<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-13086
WEATHERFORD INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
Delaware 04-2515019
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 Post Oak Blvd., Suite 600, Houston, Texas 77027-3415
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 693-4000
--------------------------------------------------
(Registrant's telephone number, include area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Outstanding at August 10, 1999
- ----------------------------- ------------------------------
Common Stock, par value $1.00 97,888,168
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ............................. $ 29,952 $ 40,201
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $19,141 and $19,764, Respectively ...... 368,157 400,886
Inventories ........................................... 499,951 484,822
Other Current Assets .................................. 148,215 156,483
----------- -----------
1,046,275 1,082,392
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION ....................... 1,016,032 838,270
GOODWILL, NET ............................................... 867,710 811,034
OTHER ASSETS ................................................ 111,082 100,019
----------- -----------
$ 3,041,099 $ 2,831,715
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings ................................. $ 236,348 $ 185,729
Current Portion of Long-Term Debt ..................... 19,695 19,346
Accounts Payable ...................................... 110,894 135,728
Accrued Salaries and Benefits ......................... 45,506 44,558
Current Tax Liabilities ............................... 17,093 25,312
Other Accrued Liabilities ............................. 118,633 146,168
----------- -----------
548,169 556,841
----------- -----------
LONG-TERM DEBT .............................................. 228,457 229,663
MINORITY INTERESTS .......................................... 194,042 2,888
DEFERRED INCOME TAXES AND OTHER ............................. 165,368 145,943
5% CONVERTIBLE SUBORDINATED PREFERRED
EQUIVALENT DEBENTURES ................................. 402,500 402,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $1 Par Value, Authorized 250,000 Shares,
Issued 108,484 and 103,513, Respectively ........... 108,484 103,513
Capital in Excess of Par Value ........................ 1,137,333 1,052,899
Treasury Stock, at Cost ............................... (269,257) (193,328)
Retained Earnings ..................................... 607,703 607,185
Accumulated Other Comprehensive Loss .................. (81,700) (76,389)
----------- -----------
1,502,563 1,493,880
----------- -----------
$ 3,041,099 $ 2,831,715
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
<PAGE> 3
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Products ......................................... $ 172,498 $ 314,461 $ 377,882 $ 674,917
Services and Rentals ............................. 170,597 216,372 319,047 426,436
----------- ----------- ----------- -----------
343,095 530,833 696,929 1,101,353
COSTS AND EXPENSES:
Cost of Products ................................. 126,752 216,207 283,460 467,459
Cost of Services and Rentals ..................... 132,428 147,508 234,981 280,614
Selling, General and Administrative Attributable..
to Segments .................................... 69,755 64,472 141,935 133,155
Corporate General and Administrative ............. 7,243 7,157 13,065 15,385
Merger Costs and Other Charges ................... -- 107,647 -- 107,647
Equity in Earnings of Unconsolidated Affiliates... (436) (785) (890) (1,565)
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) ............................... 7,353 (11,373) 24,378 98,658
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest Income .................................. 606 421 2,127 1,069
Interest Expense ................................. (13,635) (13,748) (26,287) (25,759)
Other, Net ....................................... 3,276 1,889 2,422 1,193
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ........................... (2,400) (22,811) 2,640 75,161
(PROVISION) BENEFIT FOR INCOME TAXES .................. 968 8,019 (796) (28,800)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST ................ (1,432) (14,792) 1,844 46,361
MINORITY INTEREST EXPENSE, NET OT TAX ................. (588) (99) (1,326) (109)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ..................................... $ (2,020) $ (14,891) $ 518 $ 46,252
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic ............................................ $ (0.02) $ (0.15) $ 0.01 $ 0.48
=========== =========== =========== ===========
Diluted .......................................... $ (0.02) $ (0.15) $ 0.01 $ 0.47
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ............................................ 97,586 96,771 97,451 96,766
=========== =========== =========== ===========
Diluted .......................................... 97,586 96,771 98,718 97,618
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE> 4
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................. $ 518 $ 46,252
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ............................ 93,838 83,527
Non-Cash Portion of Merger Costs and Other Charges ....... -- 51,389
Minority Interest Expense, Net of Tax .................... 1,326 109
Deferred Income Tax Provision ............................ 796 7,550
Gain on Sales of Property, Plant and Equipment ........... (5,364) (10,244)
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired ................................. (36,739) (169,711)
--------- ---------
Net Cash Provided by Operating Activities .............. 54,375 8,872
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Short-Term Investment .......................... (14,591) --
Acquisition of Businesses, Net of Cash Acquired ............ (43,007) (80,598)
Capital Expenditures for Property, Plant and Equipment ..... (84,948) (95,899)
Proceeds from Sales of Property, Plant and Equipment ....... 13,727 31,400
Proceeds from Sale and Leaseback of Equipment .............. 83,503 --
--------- ---------
Net Cash Used by Investing Activities .................... (45,316) (145,097)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Short-Term Debt, Net ......................... 50,619 176,274
Repayments of Long-Term Debt, Net .......................... (4,343) (13,111)
Distribution to Minority Interest Holder ................... (65,350) --
Proceeds from Exercise of Stock Options .................... 1,329 3,681
Acquisition of Treasury Stock .............................. (1,971) (39,536)
Other, Net ................................................. 408 1,233
--------- ---------
Net Cash Provided (Used) by Financing Activities ......... (19,308) 128,541
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................ (10,249) (7,684)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 40,201 74,211
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 29,952 $ 66,527
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid .............................................. $ 25,221 $ 24,235
Income Taxes Paid, Net of Refunds .......................... 7,907 46,898
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE> 5
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income (Loss) ............................... $ (2,020) $(14,891) $ 518 $ 46,252
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustment .... 8,963 (11,181) (5,311) (14,322)
-------- -------- -------- --------
Comprehensive Income (Loss) ..................... $ 6,943 $(26,072) $ (4,793) $ 31,930
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
<PAGE> 6
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated condensed financial statements included herein
have been prepared by Weatherford International, Inc. (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission. These
financial statements reflect all adjustments which the Company considers
necessary for the fair presentation of such financial statements for the interim
periods presented. Although the Company believes that the disclosures in these
financial statements are adequate to make the interim information presented not
misleading, certain information relating to the Company's organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted in this Form 10-Q pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1998 and notes thereto
included in the Company's Annual Report on Form 10-K. The results of operations
for the six month period ended June 30, 1999 are not necessarily indicative of
the results expected for the full year.
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 1999 classifications.
2. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(in thousands)
<S> <C> <C>
Raw materials, components and supplies ......... $250,937 $212,863
Work in process ................................ 55,252 42,650
Finished goods ................................. 193,762 229,309
-------- --------
$499,951 $484,822
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
material, labor and plant overhead.
3. BUSINESS COMBINATIONS
On May 21, 1999, the Company entered into an agreement to acquire Dailey
International Inc. ("Dailey") for a total consideration of approximately $195.0
million. The consideration that would be paid for Dailey would be in the form of
the Company's common stock, $1.00 par value ("Common Stock"), and be allocated
$185.0 million for Dailey's 9 1/2% Senior Notes due 2008 ("Senior Notes"), of
which the Company currently holds approximately $64.7 million principal amount,
and $10.0 million for Dailey's common stock. Approval of the acquisition is
contingent upon confirmation by the Bankruptcy Court of the plan of
reorganization that provides for the acquisition. Confirmation of the plan of
reorganization requires approval by the holders of two-thirds in principal
amount of the Senior Notes and a majority number of such holders. The
acquisition and plan have been pre-approved by the holders of 82% of the
outstanding principal amount of Dailey Senior Notes and 50% of Dailey's common
stock.
Dailey is a worldwide provider of specialty services and technologically
advanced downhole tools to the oil and gas industry. It is the leading supplier
of drilling jars and other proprietary downhole tools and a worldwide leader in
air drilling services for underbalanced drilling applications. A disclosure
statement with respect to the proposed acquisition has been distributed to the
creditors of Dailey. A hearing on the confirmation of the plan of reorganization
under which the Company would acquire Dailey has been scheduled to August 19,
1999. Assuming confirmation of the plan at that hearing, the acquisition is
scheduled to be closed on August 31, 1999.
In February 1999, the Company completed a joint venture with GE Capital
Corporation ("GE Capital") in which the Company's compression services
operations were combined with GE Capital's Global Compression Services
operations. The joint venture is known as Weatherford Global Compression
Services. The Company owns 64% of the joint venture and GE Capital owns 36%. The
Company has the right to acquire GE Capital's interest at anytime at a price
equal to a third party market-determined value that is not less than book value.
GE Capital also has the right to require the Company to purchase its interest at
anytime after February 2001 at a market-determined third party
6
<PAGE> 7
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
valuation as well as request a public offering of its interest after that date,
if the Company has not purchased its interest by that time.
On February 8, 1999, the Company completed the acquisition of Christiana
Companies, Inc. ("Christiana") for approximately 4.4 million shares of the
Company's Common Stock and $20.6 million cash. In the acquisition, the Company
acquired through Christiana (1) 4.4 million shares of the Company's Common
Stock, (2) cash, after distribution to the Christiana shareholders, equal to the
amount of Christiana's outstanding tax and other liabilities and (3) a one-third
interest in Total Logistic Control, a refrigerated warehouse, trucking and
logistics company. The 4.4 million shares of Common Stock acquired are
classified as Treasury Stock, at cost on the accompanying Consolidated Condensed
Balance Sheet. Because the number of shares of Common Stock issued in the
Christiana acquisition approximated the number of shares of Common Stock held by
Christiana prior to the acquisition, the Christiana acquisition had no material
effect on the outstanding number of shares of Common Stock or net equity of the
Company.
The Company has also effected various other acquisitions during the six
months ended June 30, 1999 for total consideration of approximately $60.1
million, of which $46.0 million was paid in cash and $14.1 million was paid in
the form of shares of Common Stock.
The acquisitions discussed above, were accounted for using the purchase
method of accounting. Results of operations for acquisitions accounted for as
purchases are included in the accompanying consolidated condensed financial
statements since the date of acquisition. Completed acquisitions are not
material individually or in the aggregate with same year acquisitions.
Therefore, pro forma information is not provided.
4. 1998 SPECIAL CHARGES
In the second quarter of 1998, the Company incurred $120.0 million in
merger and other charges relating to the merger between EVI and Weatherford
Enterra and a reorganization and rationalization of the Company's businesses in
light of the initial downturn in the industry. These charges had been fully
realized as of December 31, 1998.
