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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
Amendment No. 1 to
Annual Report on Form 10-K
on
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-7265
ENERGY VENTURES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2515019
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (713) 297-8400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange in which registered
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Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 17, 1997, was $951,806,075, based upon the closing
price on the New York Stock Exchange as of such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Title of Class Outstanding at March 17, 1997
-------------- -----------------------------
Common Stock, $1.00 Par Value 22,838,318
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13, will be
included in the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
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EXPLANATORY NOTE
This Form 10-K/A amends Items 7 and 8 of Energy Ventures, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996.
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PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is an international manufacturer and supplier of oilfield
equipment. The Company manufactures and markets its drill pipe and premium
tubular products through its tubular products segment and manufactures and
markets a complete line of artificial lift and production equipment through its
production equipment segment. The Company's products are used in the
exploration and production of oil and natural gas. In recent periods, the
Company has benefited from improved market conditions, a continuing
consolidation in the markets in which it competes and a decline in excess
inventories of used drill pipe.
The Company has achieved significant growth in recent years through a
consistent strategy of focused acquisitions and internal development. This
strategy, combined with increased demand for the Company's products, has
resulted in significantly higher revenues and operating income. The Company is
currently the largest manufacturer and supplier of drill pipe in the world, the
largest manufacturer of premium tubulars in North America and among the largest
manufacturers of rod lift equipment in the world.
Income from continuing operations for 1996 was $24.5 million, or $1.20
per share, on revenues of $478 million, as compared to income from continuing
operations for 1995 of $2.6 million, or $.18 per share, on revenues of $271.7
million. The increase in income from continuing operations for 1996 was
primarily attributable to increased sales and margins of drill pipe and other
tubular products. Improved results also reflected the Company's acquisitions of
Prideco, Inc. ("Prideco") in June 1995, ENERPRO in May 1996, TCA in August 1996
and the operating assets of Superior in September 1996.
Net income for the year ended December 31, 1996 was $98.2 million, or
$4.82 per share, compared to net income of $11.3 million, or $.77 per share,
for the year ended December 31, 1995. Included in net income for 1996 was a
one-time gain, net of taxes of $44.6 million, of $66.9 million, or $3.29 per
share, from the November 1996 sale by the Company of its Mallard Division to
Parker for cash of approximately $306 million and 3,056,600 shares of Parker
preferred stock that were subsequently converted into 3,056,600 shares of
Parker common stock in December 1996. The Company intends to use the net
proceeds from this disposition to finance acquisitions and internal development
of its oilfield equipment businesses.
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As a result of the sale of the Mallard Division, all current and prior
year financial results attributable to the Mallard Division have been
reclassified as discontinued operations in the accompanying consolidated
financial statements. For the year ended December 31, 1996, income from
discontinued operations, net of taxes, for the Mallard Division was $7.5
million. Also included in net income for 1996 was an extraordinary after-tax
charge of $731,000, or $.04 per share, in the second quarter of 1996 relating
to the termination of the Company's $60 million credit facility that was
replaced with a $120 million revolving credit facility.
The Company adopted a plan to close its Bastrop, Texas, tool joint
manufacturing facility and to combine its two packer facilities through the
closure of one facility in Arlington, Texas in the fourth quarter of 1996. In
connection with these decisions, the Company incurred a charge of $5.8 million
associated with these closures. Of this charge, $4.3 million related to the
tool joint facility closure and relocation of equipment from this facility and
$1.5 million related to the consolidation of its packer facilities and the
closure of one of the plants. The Company incurred $3.8 million in 1996 for
costs associated with these actions during 1996, including costs relating to
the relocation of equipment at its Bastrop facility to other facilities. The
Company also accrued $2 million as part of the $5.8 million charge for exit
costs that it expected to be incurred in 1997 relating to the closure of its
Bastrop and Arlington facilities. Such costs included $800,000 for severance
and termination costs, $850,000 for the reduction in the carrying value of its
Bastrop facility in light of the intended plan of disposition of the facility
and $350,000 for the termination of the Arlington lease. Approximately 400
employees were affected by these closures, of which the employment of
approximately 275 had been terminated by December 31, 1996. The closure of
both the Bastrop and Arlington facilities had been substantially completed by
March 1997.
The demand for the Company's tubular products is particularly affected
by the price of natural gas and the level of oil and gas exploration activity,
while the demand for the Company's production equipment is directly dependent
on oil production activity. 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. The Company is also taking action to increase its presence in new
and complementary phases of the premium tubulars market through acquisitions,
including a pending $64 million acquisition of TA Industries, a U.S.
manufacturer of premium couplings and accessories.
Sales of the Company's production equipment products have historically
been concentrated in North America. The Company had recently significantly
expanded its production equipment operations in South America with its
September 1996 acquisition of Geremia, a manufacturer of progressing cavity
pumps, and the early 1997 acquisition of Anbert Cilindros S.A.I.C. ("Anbert"),
a manufacturer of rod pumps in Argentina.
The Company currently expects that 1997 results will continue to benefit
from strong tubular products sales and from the 1996 and 1997 acquisitions.
Results, however, will be dependent on market conditions and demand for drill
pipe and other tubular products. Accordingly, there can be no assurance as to
future results or profitability.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Tubular Products Segment
Sales of tubular products in 1996 were $342.5 million compared to $154.2
million in 1995. Operating income associated with the tubular products segment
in 1996 was $44.4 million as compared to $15.2 million in 1995. Results in the
fourth quarter include a $4.3 million charge attributable to the relocation of
a tool joint manufacturing facility. Results for 1996 reflected a 73% increase
in sales of drill pipe and a 27% increase in sales of premium tubulars. The
increase in drill pipe sales reflected an overall increase in demand for drill
pipe and the Company's June 1995 acquisition of Prideco. The increase in demand
for drill pipe was due to increased drilling activity, particularly offshore,
higher sales prices and a continuing decline in the supply of used drill pipe
inventory, against which the Company has historically competed. The increase in
sales of premium tubular products reflected the acquisitions of ENERPRO, TCA
and Superior and an increase in demand associated with increased natural gas
and deep offshore exploration and production activity. The acquisitions
complimented the Company's engineered premium threading technology.
The improvement in operating income reflected the effects of increased
sales, improved pricing and lower average manufacturing costs due to
consolidation savings. In the third and fourth quarters of 1996 the Company
implemented price increases on drill pipe, which are expected to benefit 1997
results as the existing backlog turns. Price improvements, however, were
partially offset by an increase in the price of raw materials, particularly
"green" tubing, the primary material used by the Company in the production of
its tubular goods.
Of the Company's sales of drill pipe and other tubular products, 59%, 4%
and 7% were attributable to sales in the U.S., Canada and Latin America,
respectively. Sales of drill pipe and other tubular products in the U.S.,
Canada and Latin America for 1995 represented 62%, 4% and 12%, respectively, of
such sales for 1995.
The Company is currently in the process of implementing various
manufacturing changes at its tubular products division in light of recent
acquisitions and to reduce costs and improve efficiencies. These changes
include the closing of the Company's tool joint manufacturing facility in
Bastrop, Texas and the relocation of various equipment and personnel to
Veracruz, Mexico and to other facilities. As described above, the Company
incurred a $4.3 million charge to operating income in the fourth quarter of
1996 associated with these changes. The Company expects to realize costs
savings in 1997 as a result of such changes.
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Backlog for tubular products at December 31, 1996 was approximately $170
million compared to $78 million at December 31, 1995. The Company currently
expects that all of this backlog will be shipped within the next twelve months.
Production Equipment Segment
Revenues and operating income at the Company's production equipment
segment were $135.5 million and $8.2 million, respectively, for 1996, compared
to $117.4 million and $7.8 million, respectively, for 1995. As described above,
the production equipment segment recorded a charge of $1.5 million in the fourth
quarter of 1996 associated with the consolidation of two packer manufacturing
facilities arising from the Company's acquisition of the packer manufacturing
operations of Arrow in December 1996. The Company expects to benefit in 1997
from the packer facilities consolidation. The Company has also benefited from
the reduction in manufacturing expenses from process efficiencies realized at
the segment's primary facilities.
Sales of production equipment in North America constituted approximately
78% of total sales in 1996 in this segment, compared to 88% of sales in 1995,
while sales in South America increased to 17% in 1996 from 8% in 1995. The
increased South American sales were primarily attributable to $4.7 million in
revenues from Geremia, a manufacturer of progressing cavity pumps, acquired in
October 1996.
Canadian sales were $54.9 million for 1996, representing an increase of
approximately 46% from 1995 levels. The Company is near completion on the
construction of a new Canadian manufacturing plant to produce continuous rod,
which is expected to expand capacity by over 150%. The Company is also in the
process of expanding the capabilities at this facility to manufacture rotors
and stators for its progressing cavity pumps pursuant to an exclusive license
and technology transfer arrangement with Netzsch in Germany. Production of
rotors and stators at this facility is expected to commence in early 1998. The
Company anticipates that the increase in capacity of the new continuous rod
plant along with manufacturing efficiencies will benefit 1997 results.
Sales in the United States were $50.3 million in 1996, as compared to
$65.2 million in 1995. Revenues in 1996 did not include any sales from the
Company's Highland Pump distribution business, which was sold in the first
quarter of 1996 in connection with the Company's decision to focus the efforts
of this division on manufacturing and product design.
General
Corporate expenses as a percentage of revenues for 1996 were 1.3% as
compared to 1.9% for 1995. The percentage decrease in 1996 was primarily
attributable to the growth in revenues from the Company's tubular products
segment.
The Company's effective tax rate on income from continuing operations
for 1996 was approximately 22%. The effective rate was favorably impacted by a
$4 million tax benefit in the fourth quarter of 1996 resulting from the
Company's $6.4 million settlement in October 1996 with the United States
Internal Revenue Service (the "IRS") in connection with the dissolution in
October 1990 of the COLEVE joint venture. The Company also recorded a tax
charge of approximately $44.6 million associated with the Company's gain on the
sale of the Mallard Division.
The Company realized a net tax benefit on income from continuing
operations of $240,000 in 1995 primarily through the benefit of certain net
operating losses that had been previously subject to separate company
limitations.
Interest expense for 1996 was $16.5 million compared to $16.3 million
for 1995. Following the Company's sale of the Mallard Division, the Company
repaid substantially all of its outstanding working capital indebtedness. As a
result, interest expense for 1997 is expected to decline from 1996 levels.
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations.
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FISCAL YEAR 1995 COMPARISON WITH FISCAL YEAR 1994
Tubular Products Segment
The Company recorded a $60.6 million increase in sales of tubular
products in 1995 over 1994 sales. The increase in sales for 1995 resulted from
the acquisition of Prideco on June 30, 1995, higher sales prices and an overall
increase in demand for drill pipe. The Company implemented price increases in
the second half of 1995 from which the Company benefited in 1996 as the
existing backlog turned.
