily conducted in the coastal
(bays, swamps and canals) and offshore waters of Louisiana, Texas and Alabama.
Mallard's business is directly dependent upon the level of oil and gas
exploration, development and workover activity in these geographic markets.
Because most of the current exploration and development activity in the Gulf
Coast area is concentrated on the exploration for and production of natural
gas, Mallard's operations are materially affected by market conditions for
natural gas.
The U.S. natural gas market has in recent periods been extremely
volatile. In 1994 and through the first half of 1995, natural gas prices
declined significantly. However, beginning in the middle of 1995, prices
showed a marked increase. These increases have resulted in increased
exploration and workover activity in the Gulf of Mexico, which in turn has
resulted in increased demand for barge drilling and workover services.
Increased demand, combined with an overall shrinkage in fleets and a
consolidation in the industry, has improved day rates and margins. Prices for
oil and natural gas continue to be extremely volatile and any material decline
in the prevailing price of natural gas could result in reduced exploration and
development activity and related day rates.
Mallard's domestic rigs are primarily barge rigs that are capable of
performing medium and deep drilling operations. Barge rigs are mobile drilling
platforms that are submersible and are built to work in eight to 20 feet of
water. These rigs are towed by tug boats to the drill site with the derrick
laid down. The lower hull is then submerged by flooding until it rests on the
sea floor. The derrick is then raised and drilling and workover operations are
conducted with the barge in this position. There are two basic forms of barge
rigs: "posted" and "conventional". A posted barge is identical to a
conventional barge except that the hull and super structure are separated by 12
to 14 foot columns, which increases the water depth capabilities of the rig.
Internationally, Mallard currently operates one 3,000 HP barge drilling
rig with a Varco TDS-3S Top Drive in the inland waters of Nigeria and two
platform drilling rigs in the offshore waters of Peru. Mallard's rig in
Nigeria is currently under contract to Chevron Nigeria Limited. This contract
was recently renewed through August 1996.
10
<PAGE> 12
Mallard's platform rigs in Peru are currently under a one-year contract
expiring in January 1997. These rigs were placed on standby status in July
1995 by the Company's customer to reduce costs. Since such time, one rig has
returned to operation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations". The Company's
operations in Peru are conducted through a partnership. Under the terms of the
agreements relating to this partnership, Mallard is entitled to approximately
two-thirds of the income from the partnership's operations.
LAND DRILLING AND WORKOVER RIGS
Mallard currently owns four land rigs. These rigs are under a two-year
drilling contract with Yacimientos Petroliferos Fiscales Sociedad Anonima
("YPF") in Argentina. Drilling operations commenced in June 1995 and are
expected to benefit future results.
In 1994, Mallard acquired a 49% interest in a joint venture that owns two
land rigs in Peru. This venture is actively pursuing land drilling
opportunities in Peru.
COMPETITION AND CUSTOMERS
Drilling in the U.S. Gulf Coast area serviced by Mallard ranges from
shallow wells (up to 12,000 feet) to deep wells (up to 30,000 feet). The
shallow wells generally take up to 20 days to drill and complete. Deeper wells
generally take disproportionately longer to drill than shallow wells due
primarily to more varied and difficult subsurface conditions and the frequent
need to run protective casing.
The Company's drilling rigs are generally operated under individual day
rate contracts between the Company and its customers. Drilling contracts
generally cover either the drilling of a specified well or wells or a stated
term. Historically, most domestic contracts have been on a well-to-well basis
while contracts in the international markets typically are offered on a term
basis. The Company, from time to time, operates under turnkey contracts. The
Company maintains redrill insurance to insure against certain costs in the
event the Company was required to redrill under a turnkey contract.
The Company obtains most of its contracts through competitive bidding
against other contractors in response to solicitations of bids by oil and gas
companies. Under the Company's day rate drilling contracts, it receives a
fixed amount per day for providing the rig, certain related equipment and the
rig operating crew, which works under the direction of a representative of the
customer who is in charge of drilling operations. The customer pays all other
costs of drilling the well. Under most such contracts, the customer also pays,
at a reduced day rate, for periods of travel or when operations are interrupted
or restricted by equipment breakdowns, adverse weather or water conditions or
other conditions beyond the control of the Company. The Company also makes
available the services of its fleet of approximately 55 crew boats as an extra
cost option. Mallard primarily competes with one other barge competitor in the
Gulf of Mexico, Falcon Drilling Company, Inc., although there exists a number
of smaller companies. Mallard also competes with other types of rigs. The
Company estimates that its share of the barge drilling and workover market in
coastal and inland waters in the Gulf Coast area is approximately 40%.
Mallard's customer base consists of independent and major oil companies.
For 1995, Texaco, Petro-Tech Peruana S.A. and Chevron U.S.A., Inc. accounted
for 25%, 13% and 11%, respectively, of Mallard's revenues. For 1994, Texaco
and Oryx Energy Company accounted for 15% and 11%, respectively, of Mallard's
revenues. For 1993, Texaco accounted for 19% of Mallard's revenues.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The U.S. Gulf Coast market, and particularly the shallow-water areas
where the Company's contract drilling service operations are concentrated, are
ecologically sensitive. As a result, environmental issues have led to higher
drilling costs, a more difficult and lengthy well permitting process and, in
general, have adversely affected decisions of the oil companies to drill in
these areas. U.S. laws and regulations applicable to the Company's operations
include those controlling the discharge of materials into the environment,
requiring removal and cleanup of materials that may harm the environment, or
otherwise relating to the protection of the environment. The Company, as an
operator of drilling rigs in navigable U.S. waters and certain offshore areas,
may be liable for damages and costs incurred in connection with oil spills for
which it is held responsible, subject to certain limitations. An oil spill in
a wetland or inland waterway could produce substantial damage to the
environment, including wildlife and ground water. Laws and regulations
protecting the environment have become more stringent in recent years, and
11
<PAGE> 13
may, in certain circumstances, impose "strict liability", rendering a person
liable for environmental damage without regard to negligence or fault on the
part of such person. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company which were in compliance with all applicable laws at the time such acts
were performed. The application of these requirements or the adoption of the
new requirements could have a material adverse effect on the Company.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of domestic offshore facilities, may be liable for the costs of
removal and damages arising out of a pollution incident to the extent set forth
in the Federal Water Pollution Control Act, as amended by the Oil Pollution Act
of 1990 ("OPA") and the Outer Continental Shelf Lands Act. In addition, the
Company may also be subject to applicable state law and other civil claims
arising out of any such incident. Certain of the Company's facilities are also
subject to regulations of the Environmental Protection Agency ("EPA") that
require the preparation and implementation of spill prevention, control and
countermeasure plans relating to possible discharge of oil into navigable
waters. Other regulations of the EPA may require certain precautions in
storing, handling and transporting hazardous wastes. State statutory
provisions relating to oil and natural gas generally include requirements as to
well spacing, waste prevention, production limitations, pollution prevention
and cleanup, obtaining drilling and dredging permits and similar matters. The
Company believes that it is in compliance in all material respects with such
laws, rules and regulations.
The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills. A "responsible party"
includes the owner or operator of a facility or vessel, or the lessee or
permittee of the area in which an offshore facility is located. The OPA
assigns liability to each responsible party of oil removal costs and a variety
of public and private damages. While liability limits apply in some
circumstances, a responsible party for an Outer Continental Shelf facility must
pay all spill removal costs incurred by a federal, state or local government.
The OPA establishes liability limits (subject to indexing) for offshore
drilling rigs. If functioning as an offshore facility, the offshore drilling
rigs are considered "tank vessels" for spills of oil on or above the water
surface, with liability limits of $1,200 per gross ton or $10 million. To the
extent damages and removal costs exceed this amount, the offshore drilling rigs
will be treated as an offshore facility and the offshore lessee will be
responsible up to higher liability limits for all removal costs plus $75
million. A party cannot take advantage of liability limits if the spill was
caused by gross negligence or willful misconduct or resulted from violation of
a federal safety, construction or operating regulation. If the party fails to
report a spill or to cooperate fully in the cleanup, liability limits likewise
do not apply. Few defenses exist to the liability imposed by the OPA. The OPA
also imposes ongoing requirements on a responsible party. These include proof
of financial responsibility (to cover at least some costs in a potential spill)
and preparation of an oil spill contingency plan. A failure to comply with
ongoing requirements or inadequate cooperation in a spill may even subject a
responsible party to civil or criminal enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of environmental-related lease
conditions or regulations issued pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
The drilling industry is dependent on the demand for services from the
oil and gas exploration and development industry and, accordingly, is affected
by changing tax laws, price controls and other laws relating to the energy
business. The Company's business is affected generally by political
developments and by federal, state, local and foreign laws and regulations that
may relate directly to the oil and gas industry. The adoption of laws and
regulations, both domestic and foreign, that curtail exploration and
development drilling for oil and gas for economic, environmental and other
policy reasons may adversely affect the Company's operations by limiting
available drilling opportunities.
The Company believes it is in material compliance with applicable
federal, state, local and foreign legislation and regulations relating to
environmental controls. In this regard, all of Mallard's operating domestic
drilling rigs have zero discharge capabilities as required by law. In
addition, in recognition of environmental concerns regarding dredging of inland
waters and permitting requirements, Mallard conducts minimal dredging
operations and approximately two-thirds of Mallard's drilling contracts involve
directional drilling, which minimizes the need for dredging. However, the
existence of such laws and regulations has had and will continue to have a
restrictive effect
12
<PAGE> 14
on the Company and its customers.
SEASONALITY
The Contract drilling business is subject to seasonal variation.
Historically, the first two quarters of the calendar year are less active,
while the last two quarters usually have a higher level of activity.
FACILITIES
Mallard is headquartered in New Iberia, Louisiana where it operates a
yard and docking facility at the Port of Iberia. Mallard owns the facility and
leases the land on which it is located under a long-term lease, subject to
extensions, that will expire in 2018.
BACKLOG
Other than Mallard's foreign contracts, which are long-term in nature,
drilling and workover servicing contracts have typically been for short-terms,
usually the time required to drill one well.
RAW MATERIALS
The Company purchases a variety of raw materials for its manufacturing
operations, including plain end "green" tubing stock, steel bars and a variety
of parts and components fabricated by other manufacturers and suppliers. With
the exception of Robbins & Myers, which acts as the exclusive manufacturer of
two material components of EVI Oil Tools' progressive cavity pumps, the
Company is not dependent on any single source of supply for any of its raw
materials and components. The Company is currently engaged in discussions with
Robbins & Myers regarding the terms under which the products manufactured by it
for the Company will be provided. A loss of one or more of the Company's
suppliers could disrupt production.
PATENTS
The Company's oilfield equipment segment utilizes various patents and
proprietary technology in the manufacture of its products. Certain components
used in the progressive cavity pump utilize technology owned and licensed by
Robbins & Myers. Although the Company considers its patents important to the
operation of its business and a loss of one or more patents could adversely
affect a particular product, because of the proprietary processes that the
Company has developed in using its patents, and the nature of the business
conducted with the patents, it does not believe that any significant portion of
its business is materially dependent upon any single patent or group of patents
or generally upon patent protection.
INSURANCE COSTS
The Company has purchased Operators Extra Expense insurance to insure
itself against exposure to certain hazards unique to drilling and workover
operations and maintains redrill insurance with respect to its exposure
relating to turnkey contracts. There can be no assurance, however, that such
insurance will be sufficient to cover any future losses, or that such insurance
will continue to be available on commercially reasonable terms. The Company's
drilling and workover business is also subject to the usual hazards of oil and
gas drilling operations (including blowouts, fires, cratering, pollution and
environmental damages), plus the additional dangers incident to marine
operations in coastal and offshore waters (including capsizing, collision,
grounding and adverse weather). The Company maintains insurance coverage that
it believes to be customary in the industry against these hazards and whenever
possible obtains agreements from customers providing for indemnification
against liability to others. The Company also maintains political risk
insurance to insure against certain risks of doing business in foreign
countries. However, neither insurance nor indemnity agreements can provide
complete protection against casualty losses. In addition, the Company is
partially self-insured for marine workers' compensation claims.
The Company is required to carry workers' compensation insurance to
comply with state laws and customer requirements. Grant Prideco has elected to
opt out of the mandatory workers' compensation pools and secures its workers'
compensation through outside insurance. Although it has been able to reduce
insurance costs through this election, certain benefits provided under the
workers' compensation statutes may not be available to the Company. The cost
of insurance is subject to substantial fluctuation due to a variety of factors,
some of which are beyond the Company's control. Although the Company has
generally been able to obtain insurance on terms it considers to be
13
<PAGE> 15
reasonable, there can be no assurance that such insurance will continue to be
available on terms as favorable as those for its existing arrangements. The
Company is partially self-insured for employee health insurance claims and
certain workers' compensation claims.
Although the Company maintains product liability insurance with respect
to its products, such insurance is limited in coverage. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company with
respect to its products could have a material adverse effect on the Company.
REGULATION
The Company's business is affected by changes in public policy and by
federal, state and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental and other policy reasons
may adversely affect the Company's operations by limiting available drilling
and other opportunities in the energy service industry. The Company is also
subject to various health and safety regulation as established by the
Occupational Safety and Health Administration. For information concerning
regulation of the contract drilling services provided by Mallard, see
"-- Contract Drilling -- Government Regulation and Environmental Matters".
FOREIGN OPERATIONS
The Company's equipment and services are used in approximately 50
countries by U.S. customers operating abroad and by foreign customers. Sales
of equipment and services outside the U.S. accounted for approximately 38%, 36%
and 40% of total revenues for 1995, 1994 and 1993, respectively, based upon the
ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company. The distribution of the Company's
revenues by geographic region is shown below:
<TABLE>
<CAPTION>
WESTERN HEMISPHERE EASTERN HEMISPHERE
--------------------- --------------------
UNITED STATES OTHER MIDDLE EAST OTHER ELIMINATIONS TOTAL
------------- ----- ----------- ----- ------------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995
- ----
Operating revenues from
unaffiliated customers . . . $ 220,937 $ 61,293 $ -- $ 9,921 $ (3,567) $ 288,584
Export sales to unaffiliated
customers 63,003 -- -- -- -- 63,003
---------- --------- -------- -------- ---------- ---------
Total revenues . . . . . . . . 283,940 61,293 -- 9,921 (3,567) 351,587
1994
- ----
Operating revenues from
unaffiliated customers . . . . $ 162,344 $ 34,643 $ 5,801 $ 5,329 $ (3,304) $ 204,813
Export sales to unaffiliated
customers . . . . . . . . . . 43,724 -- -- -- -- 43,724
---------- --------- -------- -------- ---------- ---------
Total revenues . . . . . . . . . 206,068 34,643 5,801 5,329 (3,304) 248,537
1993
- ----
Operating revenues from
unaffiliated customers . . . . $ 150,729 $ 31,722 $ 7,967 $ 4,675 $ (1,983) $ 193,110
Export sales to unaffiliated
customers . . . . . . . . . . 52,847 -- -- -- 60 52,907
---------- --------- -------- -------- ---------- ---------
Total revenues . . . . . . . . . 203,576 31,722 7,967 4,675 (1,923) 246,017
</TABLE>
See Note 15 to the Consolidated Financial Statements of the Company for
additional financial information related to the Company's revenues by
geographic region.
Operations and sales in foreign markets are subject to substantial
competition from large multi-national corporations and government-owned
entities and to a variety of local laws and regulations requiring
qualifications, use of local labor, the provision of financial assurances or
other restrictions and conditions on operations. Foreign operations are also
subject to risks associated with doing business outside the U.S., including
risk of war, civil disturbances and governmental activities that may limit or
disrupt markets, restrict the movement of funds or result in the deprivation of
contract rights or the taking of property without fair compensation. Foreign
operations may also subject the Company to risks relating to fluctuations in
currency exchange rates. However, to date, currency fluctuations have not had
a material adverse impact on the Company.
14
<PAGE> 16
The Company currently has material manufacturing operations in Canada,
Mexico, Brazil and India (through OCTL) and is operating rigs in Nigeria, Peru
and Argentina. The Company's operations in each of these countries are subject
to various political and economic conditions existing in them which could
disrupt operations. In this regard, there is currently pending before the U.S.
Congress various legislation that, if enacted, would restrict trade and
investment in Nigeria. To date, no legislation has been enacted. However, if
legislation were to be adopted that either restricted trade or investment in
Nigeria, the Company's Nigerian operations could be materially affected. The
Company generally seeks to obtain, where economical, insurance against certain
political risks and attempts to structure its contracts and arrangements in the
foreign countries in which it operates in a manner that would minimize the
exposure of its assets to losses in those countries. Such efforts include
structuring substantially all of its sales and service contracts to be in U.S.
dollars and utilizing lease arrangements and joint ventures for manufacturing
facilities so as not to require substantial investment of funds in fixed assets
in foreign countries. Although the Company believes that its exposure to
foreign risks is not materially greater than that of its competitors, there can
be no assurance that disruptions will not occur in the Company's foreign
operations or that any losses that do occur will be covered by insurance.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into or otherwise relating
to the protection of the environment. In recent years, laws and regulations
protecting the environment have generally become more stringent and have sought
to impose greater liability on a larger number of potentially responsible
parties. However, the Company is not currently aware of any situation or
condition that it believes is likely to have a material adverse effect on its
results of operations or financial condition. For information concerning
environmental matters with respect to the contract drilling services provided
by Mallard, see "-- Contract Drilling -- Governmental Regulation and
Environmental Matters".
The Company's expenditures in 1995 in order to comply with applicable
environmental laws and regulations were not material, and the Company expects
that the costs of compliance with such laws and regulations for 1996 will be
minimal. The Company maintains insurance coverage with respect to
environmental liabilities relating to its marine drilling operations. Although
the Company believes that such coverage is adequate for the risks involved,
there can be no assurance that the coverage limits would not be exceeded or
such insurance would apply to all such liabilities. The Company does not
believe that its costs for compliance with applicable environmental laws and
regulations is, on a relative basis, greater than that of its competitors.
EMPLOYEES
As of March 1, 1996, the Company employed approximately 3,800 employees.
The Company considers its relations with its employees to be generally
satisfactory.
ITEM 2. PROPERTIES
The Principal offices of the Company and facilities used by the Company
in its oilfield equipment and contract drilling segments are set forth in the
table below:
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C>
OILFIELD EQUIPMENT:
Navasota, Texas . . . . . . . . . 251,600 182.80 Owned Manufacture drill pipe, premium threaded
casing, liners and tubing
Vera Cruz, Mexico . . . . . . . . 214,000 42.00 Leased Manufacture drill pipe
Bastrop, Texas . . . . . . . . . 108,300 21.00 Owned Manufacture tool joints
Bryan, Texas . . . . . . . . . . 160,000 55.27 Owned Manufacture premium tubing
Houston, Texas . . . . . . . . . 12,400 -- Leased Principal offices of Grant Prideco
68,500 13.50 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
21,900 11.00 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
31,500 10.00 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
Channelview, Texas . . . . . . . 60,600 20.00 Owned Threading of premium casing
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C>
Longview, Texas . . . . . . . . . 40,000 22.10 Owned Manufacture pump barrels and plungers
Odessa, Texas . . . . . . . . . . 97,000 7.20 Owned Manufacture of RotaFlex pumping units
58,000 6.70 Owned Manufacture couplings, tubing anchors and
gears
Oklahoma City, Oklahoma . . . . . 9,500 1.20 Leased Manufacture and repair pumping unit parts
Morgan City, Louisiana . . . . . 19,300 2.40 Leased Repair drill pipe, drill collars,
heavyweights and kellys
Arlington, Texas . . . . . . . . 60,000 2.50 Leased Manufacture of downhole packers and
completion systems
Powell, Wyoming . . . . . . . . . 16,000 1.80 Leased Manufacture of downhole packers and
completion systems
Midland, Texas . . . . . . . . . 30,000 5.60 Owned Manufacture and repair pumping unit parts
Woodward, Oklahoma . . . . . . . 148,800 53.02 Leased Manufacture sucker rod pump parts
Santa Teresa, New Mexico . . . . 43,000 7.50 Owned Manufacture sucker rods
Nisku, Alberta, Canada . . . . . 15,900 8.30 Owned Manufacture continuous rods
Caxias do Sul, Brazil . . . . . . 62,400 -- Leased Manufacture downhole packers and completion
systems
Macae, Brazil . . . . . . . . . . 10,200 -- Owned Repair facility
Natal, Brazil . . . . . . . . . . 2,600 -- Leased Repair facility
CONTRACT DRILLING:
Buenos Aires, Argentina . . . . . 2,500 -- Leased Principal offices of Argentina operations
Caleta Olivia, Argentina . . . . 7,500 5.00 Leased Operating base for Southern Argentina
Rincon de las Sauces, Argentina . 2,500 2.50 Leased Operating base for Western Argentina
Warri, Delta State, Nigeria . . . 5,750 0.50 Leased Equipment storage facility
New Iberia, Louisiana . . . . . . 54,600 -- Owned Principal offices of Mallard, warehouse and
repair shop
-- 14.00 Leased Docking facility
CORPORATE:
Houston, Texas . . . . . . . . . 14,500 -- Leased Principal offices of the Company
</TABLE>
In addition to the above facilities, the Company has an agreement with
OCTL pursuant to which OCTL's manufacturing facility in Narketpally, India is
to be dedicated by OCTL to the production of drill pipe and other tubular
products exclusively for the Company. This facility is owned by OCTL and
consists of 262,000 sq. ft. located on 60 acres.
ITEM 3. LEGAL PROCEEDINGS
In August of 1994, the Company received a letter from the United States
Internal Revenue Service ("IRS"), proposing to increase the gain recognized by
the Company upon the dissolution in October 1990 of COLEVE with Columbia. 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.
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<PAGE> 18
Although the resolution of these remaining issues could affect the timing of
the payment of previously accrued tax liabilities, 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 Company is aware of various other disputes and potential claims and
is a party in various litigation involving claims against the Company, some of
which are covered by insurance. Based on facts currently known to the Company,
it believes that the ultimate liability, if any, which may result from these
disputes, claims and litigation would not have a material adverse affect on the
Company's consolidated financial position or its results of operations. See
Note 10 to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1995, to a vote of shareholders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "EVI". The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock as reported on the
NYSE from June 1994 and on the NASDAQ-National Market System for the period
from January through May 1994.
