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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
------------------- ------------------------------------------
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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PART I
ITEM 1. BUSINESS
GENERAL
Energy Ventures, Inc., a Delaware corporation (together with its
subsidiaries, the "Company") is an international manufacturer and supplier of
oilfield equipment used in the exploration and production of oil and gas. The
Company operates through two business segments: tubular products segment and
production equipment segment. The tubular products segment manufactures drill
pipe and a full line of premium tubulars and accessories used in the
exploration and production of oil and gas. The Company's drill pipe and premium
tubulars are used primarily in connection with the initial stages of the
exploration and development of oil and gas reserves, in particular, natural
gas. The Company's production equipment segment manufactures artificial lift
and production equipment used primarily to assist and enhance the production of
oil from existing and older wells.
In 1996, the Company continued its strategy of making focused strategic
acquisitions in the oilfield equipment segment of the oil and gas industry in
order to strengthen its product lines and increase its market share. During
1996, the Company completed six significant acquisitions in its tubular
products and production equipment segments. Acquisitions within the tubular
products segment included an acquisition of Tubular Corporation of America
("TCA"), a manufacturer of premium casing and connections, ENERPRO
International, Inc. ("ENERPRO"), a manufacturer of premium thread connections,
and Superior Tube Ltd. ("Superior"), a Canadian based premium tubular
manufacturer. Within the production equipment segment, the Company acquired
Irmaos Geremia Ltd. ("Geremia"), a Brazilian based designer, manufacturer and
marketer of progressing cavity pumps, Arrow Completion Systems ("Arrow"), a
manufacturer of packers and completion tools, and Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment. In November
1996, the Company also disposed of its Mallard contract drilling division (the
"Mallard Division") for cash of approximately $306 million and 3,056,600 shares
of Parker Drilling Company ("Parker") preferred stock that were subsequently
converted into an equal number of Parker common stock. The net after tax cash
proceeds from this disposition were approximately $237 million, which the
Company currently intends to utilize to finance additional acquisitions and the
internal development of its oilfield equipment businesses.
The Company has continued its acquisition program since the disposition
of the Mallard Division. On February 24, 1997, the Company entered into an
agreement to acquire TA Industries, Inc. ("TA"), a manufacturer of premium
couplings and accessories, for approximately $64 million, including assumed
debt. The Company also acquired on March 14, 1997, the Griffin Legrand Division
of Taro Industries Ltd. ("Griffin Legrand"), a Canadian manufacturer of
progressing cavity pumps for approximately $21 million. The TA acquisition is
subject to various conditions, including regulatory approvals, and is currently
expected to close during the second quarter of 1997.
TUBULAR PRODUCTS
The Company's drill pipe and tubular products are provided through its
Grant Prideco tubular products segment. Grant Prideco manufactures and markets
two tubular product lines: (i) drill pipe and related products and (ii) the
Atlas Bradford and TCA lines of premium tubulars and premium engineered
connections. Grant Prideco operates through 14 manufacturing facilities, of
which 10 are located in the U.S., one in Canada, one in Scotland, one in India
(through an exclusive manufacturing arrangement with Oil Country Tubular
Limited ("OCTL")) and one in Mexico. Grant Prideco also has over 90 worldwide
licensed manufacturing and repair locations. Grant Prideco markets its product
lines through 11 technical support sales offices and a worldwide network of
agents and suppliers.
Grant Prideco's products are designed and engineered for high
performance applications. Drill pipe serves as the principal mechanical tool to
drill an oil or natural gas well. Drill pipe is designed and manufactured to
provide a reliable connection from the drilling rig to the drill bit thousands
of feet below the surface. Grant Prideco's drilling products include drill
pipe, drill collars, heavyweight drill pipe and kellys. These products
constitute all components of the drill stem used to drill a well from the rig
to the drill bit. Grant Prideco's production tubulars are primarily premium
tubing, casing and connections. Grant Prideco is the largest manufacturer and
supplier of drill pipe in the world and the largest manufacturer of premium
tubulars in North America. Grant Prideco is also one of the largest
manufacturer of drill collars and heavyweight drill pipe in the world.
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Drill Pipe
Drill pipe is manufactured within specific metallurgical and engineering
guidelines to meet stringent requirements necessary for its use in the drilling
of oil and natural gas wells. Customers for drill pipe consist primarily of
major oil and natural gas companies and drilling contractors who consider drill
pipe to be a material portion of their overall drilling costs. Accordingly,
purchasing decisions are sensitive to price, quality, operational needs and
fluctuations in oil and gas prices.
Grant Prideco's drill pipe product line consists primarily of specialty
pipe that is marketed under the H-Series trade name. Grant Prideco owns a
number of patents on tool joint design and drill pipe manufacturing processes
and has licensed a number of foreign drill pipe manufacturers the use of Grant
Prideco's H-Series patents and technologies.
Drill Collars and Heavyweights
Drill collars are the components of the drill stem generally located
directly above the drill bit in a vertical well. A drill collar is machined
from a solid steel bar and is used to provide weight on the drill bit. Grant
Prideco's heavyweight drill pipe is a seamless tubular product that is less
rigid than a drill collar and provides a transitional zone between the drill
collar in a vertical well and the more flexible drill pipe. Heavyweight drill
pipe also serves to apply weight to the drill bit in a directional well.
Premium Tubulars and Connections
Grant Prideco's premium tubular product line consists of premium tubing,
casing and premium engineered connections. The term "premium" refers to high
alloy, seamless tubulars with specific molecular structure and highly
engineered connections. The Company's premium tubulars, whether casing or
tubing, are designed and engineered to withstand deep, high pressure, high
temperature and highly corrosive well environments. Premium tubulars are
generally used in deep natural gas and offshore wells. The product line is
marketed under the trade names Atlas Bradford and TCA and utilizes a number of
proprietary and patented processes for threading and manufacturing premium
tubulars. Atlas Bradford was a pioneer in the development of high performance
connections for premium tubulars. The Company's premium engineered connections
are marketed in conjunction with Grant Prideco's premium tubular product lines
in order to provide its customers with a complete product. Premium tubulars,
like the lower performance variety known as API tubulars, are made up of casing
and tubing, products that respectively line the walls of a wellbore and serve
as a conduit for hydrocarbons up the wellbore. Grant Prideco's casing products
consist of larger outside diameter, high performance seamless casing for
critical service applications. The Company manufactures a wide range of sizes
and types of premium casing. Casing is used to line and maintain the integrity
of a wellbore.
Sales and Backlog
Total sales of drill pipe for the years ended December 31, 1996, 1995
and 1994 were $156.5 million, $87.2 million and $58.6 million, respectively,
representing approximately 33%, 32% and 32% of the Company's total sales. The
sales backlog for drill pipe and tubular products at December 31, 1996, totaled
approximately $170 million compared to $78 million at December 31, 1995. The
increase in the 1996 backlog was primarily due to a large increase in demand
for drill pipe during 1996. The Company anticipates that all of the backlog
existing at December 31, 1996, will be shipped during 1997.
Competition
Grant Prideco is the largest manufacturer and supplier of drill pipe in
the world and the largest manufacturer of premium tubulars in North America.
Grant Prideco is also one of the largest manufacturer of drill collars and
heavyweight drill pipe in the world.
Competition is based on price, quality and service. The market for the
Company's drill pipe is essentially worldwide and the Company competes with
four large international and domestic manufacturers, some of whom are licensees
of the Company, as well as manufacturing operations in China and the
Commonwealth of Independent States ("CIS"). Other large domestic and
international manufacturers not currently in the market also have the ability
to compete with the Company. Market conditions for drill pipe have
significantly improved over the past two years with the decline in excess
inventories of used pipe and the associated increase in demand for new drill
pipe. This improvement has resulted in higher sales, prices and margins.
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In the United States, the Company competes with four major manufacturers
of premium tubulars. Competitors include large domestic and foreign
corporations and small specialty manufacturers. Internationally, the Company
competes with five manufacturers of premium tubulars. Many of the Company's
competitors have greater financial resources than the Company.
The market for premium casing is limited to some extent by
transportation costs. As a result, the Company's sales of these products has
primarily been concentrated in North and South America. The exclusive
manufacturing arrangement with OCTL has added the Eastern Hemisphere markets to
the Company's markets for casing. The Company currently competes with four
large manufacturers for engineered premium connections and with the integrated
steel mills and various other large providers for semifinished casing. Casing
may also be manufactured by the integrated steel mills that provide the green
tubing for the tubular products manufactured by the Company.
Raw Materials
The Company uses plain-end green steel tubing stock and forging billets
as raw material in the manufacture of drill pipe, casing and premium tubing.
The primary raw material for drill collars is solid steel bars. Heavyweight
drill pipe is manufactured from heavy walled tubular products. The Company's
suppliers are major domestic and international steel mills. The Company has
established relations with several domestic and foreign mill sources that
provide a competitive availability of green tubing stock supplies. Prices for
green tubing and forging billets have recently increased. The Company, however,
has been able, to date, to pass through these increased costs to its customers.
Facilities
The Company's drill pipe and premium tubulars are manufactured at eight
locations in Texas, one location in Louisiana, one location in Oklahoma, one
location in Canada, one location in Scotland, one location in Mexico and one
location (through OCTL) in India. The Company continues to focus on product
development and manufacturing efficiencies. The Company also has sales offices
in Houston and Dallas, Texas; Fribourg, Switzerland; New Orleans, Louisiana;
Abu Dhabi, United Arab Emirates; Aberdeen, Scotland; Moscow, Russia; Caracas,
Venezuela; The Hague, The Netherlands; Kuala Lumpur, Malaysia; and Shanghai,
China.
Customers and Markets
The customers for the Company's tubular products include both domestic
and international oil and natural gas companies, drilling contractors and
distributors of oilfield supplies. Because the Company's tubular products are
designed primarily for drilling and production in deep wells and harsh
environments, they are generally used in connection with the exploration and
production of natural gas and international exploration. Accordingly, sales of
these products are sensitive to fluctuations in the price outlook for natural
gas and related levels of exploration activity.
PRODUCTION EQUIPMENT
The Company's artificial lift products and completion equipment are
manufactured by the Company's EVI Oil Tools division. EVI Oil Tools' products
are used in the production segment of the oil and gas industry, with an
emphasis on the production of oil. EVI Oil Tools provides products and
services in 55 locations in the U.S., 14 locations in Canada, one location in
Argentina, two locations in Venezuela and five locations in Brazil.
Artificial Lift
EVI Oil Tools manufactures a broad line of artificial lift equipment.
The Company's artificial lift equipment includes a complete line of downhole
pumps, sucker rods, surface pump drive units and gas lift. The Company's
downhole pumps consist of both progressing cavity pumps and rod pumps. The
Company's sucker rod line is comprised of both traditional sucker rods and the
Company's unique patented continuous sucker rod. The Company's surface drive
pumping units consist of the Company's unique RotaFlex mechanical, long-stroke
surface drive pump unit and traditional pumpjacks. The Company believes that
EVI Oil Tools is among the largest manufacturers of rod lift equipment in the
world and provides the only integrated product line in this class of lift from
the above ground equipment to the tools submersed in the producing reservoir.
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Artificial lift is used for recovering oil from maturing fields that
lack sufficient pressure to flow under their own power. Artificial lift
technologies include rod lift, electrical submersible lift, gas lift and
hydraulic lift. The Company's artificial lift equipment emphasizes rod lift
products and utilizes various proprietary and patented technology. Rod lift is
a form of artificial lift technology in which oil is recovered through a
suction process utilizing an above ground drive system connected to sucker rods
to a downhole pump placed in the reservoir. Rod lift is particularly suited for
oil wells with depths of up to 10,000 feet or production rates of 1,000 barrels
per day. The Company currently estimates that rod lift represents approximately
50% of the total artificial lift market in the world. Gas lift is generally the
desirable form of artificial lift when natural gas is produced with oil or is
available from nearby wells for injection.
The Company manufactures two types of above ground pump drive systems,
the Company's unique patented RotaFlex system and the traditional pumpjack
system. RotaFlex is a 100% mechanical, long-stroke surface drive pump unit that
is used to artificially lift oil from deep or high volume wells as opposed to
low volume stripper wells. The Company believes that the RotaFlex system is
over 20% more efficient than the traditional pumpjack system that is used for
lower volume wells. The Company also manufactures, through its newly acquired
Griffin Legrand unit, traditional pumpjack units for lower volume wells.
The Company's RotaFlex system and traditional pumpjack systems compete
with the traditional pumping units manufactured by Lufkin Industries.
The Company's sucker rods consist of both traditional sucker rods, which
require a coupling every 25 to 30 feet, and the Company's unique continuous
sucker rod. A sucker rod is an integral part of a rod pump system and is used
to connect the surface drive unit of an oil well, such as the Company's
RotaFlex system or a traditional pumpjack drive system, to a subsurface pump.
The Company's downhole pumps consist of progressing cavity pumps and rod
pumps. Progressing cavity pumps lift oil by using a rotating motion and
elastomer lined cavities. Rod pumps lift oil by using a vertical motion and a
set of mechanical valves. Both types of pumps are connected to the above ground
pump drive system by either traditional coupled rods or the Company's
continuous sucker rods. The Company produces a complete line of progressing
cavity pumps using proprietary hydraulic gear boxes and patented vertical
electric drives. The Company's progressing cavity pumps are particularly suited
for shallow to medium wells with high volumes of produced water, low gravity
crude or sandy conditions. The Company believes that progressing cavity pumps
represent one of the faster growing forms of artificial lift.