Results in the tubular products segment include a $0.75 million royalty
payment in the fourth quarter of 1995, which benefited operating income for
1995. The oilfield equipment segment also benefited from lower average
manufacturing costs for its tubulars associated with increased sales and higher
gross margins at the Company's facility in Mexico, which has a lower cost base
than the United States facilities.
In the third quarter of 1995, the Company experienced increases in its
cost of "green" tubing, the primary material used by it in the production of
its tubular goods. The Company was able to pass through the additional costs of
this raw material to its customers.
Of the Company's 1995 sales of drill pipe and other tubular products,
62%, 4% and 12% were attributable to sales in the U.S., Canada and Latin
America, respectively. Sales of drill pipe and other tubular products in the
U.S., Canada and Latin America for 1994 represented 54%, 4% and 12%,
respectively, of such sales for 1994. The U.S. increase reflects the increase
in demand and the acquisition of Prideco.
Production Equipment Segment
Revenues and operating income associated with the Company's production
equipment segment were $117.4 million and $7.8 million, respectively, for 1995
compared to $90.3 million and $5.1 million, respectively, for 1994. The
increases in revenues and operating income for 1995 were primarily attributable
to the Company's increases in Canadian progressing cavity pumps and Corod
sales.
Sales of production equipment in North America constituted approximately
88% of total sales in 1995 in this segment, compared to 91% of sales in 1994,
while sales in South America increased to 8% in 1995 from 3% in 1994. The
increased South American sales were primarily attributable to a $2.2 million
increase in revenue following the Company's acquisition of Engemaq S.A. in
1995.
General
Selling, general and administrative expenses increased approximately 16%
to $48.4 million in 1995 from $41.7 million in 1994. The increase in 1995 was
attributable to the Prideco acquisition and to increased sales and
international expansion.
Interest expense increased during 1995 to $16.3 million from $13.5
million for 1994. The increase in interest expense was attributable to higher
levels of indebtedness during 1995 under the Company's working capital lines of
credit due to increases in the level of the Company's business. The Company's
interest expense declined in the fourth quarter of 1995 as a result of the
reduction in debt following the 1995 equity offering of $72.6 million.
The Company realized a $240,000 tax benefit in 1995 on income from
continuing operations as compared to a $3.8 million tax benefit in 1994. The
1995 tax benefit reflects the impact of net operating loss carryforwards and
certain tax benefits which occurred in 1995.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, effective January 1, 1996. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. Accordingly, the Company's long-lived assets for certain
identifiable intangibles are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of any assets may not be
recoverable. In performing the review for recoverability, the Company estimates
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash
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flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. The adoption of SFAS
No. 121 did not impact the Company's consolidated financial position or results
of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123 ("SFAS No. 123"), Accounting
for Stock-Based Compensation. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation. The pronouncement
allows an entity to continue to measure compensation cost for those instruments
using the intrinsic value-based method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 ("APB No. 25"), under which no
compensation cost has been recognized in the accompanying financial statements
for stock options since the exercise price of the Company's stock options
issued equals the market value of the underlying stock on the date of grant.
The Company does not intend to adopt the fair value method of accounting for
stock-based compensation under SFAS No. 123.
LIQUIDITY AND CAPITAL RESOURCES
On November 11, 1996, the Company sold its Mallard Division to Parker
for cash of approximately $306 million and shares of Parker's preferred stock
that were subsequently converted into 3,056,600 shares of Parker's common stock
in December 1996. The net cash proceeds to the Company after taxes from the sale
of the Mallard Division were approximately $237 million. The Company is also in
the process of disposing of Parker's common stock received in the sale of the
Mallard Division pursuant to a public offering to be effected by Parker. The
Company intends to deploy the net proceeds from the Mallard Division disposition
to finance acquisitions and the further development of its oilfield equipment
business.
In July 1996, the Company completed a public offering of 3,450,000
shares of its Common Stock. The net proceeds of this offering were
approximately $101 million. The funds from the offering were utilized to fund
the TCA acquisition, the Company's acquisition of two rigs in Nigeria (which
were subsequently sold to Parker as part of the Mallard Division sale) and for
general corporate purposes, including the reduction in the Company's working
capital facility.
At December 31, 1996, the Company had cash and cash equivalents of
approximately $224 million compared to approximately $2.9 million at December
31, 1995. At December 31, 1996, the Company's working capital was approximately
$326 million compared to approximately $231 million at December 31, 1995. The
increase in working capital is primarily attributable to the Company's sale of
the Mallard Division and increased operations. At December 31, 1996, the
Company's debt to total capitalization ratio was approximately 23% as compared
to 37% at December 31, 1995.
At December 31, 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 December 31, 1996 and December
31, 1995, approximately $2.9 million and $4.6 million, respectively, was
outstanding under its revolving lines of credit and approximately $10.1 million
and $5.1 million, respectively, had been used to support outstanding letters of
credit. At December 31, 1996 and December 31, 1995, $117.9 million and $55.6
million, respectively, were available for additional borrowing under these
credit facilities. The average interest rates under these facilities were
10.22% for fiscal 1995 and 8.48% for 1996.
The Company currently has available to it working capital facilities
providing for up to $130.9 million in borrowings. Borrowings under the these
facilities are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. Borrowings
bear interest at variable rates and are secured by accounts receivables,
inventory and stock of various of the Company's domestic and foreign
subsidiaries. These facilities contain customary affirmative and negative
covenants relating to working capital, earnings and net worth. These facilities
also impose limitations on the Company's and its subsidiaries' use of funds for
future acquisitions and capital expenditures, the incurrence of additional debt
and other operational matters and certain expenditures, as well as prohibitions
on the declaration and payment of cash dividends by the Company. At December
31, 1996, the Company was limited under its principal credit facility in the
amount of dividends, distributions and other restricted payments that could be
made by it to $133 million.
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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 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. The Indenture also limits, based on a
specific formula, the ability of the Company and certain of its subsidiaries to
pay dividends and make other distributions. At December 31, 1996, the Company
was limited under the Indenture in the amount of cash dividends, distributions
and other restricted payments that could be made by it to approximately $278
million.
On October 11, 1996, the Company entered into a $3.9 million tax
settlement plus accrued interest of $2.5 million with the IRS relating to a
dispute regarding the tax impact to the Company upon the dissolution of COLEVE
in October 1990. The tax liability with respect to the dissolution had been
previously provided for as a deferred tax liability in the Company's
consolidated financial statements. This settlement resulted in the Company
recognizing a $4 million tax benefit in the fourth quarter due to the
elimination of certain previously accrued deferred taxes that will no longer be
required to be paid as a result of this settlement.
The Company's current sources of capital are its current cash, including
the net proceeds from the sale of the Mallard Division, 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.
In December 1996, the Company entered into an agreement to acquire
GulfMark International, Inc., ("GulfMark") pursuant to a tax free merger in
which approximately 2.2 million shares of the Company's Common Stock currently
held by GulfMark will be issued to the stockholders of GulfMark. Prior to the
merger, GulfMark will spin-off to its stockholders its marine transportation
services business. Such merger is subject to, among other things, approval by
the stockholders of the Company and GulfMark. The company expects that the
merger will be consummated in the second quarter of 1997.
ACQUISITIONS AND DISPOSITIONS
Tubular Products Segment
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with OCTL pursuant to which OCTL manufactures drill pipe and
premium tubulars for the Company on an exclusive basis at OCTL's plant in
India. As part of the agreement, the Company made an $8 million deposit in
January 1996 to OCTL and funds the facilities working capital requirements.
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 have been combined with the premium thread operations of the Company's
tubular division.
On August 5, 1996, the Company acquired TCA for approximately 500,000
shares of Common Stock, $14.35 million in cash, a $650,000 note due January
1997 and assumed debt of approximately $15 million. The acquisition of TCA,
which manufactures premium casing, expanded the range of the Company's premium
tubular products line to add a broader line of premium casing.
The Company acquired Superior, an Alberta, Canada based premium tubular
manufacturer, for total cash consideration of approximately $16 million on
September 4, 1996.
On February 24, 1997, the Company entered into an agreement to acquire
TA, which designs, manufactures and markets premium couplings and accessories,
for total consideration including assumed debt, of approximately $64 million.
The acquisition of TA is subject to various conditions, including the receipt
of all required regulatory approvals and expiration of all waiting periods. The
transaction is expected to close by April 30, 1997.
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Production Equipment Segment
In February 1996, the Company sold its United States retail store
distribution system to Continental Emsco for approximately $7.5 million. The
Company received $3 million in cash, a $4 million vendor credit 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, a
manufacturer of gas lift equipment, for approximately $3.1 million.
On October 1, 1996, the Company acquired the stock of Geremia, a Porto
Alegre, Brazil based designer, manufacturer and marketer of progressing cavity
pumps, for approximately $24.5 million in cash and assumed debt.
On December 10, 1996, the Company acquired Arrow for total cash
consideration of approximately $21.5 million. The operations of Arrow are
currently being integrated into the production equipment division through plant
consolidations. The allocation of the purchase price to the fair market value
of the net assets acquired in the Arrow acquisition is subject to revision as
the purchase price is subject to adjustment pending the resolution of certain
asset valuations which must be agreed to by the buyer and seller. The Company
believes the ultimate resolution to the cost of the acquisition will not have a
material impact on the assets acquired or the results of operations as a result
of such revision.
On February 13, 1997, the Company acquired Anbert, an Argentinian rod
pump business, for approximately $8 million.
On March 14, 1997 the Company acquired Griffin Legrand, a manufacturer
of progressing cavity pumps and conventional pumping units, for total cash
consideration of approximately $21 million.
CAPITAL EXPENDITURES
Capital expenditures by the Company during 1996, totaled approximately
$26 million. During 1996, capital expenditures included approximately $7
million relating to plant expansions. Ongoing routine capital expenditures for
1997 are estimated to be approximately $25 million. Capital expenditures are
expected to be funded with available cash, cash flow from operations and
borrowings under existing lines of credit and other facilities.
OTHER MATTERS
At the Company's Annual Meeting on May 6, 1997, the agenda includes,
among other things, a proposal to increase the Company's authorized shares of
Common Stock from 40 million shares to 80 million shares to effect a two for
one stock split and a proposal to change the name of the Company from Energy
Ventures, Inc. to EVI, Inc. The effect of the pending stock split has not been
reflected in this December 31, 1996 Form 10-K.