<TABLE>
<CAPTION>
PRICE
------------------
HIGH LOW
------ -------
<S> <C> <C>
Year ending December 31, 1995
First Quarter . . . . . . . . . . . . . $14 5/8 $11 7/8
Second Quarter . . . . . . . . . . . . 20 5/8 13 1/4
Third Quarter . . . . . . . . . . . . . 24 17 3/8
Fourth Quarter . . . . . . . . . . . . . 25 1/4 18 3/8
Year ending December 31, 1994
First Quarter . . . . . . . . . . . . . $16 1/4 $12
Second Quarter . . . . . . . . . . . . . 14 3/4 11 1/4
Third Quarter . . . . . . . . . . . . . 15 1/4 12 5/8
Fourth Quarter . . . . . . . . . . . . . 14 3/4 11 1/4
</TABLE>
The Company has not paid any dividends on the Common Stock since 1984 and
currently anticipates that, for the foreseeable future, any earnings will be
retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock for the
foreseeable future. The declaration of all dividends is at the discretion of
the Company's Board of Directors. The Company's dividend policy will be
reviewed by the Board of Directors at such future time as may be appropriate in
light of relevant factors at the time; however, the Company and the Company's
principal operating subsidiaries are subject to certain prohibitions on the
declaration and payment of dividends under the terms of their existing credit
facilities. In addition, under the terms of the Company's 10 1/4% Senior Notes
due 2004 ("Senior Notes"), the Company is limited in the amount of funds it may
distribute as dividends or distributions to stockholders to an amount generally
equal to: (a) the sum of (i) its earnings subsequent to December 31, 1993, (ii)
the net consideration received from certain stock issuances since March 1994,
(iii) the value of certain investments in unrestricted subsidiaries
redesignated as restricted subsidiaries and (iv) $5 million, less (b) the
amount of dividends, distributions and other restricted payments made by the
Company since March 1994. As of December 31, 1995, the Company was limited in
the amount of dividends, distributions and other restricted payments that could
be made by it to approximately $137 million.
As of February 29, 1996, there were 1,072 stockholders of record. The
Common Stock is traded on the NYSE under the symbol EVI.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical
consolidated financial data of the Company and
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<PAGE> 19
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes thereto included elsewhere herein. The following
information may not be deemed indicative of future operating results of the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
-------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . $351,587 $248,537 $ 246,017 $ 190,458 $177,794
Operating Income . . . . . . . . . . . . . 32,440 19,469 18,555 4,612 9,832
Income from Continuing Operations . . . . . 11,311 4,642 7,947 281 5,829
Earnings Per Share from Continuing
Operations . . . . . . . . . . . . . . .77 .37 .66 .02 .51
Total Assets . . . . . . . . . . . . . . . 491,060 344,234 277,231 230,596 185,022
Long-term Debt . . . . . . . . . . . . . . 126,849 125,690 38,982 37,304 5,878
Stockholders' Investment . . . . . . . . . 228,066 110,913 107,736 101,156 101,123
Cash Dividends Per Share . . . . . . . . . -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company manufactures and markets drill pipe and premium tubular
products, artificial lift and completion systems through its oilfield equipment
segment and provides 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.
Income from continuing operations was $11,311,000, or $.77 per share, on
revenues of $351,587,000 for 1995 compared to income from continuing operations
of $4,642,000, or $.37 per share, on revenues of $248,537,000 for 1994.
Operating income for 1995 was $32,440,000 compared to $19,469,000 for 1994 which
represents a 67% increase for 1995 as compared to 1994. The increase in
operating income for 1995 primarily reflects improvements in the Company's
tubular products division coupled with the contribution of operating income
attributable to the acquisition of Prideco on June 30, 1995. Demand for the
Company's tubular products benefited during 1995 from a continuing reduction in
the worldwide inventory of used drill pipe. These trends have resulted in
increased drill pipe demand. The improved results for 1995 also reflected
generally improved industry conditions,the acquisition of the Fluid Packed pump
and sucker rod businesses from National-Oilwell in August 1994, higher
international revenues and the Company's internal cost saving efforts.
Early in the fourth quarter of 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 $72.6 million. The funds from the
offering were used to reduce the Company's outstanding debt under its revolving
lines of credit, to finance the expansion of the Company's domestic and
international tubular operations and for general and corporate purposes. The
offering resulted in a reduction in the Company's debt to total capitalization
ratio at December 31, 1995 to approximately 38%.
In December 1995, the Company made a strategic decision to dispose of its
Highland store distribution system in the United States which has been a part
of the artificial lift and completion tool equipment division. This decision
reflected the Company's desire to focus its efforts on manufacturing and to
eliminate the substantial cost associated with serving as a distributor in the
United States market. Early in 1996, the Company completed the sale of these
operations to Continental Emsco for approximately $3 million in cash, a $4
million vendor credit with Continental Emsco for future equipment needs of the
Company and a $0.5 million note receivable. The consideration received in the
sale approximated the net book value of the assets sold, resulting in no
material gain or loss.
The disposition by the Company of its U.S. store system provided the
Company with the ability to reduce its work force by over 170 employees,
eliminate the overhead cost of maintaining its own store distribution network
and reduce inventory costs in the U.S. In connection with the disposition,
Continental Emsco was appointed as a non-exclusive distributor in the U.S. for
most of the Company's artificial lift division U.S. manufactured products
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<PAGE> 20
as well as an exclusive distributor of the Company's RotaFlex products in the
U.S. The Company believes that this distribution arrangement, together with
arrangements that the Company has with other major distributors, will permit a
broader distribution of the Company's products on a more cost effective basis.
The Company has retained its Canadian distribution system that is used to
service and support its Corod and other product lines.
The Company is currently focusing its efforts on assimilating its
acquisition of Prideco and improving its manufacturing efficiencies and
capabilities. The Company is also continuing to seek opportunities for
expansion of sales and manufacturing outside the U.S. The Company currently
expects that 1996 results will benefit from continuing strong tubular sales and
cost reductions at its oil tools division. Results, however, will be dependent
on market conditions, in particular the level of drilling activity in the U.S.
Gulf Coast and demand for drill pipe and other tubular products.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR 1995 WITH FISCAL YEAR 1994
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were
$271.7 million and $23.1 million, respectively, for the year ended December 31,
1995 as compared to $185.3 million and $8.2 million, respectively, for the year
ended December 31, 1994. The increases in revenues and operating income were
primarily attributable to the contributions from increased drill pipe sales and
higher prices and margins. In addition, the Company's Canadian pump sales were
higher in 1995 as compared to 1994.
The increase in sales of tubulars products in 1995 was $60.6 million
compared to $22.6 million in 1994. The increase in sales for 1995 resulted
from the acquisition of Prideco on June 30, 1995, as well as an overall
increase in demand for drill pipe. Evidence of the improved demand for drill
pipe is the Company's tubular backlog at December 31, 1995, being $78.4 million
compared to $35.2 million at December 31, 1994. The Company anticipates that
all of the backlog existing at December 31, 1995 will be shipped during the
next twelve months. In addition, the Company implemented price increases in
the second half of 1995 which the Company will benefit from in 1996 as the
existing backlog turns.
Results in the oilfield equipment segment include a $0.75 million royalty
payment in the fourth quarter of 1995, which benefited operating income for
1995. 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 expects that as production at
the OCTL facility becomes fully operational, average manufacturing costs for
tubulars should decline further as a result of the lower labor costs at that
facility. However, the Company expects some initial production inefficiencies
associated with the OCTL facility.
In the third quarter of 1995, the Company 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.
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 $106.5 million and $8.0 million, respectively, for 1995
compared to $85.1 million and $5.3 million, respectively, for 1994. The
increases in revenues and operating income for 1995 were primarily attributable
to the Company's increases in Canadian progressive cavity pump and Corod sales.
The Company is currently in the process of effecting cost reductions at this
division and eliminating redundant administrative costs. The Company
anticipates that once this process is completed, operating results at this
division should improve. The disposition of the Company's United States
distribution system also provides the Company with the opportunity to focus on
its manufacturing and
19
<PAGE> 21
product design.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were
$79.9 million and $14.5 million, respectively, for 1995, compared to $63.3
million and $15.8 million respectively, for 1994. The increase in revenues for
1995 reflects the increase in international operations in Nigeria, Peru and
Argentina as new contracts in Nigeria and Peru did not take effect until late
in the third quarter of 1994. In July 1995, the Company's two Peru rigs were
placed on standby. Recently, one of such rigs was placed back into operation,
with the other rig remaining on standby. In June 1995, the Company's
operations commenced in Argentina covering four drilling rigs. The operations
in Nigeria, Peru and Argentina contributed $24.6 million in revenues for 1995.
Operating income for the international operations was $3.6 million in
1995 as compared to $5.2 million in 1994. Operating income in 1994 included
the insurance settlement with respect to the National Iranian Oil Company
("NIOC") contract which increased operating income by $4.8 million and was
reduced by operating losses of $2.6 million relating to the Iranian operations
for 1994. The Argentina operations produced an operating loss of $0.5 million
in 1995 attributable to certain initial start-up costs incurred. The Company
expects 1996 to benefit from the start-up operating costs incurred during 1995
and expects the operation in Argentina to have a favorable impact on 1996
operating results.
Operations in Nigeria are currently subject to various political risk.
In that regard, there is currently pending before the U.S. Congress various
legislation that, if enacted, would restrict trade and investment in Nigeria.
To date, no legislation has been enacted. However, if legislation were to be
adopted that either restricted trade or investment in Nigeria, the Company's
Nigerian operations could be materially affected.
Domestic revenues increased 5% in 1995 as compared to 1994 due to an
increase in domestic barge rig volume. Operating income in 1995 was $10.8
million as compared to $10.6 million in 1994. Mallard's 1995 operating income
was reduced by a fourth quarter increase in reserves for workers' compensation
claims on cases settled as well as unsettled claims. Such expenses were
partially offset by a gain on the sale of a rig. The net effect of these
reduced 1995 operating results by approximately $0.8 million.
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 and restrictions on trade with an investment in Iran.
The net carrying value after reserves of these obligations as of December 31,
1995, was approximately $3.6 million.
Demand for the Company's domestic contract drilling and workover services
will continue to be materially dependent on levels of exploration and
development in the Gulf of Mexico and coastal and inland waters. The price of
natural gas will also be a material factor effecting that demand.
General
Selling, general and administrative expenses increased approximately 19%
to $56.9 million in 1995 from $47.9 million in 1994. The increase in 1995 was
attributable to the Prideco acquisition and to increased sales and
international expansion.
Interest expense increased during 1995 to $16.7 million from $13.7
million for 1994. The increase in interest expense is attributable to higher
levels of indebtedness during 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 declined in the fourth quarter of 1995 as a result of the
reduction in debt following the Public Offering.
The Company's effective tax rate for 1995 was approximately 31% compared
to 28% in 1994. The increase in such rate reflects the impact of certain tax
benefits occurring in 1994 associated with net operating loss
20
<PAGE> 22
carryforwards which was partially offset by foreign losses with no
corresponding tax benefit.
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 FISCAL YEAR 1994 WITH FISCAL YEAR 1993
For the year ended December 31, 1994, the Company reported net income and
income from continuing operations of $858,000, or $0.07 per share, and $4.6
million, or $0.37 per share, respectively, on revenues of $248.5 million,
compared with net income and income from continuing operations of $5.9 million,
or $0.49 per share, and $7.9 million, or $0.66 per share, respectively, on
revenues of $246.0 million for fiscal year 1993. In 1994, the Company
refinanced its outstanding indebtedness with the proceeds of a $120 million in
Senior Notes due 2004. As part of the transaction, the Company incurred a
first quarter extraordinary charge of approximately $3.8 million, net of taxes
of approximately $1.9 million, or $0.30 per share. The extraordinary charge
represented the difference between the reacquisition price and the net carrying
value of the Company's $34 million senior notes, including unamortized debt
issuance costs.
For the year ended December 31, 1994, the Company's operating income was
$19.5 million compared with $18.6 million for fiscal year 1993. For 1994,
operating income for the Company's oilfield equipment and contract drilling
segments was $8.2 million and $15.8 million, respectively. For 1993, operating
income for these segments was $10.8 million and $11.8 million, respectively.
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover contract
with the NIOC. The insurance settlement which increased operating income by
$4.8 million was reduced by operating losses of $2.6 million relating to the
Iranian operations for 1994. This benefit was more than offset by the
reduction in operating income in Nigeria and Peru.
Oilfield Equipment Segment
Revenues for the oilfield equipment segment increased by 8% to $185.3
million in 1994 compared to $171.6 million in 1993. The increase was due
primarily to increased sales of tubular products partially offset by reduced
procurement revenues from the operations of International Tool and Supply
Company ("ITS"), which was acquired on June 30, 1993, and sold on December 30,
1993. The increase in tubular products revenues was primarily due to a change
in the sales mix to larger diameter drill pipe.
Operating income for the oilfield equipment segment was $8.2 million in
1994, as compared to $10.8 million in 1993. The reduction in operating income
resulted from costs incurred by the Company in the consolidation of certain
plants and product lines resulting from the acquisition of the Fluid Packed
lines of sucker rod pumps and sucker rods from National-Oilwell. In addition
the Company experienced reduced margins on tubular products and artificial lift
equipment due to lower oil prices, the steep decline in natural gas prices in
the second half of 1994 and sluggish domestic and international development
activity. The Company, however, benefited from increased utilization of
certain facilities due to increased revenues.
Contract Drilling Segment
Revenues in the contract drilling segment decreased by approximately 15%
to $63.3 million for 1994 compared to $74.4 million for 1993. Domestic
revenues were slightly lower due to reduced drilling activity and international
revenues decreased primarily due to the termination of the land drilling
contract with NIOC in Iran. In addition, international revenues related to the
Company's operations in Peru and Nigeria were lower in 1994 as compared to 1993
as a result of the Company's rigs in Nigeria and Peru going off contract in the
middle of 1993. The Company's rigs in Peru and Nigeria began new contracts in
the second half of 1994.
The contract drilling segment's operating income was $15.8 million in
1994, as compared to $11.8 million in 1993. Domestic operating income
increased by 36% in 1994 as compared to 1993, while international operating
income increased by 31% in 1994 as compared to 1993. The increase in 1994 was
principally due to higher
21
<PAGE> 23
domestic day rates and the February 1994 acquisition of AWI Drilling &
Workover, Inc. ("AWI") and its 12 rigs. The AWI acquisition improved gross
profit in 1994 because prior to the acquisition, eight of the 12 rigs had been
under charter by the Company. The increase was partially offset by the lower
rig utilization during 1994 of 48% from 52% in 1993 due to reduced activity in
the U.S. Gulf Coast area.
The insurance settlement with respect to the NIOC contract increased
operating income by $4.8 million and was reduced by operating losses of $2.6
million relating to the Iranian operations for 1994. This benefit was more
than offset by the reduction in operating income in Nigeria and Peru.
In March 1995, the Company entered into a two-year land drilling contract
with YPF in Argentina. The contract covers four drilling rigs.
General
Selling, general and administrative expenses increased approximately 5%
to $47.9 million in 1994 from $45.7 million in 1993. The increase in 1994 was
primarily attributable to a full year of operations at the Company's Mexico,
Hungary and China facilities as well as a full year of operations from the
Production Oil Tools acquisition. These increases were partially offset by the
selling, general and administrative costs associated with ITS which was sold
December 30, 1993.
Interest expense increased from $7.6 million for the year ended December
31, 1993 to $13.7 million for 1994, reflecting the increased cost associated
with the Company's $120 million Senior Notes due 2004 issued in March 1994,
substantially all of which were subsequently exchanged for a new series of
Senior Notes due 2004 that were essentially identical to the old series. The
net proceeds from the $120 million Senior Notes were used to repay
substantially all of the Company's outstanding indebtedness and for working
capital purposes. The prepayment of the Company's prior indebtedness resulted
in an extraordinary charge, net of taxes, of $3,784,000, or $0.30 per share,
during the first quarter of 1994.
The Company's effective tax rate on income from continuing operations
decreased to 28% in 1994 from 38% in 1993. The favorable impact on the 1994
effective tax rate was obtained through the utilization of net operating loss
carryforwards and was partially offset by foreign losses with no corresponding
tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Early in the fourth quarter of 1995, the Company completed a public
offering of 3,450,000 shares of its Common Stock. The net proceeds of this
offering were approximately $72.6 million. The funds from the offering were
used to reduce the Company's outstanding debt under its revolving lines of
credit, to finance the expansion of the Company's domestic and international
tubular operations and for general and corporate purposes. The offering
resulted in a reduction in the Company's debt to total capitalization ratio at
December 31, 1995 to approximately 38%.
At December 31, 1995, the Company had cash and cash equivalents of
approximately $4.5 million compared to approximately $3.1 million at December
31, 1994. At December 31, 1995, the Company's working capital was
approximately $152 million compared to approximately $94 million at December
31, 1994. The increase in working capital was primarily the result of the
recent Public Offering.
At December 31, 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 December 31, 1995 and December 31, 1994, $4.8 million and $17.3 million,
respectively, had been borrowed under the revolving lines of credit and $5.1
million and $1 million, respectively, had been used to support outstanding
letters of credit. At December 31, 1995 and December 31, 1994, $55.6 million
and $35.6 million, respectively, was
22
<PAGE> 24
available for additional borrowing under these credit facilities. The average
interest rate under these facilities was 8.8% for 1994 and 10.2% for 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
transitions 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 COLEVE with Columbia. 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 effected by the price of natural gas and the level of
oil and gas exploration activity while the demand for the Company's artificial
lift and completion tool equipment is directly dependent on oil production
activity. Although the Company's international contract drilling services are
effected 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 U.S. Gulf Coast and
domestic natural gas 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 cash flow from operations, borrowings under
lines of credit and other facilities, and equity issuances if desirable.
CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS
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.
In July 1995, the Company acquired Engemaq S.A., a Brazilian completion
tool business, for $4 million.
The allocations of the purchase price to the fair market values of the
net assets acquired in the 1995 acquisitions are based on preliminary estimates
of the fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with OCTL, an
23
<PAGE> 25
India-based manufacturer of drill pipe and premium tubulars. 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 will be used 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 coupled with
OCTL's low manufacturing costs and proximity to major Eastern Hemisphere
markets will accomplish this objective. This expansion is intended to
substantially increase the Company's sales into the growing Eastern Hemisphere
markets, which over the last few years have represented less than 5% of the
Company's total revenues. Manufacturing operations on behalf of the Company
are expected to commence during the second quarter of 1996.
Under the terms of the OCTL agreement, the Company has a right to
terminate the agreement on an annual basis. The agreement is for an initial
five-year term renewable for successive five-year terms. The agreement may be
terminated by OCTL only under certain limited circumstances, including,
beginning December 31, 2000, if certain minimum orders have not been placed
through OCTL and payments have not been made by the Company. Under the terms
of the agreement with OCTL, the Company made a one-time payment of $8 million
for the exclusive right to have Grant Prideco's products manufactured at the
facility. The Company is also required to pay all direct operating expenses
relating to the facility, including the cost of inventory and raw materials
used in the manufacture of the Company's products.
The Company expects the OCTL facility to require a first-year investment
of between $20 million and $25 million, which includes the $8 million deposit
made in January 1996 and working capital requirements. Funds relating to the
OCTL facility are expected to be financed with existing cash and borrowings
under lines of credit and other facilities.
Early in 1996, the Company completed the sale of its store distribution
system in the United States for approximately $7.5 million. The Company
received $3 million in cash, a $4 million vendor credit with Continental Emsco
for future equipment needs of the Company and a $0.5 million note receivable.
The consideration received in the sale approximated the net book value of the
assets sold, resulting in no material gain or loss.
In addition to funds used to finance acquisitions, capital expenditures
by the Company during 1995 totaled approximately $32.7 million. During 1995,
capital expenditures included approximately $16 million relating to the
acquisition of a land rig deployed to Argentina, equipment additions to the
three existing land rigs in Argentina and three deep drilling barge rigs.
Ongoing routine capital expenditures for the next twelve months are
budgeted at approximately $21.9 million. Capital expenditures are expected to
be funded with available cash, cash flow from operations and borrowings under
lines of credit and other facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . 25
Consolidated Balance Sheets - December 31, 1995 and 1994 . . . . . . . . . . . 26
Consolidated Statements of Income, for each of the three years in the
period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Stockholders' Investment, for each of the three
years in the period ended December 31, 1995 . . . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows, for each of the three years in
the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 30
Financial Statement Schedule:
II. - Valuation and Qualifying Accounts and Allowances . . . . . . . . . . 56
</TABLE>
All other schedules are omitted because they are not required or because
the required information is included in the financial statements or notes
thereto.
24
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Energy Ventures, Inc.
