<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-7265
ENERGY VENTURES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 04-2515019
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027-3415
(Address of principal executive offices) (Zip Code)
(713) 297-8400
(Registrant's telephone number, include area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Title of Class Outstanding at August 6, 1996
Common Stock, $1.00 Par Value 22,251,287
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
ASSETS (in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents .............................. $ 11,103 $ 4,517
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $864,000 at June 30, 1996 and $615,000
at December 31, 1995 ............................. 105,533 102,763
Inventories ............................................ 130,118 117,936
Materials and Supplies ................................. 10,815 10,042
Prepaid Expenses and Other ............................. 19,897 14,316
--------- ---------
277,466 249,574
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION ........................ 205,215 192,702
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE
ASSETS OF BUSINESSES ACQUIRED, NET ..................... 47,913 37,398
OTHER ASSETS ....................................................... 20,108 11,386
--------- ---------
$ 550,702 $ 491,060
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines
of Credit ........................................ $ 44,180 $ 4,826
Current Maturities of Long-Term Debt ................... 4,156 5,894
Accounts Payable ....................................... 53,592 53,703
Other Accrued Liabilities .............................. 39,400 32,693
--------- ---------
141,328 97,116
--------- ---------
LONG-TERM DEBT ..................................................... 123,751 126,849
DEFERRED INCOME TAXES, NET ......................................... 34,708 32,926
OTHER LIABILITIES .................................................. 5,478 6,103
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock ........................................... 18,868 18,522
Capital in Excess of Par Value ......................... 167,493 157,953
Retained Earnings ...................................... 69,577 60,167
Cumulative Foreign Currency Translation Adjustment ..... (8,335) (6,915)
Treasury Stock, at Cost ................................ (2,166) (1,661)
--------- ---------
245,437 228,066
--------- ---------
$ 550,702 $ 491,060
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
<PAGE> 3
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ---------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES ................................................ $ 119,886 $ 79,747 $ 229,928 $ 152,407
--------- -------- --------- ---------
COSTS AND EXPENSES:
Cost of Sales .................................. 90,403 59,651 173,943 112,806
Selling, General and Administrative Attributable
to Segments ........................... 14,818 11,861 29,186 23,456
Corporate General and Administrative ........... 1,674 1,348 3,038 2,604
--------- -------- --------- ---------
OPERATING INCOME ........................................ 12,991 6,887 23,761 13,541
--------- -------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Expense, Net .......................... (4,409) (4,196) (8,382) (8,161)
Other, Net ..................................... 334 52 223 (7)
--------- -------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE .................. 8,916 2,743 15,602 5,373
PROVISION FOR INCOME TAXES .............................. 3,122 990 5,461 1,989
--------- -------- --------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ...................... 5,794 1,753 10,141 3,384
EXTRAORDINARY CHARGE, NET OF TAXES ...................... (731) -- (731) --
--------- -------- --------- ---------
NET INCOME .............................................. $ 5,063 $ 1,753 $ 9,410 $ 3,384
========= ======== ========= =========
EARNINGS PER SHARE:
Income Before Extraordinary Charge ............. $ 0.31 $ 0.14 $ 0.55 $ 0.27
Extraordinary Charge ........................... (0.04) -- (0.04) --
--------- -------- --------- ---------
Net Income Per Share ........................... $ 0.27 $ 0.14 $ 0.51 $ 0.27
========= ======== ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING ..................... 18,628 12,684 18,525 12,672
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE> 4
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------ ----------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................................ $ 9,410 $ 3,384
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operations:
Depreciation and Amortization ............................ 12,808 8,697
Oil Country Tubular Ltd. Deposit ......................... (8,000) --
Deferred Income Tax Provision ............................ 732 309
Extraordinary Charge, Net ................................ 731 --
Gain on Sale of Assets ................................... (192) (39)
Provision for Uncollectible Accounts Receivable .......... 420 170
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired ............................ (19,145) (13,227)
-------- --------
Net Cash Used by Operating Activities ........................... (3,236) (706)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired ....................... (3,740) (4,336)
Capital Expenditures for Property, Plant and Equipment ................ (17,251) (11,739)
Other, Net ............................................................ 1,249 701
-------- --------
Net Cash Used by Investing Activities ........................... (19,742) (15,374)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Lines of Credit, Net ....................... 39,354 16,751
Repayments on Term Debt ............................................... (7,047) (1,830)
Line of Credit Termination Costs ...................................... (1,125) --
Line of Credit Issuance Costs ......................................... (1,472) --
Other, Net ............................................................ 168 196
-------- --------
Net Cash Provided by Financing Activities ....................... 29,878 15,117
-------- --------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH .......................................... (314) 128
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ...................................................... 6,586 (835)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................. 4,517 3,144
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................ $ 11,103 $ 2,309
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, Net of Amounts Capitalized ............................. $ 8,242 $ 7,740
Income Taxes Paid, Net of Refunds ..................................... $ 1,531 $ 1,127
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE> 5
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The unaudited consolidated condensed financial statements included
herein have been prepared by Energy Ventures, Inc. (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission. Although
the Company believes that the disclosures in these financial statements are
adequate to make the interim information presented not misleading, certain
information relating to the Company's organization and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted in this Form 10-Q
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995. The results of operations for the three and six months ended June 30,
1996 are not necessarily indicative of the results expected for the full year.
(2) Inventories
Inventories by category are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- -----------
(in thousands)
<S> <C> <C>
Raw materials and components $ 63,727 $ 61,578
Work in process ............ 20,055 17,167
Finished goods ............. 46,336 39,191
-------- --------
$130,118 $117,936
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
(3) Acquisitions
On May 3, 1996, the Company acquired ENERPRO International, Inc.
("ENERPRO"), a manufacturer of premium threads and thread connections, for
312,714 shares of Common Stock and the assumption of approximately $3.1 million
in indebtedness. The operations of ENERPRO are being combined with the premium
thread operations of the Company's tubular division.
In April 1996, the Company acquired Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment, for
approximately $3.1 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 acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Condensed Statements of Income from the respective dates of
acquisition.
The allocations of the purchase price to the fair market values of the
net assets acquired in the 1996 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. The results of operations
related to the acquisitions of Production Specialties and ENERPRO are not
material; therefore, pro forma information is not presented.
5
<PAGE> 6
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents selected unaudited consolidated
financial information for the Company on a pro forma basis assuming the Prideco
acquisition had occurred on January 1, 1995. The pro forma information set forth
below is not necessarily indicative of the results that actually would have been
achieved had the transaction been consummated as of January 1, 1995, or that may
be achieved in the future.
<TABLE>
<CAPTION>
Six Months
Ended June 30, 1995
-------------------
(in thousands, except per
share amount)
<S> <C>
Revenues ................................ $181,955
Net Income .............................. $ 4,343
Net Income Per Common Share $ 0.29
</TABLE>
(4) Short-Term Borrowings and Lines of Credit
On June 26, 1996, the Company entered into a new $120 million
working capital facility, of which $90 million is designated as a borrowing base
revolving line of credit and up to $30 million is available for working capital
borrowings through December 31, 1996. Borrowings under the revolving line of
credit are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. The
revolving line of credit extends through June 30, 1999, and borrowings under the
$30 million portion of the facility are amortized over a three year period
beginning June 30, 1997. Borrowings under the facility bear interest at a
variable rate based on a LIBOR option and base rate option dependent on certain
ratios and are secured by the Company's domestic accounts receivables, inventory
and stock of various of the Company's domestic and foreign subsidiaries. The
facility contains customary affirmative and negative covenants relating to
working capital, earnings and net worth. The facility also imposes limitations
on the Company and its subsidiaries' use of funds for future acquisitions, the
incurrence of additional debt and other operational matters and certain
expenditures, as well as prohibitions on the declaration and payment of
dividends by the Company. The Company's new facility replaced the Company's
prior U.S. working capital line of credit, which had higher borrowing costs and
more restrictive operational covenants. In the second quarter of 1996, the
Company incurred an extraordinary charge of $731,000, net of taxes of $394,000,
or $.04 per share, relating to the termination of its prior working capital
facility.
(5) Long-Term Debt
On March 24, 1994, the Company sold pursuant to a private placement
$120 million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25% Senior
Notes due 2004 with semi-annual interest payments in March and September. Both
issues of Senior Notes were issued pursuant to the terms of an Indenture dated
as of March 15, 1994. Certain subsidiaries of the Company have unconditionally
guaranteed the Company's obligations under the Senior Notes. See Note 9.
(6) Contingencies
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
6
<PAGE> 7
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
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.
(7) Subsequent Events
In July 1996, the Company completed a public offering of 3,000,000
shares of its Common Stock. The net proceeds of this offering were approximately
$88.4 million. A portion of the funds from the offering were used to finance the
Tubular Corporation of America, Inc. ("TCA") acquisition, including the payment
of approximately $30 million cash for the acquisition and the repayment of debt
of TCA. The remaining proceeds are proposed to be used to (i) acquire the two
barge rigs from Noble Drilling Corporation ("Noble") that are currently
operating in Nigeria for approximately $24.5 million in cash and a $7.5 million
drill pipe credit, (ii) retrofit a barge rig for deployment to Nigeria to work
under a proposed contract with Chevron Nigeria Limited ("Chevron") at a cost of
approximately $9 million and (iii) for general corporate purposes.