Certain statements made herein and in other public filings and releases
by the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
sales, earnings, margins, production levels and costs, expected savings from
acquisitions, demand for products, 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. Projections have also been made as to the net proceeds
and effects of the Mallard Division sale and savings from recent acquisitions.
Forward-looking statements may be made by management orally or in writing
including, but not limited to, this 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 Exchange Act of 1934 and the Securities Act of 1933.
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 and
manufacturing consolidations and
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restructurings, performance issues with key suppliers and subcontractors, the
ability of the Company to maintain price increases and market shares, raw
material costs changes, collective bargaining labor disputes, regulatory
uncertainties and legal proceedings. Future results will also be dependent upon
the ability of the Company to continue to identify and complete successful
acquisitions at acceptable prices, integrate those acquisitions with the
Company's other operations and penetrate existing and new markets. The results
from the Mallard Division sale are also subject to various assumptions,
including the adjustments that will be required in connection with the sale,
the Company's U.S. and foreign tax treaties applicable to the sale, the final
structure for the transfer of certain assets required to be transferred to the
Mallard Division in connection with the sale and other matters.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
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Report of Independent Public Accountants.......................................... 20
Consolidated Balance Sheets - December 31, 1996 and 1995.......................... 21
Consolidated Statements of Income, for each of the three years in the
period ended December 31, 1996................................................. 22
Consolidated Statements of Stockholders' Investment, for each of the three
years in the period ended December 31, 1996.................................... 23
Consolidated Statements of Cash Flows, for each of the three years in
the period ended December 31, 1996............................................. 24
Notes to Consolidated Financial Statements........................................ 25
Financial Statement Schedule:
II. - Valuation and Qualifying Accounts and Allowances......................... 53
</TABLE>
All other schedules are omitted because they are not required or because
the required information is included in the financial statements or notes
thereto.
10
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Energy Ventures, Inc.:
We have audited the accompanying consolidated balance sheets of Energy
Ventures, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Energy Ventures, Inc. and subsidiaries as of December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedule listed in Part II - Item 8 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of
the basic consolidated financial statements. The Financial Statement Schedule
has been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1997
11
<PAGE> 13
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
ASSETS (IN THOUSANDS)
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents ........................................... $ 223,966 $ 2,885
Accounts Receivable, Net of Allowance for Uncollectible Accounts
of $583,000 in 1996 and $362,000 in 1995 .......................... 119,152 76,417
Inventories ......................................................... 157,631 124,772
Marketable Securities ............................................... 23,841 --
Net Assets of Discontinued Operations ............................... -- 95,491
Other Current Assets ................................................ 34,091 9,620
--------- ---------
558,681 309,185
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property .................................. 51,037 31,964
Machinery and Equipment ............................................. 154,945 91,958
Furniture and Vehicles .............................................. 16,339 13,991
--------- ---------
222,321 137,913
Less: Accumulated Depreciation ..................................... 49,597 37,754
--------- ---------
172,724 100,159
--------- ---------
GOODWILL, NET ............................................................ 102,474 35,784
OTHER ASSETS ............................................................. 18,964 7,997
--------- ---------
$ 852,843 $ 453,125
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit .... $ 4,451 $ 4,577
Current Maturities of Long-Term Debt ................................ 3,622 3,492
Accounts Payable .................................................... 80,783 44,254
Accrued Salaries and Benefits ....................................... 11,817 5,153
Current Tax Liability ............................................... 81,916 1,342
Other Accrued Liabilities ........................................... 50,537 19,473
--------- ---------
233,126 78,291
--------- ---------
LONG-TERM DEBT ........................................................... 126,710 124,183
DEFERRED INCOME TAXES AND OTHER .......................................... 38,923 22,585
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock, $1 Par Value, Authorized 40,000,000 Shares, Issued
22,964,625 Shares in 1996 and 18,522,183 Shares in 1995 ........... 22,965 18,522
Capital in Excess of Par Value ...................................... 281,686 157,953
Retained Earnings ................................................... 158,333 60,167
Cumulative Foreign Currency Translation Adjustment .................. (8,712) (6,915)
Treasury Stock, at Cost ............................................. (2,569) (1,661)
Unrealized Gain on Marketable Securities ............................ 2,381 --
--------- ---------
454,084 228,066
--------- ---------
$ 852,843 $ 453,125
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE> 14
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES ............................................... $ 478,020 $ 271,675 $ 185,285
--------- --------- ---------
COSTS AND EXPENSES:
Cost of Sales ..................................... 373,509 205,230 139,901
Selling, General and Administrative Attributable to
Segments ..................................... 51,885 43,357 36,998
Corporate General and Administrative .............. 6,339 5,123 4,748
--------- --------- ---------
431,733 253,710 181,647
--------- --------- ---------
OPERATING INCOME ....................................... 46,287 17,965 3,638
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Income ................................... 2,163 21 194
Interest Expense .................................. (16,454) (16,287) (13,537)
Other, Net ........................................ (450) 663 218
--------- --------- ---------
(14,741) (15,603) (13,125)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ...................... 31,546 2,362 (9,487)
PROVISION (BENEFIT) FOR INCOME TAXES ................... 7,041 (240) (3,795)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... 24,505 2,602 (5,692)
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAXES ...................................... 7,468 8,709 10,334
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF TAXES ...................................... 66,924 -- --
EXTRAORDINARY CHARGE, NET OF TAXES ..................... (731) -- (3,784)
--------- --------- ---------
NET INCOME ............................................. $ 98,166 $ 11,311 $ 858
========= ========= =========
EARNINGS PER COMMON SHARE:
Income (Loss) from Continuing Operations .......... $ 1.20 $ .18 $ (.45)
Income from Discontinued Operations ............... .37 .59 .82
Gain on Disposal of Discontinued Operations ....... 3.29 -- --
Extraordinary Charge .............................. (.04) -- (.30)
--------- --------- ---------
Net Income ........................................ $ 4.82 $ .77 $ .07
========= ========= =========
Weighted Average Common Shares Outstanding ........ 20,353 14,724 12,629
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE> 15
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL FOREIGN UNREALIZED
COMMON STOCK IN CURRENCY TREASURY STOCK GAIN ON TOTAL
------------------ EXCESS RETAINED TRANSLATION ------------------ MARKETABLE STOCKHOLDERS'
SHARES $1 PAR OF PAR EARNINGS ADJUSTMENT SHARES AMOUNT SECURITIES INVESTMENT
------------------ ------ -------- ---------- ------ ------ ---------- ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 ...... 12,315,756 $12,316 $ 50,442 $ 47,998 $(2,111) (64,975) $ (909) $ -- $ 107,736
Net Income ............. -- -- -- 858 -- -- -- -- 858
Shares Issued in
Connection with
Acquisition .......... 433,333 433 4,692 -- -- -- -- -- 5,125
Options Exercised ...... 5,160 5 8 -- -- -- -- -- 13
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan .... -- -- -- -- -- (29,234) (394) -- (394)
Foreign Currency
Translation
Adjustment ........... -- -- -- -- (2,425) -- -- -- (2,425)
---------- ------- -------- -------- ------- -------- ------- ------ ---------
Balance at
December 31, 1994 ...... 12,754,249 12,754 55,142 48,856 (4,536) (94,209) (1,303) -- 110,913
Net Income ............. -- -- -- 11,311 -- -- -- -- 11,311
Shares Issued in
Connection with
Acquisition .......... 2,255,198 2,255 33,020 -- -- -- -- -- 35,275
Options Exercised ...... 62,736 63 593 -- -- -- -- -- 656
Issuance of Common
Stock ................ 3,450,000 3,450 69,198 -- -- -- -- -- 72,648
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan .... -- -- -- -- -- (19,392) (358) -- (358)
Foreign Currency
Translation
Adjustment ........... -- -- -- -- (2,379) -- -- -- (2,379)
---------- ------- -------- -------- ------- -------- ------- ------ ---------
Balance at
December 31, 1995 ...... 18,522,183 18,522 157,953 60,167 (6,915) (113,601) (1,661) -- 228,066
Net Income ............. -- -- -- 98,166 -- -- -- -- 98,166
Shares Issued in
Connection with
Acquisitions ........ 812,710 813 23,401 -- -- -- -- -- 24,214
Options Exercised ...... 179,732 180 2,922 -- -- -- -- -- 3,102
Issuance of Common
Stock ............... 3,450,000 3,450 97,410 -- -- -- -- -- 100,860
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan ... -- -- -- -- -- (22,103) (908) -- (908)
Foreign Currency
Translation
Adjustment .......... -- -- -- -- (1,797) -- -- -- (1,797)
Unrealized Gain on
Marketable Securities -- -- -- -- -- -- -- 2,381 2,381
---------- ------- -------- -------- ------- -------- ------- ------ ---------
Balance at
December 31,1996 ....... 22,964,625 $22,965 $281,686 $158,333 $(8,712) (135,704) $(2,569) $2,381 $ 454,084
========== ======= ======== ======== ======= ======== ======= ====== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE> 16
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income ..................................................... $ 98,166 $ 11,311 $ 858
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operations:
Depreciation and Amortization ................................ 16,771 12,446 9,398
Net Income from Discontinued Operations ...................... (7,468) (8,709) (10,334)
Gain on Disposal of Discontinued Operations, Net ............. (66,924) -- --
Extraordinary Charge on Prepayment of Debt, Net .............. 731 -- 3,784
Deferred Income Tax Provision (Benefit) from Continuing
Operations ................................................ (7,965) 2,109 (2,454)
Tax Dispute Settlement ....................................... (6,412) -- --
Provision for Uncollectible Accounts Receivable .............. 486 252 158
Change in Assets and Liabilities, Net of Effects of Businesses
Acquired:
Accounts Receivable ........................................ (20,853) (16,104) (13,832)
Inventories ................................................ (16,296) (33,076) (8,463)
Other Current Assets ....................................... 2,469 (5,283) (756)
Accounts Payable ........................................... 17,196 17,045 (8,215)
Accrued Salaries and Benefits and Other .................... (10,123) (10,246) (1,681)
Other Assets ............................................... (2,697) 1,661 (1,709)
Other, Net ................................................. (2,553) (2,257) 5,545
--------- --------- ---------
Net Cash Used by Continuing Operations .................. (5,472) (30,851) (27,701)
Net Cash Provided by Discontinued Operations ............ 8,294 10,745 6,906
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities ........ 2,822 (20,106) (20,795)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Disposal of Discontinued Operations .............. 306,854 -- --
Acquisitions and Capital Expenditures of Discontinued
Operations ................................................ (63,136) (22,884) (11,738)
Acquisition of Businesses, Net of Cash Acquired ................ (87,814) (8,105) (10,452)
Capital Expenditures for Property, Plant and Equipment ......... (25,890) (11,132) (7,869)
Proceeds from Sale of Assets ................................... 1,261 3,369 28
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities .......... 131,275 (38,752) (30,031)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net .................................. 100,860 72,648 --
Issuance of Long-Term Debt ..................................... -- -- 120,000
Termination Costs on Retirement of Debt ........................ (1,125) -- (4,872)
Debt Issuance Costs ............................................ (1,602) -- (4,155)
Repayments Under Revolving Lines of Credit, Net ................ (1,653) (11,105) (22,095)
Repayments on Term Debt, Net ................................... (11,711) (2,434) (38,752)
Stock Options Exercised, Purchase of Treasury Stock and
Other Financing Activities, Net .............................. 2,194 298 (381)
--------- --------- ---------
Net Cash Provided by Financing Activities .................... 86,963 59,407 49,745
--------- --------- ---------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH ............................ 21 81 (300)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... 221,081 630 (1,381)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................... 2,885 2,255 3,636
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 223,966 $ 2,885 $ 2,255
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
15
<PAGE> 17
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Energy
Ventures, Inc. and all majority-owned subsidiaries (the "Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Company is an international manufacturer and supplier of oilfield
equipment. The Company manufactures drill pipe, premium tubulars and a complete
line of artificial lift and production equipment used in the exploration and
production of oil and natural gas.