We have audited the accompanying consolidated balance sheets of Energy
Ventures, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Energy Ventures, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedule listed in Part II - Item 8 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The Financial Statement Schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 26, 1996
25
<PAGE> 27
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- ----------
ASSETS (IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . $ 4,517 $ 3,144
Accounts Receivable, Net of Allowance for Uncollectible Accounts of
$615,000 in 1995 and $564,000 in 1994 . . . . . . . . . . . . . . 102,763 72,790
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,936 74,938
Materials and Supplies . . . . . . . . . . . . . . . . . . . . . . . 10,042 7,687
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,907 3,751
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 10,409 2,493
--------- ----------
249,574 164,803
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property . . . . . . . . . . . . . . . . . 33,271 27,278
Rigs, Machinery and Equipment . . . . . . . . . . . . . . . . . . . 201,945 152,096
Furniture and Vehicles . . . . . . . . . . . . . . . . . . . . . . . 15,880 17,071
--------- ----------
251,096 196,445
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . . . 58,394 45,550
--------- ----------
192,702 150,895
--------- ----------
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE ASSETS
OF BUSINESSES ACQUIRED, NET . . . . . . . . . . . . . . . . . . . . 37,398 15,606
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,386 12,930
--------- ----------
$ 491,060 $ 344,234
========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit . . $ 4,826 $ 17,265
Current Maturities of Long-Term Debt . . . . . . . . . . . . . . . . 5,894 3,189
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . 53,703 30,741
Accrued Salaries and Benefits . . . . . . . . . . . . . . . . . . . 5,963 3,908
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . 26,730 15,362
--------- ----------
97,116 70,465
--------- ----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,849 125,690
DEFERRED INCOME TAXES, NET . . . . . . . . . . . . . . . . . . . . . . . 32,926 30,785
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,103 6,381
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock, $1 Par Value, Authorized 20,000,000 Shares, Issued
18,522,183 Shares in 1995 and 12,754,249 Shares in 1994 . . . . . 18,522 12,754
Capital in Excess of Par Value . . . . . . . . . . . . . . . . . . . 157,953 55,142
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 60,167 48,856
Cumulative Foreign Currency Translation Adjustment . . . . . . . . . (6,915) (4,536)
Treasury Stock, at Cost . . . . . . . . . . . . . . . . . . . . . . (1,661) (1,303)
--------- ----------
228,066 110,913
--------- ----------
$ 491,060 $ 344,234
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . $ 351,587 $ 248,537 $ 246,017
------------- ------------ -----------
COSTS AND EXPENSES:
Cost of Sales . . . . . . . . . . . . . . . . . . . . 262,293 181,137 181,742
Selling, General and Administrative Attributable to
Segments . . . . . . . . . . . . . . . . . . . . 51,731 43,183 41,690
Corporate General and Administrative . . . . . . . . . 5,123 4,748 4,030
------------- ------------ -----------
319,147 229,068 227,462
------------- ------------ -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 32,440 19,469 18,555
------------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest Income . . . . . . . . . . . . . . . . . . . 118 210 366
Interest Expense, Net . . . . . . . . . . . . . . . . (16,723) (13,715) (7,575)
Other, Net . . . . . . . . . . . . . . . . . . . . . . 556 484 1,465
------------- ------------ -----------
(16,049) (13,021) (5,744)
------------- ------------ -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 16,391 6,448 12,811
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . 5,080 1,806 4,864
------------- ------------ -----------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . 11,311 4,642 7,947
DISCONTINUED OPERATION, NET OF TAXES . . . . . . . . . . . -- -- (2,057)
------------- ------------ -----------
INCOME BEFORE EXTRAORDINARY CHARGE . . . . . . . . . . . . 11,311 4,642 5,890
EXTRAORDINARY CHARGE, NET OF TAXES . . . . . . . . . . . . -- (3,784) --
------------- ------------ -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 11,311 $ 858 $ 5,890
============= ============ ===========
EARNINGS PER COMMON SHARE:
Continuing Operations . . . . . . . . . . . . . . . . $ .77 $ .37 $ .66
Discontinued Operation, Net of Taxes . . . . . . . . . -- -- (.17)
Extraordinary Charge, Net of Taxes . . . . . . . . . . -- (.30) --
------------- ------------ -----------
Net Income . . . . . . . . . . . . . . . . . . . . . . $ .77 $ .07 $ .49
============= ============ ===========
Weighted Average Common Shares Outstanding . . . . . . 14,724 12,629 12,067
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 29
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL FOREIGN
COMMON STOCK IN CURRENCY TREASURY STOCK TOTAL
--------------------- EXCESS RETAINED TRANSLATION ----------------- STOCKHOLDERS'
SHARES $1 PAR OF PAR EARNINGS ADJUSTMENT SHARES AMOUNT INVESTMENT
---------- -------- -------- -------- ---------- ------- ------- ------------
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 . . . 12,067,670 $ 12,068 $ 48,421 $ 42,108 $ (1,152) (23,891) $ (289) $ 101,156
Net Income . . . . . . . -- -- -- 5,890 -- -- -- 5,890
Shares Issued in
Connection with
Acquisition . . . . . 206,849 207 1,826 -- -- -- -- 2,033
Options Exercised . . . . 41,237 41 195 -- -- -- -- 236
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan . . -- -- -- -- -- (41,084) (620) (620)
Foreign Currency
Translation
Adjustment . . . . . -- -- -- -- (959) -- -- (959)
---------- -------- -------- -------- -------- ------- ------- ---------
Balance at
December 31, 1993 . . . 12,315,756 12,316 50,442 47,998 (2,111) (64,975) (909) 107,736
Net Income . . . . . . . . -- -- -- 858 -- -- -- 858
Shares Issued in
Connection with
Acquisition . . . . . . . 433,333 433 4,692 -- -- -- -- 5,125
Options Exercised . . . . . 5,160 5 8 -- -- -- -- 13
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan . . . . -- -- -- -- -- (29,234) (394) (394)
Foreign Currency
Translation
Adjustment . . . . . . . -- -- -- -- (2,425) -- -- (2,425)
---------- -------- -------- -------- -------- ------- ------- ---------
Balance at
December 31,1994 . . . . . 12,754,249 12,754 55,142 48,856 (4,536) (94,209) (1,303) 110,913
Net Income . . . . . . . . -- -- -- 11,311 -- -- -- 11,311
Shares Issued
Connection with
Acquisition . . . . . . . 2,255,198 2,255 33,020 -- -- -- -- 35,275
Options Exercised . . . . . 62,736 63 593 -- -- -- -- 656
Issuance of Common
Stock . . . . . . . . . . 3,450,000 3,450 69,198 -- -- -- -- 72,648
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan . . . . -- -- -- -- -- (19,392) (358) (358)
Foreign Currency
Translation
Adjustment . . . . . . . -- -- -- -- (2,379) -- -- (2,379)
---------- -------- -------- -------- -------- ------- ------- ---------
Balance at
December 31, 1995 . . . . 18,522,183 $ 18,522 $157,953 $ 60,167 $ (6,915) (113,601) $(1,661) $ 228,066
========== ======== ======== ======== ======== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,311 $ 858 $ 5,890
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operations:
Depreciation and Amortization . . . . . . . . . . . . . . . 20,824 14,268 12,281
Deferred Income Tax Provision (Benefit) from Continuing
Operations . . . . . . . . . . . . . . . . . . . . . . . 1,980 (1,052) 96
Extraordinary Charge on Prepayment of Debt, Net . . . . . . -- 3,784 --
Insurance Settlement, Net . . . . . . . . . . . . . . . . . -- 23,000 --
Gain on Sale of Business and Disposal of Assets . . . . . . (1,424) (100) (1,962)
Provision for Uncollectible Accounts Receivable . . . . . . 492 158 204
Decrease to Carrying Value of Accounts Receivable . . . . . -- -- 369
Change in Assets and Liabilities, Net of Effects of Businesses
Acquired:
Accounts Receivable . . . . . . . . . . . . . . . . . . . (21,068) (19,718) (1,608)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (34,271) (6,686) (24,283)
Prepaid Expenses and Other . . . . . . . . . . . . . . . . (10,832) (1,126) 149
Accounts Payable . . . . . . . . . . . . . . . . . . . . . 18,018 (9,178) 9,926
Accrued Salaries and Benefits and Other . . . . . . . . . (6,899) (5,234) 156
Other Assets . . . . . . . . . . . . . . . . . . . . . . . (561) (6,013) (8,432)
Other Liabilities, Net . . . . . . . . . . . . . . . . . . 558 2,281 1,637
-------- -------- -------
Net Cash Used by Operations . . . . . . . . . . . . . . (21,872) (4,758) (5,577)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business . . . . . . . . . . . . . . . . -- -- 3,500
Proceeds from Sale of Assets . . . . . . . . . . . . . . . . . 3,369 3,131 754
Acquisition of Businesses, Net of Cash Acquired . . . . . . . (8,105) (17,076) (933)
Capital Expenditures for Property, Plant and Equipment . . . . (32,690) (19,607) (14,885)
-------- -------- -------
Net Cash Used by Investing Activities . . . . . . . . . . . (37,426) (33,552) (11,564)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net . . . . . . . . . . . . . . . . 72,648 -- --
Proceeds from Issuance of Long-Term Debt . . . . . . . . . . . -- 120,000 --
Penalty on Early Retirement of Debt . . . . . . . . . . . . . -- (4,872) --
Debt Issuance Costs . . . . . . . . . . . . . . . . . . . . . -- (4,155) --
Borrowings (Repayments) Under Revolving Lines of Credit, Net . (12,439) (28,940) 21,590
Borrowings of Term Debt . . . . . . . . . . . . . . . . . . . 4,536 2,284 3,571
Repayments on Term Debt . . . . . . . . . . . . . . . . . . . (4,453) (46,981) (6,409)
Stock Options Exercised, Purchase of Treasury Stock and
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . 298 (381) (384)
-------- -------- -------
Net Cash Provided by Financing Activities . . . . . . . . . 60,590 36,955 18,368
-------- -------- -------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH . . . . . . . . . . . . . 81 (300) (468)
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . 1,373 (1,655) 759
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . 3,144 4,799 4,040
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . $ 4,517 $ 3,144 $ 4,799
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 31
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Energy
Ventures, Inc. and all majority-owned subsidiaries and partnerships (the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS
The Company is an international manufacturer and supplier of oilfield
equipment and contract drilling services. The Company operates through two
business segments: oilfield equipment and contract drilling. The oilfield
equipment segment manufactures high performance tubulars and a complete line of
artificial lift equipment as well as completion tools. The Company's contract
drilling rig fleet consists primarily of barge rigs used by major and large
independent oil and gas companies for the exploration and development of
natural gas primarily in the U.S. Gulf Coast area. The Company's tubular
products and contract drilling operating divisions provide products and
services used primarily for natural gas exploration and production. The
artificial lift and completion tool product lines are tied to the maturation of
oil producing formations.
INVENTORIES
Inventories are valued using the first-in, first-out (FIFO) method and
are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Depreciation of
domestic property, plant and equipment is provided using the straight-line
method over the estimated useful lives for the respective categories. The
useful lives of the major classes of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Buildings . . . . . . . . . . . . . . . . . . . . . . . 15 - 40 years
Rigs, machinery and equipment . . . . . . . . . . . . . 5 - 20 years
Furniture and vehicles . . . . . . . . . . . . . . . . 3 - 7 years
</TABLE>
Due to differences between the international and U.S. rig contracting
markets, depreciation on international drilling rigs and related equipment is
provided using the units-of-production method. Under the units-of-production
method, depreciation is based on the utilization of the drilling rigs with a
minimum provision when the rigs are idle.
Interest costs related to major capital projects are capitalized as a
component of construction costs. Interest costs capitalized were $266,000,
$247,000 and $574,000 in 1995, 1994 and 1993, respectively. Maintenance and
repairs are expensed as incurred. The costs of renewals, replacements and
betterments are capitalized.
INTANGIBLE ASSETS AND AMORTIZATION
The excess of cost over the fair value of net tangible assets of
businesses acquired is being amortized on a straight-line basis over the lesser
of expected useful lives or 40 years. Other intangible assets, included in
other assets, are amortized over the years expected to be benefited.
Amortization expense for goodwill and other intangible assets was $2,781,000,
$996,000 and $1,578,000 for 1995, 1994 and 1993, respectively. Accumulated
amortization of goodwill at December 31, 1995 and 1994 was $1,979,000 and
$1,553,000, respectively.
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated using average exchange rates during
the period. Assets and liabilities of these foreign subsidiaries are
translated using the exchange rates in effect at the balance sheet date and the
resulting translation adjustments are
30
<PAGE> 32
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
included as a separate component of Stockholders' Investment. Currency
transaction gains and losses are reflected in income for the period. The
Company's Nigerian operations are in a "highly inflationary" economy and use
the U.S. dollar as the functional currency. Accordingly, the gains or losses
resulting from balance sheet translation are reflected in income for the
period.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 ("SFAS No. 109"). The adoption of SFAS No. 109
did not have a material effect on the Company's consolidated financial position
or results of operations. Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
WEIGHTED AVERAGE SHARES
Earnings per share has been computed based on the weighted average number
of common shares outstanding during the respective periods. Stock options
outstanding are excluded from the weighted average number of shares since the
dilutive effect is not material.
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 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.
PLANNED ACCOUNTING CHANGES
As of January 1, 1996, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" will be
effective for the Company. The statement sets forth guidelines regarding when
to recognize an impairment of long-lived assets and how to measure such
impairment. Management believes that the adoption of SFAS No. 121 will not
have a significant effect on the Company's consolidated financial position or
results of operations.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation", will be effective for the Company. SFAS No. 123 permits, but
does not require, a fair value based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. The Company plans to continue the use of its current
intrinsic value based method of accounting for such plans.
RECLASSIFICATIONS
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1995 classifications.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
31
<PAGE> 33
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. SUPPLEMENTAL CASH FLOW INFORMATION-(CONTINUED)
Cash paid during the years ended December 31, 1995, 1994, and 1993 for
interest (net of amounts capitalized) and income taxes (net of refunds) was as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid, net of amounts capitalized . . . . . $ 15,851 $13,487 $ 7,144
Income taxes paid, net of refunds . . . . . . . . . $ 3,088 $ 1,903 $(1,818)
</TABLE>
Refer to Note 4 for additional information concerning noncash investing
and financing activities.
3. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components . . . . . . . . . . . . $ 61,578 $ 34,759
Work in process . . . . . . . . . . . . . . . . . . 17,167 12,861
Finished goods . . . . . . . . . . . . . . . . . . . 39,191 27,318
------ ------
$ 117,936 $ 74,938
========= ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
4. ACQUISITIONS AND DISPOSITIONS
In December 1995, the Company made a strategic decision to dispose of its
Highland store distribution system in the United States which has been a part
of the artificial lift and completion tool equipment division. This decision
reflected the Company's desire to focus its efforts on manufacturing and to
eliminate the substantial cost associated with serving as a distributor in the
United States market. Early in 1996, the Company completed the sale of its
store distribution system in the United States to Continental Emsco Company for
approximately $7.5 million. The Company received $3 million in cash, a $4
million vendor credit with Continental Emsco Company for future equipment needs
by the Company and a $0.5 million note receivable. The consideration received
in the sale approximated the net book value of the assets sold, resulting in no
material gain or loss.
In July 1995, the Company acquired Engemaq S.A., a Brazilian completion
tool business, for $4 million.
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 allocations of the purchase price to the fair market values of the
net assets acquired in the 1995 acquisitions are based on preliminary estimate
of fair market value and may be revised when additional information concerning
asset and liability valuations is obtained.
On September 1, 1994, the Company completed the acquisition of the Fluid
Packed(TM) pumps line of rod pumps, parts and accessories, and the sucker rod
line from National-Oilwell for $13.5 million in cash. The acquired assets have
been integrated into the Company's artificial lift and completion tool
equipment division. Included in the acquisition are manufacturing facilities
and equipment in Woodward, Oklahoma and Santa Teresa, New Mexico and product
inventory.
32
<PAGE> 34
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
4. ACQUISITIONS AND DISPOSITIONS-(CONTINUED)
On July 29, 1994, the Company acquired a tubular finishing facility
located in Bryan, Texas ("Bryan facility"). The Company exchanged Eastman
Cherrington Environmental, Inc. ("Eastman Cherrington") including a cash
payment of approximately $2 million for the Bryan facility. The acquired
tubular finishing mill is a 160,000 square foot industrial facility located on
55 acres. The facility is being operated as part of the Company's Grant
Prideco drill pipe and tubular products division. The recorded net book value
of Eastman Cherrington, including operations to the date of disposition,
approximated the appraised value of the Bryan facility. As a result, there was
no material gain or loss realized on the exchange. See Note 5 for additional
information on Eastman Cherrington.
On February 9, 1994, the Company purchased all of the outstanding stock
of AWI Drilling & Workover, Inc. ("AWI"), for a purchase price of $1.5 million
cash, $5.0 million in notes payable and 433,333 shares of the Company's Common
Stock, $1.00 par value. The assets of AWI consist primarily of 12 barge
drilling rigs, eight of which were under charter to the Company at the time of
acquisition. Charter fees incurred by the Company were approximately $2.5
million in 1993.
In November 1993, the Company acquired Production Oil Tools, a
manufacturer of downhole packers and completion systems, for approximately $2.2
million, comprised of cash and shares of the Company's Common Stock.
On June 30, 1993, the Company acquired from Energy Service Company its
International Tool & Supply procurement division ("Procurement Division") and
tubular services division ("Tubular Services") for approximately $4.8 million
consisting of cash, notes payable and other obligations. Tubular Services has
a threading facility for oil country tubulars, specializing in premium tubulars
with large diameters. Tubular Services was integrated into Grant Prideco. On
December 30, 1993, the Company sold the Procurement Division, together with
certain other assets of the Company. Proceeds from the sale were used to repay
the remaining principal balance of notes payable incurred to finance the
acquisitions.
The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Statements of Income from the respective dates of acquisition.
The results of operations related to the acquisition of National-Oilwell's
Fluid Packed pump product lines and the Bryan facility are not material,
therefore, pro forma information is not presented.
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the Prideco
acquisition and the sale of the 3,450,000 shares of Common Stock had occurred
on January 1, 1994. The pro forma information set forth below is not
necessarily indicative of the results that actually would have been achieved
had such transactions been consummated as of January 1, 1994, or that may be
achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $381,135 $ 299,191
Income before extraordinary charge . . . . . . 15,064 7,766
Net income . . . . . . . . . . . . . . . . . . 15,064 3,982
Earnings per share from continuing operations 0.82 0.42
Net income per share . . . . . . . . . . . . . 0.82 0.22
</TABLE>
33
<PAGE> 35
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. DISCONTINUED OPERATIONS
On July 29, 1994, the Company disposed of Eastman Cherrington, including
a cash payment of approximately $2 million, in exchange for a tubular finishing
facility located in Bryan, Texas. Revenues from the discontinued operation of
Eastman Cherrington for 1994 and 1993 were $1.4 million and $3.3 million,
respectively. The discontinued operation of Eastman Cherrington reflected a
net loss of $797,000 and $2.1 million for 1994 and 1993, respectively. The
recorded net book value of Eastman Cherrington, including operations to the
date of disposition, approximated the appraised value of the Bryan facility.
As a result, there was no material gain or loss realized on the exchange.
The results of operations for Eastman Cherrington are reflected in the
accompanying Consolidated Statements of Income as "Discontinued Operations, Net
of Taxes".
6. SHORT-TERM BORROWINGS AND LINES OF CREDIT
The Company's short-term borrowings at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
Payable to banks under lines of credit, interest at prime to prime plus
1 1/4% at December 31, 1995 and December 31, 1994; principal
and interest payable on demand . . . . . . . . . . . . . . . . . . $ 4,826 $17,265
Weighted average interest rate on notes outstanding during
the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2% 8.8%
Average borrowings during the year . . . . . . . . . . . . . . . . . $ 24,382 $22,026
Maximum outstanding during the year . . . . . . . . . . . . . . . . $ 43,189 $48,310
</TABLE>
At December 31, 1995, 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 Company and its subsidiaries
are required to maintain 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 prohibitions on the
declaration or payment of dividends by the Company.
At December 31, 1995, approximately $4.8 million had been borrowed under
the revolving lines of credit and approximately $5.1 million had been used to
support outstanding letters of credit. Additional borrowings of approximately
$55.6 million were available based on collateral values at December 31, 1995.
7. LONG-TERM DEBT
The Company's long-term debt at December 31, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes due in 2004, interest at 10.25% . . . . . . . . . . . $ 120,000 $ 120,000
Capitalized lease obligations under various leases with various
installment amounts . . . . . . . . . . . . . . . . . . . . . . 5,073 4,530
Other notes payable at various rates . . . . . . . . . . . . . . . 7,670 4,349
--------- ---------
132,743 128,879
Less: current maturities of long-term debt . . . . . . . . . . . 5,894 3,189
--------- ---------
$ 126,849 $ 125,690
========= =========
</TABLE>
34
<PAGE> 36
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. LONG-TERM DEBT-(CONTINUED)
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,894
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,094
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,464
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . 120,000
---------
$ 132,743
=========
</TABLE>
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 17. 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. As of December 31, 1995, the Company was limited in
the amount of dividends, distributions and other restricted payments that could
be made by it to approximately $137 million.
The carrying value of the $120 million Senior Notes approximates fair
value as of December 31, 1994. At December 31, 1995, the fair value of the
$120 million Senior Notes, using a rate currently available to the Company for
similar debt, approximates $125 million.
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 a first quarter extraordinary charge of
approximately $3.8 million, net of taxes of approximately $1.9 million, or
$0.30 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 consolidated financial statements, was approximately $3.8 million and
$3.7 million at December 31, 1995 and 1994, respectively.
8. STOCKHOLDERS' INVESTMENT
PUBLIC STOCK OFFERING
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 $72.6 million.
35
<PAGE> 37
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT-(CONTINUED)
STOCK OPTION PLANS
In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non- qualified stock option plan. The plan
expired in May 1991. Under the Option Plan, options were provided to officers
and key employees of the Company (including directors who are also key
employees) and its subsidiaries to purchase up to an aggregate of 1,000,000
shares of Common Stock of the Company.
In May 1991, the Company's stockholders approved the Company's
Non-Employee Director Stock Option Plan ("Director Plan"), a non-qualified
stock option plan. Under the Director Plan, options to purchase up to an
aggregate of 500,000 shares of Common Stock of the Company may be granted to
non-employee directors of the Company. Options to purchase 15,000 shares of
Common Stock are automatically granted to each non-employee director on the
date of their initial election. At December 31, 1995, 365,000 shares were
available for the granting of options.
In May 1992, the Company's stockholders approved the Company's 1992
Employee Stock Option Plan ("ESO Plan"). Under the ESO Plan, options to
purchase up to an aggregate of 600,000 shares of Common Stock of the Company
may be granted to officers and key employees of the Company (including
directors who are also key employees) and its subsidiaries. At December 31,
1995, 136,000 shares were available for granting of such options.
Transactions under the above option plans are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPTION
OF PRICE/RANGE
SHARES PER SHARE
-------- ------------------
<S> <C> <C>
Options outstanding, December 31, 1992 . . . . . . . . . . . . 653,300 $ 2.69 - $23.88
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 11.75 - 16.13
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (41,237) 2.69 - 11.50
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . (40,000) 16.50 - 18.25
--------
Options outstanding, December 31, 1993 . . . . . . . . . . . . 667,063 2.69 - 23.88
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . 52,000 13.75
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (5,160) 2.69
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . (74,167) 11.50 - 18.25
--------
Options outstanding, December 31, 1994 . . . . . . . . . . . . 639,736 2.69 - 23.88
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . 127,000 13.75 - 18.00
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (62,736) 2.69 - 16.50
--------
Options outstanding, December 31, 1995 . . . . . . . . . . . . 704,000 9.38 - 23.88
========
Options exercisable as of December 31, 1995 . . . . . . . . . 537,333 9.38 - 23.88
========
</TABLE>
PROFIT SHARING PLANS
The Company and certain of its subsidiaries have adopted retirement plans
which qualify under Section 401(k) of the Internal Revenue Code. The plans
generally provide for 20% matching contributions by the Company, up to a
maximum liability of 1.2% of each participating employee's annual compensation.
The Company, under each plan, also has the right to make additional
discretionary matching contributions. Total contributions by the Company under
these plans were $306,000, $193,000 and $383,000 during 1995, 1994 and 1993,
respectively.