On August 5, 1996, the Company acquired TCA for 500,000 shares of
Common Stock, approximately $14.3 million cash, a $650,000 note due January 1997
and assumed debt of approximately $15 million. TCA manufactures premium casing,
which expands the range of the Company's premium tubular products line to add a
broader line of premium casing.
(8) Reclassifications
Certain reclassifications of prior period balances have been made to
conform such amounts to corresponding June 30, 1996 classifications.
7
<PAGE> 8
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements
The $120 million Senior Notes which are described in Note 5 are
unconditionally guaranteed on a joint and several basis by certain subsidiaries
of the Company. Accordingly, the following condensed consolidating balance
sheets as of June 30, 1996 and December 31, 1995, and the related condensed
consolidating statements of income for the three and six month periods ended
June 30, 1996 and 1995, and cash flows for the six month periods ended June 30,
1996 and 1995, have been provided. The condensed consolidating financial
statements herein are followed by notes which are an integral part of these
statements.
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents .......... $ 6,556 $ 3,733 $ 814 $ -- $ 11,103
Other Current Assets ............... 1,592 215,611 49,160 -- 266,363
--------- --------- --------- --------- --------
8,148 219,344 49,974 -- 277,466
--------- --------- --------- --------- --------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ....................... 1,052 184,522 19,641 -- 205,215
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET ............... 395,150 (179,747) (5,684) (209,719) --
OTHER ASSETS ............................ 4,981 50,699 12,341 -- 68,021
--------- --------- --------- --------- --------
$ 409,331 $ 274,818 $ 76,272 $(209,719) $550,702
========= ========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings .............. $ 40,000 $ -- $ 4,180 $ -- $ 44,180
Current Maturities of Long-Term Debt -- 3,875 281 -- 4,156
Accounts Payable and Other Accrued
Liabilities .................... 4,451 76,367 12,174 -- 92,992
--------- --------- --------- --------- --------
44,451 80,242 16,635 -- 141,328
--------- --------- --------- --------- --------
LONG-TERM DEBT .......................... 120,000 3,199 552 -- 123,751
OTHER LIABILITIES ....................... (557) 19,442 21,301 -- 40,186
--------- --------- --------- --------- --------
STOCKHOLDERS' INVESTMENT ................ 245,437 171,935 37,784 (209,719) 245,437
--------- --------- --------- --------- --------
$ 409,331 $ 274,818 $ 76,272 $(209,719) $550,702
========= ========= ========= ========= ========
</TABLE>
8
<PAGE> 9
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
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>
9
<PAGE> 10
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................... $ -- $ 185,087 $ 44,841 $ -- $ 229,928
COSTS AND EXPENSES ......................... 3,038 168,927 34,202 -- 206,167
------- --------- -------- ------- ---------
OPERATING INCOME (LOSS) .................... (3,038) 16,160 10,639 -- 23,761
------- --------- -------- ------- ---------
OTHER INCOME (EXPENSE)
Interest Expense, Net ................. 1,431 (9,993) 180 -- (8,382)
Equity in Subsidiaries, Net of Taxes... 9,820 -- -- (9,820) --
Other, Net ............................ 7 219 (3) -- 223
------- --------- -------- ------- ---------
INCOME BEFORE INCOME TAXES ................. 8,220 6,386 10,816 (9,820) 15,602
PROVISION (BENEFIT) FOR INCOME TAXES ....... (1,190) 2,795 3,856 -- 5,461
------- --------- -------- ------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ......... 9,410 3,591 6,960 (9,820)
10,141
EXTRAORDINARY CHARGE, NET OF TAXES ......... -- (731) -- -- (731)
------- --------- -------- ------- ---------
NET INCOME ................................. $ 9,410 $ 2,860 $ 6,960 $(9,820) $ 9,410
======= ========= ======== ======= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ....................................... $ -- $ 126,450 $ 25,957 $ -- $ 152,407
COSTS AND EXPENSES ............................. 2,604 114,763 21,499 -- 138,866
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ........................ (2,604) 11,687 4,458 -- 13,541
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense, Net ................. (4,231) (3,954) 24 -- (8,161)
Equity in Subsidiaries, Net of Taxes... 8,113 -- -- (8,113) --
Other, Net ....................... 33 298 (338) -- (7)
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ..................... 1,311 8,031 4,144 (8,113) 5,373
PROVISION (BENEFIT) FOR INCOME TAXES ........... (2,073) 2,307 1,755 -- 1,989
--------- --------- --------- --------- ---------
NET INCOME ..................................... $ 3,384 $ 5,724 $ 2,389 $ (8,113) $ 3,384
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 94,782 $ 25,104 $ -- $ 119,886
COSTS AND EXPENSES ...................... 1,674 86,160 19,061 -- 106,895
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (1,674) 8,622 6,043 -- 12,991
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense, Net .............. 4,760 (9,347) 178 -- (4,409)
Equity in Subsidiaries, Net of Taxes 2,383 -- -- (2,383) --
Other, net ......................... (2) 243 93 -- 334
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .............. 5,467 (482) 6,314 (2,383) 8,916
PROVISION (BENEFIT) FOR INCOME TAXES .... 404 493 2,225 -- 3,122
--------- --------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ...... 5,063 (975) 4,089 (2,383) 5,794
EXTRAORDINARY CHARGE, NET OF TAXES ...... -- (731) -- -- (731)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) ....................... $ 5,063 $ (1,706) $ 4,089 $ (2,383) $ 5,063
========= ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES .................................... $ -- $ 66,037 $ 13,710 $ -- $ 79,747
COSTS AND EXPENSES .......................... 1,348 60,226 11,286 -- 72,860
------- -------- -------- ------- --------
OPERATING INCOME (LOSS) ..................... (1,348) 5,811 2,424 -- 6,887
------- -------- -------- ------- --------
OTHER INCOME (EXPENSE)
Interest Expense, Net .............. (2,098) (2,027) (71) -- (4,196)
Equity in Subsidiaries, Net of Taxes 4,031 -- -- (4,031) --
Other, Net ......................... 30 140 (118) -- 52
------- -------- -------- ------- --------
INCOME BEFORE INCOME TAXES .................. 615 3,924 2,235 (4,031) 2,743
PROVISION (BENEFIT) FOR INCOME TAXES ........ (1,138) 836 1,292 -- 990
------- -------- -------- ------- --------
NET INCOME .................................. $ 1,753 $ 3,088 $ 943 $(4,031) $ 1,753
======= ======== ======== ======= ========
</TABLE>
11
<PAGE> 12
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income ............................... $ 9,410 $ 2,860 $ 6,960 $(9,820) $ 9,410
Equity in Earnings of Subsidiaries ....... (9,820) -- -- 9,820 --
Other Adjustments and Changes ............ (1,539) 7,985 (19,092) -- (12,646)
-------- -------- -------- ------- --------
Net Cash Provided (Used) by Operations (1,949) 10,845 (12,132) -- (3,236)
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of Businesses, Net of Cash
Acquired ............................. -- (627) (3,113) -- (3,740)
Capital Expenditures for Property, Plant
and Equipment ........................ (39) (11,926) (5,286) -- (17,251)
Other, Net ............................... -- 618 631 -- 1,249
-------- -------- -------- ------- --------
Net Cash Used by Investing Activities (39) (11,935) (7,768) -- (19,742)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings Under Revolving
Lines of Credit, Net ................. 40,000 (793) 147 -- 39,354
Repayments on Term Debt .................. -- (6,839) (208) -- (7,047)
(Increase) Decrease in amounts due to and
from Subsidiaries, Net .......... (33,592) 10,595 22,997 -- --
Other, Net ............................... 1,604 (1,125) (2,908) -- (2,429)
-------- -------- -------- ------- --------
Net Cash Provided by Financing
Activities ...................... 8,012 1,838 20,028 -- 29,878
-------- -------- -------- ------- --------
Effect of Translation Adjustment on Cash ...... -- -- (314) -- (314)
-------- -------- -------- ------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents .............................. 6,024 748 (186) -- 6,586
Cash and Cash Equivalents at Beginning of
Period ................................... 532 2,985 1,000 -- 4,517
-------- -------- -------- ------- --------
Cash and Cash Equivalents at End of Period .... $ 6,556 $ 3,733 $ 814 $ -- $ 11,103
======== ======== ======== ======= ========
</TABLE>
12
<PAGE> 13
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income ................................... $ 3,384 $ 5,724 $ 2,389 $ (8,113) $ 3,384
Equity in Earnings of Subsidiaries ........... (8,113) -- -- 8,113 --
Other Adjustments and Changes ................ (2,932) (1,035) (123) -- (4,090)
------- -------- ------- -------- --------
Net Cash Provided (Used) by Operations ... (7,661) 4,689 2,266 -- (706)
------- -------- ------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired ................................. -- (4,336) -- -- (4,336)
Proceeds from Sale of Business and Assets .... -- 626 75 -- 701
Capital Expenditures for Property, Plant
and Equipment ............................ (5) (9,552) (2,182) -- (11,739)
------- -------- ------- -------- --------
Net Cash Used by Investing Activities (5) (13,262) (2,107) -- (15,374)
------- -------- ------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Short-Term Borrowings, Net ................... -- 16,235 516 -- 16,751
Repayments on Term Debt, Net ................. -- (1,483) (347) -- (1,830)
(Increase) Decrease in amounts due to and
from Subsidiaries, Net .................. 7,460 (7,004) (456) -- --
Other, Net ................................... 196 -- -- -- 196
------- -------- ------- -------- --------
Net Cash Provided (Used) by Financing
Activities .......................... 7,656 7,748 (287) -- 15,117
------- -------- ------- -------- --------
Effect of Translation Adjustment on Cash .......... -- 40 88 -- 128
------- -------- ------- -------- --------
Net Decrease in Cash and Cash Equivalents ......... (10) (785) (40) -- (835)
Cash and Cash Equivalents at Beginning of
Period ....................................... 166 1,593 1,385 -- 3,144
------- -------- ------- -------- --------
Cash and Cash Equivalents at End of Period ....... $ 156 $ 808 $ 1,345 $ -- $ 2,309
======= ======== ======= ======== ========
</TABLE>
13
<PAGE> 14
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) 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 June 30, 1996 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. OTHER
Notes 1 through 8 should be read in conjunction with the Condensed
Consolidating Financial Statements.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is an international manufacturer and supplier of
oilfield equipment and contract drilling services. The Company manufactures and
markets drill pipe and premium tubular products and production equipment through
its oilfield equipment segment and provides contract drilling and workover
services through its contract drilling segment. In recent periods, the Company
has benefited from the continuing consolidation in the markets in which it
competes, as well as from increased demand for tubular products due to a decline
in excess inventories of used drill pipe.