INVENTORIES
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities are accounted for in accordance
with Statement of Financial Standards No. 115 ("SFAS No. 115") and accordingly,
these investments are recorded at their fair market value with unrealized gains
or losses recorded as a separate component of stockholders' investment. The
Company has classified these investments as available for sale with any other
than temporary decline in fair value of securities charged to earnings.
The marketable securities of $23.8 million held as of December 31, 1996
consists of 3,056,600 shares of Parker Drilling Company ("Parker") common
stock. The Company has applied a 20% discount factor to the common stock as the
shares are restricted and the Company's ability to sell such shares is subject
to the terms of a registration rights agreement with Parker that allows Parker
to restrict the ability of the Company to resell such shares.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Maintenance and
repairs are expensed as incurred. The costs of renewals, replacements and
betterments are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The useful lives of the major classes of property, plant and
equipment are as follows:
LIFE
----
Buildings................................................. 15 - 40 years
Machinery and equipment................................... 5 - 20 years
Furniture and vehicles.................................... 3 - 7 years
INTANGIBLE ASSETS AND AMORTIZATION
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, primarily patents and technology licenses. The
Company reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of any applicable assets may
not be recoverable. In assessing recoverability of such assets, the Company
estimates the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Management believes that there
have been no events or circumstances which warrant revision to the remaining
useful life or which affect the recoverability of goodwill. The goodwill is
being amortized on a
16
<PAGE> 18
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INTANGIBLE ASSETS AND AMORTIZATION - (CONTINUED)
straight-line basis over 40 years. Other identifiable intangible assets,
included as a component of other assets, are amortized on a straight-line basis
over the years expected to be benefited, ranging from 5 to 15 years.
Amortization expense for goodwill and other intangible assets was
$2,063,000, $1,307,000 and $726,000 for 1996, 1995 and 1994, respectively.
Accumulated amortization for goodwill at December 31, 1996 and 1995 was
$3,465,000 and $1,846,000, respectively.
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign subsidiaries with functional
currencies other than the U.S. dollar are translated using average exchange
rates during the period. Assets and liabilities of these foreign subsidiaries
are translated using the exchange rates in effect at the balance sheet date and
the resulting translation adjustments are included as a separate component of
stockholders' investment. Currency transaction gains and losses are reflected
in income for the period.
At the end of 1996, Mexico became a highly inflationary economy.
Accordingly, effective January 1, 1997, the translation adjustments related to
the Company's operations in Mexico will be reflected in the results of
operations. The Company does not expect this change to have a material effect
on its consolidated financial position or future results of operations.
REVENUE RECOGNITION
The Company recognizes revenue as products are shipped or accepted by
the customer. Service revenues are recognized as services are performed.
ACCOUNTING FOR INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" ("SFAS No. 109"), deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
WEIGHTED AVERAGE SHARES
Earnings per share has been computed based on the weighted average
number of common shares outstanding during the respective periods. Stock
options outstanding are excluded from the weighted average number of shares
since the dilutive effect is not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, effective January 1, 1996. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. Accordingly, the Company's long-lived assets for certain
identifiable intangibles are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of any assets may not be
recoverable. In performing the review for recoverability, the Company estimates
the future cash
17
<PAGE> 19
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS - (CONTINUED)
flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. The adoption of SFAS No. 121 did not impact the
Company's consolidated financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 123 ("SFAS No. 123"), Accounting for
Stock-Based Compensation. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation. The pronouncement
allows an entity to continue to measure compensation cost for those instruments
using the intrinsic value-based method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 ("APB No. 25"), under which no
compensation cost has been recognized in the accompanying financial statements
for stock options since the exercise price of the Company's stock options
issued equals the market value of the underlying stock on the date of grant.
The Company does not intend to adopt the fair value method of accounting for
stock-based compensation under SFAS No. 123.
RECLASSIFICATIONS AND RESTATEMENTS
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1996 classifications. The consolidated
financial statements have been restated to reflect the sale of the Company's
Mallard Division on November 11, 1996. See Note 5.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
Cash paid during the years ended December 31, 1996, 1995, and 1994 for
interest and income taxes (net of refunds) was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid............................................ $ 15,242 $15,254 $13,012
Income taxes paid, net of refunds........................ $ 6,715 $ 1,529 $ 1,566
</TABLE>
Refer to Note 4 for additional information concerning noncash investing
and financing activities.
3. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components............................. $ 88,595 $ 61,578
Work in process.......................................... 20,889 17,167
Finished goods........................................... 39,129 39,191
Supplies................................................. 9,018 6,836
-------- --------
$157,631 $124,772
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
18
<PAGE> 20
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
4. ACQUISITIONS AND DISPOSITIONS
On December 10, 1996, the Company acquired Arrow Completion Systems
("Arrow") for total cash consideration of approximately $21.5 million. The
operations of Arrow are currently being integrated into the production
equipment division through plant consolidations.
The allocation of the purchase price to the fair market value of the net
assets acquired in the Arrow acquisition is subject to revision as the purchase
price is subject to adjustment pending the resolution of certain asset
valuations which must be agreed to by the buyer and seller. The Company
believes the ultimate resolution to the cost of the acquisition will not have a
material impact on the assets acquired or the Company's results of operations
as a result of such revision.
On October 1, 1996, the Company acquired the stock of Irmaos Geremia
Ltd. ("Geremia"), a Porto Alegre, Brazil based designer, manufacturer and
marketer of progressing cavity pumps, for approximately $24.5 million in cash
and assumed debt.
The Company acquired Superior Tube Limited ("Superior"), an Alberta,
Canada based premium tubular manufacturer, for total cash consideration of
approximately $16 million on September 4, 1996.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA") for approximately 500,000 shares of Common Stock, $14.35 million
in cash, a $650,000 note due January 1997 and assumed debt of approximately $15
million.
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.
In April 1996, the Company acquired Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment, for
approximately $3.1 million.
In February 1996, the Company sold its United States retail store
distribution system to Continental Emsco for approximately $7.5 million. The
Company received $3 million in cash, a $4 million vendor credit and a $0.5
million note receivable. The consideration received in the sale approximated
the net book value of the assets sold, resulting in no material gain or loss.
In July 1995, the Company acquired Engemaq S.A. ("Engemaq"), a Brazilian
completion tool business, for $4 million.
On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares of
Common Stock.
On September 1, 1994, the Company completed the acquisition of the Fluid
Packed(TM) pumps line of rod pumps, parts and accessories, and the sucker rod
line from National-Oilwell for $13.5 million in cash.
On July 29, 1994, the Company acquired a tubular finishing facility
located in Bryan, Texas ("Bryan facility"). The Company exchanged Eastman
Cherrington Environmental, Inc. ("Eastman Cherrington") including a cash
payment of approximately $2 million for the Bryan facility. See Note 5 for
additional information on Eastman Cherrington.
The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Statements of Income from the respective dates of acquisition. The
results of operations related to the acquisitions of Arrow, Geremia, Superior,
ENERPRO, Production Specialties and Engemaq are not material individually nor
in the aggregate, therefore, pro forma information is not presented.
19
<PAGE> 21
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
4. ACQUISITIONS AND DISPOSITIONS - (CONTINUED)
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the Prideco and TCA
acquisitions, the July 1996 equity offering of 3,450,000 shares of Common Stock
and the October 1995 equity offering of 3,450,000 shares of Common Stock 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 such transactions been consummated as of January 1, 1995, or that may be
achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues................................................. $ 506,280 $ 350,456
Income from continuing operations........................ 26,456 5,078
Net income............................................... 100,117 13,787
Earnings per common share from continuing operations..... 1.17 0.23
</TABLE>
PLANT CLOSURES
The Company adopted a plan to close its Bastrop, Texas, tool joint
manufacturing facility and to combine its two packer facilities through the
closure of one facility in Arlington, Texas in the fourth quarter of 1996. In
connection with these decisions, the Company incurred a charge of $5.8 million
associated with these closures. Of this charge, $4.3 million related to the
tool joint facility closure and relocation of equipment from this facility and
$1.5 million related to the consolidation of its packer facilities and the
closure of one of the plants. The Company incurred $3.8 million in 1996 for
costs associated with these actions during 1996, including costs relating to
the relocation of equipment at its Bastrop facility to other facilities. The
Company also accrued $2 million as part of the $5.8 million charge for exit
costs that it expected to be incurred in 1997 relating to the closure of its
Bastrop and Arlington facilities. Such costs included $800,000 for severance
and termination costs, $850,000 for the reduction in the carrying value of its
Bastrop facility in light of the intended plan of disposition of the facility
and $350,000 for the termination of the Arlington lease. Approximately 400
employees were affected by these closures, of which the employment of
approximately 275 had been terminated by December 31, 1996. The closure of both
the Bastrop and Arlington facilities had been substantially completed by March
1997.
5. DISCONTINUED OPERATIONS
On November 11, 1996, the Company completed the sale of its contract
drilling segment which was comprised of the Mallard Bay contract drilling
division ("Mallard Division") to Parker, in exchange for cash of approximately
$306 million and 3,056,600 shares of Parker preferred stock valued by the
Company at $20 million. The Company reported a net gain on the disposal of the
Mallard Division of $66.9 million, net of taxes of $44.6 million. The Company
applied a 20% discount factor to the Parker preferred stock because of the
restricted nature of the stock received. Subsequently Parker converted the
preferred stock to Parker common stock. At December 31, 1996, the Company
reported in connection with the Parker common stock a $2.4 million unrealized
gain, net of taxes, as a component of stockholders' investment.