36
<PAGE> 38
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT-(CONTINUED)
EXECUTIVE DEFERRED COMPENSATION PLAN
In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits under
the EDC Plan. The funds provided to such trust are invested by a trustee
independent of the Company primarily in Common Stock of the Company which is
purchased by the trustee on the open market. The assets of the trust are
available to satisfy the claims of all general creditors of the Company in the
event of bankruptcy or insolvency. Accordingly, the Common Stock held by the
trust has been consolidated for accounting purposes and is included in the
accompanying Consolidated Statements of Stockholders' Investment as "Treasury
Stock, at Cost" and reflected as such on the Consolidated Balance Sheets. The
compensation expense related to this plan was not significant for any of the
three years in the period ended December 31, 1995.
9. INCOME TAXES
The domestic and foreign components of Income before Income Taxes from
Continuing Operations consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,865 $ 1,162 $ 6,155
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 8,526 5,286 6,656
-------- -------- --------
$ 16,391 $ 6,448 $ 12,811
======== ======== ========
</TABLE>
Total income tax provision (benefit) was recorded as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from Continuing Operations . . . . . . . . . . . . . $ 5,080 $ 1,806 $ 4,864
Discontinued Operations . . . . . . . . . . . . . . . . . . -- -- (1,185)
Extraordinary Charge . . . . . . . . . . . . . . . . . . . . -- (1,949) --
-------- -------- --------
$ 5,080 $ (143) $ 3,679
======== ======== ========
</TABLE>
The Company's provision for income taxes of continuing operations for the
three years ended December 31, 1995, consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . $ 250 $ 648 $ 1,654
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 2,090 1,985 3,017
State . . . . . . . . . . . . . . . . . . . . . . . . . . 760 225 97
-------- -------- --------
3,100 2,858 4,768
-------- -------- --------
Deferred
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . (184) (1,229) (454)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 2,126 177 202
State . . . . . . . . . . . . . . . . . . . . . . . . . . 38 -- 348
-------- -------- --------
1,980 (1,052) 96
-------- -------- --------
$ 5,080 $ 1,806 $ 4,864
======== ======== ========
</TABLE>
37
<PAGE> 39
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES-(CONTINUED)
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing
operations before income taxes for the three years ended December 31, 1995, in
the accompanying Consolidated Statements of Income is analyzed below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . . . . . . . 35.0% 34.0% 34.0%
Effect of state income tax, net . . . . . . . . . . . . . . 3.4 2.3 2.3
Effect of non-deductible expenses . . . . . . . . . . . . . 2.2 3.7 .9
Utilization of net operating loss carryforward . . . . . . . (5.4) (15.5) --
Effect of foreign income tax, net . . . . . . . . . . . . . .3 (.1) 2.6
Non-benefitable foreign losses . . . . . . . . . . . . . . . .9 6.2 --
Realization of tax assets . . . . . . . . . . . . . . . . . (6.3) -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 (2.6) (1.8)
---- ----- ----
31.0% 28.0% 38.0%
==== ===== ====
</TABLE>
The deferred income tax provisions for income before income taxes for the
three years ended December 31, 1995, primarily consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Excess of tax over (under) financial deduction related
to depreciation . . . . . . . . . . . . . . . . . . . . . $ (541) $ 1,262 $1,082
Excess of tax over (under) financial deductions for reserves 1,623 1,379 (155)
Benefit provided on losses of subsidiaries not included in
consolidated return . . . . . . . . . . . . . . . . . . . -- -- (477)
Alternative minimum tax . . . . . . . . . . . . . . . . . . 257 (660) (461)
Book accruals (reversals) not currently deductible . . . . . 1,042 (775) (368)
State and foreign income taxes . . . . . . . . . . . . . . . 2,164 177 549
Utilization of net operating loss carryforward . . . . . . . (890) (997) --
Foreign tax credits, net . . . . . . . . . . . . . . . . . . (414) (1,281) --
Realization of tax assets . . . . . . . . . . . . . . . . . (1,025) -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (236) (157) (74)
-------- ------- ------
$ 1,980 $(1,052) $ 96
======== ======= ======
</TABLE>
The components of the net deferred tax liability at December 31, 1995
and December 31, 1994, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . $ 5,839 $ 5,433
Alternative minimum tax credit carryforward . . . . . . . . . . 864 1,121
Book accruals/other . . . . . . . . . . . . . . . . . . . . . . 8,458 2,927
Foreign tax credit carryforwards . . . . . . . . . . . . . . . . 5,973 3,074
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . (4,186) (6,101)
--------- ---------
Total deferred tax asset . . . . . . . . . . . . . . . . . 16,948 6,454
--------- ---------
Deferred tax liabilities:
COLEVE production payment . . . . . . . . . . . . . . . . . . . (14,907) (14,224)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (25,533) (20,105)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,434) (2,910)
--------- ---------
Total deferred tax liability . . . . . . . . . . . . . . . (49,874) (37,239)
--------- ---------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . $ (32,926) $ (30,785)
========= =========
</TABLE>
38
<PAGE> 40
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES-(CONTINUED)
The amount of federal operating loss carryforwards for tax purposes
generated by certain subsidiaries prior to their acquisition is $17,060,000,
which includes $4,710,000 of federal operating loss carryforwards previously
benefited for book purposes, and if not utilized will expire between 2001 and
2007. The use of pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code. At December 31, 1995, the Company had
$860,000 of alternative minimum tax credit carryforwards, which may be used
indefinitely to reduce regular Federal income taxes. Additionally, at December
31, 1995, the Company, for U.S. Federal income tax purposes, had $760,000 of
foreign tax credit carryforwards, expiring principally between 1996 and 1999.
The realization of a portion of the deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of the carryforward
amounts. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
The Company has a valuation allowance to reflect the estimated amount of
deferred tax assets for which realization is uncertain. The net change in the
valuation allowance for the year ended December 31, 1995 was a decrease of
$1,915,000. The net change principally relates to a reduction in the valuation
allowance required for certain deferred tax assets which realization became
certain during 1995.
COLEVE TAX MATTER
In August of 1994, the Company received a letter from the United States
Internal Revenue Service ("IRS") proposing to increase the gain recognized by
the Company upon the dissolution in October 1990 of a joint venture ("COLEVE")
with Columbia Gas 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
consolidated 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 consolidated results of operations or financial position.
10. DISPUTES, LITIGATION AND CONTINGENCIES
LITIGATION AND OTHER DISPUTES
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation would not have a material adverse effect on the
Company's consolidated financial position or its results of operations.
INSURANCE
The Company is partially self-insured for employee health insurance
claims and for workers' compensation for certain of its employees. Although
the Company believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is reasonably
possible that management's estimates of these liabilities will change over the
near term as circumstances develop.
39
<PAGE> 41
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. INSURANCE SETTLEMENT
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover drilling
contract with the National Iranian Oil Company ("NIOC"). Under the terms of
the settlement with the Company's insurance carriers, the Company received a
net cash payment of $23 million for reimbursement of certain operating costs
incurred and amounts to be received in accordance with the terms of the
workover drilling contract. The Company also retained all rights to any funds
collected or recovered by the Company from NIOC and to the rigs and equipment
deployed in Iran. The rigs and the related equipment were moved out of Iran by
December 31, 1994.
In 1994, the Company adjusted the carrying value of the receivables, rigs
and equipment, and established reserves for demobilization, refurbishment and
contract settlement costs, all of which totaled approximately $18 million. The
insurance settlement which increased operating income by $4.8 million was
reduced by operating losses of $2.6 million relating to the Iranian operations
for 1994.
12. COMMITMENTS
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $5,124,000, $4,626,000
and $3,055,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Future minimum rental commitments under these operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . $ 4,367
1997 . . . . . . . . . . . . . . . . . . . . . . . . 3,620
1998 . . . . . . . . . . . . . . . . . . . . . . . . 3,161
1999 . . . . . . . . . . . . . . . . . . . . . . . . 1,055
2000 . . . . . . . . . . . . . . . . . . . . . . . . 542
Thereafter . . . . . . . . . . . . . . . . . . . . . 5,521
---------
$ 18,266
=========
</TABLE>
13. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $594,000, $748,000, and $582,000
during 1995, 1994 and 1993, respectively, with a law firm in which a director
of the Company is a partner.
The Company paid approximately $4,037,000 in 1995 and $3,300,000 in 1994
in underwriting fees associated with the Public Offering and the private
placement of the $120 million of 10.25% Senior Notes, respectively. The
underwriting group for each of these transactions included Lehman Brothers, an
affiliate of Lehman Brothers Holdings Inc., a major stockholder of the Company,
as well as several other unrelated underwriters. The fee arrangements
associated with these offerings were on terms standard in the underwriting
industry.
14. SUBSEQUENT EVENT
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with Oil Country Tubular, Ltd. ("OCTL"), an India-based
manufacturer of drill pipe and premium tubulars. Manufacturing operations on
behalf of the Company are expected to commence during the second quarter of
1996. In January 1996, under the terms of the agreement with OCTL, the Company
made a one-time payment of $8 million for the exclusive right to have Grant
Prideco's product manufactured at the facility.
40
<PAGE> 42
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company operates through two business segments: oilfield equipment
and contract drilling. The oilfield equipment segment manufactures high
performance tubulars and a complete line of artificial lift and completion tool
equipment. The Company's tubular products are used primarily for natural gas
exploration and production. The Company's contract drilling segment consists
primarily of a fleet of barge rigs used by major and large independent oil and
gas companies primarily for the exploration and development of natural gas in
the U.S. Gulf Coast area. Internationally, the contract drilling segment is
currently operating one barge rig in Nigeria, two platform rigs in Peru and
four land rigs in Argentina.
Financial information by industry segment for each of the three years
ended December 31, 1995, is summarized below (in thousands). Identifiable
assets included in the Corporate and Other column includes the elimination of
intercompany transactions.
<TABLE>
<CAPTION>
CORPORATE
OILFIELD CONTRACT AND
EQUIPMENT DRILLING OTHER TOTAL
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers . . . $ 271,675 $ 79,912 $ -- $351,587
Operating income (loss) . . . . . . . 23,091 14,475 (5,126) 32,440
Identifiable assets . . . . . . . . . 350,697 151,538 (11,175) 491,060
Depreciation and amortization . . . . 12,357 8,378 89 20,824
Capital expenditures and acquisitions 33,217 22,898 18 56,133
1994
Sales to unaffiliated customers . . . $ 185,285 $ 63,252 $ -- $248,537
Operating income (loss) . . . . . . . 8,226 15,831 (4,588) 19,469
Identifiable assets . . . . . . . . . 230,592 125,927 (12,285) 344,234
Depreciation and amortization . . . . 9,302 4,870 96 14,268
Capital expenditures and acquisitions 32,533 33,938 91 66,562
1993
Sales to unaffiliated customers . . . $ 171,638 $ 74,379 $ -- $246,017
Operating income (loss) . . . . . . . 10,788 11,797 (4,030) 18,555
Identifiable assets . . . . . . . . . 180,862 86,385 9,984 277,231
Depreciation and amortization . . . . 7,826 4,381 74 12,281
Capital expenditures and acquisitions 13,119 4,468 2,091 19,678
</TABLE>
MAJOR CUSTOMERS AND CREDIT RISK
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. Foreign sales also
present various risks, including risks of war, civil disturbances and
governmental activities that may limit or disrupt markets, restrict the
movement of funds or result in the deprivation of contract rights or the taking
of property without fair consideration. Most of the Company's foreign sales,
however, are to large international companies or are secured by letter of
credit or similar arrangements.
In 1995, 1994 and 1993, there was no individual customer who accounted for
10% of consolidated revenues. With the exception of the contract drilling
segment, whose foreign rigs typically operate under long-term contracts, the
Company does not believe itself to be dependent to any material degree on any
single customer.
41
<PAGE> 43
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION-(CONTINUED)
FOREIGN OPERATIONS AND EXPORT SALES
The Company's equipment and services are used in approximately 50 countries
by U.S. customers operating abroad and by foreign customers. Sales of
equipment and services outside the United States accounted for 38%, 36%, and
40% of total revenues in 1995, 1994 and 1993, respectively, based upon the
ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company.
Summarized financial information for the three years ended December 31,
1995, by geographic area is as follows:
<TABLE>
<CAPTION>
WESTERN HEMISPHERE EASTERN HEMISPHERE
---------------------- -----------------------
UNITED STATES OTHER MIDDLE EAST OTHER ELIMINATIONS TOTAL
---------- ------- -------- -------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995
Operating revenues from
unaffiliated customers $ 220,937 $61,293 $ -- $ 9,921 $ (3,567) $288,584
Export sales to
unaffiliated customers 63,003 -- -- -- -- 63,003
---------- ------- -------- -------- ---------- --------
Total revenues . . . . . 283,940 61,293 -- 9,921 (3,567) 351,587
Operating income (loss) 17,518 13,733 (262) 2,148 (697) 32,440
Identifiable assets . . 359,696 88,772 4,295 38,297 -- 491,060
1994
Operating revenues from
unaffiliated customers $ 162,344 $34,643 $ 5,801 $ 5,329 $ (3,304) $204,813
Export sales to
unaffiliated customers 43,724 -- -- -- -- 43,724
---------- ------- -------- -------- ---------- --------
Total revenues . . . . . 206,068 34,643 5,801 5,329 (3,304) 248,537
Operating income (loss) 9,511 7,194 3,219 (170) (285) 19,469
Identifiable assets . . 263,192 41,413 12,866 26,763 -- 344,234
1993
Operating revenues from
unaffiliated customers $ 150,729 $31,722 $ 7,967 $ 4,675 $ (1,983) $193,110
Export sales to
unaffiliated customers 52,847 -- -- -- 60 52,907
---------- ------- -------- -------- ---------- --------
Total revenues . . . . . 203,576 31,722 7,967 4,675 (1,923) 246,017
Operating income . . . . 9,744 7,372 802 599 38 18,555
Identifiable assets . . 200,771 32,281 28,316 15,863 -- 277,231
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1995 and 1994.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
--------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1995
Revenues . . . . . . . . . . . . . . . . . . $ 72,660 $ 79,747 $ 93,797 $ 105,383 $ 351,587
Gross Profit . . . . . . . . . . . . . . . . 19,504 20,096 24,256 25,438 89,294
Income before Income Taxes . . . . . . . . . 2,630 2,743 4,685 6,333 16,391
Net Income . . . . . . . . . . . . . . . . . 1,631 1,753 3,556 4,371 11,311
Net Income Per Common Share . . . . . . . . .13 .14 .24 .24 .77 (1)
--
</TABLE>
42
<PAGE> 44
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)-(CONTINUED)
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
--------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . . . . $ 55,118 $ 50,566 $ 68,079 $ 74,774 $ 248,537
Gross Profit . . . . . . . . . . . . . . . . 14,927 14,874 18,689 18,910 67,400
Income before Income Taxes . . . . . . . . . 1,336 195 2,698 2,219 6,448
Income from Continuing Operations . . . . . 855 127 1,679 1,981 4,642
Extraordinary Charge, Net of Taxes . . . . . (3,784) -- -- -- (3,784)
Net Income (Loss) . . . . . . . . . . . . . (2,929) 127 1,679 1,981 858
Net Income (Loss) Per Common Share:
Continuing Operations . . . . . . . . . . $ .07 $ .01 $ .13 $ .16 $ .37
Extraordinary Charge, Net of Taxes . . . . ( .30) -- -- -- (.30)
--------- -------- -------- --------- ---------
Net Income (Loss) . . . . . . . . . . . . $ ( .23) $ .01 $ .13 $ .16 $ .07
========= ======== ======== ========= =========
</TABLE>
(1) Net Income Per Common Share for the year ended December 31, 1995, differs
from the summation of the individual quarters within that year due to the
impact of the Public Offering of Common Stock and shares issued in
connection with the Prideco acquisition.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The $120 million Senior Notes which are described in Note 7 are
unconditionally guaranteed on a joint and several basis, by certain
subsidiaries of the Company. Accordingly, the following condensed
consolidating balance sheets as of December 31, 1995 and 1994, and the related
condensed consolidating statements of income and cash flows for each of the
three years in the period ended December 31, 1995, have been provided. The
condensed consolidating financial statements herein are followed by notes which
are an integral part of these statements.
43
<PAGE> 45
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . $ 532 $ 2,985 $ 1,000 $ -- $ 4,517
Other Current Assets . . . . . . . 1,564 208,342 35,151 -- 245,057
-------- ---------- --------- ----------- ---------
2,096 211,327 36,151 -- 249,574
-------- ---------- --------- ----------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . . 159 177,945 14,598 -- 192,702
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . . 342,844 (169,154) 18,417 (192,107) --
OTHER ASSETS . . . . . . . . . . . . 4,969 47,079 (3,264) -- 48,784
-------- ---------- --------- ----------- ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= =========== =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . . $ -- $ 795 $ 4,031 $ -- $ 4,826
Current Maturities of Long-Term
Debt . . . . . . . . . . . . . -- 5,484 410 -- 5,894
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . . 4,055 72,451 9,890 -- 86,396
-------- ---------- --------- ----------- ---------
4,055 78,730 14,331 -- 97,116
-------- ---------- --------- ----------- ---------
LONG-TERM DEBT . . . . . . . . . . . 120,000 6,262 587 -- 126,849
OTHER LIABILITIES . . . . . . . . . . (2,053) 22,394 18,688 -- 39,029
-------- ---------- --------- ----------- ---------
STOCKHOLDERS' INVESTMENT . . . . . . 228,066 159,811 32,296 (192,107) 228,066
-------- ---------- --------- ----------- ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= =========== =========
</TABLE>
44
<PAGE> 46
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . $ 166 $ 1,593 $ 1,385 $ -- $ 3,144
Other Current Assets . . . . . . 1,549 135,170 24,940 -- 161,659
--------- ---------- ---------- ---------- --------
1,715 136,763 26,325 -- 164,803
--------- ---------- ---------- ---------- --------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . 230 140,024 10,641 -- 150,895
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . 229,873 (134,749) 18,058 (113,182) --
OTHER ASSETS . . . . . . . . . . . 4,124 23,496 916 -- 28,536
--------- ---------- ---------- ---------- --------
$ 235,942 $ 165,534 $ 55,940 $ (113,182) $344,234
========= ========== ========== ========== ========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . $ -- $ 13,627 $ 3,638 $ -- $ 17,265
Current Maturities of Long-Term
Debt . . . . . . . . . . . . . -- 1,480 1,709 -- 3,189
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . 5,291 37,748 6,972 -- 50,011
--------- ---------- ---------- ---------- --------
5,291 52,855 12,319 -- 70,465
--------- ---------- ---------- ---------- --------
LONG-TERM DEBT . . . . . . . . . . 120,062 4,605 1,023 -- 125,690
OTHER LIABILITIES . . . . . . . . (324) 21,829 15,661 -- 37,166
--------- ---------- ---------- ---------- --------
STOCKHOLDERS' INVESTMENT . . . . . 110,913 86,245 26,937 (113,182) 110,913
--------- ---------- ---------- ---------- --------
$ 235,942 $ 165,534 $ 55,940 $ (113,182) $344,234
========= ========== ========== ========== ========
</TABLE>
45
<PAGE> 47
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 289,246 $ 62,341 $ -- $ 351,587
COSTS AND EXPENSES . . . . . . . . . 5,123 264,111 49,913 -- 319,147
-------- ---------- ---------- ---------- ---------
OPERATING INCOME (LOSS) . . . . . . . (5,123) 25,135 12,428 -- 32,440
-------- ---------- ---------- ---------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . 2,539 (17,174) (1,970) -- (16,605)
Equity in Subsidiaries, Net of
Taxes . . . . . . . . . . . . . 11,179 -- -- (11,179) --
Other, Net . . . . . . . . . . . 360 1,317 (1,121) -- 556
-------- ---------- ---------- ---------- ---------
INCOME BEFORE INCOME TAXES . . . . . 8,955 9,278 9,337 (11,179) 16,391
PROVISION (BENEFIT) FOR INCOME TAXES (2,356) 4,046 3,390 -- 5,080
-------- ---------- ---------- ---------- ---------
NET INCOME . . . . . . . . . . . . . $ 11,311 $ 5,232 $ 5,947 $ (11,179) $ 11,311
======== ========== ========== ========== =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 211,052 $ 37,485 $ -- $ 248,537
COSTS AND EXPENSES . . . . . . . . . 4,775 190,924 33,369 -- 229,068
-------- ---------- ---------- ---------- ---------
OPERATING INCOME (LOSS) . . . . . . (4,775) 20,128 4,116 -- 19,469
-------- ---------- ---------- ---------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . (6,828) (6,187) (490) -- (13,505)
Equity in Subsidiaries, Net of
Taxes . . . . . . . . . . . . 11,343 -- -- (11,343) --
Other, Net . . . . . . . . . . . 35 459 (10) -- 484
-------- ---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . . (225) 14,400 3,616 (11,343) 6,448
PROVISION (BENEFIT) FOR INCOME TAXES (4,867) 4,558 2,115 -- 1,806
-------- ---------- ---------- ---------- ---------
INCOME FROM CONTINUING OPERATIONS . . 4,642 9,842 1,501 (11,343) 4,642
EXTRAORDINARY CHARGE, NET
OF TAXES . . . . . . . . . . . . . (3,784) -- -- -- (3,784)
-------- ---------- ---------- ---------- ---------
NET INCOME . . . . . . . . . . . . . $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
======== ========== ========== ========== =========
</TABLE>
46
<PAGE> 48
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 205,278 $ 40,739 $ -- $ 246,017
COSTS AND EXPENSES . . . . . . . . . 4,226 186,863 36,373 -- 227,462
-------- ---------- --------- --------- ---------
OPERATING INCOME (LOSS) . . . . . . . (4,226) 18,415 4,366 -- 18,555
-------- ---------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . . (2,334) (4,980) 105 -- (7,209)
Equity in Subsidiaries, Net of
Taxes . . . . . . . . . . . . . 11,565 -- -- (11,565) --
Other, Net . . . . . . . . . . . . 1,076 201 188 -- 1,465
-------- ---------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . . 6,081 13,636 4,659 (11,565) 12,811
PROVISION (BENEFIT) FOR INCOME TAXES (1,866) 5,213 1,517 -- 4,864
-------- ---------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS . . 7,947 8,423 3,142 (11,565) 7,947
DISCONTINUED OPERATIONS, NET
OF TAXES . . . . . . . . . . . . . (2,057) -- -- -- (2,057)
-------- ---------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . $ 5,890 $ 8,423 $ 3,142 $ (11,565) $ 5,890
======== ========== ========= ========= =========
</TABLE>
47
<PAGE> 49
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . . . . $ 11,311 $ 5,232 $ 5,947 $(11,179) $ 11,311
Equity in Earnings of
Subsidiaries . . . . . . . . . . (11,179) -- -- 11,179 --
Other Adjustments and Charges . . (3,808) (39,633) 10,258 -- (33,183)
-------- --------- -------- --------- --------
Net Cash Provided (Used) by
Operations . . . . . . . . . . . (3,676) (34,401) 16,205 -- (21,872)
-------- --------- -------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and
Assets . . . . . . . . . . . . . . -- 2,880 489 -- 3,369
Acquisition of Businesses . . . . . -- (4,007) (4,098) -- (8,105)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . (19) (28,689) (3,982) -- (32,690)
-------- --------- -------- --------- --------
Net Cash Used by Investing
Activities . . . . . . . . . . . (19) (29,816) (7,591) -- (37,426)
-------- --------- -------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock . . . . . . 73,304 -- (656) -- 72,648
Borrowings (Repayments) Under Revolving
Lines of Credit, Net . . . . . . . -- (12,832) 393 -- (12,439)
Borrowings Under Term Debt . . . . . -- 3,848 688 -- 4,536
Repayment on Term Debt . . . . . . . -- (3,412) (1,041) -- (4,453)
(Increase) Decrease in amounts Due to
and from Subsidiaries, Net . . . . (68,885) 78,005 (9,120) -- --
Other, Net . . . . . . . . . . . . . (358) -- 656 -- 298
-------- --------- -------- --------- --------
Net Cash Provided (Used) by Financing
Activities . . . . . . . . . . . 4,061 65,609 (9,080) -- 60,590
-------- --------- -------- --------- --------
Effect of Translation Adjustment on Cash -- -- 81 -- 81
-------- --------- -------- --------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . 366 1,392 (385) -- 1,373
Cash and Cash Equivalents at Beginning
of Year . . . . . . . . . . . . . . 166 1,593 1,385 -- 3,144
-------- --------- -------- --------- --------
Cash and Cash Equivalents at End
of Year . . . . . . . . . . . . . . $ 532 $ 2,985 $ 1,000 $ -- $ 4,517
======== ========= ======== ========= ========
</TABLE>
48
<PAGE> 50
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
Insurance Settlement, Net . . . . . -- 23,000 -- -- 23,000
Equity in Earnings of Subsidiaries (11,343) -- -- 11,343 --
Other Adjustments and Changes . . . 11,329 (37,044) (2,901) -- (28,616)
-------- ---------- ---------- ---------- ----------
Net Cash Provided (Used) by
Operations . . . . . . . . . . . 844 (4,202) (1,400) -- (4,758)
-------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and Assets -- 3,103 28 -- 3,131
Acquisition of Businesses . . . . . -- (17,076) -- -- (17,076)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . (91) (16,441) (3,075) -- (19,607)
-------- ---------- ---------- ---------- ----------
Net Cash Used by Investing Activities (91) (30,414) (3,047) -- (33,552)
-------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Issuance of Long-Term Debt 120,000 -- -- -- 120,000
Short-Term Borrowings, Net . . . . -- (27,894) (1,046) -- (28,940)
Repayments on Term Debt, Net . . . (34,442) (8,188) (2,067) -- (44,697)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net . . . . . . (78,181) 70,091 8,090 -- --
Other, Net . . . . . . . . . . . . (9,408) -- -- -- (9,408)
-------- ---------- ---------- ---------- ----------
Net Cash Provided (Used) by Financing
Activities . . . . . . . . . . . . (2,031) 34,009 4,977 -- 36,955
-------- ---------- ---------- ---------- ----------
Effect of Translation Adjustment on
Cash . . . . . . . . . . . . . . . -- -- (300) -- (300)
-------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . (1,278) (607) 230 -- (1,655)
Cash and Cash Equivalents at Beginning
of Year . . . . . . . . . . . . . 1,444 2,200 1,155 -- 4,799
-------- ---------- ---------- ---------- ----------
Cash and Cash Equivalents at End of
Year . . . . . . . . . . . . . . . $ 166 $ 1,593 $ 1,385 $ -- $ 3,144
======== ========== ========== ========== ==========
</TABLE>
49
<PAGE> 51
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . $ 5,890 $ 8,423 $ 3,142 $ (11,565) $ 5,890
Equity in Earnings of
Subsidiaries . . . . . . . . . (11,565) -- -- 11,565 --
Other Adjustments and Changes . (1,780) (1,037) (12,202) 3,552 (11,467)
-------- ---------- --------- --------- ----------
Net Cash Provided (Used) by
Operations . . . . . . . . . (7,455) 7,386 (9,060) 3,552 (5,577)
-------- ---------- --------- --------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and
Assets . . . . . . . . . . . . . 3,500 447 307 -- 4,254
Acquisition of Businesses . . . . (633) 51 (351) -- (933)
Capital Expenditures for Property,
Plant and Equipment . . . . . . -- (9,615) (5,270) -- (14,885)
-------- ---------- --------- --------- ----------
Net Cash Provided (Used) by
Investing Activities . . . . . 2,867 (9,117) (5,314) -- (11,564)
-------- ---------- --------- --------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Short-Term Borrowings, Net . . . . -- 17,283 4,307 -- 21,590
(Repayments)/Borrowings of Term Debt (3,801) (1,795) 2,758 -- (2,838)
(Increase) Decrease in Amounts Due
to and from Subsidiaries, Net . 9,434 (14,344) 8,462 (3,552) --
Other, Net . . . . . . . . . . . . (384) -- -- -- (384)
-------- ---------- --------- --------- ----------
Net Cash Provided by Financing
Activities . . . . . . . . . . 5,249 1,144 15,527 (3,552) 18,368
-------- ---------- --------- --------- ----------
Effect of Translation Adjustment on
Cash . . . . . . . . . . . . . . . -- -- (468) -- (468)
-------- ---------- --------- --------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . 661 (587) 685 -- 759
Cash and Cash Equivalents at Beginning
of Year . . . . . . . . . . . . . 783 2,787 470 -- 4,040
-------- ---------- --------- --------- ----------
Cash and Cash Equivalents at End
of Year . . . . . . . . . . . . . $ 1,444 $ 2,200 $ 1,155 $ -- $ 4,799
======== ========== ========= ========= ==========
</TABLE>
50
<PAGE> 52
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 1995 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. LONG-TERM DEBT
The Company's summary of scheduled debt maturities by year, description of
debt and other information is disclosed in Note 7.