The Company incurred a $75.0 million charge in the fourth quarter of 1998
related to the decline in our markets. As of December 31, 1998 $51.5 million of
these charges had been utilized. The remaining $23.5 million of these charges
were fully utilized in the first half of 1999 as follows:
o The severance and related costs included in the fourth quarter charges
were $7.6 million for 1,000 employees to be terminated in the first half
of 1999, in accordance with the announced plan. These employees had all
been terminated by June 30, 1999.
o The facility and plant closures of $12.8 million were accrued in the
fourth quarter of 1998 for the consolidation and closure of 100 service,
manufacturing and administrative facilities in response to declining
market conditions in the fourth quarter. These facilities had all been
closed as of June 30, 1999.
o The corporate related expenses of $3.1 million recorded in the fourth
quarter were primarily for the consolidation of technology centers, the
relocation of corporate offices and the related lease obligations to align
the corporate cost structure in light of current conditions.
o In the second quarter of 1999, $3.1 million, $6.6 million and $1.7 million
were utilized by the Completion and Oilfield Services Division, the
Artificial Lift Systems Division, and Corporate, respectively.
o In the first half of 1999, $7.7 million of the 1998 fourth quarter charge
was utilized by the Completion and Oilfield Services Division, $12.1
million by the Artificial Lift Systems Division and $3.7 million by
Corporate.
5. SHORT-TERM DEBT
The Company's unsecured credit agreement provides for borrowings of up to
an aggregate of $250.0 million, consisting of a $200.0 million U.S. credit
facility and a $50.0 million Canadian credit facility. Amounts outstanding under
the facility accrue interest at the U.S. prime rate or a variable rate based on
LIBOR. A commitment fee
7
<PAGE> 8
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ranging from 0.09% to 0.20% per annum, depending on the senior unsecured credit
ratings assigned by Standard and Poor's and Moody's Investor Service to the
Company, is payable quarterly on the unused portion of the facility. The
facility contains customary affirmative and negative covenants, including a
maximum debt to capitalization ratio, a minimum interest coverage ratio, a
limitation on liens, and a limitation on asset dispositions. In addition, we
currently have $130.0 million drawn on other uncommitted lines which are due on
demand.
6. SALE AND LEASEBACK OF EQUIPMENT
The Company's Compression Services Division entered into a sale and
leaseback arrangement in December 1998 where it was provided with the right to
sell up to $200.0 million of compression units and lease the assets back over a
five year period under an operating lease. As of December 31, 1998, the
Company's Compression Services Division had sold compressors under this
arrangement, having an appraised value of $119.6 million, and received cash of
$100.0 million and a receivable of $19.6 million. The obligations under this
arrangement were assumed by the joint venture with GE Capital. As of June 30,
1999, the joint venture had a receivable of $4.6 million under this arrangement.
In the second quarter of 1999, the Compression Services Division sold
additional compressors under this arrangement having an appraised value of
approximately $68.5 million. Subsequent to the sale, the joint venture received
approximately $68.5 million in cash, of which $65.4 million was distributed to
GE Capital under terms of the joint venture agreement. The sale resulted in an
additional pre-tax deferred gain of approximately $22.3 million, classified as
Deferred Income Taxes and Other on the accompanying Consolidated Condensed
Balance Sheets, which may be deferred until the end of the lease.
The following table provides future minimum lease payments (in thousands)
under the aforementioned lease as of June 30, 1999:
<TABLE>
<S> <C>
Remainder of 1999....................................................... $ 5,681
2000 ................................................................... 11,361
2001 ................................................................... 11,361
2002 ................................................................... 11,361
2003 ................................................................... 10,737
2004 ................................................................... 1,516
-------------
$ 52,017
=============
</TABLE>
7. CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT
The functional currency for certain of the Company's international
operations is the applicable local currency. 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 accumulated other comprehensive loss, a separate
component of stockholders' equity. Currency transaction gains and losses are
reflected in income for the period.
The net decline in the cumulative foreign currency translation adjustment
from December 31, 1998 to June 30, 1999 was $5.3 million. This decline primarily
reflects the financial impact of the devaluation of Latin American currencies,
partially offset by the strengthening Canadian dollar, as compared to the U.S.
dollar.
8. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year adjusted
for the dilutive effect of the incremental shares that would have been
outstanding under the Company's stock option and restricted stock plans. The
effect of stock options and restricted stock are not included in the diluted
computation for periods in which a loss occurs because to do so would have been
anti-dilutive. The effect of the Company's 5% Convertible Subordinated Preferred
Equivalent Debentures due 2027 (the "Debentures") on diluted earnings per share
is anti-dilutive and thus is not included in the calculation.
8
<PAGE> 9
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following reconciles basic and diluted weighted average shares
outstanding:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding ......................... 97,586 96,771 97,451 96,766
Dilutive effect of stock option and restricted stock plans......... -- -- 1,267 852
------ ------ ------ ------
Dilutive weighted average shares outstanding ...................... 97,586 96,771 98,718 97,618
====== ====== ====== ======
</TABLE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes investing activities relating to acquisitions and
the GE joint venture for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------------
1999 1998
------------- -------------
(in thousands)
<S> <C> <C>
Fair value of assets, net of cash acquired........................... $ 279,531 $ 69,383
Goodwill............................................................. 61,399 98,977
Total liabilities.................................................... (283,831) (56,867)
Common stock issued.................................................. (14,092) (30,895)
------------- -------------
Cash consideration, net of cash acquired............................. $ 43,007 $ 80,598
============= =============
</TABLE>
10. SEGMENT INFORMATION
Business Segments
The Company is a diversified international energy service and manufacturing
company that provides a variety of services and equipment to the exploration,
production and transmission sectors of the oil and gas industry. The Company
operates in virtually every oil and gas exploration and production region in the
world. The Company currently divides its business segments into four separate
groups: completion and oilfield services, artificial lift systems, compression
services, and drilling products.
The Company's completion and oilfield services segment provides downhole
services, well installation services, well completion systems, equipment rental
and underbalanced drilling products and services.
The Company's artificial lift systems segment designs, manufactures, sells
and services a complete line of artificial lift equipment, including progressing
cavity pumps, reciprocating rod lift equipment, gas lift equipment and hydraulic
lift equipment. The Company has a long-term alliance with Electrical Submersible
Pumps, Inc. to supply a line of electrical submersible pumps and to distribute
the line in selected markets.
The Company's compression services segment manufactures, packages, rents
and sells parts and services for gas compressor units over a broad horsepower
range.
On July 21, 1999, the Company announced a proposed spin-off of the drilling
products segment to the Company's shareholders. The Company currently expects
that the spin-off would be effected by year end, subject to the receipt of a
favorable private letter ruling from the Internal Revenue Service regarding the
tax free nature of the spin-off. See Note 12.
The Company's drilling products segment manufactures drill stem products,
premium engineered connections, premium tubulars and marine and subsea
connectors and related accessories.
9
<PAGE> 10
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Financial information by industry segment for each of the three and six
months ended June 30, 1999 and 1998, is summarized below.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers
Completion and Oilfield Services ........... $ 160,411 $ 218,544 $ 325,698 $ 448,306
Artificial Lift Systems .................... 62,227 90,427 119,698 197,556
Compression Services ....................... 55,950 47,164 98,533 90,165
Drilling Products .......................... 64,507 174,698 153,000 365,326
----------- ----------- ----------- -----------
$ 343,095 $ 530,833 $ 696,929 $ 1,101,353
=========== =========== =========== ===========
EBITDA, before merger costs and other charges (a)
Completion and Oilfield Services ........... $ 35,544 $ 77,228 $ 78,857 $ 156,801
Artificial Lift Systems .................... 7,506 14,264 11,497 31,150
Compression Services ....................... 13,822 10,638 26,406 21,403
Drilling Products .......................... 4,797 54,578 13,649 106,889
Corporate .................................. (6,734) (6,494) (12,193) (14,058)
----------- ----------- ----------- -----------
$ 54,935 $ 150,214 $ 118,216 $ 302,185
=========== =========== =========== ===========
Merger costs and other charges (b)
Completion and Oilfield Services ........... $ -- $ 26,805 $ -- $ 26,805
Artificial Lift Systems .................... -- 18,570 -- 18,570
Drilling Products .......................... -- 6,950 -- 6,950
Corporate .................................. -- 67,675 -- 67,675
----------- ----------- ----------- -----------
$ -- $ 120,000 $ -- $ 120,000
=========== =========== =========== ===========
Depreciation and amortization
Completion and Oilfield Services ........... $ 25,792 $ 22,422 $ 52,075 $ 45,044
Artificial Lift Systems .................... 4,835 4,758 9,670 9,688
Compression Services ....................... 9,166 5,883 16,734 11,975
Drilling Products .......................... 7,280 7,861 14,487 15,493
Corporate .................................. 509 663 872 1,327
----------- ----------- ----------- -----------
$ 47,582 $ 41,587 $ 93,838 $ 83,527
=========== =========== =========== ===========
Operating income (loss)
Completion and Oilfield Services ........... $ 9,752 $ 28,001 $ 26,782 $ 84,952
Artificial Lift Systems .................... 2,671 (9,064) 1,827 2,892
Compression Services ....................... 4,656 4,755 9,672 9,428
Drilling Products .......................... (2,483) 39,767 (838) 84,446
Corporate .................................. (7,243) (74,832) (13,065) (83,060)
----------- ----------- ----------- -----------
$ 7,353 $ (11,373) $ 24,378 $ 98,658
=========== =========== =========== ===========
</TABLE>
(a) The Company evaluates performance and allocates resources based on EBITDA,
which is calculated as operating income adding back depreciation and
amortization, excluding the impact of merger costs and other charges.
Calculations of EBITDA should not be viewed as a substitute to calculations
under GAAP, in particular operating income and net income. In addition,
EBITDA calculations by one company may not be comparable to another
company.
(b) Includes inventory write-downs of $12.4 million which have been classified
as Cost of Products on the accompanying Consolidated Condensed Statements
of Income.
As of June 30, 1999, total assets were $1,021.8 million for Completion and
Oilfield Services, $584.4 million for Artificial Lift Systems, $647.0 million
for Compression Services, $686.0 million for Drilling Products, and $101.9
million for Corporate.
10
<PAGE> 11
WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
As of December 31, 1998, total assets were $1,007.4 million for Completion
and Oilfield Services, $592.4 million for Artificial Lift Systems, $388.2
million for Compression Services, $764.8 million for Drilling Products, and
$78.9 million for Corporate.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS No. 133 was to be effective for years
beginning after June 15, 1999. However, in June 1999 the FASB issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB No. 133, amending the effective date of SFAS No. 133
to years beginning after June 15, 2000. We are currently evaluating the impact
of SFAS No. 133 on our consolidated financial statements.