The results of operations for the Mallard Division are reflected in the
accompanying Consolidated Statements of Income as "Discontinued Operations, Net
of Taxes" and the Company's Consolidated Balance Sheets and Statements of
Income for prior periods have been restated. Condensed results of the Mallard
Division discontinued operations were as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 11, 1996 DECEMBER 31, 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Revenues....................................... $ 81,310 $ 79,912
----------- ----------
Income before income taxes..................... 11,490 14,029
Provision for income taxes..................... 4,022 5,320
----------- ----------
Net income..................................... $ 7,468 $ 8,709
=========== ==========
</TABLE>
In 1992, the Company established an environmental services group,
Eastman Cherrington Environmental ("Eastman Cherrington"), which provided
horizontal drilling and related services for purpose of performing remediation,
sampling, containment and monitoring. In December 1993, the Company determined
that the business of Eastman Cherrington was not consistent with the Company's
long-term strategic objectives and adopted a plan of disposition of the
division. The Company's plan of disposition contemplated a disposition of the
division in April 1994. At the time the Company adopted its plan of
disposition, the Company had contacted and had preliminary discussions with a
number of potential purchasers for the division that would have involved a
disposition of the division through a sale to an institutional purchaser.
Based on these discussions, the historical operations of the division and the
operating budget and outstanding contracts of the division, the Company
estimated the incurrence of approximately $330,000 in net losses through the
anticipated date of disposition after giving effect to the projected
disposition and accrued this amount in 1993.
During the first quarter of 1994, the Company worked toward a
definitive agreement with one of the potential purchasers. These negotiations
failed to result in a definitive agreement due to the purchaser's desire for
one of the directors of the Company to participate in the purchase and the
Board's view that it would be inappropriate to sell Eastman Cherrington to that
purchaser under those circumstances. Following this occurrence, the Company
proceeded with negotiations with alternative purchasers, including the ultimate
purchaser. At this time, the Company estimated the potential additional
operating losses pending the new projected disposition date in the third
quarter of 1994. In light of this estimate and the consideration that was then
projected to be recieved on the disposition based on discussions with the
ultimate purchaser, the Company deferred losses of $797,000 until the
disposition of Eastman Cherrington in July 1994 in exchange for a tubular
finishing facility in Bryan, Texas. At the time of the disposition, the
consideration received approximated the then book value of the division plus
the 1994 deferred losses. As a result, there was no material gain or loss
realized on the disposition. Eastman Cherrington had revenues of $3.3 million
and a net loss of $2.1 million in 1993, including the $330,000 accrual for 1994
losses, and revenues of $1.4 million and a net loss of $797,000 in 1994,
excluding the $330,000 accrued at year end 1993.
20
<PAGE> 22
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
6. SHORT-TERM BORROWINGS AND LINES OF CREDIT
The Company's short-term borrowings at December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------------ -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
Payable to banks under lines of credit, interest of 8.75%
at December 31, 1996; principal and interest payable on demand..... $ 2,924 $ 4,577
Other short-term borrowings............................................ $ 1,527 $ --
Weighted average interest rate on notes outstanding during
the year........................................................... 8.48% 10.22%
Average borrowings during the year..................................... $ 23,871 $ 24,382
Maximum outstanding during the year.................................... $ 57,619 $ 43,189
</TABLE>
On June 26, 1996, the Company entered into a new $120 million working
capital facility which replaced the Company's prior U.S. working capital line
of credit. 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 available to it working capital facilities
providing for up to $130.9 million in borrowings. Borrowings under these
facilities are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. Borrowings
bear interest at variable rates and are secured by accounts receivables,
inventory and stock of various of the Company's domestic and foreign
subsidiaries. These facilities contain customary affirmative and negative
covenants relating to working capital, earnings and net worth. These facilities
also impose limitations on the Company's and its subsidiaries' use of funds for
future acquisitions and capital expenditures, the incurrence of additional debt
and other operational matters and certain expenditures. At December 31, 1996,
the Company was limited under principal credit facility in the amount of cash
dividends, distributions and other restricted payments that could be made by it
to $133 million.
At December 31, 1996, approximately $2.9 million was outstanding under
the revolving lines of credit and approximately $10.1 million had been used to
support outstanding letters of credit. Additional borrowings of approximately
$117.9 million were available based on collateral values at December 31, 1996.
7. LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes due in 2004, interest at 10.25% .................. $120,000 $120,000
Capitalized lease obligations under various leases with various
installment amounts ....................................... 5,475 4,505
Other notes payable at various rates .......................... 4,857 3,170
-------- --------
130,332 127,675
Less: current maturities of long-term debt ................... 3,622 3,492
-------- --------
$126,710 $124,183
======== ========
</TABLE>
21
<PAGE> 23
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. LONG-TERM DEBT - (CONTINUED)
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<C> <C>
1997 ............... $ 3,622
1998 ............... 2,832
1999 ............... 1,652
2000 ............... 787
2001 ............... 348
Thereafter ......... 121,091
--------
$130,332
========
</TABLE>
On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25%
Senior Notes due 2004 with semi-annual interest payments in March and
September. Both issues of Senior Notes were issued pursuant to the terms of an
Indenture dated March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
See Note 17. The Company is restricted to a specific formula in the amount of
cash dividends, distributions and other restricted payments that could be made
by it under the terms of the Senior Notes to approximately $278 million at
December 31, 1996.
The estimated fair value of the Company's $120 million Senior Notes at
December 31, 1996 and 1995 was $126 million and $125 million, respectively,
using a rate currently available to the Company for similar debt.
8. STOCKHOLDERS' INVESTMENT
PUBLIC STOCK OFFERINGS
On July 25, 1996, the Company completed a public offering of 3,450,000
shares of its Common Stock ("Public Offering"). The net proceeds of this
offering were approximately $100.9 million. The Company also completed a public
offering early in the fourth quarter of 1995, of 3,450,000 shares of its Common
Stock. The net proceeds of this offering were approximately $72.6 million.
STOCK OPTION PLANS
In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non-qualified stock option plan. The plan
expired in May 1991. Under the Option Plan, options were provided to officers
and key employees of the Company (including directors who are also key
employees) and its subsidiaries to purchase up to an aggregate of 1,000,000
shares of Common Stock of the Company.
The Company maintains a Non-Employee Director Stock Option Plan
("Director Plan"), a non-qualified stock option plan. Under the Director Plan,
options to purchase up to an aggregate of 500,000 shares of Common Stock of the
Company may be granted to non-employee directors of the Company. Options to
purchase 5,000 shares of Common Stock are automatically granted to each
non-employee director on the date of their initial election and their
re-election. At December 31, 1996, 330,000 shares were available for the
granting of options.
The Company also has in effect a 1992 Employee Stock Option Plan ("ESO
Plan"). Under the ESO Plan, options to purchase up to an aggregate of 1,000,000
shares of Common Stock of the Company may be granted to officers and key
employees of the Company (including directors who are also key employees) and
its subsidiaries. At December 31, 1996, 286,000 shares were available for
granting of such options.
22
<PAGE> 24
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT - (CONTINUED)
Stock options vest after one to five years and expire after ten years
from the date of grant. Information about the above stock option plans for the
three years ended December 31, 1996, is set forth below:
<TABLE>
<CAPTION>
NUMBER OPTION WEIGHTED AVERAGE
OF PRICE/RANGE EXERCISE PRICE
SHARES PER SHARE PER SHARE
------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding, December 31, 1993 .... 667,063 $ 2.69 - $23.88 $ 12.72
Granted ................................. 52,000 13.75 13.75
Exercised ............................... (5,160) 2.69 2.69
Canceled ................................ (74,167) 11.50 - 18.25 13.38
-------
Options outstanding, December 31, 1994 .... 639,736 2.69 - 23.88 14.52
Granted ................................. 127,000 13.75 - 18.00 16.90
Exercised ............................... (62,736) 2.69 - 16.50 10.45
-------
Options outstanding, December 31, 1995 .... 704,000 9.38 - 23.88 15.20
Granted ................................. 285,000 26.13 - 29.50 26.54
Exercised ............................... (179,732) 11.50 - 23.88 17.76
-------
Options outstanding, December 31, 1996 .... 809,268 9.38 - 29.50 18.74
=======
Options exercisable as of December 31, 1996 433,333 9.38 - 23.88 14.17
=======
</TABLE>
The 809,268 options outstanding at December 31, 1996, have a weighted
average remaining contractual life of 7.4 years. The 433,333 options
exercisable at December 31, 1996, have a weighted average remaining contractual
life of 5.4 years. The weighted average fair value of the options granted in
1996 and 1995 were $19.61 and $11.65, respectively.
STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its stock options under the fair value method as provided
therein. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for options issued in 1996 and 1995,
respectively: risk-free interest rates: 6.6% and 6.7%; expected lives of 7
years; expected volatility of 48% and 47%; and no expected dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS No. 123, only the effects of awards granted after January
1, 1995 are considered in the pro forma calculation.
<TABLE>
<CAPTION>
1996 1995
------------------------ ----------------------
As Reported Pro Forma As Reported Pro Forma
------------------------ ----------------------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 98,166 $ 96,808 $ 11,311 $ 10,942
Earnings per share $ 4.82 $ 4.72 $ 0.77 $ 0.74
</TABLE>
PREFERRED STOCK
The Company is authorized to issue up to 3,000,000 shares of $1.00 par
value preferred stock. As of December 31, 1996, none has been issued.
23
<PAGE> 25
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT - (CONTINUED)
PROFIT SHARING PLANS
The Company and certain of its subsidiaries have adopted retirement
plans which qualify under Section 401(k) of the Internal Revenue Code. The
plans generally provide for 40% matching contributions by the Company, up to a
maximum liability of 1.2% of each participating employee's annual compensation.
The Company, under each plan, also has the right to make additional
discretionary matching contributions. Total contributions by the Company under
these plans were $513,000, $226,000 and $138,000 during 1996, 1995 and 1994,
respectively.
EXECUTIVE DEFERRED COMPENSATION PLAN
In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits under
the EDC Plan. The funds provided to such trust are invested by a trustee
independent of the Company primarily in Common Stock of the Company which is
purchased by the trustee on the open market. The assets of the trust are
available to satisfy the claims of all general creditors of the Company in the
event of bankruptcy or insolvency. Accordingly, the Common Stock held by the
trust has been consolidated for accounting purposes and is included in the
accompanying Consolidated Statements of Stockholders' Investment as "Treasury
Stock, at Cost" and reflected as such on the Consolidated Balance Sheets.