C. COLEVE TAX MATTER
The Company received a letter from the IRS seeking payment of a tax
liability of approximately $14.1 million plus accrued interest thereon with
respect to COLEVE. See Note 9 for additional information regarding this tax
matter.
D. INSURANCE SETTLEMENT
On September 30, 1994, the Company received net proceeds of $23 million
from its insurance carriers as settlement for the termination of its workover
drilling contract with NIOC. See Note 11 for additional information regarding
this settlement.
E. OTHER
Notes 1 through 16 should be read in conjunction with the Condensed
Consolidating Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information on directors and executive
officers of the Registrant is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information on executive compensation
is incorporated by reference from the Registrant's Definitive Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information on security ownership of
certain beneficial owners and management is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to
51
<PAGE> 53
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information on certain relationships
and related transactions is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or incorporated
herein by reference:
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and financial statement schedule of
the Company are listed on the index on page 24.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fourth quarter of 1995.
EXHIBITS
3.1 - Certificate of Incorporation of the Company, as amended
through May 22, 1991 (incorporated by reference to Exhibit
No. 4.1 to the Registration Statement on Form S-3;
Registration No. 33-40833).
3.2 - By-laws as amended (incorporated by reference to Exhibit No.
3.2 to Form 10-K, File 0-7265, filed March 1, 1994).
4.1 - Certificate of Incorporation of the Company, as amended
through May 22, 1991 (incorporated by reference to Exhibit
No. 4.1 to the Registration Statement on Form S-3;
Registration No. 33-40833).
4.2 - By-laws as amended (incorporated by reference to Exhibit No.
3.2 to Form 10-K, File 0-7265, filed March 1, 1994).
4.3 - Indenture dated March 15, 1994, among Energy Ventures, Inc.,
as Issuer, the Subsidiary Guarantors party thereto, as
Guarantors, and Chemical Bank, as Trustee (incorporated by
reference to Form 8-K, File 0-7265, filed April 5, 1994).
4.4 - Specimen 10 1/4% Senior Note due 2004 of Energy Ventures,
Inc. (incorporated by reference to Form 8-K, File 0-7265,
filed April 5, 1994).
4.5 - First Supplemental Indenture by and among Energy Ventures,
Inc., Prideco and Chemical Bank, as trustee, dated June 30,
1995 (incorporated by reference to Exhibit No. 4.4 to the
Registration Statement on Form S-3; Registration No.
33-61933).
10.1 - Letter Agreement dated September 24, 1990, among ENGY, Inc.,
Columbia Gas Transmission Corporation, and COLEVE, a joint
venture (incorporated by reference to Exhibit No. 10.32 to
the Registration Statement on Form S-2; Registration No.
33-36653).
10.2 - Letter Agreement dated September 24, 1990, between ENGY, Inc.
and Columbia Gas Transmission Corporation (incorporated by
reference to Exhibit No. 10.33 to the Registration Statement
on Form S-2; Registration No. 33-36653).
10.3 - Purchase and Sale Agreement between ENGY, Inc. and Columbia
Gas Development Corporation dated October 22, 1990 and
Exhibit A(1) thereto (incorporated by reference to Form 8-K,
File 0-7265, filed November 6, 1990).
10.4 - COLEVE Termination Agreement between Columbia Gas Development
Corporation, ENGY, Inc. and Energy Ventures, Inc. dated
October 22, 1990 (incorporated by reference to Form 8-K, File
0-7265, filed November 6, 1990).
10.5 - Dismissal Agreement between Columbia Gas Development
Corporation, ENGY, Inc. and COLEVE dated October 22, 1990
(incorporated by reference to Form 8-K, File 0-7265, filed
November 6, 1990).
10.6 - Amended and Restated Loan and Security Agreement among
EVI-Highland Pump Company, Grant TFW Inc., and Mallard
Drilling, Inc. as Borrowers, Energy Ventures, Inc., as
Guarantor, and Transamerica Business Credit Corporation, as
Lender, dated October 13, 1992 (incorporated by reference to
Form 10-Q, File 0-7265, filed November 16, 1992).
52
<PAGE> 54
10.7 - First Amendatory Agreement dated May 5, 1993 to Amended and
Restated Loan and Security Agreement dated October 13, 1992
by and among EVI-Highland Pump Company, Grant TFW Inc., and
Mallard Drilling, Inc., as Borrowers, Energy Ventures, Inc.,
as Guarantor, and Transamerica Business Credit Corporation,
as Lender (incorporated by reference to Form 10-K, File
0-7265, filed March 1, 1994).
10.8 - Second Amendatory Agreement dated August 12, 1993 to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.,
and Mallard Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit
Corporation, as Lender (incorporated by reference to Form
10-Q, File 0-7265, filed November 3, 1993).
10.9 - Third Amendatory Agreement dated October 12, 1993 to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.,
and Mallard Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit
Corporation, as Lender (incorporated by reference to Form
10-Q, File 0-7265, filed November 3, 1993).
10.10 - Fourth Amendatory Agreement dated February 21, 1994 to
Amended and Restated Loan and Security Agreement dated
October 13, 1992 by and among EVI-Highland Pump Company,
Grant TFW Inc., and Mallard Drilling, Inc., as Borrowers,
Energy Ventures, Inc., as Guarantor, and Transamerica
Business Credit Corporation, as Lender (incorporated by
reference to Form 10-Q, File 0-7265, filed May 11, 1994).
10.11 - Fifth Amendatory Agreement dated March 22, 1994 to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.,
and Mallard Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit
Corporation, as Lender (incorporated by reference to Form
10-Q, File 0-7265, filed May 11, 1994).
10.12 - Letter Agreement dated May 5, 1994 to Amended and Restated
Loan and Security Agreement dated October 13, 1992 by and
among EVI-Highland Pump Company, Grant TFW Inc., and Mallard
Drilling, Inc., as Borrowers, Energy Ventures, Inc., as
Guarantor, and Transamerica Business Credit Corporation, as
Lender (incorporated by reference to Form 10-Q, File 0-7265,
filed May 11, 1994).
**10.13 - Sixth Amendatory Agreement dated June 30, 1994, to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.
and Mallard Bay Drilling, Inc., as Borrowers, Energy
Ventures, Inc., as Guarantor, and Transamerica Business
Credit Corporation, as Lender.
**10.14 - Seventh Amendatory Agreement dated May 18, 1995, to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.
and Mallard Bay Drilling, Inc., as Borrowers, Energy
Ventures, Inc., as Guarantor, and Transamerica Business
Credit Corporation, as Lender.
**10.15 - Eighth Amendatory Agreement dated September 13, 1995, to
Amended and Restated Loan and Security Agreement dated
October 13, 1992 by and among EVI-Highland Pump Company,
Grant Prideco, Inc. and Mallard Bay Drilling, Inc., as
Borrowers, Energy Ventures, Inc., as Guarantor, and
Transamerica Business Credit Corporation, as Lender.
*10.16 - Executive Deferred Compensation Stock Ownership Plan and
related Trust Agreement (incorporated by reference to Form
10-Q, File 0-7265, filed November 16, 1992).
10.17 - First Amendment to Energy Ventures, Inc. Executive Deferred
Compensation Stock Ownership Plan dated June 28, 1993
(incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-8; Registration No.
33-65790).
*10.18 - Non-Employee Director Deferred Compensation Plan
(incorporated by reference to Form 10-Q, File 0-7265, Filed
November 16, 1992).
*10.19 - 1991 Non-Employee Director Stock Option Plan and Form of
Agreement (incorporated by reference to Form 10-Q, File
0-7265, filed August 8, 1991).
10.20 - 1992 Employee Stock Option Plan and Form Agreement
(incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-8; Registration No.
33-31662).
*10.21 - Energy Ventures, Inc. Employees Stock Option Plan
(incorporated by reference to Exhibit No. 4.1 to the
Registration Statement on Form S-8; Registration No.
33-31662).
*10.22 - Form of Stock Option Agreement under the Company's Employees'
Stock Option Plan (incorporated by reference to Exhibit No.
4.2 to the Registration Statement on Form S-8; Registration
No. 33-31662).
*10.23 - Amended and Restated Non-Employee Director Stock Option Plan
(incorporated by reference to Form 10-Q, File 0-7265, filed
August 12, 1995).
53
<PAGE> 55
10.24 - Amended and Restated Promissory Note Agreement dated
September 29, 1993 between Energy Ventures, Inc., as Maker,
and ENSCO Tool and Supply Company, as Payee (incorporated by
reference to Form 10-Q, filed November 3, 1993).
10.25 - Term Loan Agreement dated December 17, 1992 between Energy
Ventures Mid East, Inc., as Borrower, and Emirates Bank
International, Limited, as Lender (incorporated by reference
to Form 10-Q, File 0-7265, filed November 3, 1993).
10.26 - Amendment to Term Loan Agreement dated December 17, 1992
between Energy Ventures Mid East, Inc., as Borrower, and
Emirates Bank International, Limited, as Lender, dated
September 2, 1993 (incorporated by reference to Form 10-Q,
File 0-7265, filed November 3, 1993).
10.27 - Agreement and Plan of Merger dated November 10, 1993, by and
among Production Oil Tools, Energy Ventures, Inc., and
Production Oil Tools Acquisition Co., (incorporated by
reference to Form 10-K, File 0-7265, filed March 1, 1994).
10.28 - Lease Agreement dated September 30, 1993, among T.F. de
Mexico, S.A. de C.V. as Lessor, Grant T.F. de Mexico, S.A. de
C.V., as Lessee, Energy Ventures, Inc. as Guarantor, and
Revemex, S.A. de C.V. as Owner of subleased assets
(incorporated by reference to Form 10-K, File 0-7265, filed
March 1, 1994).
10.29 - Stock Purchase Agreement dated February 9, 1994, between
Energy Ventures, Inc. and Shareholders of AWI Drilling &
Workover, Inc. (incorporated by reference to Form 8-K, File
0-7265, filed February 23, 1994).
10.30 - Registration Rights Agreement dated March 24, 1994, among
Energy Ventures, Inc., the Subsidiary Guarantors party
thereto, Lehman Brothers, Inc. and Kidder, Peabody & Co.
Incorporated (incorporated by reference to Form 8-K, File
0-7265, filed April 5, 1994).
10.31 - Registration Rights Agreement dated March 24, 1994, between
Energy Ventures, Inc. and Lehman Brothers Inc. (incorporated
by reference to Form 8-K, File 0-7265, filed April 5, 1994).
10.32 - The Woodward, Oklahoma Lease agreements as amended
(incorporated by reference to Form 10-K, File 0-7265, filed
March 23, 1995).
10.33 - Agreement and Plan of Merger dated as of May 22, 1995, as
amended by Amendment No. 1 dated as of June 30, 1995, by and
among Prideco, Inc., Christiana Companies, Inc., William
Chunn, Donald Morris, Sandra Hamilton, Energy Ventures, Inc.
and Grant Acquisition Company (incorporated by reference to
Exhibit No. 2.1 to Form 8-K, File 0-7265, filed July 12,
1995).
**10.34 - Manufacturing and Sales Agreement dated as of January 1,
1996, by and between Grant Prideco, S.A. and Oil Country
Tubular Limited.
**21.1 - Subsidiaries of Energy Ventures, Inc.
**23.1 - Consent of Arthur Andersen LLP.
*Management Compensation or Incentive Plan
**Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the
Company has not filed with this Annual Report on Form 10-K
certain instruments defining the rights of holder of
long-term debt of the Company and its subsidiaries because
the total amount of securities authorized under any of such
instruments does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to
the Securities and Exchange Commission upon request.
54
<PAGE> 56
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ENERGY VENTURES, INC.
BY: /s/ BERNARD J. DUROC-DANNER
----------------------------------
BERNARD J. DUROC-DANNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
AND DIRECTOR
Date: March 19, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
BY: /s/ BERNARD J. DUROC-DANNER President and Chief Executive Officer March 19, 1996
- ---------------------------------- (Principal Executive Officer)
BERNARD J. DUROC-DANNER and Director
BY: /s/ JAMES G. KILEY Vice President, Finance and Treasurer March 19, 1996
----------------------------------- (Principal Financial Officer)
JAMES G. KILEY
BY: /s/ FRANCES R. POWELL Vice President, Accounting and Controller March 19, 1996
----------------------------------- (Principal Accounting Officer)
FRANCES R. POWELL
BY: /s/ DAVID J. BUTTERS Director March 19, 1996
----------------------------------- and Chairman of the Board
DAVID J. BUTTERS
BY: /s/ URIEL E. DUTTON Director March 19, 1996
-----------------------------------
URIEL E. DUTTON
BY: /s/ ELIOT M. FRIED Director March, 19, 1996
-----------------------------------
ELIOT M. FRIED
BY: /s/ SHELDON S. GORDON Director March 19, 1996
-----------------------------------
SHELDON S. GORDON
BY: /s/ SHELDON B. LUBAR Director March 19, 1996
-----------------------------------
SHELDON B. LUBAR
BY: /s/ ROBERT B. MILLARD Director March 19, 1996
-----------------------------------
ROBERT B. MILLARD
BY: /s/ ROBERT A. RAYNE Director March 19, 1996
-----------------------------------
ROBERT A. RAYNE
</TABLE>
55
<PAGE> 57
SCHEDULE II
ENERGY VENTURES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
===============================================================================================================
ADDITIONS
-----------------------
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for uncollectible accounts
receivable . . . . . . . . . . . . . . $ 564 $ 492 $ 92 $ (533) $ 615
YEAR ENDED DECEMBER 31, 1994:
Allowance for uncollectible accounts
receivable . . . . . . . . . . . . . . $ 669 $ 158 $ 31 $ (294) $ 564
YEAR ENDED DECEMBER 31, 1993:
Allowance for uncollectible accounts
receivable . . . . . . . . . . . . . . $ 559 $ 204 $ 37 $ (131) $ 669
</TABLE>
56
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C>
10.13 Sixth Amendatory Agreement dated June 30, 1994, to Amended and Restated Loan and
Security Agreement dated October 13, 1992 by and among EVI-Highland Pump Company,
Grant TFW Inc. and Mallard Bay Drilling, Inc., as Borrowers, Energy Ventures, Inc.,
as Guarantor, and Transamerica Business Credit Corporation, as Lender.
10.14 Seventh Amendatory Agreement dated May 18, 1995, to Amended and Restated Loan and
Security Agreement dated October 13, 1992 by and among EVI-Highland Pump Company,
Grant TFW Inc. and Mallard Bay Drilling, Inc., as Borrowers, Energy Ventures, Inc.,
as Guarantor, and Transamerica Business Credit Corporation, as Lender.
10.15 Eighth Amendatory Agreement dated September 13, 1995, to Amended and Restated Loan
and Security Agreement dated October 13, 1992 by and among EVI-Highland Pump Company,
Grant Prideco, Inc. and Mallard Bay Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit Corporation, as Lender.
10.34 Manufacturing and Sales Agreement dated as of January 1, 1996, by and between Grant
Prideco, S.A. and Oil Country Tubular Limited.
21.1 Subsidiaries of Energy Ventures, Inc. . . . . . . . . . . . . . .
23.1 Consent of Arthur Andersen L.L.P . . . . . . . . . . . . . . . . .
</TABLE>
57
<PAGE> 1
Exhibit 10.13
SIXTH AMENDATORY AGREEMENT
SIXTH AMENDATORY AGREEMENT ("Amendment No. 6"), dated as of
June 30, 1994, among EVI-HIGHLAND PUMP COMPANY, a Delaware corporation
("Highland"), GRANT TFW INC., a Delaware corporation ("Grant"), MALLARD BAY
DRILLING, INC., a Louisiana corporation ("Mallard") (Highland, Grant and
Mallard being hereinafter sometimes collectively referred to as the
"Borrowers"), ENERGY VENTURES, INC., a Delaware corporation (the "Guarantor")
and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation (the
"Lender") to the Amended and Restated Loan and Security Agreement referred to
below.