12. SUBSEQUENT EVENTS
PROPOSED SPIN-OFF OF DRILLING PRODUCTS DIVISION
On July 21, 1999, the Company announced that it is proposing to spin-off
its Grant Prideco Drilling Products business to the Company's shareholders. The
spin-off of the drilling products business is contingent upon a number of
events, including the receipt of a favorable private letter ruling from the
Internal Revenue Service regarding the tax free nature of the spin-off. A
request for that ruling was filed with Internal Revenue Service in July 1999.
The Company is currently reviewing the final structure of the spin-off and
there can be no assurance as to the final terms of the spin-off or as to its
timing. In particular, the Company will not pursue the spin-off unless and until
it has received a favorable private letter ruling from the Internal Revenue
Service. The final structure of the spin-off has not been determined and will be
announced at the time of final approval by the Company's Board of Directors. The
Company, however, currently expects that one share of Grant Prideco will be
distributed for every two shares of the Company's Common Stock held by its
shareholders. The Company also contemplates that Grant Prideco will raise
approximately $200.0 million in indebtedness at the time of the spin-off, of
which approximately $100.0 million will be used to repay intercompany
indebtedness owed to the Company.
SALE AND LEASEBACK OF EQUIPMENT
The Company's Compression Services Division entered into a second sale and
leaseback arrangement in July 1999 where it was provided with the right to sell
up to $150.0 million of compression units during the next eighteen months and
lease them back over a five year period under an operating lease.
ACQUISITION
In July 1999, the Company acquired a 50.01% interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co KG ("VA") for approximately $30.0 million, of which
approximately $7.5 million was paid in cash and the remainder is to be paid over
a period of 7 years. VA produces high quality seamless tubulars in Austria,
including green tube used by Grant Prideco in its drill pipe operations.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion of our results of operations for the three and
six months ended June 30, 1999, and June 30, 1998, and our current financial
position. This discussion should be read in conjunction with our financial
statements that are included with this report as well as our Annual Report on
Form 10-K for the year ended December 31, 1998, previously filed with the
Securities and Exchange Commission.
Our businesses are concentrated in the oilfield service and equipment
industry and are conducted through four separate segments: Completion and
Oilfield Services, Artificial Lift Systems, Compression Services and Drilling
Products. Our discussion of our results and financial condition includes various
forward-looking statements about our markets, the demand for our products and
services and our future results. These statements are based on certain
assumptions that we consider to be reasonable. For information about these
assumptions, you should refer to our Section entitled "Forward-Looking
Statements."
MARKET TRENDS AND OUTLOOK
The market for oilfield products and services remained depressed during the
second quarter of 1999. The domestic and international rig count continued to be
at or near historical low levels and despite significant increases in oil prices
in the second quarter, drilling and production activity has remained low. The
increase in oil prices has followed an agreement of the Organization of
Petroleum Exporting Countries to limit oil production. Such agreement has
generally been maintained. The increase in oil prices has resulted in a slight
increase in the rig count and drilling activity since the beginning of the year.
However, overall activity in our business has remained depressed and we do not
currently expect market conditions to materially improve until later this year
or early 2000. Further, improvements in our operations will be dependent upon
the segment of the industry involved. We expect that our artificial lift group
will be the first to benefit from the improvement as production projects are
reinstated in light of the higher prices of oil, in particular heavy oil in
Canada. Our completion and downhole service group is also expected to begin to
benefit from the improved activity, in particular in North America. This pickup,
however, is expected to be gradual and we expect that results in this group will
be affected by pricing pressures through at least the remainder of the year. Our
compression business, which is less effected by day-to-day market factors, is
not expected to materially improve and, in fact, our domestic compression
business is seeing pricing pressure due to excess inventory in the market. Our
drilling products group, which is heavily dependent on drilling activity and is
impacted by inventory levels of drill pipe on idle rigs, is not expected to
realize any material improvement in results until sometime in the year 2000.
Looking forward into the remainder of this year, the level of market
improvements for our businesses will be heavily dependent on whether oil and
natural gas prices can remain at or about their present levels and the impact
recent market improvements may have on customer spending. The industry
improvements will also affect our divisions at different times. Although we
believe that the activity levels in our industry are at or near their bottom,
the timing and extent of a recovery is difficult to predict and will be
dependent on many external factors.
The following chart sets forth certain historical statistics that are
reflective of the market conditions in which we operate:
<TABLE>
<CAPTION>
HENRY HUB NORTH AMERICAN INTERNATIONAL
WTI OIL (1) GAS (2) RIG COUNT (3) RIG COUNT (3)
----------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
June 1999 ............. $ 17.89 $ 2.394 724 597
December 1998 ......... 11.28 1.945 895 671
June 1998 ............. 13.66 2.469 1,079 794
</TABLE>
(1) Price per barrel as of June 30- Source: Applied Reasoning, Inc.
(2) Price per MM/BTU as of June 30 - Source: Oil World
(3) Average rig count for June - Source: Baker Hughes Rig Count
The reduction in drilling and production activity impacted our businesses
through lower revenues, pricing pressure and reduced margins. Reflected in our
results are the following trends:
o North American activity remained depressed as many of our customers
delayed spending due to uncertainties on oil prices and the impact of
consolidation efforts. North American revenues for the second quarter
improved slightly as compared to the first quarter.
o International revenues continued to decline as the average rig count
decreased to approximately 600 from 800 as of June 30, 1998.
o Excess product and service capacity has placed pressure on prices and
margins as competitors have sought to maintain or gain market share
through price reductions. We estimate that pricing declined between 10%
and 15% during the first half of 1999, depending on the product or
service.
12
<PAGE> 13
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
The following charts contain selected financial data comparing our results
for 1999 and 1998:
COMPARATIVE FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
--------- ---------
(in thousands, except
percentages)
<S> <C> <C>
Revenues ............................. $ 343,095 $ 530,833
Gross Profit ......................... 83,915 167,118(a)
Gross Profit % ....................... 24.5% 31.5%
Selling, General and Administrative
Attributable to Segments ........... $ 69,755 $ 64,472
Corporate General and Administrative.. 7,243 7,157
Operating Income (Loss) .............. 7,353 (11,373)(a)
Net Loss ............................. (2,020) (14,891)(a)
EBITDA (b) ........................... 54,935 30,214(a)
</TABLE>
(a) Includes $120.0 million, $78.0 million net of tax, of merger and other
charges relating to the merger between EVI and Weatherford Enterra and a
reorganization and rationalization of our business in light of industry
conditions. Of these charges, $12.4 million related to the write-off of
inventory has been classified as cost of products.
(b) EBITDA is calculated by taking operating income and adding back
depreciation and amortization. We have included an EBITDA calculation
here because when we look at the performance of our businesses, we give
consideration to their EBITDA. Calculations of EBITDA should not be
viewed as a substitute to calculations under GAAP, in particular cash
flows from operations, operating income and net income. In addition,
EBITDA calculations by one company may not be comparable to another
company.
SALES BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1999 1998
---- ----
REGION: (a)
<S> <C> <C>
U.S. ......................... 57% 63%
Canada ....................... 13% 12%
Europe ....................... 10% 8%
Latin America ................ 6% 5%
Africa ....................... 6% 4%
Middle East .................. 3% 2%
Other ........................ 5% 6%
--- ---
Total .................... 100% 100%
=== ===
</TABLE>
(a) Sales are based on the region of origination.
13
<PAGE> 14
Our results for the three months ended June 30, 1999 reflected the adverse
market conditions in which we are operating. These conditions had the following
effects on our results:
o Revenues for the three months ended June 30, 1999 declined 35.4% compared
to the same period in 1998.
o Our second quarter 1999 revenues in North America were $152.4 million
less than they were in the second quarter of 1998.
o Operating income declined $101.3 million in the second quarter of 1999,
as compared to the second quarter of 1998 operating income of $108.6
million, excluding the effect of the one-time charge of $120.0 million
relating to the merger of EVI and Weatherford Enterra.
o We have continued our cost reduction efforts to reduce operating costs in
response to a continued decline in market conditions.
o Our corporate expenses of $7.2 million for the second quarter of 1999
were comparable to the second quarter of 1998.
o Our effective tax rate for the second quarter of 1999 was 40.3% due to
the mix between foreign and U.S. tax attributes for 1999.
SEGMENT RESULTS
COMPLETION AND OILFIELD SERVICES
Our Completion and Oilfield Services Division experienced reductions in
revenue, operating income and margins as the rig count declined and the demand
for its products and services dropped. This division's North American completion
and downhole services operations were the most adversely affected by the
downturn. We believe that the U.S. and Canadian revenue declines in this
division have generally bottomed out. In this regard, we currently expect that
revenues for this division should be generally flat or up slightly in the third
quarter from the second quarter of 1999. We are continuing to feel pricing
pressures that will affect margins absent a material improvement in revenue
growth. In most of our international markets, we are seeing reduced volumes and
continue to experience pricing pressures due to soft demand.
The following chart sets forth additional data regarding the results of our
Completion and Oilfield Services Division for the second quarters of 1999 and
1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $160,411 $218,544
Gross Profit ................................ 39,783 76,993(a)
Gross Profit % .............................. 24.8% 35.2%
Selling, General and Administrative ......... $ 30,467 $ 23,502
Operating Income ............................ 9,752 28,001(a)
EBITDA ...................................... 35,544 50,423(a)
</TABLE>
(a) Includes merger and other charges of $26.8 million, which consists of
$3.2 million for facility closures, $23.1 million for write-down of
assets and $0.5 million for write-off of inventory. The write-off of
inventory has been classified as cost of products.
Material items affecting the results of our Completion and Oilfield
Services Division for the second quarter of 1999 compared to 1998 were:
o Our North American revenues for the second quarter of 1999 declined by
36.6% as compared to 1998 due to an average rig count reduction of 40.3%.
Contributing to the decline in North American revenues was a 43.8%
decline in Canadian revenues as compared to the second quarter of 1998
due to a Canadian average rig count reduction of 42.1% and the longer
than usual spring break up. Our international revenues, excluding Canada,
decreased by 16.6% from the second quarter of 1998 to $91.0 million. The
most significant revenue decrease occurred in the Latin American market
which declined 27.5% compared to the second quarter of 1998.
o Gross profit percentage declined in the second quarter of 1999 by 10.4%
as compared to the second quarter of 1998, due to revenue and pricing
declines and factory underutilization.
14
<PAGE> 15
o Selling, general and administrative expenses increased as a percentage of
revenues from 10.8% in the second quarter of 1998 to 19.0% in the second
quarter of 1999. The increase primarily reflects a lower revenue base and
start up costs for new product lines and businesses.
o Operating income declined $45.1 million in the second quarter of 1999
from the second quarter of 1998, before the effect of the merger and
other charges, primarily due to reduced revenues associated with industry
conditions and resulting operational inefficiencies attributable to lower
operating levels.