9. INCOME TAXES
The domestic and foreign components of Income before Income Taxes from
Continuing Operations consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ....................................................... $22,755 $ (2,840) $ (9,418)
Foreign......................................................... 8,791 5,202 (69)
------- -------- --------
$31,546 $ 2,362 $ (9,487)
======= ======== ========
Total income tax provision (benefit) was recorded as follows:
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
Income (loss) from continuing operations......................... $ 7,041 $ (240) $ (3,795)
Discontinued operations.......................................... 4,022 5,320 5,601
Gain on disposal of discontinued operations...................... 44,600 -- --
Extraordinary charge............................................. (394) -- (1,949)
------- -------- --------
$55,269 $ 5,080 $ (143)
======= ======== ========
</TABLE>
24
<PAGE> 26
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES - (CONTINUED)
The Company's provision (benefit) for income taxes of continuing
operations for the three years ended December 31, 1996, consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
(IN THOUSANDS)
Current
<S> <C> <C> <C>
U.S. Federal ..... $ 11,878 $ (4,060) $ (2,817)
Foreign .......... 2,845 1,317 1,531
State ............ 283 394 (55)
-------- -------- --------
15,006 (2,349) (1,341)
-------- -------- --------
Deferred
U.S. Federal ..... (9,454) (55) (2,631)
Foreign .......... 1,250 2,126 177
State ............ 239 38 --
-------- -------- --------
(7,965) 2,109 (2,454)
-------- -------- --------
$ 7,041 $ (240) $ (3,795)
======== ======== ========
</TABLE>
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing
operations before income taxes for the three years ended December 31, 1996, in
the accompanying Consolidated Statements of Income is analyzed below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................................ 35.0% 35.0% (34.0)%
Effect of state income tax, net.................................. 1.1 3.4 0.5
Effect of non-deductible expenses................................ 1.8 14.9 2.4
Utilization of net operating loss carryforward................... (1.3) (37.7) (10.5)
Effect of foreign income tax, net................................ (.6) (11.8) 5.4
Foreign losses not benefited (benefited) ........................ (1.8) (6.4) 3.7
Foreign Sales Corporation benefit................................ (1.0) (3.3) --
Research and development credit benefit.......................... -- (8.2) --
Benefit of tax dispute settlement................................ (12.7) -- --
Other............................................................ 1.8 3.9 (7.5)
----- ----- ------
22.3% (10.2)% (40.0)%
===== ====== ======
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated
future tax effects of temporary differences between the tax basis of an asset
or liability and its reported amount in the financial statements. The
measurement of deferred tax assets and liabilities is based on enacted tax laws
and rates currently in effect in each of the jurisdictions in which the Company
has operations. Generally, deferred tax assets and liabilities are classified
as current or noncurrent according to the classification of the related asset
or liability for financial reporting. The components of the net deferred tax
asset (liability) were as follows:
25
<PAGE> 27
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -----------
(IN THOUSANDS)
Deferred tax assets:
<S> <C> <C>
Domestic and foreign operating losses .......... $ 7,505 $ 6,236
Alternative minimum tax credit carryforward .... -- 864
Accrued liabilities and reserves ............... 36,976 7,374
Foreign tax credits ............................ 7,443 5,310
Tax benefit transfer leases acquired ........... 4,807 --
Valuation allowance ............................ (2,630) (3,046)
-------- --------
Total deferred tax asset ................ 54,101 16,738
-------- --------
Deferred tax liabilities:
Property and equipment ......................... (21,452) (11,080)
Unremitted foreign earnings .................... (7,971) (4,340)
Inventory basis differences .................... (11,191) (3,989)
Goodwill basis differences ..................... (5,561) (799)
COLEVE production payment ...................... -- (14,907)
Other .......................................... (2,131) (95)
-------- --------
Total deferred tax liability ............ (48,306) (35,210)
-------- --------
Net deferred tax asset (liability) ............... $ 5,795 $(18,472)
======== ========
</TABLE>
At December 31, 1996 the Company had $13,229,000 of U.S. net operating
losses which were generated by certain subsidiaries prior to their acquisition.
The use of these pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code and is also restricted to the taxable
income of one subsidiary. These U.S. carryforwards, if not utilized, will
expire between 2001 and 2009. The Company also had approximately $7,743,000 of
foreign net operating loss carryforwards of which $7,357,000 will expire
between 1998 and 2001 and the remainder can be carried forward indefinitely.
The realization of a portion of the deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of the carryforward
amounts. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.
The Company had a valuation allowance to reflect the estimated amount of
deferred tax assets for which realization is uncertain. The net change in the
valuation allowance for the year ended December 31, 1996 was a decrease of
$416,000. The net change principally relates to a reduction in the valuation
allowance required for certain deferred tax assets which realization became
certain during 1996.
On October 11, 1996, the Company entered into a $3.9 million tax
settlement plus accrued interest of $2.5 million with the United States
Internal Revenue Service ("IRS") relating to a dispute regarding the tax impact
to the Company upon the dissolution of the COLEVE joint venture in 1990. The
tax liability with respect to the dissolution had been previously provided for
as a deferred tax liability in the Company's consolidated financial statements.
This settlement resulted in the Company recognizing a $4 million tax benefit in
the fourth quarter due to the elimination of certain previously accrued
deferred taxes that will no longer be required to be paid as a result of this
settlement.
26
<PAGE> 28
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. DISPUTES, LITIGATION AND CONTINGENCIES
LITIGATION AND OTHER DISPUTES
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation would not have a material adverse effect on the
Company's consolidated financial position or its results of operations with or
without consideration of insurance coverage.
INSURANCE
The Company is partially self-insured for employee health insurance
claims and for workers' compensation for certain of its employees. Although the
Company believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is reasonably
possible that management's estimates of these liabilities will change over the
near term as circumstances develop.
11. INSURANCE SETTLEMENT
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover contract
with the National Iranian Oil Company ("NIOC"). Under the terms of the
settlement with the Company's insurance carriers, the Company received a net
cash payment of $23 million for reimbursement of certain operating costs
incurred and amounts to be received in accordance with the terms of the
workover drilling contract. The Company also retained all rights to any funds
collected or recovered by the Company from NIOC and to the rigs and equipment
deployed in Iran. The rigs and equipment were moved out of Iran by December 31,
1994.
In 1994, the Company reduced the carrying value of the receivables by
$8.8 million to reflect the uncertainties with respect to the collection of the
entire amount of the NIOC receivables and the value of its rigs and equipment
by $3.5 million to reflect the estimated fair value of those rigs. The Company
also wrote off $2.6 million in mobilization costs that were being amortized
over the life of the Company's contract with NIOC and that were required to be
reimbursed to the Company by NIOC. In addition, the Company established a
reserve of $2.8 million to cover its anticipated costs for the demobilization
of its rigs outside of Iran, including estimated costs of export, storage,
overseas shipping and local transportation, and $500,000 relating to additional
costs anticipated to be incurred by it in connection with the final settlement
of its contract and arrangements with NIOC. These reductions in carrying value
and reserves were based on information available to the Company at the time of
the settlement.
12. COMMITMENTS
The Company is committed under various noncancelable operating leases
which primarily relate to office space and equipment. Total lease expense
incurred under noncancelable operating leases was approximately $5,230,000,
$3,812,000 and $3,698,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
Future minimum rental commitments under these operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1997 ............... $ 7,632
1998 ............... 7,907
1999 ............... 6,666
2000 ............... 5,369
2001 ............... 4,688
Thereafter ......... 8,699
-------
$40,961
=======
</TABLE>
In January 1996, the Company entered into a long-term manufacturing
and sales agreement with Oil Country Tubular, Ltd. ("OCTL") pursuant to
which OCTL manufactures drill pipe and premium tubulars for the Company
27
<PAGE> 29
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. COMMITMENTS - (CONTINUED)
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.
13. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $1,596,000, $594,000, and $748,000
during 1996, 1995 and 1994, respectively, with a law firm in which a director
of the Company is a partner.
The Company paid Lehman Brothers, an affiliate of Lehman Brothers
Holdings Inc., a major stockholder of the Company, approximately $5,175,000 and
$4,037,000 for underwriting fees associated with the Public Offerings in 1996
and 1995, respectively and approximately $1,536,000 for fees related to the
disposition of Mallard in 1996. The fee arrangements associated with these
offerings were on terms standard in the industry.
14. SUBSEQUENT EVENT
On February 13, 1997, the Company acquired Anbert Cilindros S.A.I.C.
("Anbert"), an Argentina based sucker rod business, for total consideration of
approximately $8 million.
On February 24, 1997, the Company entered into an agreement to acquire
TA Industries, Inc. ("TA"), a manufacturer of premium couplings and premium
accessories, for total cash consideration of approximately $64 million. The
acquisition of TA is subject to various conditions, including the receipt of
all required regulatory approvals and expiration of all waiting periods. The
transaction is expected to close prior to April 30, 1997.
On March 14, 1997, the Company acquired Griffin Legrand for total cash
consideration of approximately $21 million. Griffin Legrand, based in Alberta,
Canada, designs, manufactures and markets progressing cavity pumps and
conventional pumping units.
In December 1996, the Company entered into an agreement to acquire
GulfMark International, Inc., ("GulfMark") pursuant to a tax free merger in
which approximately 2.2 million shares of the Company's Common Stock currently
held by GulfMark will be issued to the stockholders of GulfMark. Prior to the
merger, GulfMark will spin-off to its stockholders its marine transportation
services business. Such merger is subject to, among other things, approval by
the stockholders of the Company and GulfMark. The Company expects that the
merger will be consummated in the second quarter of 1997.
At the Company's Annual Meeting on May 6, 1997, the agenda includes,
among other things, a proposal to increase the Company's authorized shares of
Common Stock from 40 million shares to 80 million shares to effect a two for
one stock split and a proposal to change the name of the Company from Energy
Ventures, Inc. to EVI, Inc. The effect of the pending stock split has not been
reflected in this December 31, 1996 Form 10-K.
15. SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company operates through two business segments: tubular products and
production equipment. The tubular products segment manufactures drill pipe and
high performance tubulars and the production equipment segment manufactures a
complete line of artificial lift and production equipment. The Company's
products are used in the exploration and production of oil and natural gas.
28
<PAGE> 30
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION - (CONTINUED)
Financial information by industry segment for each of the three years
ended December 31, 1996, is summarized below (in thousands). The information
presented has been restated to reflect the Mallard Division as discontinued
operations. Identifiable assets exclude net assets relating to the Mallard
Division of approximately $95.5 million and $74.7 million at December 31, 1995
and 1994, respectively. Identifiable assets included in the Corporate and Other
column includes the elimination of intercompany transactions.