WHEREAS, the Borrowers, the Guarantor and the Lender are
parties to an Amended and Restated Loan and Security Agreement dated October
13, 1992 (the "Original Loan Agreement"); and
WHEREAS the Borrowers, the Guarantor and the Lender have
amended the Original Loan Agreement pursuant to (i) a Letter Agreement dated
March 12, 1993 (the "Letter Agreement Amendment"), (ii) a First Amendatory
Agreement dated as of May 5, 1993 ("Amendment No. 1"), (iii) a Second
Amendatory Agreement dated as of August 12, 1993 ("Amendment No. 2"), (iv) a
Third Amendatory Agreement dated as of October 12, 1993 ("Amendment No. 3"),
(v) a Fourth Amendatory Agreement dated as of February 21, 1994 ("Amendment
No. 4") and (vi) a Fifth Amendatory Agreement dated as of March 22, 1994
("Amendment No. 5") (the Original Loan Agreement as amended by the Letter
Agreement Amendment and Amendments No. 1, No. 2, No. 3, No. 4 and No. 5 being
hereinafter referred to as the "Loan Agreement"); and
WHEREAS, rather than preparing a new loan agreement, the
Borrowers, the Guarantor and the Lender now desire to further amend and modify
the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and for good and other valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Capitalized terms used but not defined in this
Amendment No. 6 shall have the meanings given to those terms in the Loan
Agreement.
2. The definition of "Net Income After Taxes" set forth
in Article 1 of the Loan Agreement is hereby amended to read in its entirety as
follows:
"Net Income After Taxes" shall mean as to any Person and for
any period, such Person's net income
<PAGE> 2
after taxes as that term is understood in accordance with
GAAP, provided that the calculation of Net Income After Taxes
for purposes of Sections 17.02 and 17.05 hereof shall exclude
an extraordinary charge to income of approximately $3,800,000
net of taxes of approximately $1,900,000 resulting from the
refinancing of indebtedness with the proceeds of a private
placement by the Guarantor of $120,000,000 principal amount of
its 10 1/4% Senior Notes due 2004 completed on March 24, 1994.
3. Except as expressly modified and amended hereby, the
Loan Agreement is ratified and confirmed in all respects.
4. THIS AMENDMENT NO. 6 SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
5. This Amendment No. 6 may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Amendment No. 6.
6. This Amendment No. 6 constitutes a modification and
amendment of the existing Loan Agreement and is not a new loan agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 6 to be executed by their officers thereunto duly authorized as
of the date first above written.
EVI-HIGHLAND PUMP COMPANY
By: /s/ JAMES G. KILEY
---------------------------
Name: James G. Kiley
Title: Vice President
GRANT TFW INC.
By: /s/ JAMES G. KILEY
---------------------------
Name: James G. Kiley
Title: Vice President
MALLARD BAY DRILLING, INC.
By: /s/ JAMES G. KILEY
---------------------------
Name: James G. Kiley
Title: Vice President
<PAGE> 3
ENERGY VENTURES, INC.
By: /s/ JAMES G. KILEY
---------------------------
Name: James G. Kiley
Title: Vice President-Finance
& Treasurer
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ MICHAEL J. MCBRIDE
---------------------------
Name: Michael J. McBride
Title: Vice President
3
<PAGE> 1
Exhibit 10.14
SEVENTH AMENDATORY AGREEMENT
SEVENTH AMENDATORY AGREEMENT ("Amendment No. 7"), dated as of
May 18, 1995, among EVI-HIGHLAND PUMP COMPANY, a Delaware corporation
("Highland"), GRANT TFW INC., a Delaware corporation ("Grant"), MALLARD BAY
DRILLING, INC., a Louisiana corporation ("Mallard") (Highland, Grant and
Mallard being hereinafter sometimes collectively referred to as the
"Borrowers"), ENERGY VENTURES, INC., a Delaware corporation (the "Guarantor")
and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation (the
"Lender") to the Amended and Restated Loan and Security Agreement referred to
below.
WHEREAS, the Borrowers, the Guarantor and the Lender are
parties to an Amended and Restated Loan and Security Agreement dated October
13, 1992 (the "Original Loan Agreement"); and
WHEREAS the Borrowers, the Guarantor and the Lender have
amended the Original Loan Agreement pursuant to (i) a Letter Agreement dated
March 12, 1993 (the "Letter Agreement Amendment"), (ii) a First Amendatory
Agreement dated as of May 5, 1993 ("Amendment No. 1"), (iii) a Second
Amendatory Agreement dated as of August 12, 1993 ("Amendment No. 2"), (iv) a
Third Amendatory Agreement dated as of October 12, 1993 ("Amendment No. 3"),
(v) a Fourth Amendatory Agreement dated as of February 21, 1994 ("Amendment
No. 4"), (vi) a Fifth Amendatory Agreement dated as of March 22, 1994
("Amendment No. 5"), and (vii) a Sixth Amendatory Agreement dated as of June
30, 1994 ("Amendment No. 6") (the Original Loan Agreement as amended by the
Letter Agreement Amendment and Amendments No. 1, No. 2, No. 3, No. 4, No. 5 and
No. 6 being hereinafter referred to as the "Loan Agreement"); and
WHEREAS, rather than preparing a new loan agreement, the
Borrowers, the Guarantor and the Lender now desire to further amend and modify
the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and for good and other valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Capitalized terms used but not defined in this
Amendment No. 7 shall have the meanings given to those terms in the Loan
Agreement.
2. The reference to "Four Million Dollars ($4,000,000)"
set forth in the first sentence of Subsection (b) of Section 2.01 of the Loan
Agreement is hereby amended to read "Six Million Dollars ($6,000,000)".
3. Except as expressly modified and amended hereby, the
Loan Agreement is ratified and confirmed in all respects.
<PAGE> 2
4. THIS AMENDMENT NO. 7 SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
5. This Amendment No. 7 may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Amendment No. 7.
6. This Amendment No. 7 constitutes a modification and
amendment of the existing Loan Agreement and is not a new loan agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 7 to be executed by their officers thereunto duly authorized as
of the date first above written.
EVI-HIGHLAND PUMP COMPANY
By: /s/ JAMES G. KILEY
-----------------------------
Name: James G. Kiley
Title: Vice President
GRANT TFW INC.
By: /s/ JAMES G. KILEY
-----------------------------
Name: James G. Kiley
Title: Vice President
MALLARD BAY DRILLING, INC.
By: /s/ JAMES G. KILEY
-----------------------------
Name: James G. Kiley
Title: Vice President
ENERGY VENTURES, INC.
By: /s/ JAMES G. KILEY
-----------------------------
Name: James G. Kiley
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ MICHAEL J. MCBRIDE
-----------------------------
Name: Michael J. McBride
Title: Vice President
2
<PAGE> 1
Exhibit 10.15
EIGHTH AMENDATORY AGREEMENT
EIGHTH AMENDATORY AGREEMENT ("Amendment No. 8"), dated as of
September 13, 1995, among EVI-HIGHLAND PUMP COMPANY, a Delaware corporation
("Highland"), GRANT PRIDECO, INC., a Delaware corporation formerly known as
Grant TFW Inc. ("Grant"), MALLARD BAY DRILLING, INC., a Louisiana corporation
("Mallard") (Highland, Grant and Mallard being hereinafter sometimes
collectively referred to as the "Borrowers"), ENERGY VENTURES, INC., a Delaware
corporation (the "Guarantor"), and TRANSAMERICA BUSINESS CREDIT CORPORATION, a
Delaware corporation (the "Lender"), to the Amended and Restated Loan and
Security Agreement referred to below.
WHEREAS, the Borrowers, the Guarantor and the Lender are
parties to an Amended and Restated Loan and Security Agreement dated October
13, 1992 (the "Original Loan Agreement"); and
WHEREAS the Borrowers, the Guarantor and the Lender have
amended the Original Loan Agreement pursuant to (i) a Letter Agreement dated
March 12, 1993 (the "Letter Agreement Amendment"), (ii) a First Amendatory
Agreement dated as of May 5, 1993 ("Amendment No. 1"), (iii) a Second
Amendatory Agreement dated as of August 12, 1993 ("Amendment No. 2"), (iv) a
Third Amendatory Agreement dated as of October 12, 1993 ("Amendment No. 3"),
(v) a Fourth Amendatory Agreement dated as of February 21, 1994 ("Amendment
No. 4"), (vi) a Fifth Amendatory Agreement dated as of March 22, 1994
("Amendment No. 5"), (vii) a Sixth Amendatory Agreement dated as of June 30,
1994 ("Amendment No. 6"), and a Seventh Amendatory Agreement dated as of May
18, 1995 ("Amendment No. 7"; the Original Loan Agreement as amended by the
Letter Agreement Amendment and Amendments No. 1, No. 2, No. 3, No. 4, No. 5 ,
No. 6 and No. 7 being hereinafter referred to as the "Loan Agreement"); and
WHEREAS, rather than preparing a new loan agreement, the
Borrowers, the Guarantor and the Lender now desire to further amend and modify
the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and for good and other valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Capitalized terms used but not defined in this
Amendment No. 8 shall have the meanings given to those terms in the Loan
Agreement.
2. Subject to the satisfaction of the conditions set
forth in Paragraph 9 of this Amendment No. 8, the following definitions shall
be added to Article 1 of the Loan Agreement in appropriate alphabetical order:
"Eighth Amendment Date" shall mean September 13,
1995.
<PAGE> 2
"Exchange Notes" shall mean the 10 1/4% Exchange
Notes due 2004, issued or to be issued by the Guarantor
pursuant to the Indenture, in the aggregate original principal
amount, together with the aggregate principal amount of the
Senior Notes, of $120,000,000.
"Indenture" shall mean the Indenture dated as of
March 15, 1994, among the Guarantor, as issuer, certain
Subsidiaries of the Guarantor, as guarantors, and Chemical
Bank, as trustee, pursuant to which the Senior Notes and the
Exchange Notes have been or will be issued.
"Prideco" shall mean Prideco, Inc., a Texas
corporation which is a wholly-owned subsidiary of the
Guarantor and the parent of Grant.
"Prideco Guaranty" shall mean the Prideco Guaranty,
dated June 30, 1995, executed by Prideco in favor of the
Lender.
"Senior Notes" shall mean the 10 1/4% Senior Notes
due 2004, issued or to be issued by the Guarantor pursuant to
the Indenture, in the aggregate original principal amount,
together with the aggregate principal amount of the Exchange
Notes, of $120,000,000.
3. Subject to the satisfaction of the conditions set
forth in Paragraph 9 of this Amendment No. 8, the definition of the term
"Maximum Amount of the Facility" set forth in Article 1 of the Loan Agreement
is amended in its entirety to read as follows:
"Maximum Amount of the Facility" shall mean
(a) as of any date on and after the Original Closing
Date to but excluding the Second Amendment Date, Thirty-Four
Million Dollars ($34,000,000),
(b) as of any date on and after the Second Amendment
Date to but excluding the Eighth Amendment Date, Fifty Million
Dollars ($50,000,000), and
(c) as of any date on and after the Eighth Amendment
Date, Sixty Million Dollars ($60,000,000).
4. Subject to the satisfaction of the conditions set
forth in Paragraph 9 of this Amendment No. 8, the reference to "Twelve Million
Dollars ($12,000,000)" set forth in clause (ii) of the first proviso of
Subsection (a) of Section 2.01 of the Loan Agreement is hereby amended to read
"Nineteen Million Dollars ($19,000,000)".
5. Subject to the satisfaction of the conditions set
forth in Paragraph 9 of this Amendment No. 8, Section 2.06 of the Loan
Agreement is hereby deleted in its entirety.
-2-
<PAGE> 3
6. Subject to the satisfaction of the conditions set
forth in Paragraph 9 of this Amendment No. 8, Article 4 of the Loan Agreement
is hereby amended to read in its entirety as follows:
4. Early Termination. The Borrowers shall have
the right to terminate this Agreement, effective as of any
date prior to the regularly scheduled termination date that is
then in effect pursuant to the first sentence of Article 20 of
this Agreement, on sixty (60) days' prior written notice to
the Lender, provided, that on the date of such early
termination (A) all Obligations, including all interest and
fees payable on the date of such termination, shall be paid in
full and (B) any notice of termination pursuant to this
Article 4 is accompanied by an early termination premium in an
amount equal to one percent (1%) of the Maximum Amount of the
Facility; provided, however, that no such early termination
premium shall be due if the full amount of the funds for such
prepayment are provided by an Affiliate of the Lender.
7. Subject to the satisfaction of the conditions set
forth in Paragraph 9 of this Amendment No. 8, the first sentence of Article 20
of the Loan Agreement is hereby amended in its entirety to read as follows:
The term of this Agreement shall be for a period of four (4)
years commencing on the Second Amendment Date, unless sooner
terminated according to its terms, and it shall thereafter
continue from year to year unless terminated by either the
Borrowers or the Lender by giving the other party sixty (60)
days' prior written notice before the commencement of the next
contract year.
8. The Borrowers and the Guarantor hereby represent and
warrant to the Lender that (a) the execution, delivery and performance of this
Amendment No. 8 and the other documents and instruments to be executed and
delivered in connection herewith by the Borrowers, the Guarantor and Prideco
are within their respective corporate powers and have been (or, prior to the
execution and delivery thereof, will have been) duly authorized by all
necessary corporate action; (b) no consent of the holders of any of the Notes,
the Senior Notes or the Exchange Notes is required in connection with the
execution, delivery and performance of this Amendment No. 8, the other
documents and instruments to be executed and delivered in connection herewith
by the Borrowers, the Guarantor and Prideco, and the Loan Agreement as amended
hereby; (c) no consent, approval, authorization of, or declaration or filing
with, any governmental or public authority, and no consent of any other Person,
is required in connection with the execution, delivery and performance of this
Amendment No. 8, the other documents and instruments to be executed and
delivered in connection herewith by the Borrowers, the Guarantor and Prideco,
and the Loan Agreement as amended hereby, except for such consents, approvals,
authorizations, declarations and filings the failure to obtain any of which
would not materially and adversely affect the business, condition (financial or
otherwise), results of operations or properties of the Guarantor and its
Subsidiaries, taken as a whole, and those others already obtained; (d) this
Amendment No. 8 has been duly executed by the Borrowers and the Guarantor; (e)
this
-3-
<PAGE> 4
Amendment No. 8 and the Loan Agreement as amended hereby constitute the legal,
valid and binding obligation of the Borrowers and the Guarantor, enforceable
against them in accordance with their respective terms; (f) the execution,
delivery and performance by the Borrowers, the Guarantor and Prideco of this
Amendment No. 8, the other documents and instruments to be executed and
delivered in connection herewith by the Borrowers, the Guarantor and Prideco,
and the Loan Agreement as amended hereby do not and will not conflict with, or
constitute a violation or breach of, or constitute a default under, or result
in the creation or imposition of any lien upon the property of the Borrowers,
the Guarantor or Prideco by reason of the terms of (1) the Note Purchase
Agreement or the Indenture; (2) any other contract, mortgage, lien, lease,
agreement, indenture or instrument to which the Borrowers, the Guarantor or
Prideco is a party or which is binding upon it, except for such breach or
default as would not materially and adversely affect the business, condition
(financial or otherwise), results of operations or properties of the Guarantor
and its Subsidiaries, taken as a whole; (3) any requirement of law applicable
to the Borrowers, the Guarantor or Prideco; or (4) the Certificate or Articles
of Incorporation or By-Laws of the Borrowers, the Guarantor or Prideco; (g)
each of the representations and warranties made by the Borrowers in the Loan
Agreement and the other Loan Documents are true and correct in all material
respects as of the date hereof (except to the extent that any of those
representations and warranties are expressly limited to an earlier date); and
(h) no event has occurred and is continuing which constitutes a Default or an
Event of Default.
9. This Amendment No. 8, and the amendments provided for
herein, shall be effective as of the date first above written upon the
satisfaction of the following conditions precedent:
(a) The Lender shall have received a copy of this
Amendment No. 8 duly executed by the Borrowers and the Guarantor;
(b) Prideco shall have executed and delivered to the
Lender the Confirmation of Loan Documents set forth below;
(c) The representations and warranties contained herein,
in the Loan Agreement and in all other Loan Documents shall be true
and correct in all material respects both as of the date hereof and
immediately after giving effect to this Amendment (except to the
extent that any of those representations and warranties are expressly
limited to an earlier date);
(d) No Default or Event of Default shall have occurred
and be existing either before or immediately after giving effect to
this Amendment No. 8;
(e) The Lender shall have received a copy of the
resolutions (in form and substance reasonably satisfactory to the
Lender) of the Board of Directors of each of the Borrowers, the
Guarantor and Prideco authorizing (i) the execution, delivery and
performance of this Amendment No. 8, the documents referred to herein,
and the other Loan Documents contemplated hereby and thereby, and the
Loan Agreement as amended hereby, and (ii) the consummation
-4-
<PAGE> 5
of the transactions contemplated hereby and thereby (including,
without limitation, the extension of the term of the Loan Agreement,
the increase in the Maximum Amount of the Facility and the increase in
Grant's Inventory sublimit), all certified by the Secretary or an
Assistant Secretary of each Borrower, the Guarantor and Prideco on the
date hereof. Each such certificate shall state that the resolutions
set forth therein have not been amended, modified, revoked or
rescinded as of the date of such certificate; and
(f) The Lender shall have received an opinion of Messrs.
Fulbright & Jaworski, counsel to the Borrowers, the Guarantor and
Prideco, in form and substance satisfactory to the Lender, with
respect to the execution, delivery and enforceability of this
Amendment No. 8 and the Loan Agreement as amended hereby, and covering
such other matters related thereto as the Lender shall reasonably
require.
10. Except as expressly modified and amended hereby, the
Loan Agreement is ratified and confirmed in all respects.
11. THIS AMENDMENT NO. 8 SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
12. This Amendment No. 8 may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Amendment No. 8.
13. This Amendment No. 8 constitutes a modification and
amendment of the existing Loan Agreement and is not a new loan agreement.
[Balance of page intentionally left blank]
-5-
<PAGE> 6
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 8 to be executed by their officers thereunto duly authorized as
of the date first above written.
EVI-HIGHLAND PUMP COMPANY
By: /s/ John C. Coble
-------------------------------
Name: John C. Coble
Title: Executive Vice President
GRANT PRIDECO, INC.
By: /s/ John C. Coble
-------------------------------
Name: John C. Coble
Title: Executive Vice President
MALLARD BAY DRILLING, INC.
By: /s/ John C. Coble
-------------------------------
Name: John C. Coble
Title: Executive Vice President
ENERGY VENTURES, INC.
By: /s/ John C. Coble
-------------------------------
Name: John C. Coble
Title: Executive Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Sara V. Traberman
-------------------------------
Name: Sara V. Traberman
Title: Vice President
-6-
<PAGE> 1
Exhibit 10.34
MANUFACTURING AND SALES AGREEMENT
THIS MANUFACTURING AND SALES AGREEMENT dated as of January 1, 1996, is
by and between GRANT PRIDECO, S.A., a corporation organized under the laws of
Switzerland ("Grant"), and Oil Country Tubular Limited, a company organized
under the Companies Act of India ("OCTL").
W I T N E S S E T H :
WHEREAS, Grant and its affiliates is engaged in the business
of manufacturing and selling drill pipe, premium tubing and other
tubulars;
WHEREAS, OCTL owns and operates a tubular manufacturing
facility at Narketpally, India, as more fully described in Annex A
hereto (the "OCTL Facility");
WHEREAS, Grant and OCTL wish to set forth the terms and
conditions pursuant to which OCTL will utilize the manufacturing
capacity of the OCTL Facility to manufacture tubular goods and related
products ordered by Grant and its Affiliates; and
WHEREAS, Grant and its Affiliates will purchase from OCTL, and
OCTL will sell to Grant and its Affiliates, all of the tubular goods
and related products to be manufactured at the OCTL Facility;
Initial ___________ ___________
OCTL Grant
-1-
<PAGE> 2
NOW, THEREFORE, the parties hereto covenant and agree as follows:
1. PRODUCTION.
(a) OCTL agrees for the term of this Agreement to
manufacture tubular goods and related products of the types described in Annex
B hereto (the "Products") and for the provision of coating, inspection and
other services (the "Services") for Grant and its Affiliates at the OCTL
Facility as may be requested by Grant from time to time. This provision shall
not provide Grant with any interest in the OCTL Facility except as provided
herein.
(b) OCTL shall for its own account and not as
agent manufacture and provide Products and Services on a timely basis in such
quantities and type as may be requested by Grant from time to time, and for
delivery at such locations, in accordance with purchase orders submitted to it
by Grant. The Products and Services shall be manufactured or provided in
accordance with the specifications and requirements set forth in the applicable
purchase order or otherwise fixed by Grant and shall be delivered in accordance
with the time frame established by Grant.
(c) Subject to the provisions of Section 4(c),
OCTL agrees that in consideration for the agreements made hereunder and Grant
or its Affiliates licensing technology to OCTL to manufacture products for
Grant it will not manufacture or provide goods or services of any kind at the
OCTL Facility for any
Initial ___________ ___________
OCTL Grant
- 2 -
<PAGE> 3
Person other than Grant and its Affiliates during the term of this Agreement
without the prior consent of Grant.
(d) OCTL shall for its own account and not as
agent maintain a fully qualified, properly trained and experienced
administrative and technical staff, sufficient to perform its obligations
hereunder. All persons employed by OCTL to carry out any of its obligations
hereunder shall be and remain OCTL's employees and not thereby be or become
employees of Grant. Grant shall not be obligated to pay increased costs due to
changes in labor contracts or other employment arrangements unless specifically
agreed to by Grant.
(e) OCTL shall establish and maintain quality
control and audit procedures, programs and standards for the manufacture of the
Products and Services to assure the timely manufacture of Products and Services
in compliance with specifications and requirements of Grant and for the
inspection of the Products and Services manufactured by it designed to detect
defects in materials or workmanship thereof prior to delivery of the same to
Grant. OCTL's manufacturing processes and procedures shall be in accordance
with the quality assurance programs issued by Grant from time to time to assure
quality, efficiency and timeliness in the manufacture of the Products and
Services to at least API and ISO standards.
(f) Grant and OCTL shall at least 90 days prior
to each calendar year agree on an annual budget for the following year for all
fixed and variable costs and expenses relating to the manufacture of Products
and the provision of
Initial ___________ ____________
OCTL Grant
-3-
<PAGE> 4
Services. This budget shall be reviewed on a quarterly basis. OCTL shall
implement such policies and procedures relating to costs and budget efficiency
as may be suggested by Grant from time to time. Modifications to budgeted
items may be made by Grant through purchase orders specifying costs parameters
and vendor requirements for such orders.
(g) OCTL shall not agree to or commit to any
expenditures that would be required to be reimbursed by Grant not contemplated
by the current agreed budget without the prior approval of Grant.
(h) In view of the technical requirements for
the manufacture of Products and Services in accordance with required
specifications, OCTL shall select outside vendors only from a list of vendors
duly approved by Grant from time to time.