ARTIFICIAL LIFT SYSTEMS
Our Artificial Lift Systems Division's results for the second quarter of
1999 compared to the second quarter of 1998, were down significantly due to a
substantial reduction in demand for our artificial lift products in line with
the activity decline in the industry. This decline was most pronounced in the
United States where our second quarter 1998 U.S. sales represented approximately
55.9% of the division's total revenue.
Operating results from our Artificial Lift Systems Division are heavily
dependent on oil production activity. With the recent increases in oil prices,
the significant revenue declines that were experienced throughout 1998 have
gradually begun to reverse, as evidenced by an 8.3% increase in revenues over
the first quarter of 1999. We expect the results from this division to continue
to improve during the year, in particular from sales outside the United States.
The level of improvement in this division will depend on our customer's reaction
to higher oil prices and the strength of the recovery.
The following chart sets forth additional data regarding the results of our
Artificial Lift Systems Division for the second quarters of 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $ 62,227 $ 90,427
Gross Profit ................................ 23,757 24,693(a)
Gross Profit % .............................. 38.2% 27.3%
Selling, General and Administrative ......... $ 21,086 $ 24,510
Operating Income (Loss) ..................... 2,671 (9,064)(a)
EBITDA ...................................... 7,506 (4,306)(a)
</TABLE>
(a) Includes merger and other charges of $18.6 million, which consists of
$7.7 million for facility closures, $9.3 million for the write-off of
inventory and $1.6 million related to the write-down of assets. The
write-off of inventory has been classified as costs of products.
Material items affecting the results of our Artificial Lift Systems
Division as reflected above for the second quarter of 1999 compared to the
second quarter of 1998 were:
o The second quarter of 1999 experienced a decline in revenues of 31.2%
compared to the second quarter of 1998 due to the industry downturn.
United States revenues declined 43.4% due to the average rig count
reduction of 40.0%. Canadian revenues were down only 4.8% as the
Canadian heavy oil market had significantly declined by the second
quarter of 1998.
o Gross profit as a percentage of revenues increased from 37.6% in the
second quarter of 1998, excluding the effect of the merger and other
charges, to 38.2% in the second quarter of 1999, due to cost reductions
implemented.
o Selling, general and administrative expenses declined due to cost
reduction efforts. Selling, general and administrative expenses
increased as a percentage of revenues from 27.1% in the second quarter
of 1998 to 33.9% in the second quarter of 1999. The increase was
primarily a result of a lower revenue base.
o The change in operating income to $2.7 million for the second quarter
of 1999 as compared to second quarter 1998 operating income of
$9.5 million, before the effect of the merger and other charge, is a
result of the sharp decline in revenues. Pricing was only marginally
down during the period due to the nature of the business and our market
position. We are, however, continuing to see pricing pressures in some
markets due to the consolidation of our customers and the downturn
in the market.
15
<PAGE> 16
COMPRESSION SERVICES
Our Compression Services Division's results for the second quarter of 1999
reflected increased revenues and improved cash flows as compared to the second
quarter of 1998. Contributing to the increased revenues in the second quarter
of 1999 as compared to the first quarter of 1999 was the additional month
of revenues from the joint venture entered into with GE Capital in February
1999. However, demand declined in the second quarter from the first quarter of
1999 levels for compressor unit rentals. Compressor unit sales and services
revenues were strong in the second quarter of 1999.
The Compression Services Division expanded its international presence
through the award of a seven year contract by YPF S.A. in Argentina. The
division will provide total compression services to YPF, including ownership of
the compression equipment, maintenance and daily service operations, with
estimated revenues over the seven years of $95.0 million. This project is
expected to be fully operational in the third quarter of 1999.
The following chart sets forth additional data regarding the results of our
Compression Services Division for 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $ 55,950 $ 47,164
Gross Profit ................................ 11,900 9,970
Gross Profit % .............................. 21.3% 21.1%
Selling, General and Administrative ......... $ 7,244 $ 5,215
Operating Income ............................ 4,656 4,755
EBITDA ...................................... 13,822 10,638
Minority Interest Expense, Net of Taxes ..... (915) --
</TABLE>
Material items affecting the results of our Compression Services Division
for 1999 compared to 1998 were:
o The increase in revenues primarily reflects the impact of the joint
venture and higher equipment sales.
o Gross profit as a percentage of revenues increased slightly due to
product sales mix.
o The increase in selling, general and administrative expenses for the
second quarter of 1999 compared to 1998 primarily reflects additional
staff associated with our joint venture.
o Pricing pressures for compressor rentals occurred during the quarter in
the United States due to excess compressor equipment in the market.
DRILLING PRODUCTS
Our Drilling Products Division continued to be severely impacted by the
decline in worldwide drilling activity in 1998 and 1999. Revenues for the second
quarter of 1999 were down by more than 60% from the relatively high levels
recorded in the second quarter of 1998. This division's backlog of drill stem
products is being replaced at diminishing rates. At June 30, 1999, the backlog
in drill stem products was $35.9 million compared to the backlog of $89.9
million at December 31, 1998.
The outlook for this division will be dependent on the timing of a
worldwide drilling recovery. Improvements in the demand for drill stem products
will likely lag any recovery in drilling activity from three to six months due
to existing customer inventory levels. We expect drill stem revenues to remain
weak in the third quarter of 1999. Pending a recovery in drilling activity,
sales of drill stem products will be primarily limited to specialty products.
In July 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co KG in Austria. Voest-Alpine owns a tubular mill in
Austria with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the U.S. The impact
of this investment and supply contract should benefit our Drilling Products
Division as the market recovers by providing us with a reliable source of raw
materials from a controlled affiliate, significantly reduced cost of raw
material and a 50% profit participation in Voest-Alpine's business.
16
<PAGE> 17
As more fully described below, we recently announced the potential spin-off
of our Drilling Products Division. The spin-off would be effected in order to
allow this division and our other divisions to focus on their own operations and
grow in their core markets. The spin-off would also allow our drilling products
business to fund acquisitions and expansions using its own capital.
The following chart sets forth additional data regarding the results of our
Drilling Products Division for the second quarter of 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $ 64,507 $174,698
Gross Profit ................................ 8,475 55,462(a)
Gross Profit % .............................. 13.1% 31.7%
Selling, General and Administrative ......... $ 10,958 $ 11,245
Operating Income (Loss) ..................... (2,483) 39,767(a)
EBITDA ...................................... 4,797 47,628(a)
</TABLE>
(a) Includes merger and other charges of $6.9 million, including $2.5
million for write-off of inventory and $4.4 million for facility
closures. The write-off of inventory has been classified as costs of
products.
Material items affecting the results of our Drilling Products Division for
the second quarter of 1999 and 1998 were:
o The decrease in revenues during the second quarter of 1999 reflects the
overall decline in drilling activity and the consumption of excess drill
pipe from idle rigs.
o Sales of premium tubular products and connections were $32.2 million for
the second quarter of 1999 compared to $56.0 million for second quarter
of 1998.
o The decline in premium tubular revenues results from a decrease in demand
due to prevailing market conditions as distributors' inventories continue
to be reduced and consolidated.
o Gross profit, gross profit percentages and operating income declined due
to lower sales volume and high fixed costs associated with the
manufacturing operations. These costs were somewhat reduced by internal
purchases of drill pipe for our rental operations in anticipation of
market improvements.
o The selling, general and administrative costs for our Drilling Products
Division declined slightly from 1998 due to cost reductions. We are also
in the process of implementing a consolidation of certain of our
manufacturing operations for this division, which is expected to further
reduce the selling, general and administrative expenses of this division.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
The following charts contain selected financial data comparing our results
for 1999 and 1998:
COMPARATIVE FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 1998
---------- ----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues ..................................... $ 696,929 $1,101,353
Gross Profit ................................. 178,488 353,280(a)
Gross Profit % ............................... 25.6% 32.1%
Selling, General and Administrative
Attributable to Segments ................... $ 141,935 $ 133,155
Corporate General and Administrative ......... 13,065 15,385
Operating Income ............................. 24,378 98,658(a)
Net Income ................................... 518 46,252(a)
EBITDA (b) ................................... 118,216 182,185(a)
</TABLE>
17
<PAGE> 18
(a) Includes $120.0 million, $78.0 million net of tax, of merger and other
charges relating to the merger between EVI and Weatherford Enterra and a
reorganization and rationalization of our business in light of industry
conditions. Of these charges, $12.4 million related to the write-off of
inventory has been classified as cost of products.
(b) EBITDA is calculated by taking operating income and adding back
depreciation and amortization. We have included an EBITDA calculation
here because when we look at the performance of our businesses, we give
consideration to their EBITDA. Calculations of EBITDA should not be
viewed as a substitute to calculations under GAAP, in particular cash
flows from operations, operating income and net income. In addition,
EBITDA calculations by one company may not be comparable to another
company.
SALES BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
---- ----
REGION: (a)
<S> <C> <C>
U.S. ......................... 55% 58%
Canada ....................... 13% 15%
Europe ....................... 10% 8%
Latin America ................ 7% 7%
Africa ....................... 6% 4%
Middle East .................. 3% 2%
Other ........................ 6% 6%
--- ---
Total .................... 100% 100%
=== ===
</TABLE>
(a) Sales are based on the region of origination.
Our results for the six months ended June 30, 1999 reflected the depressed
market conditions. These conditions had the following effects on our results:
o Revenues for the six months ended June 30, 1999 declined 36.7% compared
to the same period in 1998.
o Of the $404.4 million decline in revenues from 1998 to 1999, $336.5
million, or 83.2%, was attributable to sales in North America.
o A $194.3 million decline in the first half of 1999 operating income, as
compared to the first half of 1998 operating income of $218.7 million,
excluding the effect of merger and other charges, reflected the
significant decline in our industry.
o Selling, general and administrative expenses attributable to the segments
increased as a percent of revenue due primarily to a lower revenue base
and startup costs for new product lines and businesses.
o The decrease in corporate expenses from 1998 was primarily attributable
to consolidation savings.
SEGMENT RESULTS
COMPLETION AND OILFIELD SERVICES
Our Completion and Oilfield Services Division experienced reductions in
revenue, operating income and margins as rig count declined and demand for its
products and services dropped. This division's North American operations were
the most adversely affected by the downturn. In most of our international
markets, we continue to experience pricing pressures due to soft demand.
18
<PAGE> 19
The following chart sets forth additional data regarding the results of our
Completion and Oilfield Services Division for the first half of 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $325,698 $448,306
Gross Profit ................................ 88,025 159,308(a)
Gross Profit % .............................. 27.0% 35.5%
Selling, General and Administrative ......... $ 62,133 $ 49,646
Operating Income ............................ 26,782 84,952(a)
EBITDA ...................................... 78,857 129,996(a)
</TABLE>
(a) Includes merger and other charges of $26.8 million, which consists of
$3.2 million for facility closures, $23.1 million for write-down of
assets and $0.5 million for write-off of inventory. The write-off of
inventory has been classified as cost of products.