<TABLE>
<CAPTION>
CORPORATE
TUBULAR PRODUCTION AND
PRODUCTS EQUIPMENT OTHER TOTAL
-------- --------- ---------- -----
1996
<S> <C> <C> <C> <C>
Sales to unaffiliated customers .......... $ 342,530 $ 135,490 $ -- $ 478,020
Operating income (loss) .................. 44,394 8,237 (6,344) 46,287
Identifiable assets ...................... 388,096 225,579 239,168 852,843
Depreciation and amortization ............ 11,046 5,642 83 16,771
Capital expenditures and acquisitions .... 62,008 27,871 68 89,947
1995
Sales to unaffiliated customers .......... $ 154,241 $ 117,434 $ -- $ 271,675
Operating income (loss) .................. 15,248 7,843 (5,126) 17,965
Identifiable assets ...................... 218,592 130,266 8,776 357,634
Depreciation and amortization ............ 7,170 5,187 89 12,446
Capital expenditures and acquisitions .... 25,422 7,939 18 33,379
1994
Sales to unaffiliated customers .......... $ 94,941 $ 90,344 $ -- $ 185,285
Operating income (loss) .................. 3,082 5,144 (4,588) 3,638
Identifiable assets ...................... 122,638 105,923 8,194 236,755
Depreciation and amortization ............ 5,329 3,973 96 9,398
Capital expenditures and acquisitions .... 15,770 16,764 91 32,625
</TABLE>
During 1996, the Company incurred a charge of $5.8 million associated
with plant closures. Of this charge, $4.3 million related to the closure of a
tool joint facility within the Tubular Products Segment and $1.5 million
related to the closure of a packer facility within the Production Equipment
Segment. Operating income for 1996 for the Tubular Products and Production
Equipment segments include accruals included within the $5.8 million charge of
$1.5 million and $500,000, respectively, for such plant closures.
MAJOR CUSTOMERS AND CREDIT RISK
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1996, 1995 and 1994, there was no individual customer who accounted
for 10% of consolidated revenues.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's equipment and services are used in approximately 55
countries by U.S. customers operating abroad and by foreign customers. Sales of
equipment and services outside the United States accounted for 51%, 46% and 46%
of total revenues in 1996, 1995 and 1994, respectively, based upon the ultimate
destination in which equipment or services were sold, shipped or provided to
the customer by the Company.
29
<PAGE> 31
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN
------------------------------
UNITED LATIN
STATES CANADA AMERICA OTHER ELIMINATIONS TOTAL
------ ------ ------- ----- ------------ -----
(IN THOUSANDS)
1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues from
unaffiliated customers ....... $ 253,675 $ 65,113 $ 36,214 $ 34,048 $ (21,395) $ 367,655
Export sales to
unaffiliated customers ....... 110,365 -- -- -- -- 110,365
--------- --------- --------- --------- --------- ---------
Total revenues ................. 364,040 65,113 36,214 34,048 (21,395) 478,020
Operating income ............... 24,037 6,985 15,125 521 (381) 46,287
Identifiable assets ............ 681,906 89,609 95,352 31,325 (45,349) 852,843
1995
Operating revenues from
unaffiliated customers ....... $ 166,627 $ 37,575 $ 23,068 $ 1,156 $ (19,754) $ 208,672
Export sales to
unaffiliated customers ....... 63,003 -- -- -- -- 63,003
--------- --------- --------- --------- --------- ---------
Total revenues ................. 229,630 37,575 23,068 1,156 (19,754) 271,675
Operating income (loss) ........ 7,046 4,386 7,915 (291) (1,091) 17,965
Identifiable assets ............ 298,135 30,197 21,068 20,857 (12,623) 357,634
1994
Operating revenues from
unaffiliated customers ....... $ 109,197 $ 26,774 $ 8,812 $ 1,601 $ (9,101) $ 137,283
Export sales to
unaffiliated customers ....... 48,002 -- -- -- -- 48,002
--------- --------- --------- --------- --------- ---------
Total revenues ................. 157,199 26,774 8,812 1,601 (9,101) 185,285
Operating income (loss) ........ 139 3,876 1,296 (1,091) (582) 3,638
Identifiable assets ............ 214,446 26,572 5,837 8,040 (18,140) 236,755
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data
for 1996 and 1995. The information presented has been restated to reflect the
Mallard Division as discontinued operations.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996
<S> <C> <C> <C> <C> <C>
Revenues ...................................................... $ 90,326 $ 98,937 $ 134,376 $ 154,381 $ 478,020
Gross Profit .................................................. 21,036 24,044 29,328 30,103 104,511
Income before Income Taxes .................................... 4,224 6,226 10,641 10,455 31,546
Income from Continuing Operations ............................. 2,747 4,046 6,917 10,795 24,505
Income from Discontinued Operations, Net of Taxes ............. 1,600 1,748 2,842 1,278 7,468
Gain on Disposal of Discontinued Operations,
Net of Taxes ................................................ -- -- -- 66,924 66,924
Extraordinary Charge, Net of Taxes ............................ -- (731) -- -- (731)
Net Income .................................................... $ 4,347 $ 5,063 $ 9,759 $ 78,997 $ 98,166
Net Income (Loss) Per Common Share:
Income from Continuing Operations ........................... $ .15 $ .22 $ .32 $ .47 $ 1.20 (1)
Income from Discontinued Operations ......................... .09 .09 .13 .06 .37
Gain on Disposal of Discontinued Operations ................. -- -- -- 2.93 3.29 (1)
Extraordinary Charge ........................................ -- (.04) -- -- (.04)
--------- --------- --------- --------- ---------
Net Income .................................................. $ .24 $ .27 $ .45 $ 3.46 $ 4.82 (1)
========= ========= ========= ========= =========
</TABLE>
30
<PAGE> 32
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995
<S> <C> <C> <C> <C> <C>
Revenues .............................................. $ 53,270 $ 61,198 $ 72,196 $ 85,011 $271,675
Gross Profit .......................................... 13,954 15,003 17,638 19,850 66,445
Income (Loss) before Income Taxes ..................... (1,243) (785) 736 3,654 2,362
Income (Loss) from Continuing Operations .............. (772) (438) 1,104 2,708 2,602
Income from Discontinued Operations, Net of Taxes ..... 2,403 2,191 2,452 1,663 8,709
Net Income ............................................ $ 1,631 $ 1,753 $ 3,556 $ 4,371 $ 11,311
Net Income Per Common Share:
Income from Continuing Operations ................... $ (.06) $ (.03) $ .08 $ .15 $ .18(2)
Income from Discontinued Operations ................. .19 .17 .16 .09 .59(2)
-------- -------- -------- -------- --------
Net Income .......................................... $ .13 $ .14 $ .24 $ .24 $ .77(2)
======== ======== ======== ======== ==========
</TABLE>
(1) Net Income Per Common Share for the year ended December 31, 1996,
differs from the summation of the individual quarters within that year
due to the impact of the Public Offering of Common Stock and shares
issued in connection with the TCA and ENERPRO acquisitions.
(2) Net Income Per Common Share for the year ended December 31, 1995,
differs from the summation of the individual quarters within that year
due to the impact of the Public Offering of Common Stock and shares
issued in connection with the Prideco acquisition.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The $120 million Senior Notes which are described in Note 7 are
unconditionally guaranteed on a full and unconditional, joint and several,
basis by certain subsidiaries of the Company. Each of the subsidiary guarantors
are wholly owned by the Company or a subsidiary guarantor. Accordingly, the
following condensed consolidating balance sheets as of December 31, 1996 and
1995, and the related condensed consolidating statements of income and cash
flows for each of the three years in the period ended December 31, 1996, have
been provided. The condensed consolidating financial statements herein are
followed by notes which are an integral part of these statements.