(i) OCTL shall establish production schedules
for all Products and Services to be provided for it in order to meet its
desired timetable for delivery as set forth in its purchase orders or otherwise
communicated to OCTL.
(j) In view of the technical requirements for
the manufacture of Products and Services in accordance with required
specifications, Grant shall be entitled to require the implementation of
manufacturing efficiency programs and policies with respect to the manufacture
and provision of Products and Services by OCTL to Grant.
Initial ___________ ____________
OCTL Grant
-4-
<PAGE> 5
(k) Grant shall have the right at any time and
from time to time to inspect all Products and Services at any stage of the
manufacturing process as well as all machinery and equipment used in the
manufacture of Products and the provision of Services.
(l) OCTL shall provide Grant and its Affiliates
with full access to the OCTL Facility, its officers and employees and all
information relating to the operation of the OCTL Facility. OCTL shall, and
shall cause its officers and employees to, cooperate fully with Grant to enable
Grant to assure that all Products and Services provided by OCTL meet Grant's
requirements for quality, efficiency and timeliness.
(m) In view of the technical requirements for the
manufacture of Products and Services in accordance with required
specifications, all raw materials used for the manufacture and the provision of
the Products and Services shall be sourced by OCTL from a list of vendors duly
approved by Grant from time to time.
(n) The parties hereby acknowledge that their
objective is to achieve a utilization of the OCTL Facility with the following
annual goals; (i) 15,000 metric tons of drill pipe; (ii) 10,000 metric tons of
heat treated premium tubing; (iii) 25,000 metric tons of heat treated casing;
(iv) 18,000 metric tons of casing and tubing threaded without heat treating;
(v) 1,000 threaded joints of large diameter casing; and (vi) 4,500 weld-on
connectors. The above goals shall only be considered objectives and Grant
shall have no obligation to place any minimum orders for any specific Products
or Services during any period.
Initial ___________ ____________
OCTL Grant
-5-
<PAGE> 6
2. OPERATIONS.
The operations of the OCTL Facility will at all times
during the term of this Agreement be managed and operated by OCTL and its
personnel.
3. PAYMENTS AND COSTS.
(a) In exchange for the provision of Services
hereunder, Grant shall pay to OCTL the sum of US$8,000,000 on the Effective
Date. These funds shall be applied toward the payment of future Services
provided to Grant based on prices to be agreed by OCTL and Grant.
(b) Until termination of this Agreement, Grant
shall pay to OCTL for Products and Services to be provided a fee of $500,000
monthly in advance, beginning on the April 1, 1996, it being understood that
not such fee shall be payable for the months of January, February and March
1996.
(c) In addition to the payments and fees
described hereinabove for Products and Services to be provided, Grant will pay
to OCTL for the Products a production fee (the "Production Charge") based on
certain levels of production and determined as follows:
(i) $300 (US) per metric ton ("MT") of unitized drill pipe produced.
Initial ___________ ____________
OCTL Grant
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(ii) $105 (US) per MT of heat treated premium tubing produced.
(iii) $50 (US) per MT of API heat treated tubing produced.
(iv) $40 (US) per MT of heat treated casing produced.
(v) $25 (US) per MT of tubing and casing that is threaded
each year without heat treating.
(vi) $100 (US) per joint of large diameter casing (over
13 3/8" O.D.) that is threaded at the OCTL Facility without heat treatment.
(vii) $100 (US) per weld-on connector 18 5/8" and above.
For products not set forth above or in Section 3(d), the Production Charge will
be determined mutually. The Production Charge shall be payable quarterly
within thirty (30) days after receipt of OCTL's invoice therefor. The
quarterly invoice for the Production Charge shall be accompanied by a statement
of production and a written calculation of the Production Charge.
(d) Pricing for the Services rendered by OCTL for
Grant shall be agreed upon by Grant and OCTL from time to time.
Initial ___________ ____________
OCTL Grant
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(e) As part of the purchase price for Products
and Services to be purchased by Grant, Grant will pay to OCTL amounts equal to
all actual direct cash operating costs of the OCTL Facility and the actual
direct cash production cost for goods and services provided at the OCTL
Facility after March 31, 1996 (collectively, "Section 3(e) Expenses"). The
Section 3(e) Expenses shall include (i) wages, salaries and benefits for
employees of OCTL (other than general and administrative employees not directly
associated with the operations of the OCTL Facility) working at the OCTL
Facility, (ii) all raw materials, consumables, spare parts, tools and other
similar items necessary to manufacture the Products, (iii) all utilities
charges, (iv) insurance for the OCTL Facility and its operations, (v)
maintenance, (vi) freight, (vii) custom duties and other import and export
charges net of credits received on export or otherwise and (viii) property
taxes. Depreciation, amortization and any other non-cash expenses shall not be
considered direct operating costs and shall be the sole responsibility of OCTL.
Costs estimates for all such items shall be budgeted as provided in Section 1
and be subject to Grant's approval as provided therein. OCTL shall be
responsible for its own income taxes, general and administrative expenses,
wages, salaries and benefits for employees who are not involved in the
manufacture of goods at the OCTL Facility, and any other expense not directly
related to the operation of the OCTL Facility. OCTL shall invoice Grant
quarterly for the actual amounts of all Section 3(e) Expenses without any
mark-up. All goods and services provided to the OCTL Facility by OCTL or any
of its Affiliates shall be provided at cost without mark-up. Grant will be
entitled to a credit against the Section 3(e) Expenses for the allocable costs
associated with any sales by OCTL for its own account pursuant to Section 4(c).
Initial ___________ ____________
OCTL Grant
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(f) In view of the technical requirements for the
manufacture of Products and Services in accordance with required
specifications, the raw materials, consumables, spare parts, tools and similar
items necessary for OCTL to manufacture the Products and render the Services
shall be selected by Grant or one or more of its Affiliates. All such items
acquired outside India shall be imported by OCTL from vendors selected or
approved by Grant.
(g) Grant and OCTL shall agree as to all capital
expenditures and improvements to be made on the OCTL Facility to achieve
desired levels of production and quality of the Products and Services to be
sold to Grant. Unless otherwise agreed, all mutually agreed upon capital
expenditures with respect to the OCTL Facility relating to the Products and
Services to be sold to Grant shall be financed by Grant.
(h) OCTL shall retain all accounts receivable
arising from sales of products of the OCTL Facility made prior to March 31,
1996. All inventory and raw materials on hand at the OCTL Facility on March
31, 1996, will be made available for the manufacture of Products. Grant shall
reimburse OCTL as a Section 3(e) Expense the actual direct cost (excluding
interest and administrative expenses) incurred by OCTL for such inventory and
raw materials on hand within 30 days of the actual use thereof.
(i) In consideration of the commitment of OCTL to
utilize the OCTL Facility to manufacture Products and Services for Grant
pursuant to the terms
Initial ___________ ____________
OCTL Grant
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hereof, unless this Agreement is earlier terminated, Grant agrees to make the
following additional payments to OCTL:
(x) if, as a result of Grant's failure
to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1997 are less than (US) $3.0
million, Grant shall pay to OCTL the amount by which the
Production Charges paid in respect of 1997 are less than (US)
$3.0 million;
(y) if, as a result of Grant's failure
to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1998 and 1997 and the amount paid
pursuant to clause (x) above are less than (US) $7 million,
Grant shall pay to OCTL the amount by which the aggregate
Production Charges in respect of 1998 and 1997 and any amount
paid pursuant to clause (x) above are less than (US) $7
million; and
(z) if, as a result of Grant's failure
to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1999, 1998 and 1997 and
Initial ___________ ____________
OCTL Grant
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any amounts paid pursuant to clauses (x) and (y) above are less than
(US) $12 million, Grant shall pay to OCTL the amount by which the
aggregate Production Charges in respect of 1999, 1998 and 1997 and any
amounts paid pursuant to clauses (x) and (y) above are less than (US)
$12 million.
For purposes of this Section 3(i), OCTL shall be deemed to
have received a Production Charge for all sales made pursuant to Section 4(c)
equal to the Production Charge that would have been paid in respect of such
sales had such sales been made to Grant hereunder. Payments under this Section
3(i) shall be payable only if this Agreement shall not have been terminated
prior to the date on which the payments are due. Payments under this Section
3(i) shall be due on the date on which the Production Charge for the last
quarter of the last year included in the applicable calculation is payable.
(j) The fees and payments provided for in this
Section 3 are intended in part to compensate OCTL for the loss opportunity of
sales that it would have been able to receive absent its commitment to utilize
the OCTL Facility to manufacture Products and Services for sale to Grant.
Further, although it is contemplated that substantially all of the production
from the OCTL Facility will be sold to Grant, it is also contemplated that some
products and services will continue to be provided by OCTL to Persons other
than Grant from time to time with the prior consent of Grant. To the extent
OCTL does make sales of products and services from the OCTL Facility to any
Person other than Grant, the payments required to be paid by Grant to OCTL
under Sections 3(b) and (c) shall be reduced by an amount equal to
Initial ___________ ____________
OCTL Grant
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the Gross Profit (as defined below) realized by OCTL on such sales. For
purpose of this Section 3(i), Gross Profit shall mean the actual sales price
(net of any discounts) charged by OCTL for such sales less the sum of (i) the
actual Section 3(e) Expenses for the products and services sold and credited
under Section 3(e) and (ii) the Production Charge that would have been paid on
such sale had such sale been made to Grant.
4. PROVISION OF INFORMATION; PROTECTION OF PURCHASE;
THIRD PARTY SALES.
During the term of this Agreement:
(a) The manager of the OCTL Facility shall
cooperate and coordinate with Grant on an ongoing basis with respect to the
status of all operations at the OCTL Facility affecting the Products and
Services to be sold to Grant and the implementation of Grant's policies,
guidelines and requirements for the manufacture of Products and Services for it
under this Agreement, including the status of all purchase orders, the expenses
of the OCTL Facility and OCTL's compliance with the terms of this Agreement.
(b) In order to protect the purchase rights of
Grant under this Agreement, except for those charges existing on the OCTL
Facility currently existing, OCTL shall not grant any charge, lien or security
interest in the OCTL Facility or on any of the assets used in connection
therewith. No charge, lien or security interest shall be granted by OCTL in
any of the raw materials used for the manufacture of the
Initial ___________ ____________
OCTL Grant
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<PAGE> 13
Products or Services to be sold to Grant or on the finished Products and
Services. OCTL shall not transfer, assign or otherwise convey the OCTL
Facility to any Person without the prior consent of Grant. OCTL shall not
transfer the operations of the OCTL Facility to any Person without the prior
consent of Grant.
(c) Grant and OCTL agree that it is contemplated
that OCTL may from time to time with the prior consent of Grant effect sales of
products and services from the OCTL Facility to Persons other than Grant,
primarily in India ("Third Party Sales"). Any Third Party Sales must be
previously approved and consented to by Grant so as not to impair the
exclusivity and other benefits contemplated for Grant hereunder. To the extent
a Third Party Sale is effected, the payments required to be made by Grant
hereunder shall be reduced as provided in Sections 3(e) and 3(j) hereunder. No
Production Charge or fee under Section 3(d) shall be payable for Third Party
Sales. Orders existing and not completed by OCTL as of the Effective Date
shall be considered approved Third Party Sales. Outstanding tenders as of the
Effective Date which are accepted shall also be considered approved Third Party
Sales. For any sales outside India by OCTL, Grant shall act as OCTL's
exclusive distributor.
(d) OCTL shall (i) maintain all necessary
licenses, permits and other governmental approvals or authorizations to allow
it to carry out its obligations hereunder, and to own and operate the OCTL
Facility, (ii) comply in all material respects with all applicable laws
relating to the manufacture of the Products and the provision of the Services,
and (iii) obtain all export/import licenses and/or permits and
Initial ___________ ____________
OCTL Grant
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<PAGE> 14
complete other registration requirements as may be necessary for the export of
the Products and Services and import of all raw materials used in the
manufacture thereof.
(e) OCTL shall not take any action, directly or
indirectly, that could reasonably be expected to impair its ability to perform
its obligations under this Agreement or adversely affect the rights of Grant
hereunder.
5. REPRESENTATIONS AND WARRANTIES OF OCTL. OCTL
represents and warrants to Grant that the following is true and correct:
(a) INCORPORATION; AUTHORITY. OCTL is duly
organized, validly existing and in good standing under the laws of India and
has all required corporate power and authority (i) to own or lease and operate
its properties and to carry on its business at the OCTL Facility as now
conducted, and (ii) to enter into this Agreement and perform all of its
obligations hereunder.
(b) CORPORATE APPROVAL; BINDING EFFECT. OCTL has
obtained all appropriate authorizations and approvals required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by OCTL and constitutes the legal, valid and binding obligation of
OCTL, enforceable against OCTL in accordance with its terms. No approval of
the shareholders of OCTL is required for the execution and delivery of this
Agreement or for the performance of its obligations hereunder.
Initial ___________ ____________
OCTL Grant
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(c) TITLE TO OCTL FACILITY. Except as set forth
in Schedule 5(c) hereto, OCTL has good title to the OCTL Facility, free and
clear of all liens, pledges, charges, security interests, encumbrances or title
retention agreements of any kind or nature.
(d) LITIGATION. No claim is in process, pending
or threatened against OCTL or its directors, officers, employees, agents, or
representatives relating to the OCTL Facility. Further, OCTL does not know of
any circumstances likely to give rise to any such claim.
(e) INDUSTRIAL RELATIONS. There is no charge
pending or threatened against OCTL alleging violation of any statute or any
regulation relating to employment and employment practices or violation of any
collective bargaining agreement or alleging unlawful discrimination in
employment practices before any court or agency, relating to the OCTL Facility,
and there is no charge of or proceeding with regard to any unfair labor
practice (or any similar practice) against OCTL pending before any government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body, relating to the OCTL
Facility. There is no strike, trade or industrial dispute, slow-down or work
stoppage actually pending or threatened against OCTL. No collective bargaining
agreement or other union agreement or agreement with organized labor is
currently being negotiated or pending negotiation by OCTL except the renewal of
the agreement already entered into in the year 1992, a true and correct copy of
which has been provided to Grant.
Initial ___________ ____________
OCTL Grant
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OCTL has not experienced any material work stoppage or other material labor
difficulty during the last three years.
(f) INSURANCE. Schedule 5(f) is a summary of
all the theft, fire, liability, workmen's compensation, life, property and
casualty and other insurance on the OCTL Facility owned, held by or maintained
by OCTL. All such insurance is in full force and effect, and all the premiums
due with respect thereto are currently paid. There is no claim under any such
policies as to which coverage has been questioned, denied or disputed by the
insurer. Nothing has been done or omitted to be done that could make any such
policy of insurance void or voidable and there are no claims outstanding,
pending or threatened or capable of arising against OCTL by any employee or
third Person in respect of any accident or injury at the OCTL Facility that are
not fully covered by insurance.
(g) INDEBTEDNESS. Schedule 5(c) sets forth a
true and correct list of all outstanding indebtedness of OCTL. Such Schedule
also sets forth a true and correct list of all agreements or undertakings by
OCTL that could restrict OCTL from operating the OCTL Facility as contemplated
in this Agreement. Except as set forth in Schedule 5(c), none of the documents
relating to any of the foregoing grants a charge, lien or other security
interest in the OCTL Facility or any goods or products or accounts receivable
relating to operations at the OCTL Facility.
(h) GOVERNMENTAL CONSENT, NON-CONTRAVENTION. No
consent, approval or authorization of or registration, designation, declaration
or filing with any
Initial ___________ ____________
OCTL Grant
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<PAGE> 17
governmental authority is required in connection with this Agreement or the
consummation of any other transaction contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not violate:
(i) any provision of the charter or
other organizational or constituent documents of OCTL;
(ii) any order, judgment, injunction,
award or decree of any court or local, national or other
governmental or regulatory body applicable to OCTL; or
(iii) any material contract to which OCTL
is a party.
(i) COMPLIANCE WITH LAWS. The operations of the
OCTL Facility are conducted and have been conducted in accordance with all
applicable laws, regulations and other requirements of all national
governmental authorities, and of all states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over said facility,
including, without limitation, all such laws, regulations and requirements
relating to employment, antitrust, consumer protection, currency exchange,
export controls, boycotts, health, occupational safety, pension, securities,
transactions in or relating to currency, bribery and environmental protection.
OCTL has not received any notification of any asserted failure to comply with
any such laws,
Initial ___________ ____________
OCTL Grant
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rules or regulations, nor has the assertion of any such failure been threatened
against OCTL.
(j) BROKERS. No finder, broker, agent or other
intermediary has worked for or on behalf of OCTL in connection with the
negotiation or consummation of the transactions contemplated hereby.
(k) LICENSES AND PERMITS. Schedule 5(k) lists
all governmental licenses, permits and authorizations that are held or used by
OCTL to operate the OCTL Facility. Schedule 5(k) contains a brief description
of each such license, permit or authorization, the identity of the issuing
agency or authority, the license or permit number and the expiration date of
each such license, permit or authorization. Such licenses, permits and
authorizations are the only governmental licenses, permits and authorizations
currently required by OCTL for the operation of the OCTL Facility and all such
licenses, permits and authorizations are in effect as of the date hereof and
have been previously disclosed to Grant. OCTL is not aware of any
circumstances that would require Grant to obtain any governmental license,
permit or authorization in addition to the licenses, permits or authorizations
disclosed on Schedule 5(k). OCTL has complied with all conditions or
requirements imposed by such licenses, permits and authorizations, and OCTL has
not received any notice (nor has it reason to believe) that any governmental
authority intends to cancel or terminate any of such licenses, permits or
authorizations or that valid grounds for such cancellation or termination
currently exist.
Initial ___________ ____________
OCTL Grant
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(l) ENVIRONMENTAL MATTERS.
(i) Operations of the OCTL Facility are
in full compliance with all applicable environmental laws in
effect in the jurisdiction in which the OCTL Facility is
located.
(ii) There are no circumstances or
conditions present at or arising out of the operations,
properties and assets at the OCTL Facility, which may give
rise to any environmental liabilities and costs, including,
but not limited to, any on-site or off-site disposal or other
release, discharge or emission of any pollutants or
contaminants.
(iii) OCTL has not received any written or
verbal notice or claim relating to the release, discharge or
emission of any pollutants or contaminants, or to the
generation, treatment, storage or disposal of any wastes, or
otherwise relating to the protection of the environment,
resulting from the operations of the OCTL Facility.
(iv) OCTL has provided to Grant a true
and correct copy of all environmental assessments made with
respect to the OCTL Facility.
(v) OCTL has in effect all required
permits, licenses and other governmental authorizations
necessary for the operation of the
Initial ___________ ____________
OCTL Grant
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OCTL Facility and for the generation, disposal or treatment of any pollutants
or contaminants or other wastes.
(m) NO MATERIAL ADVERSE EFFECT AND CONDITION OF ASSETS.
(i) The OCTL Facility has experienced no
Material Adverse Effect, and OCTL is not aware of any Material
Adverse Effect that could result from this Agreement or the
performance by the parties of their obligations hereunder.
(ii) All fixed assets and equipment
constituting the OCTL Facility are in good working order,
condition and repair having regard to their age and usual wear
and tear and the purpose for which they are currently used.
There are no assets (tangible on intangible) necessary to
operate the OCTL Facility that are not owned by OCTL and
available at the OCTL Facility.
(n) BOOKS AND RECORDS. The books and records of OCTL
relating to the OCTL Facility, including the books of account, are complete,
true and correct in all material respects and fairly reflect the conduct of the
business of the OCTL Facility.
(o) DISCLOSURE AND NO DEFAULTS. No representation or
warranty by OCTL contained in this Agreement, and no writing, certificate,
schedule, list, report, instrument, or other document furnished to or to be
furnished to Grant pursuant
Initial ___________ ____________
OCTL Grant
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hereto or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of material fact. The entering into and
performance by OCTL of this Agreement will not, either currently or after
notice or lapse of time or both:
(i) conflict with, violate, terminate or
result in a breach of or default under any agreement, loan,
guarantee, note, permit, license, lease, grant, patent, or
other agreement or authorization, written or oral, to or by
which OCTL is a party or is bound;
(ii) give any Person the right to
accelerate any payments due under any indebtedness of OCTL or
impose more onerous terms or conditions on any undertaking of
OCTL;
(iii) result in a violation by OCTL of any
statute, regulation, order, law ordinance or restriction;
(iv) result in a violation by OCTL of any
judgment, order or decree of any court or judicial or
quasi-judicial tribunal applicable to OCTL; or
(v) require OCTL to obtain the
authorization of any of its contracting parties, or trigger
any foreclosure, payment or other penalty,
Initial ___________ ____________
OCTL Grant
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or vest any Person with the right to exercise any rights of first
refusal or preemption with regard to ownership of the OCTL Facility.
(p) SALES IN THE UNITED STATES. Revenues from sales of
goods and services by OCTL into or for use in the United States have, for the
three years preceding the Effective Date, been less than an aggregate total of
US$25,000,000.
6. REPRESENTATIONS AND WARRANTIES OF GRANT. Grant
represents and warrants to OCTL that the following is true and correct:
(a) ORGANIZATION AND STANDING OF GRANT. Grant is
a corporation duly organized and validly existing under the laws of
Switzerland. Grant has all required corporate power and authority to enter
into this Agreement and to perform all of its obligations hereunder.
(b) CORPORATE APPROVAL; BINDING EFFECT. Grant
has obtained all necessary authorizations and approvals from its Board of
Directors required for the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Grant and constitutes the legal, valid and
binding obligation of Grant enforceable against Grant in accordance with its
terms.
(c) NON-CONTRAVENTION. The execution, delivery
and performance by Grant of this Agreement will not result in any violation of
or be in conflict with its
Initial ___________ ____________
OCTL Grant
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<PAGE> 23
Certificate of Incorporation or By-Laws, or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
it, or be in conflict with or constitute a default under any of the foregoing.
(d) GOVERNMENT CONSENT. No consent, approval or
authorization of or registration, designation, declaration or filing with any
governmental authority on the part of Grant is required in connection with the
consummation of any transaction contemplated hereby.
(e) BROKERS. No finder, broker, agent or other
intermediary has worked for or on behalf of Grant in connection with the
negotiation or consummation of the transactions contemplated hereby.
7. INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION.
(a) OCTL and Grant understand that during the
term of this Agreement certain advice, technical information, know-how and
other proprietary data and confidential information of such party or its
Affiliates may be provided to, or may come to the attention of, the other party
or its employees, agents and representatives (the "Confidential Information").