The demand for the Company's tubular products and contract
drilling services are particularly affected by the price of natural gas and the
level of oil and gas exploration activity, while the demand for the Company's
artificial lift equipment is directly dependent on oil production activity.
Sales of the Company's artificial lift products are currently concentrated in
North America and are affected by the level of oil production from older wells
in addition to oil prices. The Company's international contract drilling
services are affected by the level of exploration activity in the countries in
which it provides those services, while its domestic drilling operations are
materially dependent on the level of exploration activity in the U.S. Gulf Coast
and domestic natural gas prices. Exploration and production activity is also
affected by worldwide economic conditions, supply and demand for oil and natural
gas, seasonal trends and the political stability of oil producing countries.
Income before extraordinary charge for the second quarter of
1996 was $5.8 million, or $.31 per share, on revenues of $119.9 million compared
to income before extraordinary charge for the second quarter of 1995 of $1.8
million, or $.14 per share, on revenues of $79.7 million. Income before
extraordinary charge for the six months ended June 30, 1996 was $10.1 million,
or $.55 per share, on revenues of $229.9 million compared to income before
extraordinary charge for the six months ended June 30, 1995 of $3.4 million, or
$.27 per share, on revenues of $152.4 million. The increase in income before
extraordinary charge for the 1996 periods is primarily attributable to increased
sales and margins of drill pipe and other tubular products. These increases in
the tubular markets were partially offset by transitional costs associated with
the Company's decision to concentrate on product design and manufacturing in its
artificial lift and production equipment division and the related sale of its
United States retail distribution system in February 1996. Improved results also
reflect the Company's acquisition of Prideco, Inc. ("Prideco") on June 30, 1995.
During the second quarter of 1996, the Company replaced its
existing $60 million credit facility with a three year $120 million working
capital line of credit. The interest rates under the new facility are currently
approximately 2.5% lower than rates under the prior facility. See "Liquidity and
Capital Resources". The termination of the Company's prior facility resulted in
the Company incurring an extraordinary after tax charge of $731,000, or $.04 per
share.
The Company's overall domestic rig utilization was up for the
second quarter of 1996. The Company's contract drilling segment experienced
higher domestic demand and utilization for its workover rigs and reduced
utilization of its drilling rigs in the first six months of 1996 as compared to
the first six months of 1995. The decline in the number of drilling rigs
operating resulted in a decrease in average margins for services performed in
this segment. This segment was also affected by the high costs relating to its
Argentina operations and lower operating income in Peru due to the curtailment
of operations by the Company's customer in Peru. The Company is taking action to
improve the results of its operations in Argentina through the addition of
Company owned rig mobilization equipment in Argentina. In addition, the Company
is currently proposing to add three barge rigs in Nigeria, which is expected to
increase revenue and income in the contract drilling segment in the latter part
of 1996.
The Company currently expects that 1996 results will continue
to benefit from strong tubular sales, cost reductions at its artificial lift and
production equipment division and from the recent acquisitions. 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. Accordingly, there can be no assurance as to future results or
profitability.
15
<PAGE> 16
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Oilfield Equipment Segment
Sales of tubular products in the second quarter of 1996 were
$69.5 million compared to $31.5 million in 1995. Operating income associated
with the tubular products division in the second quarter of 1996 was $10 million
as compared to $2.7 million in 1995. Second quarter 1996 results reflected an
89% increase in sales of drill pipe and a 147% increase in sales of premium
tubulars. The increase in drill pipe sales reflected the Company's June 1995
acquisition of Prideco and an overall increase in demand for drill pipe. The
increase in demand for drill pipe reflected moderately increased drilling
activity and the continuing decline in the supply of used drill pipe inventory,
against which the Company has historically competed. The increase in sales of
premium tubulars reflected the acquisition of ENERPRO International, Inc.
("ENERPRO"), and an increase in demand associated with increased natural gas and
offshore exploration and production activity. The improvement in operating
income reflected the effects of increased sales, lower average costs and
improved pricing. Price improvements, however, were partially offset by
increases in the price of raw materials, particularly "green" tubing, the
primary material used by the Company in the production of its tubular goods.
Revenues in the second quarter of 1996 from sales of drill
pipe manufactured at the Oil Company Tubular Limited ("OCTL") facility in India
under the Company's manufacturing arrangement with OCTL did not materially
contribute to the tubular products division. Sales of products manufactured at
this facility on behalf of the Company began on May 1, 1996, and the Company
expects that its sales of tubular products from this facility will gradually
increase through the remainder of the year as the utilization of this facility
increases. The Company, however, expects some production inefficiencies to occur
during the initial stages of this arrangement.
The Company is currently in the process of implementing
various manufacturing changes at its tubular division in light of recent
acquisitions and to reduce costs and improve efficiencies. These changes include
the closing of the Company's Bastrop, Texas facility and the relocation of
various equipment and personnel to other facilities. The Company currently
expects to incur between $3 million and $4 million in expenses associated with
these changes during the remainder of 1996.
Backlog for tubular products at June 30, 1996, including
backlog of approximately $50 million at the OCTL facility, was approximately
$150 million compared to $78.4 million at December 31, 1995. The Company expects
that all of this backlog will be shipped within the next twelve months.
Revenues and operating income at the Company's artificial lift
and production equipment division were $29.5 million and $2 million,
respectively, for the quarter ended June 30, 1996, compared to $29.7 million and
$1.9 million, respectively, for the quarter ended June 30, 1995. Canadian and
international sales in this division were strong during the second quarter of
1996, increasing by approximately 41% from 1995 levels. However, the improved
Canadian and international sales were offset by costs associated with the
Company's decision to focus the operations of this division on product
development and manufacturing. The Company is currently in the process of
reorganizing the internal management structure at this division with the
objective of increasing margins and reducing selling, general and administrative
expenses.
Contract Drilling Segment
Revenues and operating income for the contract drilling
segment were $20.9 million and $2.7 million, respectively, for the quarter ended
June 30, 1996, as compared to $18.5 million and $3.7 million, respectively, for
the quarter ended June 30, 1995.
The average number of domestic barge rigs working during the
second quarter of 1996 improved by 26% from the second quarter of 1995,
resulting in an increase in domestic revenues from $13.1 million in the
second quarter of 1995 to $14.8 million in the second quarter of 1996. During
the second quarter of 1996, the Company had more workover rigs and fewer
drilling rigs operating as compared to the second quarter of 1995. The decline
in the number of drilling rigs operating resulted in a decrease in average
margins for services performed in this division. Price competition for workover
and drilling rigs also affected results in this segment.
16
<PAGE> 17
The contract drilling segment's foreign operations in Nigeria,
Peru and Argentina contributed $6.1 million in revenues for the quarter ended
June 30, 1996 compared to $5.4 million in the second quarter of 1995. The
Company's Nigerian rig continued to operate profitably during the quarter and
represented approximately 39% of the international revenues for this division
during the quarter. Operating income from foreign operations in this segment
declined from approximately $1.1 million for the second quarter of 1995 to a
$0.1 million loss for the second quarter of 1996. This decline in operating
income was primarily attributable to the high costs associated with the
Company's Argentina operations and to the Company's Peruvian operations, which
had one of two rigs operating during the second quarter of 1996 as compared to
two rigs operating during 1995.