Completion Equipment
EVI Oil Tools' completion equipment includes packers, service tools and
flow control equipment. Packers are used in the completion and production of
oil and gas wells. Packers maintain the separation between productive zones and
seal off the space between the tubing and casing. EVI Oil Tools' flow control
equipment and service tools are used for a variety of applications from the
initial completion of an oil or natural gas well to the workover and
recompletion of an existing well.
Competition
EVI Oil Tools distinguishes itself from its competitors in that it has a
fully integrated product line and utilizes new technologies for the production
of oil using artificial lift. EVI Oil Tools' integrated product line offers all
artificial lift equipment from the wellhead to the reservoir. To the Company's
knowledge, none of its competitors has as broad a product line.
The market for artificial lift and completion equipment is very
competitive. Competition is based on product design and quality, ability to
meet delivery requirements and pricing. The RotaFlex system competes with
conventional pumping units, which are manufactured by Lufkin Industries.
Corod's continuous sucker rods compete with conventional sucker rods, which are
manufactured and sold by both EVI Oil Tools and three major competitors. The
Company's packers compete with packers manufactured by two large manufacturing
companies as well as various smaller specialty and commodity manufacturers.
There are two competitors for the Company's gas lift products and three major
competitors for the Company's flow control products and service tools. The
Company's progressing cavity pumps compete with two major competitors. EVI Oil
Tools has identified in the industry six large competitors that individually
have significant shares of the entire artificial lift equipment market
(inclusive of all other forms of lift). The Company believes that it currently
has the first or second largest market share for artificial lift equipment in
the world, although its market share varies depending on the type of product.
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Customers and Markets
EVI Oil Tools' products and services are designed primarily for oil
production from maturing fields. Demand is, therefore, not significantly
affected by short-term changes in exploration and drilling activity. The
Company believes that the crude oil production side of the industry is a
growing market for artificial lift products in that there is an increasing need
for artificial lift to aid production as oil fields mature worldwide. However,
declines in prices of oil may reduce demand for EVI Oil Tools' products due to
reduced capital expenditures by customers and decisions by customers not to
pursue additional work on marginal wells. Currently, most of the Company's
artificial lift equipment is sold in the United States and Canada. However, the
Company believes that significant opportunities exist for its products in other
areas with maturing fields such as South America. In recognition of this
opportunity, the Company has taken extensive efforts to expand EVI Oil Tools'
products internationally, including its recent acquisition of Geremia.
Approximately 22%,11% and 8% of the Company's revenues from the sale of
production equipment for 1996, 1995 and 1994, respectively, were derived from
sales provided outside the United States and Canada.
Facilities
The Company manufactures its production equipment at four locations in
Texas, two locations in Louisiana, one location in Oklahoma, one location in
New Mexico, one location in Wyoming, two locations in Canada, one location in
Argentina and two locations in Brazil.
Backlog
Backlog of production equipment is generally not considered to be a
meaningful indication of future sales or results due to the nature of the
business.
RAW MATERIALS
The Company purchases a variety of raw materials for its manufacturing
operations and a variety of parts and components fabricated by other
manufacturers and suppliers. The Company is not dependent on any single source
of supply for any of its raw materials and components. A loss of one or more of
the Company's suppliers could disrupt production.
PATENTS
The Company's oilfield equipment segments utilize various patents and
proprietary technology in the manufacture of their products. The Company
recently entered into an exclusive license and technology transfer agreement
with Netzsch-Mohnopumpen Beteiligungs QMBH & Co. KG ("Netzsch") in Germany
pursuant to which the Company has obtained the rights to manufacture and sell
rotors and stators for its progressing cavity pumps. Although the Company
considers its patents important to the operation of its business and a loss of
one or more patents could adversely affect a particular product, because of the
proprietary processes that the Company has developed in using its patents, and
the nature of the business conducted with the patents, it does not believe that
any significant portion of its business is materially dependent upon any single
patent or group of patents or generally upon patent protection.
INSURANCE
The Company is required to carry workers' compensation insurance to
comply with state laws and customer requirements. Grant Prideco has elected to
opt out of the mandatory Texas workers' compensation pools and secures its
workers' compensation through outside insurance. Although it has been able to
reduce insurance costs through this election, certain benefits provided under
the workers' compensation statutes may not be available to the Company. The
cost of insurance is subject to substantial fluctuation due to a variety of
factors, some of which are beyond the Company's control. Although the Company
has generally been able to obtain insurance on terms it considers to be
reasonable, there can be no assurance that such insurance will continue to be
available on terms as favorable as those for its existing arrangements. The
Company is partially self-insured for employee health insurance claims and
certain workers' compensation claims.
Although the Company maintains product liability insurance with respect
to its products, such insurance is limited in coverage. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company with
respect to its products could have a material adverse effect on the Company.
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The Company also maintains political risk insurance to insure against
certain risks of doing business in foreign countries. Although the Company
believes that these actions have helped it to minimize the cost of its
insurance, any increase in the number or amount of claims or losses could
require greater cash payments and reserves by the Company and could result in
the Company having higher rates, deductibles and retainers for its insurance
coverage. However, neither insurance nor indemnity agreements can provide
complete protection against casualty losses. There can be no assurance that
such coverage is adequate for the risks involved, that the coverage limits
would not be exceeded or that such insurance would apply to all such
liabilities. Further, there can be no assurance that such insurance will be
sufficient to cover any future losses, will continue to be available on
commercially reasonable terms or will continue to be available on terms as
favorable as those for its existing arrangements. The occurrence of an adverse
claim in excess of the coverage limits maintained by the Company could have a
material adverse effect on the Company's financial condition and results of
operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is affected by changes in public policy and by
federal, state and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental and other policy reasons
may adversely affect the Company's operations by limiting available drilling
and other opportunities in the energy service industry. The Company is also
subject to various health and safety regulations as established by the
Occupational Safety and Health Administration.
The Company's operations are subject to federal, state and local laws
and regulations controlling the discharge of materials into or otherwise
relating to the protection of the environment. In recent years, laws and
regulations protecting the environment have generally become more stringent and
have sought to impose greater liability on a larger number of potentially
responsible parties. However, the Company is not currently aware of any
situation or condition that it believes is likely to have a material adverse
effect on its results of operations or financial condition.
The Company's expenditures in 1996 in order to comply with applicable
environmental laws and regulations were not material, and the Company expects
that the costs of compliance with such laws and regulations for 1997 will not
be material. The Company does not believe that its costs for compliance with
applicable environmental laws and regulations is, on a relative basis, greater
than that of its competitors.
FOREIGN OPERATIONS
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 U.S. accounted for approximately 51%, 46%
and 46% of total revenues for 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.
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The following tabulation sets forth summarized financial information for
the three years ended December 31, 1996, by geographic area. 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.
<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
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
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
</TABLE>
See Note 15 to the Consolidated Financial Statements of the Company for
additional financial information related to the Company's revenues by
geographic region.
Operations and sales in foreign markets are subject to substantial
competition from large multinational corporations and government-owned entities
and to a variety of local laws and regulations requiring qualifications, use of
local labor, the provision of financial assurances or other restrictions and
conditions on operations. Foreign operations are also subject to risks
associated with doing business outside the U.S., including risk of war, civil
disturbances and governmental activities that may limit or disrupt markets,
restrict the movement of funds or result in the deprivation of contract rights
or the taking of property without fair compensation. Foreign operations may
also subject the Company to risks relating to fluctuations in currency exchange
rates. However, to date, currency fluctuations have not had a material adverse
impact on the Company.
The Company has drill pipe and other products manufactured for it by
OCTL in India under a long-term exclusive manufacturing arrangement with OCTL.
Although the Company has sought to minimize the risks of this operation through
its manufacturing arrangement and insurance, the Company is providing OCTL with
a substantial amount of raw materials and inventory for the products
manufactured by it. Operations in India are subject to various political and
economic risks as well as financial risks with respect to OCTL.
The Company also has manufacturing operations in Mexico, Brazil and
Argentina. The Company's operations in each of these countries are subject to
various political and economic conditions existing in them which could disrupt
operations. The Company generally seeks to obtain, where economical, insurance
against certain political risks and attempts to structure its contracts and
arrangements in the foreign countries in which it operates in a manner that
would minimize the exposure of its assets to losses in those countries. Such
efforts include structuring substantially all of its sales and service
contracts to be in U.S. dollars and utilizing lease arrangements and joint
ventures for manufacturing facilities so as not to require substantial
investment of funds in fixed assets in foreign countries. Although the Company
believes that its exposure to foreign risks is not materially greater than that
of its competitors, there can be no assurance that disruptions will not occur
in the Company's foreign operations or that any losses that do occur will be
covered by insurance.
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EMPLOYEES
As of December 31, 1996, the Company employed approximately 4,000
employees. The Company considers its relations with its employees to be
generally satisfactory.
ITEM 2. PROPERTIES
The Principal offices of the Company and facilities used by the Company
in its tubular products and production equipment segments are set forth in the
table below:
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
TUBULAR PRODUCTS:
<S> <C> <C> <C> <C>
Navasota, Texas......................... 251,600 182.80 Owned Manufacture drill pipe, premium
threaded casing, liners and tubing
Vera Cruz, Mexico....................... 214,000 42.00 Leased Manufacture tool joints
Muskogee, Oklahoma...................... 163,000 97.00 Owned Manufacture TCA premium casing
Bryan, Texas............................ 160,000 55.27 Owned Manufacture premium tubing
Bastrop, Texas.......................... 108,300 21.00 Owned Manufacture tool joints
Edmonton, Alberta, Canada............... 106,925 10.22 Owned Manufacture drill pipe, premium
threaded casing, liners and tubing
Houston, Texas.......................... 68,500 13.50 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
31,500 10.00 Owned Manufacture drill pipe, drill collars
heavyweights and kellys
21,900 11.00 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
12,400 -- Leased Principal offices of Grant Prideco
Channelview, Texas...................... 60,600 20.00 Owned Threading of premium casing
Morgan City, Louisiana.................. 19,300 2.40 Leased Repair drill pipe, drill collars,
heavyweights and kellys
Aberdeen, Scotland...................... 11,500 5.90 Leased Threading of premium casing
PRODUCTION EQUIPMENT:
Woodward, Oklahoma...................... 148,800 53.02 Leased Manufacture sucker rod pump parts
Odessa, Texas........................... 97,000 7.20 Owned Manufacture of RotaFlex pumping units
Sao Leopoldo, Brazil.................... 86,080 17.00 Owned Manufacture progressing cavity pumps
Huntsville, Texas....................... 81,680 20.00 Owned Manufacture downhole packers and
completion systems
Caxias do Sul, Brazil................... 62,400 6.00 Leased Manufacture downhole packers
and completion systems
Santa Teresa, New Mexico................ 43,000 7.50 Owned Manufacture sucker rods
Longview, Texas......................... 40,000 22.10 Owned Manufacture pump barrels and plungers
Edmonton, Alberta, Canada............... 40,000 11.00 Leased Manufacture of progressing cavity
pumps
Midland, Texas.......................... 30,000 3.00 Owned Manufacture and repair pumping
unit parts
26,000 8.00 Owned Sales and service of downhole
packers
Aberdeen, Scotland...................... 17,600 .50 Leased Sales and service of downhole
packers
Powell, Wyoming......................... 16,000 1.80 Leased Manufacture of downhole packers
and completion systems
Nisku, Alberta, Canada.................. 15,900 8.30 Owned Manufacture continuous rods
Lafayette, Louisiana.................... 10,825 1.00 Leased Manufacture gas lift equipment
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C>
6,500 1.00 Leased Manufacture gas lift equipment
Macae, Brazil........................... 10,200 2.00 Owned Repair facility
Oklahoma City, Oklahoma................. 9,500 1.20 Leased Repair pumping unit parts
Irving, Texas........................... 6,765 1.00 Leased Principal offices of EVI Oil Tools
CORPORATE:
Houston, Texas.......................... 14,500 -- Leased Principal offices of the Company
</TABLE>
In addition to the above facilities, the Company has an agreement with
OCTL pursuant to which OCTL's manufacturing facility in Narketpally, India is
to be dedicated by OCTL to the production of drill pipe and other tubular
products exclusively for the Company. This facility is owned by OCTL and
consists of 262,000 sq. ft. located on 60 acres.
ITEM 3. LEGAL PROCEEDINGS
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 to the Company, it
believes that the ultimate liability, if any, which may result from these
disputes, claims and litigation would not have a material adverse affect on the
Company's consolidated financial position or its results of operations with or
without consideration of insurance coverage. See Note 10 to Consolidated
Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1996, to a vote of shareholders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "EVI". The following table sets forth, for the periods indicated,
the range of high and low sale prices per share for the Common Stock as
reported on the NYSE.
<TABLE>
<CAPTION>
PRICE
-------------------
HIGH LOW
-------- ------
<S> <C> <C>
Year ending December 31, 1996
First Quarter.............................. $28 7/8 $22 1/4
Second Quarter............................. 35 25 3/4
Third Quarter.............................. 40 1/2 28
Fourth Quarter............................. 51 1/2 39
Year ending December 31, 1995
First Quarter.............................. $14 5/8 $11 7/8
Second Quarter............................. 20 5/8 13 1/4
Third Quarter.............................. 24 17 3/8
Fourth Quarter............................. 25 1/4 18 3/8
</TABLE>
The Company has not paid any dividends on the Common Stock since 1984
and currently anticipates that, for the foreseeable future, any earnings will
be retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock for the
foreseeable future. The declaration of all dividends is at the discretion of
the Company's Board of Directors. The Company's dividend policy will be
reviewed by the Board of Directors at such future time as may be appropriate in
light of relevant factors at the time; however, the Company and the Company's
principal operating subsidiaries are subject to certain prohibitions on the
declaration and payment of dividends under the terms of their existing credit
facilities. In addition, under the terms of the Company's 10 1/4% Senior Notes
due 2004 ("Senior Notes"), the Company is limited, based on a specific formula,
in the amount of funds it may distribute as dividends or distributions to
stockholders. The Company is also restricted to a specific formula under its
principal working capital facilities in the amount of dividends, distributions
and other restricted payments that it may make to stockholders. As of December
31, 1996, the Company was
10
<PAGE> 11
limited in the amount of cash dividends,distributions and other restricted
payments that could be made by it under the terms of the Senior Notes and the
Company's credit facility to approximately $278 million and $133 million,
respectively.