All Confidential Information of any party provided to the other party shall be
identified as such prior to delivery. OCTL and Grant understand and agree that
all such Confidential Information may be valuable and proprietary to the
disclosing party and agree that it shall keep and shall cause its
Initial ___________ ____________
OCTL Grant
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employees, agents and representatives to keep, all Confidential Information of
the other party that is disclosed to it or its employees, agents or
representatives confidential and that neither it nor any of its employees,
agents or representatives will use or disclose any of such Confidential
Information other than for the purposes contemplated hereby.
(b) OCTL shall treat as secret and confidential,
and shall not, except in the performance of this Agreement, make any use
whatsoever of any and all designs, drawings, information or data furnished to
OCTL by Grant or its Affiliates hereunder. Upon completion or termination of
this Agreement, all such designs, drawings, information and data furnished to
OCTL by Grant or its Affiliates shall be returned to Grant.
(c) Grant shall treat as secret and confidential,
and shall not, except in the performance of this Agreement, make any use
whatsoever of any and all designs, drawings, information or data furnished to
Grant by OCTL or its Affiliates hereunder. Upon completion or termination of
this Agreement, all such designs, drawings, information and data furnished to
Grant by OCTL shall be returned to OCTL.
(d) Nothing in this Agreement shall be deemed to
constitute or result in an assignment of any trademarks owned or used by any
party or the Confidential Information or the creation of any equitable or other
interest therein, or to grant any right to use the trademarks owned or used by
a party or the Confidential Information except in the performance of its
obligations under this Agreement. OCTL
Initial ___________ ____________
OCTL Grant
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<PAGE> 25
agrees never to impugn or challenge, or to assist in any challenge to the
validity of, the trademarks of Grant or its Affiliates, any registration
thereof or their ownership thereof. Grant agrees never to impugn or challenge,
or to assist in any challenge to the validity of, the trademarks of OCTL, any
registration thereof or OCTL's ownership thereof. All legal rights in the
Products and the Confidential Information of Grant and its Affiliates,
including but not limited to all copyrights, trademark rights, patent rights
and rights in the packaging and labeling of the Products, shall belong
exclusively to Grant. All goodwill from the use of the trademarks of Grant and
its Affiliates shall inure to the benefit of Grant.
(e) In the event of breach or threatened breach
by a party or its employees or agents of the provisions of this Section, the
other party shall be entitled to an injunction or judicial order equivalent
thereto restraining the party breaching or threatening to breach this Section
or its employees or agents from using or disclosing, in whole or in part, such
Confidential Information. Nothing herein shall be construed as prohibiting any
party from pursuing any other remedies available to it for such breach or
threatened breach, including recovery of damages from the other.
(f) The obligations of the parties under this
Section shall continue in full force and effect after the termination of this
Agreement, regardless of how this Agreement is terminated.
Initial ___________ ____________
OCTL Grant
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<PAGE> 26
8. WARRANTIES AND PRODUCT LIABILITY.
(a) OCTL shall warrant the Products and Services
provided by it under this Agreement in accordance with the warranty policy set
forth in Annex C hereto.
(b) To the extent commercially available at an
economic price, Grant shall obtain customary products liability insurance to
cover third party claims relating to the Products manufactured at the OCTL
Facility and purchased and sold by Grant.
9. TAXES.
OCTL shall remain the owner of the OCTL Facility for all
purposes, including taxation. All income and other similar Taxes attributable
to revenues earned from the OCTL Facility by OCTL shall be the sole
responsibility of OCTL. Subject to Section 3(e), Grant shall be responsible
only for reimbursement to OCTL of property Taxes and similar Taxes payable on
the value of the OCTL Facility or the assets located thereon. All other Taxes
save as expressly agreed to be borne or reimbursed by Grant herein shall be
borne by OCTL.
Initial ___________ ____________
OCTL Grant
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10. IMPORT AND EXPORT.
All goods imported into India for the OCTL Facility shall be
imported by OCTL, including the handling of all customs clearance and the
payment of all duties, freight and warehouse charges and other fees related
thereto. All such duties, freight and warehouse charges and other fees shall
be included as Section 3(e) Expenses. All export sales of Products from the
OCTL Facility shall be shipped and exported by OCTL in accordance with
instructions from Grant. OCTL shall be responsible for export clearance of all
such Products and any costs, duties, freight and warehouse charges and fees
incurred in connection therewith. All such costs, duties and fees shall be
included as Section 3(e) Expenses.
11. ASSIGNMENT RESTRICTION.
No party hereto may assign or transfer this Agreement or any
right hereunder without the prior written consent of the other party; provided,
however, Grant may assign certain of its rights and obligations to an Affiliate
of Grant provided that no assignment shall relieve Grant from its obligations
hereunder.
12. DURATION.
This Agreement shall become effective as of January 26, 1996
(the "Effective Date") and, unless earlier terminated, shall remain in force
for a period of five (5) years beginning on such date. Unless earlier
terminated at the option of Grant
Initial ___________ ____________
OCTL Grant
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as provided in Section 13, after the initial five (5) year term, this Agreement
shall continue for successive terms of five (5) years following the end of each
such term.
13. TERMINATION.
(a) Grant may terminate this Agreement, with or
without cause, on an annual basis, as of any anniversary of the Effective Date,
by giving at least 90 days written notice prior to the anniversary of the
Effective Date.
(b) Except as provided in Section 13(c), OCTL may
not terminate this Agreement except in the event of a continuing material
breach of this Agreement by Grant that is not remedied within six months of
written notice of said breach to Grant by OCTL.
(c) Beginning on December 31, 2000, OCTL will
have an annual right to terminate this Agreement if Grant, solely as a result
of its failure to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines and quality and
efficiency standards, pays less than an average of US$4 million in Production
Charges to OCTL during the three contract years immediately preceding the date
notice of termination is given; provided, however, such right of termination
shall not apply if Grant shall have paid to OCTL an amount equal to the
difference between US$12 million and the total Production Charges paid in
respect of the prior three contract year. To exercise this right of
termination, OCTL must provide Grant with written notice of its intent to
terminate this Agreement within
Initial ___________ ____________
OCTL Grant
-28-
<PAGE> 29
60 days after the date on which the last Production Charge for the prior year
is due. In the event Grant pays to OCTL the additional funds required to
maintain the continuation of this Agreement as provided above within 90 days of
such notice of intent to terminate, OCTL will not be entitled to terminate this
Agreement. If such funds are not so paid, OCTL may terminate this Agreement
after the expiration of such 90 day period. For purposes of this Section, OCTL
shall be deemed to have received a Production Charge for all sales made
pursuant to Section 4(c) equal to the Production Charge that would have been
paid in respect of such sales had such sales been made to Grant hereunder.
Further, any payments under Section 3(i) or this Section 13(c) shall be
considered the payment of a Production Charge for the year for which it
relates.
(d) Upon termination, all accounts will be
settled within 30 days. Grant will be entitled to receive all Products
manufactured at the OCTL Facility through the termination date and to receive
all raw materials that have been sourced by it for use at the OCTL Facility.
Alternatively, OCTL and Grant may agree upon a reimbursement by OCTL of the
costs of such items.
14. LEGAL RELATIONSHIP AND INDEMNIFICATION.
(a) The relationship of OCTL and Grant under this
Agreement shall be that of independent contractors. Neither party has, nor
shall it represent that it has, any power or authority (i) to conclude
contracts on behalf of the other party or otherwise to bind the other party, or
(ii) to assume or create any obligation, express or
Initial ___________ ____________
OCTL Grant
-29-
<PAGE> 30
implied, on behalf of the other party or in the other party's name, or in the
name of any officer or employee of the other party, or (iii) except as allowed
under this Agreement, to use or reproduce in any manner any trademark, trade
name, mark or logo owned or employed by the other party without the express
prior written consent of the other party.
(b) OCTL agrees to PROTECT, INDEMNIFY, AND SAVE
Grant HARMLESS from any and all claims, suits, actions, demands, compensation,
penalties, assessments, damages or losses of any kind or description, for
damages or injuries to person or property (including that of Grant) asserted,
received or sustained through or on account of (i) any act or omission in
connection with the work of OCTL, its employees or its agents, (ii) any default
or omission of OCTL, its employees or its agents, (iii) any breach of this
Agreement by OCTL, or (iv) except for product claims with respect to Products
and Services not covered by the warranty of OCTL, which claims shall be limited
by the warranty of OCTL, claims of any third parties claiming under, by or
through OCTL, and to reimburse any expenses, penalties or costs, including, but
not limited to, legal fees and expenses of investigation incurred by Grant in
defending any such claim, demand, suit or action. Promptly following any such
claim, OCTL agrees to apply for and seek all requisite governmental or exchange
control approvals required in relation to this provision.
(c) Grant agrees to PROTECT, INDEMNIFY, AND SAVE
OCTL HARMLESS from any and all claims, suits, actions, demands, compensation,
penalties, assessments, damages or losses of any kind or description, for
damages or injuries to
Initial ___________ ____________
OCTL Grant
-30-
<PAGE> 31
person or property (including that of OCTL) asserted, received or sustained
through or on account of (i) any act or omission in connection with the work of
Grant, its employees or its agents, (ii) any default or omission of Grant, its
employees or its agents, (iii) any breach of this Agreement by Grant, (iv)
claims of any third parties claiming under, by or through Grant, or (v) the
infringement of any patent by Grant, and to reimburse any expenses, penalties
or costs, including, but not limited to, legal fees and expenses of
investigation incurred by OCTL in defending any such claim, demand, suit or
action.
(d) OCTL shall indemnify, defend and hold Grant
harmless from and against all claims or threatened claims, liabilities, losses,
damages, costs or expenses, including without limitation any and all fees
(including reasonable attorney's fees) incurred in defense of or settlement of
any such claim or threatened claim, arising out of or in any way related to the
operation or condition of the OCTL Facility prior to the Effective Date, or any
negligent act, misfeasance or nonfeasance by OCTL or any of its agents,
contractors, servants or employees. Promptly following any such claim, OCTL
agrees to apply for and seek all requisite governmental or exchange control
approvals required in relation to this provision.
(e) Grant hereby represents and warrants to OCTL,
and OCTL hereby represents and warrants to Grant, that there are no broker's or
finder's fees or commissions due and owing in connection with the transactions
contemplated hereby. Grant agrees to indemnify and hold OCTL harmless, and
OCTL agrees to indemnify and hold Grant harmless, from and against any and all
claims, suits, actions, demands,
Initial ___________ ____________
OCTL Grant
-31-
<PAGE> 32
compensation, penalties, assessments, damages or losses of any kind or
description, including expenses and costs incurred related thereto, legal fees
and expenses of investigation incurred or required to be paid as a result of
any breach of the respective representations and warranties contained in this
paragraph.
(f) The obligations created under this Section
shall continue in full force and effect after the termination of this
Agreement, regardless of how this Agreement is terminated.
15. APPLICABLE LAW.
The validity, performance, interpretation and effect of this
Agreement except in Section 16 below shall be governed by, construed and
enforced in accordance with the laws of India.
16. ARBITRATION.
(a) Any dispute, controversy or claim arising out
of or relating to this Agreement or the breach, termination or validity hereof,
which cannot be resolved by agreement of the parties, shall be finally settled
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce (the "Rules") by one or more arbitrators. The arbitration shall be
held before one arbitrator (unless otherwise agreed by the parties) appointed
by mutual agreement of the parties. If, however, the parties cannot agree upon
an arbitrator, each shall appoint one arbitrator
Initial ___________ ____________
OCTL Grant
-32-
<PAGE> 33
and the two arbitrators so appointed shall appoint a third arbitrator. In such
a case a decision of the majority of the arbitrators shall be binding. The
matters referred to review shall be regarded as commercial. The award
delivered by the arbitrators shall be a "Foreign Award" as defined in the
Foreign Awards (Recognition and Enforcement) Act, 1961. Any such award shall
not be a domestic award and shall be governed by the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, 1958.
(b) Unless the parties shall otherwise agree in
writing, the arbitration shall be held in London, England. The language to be
used in the arbitral proceedings shall be English. The provisions of this
Section 16 relating to arbitration shall be governed by the Laws of the United
Kingdom. The procedural law of the forum shall be applied with respect to
matters not covered by the Rules. The provisions of the Indian Arbitration Act
are expressly excluded.
(c) Any arbitration proceeding hereunder must be
instituted within one (1) year after the controversy or claim arises. Failure
to institute an arbitration proceeding within such period shall constitute an
absolute bar to the institution of any proceedings respecting such controversy
or claim, and a waiver and/or abandonment thereof.
(d) Neither party hereto shall institute an
arbitration proceeding hereunder unless, at least ninety (90) days prior
thereto, such party shall have
Initial ___________ ____________
OCTL Grant
-33-
<PAGE> 34
furnished to the other party written notice of its intent to do so and of the
basis therefor in detail.
(e) Any award, order or judgment pursuant to such
arbitration shall be deemed final and binding on all parties and may be entered
or enforced in any court of competent jurisdiction. The parties agree to
submit to the jurisdiction of any such court for purposes of the enforcement of
any such award, order or judgment.
(f) Any award of damages pursuant to such
arbitration shall be included in a written decision signed by the arbitrator
(or a majority of the arbitrators) which shall state the reasons upon which the
award was based, including all the elements involved in the calculation of any
award of damages. The award of damages shall not include punitive or exemplary
damages or any damages other than or in addition to actual and compensatory
damages, but may include interest from the date of the award.
(g) Notwithstanding any provision of this
Agreement, either party shall have the right, at any time after commencement of
any arbitration proceeding hereunder and prior to the rendering of any award,
order or judgment thereunder, to apply to the arbitrator(s) or to any court of
competent jurisdiction for injunctive or preliminary relief. No application
for injunctive or preliminary relief shall be construed to infringe this
arbitration agreement or affect the powers of the arbitrator(s).
Initial ___________ ____________
OCTL Grant
-34-
<PAGE> 35
17. NOTICES.
Any notice, transmittal of documents, correspondence or other
communication between the parties hereto shall be in writing, addressed to the
party to whom sent and transmitted prepaid either by air courier or by telex or
facsimile with signed written original to follow by air courier. All such
notices in compliance with this provision shall be deemed received by the other
party on the next business day after transmission by telex or facsimile and on
the third business day after transmission by air courier. For purposes of this
Agreement, the addresses of the parties are as follows until changed by written
notice from the party desiring to change its address to the other party:
Grant: Grant Prideco, S.A.
c/o Umbricht & Badertscher
Bahnhofstrasse 22
Postfach 4174, 8022 Zurich
Switzerland
Telephone: 011 411 211 2597
Facsimile: 011 411 221 2552
Attention: Corporate Secretary
copies to:
Initial ___________ ____________
OCTL Grant
-35-
<PAGE> 36
Energy Ventures, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas USA 77027-3415
Attention: Chief Financial Officer
and
Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, TX 77010-3095, U.S.A.
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Attention: Curtis W. Huff
OCTL: Oil Country Tubular Limited
108 Kanchanjunga
King Koti Road
Hyderabad 500 001, India
Telephone: 9140 231579
Facsimile: 9140 235617
Attention: Kamineni Suryanarayana, Managing Director
18. FORCE MAJEURE.
(a) Neither party hereto shall be responsible for
any loss or damage to the other in the event said party is unable to fulfill
the whole or any part of its obligations hereunder, or is prevented or delayed
from fulfilling the same, due to war or hostilities (whether war be declared or
not), invasion, act of foreign enemies,
Initial ___________ ____________
OCTL Grant
-36-
<PAGE> 37
rebellion, revolution, insurrection, military usurpation of power, civil war or
riot, strike, lockout, commotion, disorder, flood, tempest, earthquake, acts or
omissions of any applicable governmental, civil or military authority whether
legitimate or not, or other causes beyond the control of said party.
(b) A party affected by an event of force majeure
shall notify the other party immediately. The rights and obligations of a
party affected by any such event shall be suspended only for the duration and
to the extent of such event, and once such event ceases to exist, the rights
and obligations of the parties shall continue in full force.
19. CERTAIN DEFINITIONS. As used herein the following
terms not otherwise defined have the following respective meanings:
"AFFILIATE" means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or effect on the
OCTL Facility that individually or in the aggregate: (a) has or will
materially and adversely affect the OCTL Facility, including without
limitation, its operations, condition, plant and equipment, and employee
relations, or (b) has or will materially and adversely affect the ability of
Grant or OCTL to operate the OCTL Facility in the manner in which it has been
operated by OCTL.
Initial ___________ ____________
OCTL Grant
-37-
<PAGE> 38
"PERSON" means a corporation, an association, a partnership, an organization, a
business, an individual, a government or political subdivision thereof or a
governmental agency, as applicable.
"TAX" or "TAXES" means any tax imposed by any government, governmental agency
or commission, political subdivision or taxing authority wheresoever located,
including but not limited to (a) any income tax, corporation tax, transfer tax,
withholding and equalization tax due upon dividend distributions, capital gains
tax, tax on capital or net worth, value added tax, intangible tax, personal or
real property tax, inheritance tax, withholding tax, individual income tax,
social security tax, payroll tax, stamp duty, stamp duty reserve tax, or
Customs and Import Duties; (b) any other tax, charge, impost or duty similar to
any of the taxes set forth in clause (a) of this paragraph, howsoever named;
(c) any agreement to indemnify any Person for any tax, charge, impost or duty
set forth in clause (a) and (b) of this paragraph; and (d) any interest,
penalty, fine or addition to tax in connection with any tax, charge, impost or
duty set forth in clauses (a), (b) or (c) of this paragraph.
20. MISCELLANEOUS.
(a) Should any provision of this Agreement be
held unenforceable or invalid, the parties agree that such provision shall be
deemed modified to the extent necessary to render it lawful and enforceable, or
if such a modification is not possible without materially altering the
intention of the parties, then such provision shall be severed herefrom. In
such case the validity of the remaining provisions shall not be
Initial ___________ ____________
OCTL Grant
-38-
<PAGE> 39
affected and this Agreement shall be construed as if such provision were not
contained herein.
(b) All headings used herein are for convenience
of reference only, do not constitute substantive provisions of this Agreement,
and shall not be used in construing the meaning or intent of the terms and
provisions hereof.
(c) All agreements and understandings between the
parties relating to the sale and manufacture of the Products and performance of
the Services by OCTL are embodied in this Agreement. This Agreement supersedes
any previous agreements and understandings between the parties as to the
subject matter hereof and is entire in itself and not a part of any other
agreement, and no promises, covenants, or representations of any kind or nature
other than those expressly stated herein have been made to induce either party
to enter into this Agreement. All other terms and conditions, whether
expressed or implied by statute, common law, trade usage or custom are hereby
excluded and extinguished.
(d) No modification, rescission, or waiver of
this Agreement or any provision hereof shall be binding unless evidenced by an
agreement in writing, appropriately captioned on its face according to its
nature, duly executed by an authorized officer of each party. It is expressly
agreed and understood that the waiver by a party of its rights, or any portion
of its rights, under this Agreement in any particular instance or instances,
whether intentional or otherwise, shall not be
Initial ___________ ____________
OCTL Grant
-39-
<PAGE> 40
considered as a continuing waiver which would prevent the subsequent
enforcement of such rights, or as a waiver of any other rights hereunder.
(e) This Agreement may be executed in one or more
counterparts, and when so executed, each counterpart shall be deemed an
original and all of which shall constitute one and the same instrument.
Initial ___________ ____________
OCTL Grant
-40-
<PAGE> 41
EXECUTED AND DELIVERED on this the 27th day of January, 1996.
GRANT PRIDECO, S.A.
By: /s/ BERNARD J. DUROC-DANNER
------------------------------------------
Name: Bernard J. Duroc-Danner
---------------------------------------
Title: Director
---------------------------------------
OIL COUNTRY TUBULAR LIMITED
By: /s/ K. SURYANARAYANA
------------------------------------------
Name: K. Suryanarayana
---------------------------------------
Title: Managing Director
--------------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF ENERGY VENTURES, INC.
<TABLE>
<CAPTION>
STATE OR COUNTY
OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
------------------ ---------------
<S> <C>
EVI-Highland Pump Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Mallard Bay Drilling, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
ENGY, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Grant Prideco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Bay Drilling Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
EV Offshore, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
Highland/Corod Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada
Energy Ventures International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Cayman Islands
Energy Ventures Mid-East, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cayman Islands
Mallard Bay Drilling (Nigeria) Limited . . . . . . . . . . . . . . . . . . . . . . . Nigeria
Production Oil Tools, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wyoming
Grant T.F. de Mexico, S.A. de C.V. . . . . . . . . . . . . . . . . . . . . . . . . . Mexico
Grant Tubular Finishing Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hungary
AWI Drilling & Workover, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
Dongying Shengli - Highland Company Limited . . . . . . . . . . . . . . . . . . . . . China
Energy Ventures Foreign Sales Corporation . . . . . . . . . . . . . . . . . . . . . . Barbados
Suits - Peru L.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
Prideco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Prideco Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Prideco de Venezuela, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Venezuela
Prideco Europe Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scotland
EVI-International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Channelview Real Property, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Delta Crewboats, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
EVI Management Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Atlas Bradford Acquisition Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Energy Ventures (Cyprus) Limited . . . . . . . . . . . . . . . . . . . . . . . . . . Cyprus
Engemaq, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil
Energy Ventures Far East Limited . . . . . . . . . . . . . . . . . . . . . . . . . . Hong Kong
Marservice, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil
Mallard Drilling International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . Cayman Islands
Grant Prideco, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Switzerland
EVI (Barbados) Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Barbados
</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 February 26, 1996 included in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 33-31662,
33-56384, 33-56386, 33-65790, 33-77960 and 33-64349.
ARTHUR ANDERSEN LLP
Houston, Texas
March 19, 1996
<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 REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,517
<SECURITIES> 0
<RECEIVABLES> 103,378
<ALLOWANCES> 615
<INVENTORY> 117,936
<CURRENT-ASSETS> 249,574
<PP&E> 192,702
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 491,060
<CURRENT-LIABILITIES> 97,116
<BONDS> 126,849
<COMMON> 18,522
0
0
<OTHER-SE> 209,544
<TOTAL-LIABILITY-AND-EQUITY> 491,060
<SALES> 351,587<F2>
<TOTAL-REVENUES> 351,587
<CGS> 262,293
<TOTAL-COSTS> 262,293
<OTHER-EXPENSES> 56,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,723
<INCOME-PRETAX> 16,391
<INCOME-TAX> 5,080
<INCOME-CONTINUING> 11,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,311
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
<FN>
<F1>This amount is not disclosed in the financial statements and thus a value of
zero has been shown for purposes of this financial data schedule.
<F2>These line items include certain amounts related to non-tangible products
(i.e.,) services, however, since the amounts related to services are not
disclosed inthe 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>