The Company has entered into an agreement to acquire two barge
rigs from Noble Drilling Corporation ("Noble") located in Nigeria for $32
million, including a $7.5 million drill pipe credit. This acquisition is subject
to various conditions, including the execution of two drilling contracts with
The Shell Petroleum Development Company of Nigeria Ltd. ("Shell Nigeria") and
certain governmental documentation relating to the rigs. The cash purchase price
of these rigs will be financed with a portion of the net proceeds of the
Company's recent public offering. Although there can be no assurance that the
Noble transaction will close, the Company currently anticipates that the
acquisition will be consummated sometime in August 1996. The Company has also
entered into a letter of intent with Chevron Nigeria Limited ("Chevron") for the
deployment of one of the Company's rigs in the United States to Nigeria to
operate for Chevron under a three year contract. 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. The
price of natural gas will also be a material factor affecting that demand.
General
Selling, general and administrative expenses increased
approximately 25% to approximately $16.5 million in the second quarter of 1996
from approximately $13.2 million in the second quarter of 1995. The increase in
1996 was primarily attributable to the Prideco acquisition completed in June
1995 as well as the costs associated with contract drilling services in
Argentina, which became operational in June 1995.
The Company's effective tax rate for the quarter ended June
30, 1996 was approximately 35% as compared to 36% for the quarter ended June 30,
1995. The decline in such rate primarily reflected the impact of an increase in
the Company's ability to utilize foreign tax credits.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
For the first six months of 1996, income before extraordinary
charge was $10.1 million, or $.55 per share, on revenues of $229.9 million
compared to income before extraordinary charge of $3.4 million, or $.27 per
share, on revenues of $152.4 million for the first six months of 1995. Operating
income for the first six months of 1996 was $23.8 million compared to $13.5
million for the first six months in 1995. The increase in income before
extraordinary charge for the 1996 periods was primarily attributable to
increased sales and margins of drill pipe and other tubular products.
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment
segment were $189.3 million and $21.5 million, respectively, for the six months
ended June 30, 1996, as compared to $114.5 million and $8.6 million,
respectively, for the six months ended June 30, 1995. The increase in revenues
and operating income was primarily attributable to increased sales and margins
for drill pipe and other tubular products. The increase attributable to the
improvement in tubular market was partially offset by transitional costs
associated with the Company's decision to concentrate on product design and
manufacturing in its artificial lift and production equipment division and the
related sale of its United States retail distribution system to Continental
Emsco in February 1996.
Sales of tubular products in the first six months of 1996 were
$129.5 million as compared to $56.3 million in the first six months of 1995. The
Company believes the second half of 1996 will benefit from the ENERPRO and TCA
acquisitions. Revenues and operating income associated with the Company's
artificial lift and production equipment division were $59.8 million and $3.7
million, respectively, for the six months ended June 30, 1996, compared to $58.2
million and $4.5 million, respectively, for the six months ended June 30, 1995.
The 1996 increase was primarily attributable to the same factors affecting the
increase in the second quarter of 1996.
17
<PAGE> 18
Contract Drilling Segment
Revenues and operating income for the contract drilling
segment were $40.6 million and $5.3 million, respectively, for the six months
ended June 30, 1996, as compared to $37.9 million and $7.6 million,
respectively, for the six months ended June 30, 1995. The decline in operating
income resulted primarily from the high costs associated with the Company's
Argentina operations and because only one of two rigs was operating in Peru
during the second quarter of 1996 as compared to two rigs operating during 1995.
General
Selling, general and administrative expenses increased
approximately 24% to approximately $32.2 million in the six months ended June
30, 1996 from approximately $26.1 million in the first six months of 1995. The
increase in 1996 was principally attributable to the Prideco acquisition and the
contract drilling services in Argentina which became operational in June 1995.
The Company's effective tax rate for the six months ended June
30, 1996 was approximately 35% as compared to 37% for the six months ended June
30, 1995. The decline in such rate primarily reflected the impact of an increase
in the Company's ability to utilize foreign tax credits.
CHANGE IN ACCOUNTING
The Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", effective January 1, 1996.
SFAS 121 establishes accounting standards for the impairment of long-lived
assets and certain identifiable intangibles related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The effect of adoption of SFAS 121 did not affect the Company's
consolidated financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In July 1996, the Company completed a public offering of
3,000,000 shares of its Common Stock. The net proceeds of this offering were
approximately $88.4 million. A portion of the funds from the offering were used
to finance the TCA acquisition, including the payment of approximately $30
million cash for the acquisition and the repayment of debt of TCA. The remaining
proceeds are proposed to be used to (i) acquire the two barge rigs from Noble
that are currently operating in Nigeria for approximately $24.5 million in cash
and a $7.5 million drill pipe credit, (ii) retrofit a barge rig for deployment
to Nigeria to work under a proposed contract with Chevron at a cost of
approximately $9 million and (iii) for general corporate purposes.
At June 30, 1996, the Company had cash and cash equivalents of
approximately $11.1 million compared to approximately $4.5 million at December
31, 1995. At June 30, 1996, the Company's working capital was approximately $136
million compared to approximately $152 million at December 31, 1995. At June 30,
1996, the Company's debt to total capitalization ratio was approximately 41%.
This rate has been reduced as a result of the Company's recent public offering.
At June 30, 1996 and 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. At June 30, 1996 and December 31,
1995, approximately $44.2 million and $4.8 million, respectively, had been
borrowed under the Company's revolving lines of credit and approximately $8.2
million and $5.1 million, respectively, had been used to support outstanding
letters of credit. At June 30, 1996 and December 31, 1995, $73.1 million and
$55.6 million, respectively, was available for additional borrowing under these
credit facilities. The average interest rate under these facilities was 10.22%
for fiscal 1995 and 8.57% for the first six months of 1996.
On June 26, 1996, the Company entered into a new $120 million
working capital facility, of which $90 million is designated as a borrowing base
revolving line of credit and up to $30 million is available for working capital
borrowings through December 31, 1996. Borrowings under the revolving line of
credit are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. The
revolving line of credit extends through June 30, 1999, and borrowings under the
$30 million portion of the facility are amortized over a three year period
beginning June 30, 1997. Borrowings under the facility bear interest at a
variable rate based on a LIBOR option and base rate option dependent on certain
ratios and are secured by the Company's domestic accounts receivables, inventory
and stock of various of the Company's domestic and foreign
18
<PAGE> 19
subsidiaries. The interest rate payable under this facility at June 30, 1996,
was 7.0%. The facility contains customary affirmative and negative covenants
relating to working capital, earnings and net worth. The facility also imposes
limitations on the Company and its subsidiaries' use of funds for future
acquisitions, the incurrence of additional debt and other operational matters
and certain expenditures, as well as prohibitions on the declaration and payment
of dividends by the Company. At June 30, 1996, the Company was limited under
this facility in the amount of dividends, distributions and other restricted
payments that could be made by it to $10 million. The Company's new facility
replaced the Company's prior U.S. working capital line of credit, which had
higher borrowing costs and more restrictive operational covenants. In the second
quarter of 1996, the Company incurred an extraordinary charge of $731,000, net
of taxes of $394,000, relating to the termination of its prior working capital
facility.
The Company currently has outstanding $120 million of 10-1/4
Senior Notes due 2004 (the "Senior Notes") with semi-annual interest payments in
March and September. The Senior Notes were issued pursuant to the terms of an
Indenture dated as of March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes. The
Indenture relating to the Senior Notes contains various customary affirmative
and negative covenants that, among other things, limit the ability of the
Company and certain of its subsidiaries to: (i) incur certain additional
indebtedness unless the Company's Consolidated Fixed Charge Coverage Ratio (as
defined in the Indenture) is at least 2.0 to 1.0, (ii) make dividends,
distributions and certain other restricted payments, (iii) create certain liens,
(iv) engage in certain transactions with its affiliates, (v) engage in sale and
leaseback transactions, (vi) make certain asset dispositions and (vii) merge or
consolidate with, or transfer all or substantially all of its assets to another
person. The Indenture also limits the ability of the Company and certain of its
subsidiaries to pay dividends and make other distributions. At July 31, 1996,
the Company was limited under the Indenture in the amount of dividends,
distributions and other restricted payments that could be made by it to
approximately $240 million.
In August 1994, the Company received a letter from the United
States Internal Revenue Service (the "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 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.
CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS
In January 1996, the Company entered into a long-term
manufacturing and sales agreement with OCTL pursuant to which OCTL will
manufacture drill pipe and premium tubulars for the Company on an exclusive
basis at OCTL's plant in India. The OCTL arrangement is being used by the
Company to pursue a strategic expansion of its sales and operations in the
Eastern Hemisphere. The Company currently expects that its arrangement with OCTL
will require an investment between $20 million and $25 million in 1996,
including an $8 million deposit made by the Company to OCTL in the first
quarter. The remainder of such funds will be used for the purchase of inventory
and other working capital requirements.
In February 1996, the Company completed the sale of its United
States retail store distribution system 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 April 1996, the Company acquired Production Specialties,
Inc. ("Production Specialties"), a manufacturer of gas lift equipment, for
approximately $3.1 million.
On May 3, 1996, the Company acquired ENERPRO, a manufacturer
of premium threads and thread connections, for 312,714 shares of Common Stock
and the assumption of approximately $3.1 million in indebtedness. The operations
of ENERPRO are being combined with the premium thread operations of the
Company's tubular division.