Material items affecting the results of our Completion and Oilfield
Services Division for the first half of 1999 compared to 1998 were:
o Our North American revenues for the first six months of 1999 declined by
42.3% as compared to 1998 due to an average rig count reduction of 41.0%.
o Our international revenues, excluding Canada, decreased by 10.4% in the
first six months of 1999 to $188.5 million, as compared to the six months
ended June 30, 1998. The most significant revenue decrease occurred in
the Latin American market which declined 22.2%.
o Gross profit percentage declined in the first six months of 1999 by 8.6%,
excluding the effect of the merger and other charges, due to revenue and
pricing declines and plant under absorption.
o Selling, general and administrative expenses increased as a percentage of
revenues from 11.1% in the second half of 1998 to 19.1% in the first half
of 1999. The increase primarily reflects a lower revenue base and start
up costs relating to new product lines and businesses.
o Operating income declined in the first six months of 1999 to $26.8
million from $111.8 million in the six months ended June 30, 1998,
excluding the effect of merger and other charges, primarily due to
reduced revenues associated with industry conditions and resulting
operational inefficiencies attributable to lower operating levels.
ARTIFICIAL LIFT SYSTEMS
Our Artificial Lift Systems Division's results for the first half of 1999
compared to the first half of 1998, were down significantly due to a substantial
reduction in demand for our artificial lift products following the downturn in
the industry. This decline was most pronounced in North America where our sales
for the six months ended June 30, 1998, represented approximately 83.9% of the
division's total revenue.
Operating results from our Artificial Lift Systems Division are heavily
dependent on oil production activity. With the recent increases in oil prices,
the significant revenue declines that were experienced throughout 1998 have
gradually begun to reverse, as evidenced by an 8.3% increase in revenues in the
quarter ended June 30, 1999 over the first quarter of 1999. We expect the
results from this division to continue to improve during the year, in particular
from sales outside the United States, due to higher oil prices and improved
production activity. The level of improvement in this division will depend on
our customer's reaction to higher oil prices and the strength of the recovery.
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<PAGE> 20
The following chart sets forth additional data regarding the results of our
Artificial Lift Systems Division for the first half of 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $119,698 $197,556
Gross Profit ................................ 45,152 62,884(a)
Gross Profit % .............................. 37.7% 31.8%
Selling, General and Administrative ......... $ 43,325 $ 50,745
Operating Income ............................ 1,827 2,892(a)
EBITDA ...................................... 11,497 12,580(a)
</TABLE>
(a) Includes merger and other charges of $18.6 million, which consists of
$7.7 million for facility closures, $9.3 million for the write-off of
inventory and $1.6 million related to the write-down of assets. The
write-off of inventory has been classified as cost of products.
Material items affecting the results of our Artificial Lift Systems
Division as reflected above for the first half of 1999 compared to the first
half of 1998 were:
o The first half of 1999 experienced a decline in revenues of 39.4%
compared to the first half of 1998 due to the industry downturn which
began to impact this division in the second quarter of 1998.
o Gross profit declined to $45.2 million in the first half of 1999 from
$72.2 million in first half of 1998, excluding the effect of merger and
other charges, due primarily to a lower revenue base and pricing
declines. Gross profit as a percent of revenue increased to 37.7% from
36.5% for the six months of 1999 as compared to 1998, excluding the
effect of the merger and other charges, due to the continued cost
reduction efforts.
o Selling, general and administrative expenses declined due to the cost
reductions implemented in response to the depressed industry
conditions. Selling, general and administrative expenses increased
10.5% as a percent of revenue due to lower revenue levels.
o The decline in operating income of $19.6 million for the first six
months of 1999, as compared to 1998, excluding the effect of the merger
and other charges, is a result of the sharp decline in revenues and
pricing pressures.
COMPRESSION SERVICES
Our Compression Services Division's results for the first six months of
1999 reflected improved margins, operating income and cash flow on essentially
flat revenues. The improvements were primarily attributable to a better revenue
mix and the impact of the joint venture entered into with GE Capital in February
1999.
The Compression Services Division expanded its international presence
through the award of a seven year contract by YPF S.A. in Argentina. The joint
venture will provide total compression services to YPF, including ownership of
the compression equipment, maintenance and daily service operations, with
estimated revenues over the seven years of $95.0 million. This project is
expected to be fully operational in the third quarter of 1999.
Demand, and as a result pricing, for our compression services in the first
half of 1999 was down for rental compressor units due to high inventory levels.
20
<PAGE> 21
The following chart sets forth additional data regarding the results of our
Compression Services Division for 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
-------- --------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $ 98,533 $ 90,165
Gross Profit ................................ 23,929 19,786
Gross Profit % .............................. 24.3% 21.9%
Selling, General and Administrative ......... $ 14,257 $ 10,358
Operating Income ............................ 9,672 9,428
EBITDA ...................................... 26,406 21,403
Minority Interest Expense, Net of Taxes ..... (1,886) --
</TABLE>
Material items affecting the results of our Compression Services Division
for the first six months of 1999 compared to the first six months of 1998 were:
o Gross profit as a percentage of revenues increased due to improved
product and sales mix.
o The increase in selling, general and administrative expenses for the
first half of 1999 compared to 1998 primarily reflects additional staff
associated with our joint venture.
DRILLING PRODUCTS
Our Drilling Products Division was severely impacted by the decline in
worldwide drilling activity in late 1998 and 1999. Revenues for the second
quarter of 1999, were down by more than 50% from the high level recorded in the
second quarter of 1998. This division's backlog of drill stem products is being
replaced at diminishing rates.
The following chart sets forth data regarding the results of our Drilling
Products Division for the first half of 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
--------- ---------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .................................... $ 153,000 $ 365,326
Gross Profit ................................ 21,382 111,302(a)
Gross Profit % .............................. 14.0% 30.5%
Selling, General and Administrative ......... $ 22,220 $ 22,406
Operating Income (Loss) ..................... (838) 84,446(a)
EBITDA ...................................... 13,649 99,939(a)
</TABLE>
(a) Includes merger and other charges of $6.9 million, including $2.5
million for write-off of inventory and $4.4 million for facility
closures. The write-off of inventory has been classified as costs of
products.
Material items affecting the results of our Drilling Products Division for
the six months ended June 30, 1999 compared to same period in 1998 were:
o The decrease in revenues from 1998 to 1999 reflects the overall decline
in drilling activity and the consumption of excess drill pipe from idle
rigs.
o For the first half of 1998, revenues and gross profit for this division
benefited from sales from backlog notwithstanding a general decline in
market conditions that began in early 1998.
o Sales of premium tubular products and connections were $64.2 million for
the six months ended June 30, 1999 compared to $133.6 million for the
six months ended June 30, 1998.
o The decline in premium tubular revenues results from a decrease in
demand due to prevailing market conditions as distributors' inventories
continue to be reduced and consolidated.
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<PAGE> 22
o Gross profit, gross profit percentages and operating income declined due
to lower sales volume and high fixed costs associated with the
manufacturing operations.
o During the first half of 1999, we reduced the headcount in this division
by more than 300 people.
1998 SPECIAL CHARGES
In the second quarter of 1998, we incurred $120.0 million in merger and
other charges relating to the merger between EVI and Weatherford Enterra and a
reorganization and rationalization of our businesses in light of the initial
downturn in the industry. These charges had been fully realized as of December
31, 1998.
We incurred a $75.0 million charge in the fourth quarter of 1998 related to
the decline in our markets. As of December 31, 1998 $51.5 million of these
charges had been utilized. The remaining $23.5 million of these charges were
fully utilized in the first half of 1999 as follows:
o The severance and related costs included in the fourth quarter charges
were $7.6 million for 1,000 employees to be terminated in the first half of
1999, in accordance with the announced plan. These employees had all been
terminated by June 30, 1999.
o The facility and plant closures of $12.8 million were accrued in the
fourth quarter of 1998 for the consolidation and closure of 100 service,
manufacturing and administrative facilities in response to declining market
conditions in the fourth quarter. These facilities had all been closed as
of June 30, 1999.
o The corporate related expenses of $3.1 million recorded in the fourth
quarter were primarily for the consolidation of technology centers, the
relocation of corporate offices and the related lease obligations to align
the corporate cost structure in light of current conditions.
o In the second quarter of 1999, $3.1 million, $6.6 million and $1.7
million were utilized by the Completion and Oilfield Services Division, the
Artificial Lift Systems Division, and Corporate, respectively.
o In the first half of 1999, $7.7 million of the 1998 fourth quarter
charge was utilized by the Completion and Oilfield Services Division, $12.1
million by the Artificial Lift Systems Division and $3.7 million by
Corporate.
LIQUIDITY AND CAPITAL RESOURCES
Our current sources of capital are current cash, cash generated from
operations and borrowings under bank lines of credit. We believe that the
current reserves of cash and short-term investments, access to our existing
credit lines and internally generated cash from operations are sufficient to
finance the projected cash requirements of our current and future operations. We
are continually reviewing acquisitions in our markets. Depending upon the size,
nature and timing of an acquisition, we may need additional capital in the form
of either debt, equity or a combination of both.
The following chart contains information regarding our capital resources
and borrowings and exposures as of June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
(in thousands)
<S> <C> <C>
Cash and Cash Equivalents .............. $ 29,952 $ 40,201
Short-Term Borrowings .................. 236,348 185,729
Letters of Credit Outstanding .......... 29,051 29,937
Cumulative Foreign Currency Translation
Adjustment ........................... (81,700) (76,389)
International Assets Hedged (U.S. Dollar
Equivalent) .......................... 28,914 33,365
</TABLE>
The reduction in our cash and cash equivalents since December 31, 1998, was
primarily attributable to the following:
o Cash inflow of $54.4 million from operating activities.
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<PAGE> 23
o Borrowings, net of repayments, on term debt and other short-term
facilities of $46.3 million.
o Proceeds from the sale and leaseback of Compression units of $83.5
million. Of these proceeds, $65.4 million were subsequently paid to GE
Capital under terms of the joint venture agreement.
o Capital expenditures of property, plant and equipment of $84.9 million.
o Acquisition of new businesses for approximately $43.0 million in cash,
net of cash required.
PROPOSED SPIN-OFF OF DRILLING PRODUCTS DIVISION
On July 21, 1999, we announced that we are proposing to spin-off our Grant
Prideco Drilling Products business to our shareholders. We currently expect that
a spin-off of Grant Prideco to our shareholders will be effected by year-end,
subject to the receipt of a favorable private letter ruling by the Internal
Revenue Service ("I.R.S.") regarding the tax-free nature of the spin-off. A
request for a ruling was filed with the I.R.S. in July 1999.