As of March 17, 1997, there were 1,013 stockholders of record. The Common
Stock is traded on the NYSE under the symbol EVI.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of the Company and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The following information may not be deemed indicative of
future operating results of the Company. The information presented has been
restated to reflect the Mallard Division as discontinued operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 478,020 $ 271,675 $ 185,285 $ 171,638 $ 139,349
Operating Income (Loss) ..................... 46,287 17,965 3,638 6,758 (56)
Income (Loss) from Continuing Operations .... 24,505 2,602 (5,692) 77 (3,848)
Earnings (Loss) Per Share from Continuing
Operations ............................. 1.20 .18 (.45) .01 (.32)
Total Assets ................................ 852,843 453,125 311,497 251,377 210,887
Long-term Debt .............................. 126,710 124,183 125,108 38,982 37,304
Stockholders' Investment .................... 454,084 228,066 110,913 107,736 101,156
Cash Dividends Per Share .................... -- -- -- -- --
</TABLE>
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.
11
<PAGE> 12
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 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. 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.
12
<PAGE> 13
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. 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.
13
<PAGE> 14
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
14
<PAGE> 15
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.
15
<PAGE> 16
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.
16
<PAGE> 17
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
17
<PAGE> 18
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.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
<S> <C>
----
Report of Independent Public Accountants.......................................... 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.
19
<PAGE> 20
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
20
<PAGE> 21
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.
21
<PAGE> 22
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.
22
<PAGE> 23
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.
23
<PAGE> 24
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.
24
<PAGE> 25
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
25
<PAGE> 26
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
26
<PAGE> 27
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.
27
<PAGE> 28
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.
28
<PAGE> 29
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
Net income per common share.............................. 4.42 0.62
</TABLE>
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.
29
<PAGE> 30
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>
30
<PAGE> 31
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.
31
<PAGE> 32
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.
32
<PAGE> 33
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>
33
<PAGE> 34
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:
34
<PAGE> 35
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.
35
<PAGE> 36
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
36
<PAGE> 37
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.
37
<PAGE> 38
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>
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.
38
<PAGE> 39
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>
39
<PAGE> 40
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.
40
<PAGE> 41
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>
41
<PAGE> 42
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>
42
<PAGE> 43
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>
43
<PAGE> 44
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>
44
<PAGE> 45
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>
45
<PAGE> 46
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>
46
<PAGE> 47
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>
47
<PAGE> 48
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>
48
<PAGE> 49
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.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information on directors and
executive officers of the Registrant is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information on executive
compensation is incorporated by reference from the Registrant's Definitive
Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information on security ownership of
certain beneficial owners and management is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information on certain relationships
and related transactions is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
49
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or incorporated
herein by reference:
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and financial statement schedule of
the Company are listed on the index on page 19.
REPORTS ON FORM 8-K
On October 3, 1996, the Company filed a Current Report on Form 8-K
announcing the completed acquisition of Irmaos Geremia Ltd., announcing the
signing of an agreement to sell the Company's Mallard Drilling rig contracting
division to Parker Drilling Company and including pro forma financial
statements of the Company giving effect to the disposition of the Mallard
Drilling rig contracting division.
On November 26, 1996, the Company filed a Current Report on Form 8-K
announcing the completion of the previously announced sale of its Mallard
Drilling rig contracting division to Parker Drilling company and including pro
forma financial statements of the Company giving effect to the disposition of
the Mallard Drilling rig contracting division.
On December 26, 1996, the Company filed a Current Report on Form 8-K
announcing the completion of the acquisition of the assets of Arrow Completion
Systems from Weatherford Enterra, Inc. and the signing of a merger agreement
with GulfMark International, Inc. and New GulfMark, Inc. pursuant to which the
Company would acquire GulfMark International, Inc. in a tax-free merger in
exchange for the issuance of approximately 2.2 million shares of the Company's
Common Stock.
EXHIBITS
3.1 - Restated Certificate of Incorporation of the Company,
(incorporated by reference to Exhibit No. 3.1 to the Registration
Statement on Form S-3; Registration No. 333-03407).
3.2 - By-laws as amended (incorporated by reference to Exhibit No.3.2 to
Form 10-K, File 0-7265, filed March 1, 1994).
4.1 - Restated Certificate of Incorporation of the Company,
(incorporated by reference to Exhibit No. 3.1 to the Registration
Statement on Form S-3; Registration No. 333-03407).
4.2 - By-laws as amended (incorporated by reference to Exhibit No. 3.2
to Form 10-K, File 0-7265, filed March 1, 1994).
4.3 - Indenture dated March 15, 1994, among Energy Ventures, Inc., as
Issuer, the Subsidiary Guarantors party thereto, as Guarantors,
and Chemical Bank, as Trustee (incorporated by reference to Form
8-K, File 0-7265, filed April 5, 1994).
4.4 - Specimen 10 1/4% Senior Note due 2004 of Energy Ventures, Inc.
(incorporated by reference to Form 8-K, File 0-7265, filed April
5, 1994).
4.5 - First Supplemental Indenture by and among Energy Ventures, Inc.,
Prideco and Chemical Bank, as trustee, dated June 30, 1995
(incorporated by reference to Exhibit No. 4.4 to the Registration
Statement on Form S-3; Registration No. 33-61933).
**4.6 - Second Supplemental Indenture by and among Energy Ventures, Inc.,
EVI Arrow, Inc., EVI Watson, Inc. and The Chase Manhattan Bank, as
trustee, dated effective as of December 6, 1996.
4.7 - Amended and Restated Credit Agreement among Energy Ventures, Inc.,
the Subsidiary Guarantors defined therein, the Lenders defined
therein and The Chase Manhattan Bank dated as of December 6, 1996,
including the form of Note (incorporated by reference to Exhibit
No. 4.1 to Form 8-K, File 0-7265, filed December 26, 1996).
*10.1 - Executive Deferred Compensation Stock Ownership Plan and related
Trust Agreement (incorporated by reference to Form 10-Q, File
0-7265, filed November 16, 1992).
*10.2 - First Amendment to Energy Ventures, Inc. Executive Deferred
Compensation Stock Ownership Plan dated June 28, 1993
(incorporated by reference to Exhibit No. 4.3 to the Registration
Statement on Form S-8; Registration No. 33-65790).
50
<PAGE> 51
*10.3 - Non-Employee Director Deferred Compensation Plan (incorporated
by reference to Form 10-Q, File 0-7265, Filed November 16,
1992).
*10.4 - 1991 Non-Employee Director Stock Option Plan and Form of
Agreement (incorporated by reference to Form 10-Q, File 0-7265,
filed August 8, 1991).
*10.5 - 1992 Employee Stock Option Plan, as amended (incorporated by
reference to Exhibit No. 4.7 to the Registration Statement on Form
S-8; Registration No. 333-13531).
*10.6 - Energy Ventures, Inc. Employees Stock Option Plan (incorporated by
reference to Exhibit No. 4.1 to the Registration Statement on Form
S-8; Registration No. 33-31662).
*10.7 - Form of Stock Option Agreement under the Company's Employees'
Stock Option Plan (incorporated by reference to Exhibit No. 4.2 to
the Registration Statement on Form S-8; Registration No.
33-31662).
*10.8 - Amended and Restated Non-Employee Director Stock Option Plan
(incorporated by reference to Form 10-Q, File 0-7265, filed August
12, 1995).
10.9 - Lease Agreement dated September 30, 1993, among T.F. de Mexico,
S.A. de C.V. as Lessor, Grant T.F. de Mexico, S.A. de C.V., as
Lessee, Energy Ventures, Inc. as Guarantor, and Revemex, S.A. de
C.V. as Owner of subleased assets (incorporated by reference to
Form 10-K, File 0-7265, filed March 1, 1994).
10.10 - Registration Rights Agreement dated March 24, 1994, between Energy
Ventures, Inc. and Lehman Brothers Inc. (incorporated by reference
to Form 8-K, File 0-7265, filed April 5, 1994).
10.11 - The Woodward, Oklahoma Lease agreements as amended (incorporated
by reference to Form 10-K, File 0-7265, filed March 23, 1995).
10.12 - Agreement and Plan of Merger dated as of May 22, 1995, as amended
by Amendment No. 1 dated as of June 30, 1995, by and among
Prideco, Inc., Christiana Companies, Inc., William Chunn, Donald
Morris, Sandra Hamilton, Energy Ventures, Inc. and Grant
Acquisition Company (incorporated by reference to Exhibit No. 2.1
to Form 8-K, File 0-7265, filed July 12, 1995).
10.13 - Manufacturing and Sales Agreement dated as of January 1, 1996, by
and between Grant Prideco, S.A. and Oil Country Tubular Limited
(incorporated by reference to Exhibit No. 10.34 to Form 10-K, File
0-7265, filed March 20, 1996).
**10.14 - Amended and Restated Lease Agreement dated May 3, 1996, between
Baker Hughes Oilfield Operations, Inc. and Grant Prideco, Inc.
10.15 - Agreement and Plan of Merger dated as of June 20, 1996 between
Energy Ventures, Inc., TCA Acquisition, Inc. and Tubular
Corporation of America (incorporated by reference to Exhibit No.
2.1 to Form 8-K, File 0-7265, filed June 24, 1996).
10.16 - Asset Purchase Agreement dated as of June 21, 1996, by and between
Energy Ventures, Inc. and Mallard Bay Drilling, Inc. and Noble
Drilling (West Africa) Inc. and Noble Drilling Corporation
(incorporated by reference to Exhibit No. 2.3 to form 8-K, file
0-7265, filed June 24, 1996).
10.17 - Stock Purchase Agreement dated as of September 14, 1996, by and
among Parker Drilling Company and Energy Ventures, Inc.
(incorporated by reference to Exhibit 2.1 to Form 8-K, File 0-7265,
filed October 3, 1996).
10.18 - Asset Purchase Agreement dated as of October 18, 1996, by and among
Energy Ventures, Inc., Arrow Completion Systems, Inc. and
Weatherford Enterra, Inc. (incorporated by reference to Exhibit No.
2.1 to Form 8-K, File 0-7265, filed December 26, 1996).
10.19 - Agreement and Plan of Merger dated as of December 5, 1996, among
Energy Ventures, Inc., GulfMark Acquisition Co., GulfMark
International, Inc. and New GulfMark International, Inc.
(incorporated by reference to Exhibit No. 2.2 to Form 8-K, File
0-7265, file December 26, 1996).
10.20 - Agreement and Plan of Distribution dated as of December 5, 1996, by
and among GulfMark International, Inc., New GulfMark International,
Inc. and Energy Ventures, Inc. (incorporated by reference to
Exhibit No. 2.3 to Form 8-K, File 0-7265, filed December 26, 1996).
**21.1 - Subsidiaries of Energy Ventures, Inc.
**23.1 - Consent of Arthur Andersen LLP.
**27.1 - Financial Data Schedule.
*Management Compensation or Incentive Plan
**Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has
not filed with this Annual Report on Form 10-K certain instruments
defining the rights of holder of long-term debt of the Company and its
subsidiaries because the total amount of securities authorized under any
of such instruments does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of any such agreements to the Securities and Exchange
Commission upon request.
51
<PAGE> 52
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ENERGY VENTURES, INC.
BY: /s/ BERNARD J. DUROC-DANNER
----------------------------
BERNARD J. DUROC-DANNER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
AND DIRECTOR
Date: March 20, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
BY: /s/ BERNARD J. DUROC-DANNER President and Chief Executive Officer March 20, 1997
-------------------------------- (Principal Executive Officer)
BERNARD J. DUROC-DANNER and Director
BY: /s/ JAMES G. KILEY Vice President and Chief Financial Officer March 20, 1997
--------------------------------- (Principal Financial Officer)
JAMES G. KILEY
BY: /s/ FRANCES R. POWELL Vice President, Accounting and Controller March 20, 1997
--------------------------------- (Principal Accounting Officer)
FRANCES R. POWELL
BY: /s/ DAVID J. BUTTERS Director March 20, 1997
--------------------------------- and Chairman of the Board
DAVID J. BUTTERS
BY: /s/ URIEL E. DUTTON Director March 20, 1997
---------------------------------
URIEL E. DUTTON
BY: /s/ ELIOT M. FRIED Director March 20, 1997
---------------------------------
ELIOT M. FRIED
BY: /s/ SHELDON S. GORDON Director March 20, 1997
--------------------------------
SHELDON S. GORDON
BY: /s/ SHELDON B. LUBAR Director March 20, 1997
--------------------------------
SHELDON B. LUBAR
BY: /s/ ROBERT B. MILLARD Director March 20, 1997
--------------------------------
ROBERT B. MILLARD
BY: /s/ ROBERT A. RAYNE Director March 20, 1997
--------------------------------
ROBERT A. RAYNE
</TABLE>
52
<PAGE> 53
SCHEDULE II
ENERGY VENTURES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
===============================================================================================
ADDITIONS
----------------
CHARGED
BALANCE TO CHARGED
BEGINNING COSTS TO BALANCE
OF AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for uncollectible accounts
receivable ....................... $ 362 $ 486 $ 4 $(269) $ 583
YEAR ENDED DECEMBER 31, 1995:
Allowance for uncollectible accounts
receivable ....................... $ 551 $ 252 $ 92 $(533) $ 362
YEAR ENDED DECEMBER 31, 1994:
Allowance for uncollectible accounts
receivable ....................... $ 656 $ 158 $ 31 $(294) $ 551
</TABLE>
53
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.6 Second Supplemental Indenture by and among Energy Ventures, Inc.,
EVI Arrow, Inc., EVI Watson, Inc. and the Chase Manhattan Bank, as trustee,
dated effective as of December 6, 1996.