19
<PAGE> 20
On August 5, 1996, the Company acquired Tubular Corporation of
America, Inc. ("TCA") for 500,000 shares of Common Stock, approximately $14.3
million cash, a $650,000 note due January 1997 and assumed debt of approximately
$15 million. TCA manufactures premium casing which expands the range of the
Company's premium tubular products line to add a broader line of premium casing.
The Company has recently entered into a letter of intent with
Chevron for the deployment of one of the Company' rigs in the United States to
Nigeria to operate for Chevron under a three year contract. The cost to prepare
and enhance this rig for international operations is expected to be
approximately $9 million. Such costs will be financed with the proceeds from the
Company's July 1996 public offering of Common Stock.
Capital expenditures by the Company during the six months
ended June 30, 1996, totaled approximately $17.3 million. During the six months
ended June 30, 1996, capital expenditures included approximately $4.8 million
for refurbishment of three domestic barge rigs, upgrading of platform rig and
the acquisition of rig moving equipment for Argentina. The Company incurred
capital expenditures of approximately $4.1 million relating to plant expansions.
Ongoing routine capital expenditures for the last two quarters of 1996 are
budgeted at approximately $6.5 million. Capital expenditures are expected to be
funded with available cash, cash flow from operations and borrowings under lines
of credit and other facilities.
The allocations of the purchase price to the fair market
values of the net assets acquired in the 1996 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.
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 fixed 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.
OTHER MATTERS
From time to time, the Company may make certain statements
that contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995) and that involve risk and uncertainty. These
forward-looking statements may include, but are not limited to, future sales,
earnings, margins, production levels and costs, product deliveries, market
trends in the oil and gas industry and the oilfield service sector thereof,
research and development, environmental and other expenditures, currency
fluctuations and various business trends. Forward-looking statements may be made
by management orally or in writing, including, but not limited to, the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section and other sections of the Company's filings with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934.
Actual results and trends in the future may differ materially
depending on a variety of factors including, but not limited to, changes in the
price of oil and gas, changes in the domestic and international rig count,
global trade policies, domestic and international drilling activities,
world-wide political stability and economic growth, including currency
fluctuations, government export and import policies, technological advances
involving the Company's products, the Company's successful execution of internal
operating plans, performance issues with key suppliers and subcontractors,
collective bargaining labor disputes, regulatory uncertainties and legal
proceedings.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 8, 1996,
the stockholders of the Company approved: (i) the election of eight directors to
serve until the next Annual Meeting of Stockholders, (ii) the amendment of the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock $1.00 par value, from 20,000,000 shares to
40,000,000 shares, and (iii) an amendment to the Company's 1992 Employee Stock
Option Plan to increase the number of shares of the Company's Common Stock that
may be subject to options granted under the plan from 600,000 shares to
1,000,000 shares. The following sets forth the results of the voting with
respect to each such matter. There were no broker non-votes.
<TABLE>
<CAPTION>
Item
Withheld/
ELECTION OF DIRECTORS For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
David J. Butters 15,542,126 110,428
Bernard J. Duroc-Danner 15,542,126 110,428
Uriel E. Dutton 15,542,094 110,460
Eliot M. Fried 15,542,126 110,428
Sheldon S. Gordon 15,643,294 9,260
Sheldon B. Lubar 15,643,326 9,228
Robert B. Millard 15,542,110 110,444
Robert A. Rayne 15,643,294 9,260
Amendment to the Company's Certificate of Incorporation 15,498,993 146,652 6,909
Amendment to the Company's 1992 Employee
Stock Option Plan 15,516,005 127,692 8,357
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
Page
----
4.1 Credit Agreement among the Company, the Subsidiary
Guarantors, the Lenders defined therein and The Chase
Manhattan Bank, N.A. dated as of June 26, 1996, including
the form of Notes (incorporated by reference to Exhibit
No. 4.5 to the Registration Statement on Form S-3;
Registration No. 333-06715)
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . 23
(b) Reports on Form 8-K:
(1) Amendment No. 2 to Current Report on Form 8-K dated June 30, 1995
on Form 8-K/A as filed on May 8, 1996, containing the consent of
independent public accountants with respect to the financial
statements of Prideco, Inc.
(2) Current Report on Form 8-K dated June 24, 1996, reporting (i) the
execution of an agreement by the Company to acquire Tubular
Corporation of America ("TCA"), (ii) the execution of an agreement
by the Company to acquire two drilling rigs from Noble Drilling
Corporation and (iii) the redeployment of a drilling rig to Nigeria
to work under contract for Chevron Nigeria Limited, and containing
the financial statements of TCA.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY VENTURES, INC.
By: /s/ James G. Kiley
-------------------------------------
James G. Kiley
Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Frances R. Powell
-------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: August 14, 1996
22
<PAGE> 23
INDEX TO EXHIBITS
4.1 Credit Agreement among the Company, the Subsidiary
Guarantors, the Lenders defined therein and The Chase
Manhattan Bank, N.A. dated as of June 26, 1996, including
the form of Notes (incorporated by reference to Exhibit
No. 4.5 to the Registration Statement on Form S-3;
Registration No. 333-06715)
27 Financial Data Schedule
<PAGE> 1
ENERGY VENTURES, INC.
1992 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. This 1992 Employee Stock Option Plan (the "Plan") of
Energy Ventures, Inc. (the "Company") for certain employees, including officers
and directors, is intended to advance the best interests of the Company by
providing such personnel, who have substantial responsibility for its
management and growth, with additional incentive and by increasing their
proprietary interest in the success of the Company, thereby encouraging them to
remain in its employ.
2. ADMINISTRATION. The Plan shall be administered by a committee
(the "Committee") consisting of three or more members of the Board of Directors
of the Company, all of whom shall be "disinterested persons" as defined in Rule
16b-3 of the Rules and Regulations promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act") or any similar or successor rule. For the
purposes of the Plan, a majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of those members present at any meeting shall decide any question brought
before that meeting. In addition, the Committee may take any action otherwise
proper under the Plan by the affirmative vote, taken without a meeting, of a
majority of its members. All questions of interpretation and application of
the Plan, or as to options granted hereunder (the "Options"), shall be subject
to the determination, which shall be final and binding, of a majority of the
whole Committee. When appropriate, the Plan shall be administered in order to
qualify certain of the Options granted hereunder as "incentive stock options"
described in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. OPTION SHARES. The stock subject to the Options and other
provisions of the Plan shall be shares of the Company's Common Stock, $1.00 par
value (or such other par value as may be designated by act of the Company's
stockholders) (the "Common Stock"). The total amount of the Common Stock with
respect to which Options may be granted shall not exceed in the aggregate
1,000,000 shares; provided, that the class and aggregate number of shares which
may be subject to the Options granted hereunder shall be subject to adjustment
in accordance with the provisions of Paragraph 16 hereof. Such shares may be
treasury shares or authorized but unissued shares.
In the event that any outstanding Option for any reason shall expire
or terminate by reason of the death or severance of employment of the optionee,
the surrender of any such Option or any other cause, the shares of Common Stock
allocable to the unexercised portion of such Option may again be subject to an
Option under the Plan.
<PAGE> 2
4. AUTHORITY TO GRANT OPTIONS. The Committee may grant the
following options from time to time to such eligible employees of the Company
as it shall from time to time determine:
(a) "INCENTIVE" STOCK OPTIONS. The Committee may grant to
an eligible employee an Option, or Options, to buy a stated number of
shares of Common Stock under the terms and conditions of the Plan, so
that the Option will be an "incentive stock option" within the meaning
of Section 422 of the Code (an "incentive stock option").
(b) "NON-STATUTORY" STOCK OPTIONS. The Committee may grant
to an eligible employee an Option, or Options, to buy a stated number of
shares of Common Stock under the terms and conditions of the Plan, even
though such Option or Options would not constitute an "incentive stock
option" within the meaning of Section 422 of the Code (a "non-statutory
stock option").
Each Option granted shall be approved by the Committee which
shall specify whether each Option constitutes an incentive or non-statutory
stock option. Subject only to any applicable limitations set forth in the
Plan, the number of shares of Common Stock to be covered by any Options shall
be as determined by the Committee.
5. ELIGIBILITY. The individuals who shall be eligible to
participate in the Plan shall be such key employees, including officers and
directors if they are employees, of the Company, or of any parent or subsidiary
corporation, as the Committee shall determine from time to time. However, no
eligible employee who owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the corporation employing the
employee or of its parent or subsidiary corporation shall be eligible to
receive an Option which is an incentive stock option unless at the time that
such Option is granted the Option price is at least one hundred ten percent
(110%) of the fair market value of the Common Stock at the time such Option is
granted and such Option by its own terms is not exercisable after the
expiration of five years from the date such Option is granted. No individual
shall be eligible to receive an Option under the Plan while such individual is
a member of the Committee.