We are proposing the spin-off of Grant Prideco to allow Grant Prideco and
our non-Grant Prideco businesses to each focus on their own operations and
growth in their core markets. As previously disclosed by us in our filings with
the Securities and Exchange Commission, we have in recent periods concentrated
our growth on the acquisition and development of new technologies directed at
reservoir recovery. Grant Prideco's growth is focused on the manufacture of
value added products in the tubular segment of the industry. The proposed
spin-off is expected to allow all of our businesses to continue to expand and
grow on a more focused basis and to permit our remaining businesses and those of
Grant Prideco to pursue opportunities that might not otherwise be available on a
combined basis. The spin-off of Grant Prideco will also allow it to fund future
acquisitions and expansions using its own capital. We expect that following the
spin-off, Grant Prideco will continue to actively pursue growth opportunities in
the tubular segment of the industry.
The final structure of the spin-off has not been determined and will be
announced at the time of the final approval of the spin-off. However, we
currently expect that one share of Grant Prideco will be distributed for every
two shares of our Common Stock held by our shareholders. We also contemplate
that Grant Prideco will raise approximately $200.0 million in indebtedness at
the time of the spin-off, of which approximately $100.0 million will be used to
repay intercompany indebtedness to Weatherford.
BANKING FACILITIES
In May 1998, we put in place a five-year unsecured revolving credit
facility that allows us to borrow up to $250.0 million at any time. The facility
consists of a $200.0 million U.S. credit facility and a $50.0 million Canadian
credit facility. As of June 30, 1999, $142.9 million was available under the
credit facility. Borrowings under this facility bear interest at the U.S. prime
rate or a variable rate based on the LIBOR. Our credit facility contains
customary affirmative and negative covenants, including a maximum debt to
capitalization ratio, a minimum interest coverage ratio, a limitation on liens
and a limitation on asset dispositions. In addition, we currently have
$130.0 million drawn on other uncommitted lines which are due on demand.
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<PAGE> 24
CONVERTIBLE SUBORDINATED DEBENTURES
In November 1997, we completed a private placement of $402.5 million
principal amount of our 5% Convertible Subordinated Preferred Equivalent
Debentures due 2027. The Debentures bear interest at an annual rate of 5% and
are convertible into Common Stock at a price of $80 per share. We have the right
to redeem the Debentures at any time on or after November 4, 2000, at redemption
prices provided for in the indenture agreement, and are subordinated in right of
payment of principal and interest to the prior payment in full of certain
existing and future senior indebtedness. We also have the right to defer
payments of interest on the Debentures by extending the quarterly interest
payment period on the Debentures for up to 20 consecutive quarters at any time
when we are not in default in the payment of interest.
7 1/4% SENIOR NOTES DUE 2006
We have outstanding $200.0 million of publicly-traded 7 1/4% Senior Notes
due May 15, 2006. Interest on the 7 1/4% Senior Notes is payable semi-annually
on May 15 and November 15 of each year.
COMPRESSION FINANCING
Our Compression Services Division has entered into various sale and
leaseback arrangements where it has sold $215.8 million of compression units and
has a right to sell up to another $134.2 million of compression units. Under
these arrangements, legal title to the compression units are sold to third
parties and leased back to the division under a five year operating lease with a
market based purchase option.
As of December 31, 1998, our Compression Services Division had sold
compressors under these arrangements having appraised values of $119.6 million
and had received cash in the amount of $100.0 million and a receivable of $19.6
million. During the first six months of 1999, our Compression Services Division
sold additional compressors having an appraised value of $68.5 million and
received cash of $83.5 million.
Of the proceeds received by our Compression Services Division from the sale
and leaseback of the compressor units, $100.0 million was distributed to us by
the division and $65.4 million was distributed to GE Capital as part of the
joint venture. The remaining proceeds of these sales are held by the joint
venture for internal corporate purposes and growth. We have guaranteed certain
of the obligations of the joint venture with respect to the sale of $200.0
million of the compression units. The remaining sales by the joint venture were
done on a non-recourse basis to us and are limited solely to the assets of the
joint venture.
CAPITAL EXPENDITURES
Our capital expenditures for property, plant and equipment during the first
half of 1999 were $84.9 million and primarily relate to compression and other
rental equipment, fishing tools and tubular service equipment. Specifically, of
our capital expenditures $25.0 million was for our Compression Services Division
primarily related to U.S. assets and the long term contract with YPF. A portion
of the 1999 capital expenditures related to projects initiated at the end of
1998. We expect capital expenditures for the remainder of 1999 to be
approximately $50.0 million, primarily due to projected expenditures for our
Compression Services Division.
Our compression operations are, by their nature, capital intensive and
require substantial investments in compressor units. These capital investments
have historically been financed through existing cash and internally generated
cash flow. We expect that future capital investments by our compression division
will be financed by our compression joint venture through debt, sale and
leaseback arrangements and other similar financing structures that are repaid
from the cash flows generated from the compressor units over the projected term
of rental of the equipment.
ACQUISITIONS AND JOINT VENTURES
In February 1999, we completed a joint venture with GE Capital Corporation
in which we combined our compression services operations with GE Capital's
Global Compression's services operations. The joint venture, which is known as
Weatherford Global Compression Services, is the world's second largest provider
of natural gas contract compression services and owns or manages over 4,500
compression units worldwide having approximately 1.1 million horsepower. We own
64% of the joint venture and GE Capital owns 36%. We have the right to acquire
GE Capital's interest at anytime at a price equal to a third party market
determined value that is not less than book value. GE Capital also has the right
to require us to purchase its interest at any time after February 2001 at a
third party market determined value as well as request a public offering of its
interest after that date if we have not purchased its interest by that time.
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<PAGE> 25
In February 1999, we acquired Christiana Companies, Inc. for approximately
4.4 million shares of Common Stock and $20.6 million cash. In the acquisition we
acquired through Christiana (i) 4.4 million shares of our Common Stock, (ii)
cash, after distribution to the Christiana shareholders, equal to the amount of
Christiana's outstanding tax and other liabilities and (iii) a one-third
interest in Total Logistic Control, a refrigerated warehouse, trucking and
logistics company. We acquired Christiana because it gave us a unique
opportunity to own an interest in TLC for essentially no consideration other
than our agreement to pursue the acquisition.
In July 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co KG in Austria for approximately $30.0 million, of
which approximately $7.5 million was paid at closing and the remainder is to be
paid over a period of up to 7 years. Voest-Alpine owns a tubular mill in Austria
with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the U.S. In
connection with the agreement we entered into a long-term supply contract with
the Voest-Alpine's mill. The impact of this investment and supply contract
should benefit our Drilling Products Division as the market recovers by
providing us with a reliable source of raw materials from a controlled
affiliate, as well as significantly lower cost of raw material and a 50% profit
participation in Voest-Alpine's business.
In May 1999, we entered into an agreement to acquire Dailey International
Inc. for $195 million of our common stock. Dailey is a worldwide provider of air
and underbalanced drilling, specialty services and technologically advanced
downhole tools. The acquisition will be consummated pursuant to a pre-negotiated
plan of reorganization in bankruptcy. Consummation of the acquisition of Dailey
is subject to bankruptcy court confirmation of a plan of reorganization.
Confirmation of the plan of reorganization required approval of the holders of
at least two-thirds in principal amount of Dailey's Senior Notes and a majority
of those holders. Prior to entering into the agreement to acquire Dailey, we
received approval of the holders of more than 82% in principal amount of the
outstanding Senior Notes of Dailey. A hearing on the confirmation of the plan or
reorganization has been scheduled for August 19, 1999. Assuming the plan of
reorganization is approved by the bankruptcy court on August 19, 1999, we would
expect that the closing would occur on or around August 31, 1999. Upon closing,
Dailey's businesses will be placed within our Completion and Oilfield Services
Division.
In the first six months of 1999, we also completed six acquisitions for our
Completion and Oilfield Services Division for consideration of $12.4 million of
our common stock and cash plus assumed debt of $41.9 million. We completed two
acquisitions for our Drilling Products Division for cash plus assumed debt of
$3.8 million and common stock of $1.7 million.
Our 1999 acquisitions were accounted for using the purchase method of
accounting. The results of operations of all such acquisitions are included in
the Consolidated Condensed Statements of Income from their dates of acquisition.
Completed 1999 acquisitions were not material individually nor in the aggregate.
Some of our acquisitions have resulted in substantial goodwill associated
with their operations, including goodwill of approximately $61.4 million
relating to our acquisitions in the six months of 1999. The amortization expense
for goodwill and other intangibles during the first half of 1999 was $13.7
million.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS No. 133 was to be effective for years
beginning after June 15, 1999. However, in June 1999 the FASB issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB No. 133, amending the effective date of SFAS No. 133
to years beginning after June 15, 2000. We are currently evaluating the impact
of SFAS No. 133 on our consolidated financial statements.
YEAR 2000 MATTERS
The Year 2000 issue is the risk that information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields will be unable to correctly process the Year
2000 date change. If not identified and corrected prior to the Year 2000,
failures could occur in our software, hardware, equipment and products and those
of our suppliers, vendors and customers that could result in interruptions in
our business. Any failure could have a material impact on us.
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<PAGE> 26
In response to the Year 2000 issue, we have prepared and implemented a plan
("Year 2000 Plan") to assess and remediate significant Year 2000 issues in our:
o information technology systems ("IT"), including computer software and
hardware
o non-information technology systems utilizing date-sensitive software or
computer chips ("Non-IT"), including products, facilities, equipment and
other infrastructures.
Our management information systems department ("MIS Department"), together
with our technical and engineering employees and outside consultants, are
responsible for the implementation and execution of the Year 2000 Plan. Our Year
2000 Plan is a comprehensive, multi-step process covering our IT and Non-IT
systems. The primary phases of the Year 2000 Plan are:
(1) assessing and analyzing our systems to identify those that are not Year
2000 ready
(2) preparing cost and resource estimates to repair, remediate or replace
all systems that are not Year 2000 ready
(3) developing a Company-wide, detailed strategy to coordinate the repair
or replacement of all systems that are not Year 2000 ready
(4) implementing the strategy to make all systems Year 2000 ready
(5) verifying, testing and auditing the Year 2000 readiness of all systems.
As of the end of 1998, the first, second and third phases of the Year 2000
Plan were completed. The fourth phase and the fifth phases will be completed by
the end of the third quarter of 1999. Any unexpected delays or problems that
prevent us from completing all phases of the Year 2000 Plan in a timely manner
could have a material adverse impact on us.
As part of the Year 2000 Plan, we are currently installing Year 2000 ready
business application systems and expect that these installations will be
complete by the end of the third quarter of 1999. We have retained outside
consultants to assist us with the installation of the new software and with the
assessment of the Year 2000 readiness of our IT systems. We expect to retain
additional consultants to assist us in the remediation and testing phases of the
Year 2000 Plan.