10.14 Amended and Restated Lease Agreement dated May 3, 1996, between Baker
Hughes Oilfield Operations, Inc. and Grant Prideco, Inc.
21.1 Subsidiaries of Energy Ventures, Inc.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
54
<PAGE> 1
EXHIBIT 4.6
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE (this "Supplement"), dated and effective
as of December 6, 1996, is entered into by and among Energy Ventures, Inc., a
Delaware corporation (the "Company"), EVI Arrow, Inc., a Delaware corporation
and a wholly owned subsidiary of the Company ("EVI Arrow"), EVI Watson Packers,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("EVI
Watson", together with EVI Arrow, the "New Guarantors"), and The Chase
Manhattan Bank (formerly known as Chemical Bank), a New York corporation, as
Trustee (the "Trustee").
RECITALS OF THE COMPANY AND THE NEW GUARANTORS
WHEREAS, the Company, the Subsidiary Guarantors and the Trustee have
executed and delivered an Indenture dated as of March 15, 1994, among the
Company, the Subsidiary Guarantors and the Trustee (the "Original Indenture")
providing for the issuance by the Company of $120,000,000 aggregate principal
amount of the Company's 10 1/4% Senior Notes due 2004 (the "Securities") and
pursuant to which the Subsidiary Guarantors have agreed, jointly and severally,
to unconditionally guarantee the due and punctual payment of the principal of,
premium, if any, and interest on the Securities and all other amounts due and
payable under the Original Indenture and the Securities by the Company
("Indenture Obligations");
WHEREAS, the Company, Prideco, Inc., a Texas corporation and a wholly
owned subsidiary of the Company ("Prideco"), and the Trustee executed a First
Supplemental Indenture, dated as of June 30, 1995, pursuant to which Prideco
became a Subsidiary Guarantor and agreed to unconditionally guarantee the
Indenture Obligations (the Original Indenture, as supplemented by the First
Supplemental Indenture, is hereinafter referred to as the "Indenture");
WHEREAS, each of the New Guarantors has become a Material Restricted
Subsidiary and pursuant to Sections 12.3(b) and (d) is obligated to enter into
the Supplement thereby guaranteeing the punctual payment of all Indenture
Obligations as provided in Article XII of the Indenture;
WHEREAS, pursuant to Section 8.1(f) of the Indenture, the Company, the
New Guarantors and the Trustee may enter into this Supplement without the
consent of any Holder;
WHEREAS, the execution and delivery of this Supplement have been duly
authorized by a Board Resolution of the respective Board of Directors of the
Company and each of the New Guarantors; and
WHEREAS, all conditions and requirements necessary to make the
Supplement valid and binding upon the Company and the New Guarantors, and
enforceable against the Company and the New Guarantors in accordance with its
terms, have been performed and fulfilled;
NOW, THEREFORE, in consideration of the above premises, each of the
parties hereto agrees, for the benefit of the others and for the equal and
proportionate benefit of the Holders of the Securities, as follows:
ARTICLE ONE
THE NEW GUARANTEE
Section 101. For value received, each of the New Guarantors, in
accordance with Article Twelve of the Indenture, hereby unconditionally
guarantees (the "New Guarantees"), jointly and severally among themselves and
the Subsidiary Guarantors, to the Trustee and the
<PAGE> 2
Holders, the due and punctual payment of the principal of, premium, if any, and
interest on the Securities and all other amounts due and payable under the
Indenture and the Securities by the Company, whether at maturity, by
acceleration, redemption, repurchase or otherwise as more specifically set
forth in Section 12.1 of the Indenture, including, without limitation, interest
on the overdue principal of, premium, if any, and interest on the Securities,
to the extent lawful, all in accordance with the terms of Article XII of the
Indenture and subject to the limitations set forth in Section 12.5 of the
Indenture. Each of the agreements made and obligations assumed hereunder by
the New Guarantors shall constitute, and shall be deemed to constitute, a
Guarantee under the Indenture and for all purposes of the Indenture, and each
of the New Guarantors shall be considered a Subsidiary Guarantor for all
purposes of the Indenture as if it was originally named therein as a Subsidiary
Guarantor.
Section 102. The New Guarantees shall be automatically and
unconditionally released and discharged upon the occurrence of the events set
forth in Sections 3.1 and 12.4 of the Indenture.
ARTICLE TWO
MISCELLANEOUS
Section 201. Except as otherwise expressly provided or unless the
context otherwise requires, all terms used herein which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. Except as
supplemented hereby, the Indenture (including the Guarantees incorporated
therein) and the Securities are in all respects ratified and confirmed and all
the terms and provisions thereof shall remain in full force and effect.
Section 202. This Supplement shall be effective as of the date above
written.
Section 203. The recitals contained herein shall be taken as the
statements of the Company and the New Guarantors, and the Trustee assumes no
responsibility for the correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplement.
Section 204. This Supplement shall be governed by and construed in
accordance with the laws of the jurisdiction which govern the Indenture and its
construction.
Section 205. This Supplement may be executed in any number of
counterparts each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed and their respective seals to be affixed hereunto and duly
attested all as of the day and year first above written.
ENERGY VENTURES, INC.
[Corporate Seal]
By: /s/ JAMES G. KILEY
------------------------------------
James G. Kiley
Vice President and
Chief Financial Officer
Attest:
/s/ FRANCES R. POWELL
- ------------------------------
Frances R. Powell
Assistant Secretary
EVI ARROW, INC.
[Corporate Seal]
By: /s/ JAMES G. KILEY
------------------------------------
James G. Kiley
Vice President
Attest:
/s/ FRANCES R. POWELL
- ------------------------------
Frances R. Powell
Assistant Secretary
EVI WATSON PACKERS, INC.
[Corporate Seal]
By: /s/ JAMES G. KILEY
------------------------------------
James G. Kiley
Vice President
Attest:
/s/ FRANCES R. POWELL
- ------------------------------
Frances R. Powell
Assistant Secretary
THE CHASE MANHATTAN BANK
[Corporate Seal]
By: /s/ W B. DODGE
---------------------------------
Name: W.B. DODGE
---------------------------------
Title: VICE PRESIDENT
---------------------------------
Attest:
- ------------------------------
Assistant Secretary
-3-
<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED LEASE AGREEMENT
This Amended and Restated Lease Agreement (this "Lease") is made and
entered into as of the 3rd day of May, 1996, by and between BAKER HUGHES
OILFIELD OPERATIONS, INC., a California corporation ("Landlord"), and GRANT
PRIDECO, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H :
WHEREAS, Landlord, formerly known as Baker Hughes INTEQ, Inc., and
Enerpro International, Inc., a Delaware corporation ("Enerpro"), entered into
that certain Lease Agreement dated August 17, 1993 (the "Original Lease"),
covering and describing certain property located in Buildings 3, 4, 7, and 26
(also known as Building 2A), in whole or in part, of the Park (hereinafter
defined); and
WHEREAS Enerpro and Landlord entered into that certain Amendment One
to Lease Agreement dated effective August 30, 1994, that certain First
Amendment to Lease dated as of November 1, 1994, and that certain Amendment Two
to Lease Agreement dated effective September 13, 1995; and
WHEREAS, in connection with the purchase of Enerpro by Tenant
effective of even date herewith, Landlord and Tenant have agreed to enter into
this Amended and Restated Lease Agreement for the purpose of amending and
restating the Lease in its entirety such that the Original Lease, including all
amendments thereto, is superseded and of no further force or effect;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, Landlord and Tenant hereby agree as follows:
<PAGE> 2
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the following premises:
(i) effective as of the Commencement Date (hereinafter
defined), all those certain tracts or parcels of real property
located in the city of Houston, Harris County, Texas, being Restricted
Reserve A (the "North Tract"), an 11.6133 acre tract (save and except
the existing Buildings thereon), as described on that certain map or
plat of Central City Industrial Park, recorded under Film Code
Reference No. 358049 of the Map Records of Harris County, Texas, and
the partial replat thereof recorded under Film Code Reference No.
370017 of the Map Records of Harris County, Texas, and all those
certain Buildings and related outdoor yard/storage areas outlined on
the plat of Central City Industrial Park attached hereto as Exhibit A
and made a part hereof for all purposes, including, without
limitation, all of Building 3 (approximately 8,777 square feet of
gross area), and all of Building 4 (approximately 90,039 square feet
of gross area), approximately 9,450 square feet of gross area out of
Building 10, all of Building 26 (approximately 6,000 square feet of
gross area), and approximately 47,842 square feet of gross area in
Building 7 (including the basement of said Building 7) (the "Initial
Building 7 Space");
(ii) effective on October 1, 1996, all that certain tract or
parcel of real property located in the city of Houston, Harris County,
Texas, together with all of the improvements thereon, including,
without limitation, the remainder of Building 7 (also known as
Building 7A) containing approximately 25,685 square feet of gross area
(the "Building 7A Space;" the Initial Building 7 Space and the
-2-
<PAGE> 3
Building 7A Space being hereinafter referred to collectively as the
"Building 7 Space"), all as depicted on Exhibit A as the Building 7A
Space;
all of which Buildings and land are located in or adjacent to Landlord's
Central City Industrial Park ("Park"), 5425 Polk Street, Houston, Texas,
together with the Landlord's improvements, cranes, other building operational
equipment, appurtenances and fixtures located thereon or therein (together the
"Premises"). As a part of the Premises, Tenant shall have (i) the
non-exclusive right of reasonable vehicular access to said Buildings and land
for its agents, employees, contractors, customers and invitees to and from Polk
Street over streets and driveways now or hereafter existing in the Park by a
route or routes mutually established by Landlord and Tenant from time to time,
with all gates to be open seven (7) days a week, twenty-four (24) hours a day
(holidays excluded) (ii) the exclusive right to use vehicle parking areas
identified as such on Exhibits B and B-1, attached hereto and made a part
hereof for all purposes, such "right to use" to include the right to secure
such parking areas, to install ingress and egress systems, to light, fence
and/or otherwise obstruct access to such parking areas by persons not
authorized to enter upon same, and to park customer vehicles, employee vehicles
and company vehicles, but in no event shall Tenant be entitled to do anything
to such parking areas that would tend to block or unreasonably impede access to
any portion of the Park not a part of the Premises, (iii) to the extent
Landlord, using its reasonable efforts, is able to obtain the same, (a) the
right of ingress and egress by train to the North Tract by way of the existing
rail line adjacent to the Park and one or more rail spurs to be constructed by
Landlord and/or Union Pacific Railroad along the southern boundary of the North
Tract (the "Rail Spur") pursuant to an agreement from Union Pacific Railroad
and (b) the right to install, at Tenant's sole cost and
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expense, a railroad crossing across the Union Pacific Railroad tracks from the
North Tract to Dave Butcher Drive in the vicinity of Buildings 11 and 14; and
(iv) the exclusive right for so long as the North Tract is a part of the
Premises, to use the outdoor covered patio area of Building 16 and the watch
tower adjacent thereto. Except as specifically provided herein with respect to
the Rail Spur, the Premises does not include, and Tenant is granted no rights
by this Lease to use any railroad line or spur track within the Park. In no
event shall the parking spaces allocated to Tenant herein be reassigned or
otherwise changed, except with the mutual agreement of Landlord and Tenant.
2. AUTHORIZED USE. A. Tenant shall have the right to occupy and
use the Premises only for research and development, pipe testing, cleaning and
inspection, manufacturing, threading and chemical treatments (i.e.,
phosphatizing, roller painting, electroplating and/or coating), storage,
warehouse and offices and related office activities in accordance with
applicable law. No existing crane in the Premises shall be permitted by Tenant
to lift any load in excess of its capacity. No toxic or hazardous substances
shall be used or stored on the Premises except in accordance with Applicable
Environmental Law (hereinafter defined).
B. Notwithstanding the foregoing, Tenant's right to perform
electroplating operations on the Premises is conditioned upon Tenant's
compliance with the following requirements, at Tenant's sole cost and expense,
prior to commencing any electroplating operations:
1. Tenant shall perform an environmental survey of the area
in which such operations shall take place, which survey shall include soil
testing for the presence of all chemicals to be associated with said
electroplating process to the extent
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reasonably necessary to serve as a "baseline" for the environmental condition
of such area.
2. Tenant shall line the entire area in which the
electroplating shall be performed, as well as a suitable area surrounding such
area, with a liner of a type reasonably acceptable to Landlord.
3. Tenant shall install a sealed concrete or other
impermeable berm around all electroplating process tanks and shall seal the
foundation upon which Tenant installs all electroplating process tanks.