For the purposes of the preceding paragraph, an employee will be
considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust will be considered as being owned
proportionately by or for its stockholders, partners or beneficiaries. Except
as otherwise provided, for all purposes of the Plan, the term "parent
corporation" shall mean any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, on the date of grant of the
Option in question, each of the corporations other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one
-2-
<PAGE> 3
of the other corporations in such chain; and the term "subsidiary corporation"
shall mean any corporation in an unbroken chain of corporations, beginning with
the Company if, on the date of grant of the Option in question, each of the
corporations, other than the last corporation in the chain, owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
6. OPTION PRICE. The price at which shares may be
purchased pursuant to an Option, whether it is an incentive stock option or a
non-statutory stock option, shall be not less than the fair market value of the
shares of Common Stock on the date such Option is granted and the Committee in
its discretion may provide that the price at which shares may be so purchased
shall be more than such fair market value. In the case of any eligible
employee described in Paragraph 5 who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
corporation employing the employee or of its parent or subsidiary corporation
(described in Paragraph 5), the option price at which shares may be so
purchased pursuant to any Option which is an incentive stock option granted
hereunder shall be not less than one hundred ten percent (110%) of the fair
market value of the Common Stock on the date such Option is granted.
7. DURATION OF OPTIONS. No Option which is an incentive
stock option shall be exercisable after the expiration of ten years from the
date such Option is granted; and the Committee in its discretion may provide
that such Option shall be exercisable throughout such ten-year period or during
any lesser period of time commencing on or after the date of grant of such
Option and ending upon or before the expiration of such ten-year period. In
the case of any eligible employee who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
corporation employing the employee or of its parent or subsidiary corporation
(described in Paragraph 5), no Option which is an incentive stock option shall
be exercisable after the expiration of 5 years from the date such Option is
granted. No Option which is a non-statutory stock option shall be exercisable
after the expiration of ten years from the date such Option is granted; and the
Committee in its discretion may provide that such Option shall be exercisable
throughout such ten-year period or during any lesser period of time commencing
on or after the date of grant of such Option and ending upon or before the
expiration of such ten-year period.
8. MAXIMUM VALUE OF STOCK SUBJECT TO OPTIONS WHICH ARE
INCENTIVE STOCK OPTIONS. Notwithstanding any other provisions of the Plan to
the contrary, the aggregate fair market value (determined as of the date the
Option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the optionee in any calendar year (under
this Plan and any other incentive stock option plan(s) of the Company and any
parent or subsidiary corporation(s) thereof) shall not exceed $100,000. In
making this determination, Options shall be taken into account in the order in
which they were granted.
-3-
<PAGE> 4
9. AMOUNT EXERCISABLE. The agreement with respect to each
Option (whether incentive or non-statutory) shall set forth such terms and
conditions, including vesting, with respect to the exercise of such Option that
are not inconsistent with the Plan and as may be approved by the Committee.
The Committee, in its discretion, may change the terms of exercise so that any
Option may be exercised so long as it is valid and outstanding from time to
time in part or as a whole in such manner and subject to such conditions as it
may set. In addition, the Committee, in its discretion, may accelerate the
time in which any outstanding Option may be exercised. But in no event shall
any Option be exercisable after the tenth anniversary of the date of the grant.
10. EXERCISE OF OPTIONS. An optionee may exercise such
optionee's Option by delivering to the Company a written notice stating (i)
that such optionee wishes to exercise such Option on the date such notice is so
delivered, (ii) the number of shares of stock with respect to which such Option
is to be exercised, (iii) the address to which the certificate representing
such shares of stock should be mailed, and (iv) the social security number or
such optionee. In order to be effective, such written notice shall be
accompanied by (i) payment of the Option Price of such shares of stock and (ii)
payment of an amount of money necessary to satisfy any withholding tax
liability that may result from the exercise of such Option. Each such payment
shall be made by cashier's check drawn on a national banking association and
payable to the order of the Company in United States dollars.
If, at the time of receipt by the Company of such written
notice, (i) the Company has unrestricted surplus in an amount not less than the
Option Price of such shares of stock, (ii) all accrued cumulative preferential
dividends and other current preferential dividends on all outstanding shares of
preferred stock of the Company have been fully paid, (iii) the acquisition by
the Company of its own shares of stock for the purpose of enabling such
optionee to exercise such Option is otherwise permitted by applicable law and
without any vote or consent of any stockholder of the Company, and (iv) there
shall have been adopted, and there shall be in full force and effect, a
resolution of the Board of Directors of the Company authorizing the acquisition
by the Company of its own shares of stock for such purpose, then such optionee
may deliver to the Company, in payment of the Option Price of the shares of
stock with respect to which such Option is exercised, (x) certificates
registered in the name of such optionee that represent a number of shares of
stock legally and beneficially owned by such optionee (free of all liens,
claims and encumbrances of every kind) and having a fair market value on the
date of receipt by the Company of such written notice that is not greater than
the Option Price of the shares of stock with respect to which such Option is to
be exercised, such certificates to be accompanied by stock powers duly endorsed
in blank by the record holder of the shares of stock represented by such
certificates, with the signature of such record holder guaranteed by a national
banking association (or in lieu of such certificates, other arrangements for
the transfer of such shares to the Company which are satisfactory to the
Company), and (y) if the Option Price of the shares of stock with respect to
which such Option is to be exercised exceeds such fair market value, a
cashier's check drawn on a national banking association and payable to the
order of the Company in an amount, in
-4-
<PAGE> 5
United States dollars, equal to the amount of such excess plus the amount of
money necessary to satisfy any withholding tax liability that may result from
the exercise of such Option. Notwithstanding the provisions of the immediately
preceding sentence, the Committee, in its sole discretion, may refuse to accept
shares of stock in payment of the Option Price of the shares of stock with
respect to which such Option is to be exercised and, in that event, any
certificates representing shares of stock that were received by the Company
with such written notice shall be returned to such optionee, together with
notice by the Company to such optionee of the refusal of the Committee to
accept such shares of stock. The Company, upon approval of the Committee and
in its sole discretion, upon the request of the optionee, may retain shares of
Common Stock which would otherwise be issued upon exercise of an Option to
satisfy any withholding tax liability that may result from the exercise of such
Option, which shares shall be valued for such purpose at their then fair market
value. If, at the expiration of seven business days after the delivery to such
optionee of such written notice from the Company, such optionee shall not have
delivered to the Company a cashier's check drawn on a national banking
association and payable to the order of the Company in an amount, in United
States dollars, equal to the Option Price of the shares of stock with respect
to which such Option is to be exercised, such written notice from the optionee
to the Company shall be ineffective to exercise such Option.
As promptly as practicable after the receipt by the Company of
(i) such written notice from the optionee, (ii) payment, in the form required
by the foregoing provisions of this Paragraph 10, of the Option Price of the
shares of stock with respect to which such Option is to be exercised, and (iii)
payment, in the form required by the foregoing provisions of this Paragraph 10,
of an amount of money necessary to satisfy any withholding tax liability that
may result from the exercise of such Option, a certificate representing the
number of shares of stock with respect to which such Option has been so
exercised, reduced, to the extent applicable by the number of shares retained
by the Company as provided above to pay any required withholding tax, such
certificate to be registered in the name of such optionee, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such optionee at the address specified for
such purpose in such written notice from the optionee to the Company.
For purposes of this Paragraph 10, the "fair market value" of a
share of stock as of any particular date shall mean the closing sale price of a
share of Common Stock on that date as reported by the principal national
securities exchange on which the Common Stock is then listed if the Common
Stock is then listed on a national securities exchange or the average of the
bid and asked price of a share of Common Stock on that date as reported in the
NASDAQ listing if the Common Stock is not then listed on a national securities
exchange, provided that if no such closing price or quotes are so reported on
that date or if, in the discretion of the Committee, another means of
determining the fair market value of a share of stock at such date shall be
necessary or advisable, the Committee may provide for another means for
determining such fair market value.
-5-
<PAGE> 6
11. TRANSFERABILITY OF OPTIONS. Options shall not be
transferable by the optionee otherwise than by will or under the laws of
descent and distribution, and shall be exercisable, during his lifetime, only
by him.
12. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except
as may be otherwise expressly provided herein, each Option (whether incentive
or non-statutory), to the extent it shall not previously have been exercised,
shall terminate on the earlier of the date of the expiration of the Option or
one day less than three months after the date of the severance, upon severance
of the employment relationship between the Company and the optionee, whether
with or without cause, for any reason other than the death, disability or
retirement of the optionee, during which period the optionee shall be entitled
to exercise the Option in respect of the number of shares that the optionee
would have been entitled to purchase had the optionee exercised the Option on
the date of such severance of employment. Whether authorized leave of absence,
or absence on military or government service, shall constitute severance of the
employment relationship between the Company and the optionee shall be
determined by the Committee at the time thereof.
In the event of severance because of the disability of the
holder of any Option (whether incentive or non-statutory) while in the employ
of the Company and before the date of expiration of such Option, such Option
shall terminate on the earlier of such date of expiration or one year following
the date of such severance because of disability, during which period the
optionee shall be entitled to exercise the Option in respect to the number of
shares that the optionee would have been entitled to purchase had the optionee
exercised the Option on the date of such severance because of disability.
In the event of the death of the holder of any Option (whether
incentive or non-statutory) while in the employ of the Company and before the
date of expiration of such Option, such Option shall terminate on the earlier
of such date of expiration or one year following the date of death. After the
death of the optionee, his executors, administrators or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the termination of an
Option, to exercise the Option, in respect of the number of shares that the
optionee would have been entitled to purchase if he had exercised the Option on
the day of his death while in employment.