In addition to our assessment and review of our own systems, we have begun
communications with our third-party contractors, such as vendors, service
providers and customers, for the purpose of evaluating their readiness for the
Year 2000 and determining the extent to which we may be affected by the
remediation of their systems, software, applications and products. We expect to
further review and evaluate the Year 2000 programs of our significant
third-party contractors. However, there can be no guarantee that our IT and
Non-IT systems of third-party contractors will be Year 2000 ready or that the
failure of any such party to have Year 2000 ready systems would not result in
interruptions in our business which could have a material adverse impact on us.
In connection with the implementation and completion of the Year 2000 Plan,
we currently expect to incur pretax expenditures of approximately $13.0 million.
We have incurred approximately $11.0 million of such expenditures from January
1998 through June 30, 1999, of which, approximately $8.8 million has been
incurred in connection with the replacement of our business application software
and approximately $2.2 million has been incurred in connection with the
replacement of certain IT hardware systems. We intend to continue to fund the
Year 2000 Plan expenditures with working capital and third-party lease
financing. Based upon information currently available, we believe that
expenditures associated with achieving Year 2000 compliance will not have a
material impact on operating results. However, any unanticipated problems
relating to the Year 2000 issue that result in materially increased expenditures
could have a material adverse impact on us.
The 1999 expenditures associated with the Year 2000 Plan represent
approximately 15% of our 1999 MIS Department's budget. Various other IT projects
that are not related to the Year 2000 issue have been deferred due to the Year
2000 efforts. The effects of these delays are not expected to have a material
impact on the Company.
We are unable to predict the most likely worst case Year 2000 scenario. We
are preparing a contingency plan in response to Year 2000 worst case scenario
and we estimate no lost revenues due to Year 2000 issues. However, there can be
no assurance that any contingency plan developed by us will be sufficient to
alleviate or remediate any significant Year 2000 problems that we may
experience.
The above discussion of our efforts and expectations relating to the risks
and uncertainties associated with the Year 2000 issues and our Year 2000 Plan
contain forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. These statements involve predictions and
expectations concerning our ability to
26
<PAGE> 27
achieve Year 2000 compliance, the amount of costs and expenses related to the
Year 2000 issue and the effect the Year 2000 issue may have on business and
results of operations. Certain risks and uncertainties may cause actual results
to be materially different from the projected or expected results, the overall
effect of which may have a materially adverse impact on us. These risks and
uncertainties include, but are not limited to, unanticipated problems and costs
identified in all phases of the Year 2000 Plan, our ability to successfully
implement the Year 2000 Plan in a timely manner and the ability of our
suppliers, vendors and customers to make their systems and products Year 2000
compliant.
EXPOSURES
INDUSTRY EXPOSURE
Substantially all of our customers are engaged in the energy industry. This
concentration of customers may impact our overall exposure to credit risk,
either positively or negatively, in that customers may be similarly affected by
changes in economic and industry conditions. Many of our customers have slowed
the payment of their accounts in light of current industry conditions and others
have experienced greater financial difficulties in meeting their payment terms.
We perform ongoing credit evaluations of our customers and do not generally
require collateral in support of our trade receivables. We maintain reserves for
potential credit losses, and actual losses have historically been within our
expectations.
LITIGATION AND ENVIRONMENTAL EXPOSURE
In the ordinary course of business, we become the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses and
we are subject to various self-retentions and deductibles with respect to our
insurance. Although we are subject to various ongoing items of litigation, we do
not believe that any of the items of litigation that we are currently subject to
will result in any material uninsured losses to us. It is, however, possible
that an unexpected judgment could be rendered against us in cases in which we
could be uninsured and beyond the amounts that we currently have reserved or
anticipate incurring for that matter.
We are also subject to various federal, state and local laws and
regulations relating to the energy industry in general and the environment in
particular. Environmental laws have in recent years become more stringent and
have generally sought to impose greater liability on a larger number of
potentially responsible parties. While we are not currently aware of any
situation involving an environmental claim that would likely have a material
adverse effect on our business, it is always possible that an environmental
claim with respect to one or more of our current businesses or a business or
property that one of our predecessors owned or used could arise that could
involve the expenditure of a material amount of funds.
INTERNATIONAL EXPOSURE
Like most multinational oilfield service companies, we have operations in
certain international areas, including parts of the Middle East, North and West
Africa, Latin America, the Asia-Pacific region and the Commonwealth of
Independent States ("CIS"), that are inherently subject to risks of war,
political disruption, civil disturbance and policies that may:
o disrupt oil and gas exploration and production activities;
o restrict the movement of funds;
o lead to U.S. government or international sanctions; and
o limit access to markets for periods of time.
Historically, the economic impact of such disruptions has been temporary,
and oil and gas exploration and production activities have resumed eventually in
relation to market forces. Certain areas, including the CIS, Algeria, Nigeria,
parts of the Middle East, the Asia-Pacific region and Latin America, have been
subjected to political disruption which has negatively impacted results of
operations following such events.
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<PAGE> 28
CURRENCY EXPOSURE
A single European currency ("the Euro") was introduced on January 1, 1999,
at which time the conversion rates between legacy currencies and the Euro were
set for 11 participating member countries. However, the legacy currencies in
those countries will continue to be used as legal tender through January 1,
2002. Thereafter, the legacy currencies will be canceled, and the Euro bills and
coins will be used in the 11 participating countries. We are currently
evaluating the effect of the Euro on our consolidated financial statements and
our business operations; however, we do not foresee that the transition to the
Euro will have a significant impact.
Approximately 46.0% of our net assets are located outside the United States
and are carried on our books in local currencies. Changes in those currencies in
relation to the U.S. dollar result in translation adjustments which are
reflected as accumulated other comprehensive loss in the stockholders' equity on
our balance sheet.
FORWARD-LOOKING STATEMENTS
This report and our other filings with the Securities and Exchange
Commission and public releases contain statements relating to our future
results, including certain projections and business trends. We believe these
statements constitute "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995.
Certain risks and uncertainties may cause actual results to be materially
different from projected results contained in forward-looking statements in this
report and in our other disclosures. These risks and uncertainties include, but
are not limited to, the following:
A Further Downturn in Market Conditions Could Affect Projected Results.
Any unexpected material changes in oil and gas prices or other market
trends would likely affect the forward-looking information contained in
this report. Our estimates as to future results and industry trends make
assumptions regarding the future prices of oil and gas and their effect on
the demand and pricing of our products and services. In analyzing the
market and its impact on us for the remainder of 1999, we have made the
following assumptions:
o The recent increase in the price of oil will not have a material
favorable impact on our businesses until at least the fourth quarter of
1999.
o World demand for oil will be up only marginally or flat.
o North American and international rig counts will improve marginally.
o Oil and natural gas prices will not decline materially from their
current levels and the industry will slowly begin its recovery.
o Our artificial lift business will improve slightly in the third and
fourth quarters due to improved oil prices.
o Our completion and downhole services business will be relatively flat
during the third quarter and begin to experience improvements in the
fourth quarter.
o Pricing for many of our products and services will continue to be
subject to pricing pressures due to over capacity for the remainder of
the year.
o Demand for drill stem products will be at their lowest level during the
third quarter of 1999 and begin to realize a slight improvement in the
fourth quarter.
o No material improvements in drill stem product sales will be realized
until sometime in 2000.
o Demand for compression services will remain relatively flat for the
remainder of the year with some pricing pressure.
o Future growth in the industry will be dependent on technological
advances that can reduce the costs of exploration and production, and
technological improvements in tools used for re-entry, thru-tubing and
extended reach drilling as well as artificial lift technologies will be
important to our future.
These assumptions are based on various macro economic factors, and actual
market conditions could vary materially from those assumed.
A Continuation of the Low Rig Count Could Adversely Affect the Demand for
Our Products and Services. Our operations were materially affected by the
decline in the rig count during 1998 and 1999 to date. Although the North
American and international rig counts have improved slightly from their
historical lows earlier this year, a continuation of the rig count at its
current level for a prolonged period of time or a further decline in the rig
count would adversely affect our results. Our forward-looking statements
regarding our drilling products assume there will not be any further
material declines in the worldwide rig count, in particular the domestic rig
count.
28
<PAGE> 29
Projected Cost Savings Could Be Insufficient. During 1998 and 1999 to
date, we implemented a number of programs intended to reduce costs and
align our cost structure with the current market environment. Our
forward-looking statements regarding cost savings and their impact on our
business assume these measures will generate the savings expected. However,
if the markets continue to decline, additional actions may be necessary to
achieve the desired savings.
Grant Spin-Off. As discussed above, we are currently contemplating a
spin-off of our Grant Prideco drilling products business. Although it is
our desire to spin-off this business by year end, a spin-off of this
business is subject to the receipt of a favorable private letter ruling
from the Internal Revenue Service confirming that the spin-off will be tax
free to us and our shareholders. In addition, prior to the spin-off, we
will need to complete various transactions involving the restructuring of
our operations and we are still reviewing the best structure and method for
the spin-off. Accordingly, there can be no assurance that a spin-off of the
business will occur or the specific terms or timing thereof.
Integration of Acquisitions. During the last year, we have consummated
various acquisitions of product lines and businesses. The success of these
acquisitions will be dependent on our ability to integrate these product
lines and businesses with our existing businesses. Integration of
acquisitions is something that cannot occur overnight and is something that
requires constant effort at the local level to be successful. Accordingly,
there can be no assurance as to the ultimate success of our integration
efforts.
Dailey Acquisition. Although we currently expect that our proposed
acquisition of Dailey International Inc. will be consummated by the end of
August, the acquisition is subject to final approval by the bankruptcy
court. A hearing for the approval of the acquisition is currently scheduled
for August 19, 1999. If court approval is obtained on that date, we would
expect to close the transaction by the end of August. If for some
unexpected reason approval is not obtained at that time, our acquisition of
Dailey could be delayed.
Weatherford's Success is Dependent upon Technological Advances. Our
ability to succeed with our long-term growth strategy is dependent on the
technological competitiveness of our product and service offerings. A
central aspect of our growth strategy is to enhance the technology of our
products and services, to expand the markets for many of our products
through the leverage of our worldwide infrastructure and to enter new
markets and expand in existing markets with technologically advanced
value-added products. Our forward-looking statements have assumed only a
small amount of near-term growth from these new products and services.
Unexpected Year 2000 Problems Could Have an Adverse Financial Impact. We
have not fully determined the impact of Year 2000 on our systems and
products. It is possible that unexpected problems associated with the Year
2000 could arise during the implementation of our Year 2000 program that
could have a material adverse effect on our business, financial condition
and results of operations. We are currently in the implementation and
testing phases of our Year 2000 program and expect it to be completed by
the third quarter of 1999.