C. No toxic or hazardous waste shall be permitted or stored on the
Premises except waste that is generated incidental to Tenant's permitted use of
the Premises and is temporarily stored on the Premises in compliance with all
applicable laws and regulations, including, but not limited to the Resource
Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901-6992k, as
amended) ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601, et. seq., as amended)
("CERCLA"), the Toxic Substance Control Act (15 U.S.C. Section 2601 et. seq.,
as amended), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et. seq., as amended) or any State RCRA or CERCLA or any other
state or local statute or regulation applicable to Tenant or the Premises
(hereinafter sometimes together referred to as "Applicable Environmental Law")
pending transfer from the Premises to appropriate permanent disposal
facilities. Further, Tenant agrees to comply with the Environmental Addendum
attached hereto and made a part hereof. Any provision hereof to the contrary
notwithstanding, Tenant shall have no liability, responsibility or obligation
with respect to toxic or hazardous substances (including asbestos) on, in,
under or around the Premises except such as
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shall be released by Tenant, its agents, servants, employees or contractors;
and Tenant agrees to indemnify, defend, save and hold Landlord harmless from
and against the consequences of the violation of any Applicable Environmental
Law or any provision of this Section 2. In the event such toxic or hazardous
substances shall be found to exist on the Premises during the Term for which
Tenant is not responsible, but which Applicable Environmental Law requires to
be removed, encapsulated or otherwise neutralized or remediated (together
"Remediation"), Tenant may give written notice thereof to Landlord, who shall
promptly take the action required by Applicable Environmental Law to effect
Remediation in accordance therewith. Landlord agrees to indemnify, defend,
save and hold harmless Tenant from and against the consequences of the
violation of any Applicable Environmental Law occurring as a result of the acts
or omissions of Landlord or its directors, officers, agents, invitees,
employees or contractors or of any prior occupant of the Premises, including,
without limitation, any liability in connection with the presence of existing
cyanide in or under Building 10, the presence of asbestos containing materials
on the second floor of Building 4 and any other currently existing
contamination of the Premises or any portion thereof (except to the extent
caused by Enerpro prior to the date hereof). Provided Tenant substantially
performs all its obligations under this Lease, Tenant shall peaceably and
quietly hold and enjoy the Premises for the Term (hereinafter defined), subject
to the provisions and conditions set forth in this Lease.
3. TERM. Subject to and upon the terms and conditions set forth
in this Lease, this Lease shall be in force for an initial term ("Term") of one
hundred ninety-one (191) months commencing on May 1, 1996, and expiring on
March 31, 2012.
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4. RENT.
A. Without notice or demand, Tenant shall pay to
Landlord as rent (the "Rent") for the Premises during the Term the sums set
forth on Exhibit C attached hereto and made a part hereof; however, in the
event that the Building 7A Space is not completed or ready for occupancy on or
before October 1, 1996, then the Rent shall, until such space is completed and
ready for occupancy, be abated in the amount of $7,000.00 per month and, during
such period, Tenant shall have no responsibility for taxes, insurance or common
area maintenance charges for the Additional Building 7A Space and the related
yard area, as shown on Exhibit A, and the same shall be equitably adjusted.
All such payments shall be made to the following address:
Baker Hughes Incorporated Real Estate
P.O. Box 201741
Houston, Texas 77216-1741
B. Installments of Rent shall be due and payable on the
first day of each calendar month. If the Term ends on other than the last day
of a month, the last installment of Rent shall be prorated.
C. As additional rental, Tenant shall pay to Landlord
the sums set forth on Exhibit C as Tenant's agreed share of common area costs
incurred by Landlord during the Term of this Lease for the entire Park for
security, landscaping, common area taxes, maintenance, repair, cleaning,
insurance, utilities and/or such other costs and services incurred by Landlord
in connection with the operation of the Park, other than services specifically
requested or directed by any tenant; provided, however, that the amounts paid
by Tenant pursuant to Exhibit C are intended to be fixed and independent of
Landlord's actual expenses. If the Term begins or ends on other than the first
day of a calendar year, Tenant's obligations under this paragraph shall be
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prorated for such years. "Common areas" shall refer to all portions of the
Park that are available for use by all tenants and shall not include any
portion of the Landlord's existing management office building in the Park
(Building 25) (the "Management Office") and the parking lot dedicated
exclusively to said building. Tenant shall not be liable for any portion of
common area costs incurred for capital improvements made to the common areas
that result from a specific request by any other tenant or purchaser of any
portion of the Park, whether or not such improvement benefits all other tenants
or property owners in the Park; however, in no event shall the foregoing
entitle Tenant to any reduction in the amounts payable for "CAM" pursuant to
Exhibit C.
5. UTILITIES. Except as provided below, Tenant shall be
responsible for obtaining and paying for all utility services to and consumed
at the Premises, including, but not limited to, electricity, sewer, gas,
telephone, water, and trash pickup and disposal. Natural gas service to the
Premises shall be through the meter(s) of the respective utility supplier and
shall be billed directly to Tenant. Domestic water and wastewater service for
the Premises and, temporarily, electrical service for the Building 7 Space will
be submetered through meters provided by Landlord and Tenant shall pay Landlord
its actual cost of such services supplied to it by the City of Houston based
upon readings of such submeter by Landlord's representatives. Such payments
shall be due within thirty (30) days after receipt of Landlord's invoice and
statement of Tenant's usage for the period in question and such payments shall
constitute additional rental. Electrical service for all the Premises except,
temporarily, the Building 7 Space shall be through a meter of the utility
supplier and shall be billed directly to Tenant. Landlord agrees, as part of
the Buildout (hereinafter defined) and prior to the earlier of October 1, 1996,
or the date Tenant takes possession of the Building 7 Space, either
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to have Building 7 set up for direct metering to the electrical service
provider, or to cause Landlord's existing electrical account to be transferred
to Tenant. Tenant has inspected the Premises and has determined that the
utility services available to the Premises are adequate for Tenant's purposes;
provided, however, Landlord agrees to allow Tenant, at no cost or expense to
Landlord, to bring any additional utilities or utility services to any of the
subject Buildings comprising the Premises, provided that the same are not, in
Landlord's belief unreasonably dangerous (Landlord hereby agreeing to allow
additional electrical service), and to give Landlord's consent, in writing, as
may be required by each such utility provider. Landlord shall not be
responsible for bringing additional utilities to the Premises or, except where
caused by the gross negligence or willful misconduct of Landlord, for any
interruption in utility services. All utility connections and all wastewater
discharges made by Tenant shall be made in accordance with applicable laws and
codes. Notwithstanding the foregoing, in the event of any such interruption in
utility service, Landlord shall use reasonable efforts to cause utility service
suppliers to promptly restore such service.
6. MAINTENANCE AND REPAIRS. A. Throughout the Term, Landlord, at
its sole cost and expense shall repair, replace and maintain the roof,
foundation, exterior walls and basic structural elements of the Buildings
constituting a part of the Premises, to at least the condition as said
Buildings are now in, subject to normal wear and tear, casualty and/or
condemnation losses not required to be repaired by Landlord, and Tenant's right
to demolish Building 26. Notwithstanding the provisions of paragraph B of
Section 6, Landlord agrees to repair any damage to the Premises caused by the
failure of the roof, foundation, exterior walls and basic structural elements
of the Buildings constituting a part of the Premises.
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B. Throughout the Term, Tenant shall repair, replace, clean and
maintain all the Premises (other than that work for which Landlord is
responsible under Section 2 and paragraph A of this Section 6) to at least the
condition the same are now in, subject to normal wear and tear and the
provisions of this Lease relating to repair and restoration after a casualty
loss or condemnation. Subject to the limitation of Section 13 below, Tenant
shall repair and pay for any damage to the Premises caused by the acts or
omissions of Tenant or Tenant's employees, agents, invitees or contractors.
Except as provided in Section 2 and in paragraph A of this Section 6, Landlord
shall have no obligation to repair, replace, maintain or clean any portion of
the Premises or to repair, replace or maintain any alterations or improvements
made by Tenant to the Premises. EXCEPT AS PROVIDED IN SECTION 2, ABOVE, AND
SECTION 8 BELOW, ONCE THE TERM COMMENCES TENANT ACCEPTS THE PREMISES WITHOUT
ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ITS CONDITION,
SUITABILITY OR FITNESS FOR PURPOSE OR ITS COMPLIANCE WITH ANY APPLICABLE LAWS,
RULES OR REGULATIONS.
C. Landlord and Tenant recognize that Tenant's loading,
transportation and unloading operations in and on the Premises may damage paved
surfaces and such damage may not be considered normal wear and tear for
purposes of this Lease. Notwithstanding any contrary provisions of this Lease,
Landlord and Tenant agree that Tenant's repair obligations with respect to said
paved surfaces shall be limited to patching and reasonable surface repair of
pot holes and Tenant shall not be responsible for repairing or replacing the
paving in said areas, repairing any structural damage to such paving, or
repairing underground utilities and/or underground structures damaged
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by said operations. Further, Landlord and Tenant have agreed that Landlord has
no obligation to repair, maintain, replace or restore any paved surfaces on the
Premises during the Term, except to the extent such repairs are a part of
Landlord's obligations under Sections 2 and 8.
D. Landlord agrees to deliver the Building 7A Space to Tenant
broom clean on or before October 1, 1996. Landlord agrees to remove all
personal property from the Building 7A Space and the surrounding yard area and
to restore the surface of said yard area to a smooth, drivable surface prior to
its delivery to Tenant.
7. PROHIBITED USE. Tenant shall not use or permit its agents,
employees, contractors, customers or invitees to use all or any part of the
Premises for any purpose not authorized in Section 2 of this Lease. Tenant
shall not do or permit anything to be done in or about the Premises, or bring
or keep or permit anything to be brought to or kept therein, which is
prohibited by or which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or hereafter enacted
or promulgated or Landlord's insurance. Tenant shall not cause, maintain, or
permit any nuisance in, on or about the Premises or commit or suffer to be
committed any waste to, in or about the Premises. Landlord shall have the
right to establish and enforce reasonable regulations for the use of the
streets within the Park, including, without limitation, speed limits, speed
control barriers, traffic directional limitations and parking on streets, but
subject to the mutual agreement of Landlord and Tenant on routes for Tenant's
access, ingress and egress to and from the Premises. Such rules and
regulations shall be subject to the provisions of Section 29 below. Tenant
shall take actions reasonably necessary to cause such traffic rules and
regulations to be observed by its agents, employees, contractors, customers and
invitees. Tenant shall
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not use any of Landlord's property other than the Premises and the common
areas. Illumination of the exterior of any Building on the Premises is
permitted so long as the same complies with applicable law and does not
materially adversely affect the rights of any other tenant in the Park.
8. ALTERATIONS AND ADDITIONS. A. Landlord has agreed to provide
to Tenant a construction allowance in the amount of $1,500,000.00 (the
"Construction Allowance") to make alterations and repairs to various Buildings
and/or surface areas in and/or upon the Premises, including, without
limitation, the following:
1. Installation of one company phone line in a protected, lockable
cabinet and one pay telephone on the covered patio area of Building 16,
2. Installation of the Rail Spur across the southern boundary of the
North Tract,
3. Start up of the air handler in operational capacity for the
Building 7 Space and provide a working air system throughout the Building 7
Space, and
4. Restore the surface of the yard area of Building 7A Space to a
smooth, drivable surface, and such additional work as may be described on
Exhibit D, attached hereto and made a part hereof for all purposes (the
"Buildout"). Tenant shall not be required to spend the entire Construction
Allowance under the terms of this Lease. Prior to commencing work on the
Buildout, Landlord shall provide to Tenant complete sets of detailed
architectural, structural, mechanical, electrical and plumbing working
drawings, specifications and cost estimates prepared by Falcon Group or another
architect or engineer acceptable to Tenant for Tenant's approval, which
approval shall not be unreasonably withheld. All such plans and specifications
are incorporated herein and made a part hereof for all purposes. All work
shall be carried out by Falcon Group at
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cost, including actual "general conditions costs" plus contractor's overhead
and profit not to exceed nine percent (9%) of hard costs, save and except the
building of and/or placement of the Rail Spur in and upon the North Tract (to
the extent restricted by Union Pacific Railroad), at the sole direction and
expense of Landlord, such expense not to exceed the Construction Allowance.
Upon completion of the Buildout, Landlord shall provide Tenant with as-built
drawings for the Buildout work. In the event that the cost of the Buildout is
in excess of the Construction Allowance, Tenant shall be responsible for paying
all such excess. In the event that the cost of the Buildout is less than the
amount of the Construction Allowance, Tenant's monthly rent payable hereunder
for the period from April 1, 1997, through the end of the term shall be reduced
by that amount calculated by amortizing the difference between the actual cost
of the Buildout and the Construction Allowance over a period of fifteen (15)
years at a rate of ten percent (10%) per annum. Notwithstanding anything to
the contrary herein contained, the Construction Allowance shall be used for
completion of the Buildout in accordance with Exhibit D, and not for any
environmental remediation work that Landlord may be required to complete
pursuant to Section 2 or as otherwise specified herein, which environmental
remediation shall be completed, if required by law, at Landlord's sole cost and
expense.
B. Landlord agrees, at Landlord's sole cost and expense, to address
(by containment, encapsulation and/or sealing) and/or remediate the cyanide
contamination in and under Building 10, to remove all asbestos containing
materials (ACM) from the second floor of Building 4 all such remediation to be
to the extent required to meet any applicable Texas Natural Resources
Conservation Commission risk reduction standard applicable to the Premises and
any applicable Occupational Safety and Health
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Administration standards. Such remediation shall be completed in accordance
with the schedule attached hereto as Exhibit E and made a part hereof for all
purposes, as evidenced by an inspection report prepared by an environmental
consultant selected by Landlord, a copy of which shall be delivered to Tenant.