31
<PAGE> 33
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents ................ $ 221,275 $ 1,625 $ 1,066 $ -- $ 223,966
Other Current Assets ..................... 40,694 233,862 60,159 -- 334,715
--------- --------- --------- --------- ---------
261,969 235,487 61,225 -- 558,681
--------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ............................. 144 124,804 47,776 -- 172,724
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET ..................... 412,287 (241,456) (87,064) (83,767) --
OTHER ASSETS ................................ 5,850 84,322 31,266 -- 121,438
--------- --------- --------- --------- ---------
$ 680,250 $ 203,157 $ 53,203 $ (83,767) $ 852,843
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings .................... $ -- $ -- $ 4,451 $ -- $ 4,451
Current Maturities of Long-Term Debt ..... -- 1,883 1,739 -- 3,622
Accounts Payable and Other Accrued
Liabilities ........................... 89,692 107,712 27,649 -- 225,053
--------- --------- --------- --------- ---------
89,692 109,595 33,839 -- 233,126
--------- --------- --------- --------- ---------
LONG-TERM DEBT .............................. 120,000 3,895 2,815 -- 126,710
DEFERRED INCOME TAXES AND OTHER ............. 16,474 18,707 3,742 -- 38,923
--------- --------- --------- --------- ---------
STOCKHOLDERS' INVESTMENT .................... 454,084 70,960 12,807 (83,767) 454,084
--------- --------- --------- --------- ---------
$ 680,250 $ 203,157 $ 53,203 $ (83,767) $ 852,843
========= ========= ========= ========= =========
</TABLE>
32
<PAGE> 34
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ................ $ 532 $ 1,492 $ 861 $ -- $ 2,885
Other Current Assets ..................... 1,564 174,653 34,592 -- 210,809
Net Assets of Discontinued Operations .... -- 94,650 841 -- 95,491
--------- --------- --------- --------- ---------
2,096 270,795 36,294 -- 309,185
--------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ............................. 159 85,429 14,571 -- 100,159
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET ..................... 342,844 (169,153) 18,416 (192,107) --
OTHER ASSETS ................................ 4,969 42,322 (3,510) -- 43,781
--------- --------- --------- --------- ---------
$ 350,068 $ 229,393 $ 65,771 $(192,107) $ 453,125
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings .................... $ -- $ 546 $ 4,031 $ -- $ 4,577
Current Maturities of Long-Term Debt ..... -- 3,082 410 -- 3,492
Accounts Payable and Other Accrued
Liabilities ............................ 4,055 56,408 9,759 -- 70,222
--------- --------- --------- --------- ---------
4,055 60,036 14,200 -- 78,291
--------- --------- --------- --------- ---------
LONG-TERM DEBT .............................. 120,000 3,596 587 -- 124,183
DEFERRED INCOME TAXES AND OTHER ............. (2,053) 5,950 18,688 -- 22,585
--------- --------- --------- --------- ---------
STOCKHOLDERS' INVESTMENT .................... 228,066 159,811 32,296 (192,107) 228,066
--------- --------- --------- --------- ---------
$ 350,068 $ 229,393 $ 65,771 $(192,107) $ 453,125
========= ========= ========= ========= =========
</TABLE>
33
<PAGE> 35
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 373,725 $ 104,295 $ -- $ 478,020
COSTS AND EXPENSES ...................... 6,339 335,817 89,577 -- 431,733
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (6,339) 37,908 14,718 -- 46,287
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense ..................... 15,811 (26,870) (5,395) -- (16,454)
Equity in Subsidiaries, Net of Taxes . 18,577 -- -- (18,577) --
Other, Net ........................... 2,002 166 (455) -- 1,713
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .............. 30,051 11,204 8,868 (18,577) 31,546
PROVISION (BENEFIT) FOR INCOME TAXES .... (1,285) 4,893 3,433 -- 7,041
--------- -------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ....... 31,336 6,311 5,435 (18,577) 24,505
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES ............. -- 7,521 (53) -- 7,468
GAIN ON DISPOSAL OF DISCONTINUED
OPERATIONS, NET OF TAXES ............. 66,924 -- -- -- 66,924
EXTRAORDINARY CHARGE, NET OF TAXES ...... (94) (637) -- -- (731)
--------- --------- --------- --------- ---------
NET INCOME .............................. $ 98,166 $ 13,195 $ 5,382 $ (18,577) $ 98,166
========= ========= ========= ========= =========
</TABLE>
34
<PAGE> 36
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 210,603 $ 61,072 $ -- $ 271,675
COSTS AND EXPENSES ...................... 5,123 199,525 49,062 -- 253,710
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (5,123) 11,078 12,010 -- 17,965
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense .................... 2,539 (16,856) (1,970) -- (16,287)
Equity in Subsidiaries, Net of Taxes 11,179 -- -- (11,179) --
Other, Net .......................... 360 1,134 (810) -- 684
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ....... 8,955 (4,644) 9,230 (11,179) 2,362
PROVISION (BENEFIT) FOR INCOME TAXES .... (2,356) (1,214) 3,330 -- (240)
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS .......................... 11,311 (3,430) 5,900 (11,179) 2,602
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES ............ -- 8,662 47 -- 8,709
--------- --------- --------- --------- ---------
NET INCOME .............................. $ 11,311 $ 5,232 $ 5,947 $ (11,179) $ 11,311
========= ========= ========= ========= =========
</TABLE>
35
<PAGE> 37
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 148,299 $ 36,986 $ -- $ 185,285
COSTS AND EXPENSES ...................... 4,748 144,030 32,869 -- 181,647
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (4,748) 4,269 4,117 -- 3,638
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense ..................... (6,973) (6,074) (490) -- (13,537)
Equity in Subsidiaries, Net of Taxes . 11,343 -- -- (11,343) --
Other, Net ........................... 153 512 (253) -- 412
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ....... (225) (1,293) 3,374 (11,343) (9,487)
PROVISION (BENEFIT) FOR INCOME TAXES .... (4,867) (1,022) 2,094 -- (3,795)
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ........................... 4,642 (271) 1,280 (11,343) (5,692)
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES ............. -- 10,113 221 -- 10,334
EXTRAORDINARY CHARGE, NET OF TAXES ...... (3,784) -- -- -- (3,784)
--------- --------- --------- --------- ---------
NET INCOME .............................. $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
========= ========= ========= ========= =========
</TABLE>
36
<PAGE> 38
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Income ....................................... $ 98,166 $ 13,195 $ 5,382 $ (18,577) $ 98,166
Net (Income) Loss from Discontinued
Operations ..................................... -- (7,521) 53 -- (7,468)
Gain on Disposal of Discontinued
Operations, Net ................................ (66,924) -- -- -- (66,924)
Equity in Earnings of Subsidiaries ............... (18,577) -- -- 18,577 --
Other Adjustments and Charges .................... (18,329) 5,571 (16,488) -- (29,246)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Continuing
Operations ................................... (5,664) 11,245 (11,053) -- (5,472)
Net Cash Provided (Used) by Discontinued
Operations ................................... -- 8,699 (405) -- 8,294
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Operating
Activities ................................... (5,664) 19,944 (11,458) -- 2,822
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Disposal of Discontinued
Operations ..................................... 306,854 -- -- -- 306,854
Capital Expenditures of Discontinued
Operations ..................................... -- (63,136) -- -- (63,136)
Acquisition of Businesses ........................ -- (47,934) (39,880) -- (87,814)
Capital Expenditures for Property, Plant
and Equipment .................................. (67) (11,358) (14,465) -- (25,890)
Proceeds from Sale of Assets ..................... -- 521 740 -- 1,261
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Investing
Activities ................................... 306,787 (121,907) (53,605) -- 131,275
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock, Net .................... 100,860 -- -- -- 100,860
Repayments Under Revolving Lines of
Credit, Net .................................. -- (546) (1,107) -- (1,653)
Borrowings (Repayments) on Term Debt, Net ........ -- (11,829) 118 -- (11,711)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net ......................... (183,434) 115,502 67,932 -- --
Other, Net ....................................... 2,194 (1,031) (1,696) -- (533)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities ................................... (80,380) 102,096 65,247 -- 86,963
--------- --------- --------- --------- ---------
Effect of Translation Adjustment on Cash ............ -- -- 21 -- 21
--------- --------- --------- --------- ---------
Net Increase in Cash and Cash Equivalents ........... 220,743 133 205 --
221,081
Cash and Cash Equivalents at Beginning of Year ...... 532 1,492 861 -- 2,885
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at End of Year ............ $ 221,275 $ 1,625 $ 1,066 $ -- $ 223,966
========= ========= ========= ========= =========
</TABLE>
37
<PAGE> 39
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
<S> <C> <C> <C> <C> <C>
ACTIVITIES:
Net Income ........................................ $ 11,311 $ 5,232 $ 5,947 $(11,179) $ 11,311
Net Income from Discontinued Operations ........... -- (8,662) (47) -- (8,709)
Equity in Earnings of Subsidiaries ................ (11,179) -- -- 11,179 --
Other Adjustments and Charges ..................... (3,808) (42,820) 13,175 -- (33,453)
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Continuing
Operations ..................................... (3,676) (46,250) 19,075 -- (30,851)
Net Cash Provided (Used) by Discontinued
Operations ..................................... -- 11,326 (581) -- 10,745
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Operating
Activities ..................................... (3,676) (34,924) 18,494 -- (20,106)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital Expenditures of Discontinued
Operations ....................................... -- (22,884) -- -- (22,884)
Acquisition of Businesses ......................... -- (4,007) (4,098) -- (8,105)
Capital Expenditures for Property, Plant
and Equipment .................................... (19) (4,751) (6,362) -- (11,132)
Proceeds from Sale of Assets ...................... -- 2,880 489 -- 3,369
-------- -------- -------- -------- --------
Net Cash Used by Investing Activities ............ (19) (28,762) (9,971) -- (38,752)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock, Net ..................... 72,648 -- -- -- 72,648
Borrowings (Repayments) Under Revolving
Lines of Credit, Net ............................. -- (11,498) 393 -- (11,105)
Repayments on Term Debt, Net ...................... -- (2,082) (352) -- (2,434)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net ........................... (68,885) 78,005 (9,120) -- --
Other, Net ........................................ 298 -- -- -- 298
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Financing
Activities ...................................... 4,061 64,425 (9,079) -- 59,407
-------- -------- -------- -------- --------
Effect of Translation Adjustment on Cash .............. -- -- 81 -- 81
-------- -------- -------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents ........................................ 366 739 (475) -- 630
Cash and Cash Equivalents at Beginning of Year ........ 166 753 1,336 -- 2,255
-------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Year .............. $ 532 $ 1,492 $ 861 $ -- $ 2,885
======== ======== ======== ======== ========
</TABLE>
38
<PAGE> 40
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Income ................................ $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
Net Income from Discontinued Operations ... -- (10,113) (221) -- (10,334)
Equity in Earnings of Subsidiaries ........ (11,343) -- -- 11,343 --
Other Adjustments and Charges ............. 11,329 (22,736) (6,818) -- (18,225)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Continuing
Operations ............................ 844 (23,007) (5,538) -- (27,701)
Net Cash Provided by Discontinued
Operations ............................ -- 6,903 3 -- 6,906
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Operating
Activities ............................ 844 (16,104) (5,535) -- (20,795)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital Expenditures of Discontinued
Operations .............................. -- (11,738) -- -- (11,738)
Acquisition of Businesses ................. -- (8,163) (2,289) -- (10,452)
Capital Expenditures for Property, Plant
and Equipment ........................... (91) (5,293) (2,485) -- (7,869)
Proceeds from Sale of Assets .............. -- -- 28 -- 28
--------- --------- --------- --------- ---------
Net Cash Used by Investing
Activities............................ (91) (25,194) (4,746) -- (30,031)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Long-Term Debt ................ 120,000 -- -- -- 120,000
Repayments Under Revolving Lines
of Credit, Net .......................... -- (21,050) (1,045) -- (22,095)
Repayments on Term Debt, Net .............. (34,442) (2,242) (2,068) -- (38,752)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net .................. (78,181) 64,227 13,954 -- --
Other, Net ................................ (9,408) -- -- -- (9,408)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities ............................ (2,031) 40,935 10,841 -- 49,745
--------- --------- --------- --------- ---------
Effect of Translation Adjustment on Cash ..... -- -- (300) -- (300)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents ............................... (1,278) (363) 260 -- (1,381)
Cash and Cash Equivalents at Beginning of Year 1,444 1,116 1,076 -- 3,636
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at End of Year ..... $ 166 $ 753 $ 1,336 $ -- $ 2,255
========= ========= ========= ========= =========
</TABLE>
39
<PAGE> 41
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications and Restatements
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1996 classifications. The consolidated
financial statements have been restated to reflect the sale of the Company's
Mallard Division on November 11, 1996. See Note 5 for additional information.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. LONG-TERM DEBT
The Company's summary of scheduled debt maturities by year, description
of debt and other information is disclosed in Note 7.
C. INSURANCE SETTLEMENT
On September 30, 1994, the Company received a net cash payment of $23
million from its insurance carriers as settlement for the termination of its
workover drilling contract with NIOC. See Note 11 for additional information
regarding this settlement.
D. OTHER
Notes 1 through 16 should be read in conjunction with the Condensed
Consolidating Financial Statements.
40
<PAGE> 42
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ENERGY VENTURES, INC.
BY: /s/ FRANCES R. POWELL
-------------------------------
FRANCES R. POWELL
VICE PRESIDENT, ACCOUNTING
AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: March 28, 1997
41