In addition, in the event of the retirement of the holder of any
non-statutory stock option, in accordance with the provisions of the Company's
then existing policies regarding retirement as applied by the Committee, before
the date of expiration of such Option, such Option shall terminate on the
earlier of such date of expiration or one year following the date of such
retirement and, if such optionee should die within the one year period, any
rights he may have to exercise the Option shall be exercisable by his executor
or administrator or the person or persons to whom the Option shall have been
transferred by his will or by the laws of descent or distribution, as
appropriate, for the remainder of the one year period.
-6-
<PAGE> 7
For purposes of incentive stock options issued under this Plan,
an employment relationship between the Company and the optionee shall be deemed
to exist during any period in which the optionee is employed by the Company, by
any parent or subsidiary corporation, by a corporation issuing or assuming an
option in a transaction to which Section 424(a) of the Code applies, or by a
parent or subsidiary corporation of such corporation issuing or assuming an
option (and for this purpose, the phrase "corporation issuing or assuming an
option" shall be substituted for the word "Company" in the definitions of
parent and subsidiary corporations specified in Paragraph 5 of this Plan, and
the parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a)). For purposes of non-statutory
stock options issued under this Plan, an employment relationship between the
Company and the optionee will exist under the circumstances described above for
incentive stock options and will also exist if the optionee is transferred to
an affiliated corporation approved by the Committee.
13. REQUIREMENTS OF LAW. The Company shall not be required
to sell or issue any shares under any Option if the issuance of such shares
shall constitute a violation by the optionee or the Company of any provisions
of any law or regulation of any governmental authority. Each Option granted
under the Plan shall be subject to the requirements that, if at any time the
Board of Directors of the Company or the Committee shall determine that the
listing, registration or qualification of the shares subject thereto upon any
securities exchange or under any state or federal law of the United States or
of any other country or governmental subdivision thereof, or the consent or
approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue or
purchase of shares subject thereto, no such Option may be exercised in whole or
in part unless such listing, registration, qualification, consent, approval or
representation shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. If required at any time by the Board of
Directors or the Committee, an Option may not be exercised until the optionee
has delivered an investment letter to the Company. In addition, specifically
in connection with the Securities Act of 1933 (as now in effect or hereafter
amended), upon exercise of any Option, the Company shall not be required to
issue the underlying shares unless the Committee has received evidence
satisfactory to it to the effect that the holder of such Option will not
transfer such shares except pursuant to a registration statement in effect
under such Act or unless an opinion of counsel satisfactory to the Committee
has been received by the Company to the effect that such registration is not
required. Any determination in this connection by the Committee shall be
final, binding and conclusive. In the event the shares issuable on exercise of
an Option are not registered under the Securities Act of 1933, the Company may
imprint on the certificate for such shares the following legend or any other
legend which counsel for the Company considers necessary or advisable to comply
with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws
of any state and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of counsel
satisfactory to the Corporation,
-7-
<PAGE> 8
in form and substance satisfactory to the Corporation, that
registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) and, in the event any shares are so registered, the Company
may remove any legend on certificates representing such shares. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER. No optionee shall have
rights as a stockholder with respect to shares covered by his Option until the
date of issuance of a stock certificate for such shares; and, except as
otherwise provided in Paragraph 16 hereof, no adjustment for dividends, or
otherwise, shall be made if the record date therefor is prior to the date of
issuance of such certificate.
15. EMPLOYMENT OBLIGATION. The granting of any Option
shall not impose upon the Company any obligation to employ or continue to
employ any optionee; and the right of the Company to terminate the employment
of any officer or other employee shall not be diminished or affected by reason
of the fact that an Option has been granted to him.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The
existence of outstanding Options shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of
shares or other capital adjustment of, or the payment of a dividend in capital
stock or other equity securities of the Company on, its Common Stock, or other
increase or reduction of the number of shares of the Common Stock without
receiving consideration therefor in money, services, or property, or the
reclassification of its Common Stock, in whole or in part, into other equity
securities of the Company, then (a) the number, class and per share price of
shares of stock subject to outstanding Options hereunder shall be appropriately
adjusted (or in the case of the issuance of other equity securities as a
dividend on, or in a reclassification of, the Common Stock, the Options shall
extend to such other securities) in such a manner as to entitle an optionee to
receive, upon exercise of an Option, for the same aggregate cash consideration,
the same total number and class or classes of shares (or in the case of a
dividend of, or reclassification into, other equity securities, such other
securities) he would have held after such adjustment if he had exercised his
Option in full
-8-
<PAGE> 9
immediately prior to the event requiring the adjustment, or, if applicable, the
record date for determining stockholders to be affected by such adjustment; and
(b) the number and class of shares then reserved for issuance under the Plan
(or in the case of a dividend of, or reclassification into, other equity
securities, such other securities) shall be adjusted by substituting for the
total number and class of shares of stock then received, the number and class
or classes of shares of stock (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) that
would have been received by the owner of an equal number of outstanding shares
of Common Stock as a result of the event requiring the adjustment. Comparable
rights shall accrue to each optionee in the event of successive subdivisions,
consolidations, capital adjustments, dividends or reclassifications of the
character described above.
If the Company shall distribute to all holders of its shares of
Common Stock (including any such distribution made to non-dissenting
stockholders in connection with a consolidation or merger in which the Company
is the surviving corporation and in which holders of shares of Common Stock
continue to hold shares of Common Stock after such merger or consolidation)
evidences of indebtedness or cash or other assets (other than cash dividends
payable out of consolidated retained earnings not in excess of, in any one year
period, the greater of (a) in an amount per share of Common Stock equal to
$1.00 per share of Common Stock (as the same may be adjusted from time to time
by the Board of Directors to reflect the effect of changes in capitalization)
and (b) two times the aggregate amount of dividends per share paid during the
preceding calendar year and dividends or distributions payable in shares of
Common Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company), then in each case the Option
Price shall be adjusted by reducing the Option Price in effect immediately
prior to the record date for the determination of stockholders entitled to
receive such distribution by the fair market value, as determined in good faith
by the Board of Directors of the Company (whose determination shall be
described in a statement filed in the Company's corporate records and be
available for inspection by any holder of an Option) of the portion of the
evidence of indebtedness or cash or other assets so to be distributed
applicable to one share of Common Stock; provided that in no event shall the
Option Price be less than the par value of a share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of the distribution retroactive to the record date
for the determination of the stockholders entitled to receive such
distribution. Comparable adjustments shall be made in the event of successive
distributions of the character described above.
If the Company shall make a tender offer for, or grant to all of
its holders of its shares of Common Stock the right to require the Company or
any subsidiary of the Company to acquire from such stockholders shares of,
Common Stock, at a price in excess of the Current Market Price (a "Put Right")
or the Company shall grant to all of its holders of its shares of Common Stock
the right to acquire shares of Common Stock for less than the Current Market
Price (a "Purchase Right") then, in the case of a Put Right, the Option Price
shall be adjusted by multiplying the Option Price in effect immediately prior
to the
-9-
<PAGE> 10
record date for the determination of stockholders entitled to receive such Put
Right by a fraction, the numerator of which shall be the number of shares of
Common Stock then outstanding minus the number of shares of Common Stock which
could be purchased at the Current Market Price for the aggregate amount which
would be paid if all Put Rights are exercised and the denominator of which is
the number of shares of Common Stock which would be outstanding if all Put
Rights are exercised; and, in the case of a Purchase Right, the Option Price
shall be adjusted by multiplying the Option Price in effect immediately prior
to the record date for the determination of the stockholders entitled to
receive such Purchase Right by a fraction, the numerator of which shall be the
number of shares of Common Stock then outstanding plus the number of shares of
Common Stock which could be purchased at the Current Market Price for the
aggregate amount which would be paid if all Purchase Rights are exercised and
the denominator of which is the number of shares of Common Stock which would be
outstanding if all Purchase Rights are exercised. In addition, the number of
shares subject to the Option shall be increased by multiplying the number of
shares then subject to the Option by a fraction which is the inverse of the
fraction used to adjust the Option Price. Notwithstanding the foregoing, if
any such Put Rights or Purchase Rights shall terminate without being exercised,
the Option Price and number of shares subject to the Option shall be
appropriately readjusted to reflect the Option Price and number of shares
subject to the Option which would have been in effect if such unexercised
Rights had never existed. Comparable adjustments shall be made in the event of
successive transactions of the character described above.
After the merger of one or more corporations into the Company,
after any consolidation of the Company and any one or more corporations, or
after any other corporate transaction described in Section 424(a) of the Code
in which the Company shall be the surviving corporation, each optionee, at no
additional cost, shall be entitled to receive, upon any exercise of his Option,
in lieu of the number of shares as to which the Option shall then be so
exercised, the number and class of shares of stock or other equity securities
to which the optionee would have been entitled pursuant to the terms of the
agreement of merger or consolidation if at the time of such merger or
consolidation such optionee had been a holder of a number of shares of Common
Stock equal to the number of shares as to which the Option shall then be so
exercised and, if as a result of such merger, consolidation or other
transaction, the holders of Common Stock are not entitled to receive any shares
of Common Stock pursuant to the terms thereof, each optionee, at no additional
cost, shall be entitled to receive, upon exercise of his Option, such other
assets and property, including cash, to which he would have been entitled if at
the time of such merger, consolidation or other transaction he had been the
holder of the number of shares of Common Stock equal to the number of shares as
to which the Option shall then be so exercised. Comparable rights shall accrue
to each optionee in the event of successive mergers or consolidations of the
character described above.