Within fifteen (15) calendar days following the date hereof, Landlord shall
obtain and examine soil samples taken from the North Tract for the presence of
hydrocarbons, chlorinated solvents and any other materials, if any, as Landlord
may elect. Landlord shall provide a copy of all such test reports to Tenant
promptly after receipt of the same which reports are expected to be received
within four (4) weeks of the date hereof.
C. All other modifications or additions to the Premises (other than
remediation work required of Landlord under Section 2 or as otherwise provided
herein, which shall be completed at Landlord's sole cost and expense),
including, without limitation, ancillary structures or improvements outside any
Building on the Premises, or any of Landlord's other property needed to comply
with applicable ordinances, laws, building codes, the Texas Architectural
Barriers Act or the Americans with Disabilities Act shall be the obligation of
Tenant and Tenant agrees that its indemnity in favor of Landlord as set forth
below shall extend to such obligations. Tenant may make alterations in or
additions to the Premises which do not materially or adversely affect the
structure or the mechanical, electrical, and plumbing systems, facilities and
operation of improvements to the Premises, or alter the exterior appearance of
the Buildings that are a part of the Premises or decrease the value of the
Premises. Alterations or additions to the Premises shall be at Tenant's sole
cost, risk and expense and shall be performed in accordance with applicable
laws, codes and permits, without creating any liens against the Premises.
Prior to commencing any alterations or additions to the
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Premises, other than aesthetic or minor non-structural alterations, Tenant
shall furnish Landlord construction drawings and specifications for the same.
All such work shall become a part of the Premises and will be surrendered to
Landlord at the termination of this Lease, except to the extent that such work,
improvements and modifications (i) were paid for by Tenant, (ii) constitute
fixtures or are otherwise considered removables under Texas law and (iii) may
be removed without damaging the Premises. Tenant may, at its expense, from
time to time locate its equipment, trade fixtures and other personal property
in the Premises. Upon termination of this Lease, Tenant shall remove all its
personal property and trade fixtures from the Premises and repair all damage or
injury caused by such removal.
D. Tenant shall have the right, at any time during the Term to
demolish Building 26. Any such demolition work shall be done at Tenant's sole
cost and expense and performed by a contractor reasonably acceptable to
Landlord. Tenant's contractor shall carry the insurance in the types and
amounts reasonably required by Landlord, including, without limitation,
workmen's compensation, automobile liability and public liability insurance.
All demolition debris shall be disposed of off of the Premises in accordance
with all applicable law and the demolition site shall be graded flat and left
in a safe condition.
E. Landlord and Tenant agree to execute all appropriate documents
required by Union Pacific Railroad to allow and/or cause the Rail Spur to be
constructed, all of which documents are incorporated herein and made a part
hereof for all purposes. Landlord and Tenant each agree (i) that they have
received and are familiar with the specifications for rail spurs set forth in
Union Pacific Railroad's Technical Specifications for Industrial Tract,
February, 1992, edition (the "UPR Specifications"),
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(ii) that they will follow and be bound by the terms of the UPR Specifications
in constructing the Rail Spur and (iii) that, not withstanding the foregoing,
Landlord shall not be obligated to spend any amount in excess of the
Construction Allowance in meeting the UPR Specifications.
9. TAXES. Landlord shall pay, and Tenant agrees to promptly
reimburse Landlord for, all ad valorem and similar taxes and all assessments
levied upon or applicable and properly allocable to the Premises. If the land
and the Buildings comprising the Premises are not separately valued and
assessed for tax purposes, then taxes on the Premises shall be determined by
allocating total taxes on all land in the Park (other than the Management
Office) to the Premises on the basis of land area within the Premises and by
allocating total taxes on all Landlord's improvements in the Park to the
Premises on the basis of the assessed value per square foot for like
improvements (which will not include the Management Office). With respect to
any portion of the Premises located outside of the Park, Tenant shall reimburse
Landlord for all taxes actually paid by Landlord on such land and improvements.
Tenant's tax reimbursement to Landlord under this Section shall be prorated for
the year in which the Term ends. Sums payable by Tenant under this Section
constitute additional rental. Tenant shall pay when due all taxes, license and
other fees or charges imposed on the trade fixtures, equipment and other
property of Tenant on the Premises and the business conducted by Tenant at or
from the Premises.
10. LANDLORD'S ACCESS. Landlord shall have the right, at all
reasonable times during the Term, after not less than 48 hours notice unless an
Act of Default exists or unless Landlord has reasonable grounds to believe that
at the time access is requested Tenant is not in substantial compliance with
Applicable Environmental Law
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or the Environmental Addendum attached hereto, to enter the Premises to inspect
the condition thereof, to show the Premises to prospective new tenants (during
the last two (2) months of the Term or any extension thereof), to determine if
Tenant is in substantial performance of its obligations under this Lease, to
cure any Act of Default that Landlord elects to cure, to perform Remediation
and to remove from the Premises any improvements thereto or property placed
therein or thereon in violation of this Lease. No such entry by Landlord will
constitute an assumption of any of Tenant's obligations hereunder. Landlord
shall exercise its rights of entry under this Section 10 reasonably and shall
not unreasonably interfere with Tenant's permitted uses of the Premises.
Landlord shall be accompanied by a representative of Tenant while on the
Premises and Landlord shall use its best efforts to minimize interference with
the lawful operations of Tenant while on the Premises. Any such inspection by
Landlord shall be at Landlord's sole cost and expense.
11. INSURANCE. Landlord shall maintain, during the Term of this
Lease, fire and extended coverage insurance in amounts at least the full
replacement cost of the insurable portion of the improvements constituting a
part of the Premises, against damage or loss from fire and other casualties,
subject to a $250,000 deductible per occurrence. Landlord shall be the loss
payee under such insurance. On or before the commencement of the Term Landlord
shall furnish Tenant evidence that the insurance required of Landlord by this
Section is in full force and effect. Landlord shall fairly and equitably
determine that portion of its insurance costs for buildings (excluding the
Management Office) within the Park allocable to the Premises on the basis of
gross floor area within each building. Within thirty (30) days after being
invoiced, Tenant shall reimburse Landlord for the insurance premiums allocable
to the Premises, which
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amount shall constitute additional rental. Tenant shall be responsible for
providing, at Tenant's expense, all insurance coverage necessary for the
protection against loss or damage from fire or other casualty of Tenant's
goods, furniture or other property.
12. FIRE OR OTHER CASUALTY. If the improvements constituting part
of the Premises are damaged or destroyed, in whole or in part, by fire or other
casualty during the Term, and if, after such damage or destruction, Tenant is
not able to use the portion of the Premises not damaged or destroyed to
substantially the same extent and for substantially the same purposes as Tenant
used the Premises prior thereto, either party may terminate (except as provided
to the contrary below) this Lease by written notice to the other given within
thirty (30) days after the date the notifying party had actual knowledge of the
occurrence of such damage or destruction. If such damage or destruction occurs
in the last two (2) years of the Term, or any extension thereof, and the cost
to repair the same is fairly estimated by a qualified independent insurance
adjuster or independent MAI appraiser chosen by Landlord to exceed $100,000,
or, at any time other than during the last two (2) years of the Term, or any
extension thereof, if such damage or destruction is fairly estimated by a
qualified independent insurance adjuster or independent MAI appraiser chosen by
Landlord to exceed $250,000, Landlord may terminate this Lease by written
notice to Tenant within said thirty (30) day period. Notwithstanding the
foregoing, if damage or destruction affects only one (1) building of the
Premises (other than Building 4), Tenant may notify Landlord of Tenant's
election to terminate this Lease only as to such portion of the Premises and
continue the Lease as to the balance of the Term, subject to an equitable
reduction in Rent to be determined in good faith by Landlord. If Tenant makes
such election, Landlord and Tenant shall have no further obligations with
respect to the damaged
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portion of the Premises. If no termination notice is given by Landlord or
Tenant, or if (i) within said thirty (30) day period Landlord shall notify
Tenant of its intention to repair or replace the damaged improvements
notwithstanding any election by Tenant to terminate this Lease and (ii) such
damage does not include damage to any Building that cannot be repaired within
one hundred eighty (180) days (ninety (90) days in the case of Building 4),
Landlord shall restore or replace the damaged or destroyed portion as provided
below. If either party terminates this Lease as provided above, this Lease
shall terminate on the last day of the month next following the end of the
thirty (30) day notice period referred to above. Provided such damage or
destruction is not the result of the willful acts or omissions of Tenant, its
agents, employees, contractors or invitees, the Rent and all expenses
categorized as "additional rent" under this Lease (including, without
limitation, common area maintenance charges, taxes and insurance, etc.) shall
be abated for the period and proportionately to the extent that after such
damage or destruction Tenant is not able to use the portion of the Premises
damaged or destroyed to substantially the same extent and for substantially the
same purposes as Tenant used the Premises prior thereto. If this Lease is not
terminated and the damaged or destroyed portions of the Premises are restored
or replaced, this Lease shall continue in full force and effect in accordance
with the terms hereof, except for any Rent abatement referred to above and
except that the Term shall be extended by a length of time equal to the period
beginning on the date of such damage or destruction and ending upon completion
of such restoration or replacement. Any restoration or replacement of the
Premises by Landlord as provided herein shall be made within a reasonable time,
subject to delays arising from acts of God, shortages of labor or materials,
war, or other similar or dissimilar conditions or events beyond the
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reasonable control of Landlord. Landlord's repair and restoration obligation
shall be limited to returning the damaged portion of the Premises (excluding
Tenant's property or additions) to the condition existing immediately prior to
such damage, including the expenditure on such repairs and restoration of the
amount of the deductible under Landlord's insurance covering such loss.
13. WAIVER OF CLAIMS. Anything in this Lease to the contrary
notwithstanding and to the extent permitted by applicable law, each party
hereto hereby releases and waives all claims, rights of recovery, and causes of
action that either such party or any party claiming by, through, or under such
party (including each party's insurers) by subrogation or otherwise may now or
hereafter have against the other party or any of the other party's directors,
officers, employees, or agents for any loss or damage that may occur to the
Premises, or any of the contents of any of the foregoing by reason of fire, act
of God, the elements, or any other cause, excluding willful misconduct, but
including negligence, concurrent negligence or other fault of the parties
hereto or their directors, officers, employees, or agents, that were or could
have been (but were not) insured against under the terms of standard fire and
extended coverage insurance policies. Landlord shall not be liable to Tenant
for any inconvenience or loss to Tenant in connection with any of the repair,
maintenance, damage, destruction, restoration, or replacement referred to in
this Lease, except for actual damages suffered by Tenant as a result of
Landlord's breach of any repair obligations of Landlord under this Lease.
Landlord shall not be obligated to insure any of Tenant's goods, furniture, or
otherwise be liable for any damage to or destruction of any of the same. THE
RELEASE AND WAIVER CONTAINED IN THIS SECTION
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13 ARE INTENDED TO RELEASE AND WAIVE EACH OF THE PARTIES' OWN NEGLIGENCE.
14. INDEMNITY. Except to the extent of insurance maintained by
Landlord for the benefit of the Park and paid for by Park tenants through
common area expenses and as set forth in Section 2, Landlord shall not be
liable for any damage of any kind or for any damage to property, death or
injury to persons from any cause whatsoever by reason of the use or occupancy
of the Premises by Tenant. Except to the extent of insurance maintained by
Landlord for the benefit of the Park and paid for by Park tenants through
common area expenses, Landlord shall not be liable to Tenant, and Tenant hereby
waives all claims against Landlord and its respective directors, officers,
employees, and agents for any damage or loss of any kind, for direct damages,
consequential damages, loss of profits, business interruption, or for any
damage to property, death or injury to persons from any cause whatsoever,
including, but not limited to, acts of other tenants, vandalism, loss of trade
secrets or other confidential information, any damage, loss or injury caused by
a defect in the Premises or its pipes, air conditioning, heating or plumbing
systems or by water leakage of any kind from the roof, walls, windows or other
portion of the Premises, or caused by electricity, gas, oil, fire or any other
cause in, on or about the Premises or any part thereof, unless caused solely by
the willful misconduct or negligence of Landlord. During the Term, Tenant, at
its sole cost, shall obtain and maintain with insurance companies approved by
Landlord a commercial general liability insurance policy insuring against
claims for bodily injury, personal injury, death, property damage to persons or
property occurring in or about the Premises or arising out of the use or
occupancy thereof. The liability under such insurance shall not be less than:
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<PAGE> 22
$1,000,000 - Combined single limit for bodily injury and property
damage per occurrence, and in the aggregate, and
$5,000,000 - Umbrella or excessive liability, any one occurrence,
and in the aggregate.
A certificate evidencing such insurance shall be furnished to Landlord upon the
commencement of the Term, and such certificate shall provide that the required
insurance policy may not be altered or cancelled without thirty (30) days prior
written notice to Landlord.
15. NON-WAIVER. Neither the acceptance by Landlord of any Rent or
other payment hereunder, whether or not any default hereunder by Tenant is then
known to Landlord, or any custom or practice followed in connection with this
Lease shall constitute a consent or waiver of any right or obligation by either
party. Failure by either party to complain of any action or non-action on the
part of the other or to declare the other in default, irrespective of how long
such failure may continue, shall not be deemed to be a waiver of any rights
hereunder. Time is of the essence with respect to the performance of every
obligation under this Lease in which time of performance is a factor. Except
for the execution and delivery of a written agreement expressly accepting
surrender of the Premises, no act taken or failed to be taken by either party
shall be deemed an acceptance or surrender of the Premises.