After a merger of the Company into one or more corporations,
after any consolidation of the Company and any one or more corporations, or
after any other corporate transaction described in Section 424(a) of the Code
in which the Company is not the surviving corporation, each optionee shall, at
no additional cost, be entitled, at the
-10-
<PAGE> 11
option of the surviving corporation, (i) to have his then existing Option
assumed or to have a new option substituted for the existing Option by the
surviving corporation to the transaction which is then employing him, or a
parent or subsidiary of such corporation, on a basis where the excess of the
aggregate fair market value of the shares subject to the option immediately
after the substitution or assumption over the aggregate option price of such
option is equal to the excess of the aggregate fair market value of all shares
subject to the Option immediately before such substitution or assumption over
the aggregate Option Price of such shares, provided that the shares subject to
the new option must be traded on the New York or American Stock Exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System, or (ii) to receive upon any exercise of his Option, in lieu of the
number of shares as to which the Option shall then be so exercised, the
securities, property and other assets, including cash, to which the Optionee
would have been entitled pursuant to the terms of the agreement or merger or
consolidation or the agreement giving rise to the other corporate transaction
if at the time of such merger, consolidation or other transaction such optionee
had been the holder of the number of shares of Common Stock equal to the number
of shares as to which the Option shall then be so exercised.
If a corporate transaction described in Section 424(a) of the
Code which involves the Company is to take place and there is to be no
surviving corporation while an Option remains in whole or in part unexercised,
it shall be cancelled by the Board of Directors as of the effective date of any
such corporate transaction but before the date each optionee shall be provided
with a notice of such cancellation and each optionee shall have the right to
exercise such Option in full (without regard to any limitations on exercise set
forth in or imposed by the option agreement pursuant to which such Option was
granted as contemplated by Paragraph 9 of the Plan) to the extent it is then
still unexercised during a 30-day period preceding the effective date of such
corporate transaction.
For purposes of this Paragraph 16, Current Market Price per
share of Common Stock shall mean the closing price of a share of Common Stock
as reported by the principal national securities exchange on which the Common
Stock is then listed if the Common Stock is then listed on a national
securities exchange, or the average bid and asked prices of a share of Common
Stock as reported in the NASDAQ listing if the Common Stock is not then listed
on a national securities exchange, on the trading day immediately preceding the
first trading day on which, as a result of the establishment of a record date
or otherwise, the trading price reflects that an acquiror of Common Stock in
the public market will not participate in or receive the payment of any
applicable dividend or distribution.
Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by
-11-
<PAGE> 12
reason thereof shall be made with respect to, the number or price of shares of
Common Stock then subject to outstanding Options.
17. SUBSTITUTION OPTIONS. Options may be granted under the
Plan from time to time in substitution for stock options held by employees of
other corporations who are about to become employees of the Company, or whose
employer is about to become a parent or subsidiary corporation of the Company,
conditioned in the case of an incentive stock option upon the employee becoming
an employee of the Company or a parent or subsidiary corporation of the
Company, as a result of the merger or consolidation of the Company with another
corporation, or the acquisition by the Company of substantially all the assets
of another corporation, or the acquisition by the Company of at least 50% of
the issued and outstanding stock of another corporation as the result of which
it becomes a subsidiary of the Company. The terms and conditions of the
substitute Options so granted may vary from the terms and conditions set forth
in the Plan to such extent as the Board of Directors of the Company at the time
of grant may deem appropriate to conform, in whole or in part, to the
provisions of the stock options in substitution for which they are granted, but
with respect to stock options which are incentive stock options, no such
variation shall be such as to affect the status of any such substitute option
as an "incentive stock option" under Section 422 of the Code.
18. AMENDMENT OR TERMINATION OF PLAN. The Board of
Directors may modify, revise or terminate the Plan at any time and from time to
time; provided, however, that without the further approval of the holders of
shares representing a majority of the total voting power of the Company at a
meeting of stockholders or by written consent, or if the provisions of the
corporate charter, by-laws or applicable state law prescribes a greater degree
of stockholder approval for this action, without the degree of stockholder
approval thus required, the Board of Directors may not (a) change the aggregate
number of shares which may be issued under Options pursuant to the provisions
of the Plan, (b) extend the term during which an Option may be exercised or the
termination date of the Plan or (c) materially change the class of employees
eligible to receive Options under the Plan; unless, in each such case, the
Board of Directors of the Company shall obtain an opinion of legal counsel to
the effect that stockholder approval of the amendment is not required (i) by
law, (ii) by the applicable rules and regulations of, or any agreement with,
any national securities exchange on which the Common Stock is then listed or if
the Common Stock is not so listed, the rules and regulations, or any agreement
with, the National Association of Securities Dealers, Inc., and (iii) in order
to make available to the optionee with respect to any option granted under the
Plan, the benefits of Rule 16b-3 of the Rules and Regulations under the
Exchange Act, or any similar or successor rule. In addition, the Board shall
have the power to make such changes in the Plan and in the regulations and
administrative provisions hereunder or in any outstanding Option as in the
opinion of counsel for the Company may be necessary or appropriate from time to
time to enable any Option granted pursuant to the Plan to qualify as incentive
stock options under Section 422 of the Code, and the regulations which may be
issued thereunder as in existence from time to time.
-12-
<PAGE> 13
19. WRITTEN AGREEMENT. Each Option granted hereunder shall
be embodied in a written option agreement, which shall be subject to the terms
and conditions prescribed above, and shall be signed by the optionee and by the
appropriate officer of the Company for and in the name and on behalf of the
Company. Such an option agreement shall contain such other provisions as the
Committee in its discretion shall deem advisable.
20. INDEMNIFICATION OF COMMITTEE. The Company shall, to
the fullest extent provided by law, indemnify each present and future member of
the Committee against, and each member of the Committee shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including, without limitation, reasonable attorneys' fees, the amount of
judgments and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his being
or having been a member of the Committee, whether or not he continues to be
such member of the Committee at the time of incurring such expenses. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and shall be
in addition to all other rights to which such member of the Committee may be
entitled as a matter of law, contract, or otherwise. Nothing in this Paragraph
20, shall be construed to limit or otherwise affect any right to
indemnification, or payment of expense, or any provisions limiting the
liability of any officer or director of the Company or any member of the
Committee, provided by law, the Certificate of Incorporation of the Company or
otherwise.
21. EFFECTIVE DATE OF PLAN. The Plan shall become
effective and shall be deemed to have been adopted on March 19, 1992, if within
one year of that date it shall have been approved by the holders of voting
stock of the Company representing a majority of the total voting power of the
Company at a meeting of stockholders or by written consent or if the provisions
of the corporate charter, by-laws or applicable state law prescribes a greater
degree of stockholder approval for this action, the approval by the holders of
that percentage, at a meeting of stockholders or by written consent. No Option
shall be granted pursuant to the Plan after March 19, 2002.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 11,103
<SECURITIES> 0
<RECEIVABLES> 106,397
<ALLOWANCES> 864
<INVENTORY> 130,118
<CURRENT-ASSETS> 277,466
<PP&E> 205,215
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 550,702
<CURRENT-LIABILITIES> 141,328
<BONDS> 123,751
0
0
<COMMON> 18,868
<OTHER-SE> 226,569
<TOTAL-LIABILITY-AND-EQUITY> 550,702
<SALES> 229,928<F2>
<TOTAL-REVENUES> 229,928
<CGS> 173,943<F2>
<TOTAL-COSTS> 173,943
<OTHER-EXPENSES> 32,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,382
<INCOME-PRETAX> 15,602
<INCOME-TAX> 5,461
<INCOME-CONTINUING> 10,141
<DISCONTINUED> 0
<EXTRAORDINARY> 731
<CHANGES> 0
<NET-INCOME> 9,410
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<FN>
<F1>THIS AMOUNT IS NOT DISCLOSED IN THE FINANCIAL STATEMENTS AND THUS A VALUE
OF ZERO HAS BEEN SHOWN FOR PURPOSES OF THIS FINANCIAL DATA SCHEDULE.
<F2>THESE LINE ITEMS INCLUDE CERTAIN AMOUNTS RELATED TO NON-TANGIBLE PRODUCTS
(I.E.) SERVICES, HOWEVER, SINCE THE AMOUNTS RELATED TO SERVICES ARE NOT
DISCLOSED IN THE FINANCIAL STATEMENTS, THE TOTAL REVENUE AND CGS FIGURES,
RESPECTIVELY, HAVE BEEN SHOWN ON THESE LINE ITEMS FOR PURPOSES OF THIS
FINANCIAL DATA SCHEDULE.
</FN>
</TABLE>