16. NOTICES. Each notice required or permitted to be given
hereunder by one party to the other shall be in writing with a statement
therein to the effect that notice is given pursuant to this Lease, and the same
shall be given and shall be deemed
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to have been delivered, served and given if either placed in the United States
mail, postage prepaid, by United States registered or certified mail, return
receipt requested, addressed to such party at the address provided for such
party herein or upon delivery by receipted messenger service. Any notices to
Landlord shall be addressed and given to Landlord as follows:
P. O. Box 4740
Houston, Texas 77210-4740
Attention: Director of Real Estate
Any notices to Tenant shall be addressed and given to Tenant as follows:
Grant Prideco, Inc.
363 N. Sam Houston Parkway E., Suite 1660
Houston, Texas 77060-2409
Attention: Vice President - Finance
with a copy to:
Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
The addresses stated above shall be effective for all notices to the respective
parties until written notice of a change in address is given pursuant to the
provisions hereof.
17. FAILURE TO PERFORM. Subject to the foregoing, if either party
fails to perform any one or more of its obligations hereunder, in addition to
the other rights hereunder, each party shall have the right, but not the
obligation, to perform all or any part of the other party's obligations. Upon
receipt of a demand therefor from the other party, the defaulting party shall
reimburse the other on demand for the cost of performing such obligations, or
if Landlord is the non-performing party, Tenant may deduct the cost of
performance from its next maturing installments of Rent.
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<PAGE> 24
18. ACT OF DEFAULT. The term "Act of Default" refers to the
occurrence of any one or more of the following: (i) failure of Tenant to pay
any Rent or other amount required to be paid under this Lease within five (5)
days after the same becomes due and payable; (ii) failure of Tenant, after
thirty (30) days' written notice of default in the substantial performance of
any of Tenant's other obligations, covenants or agreements under this Lease,
including, without limitation, rules and/or regulations adopted by Landlord and
the provisions of the Environmental Addendum attached to this Lease; provided,
however, that, if Tenant, after trying in good faith, cannot reasonably cure
such default within thirty (30) days, Tenant shall have such longer period as
is reasonably necessary to cure such default as long as Tenant is continuing to
aggressively seek to cure such default; (iii) the adjudication of Tenant to be
a bankrupt; or (iv) the filing by Tenant of a voluntary petition in bankruptcy,
reorganization, receivership, or other related or similar proceedings; (v) the
making by Tenant of a general assignment for the benefit of its creditors; (vi)
the appointment of a receiver for Tenant's interest in the Premises or under
this Lease; (vii) any other proceedings instituted by or against Tenant under
any bankruptcy or similar laws, which is not dismissed or stayed within sixty
(60) days after commencement; or (viii) the sale or attempted sale under
execution or other legal process of Tenant's interest in the Premises. Tenant
shall have the right to vacate all or any part of the Premises without being in
default hereunder.
19. RIGHTS UPON DEFAULT. If an Act of Default occurs, at any time
thereafter prior to the curing of such Act of Default and without waiving any
other rights or remedies available at law or in equity, Landlord may terminate
this Lease. If Landlord elects to terminate this Lease, it may treat the Act
of Default as an entire
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<PAGE> 25
breach of this Lease, and Tenant immediately shall become liable for damages as
allowed by law or this Lease, whichever is greater, and Tenant shall
immediately surrender the Premises to Landlord in the condition Tenant is
required to surrender the Premises on the last day of the Term. If Landlord
lawfully elects to terminate this Lease, Landlord shall use reasonable efforts
to rent the Premises or any part thereof to any person or persons for the best
price or consideration as is available. Tenant shall be liable to Landlord for
the amount, if any, by which the total Rent and all other payments herein
provided for the unexpired balance of the Term exceed the net income, if any,
after payment of all expenses of reletting, received by Landlord from such
re-renting.
20. SURRENDER. On the last day of the Term, or upon earlier
termination of this Lease, Tenant shall peaceably and quietly surrender the
Premises to Landlord, broom clean, in an order, repair and condition at least
equal to the condition when delivered to Tenant, excepting only wear and tear
resulting from normal use, approved alterations and modifications and damage by
fire or other casualty covered by the insurance carried by Landlord. If Tenant
fails to do any of the foregoing, Landlord, in addition to other remedies
available to it at law or in equity, may enter upon, reenter, possess and
repossess itself thereof, without breach of the peace, and may dispossess and
remove Tenant and all persons and property from the Premises, as allowed by
law. Such dispossession and removal of Tenant shall not constitute a waiver by
Landlord of any claims by Landlord against Tenant, or by Tenant against
Landlord.
21. HOLDING OVER. If Tenant does not surrender possession of the
Premises at the end of the Term or upon earlier termination of this Lease, upon
the lawful request of the Landlord, then, at the election of Landlord, Tenant
shall be a
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<PAGE> 26
tenant-at-sufferance of Landlord, and the Rent for each month during the period
of such holdover shall be one and one-half times the monthly installment of
Rent payable under this Lease for the month immediately preceding the
commencement of said holdover.
22. INTEREST. All amounts of money payable by Tenant to Landlord
under this Lease, if not paid when due, shall bear interest from the fifth
(5th) day after date due until paid at the lesser of ten percent (10%) per
annum or the then maximum lawful non-usurious rate.
23. ASSIGNMENT, SUBLETTING AND ENCUMBRANCE. Landlord shall have
the right to transfer or assign, in whole or in part, by operation of law or
otherwise, its rights and obligations hereunder. Without the express prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed, Tenant shall not assign or transfer this Lease, or any
interest herein or any right or privilege appurtenant hereto, or sublease all
or any portion of the Premises except only to any entity controlling,
controlled by or under common control with Tenant. Notwithstanding the
foregoing, Tenant shall have the absolute right without the consent of Landlord
to transfer Tenant's interest in this Lease in connection with the sale or
other disposition of all or substantially all of Tenant's assets or business
operations, or in connection with any merger, acquisition or consolidation with
any other entity. In addition, the sale of all or any portion of the stock of
Tenant shall not be deemed a transfer of Tenant's interest in this lease.
Tenant shall not mortgage, pledge, hypothecate or encumber its interest in this
Lease or the Premises. Tenant shall not be relieved of any of its obligations
hereunder by reason of any assignment of this Lease or any sublease of all or
part of the Premises.
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24. CONDEMNATION. If any portion of the Premises shall be taken
as a result of the power of eminent domain and any Building which is part of
the Premises is no longer suitable for Tenant's use, or if as a result of the
power of eminent domain Tenant's access to the Premises is adversely affected,
this Lease shall terminate at Tenant's election, made within thirty (30) days
after taking. If this Lease is not so terminated, the Rent shall be equitably
adjusted by Landlord to take into account such taking. Alternatively, if only
one (1) Building on the Premises (other than Building 4) is affected by
condemnation, Tenant may terminate this Lease only as to that Building by
notice to Landlord within said thirty (30) day period and continue this Lease
in effect as to the remainder of the Premises, subject to said equitable
adjustment in Rent. If unimproved portions of the Premises are so taken, or if
Tenant's access to the Premises is not adversely affected by a taking, Tenant
may not terminate this Lease by reason of such taking and the Rent shall be
equitably adjusted as provided in the immediately preceding sentence. If
Building 4 is taken by condemnation, Tenant shall have the right to terminate
this Lease in its entirety. All condemnation proceeds for the taking of
Landlord's property (including any leasehold improvements to the extent paid
for with the Construction Allowance) shall belong to Landlord. To the extent
permitted by Texas law, Tenant shall have the right to press its own
condemnation claim for loss of leasehold, loss of value of improvements (to the
extent the same are paid for by Tenant), loss of business and business
interruption.
25. LEGAL INTERPRETATION. This Lease and the rights and
obligations of the parties hereto shall be interpreted, construed, and enforced
in accordance with the laws of the State of Texas. The determination that any
provision of this Lease is invalid, void, illegal, or unenforceable shall not
affect or invalidate the other provisions
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<PAGE> 28
hereof. All obligations of either party requiring any performance after the
expiration of the Term shall survive the expiration of the Term and shall be
fully enforceable in accordance with those provisions pertaining thereto.
Section titles are for convenient reference only and shall not be used to
interpret or limit the meaning of any provision of this Lease.
26. WHOLE AGREEMENT. No oral statements or prior written material
not specifically incorporated herein shall be of any force or effect. Both
parties agree that in entering into and taking this Lease, each relies solely
upon the representations and agreements contained in this Lease and no others.
This Lease, including the Exhibits attached hereto and made a part hereof for
all purposes, constitutes the whole agreement of the parties and shall in no
way be constituted, modified or supplemented, except by a written agreement
executed by each party and delivered to the other party. All prior
conversations and writings respecting the leasing of the Premises by Tenant and
the other matters set forth herein are merged herein and are extinguished.
27. SIGNAGE. To the extent not prohibited by applicable law,
ordinance or restrictive covenant, Tenant may install in locations on the
Premises acceptable to Landlord, signs of a size and nature acceptable to
Landlord advertising Tenant's business conducted at the Premises. Each sign
shall be erected and maintained at Tenant's expense and removed at Tenant's
expense upon termination of this Lease. Each sign shall comply with all
applicable laws, ordinances and restrictive covenants and Park rules and
regulations, and Tenant will obtain, at its expense, all permits and insurance
for the same.
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28. LANDLORD'S LIENS. Landlord waives all statutory and
contractual liens which it may be entitled to assert against any of Tenant's
property as security for the payment of Rent or the performance of any other
obligations of Tenant hereunder.
29. RULES AND REGULATIONS. From time to time, Landlord may adopt
and enforce reasonable rules and regulations applicable to use of and conduct
within the common areas within the Park and reasonably regulate the activities
of all occupants of the Park and their respective agents, employees, customers,
contractors and invitees to minimize the adverse effect of such activities on
Landlord's property and/or the rights of other occupants of the Park. Unless
an emergency is deemed to exist, Landlord shall give not less than thirty (30)
days prior written notice of the adoption of any rule or regulation pursuant to
this Section and of any change to any such rule or regulation. No rule or
regulation now or hereafter adopted by Landlord for the Park shall adversely
affect in any material respect Tenant's right to use and enjoy the Premises for
the uses enumerated above. If any proposed rule or regulation or any change to
an existing rule or regulation is reasonably expected by Tenant to cause it to
expend more than $2,000 per year to comply with the same and such expense would
not have been incurred otherwise, Tenant shall so notify Landlord within the
thirty (30) day period referred to in the preceding sentence and shall specify
the type(s) and amount(s) of the direct (as opposed to indirect) expense(s) to
be so incurred. Upon receipt of such notice, Landlord and Tenant shall
negotiate in good faith the content of the rule, regulation or change, as
applicable, to modify the effect thereof in a manner reasonably calculated to
reduce Tenant's expense of compliance to not more than $2,000 per year. If
such negotiations are unsuccessful, Tenant shall be obligated to comply with
such rule, regulation or change to the extent possible subject
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to a $2,000 per year limitation on expenses of compliance. From and after the
fifth (5th) full year of the Term, the said $2,000 limit on compliance expense
shall be increased to $3,000 per year.
30. LIENS. Landlord represents that the Premises is not subject
to any lien (other than liens for ad valorem taxes not yet due and payable)
which is superior to Tenant's rights under the Lease.
31. OPTION TO EXTEND. Landlord grants Tenant the option to extend
the Term for up to two (2) additional terms of five (5) years ("Option Term")
each. To exercise an option to extend, Tenant must notify Landlord in writing
of the exercise at least ninety (90) days prior to the end of the then-current
Term. If such extension option is exercised, all references in this Lease to
Term shall thereafter refer to such original Term as extended for the
appropriate Option Term. On the first day of the Option Term the then
prevailing Rent shall be adjusted to an amount equal to ninety percent (90%) of
the then prevailing fair market rental value of the Premises based upon the
prevailing rent for similar industrial properties in Houston, Texas, taking
into consideration the size, age and location of such properties. All other
terms and conditions of this Lease shall be applicable to the Option Term,
except Tenant shall have no option to extend this Lease beyond the end of the
second Option Term.
32. RIGHT OF REFUSAL. If Landlord shall receive a bona fide and
acceptable offer of a third party to lease all or part of any space contiguous
or adjacent to the Premises or contiguous save and except for an intervening
street or common area to the Premises, in any building or buildings in which
Tenant is not the sole Tenant (the "Refusal Space"), Landlord shall give Tenant
the right of first refusal to lease such Refusal Space, at the rent and on the
terms and conditions of the offer so made. Such
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right of first refusal shall be extended by Landlord to Tenant by written
notice of the particular offer to lease received by Landlord, together with a
summary of such offer, requiring Tenant to accept the offer and to execute and
deliver to Landlord, within fifteen (15) calendar days from receipt of such
notice, an appropriate amendment to this Lease adding to the Premises such of
said Refusal Space as is described in such offer on the terms and conditions
set forth in this Lease, except as to the rent, which shall be as set forth in
such third party offer. If such Lease amendment with Tenant is not signed
within said ten (10) day period, Landlord shall have the right to accept the
third party offer free of the rights of Tenant under this paragraph as to such
portion of the Refusal Space for the term (including any renewals thereof) of
such third party lease. Any of the Refusal Space leased by Tenant pursuant to
this right of first refusal shall be added to the Premises as of the effective
date of the above referenced lease amendment and the Rent hereunder shall be
adjusted to include the rent provided to be paid in such third party offer for
such Refusal Space. Except as limited by the foregoing, Landlord is under no
obligation to offer all or any portion of the Refusal Space for lease to Tenant
or any other person. Following Landlord's receipt of a third party offer, if
Landlord neither enters into a Lease amendment as provided above, Landlord
shall have a period of six (6) months to enter into a lease with the third
party that made such offer. If a Lease is not entered into within said
six-month period, then the right of first refusal under this Section 32 shall
be reinstituted with respect to such property.
33. TERMINATION OPTION. At any time during the period beginning
on April 1, 2005, and continuing through the end of the Term, provided that no
uncured monetary or material non-monetary Act of Default then exists, Tenant
may terminate
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this Lease, by providing (i) written notice of its intent to terminate this
Lease and (ii) a certified check or wire transfer in an amount equal to the
unamortized cost of the Tenant build-out described in Section 8 hereof based
upon a fifteen (15) year amortization at a rate of ten percent (10%) per annum.
The Lease shall terminate effective upon the date stated in Tenant's written
notice of termination, which date shall be on the last day of a month and not
less than ninety (90) days following the date of said termination notice.
Tenant shall vacate the Premises upon the date specified in the termination
notice, and thereafter, neither party shall have any continuing obligations to
the other under this Lease, except to the extent specifically provided to
survive the termination of this Lease.
34. EXPENSE AUDIT. In the event that the taxes or insurance payable
by Tenant as additional rent hereunder or utility charges not billed directly
to Tenant increase by ten percent (10%) or more in any single year, Tenant,
within ninety (90) calendar days after being informed of such increase, shall
have the right, at Tenant's sole cost and expense, to audit Landlord's books
and records relating to such additional rent.
35. Prior Agreements. This Lease amends, restates and replaces in
its entirety the Original Lease, including all amendments thereto, and it is
the intention of the parties that said Original Lease, including all amendments
thereto, is superseded by this Lease and is of no further force or effect.
36. Brokers. Landlord and Tenant each acknowledge that they had no
dealings with any broker, agent or other representative in the securing of this
Lease other than Appelt, Womack, Ricks & Herder, Inc. ("Appelt, Womack") as
broker and agent representing Landlord and Grubb & Ellis as a consultant and
agent representing
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<PAGE> 33
Tenant. Landlord shall pay a brokerage fee pursuant to a separate agreement to
Appelt, Womack if as and when, but not unless or until, this Lease becomes
effective. Tenant shall pay a consulting fee to Grubb & Ellis pursuant to a
separate agreement. Each of Landlord and Tenant shall indemnify and hold the
other party harmless from and against any and all claims for fees or
commissions by any broker, agent or other representative with whom such
indemnifying party has dealt or is alleged to have dealt, other than Appelt,
Womack.
[The bottom of this page has been intentionally left blank.]
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37. Effectiveness. Notwithstanding anything to the contrary
contained herein, this Lease shall not be of any force or effect until such
time as the merger of Enerpro into Tenant or an affiliate of Tenant has
occurred.
IN WITNESS WHEREOF, this Lease is hereby executed as of the date first
above set forth.
BAKER HUGHES OILFIELD OPERATIONS INC.
By: /s/ G. S. FINLEY
-----------------------------------------------
Name: G. S. Finley
---------------------------------------------
Title: Vice President and CFO
--------------------------------------------
"Landlord"
GRANT PRIDECO, INC.
By: /s/ JAMES G. KILEY
-----------------------------------------------
James G. Kiley
Vice President
"Tenant"
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EXHIBIT A
Attach Plat of Property
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EXHIBIT B-1
PARKING SPACES
*(a) 60 parking spaces contiguous to the South side of Building 10,
*(b) 70 covered parking spaces in the southeast quadrant of Building 10,**
*(c) 20 parking spaces South of Building 20,
*(d) 10-12 parking spaces (dependent upon striping) West of Building 10,
(e) 101 parking spaces South of Building 7, and
(f) 20 parking spaces East of Building 7.
* It is agreed by the parties that Tenant shall have the use of no
less than one hundred fifty (150) parking spaces out of (a) - (d), above. If
this is not possible given the current use and configuration of the parking
areas, Landlord agrees to allow Tenant to use such additional space in Building
10 as is necessary to obtain a total of one hundred fifty (150) parking spaces.
The parking allocation set forth above shall be as shown on the diagram on
Exhibit B.
**If Landlord is not able to provide any or all of the parking in the
Southeast quadrant of Building 10 provided for above within ninety (90) days of
the date hereof because of delays in the remediation work described in Exhibit
E, Landlord will provide temporary alternate parking in the Park until such
spaces are available.
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EXHIBIT C
<TABLE>
<CAPTION>
================================================================================
PERIOD BASE RENT CAM CHARGE
- --------------------------------------------------------------------------------
<S> <C> <C>
May 1, 1996 - September 30, 1996 $24,785.00 $5,203.00
- --------------------------------------------------------------------------------
October 1, 1996 - March 31, 1997 $45,000.00 $0.00
- --------------------------------------------------------------------------------
April 1, 1997 - March 31, 2012 $52,000.00 $4,000.00
================================================================================
</TABLE>
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EXHIBIT D
Tenant Buildout
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EXHIBIT E
Landlord's Remediation Work
1. Asbestos remediation: Scheduled completion within three (3)
months.
2. Cyanide: Scheduled completion shall be within six (6) months
(subject to regulatory delays) if remediated or within four (4) months if
sealed, encapsulated or similarly treated.
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ENVIRONMENTAL ADDENDUM
CENTRAL CITY INDUSTRIAL PARK LEASE
1. Sewer service is primarily for sanitary use. No industrial process or
equipment washdown water may be discharged into the sewer without
prior written approval of Landlord, which approval shall not be
unreasonably withheld. Landlord shall approve the discharge of
outside equipment washdown in the event the water is collected,
containerized and appropriate disposal arrangements are made prior to
washdown.
2. Storage of industrial waste and hazardous substances in or at the
Premises is authorized only in those areas of the Premises so
designated on a site plan prepared by Tenant and furnished to Landlord
prior to any storage. Additionally, copies of Material Safety Data
Sheets for materials stored on site in quantities greater than 500
pounds must be filed with Landlord. This requirement is designed to
be consistent with the Texas Hazards Communication Act. Unless prior
written authorization is secured from Landlord, all outside storage of
industrial waste and hazardous substances, including without
limitation, materials in chip bins, must be covered to minimize
contamination of stormwater.
3. Outside spray painting in contravention of applicable Texas Air
Control Board (or successor agency regulations) will not be allowed.
Paint booth activities must be permitted or otherwise approved, as
necessary, (which may include a letter
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<PAGE> 41
pending permit issuance) by the Texas Air Control Board (or successor
agency) prior to any painting. To the extent not inconsistent with
the forgoing, Tenant shall be allowed to use spray paint from
pressurized commercial canisters for the purpose of marking and coding
pipe and other materials on the North Tract as well as outside of each
of the Buildings constituting a portion of the Premises, but such
activities shall not be extended to general coating and application
procedures except as more fully provided herein.
4. Landlord's facility as a whole possesses a stormwater discharge permit
and all tenants are generally listed as co-permittees. Tenants who
have unique operations which may significantly affect the quality of
the discharged storm water must file for a separate permit. Landlord
has determined that, in light of Tenant's proposed use of the
Premises, Landlord is requiring Tenant to obtain a separate permit for
the North Tract and to obtain a partial transfer of Landlord's
existing permit with respect to the remainder of the Premises.
Landlord agrees that, if Landlord is required to cosign any
application for permit, Landlord will do so at no cost to Tenant,
other than any actual expenses incurred by Landlord. Tenants who file
for an individual permit must deliver copies of the permit
application, issued permit, and Storm Water Pollution Prevention Plan
(SWPPP) to Landlord promptly. Tenants becoming co-permittees must
train their employees in the contents and principles of the facility
SWPPP and designate a representative to become a member of the
Pollution Prevention Plan Team. Any tenant required to file SARA 313
Form R reports for the designated water priority chemicals pursuant to
40 CFR 122 will
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be responsible for collecting all monitoring data for all affected
outfalls. Any tenant who files an individual permit must submit a
copy of all monitoring reports to Landlord promptly after the same are
prepared in final form. Landlord shall use its best efforts in
cooperating with Tenant in securing any permits or other approvals
from applicable agencies, and in complying with the terms and
conditions of those permits or approvals. Tenant shall not be liable
to Landlord for any improper discharges by co-permittees.
5. Petroleum (fuel and petroleum based products) storage will be allowed
only in storage vessels compatible with the materials and equipped
with secondary containment. Above ground storage tanks may be located
only on concreted areas with appropriate concrete tank foundations and
berms, as well as other designed storage details to meet the NFPA
Flammable and Combustible Liquids Code. Underground storage requires
the prior written approval of Landlord and if allowed, underground
storage tanks must meet the requirements of 40 CFR 280 and 281 as well
as applicable Texas Water Commission (or successor agency) regulations
(e.g. corrosion protection, spill and overfill prevention, leak
detection and financial responsibility). Copies of all reporting,
record keeping and Spill Prevention and Countermeasures Plans for
underground and aboveground storage tanks must be submitted to
Landlord promptly after the same are prepared in final form.
6. Outside activity must be conducted in a manner which does not
substantially affect storm water management or leave residue which
could impact the surface
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soils and/or groundwater. All proposed outside activity now intended
to be conducted on the Premises during the Term must be identified in
a preliminary disclosure prior to initial occupancy of the Premises
and approved by Landlord. Thereafter, any proposed changes in outside
activity must be disclosed to and approved in writing by Landlord at
least ten (10) days before activity commences. Landlord shall not
unreasonably withhold its approval under this paragraph 6.
7. Tenant may install an evaporator unit providing that all appropriate
state and federal environmental compliance regulations are met.
8. The provisions of this Addendum supplement the Lease to which it is
attached. In the event of any conflict between the provisions of this
Addendum and said Lease, the more stringent or the more restrictive
shall control.
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF ENERGY VENTURES, INC.
<TABLE>
<CAPTION>
State or Country
of Incorporation
Name of Subsidiary or Organization
------------------ ----------------
<S> <C>
Bak Texas .................................................. Azerbaijan
Channelview Real Property, Inc. ............................ Delaware
Dongying Shengli-Highland Company, Ltd. .................... China
Energy Ventures Cyprus Limited ............................. Cyprus
Energy Ventures Far East, Inc. ............................. Hong Kong
Energy Ventures FSC ........................................ Barbados
Enerpro De Mexico, S.A. de C.V. ............................ Mexico
Production Engemaq ......................................... Brazil
EVI Arrow, Inc. ............................................ Delaware
EVI (Barbados), Inc. ....................................... Barbados
EVI Brazil ................................................. Brazil
EVI Cayman, Ltd. ........................................... Cayman Islands
EVI, Inc. .................................................. Delaware
EVI International, Inc. .................................... Delaware
EVI Management, Inc. ....................................... Delaware
EVI Oil Tools de Venezuela, S.A. ........................... Venezuela
EVI Oil Tools, Inc. ........................................ Delaware
EVI Oil Tools Limited ...................................... Scotland
EVI Oil Tools Servicios, S.A. .............................. Venezuela
EVI Watson Packers, Inc. ................................... Delaware
Irmaos Geremia ............................................. Brazil
Grant Prideco, Inc. ........................................ Delaware
Grant Prideco Limited ...................................... Scotland
Grant Prideco S.A. de C.V. ................................. Mexico
Grant Prideco S.A. ......................................... Switzerland
Grant Tubular Finishing Ltd. ............................... Hungary
</TABLE>
<PAGE> 2
SUBSIDIARIES OF ENERGY VENTURES, INC.-(Continued)
<TABLE>
<CAPTION>
State or Country
of Incorporation
Name of Subsidiary or Organization
- ------------------ ----------------
<S> <C>
GulfMark Acquisition, Inc. ................................... Delaware
Highland/Corod, Inc. ......................................... Canada
Marservice, LTD. ............................................. Brazil
Prideco de Venezuela, S.A. ................................... Venezuela
Prideco Europe Limited........................................ Scotland
Prideco Holdings, Inc. ....................................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 10, 1997 included in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 33-31662,
33- 56384, 33-56386, 33-65790, 33-77960, 33-64349, 333-03407, 333-12367 and
333-13531.
ARTHUR ANDERSEN LLP
Houston, Texas
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 223,966
<SECURITIES> 0
<RECEIVABLES> 119,735
<ALLOWANCES> 583
<INVENTORY> 157,631
<CURRENT-ASSETS> 562,671
<PP&E> 172,724
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 852,843
<CURRENT-LIABILITIES> 233,126
<BONDS> 126,710
0
0
<COMMON> 22,965
<OTHER-SE> 454,084
<TOTAL-LIABILITY-AND-EQUITY> 852,843
<SALES> 478,020<F2>
<TOTAL-REVENUES> 478,020
<CGS> 373,509<F2>
<TOTAL-COSTS> 373,509
<OTHER-EXPENSES> 58,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,454
<INCOME-PRETAX> 31,546
<INCOME-TAX> 7,041
<INCOME-CONTINUING> 7,468
<DISCONTINUED> 66,924
<EXTRAORDINARY> 731
<CHANGES> 0
<NET-INCOME> 98,166
<EPS-PRIMARY> 4.82
<EPS-DILUTED> 4.82
<FN>
<F1>This amount is not disclosed in the financial statements and thus a value of
zero has been shown for purposes of this financial data schedule.
<F2>These line items include certain amounts related to non-tangible products
(i.e.,) services, however, since the amounts related to services are not
disclosed in the financial statements, the total revenue and CGS figures,
respectively, have been shown on these line items for purposes of this
financial data schedule.
</FN>
</TABLE>