Economic Downturn in Asia and South America Could Adversely Affect Demand
for Products and Services. The economic downturn in Asia has affected the
economies in other regions of the world, including South America and the
Former Soviet Union. To date, the economies in the United States and Europe
have not been materially affected. If the United States or European
economies were to begin to decline or if the economies of South America or
Asia were to experience further material problems, the demand and price for
oil and gas and our products and services could fall further and adversely
affect our revenues and income. We have assumed that a worldwide recession
will not occur. A material decline in the Chinese economy or devaluation of
its currency could adversely affect world economies.
Currency Fluctuations Could Have a Material Adverse Financial Impact. A
material decline in currency rates in our markets could affect our future
results as well as affect the carrying values of our assets. World
currencies have been subject to much volatility. Our forward-looking
statements assume no material impact from changes in currencies because our
financial position is generally dollar based or hedged. For those revenues
denominated in local currency the effect of foreign currency fluctuations
is largely mitigated because local expenses are denominated in the same
currency.
Changes in Global Trade Policies Could Adversely Impact Operations.
Changes in global trade policies in our markets could impact our operations
in these markets. We have assumed that there will be no material changes in
global trading policies.
29
<PAGE> 30
Unexpected Litigation and Legal Disputes Could Have a Material Adverse
Financial Impact. If we experience unexpected litigation or unexpected
results in our existing litigation having a material effect on results, the
accuracy of the forward-looking statements would be affected. Our
forward-looking statements assume that there will be no such unexpected
litigation or results.
Finally, our future results will depend upon various other risks and
uncertainties, including, but not limited to, those detailed in our other
filings with the Securities and Exchange Commission. For additional information
regarding risks and uncertainties, see our other current year filings with the
Commission under the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended. We will generally update our assumptions in
our filings as circumstances require.
30
<PAGE> 31
PART II. OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1999, the Company issued shares of its
common stock as follows:
o On May 5, 1999, an aggregate of 394,423 shares of common stock to
ECD/Northwest, Inc. and its shareholders in partial consideration
for the purchase of substantially all of ECD's assets by the
Company's Completion and Oilfield Services Division;
o On May 27, 1999, 52,415 shares of common stock to the sole
shareholder of Texas Pipe Works, Inc. in consideration of the
shareholder entering into a non-compete agreement with us in
connection with the acquisition of certain of Texas Pipe Works'
assets by the Company's Drilling Products Division; and
o On July 7, 1999, 105,000 shares of common stock to Texas Pup,
Inc. in consideration for the purchase of certain of Texas Pup's
assets by the Company's Drilling Products Division.
All of these shares were issued in transactions not involving a public
offering and were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 6, 1999, the
stockholders of the Company approved: (i) the election of eight directors to
serve until the next Annual Meeting of Stockholders. There were no broker
non-votes. The following sets forth the results of the voting with respect to
each such matter.
<TABLE>
<CAPTION>
Election of Directors For Withheld/Against Abstained
- ----------------------------------------------- -------------- -------------------- -------------
<S> <C> <C> <C>
Philip Burguieres........................... 84,516,926 780,398 --
David J. Butters............................ 84,516,999 780,325 --
Bernard J. Duroc-Danner..................... 84,515,402 781,922 --
Sheldon B. Lubar............................ 84,509,478 787,846 --
William E. Macaulay......................... 84,514,452 782,872 --
Robert B. Millard........................... 84,517,040 780,284 --
Robert K. Moses, Jr......................... 84,517,040 780,284 --
Robert A. Rayne............................. 84,153,227 1,144,097 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*2.1 Acquisition Agreement dated as of May 21, 1999, entered into by and
among Weatherford International, Inc., Dailey International Inc. and
certain subsidiaries of Dailey named therein.
4.1 Asset Purchase Agreement dated March 31, 1999, among ECD/Northwest,
Inc., Clearwater Holdings, Inc., the shareholders of Clearwater
Holdings, Inc. listed on the signature pages thereto, Weatherford
U.S., L.P. and Weatherford International, Inc. (incorporated by
reference to Exhibit 4.19 to the Registration Statement on Form S-3
(Reg No. 333-80215)).
4.2 Escrow Agreement dated May 5, 1999, by and among Weatherford U.S.,
L.P., Weatherford International, Inc., ECD/Northwest, Inc.,
Clearwater Holdings, Inc., the individual shareholders listed on the
signature page thereto and National City Bank of Pennsylvania.
(incorporated by reference to Exhibit 4.21 to the Registration
Statement on Form S-3 (Reg. No. 333-80215)).
4.3 Asset Purchase Agreement dated May 17, 1999, by and among Texas Pipe
Works, Inc., Mark Blanks, Jr., Grant Prideco, Inc., and Weatherford
International, Inc. (incorporated by reference to Exhibit 4.20 to
the Registration Statement on Form S-3 (Reg No. 333-80215)).
4.4 Asset Purchase Agreement dated June 24, 1999, among Texas Pup, Inc.,
the shareholders of Texas Pup, Inc. listed on the signature pages
thereto, Drill Tube International, Inc. and Weatherford
International, Inc. (incorporated by reference to Exhibit 4.19 to
the Registration Statement on Form S-3 (Reg. No. 333-83739)).
31
<PAGE> 32
*27.1 Financial Data Schedule
* Filed herewith
(b) Reports on Form 8-K:
1) Current Report on Form 8-K dated April 29, 1999, announcing the
Company's earnings for the quarter ended March 31, 1999.
2) Current Report on Form 8-K dated May 21, 1999, announcing the
execution of an agreement to acquire Dailey International Inc. and
containing certain pro forma financial statements of the Company and
certain financial statements of Dailey International Inc.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Weatherford International, Inc.
By: /s/ BRUCE F. LONGAKER, JR.
-----------------------------------------
Bruce F. Longaker, Jr.
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
By: /s/ FRANCES R. POWELL
-----------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: August 16, 1999
33
<PAGE> 34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*2.1 Acquisition Agreement dated as of May 21, 1999, entered into by and
among Weatherford International, Inc., Dailey International Inc. and
certain subsidiaries of Dailey named therein.
4.1 Asset Purchase Agreement dated March 31, 1999, among ECD/Northwest,
Inc., Clearwater Holdings, Inc., the shareholders of Clearwater
Holdings, Inc. listed on the signature pages thereto, Weatherford
U.S., L.P. and Weatherford International, Inc. (incorporated by
reference to Exhibit 4.19 to the Registration Statement on Form S-3
(Reg No. 333-80215)).
4.2 Escrow Agreement dated May 5, 1999, by and among Weatherford U.S.,
L.P., Weatherford International, Inc., ECD/Northwest, Inc.,
Clearwater Holdings, Inc., the individual shareholders listed on the
signature page thereto and National City Bank of Pennsylvania.
(incorporated by reference to Exhibit 4.21 to the Registration
Statement on Form S-3 (Reg. No. 333-80215)).
4.3 Asset Purchase Agreement dated May 17, 1999, by and among Texas Pipe
Works, Inc., Mark Blanks, Jr., Grant Prideco, Inc., and Weatherford
International, Inc. (incorporated by reference to Exhibit 4.20 to
the Registration Statement on Form S-3 (Reg No. 333-80215)).
4.4 Asset Purchase Agreement dated June 24, 1999, among Texas Pup, Inc.,
the shareholders of Texas Pup, Inc. listed on the signature pages
thereto, Drill Tube International, Inc. and Weatherford
International, Inc. (incorporated by reference to Exhibit 4.19 to
the Registration Statement on Form S-3 (Reg. No. 333-83739)).
*27.1 Financial Data Schedule
* Filed herewith
<PAGE> 1
EXHIBIT 2.1
As permitted by Item 601(b)(2) of Regulation S-K, the Company has not
filed any schedules or exhibits with this Exhibit No. 2.1. Listed below is a
brief description of the omitted schedules and exhibits. The Company agrees to
furnish supplementally a copy of any of such omitted schedules and exhibits to
the Commission upon request.
EXHIBITS
A Joint Plan of Reorganization
SCHEDULES
2.2(b) Subsidiaries of Dailey
2.2(c)(ii) Existing Option Plans
2.2(e) Conflicts
2.2(f) Liabilities
2.2(h) Changes in the Conduct of Business
2.2(i) Litigation
2.2(j) Employee Benefit Plans
2.2(k) Tax Returns
2.2(l) Environmental Matters
2.2(m) Severance Payments
2.2(n) Brokers
2.2(p) Contracts
2.2(q)(ii) Compliance with Leases
2.2(r) Insurance Policies
2.2(s) Loans
3.2(e) Exceptions
3.2(j) Exceptions
<PAGE> 2
ACQUISITION AGREEMENT
BY AND AMONG
WEATHERFORD INTERNATIONAL, INC.
AND
DAILEY INTERNATIONAL INC.,
DAILEY ENERGY SERVICES, INC.,
DAILEY INTERNATIONAL SALES CORPORATION
COLOMBIA PETROLEUM SERVICES CORP.
INTERNATIONAL PETROLEUM SERVICES, INC.
DAILEY ENVIRONMENTAL REMEDIATION TECHNOLOGIES, INC.
DAILEY WORLDWIDE SERVICES, CORP.
AIR DRILLING INTERNATIONAL, INC.
AND
AIR DRILLING SERVICES, INC.
MAY 21, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I THE TRANSACTIONS...............................................................................1
1.1 Closing Date...................................................................................1
1.2 The Transactions...............................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.................................................................2
2.1 Representations and Warranties of Weatherford..................................................2
(a) Organization..........................................................2
(b) Authorization and Validity of Agreement
and Issuance of Weatherford Shares....................................2
(c) Ownership of Dailey Notes.............................................3
(d) No Conflict...........................................................3
(e) Commission Filings....................................................3
(f) Disclosure Statement..................................................3
2.2 Representations and Warranties of Dailey.......................................................4
(a) Organization..........................................................4
(b) Dailey Subsidiaries...................................................4
(c) Capitalization........................................................4
(d) Authorization and Validity of Agreement...............................5
(e) No Approvals or Notices Required; No Conflict
with Instruments to which Dailey is a Party...........................5
(f) Commission Filings; Financial Statements..............................6
(g) Disclosure Statement..................................................7
(h) Conduct of Business in the Ordinary Course;
Absence of Certain Changes and Events.................................7
(i) Litigation............................................................7
(j) Employee Benefit Plans................................................8
(k) Taxes................................................................10
(l) Environmental Matters................................................11
(m) Severance Payments...................................................12
(n) Brokers..............................................................12
(o) Compliance with Laws.................................................12
(p) Contracts............................................................12
(q) Title to Property....................................................13
(r) Insurance Policies...................................................14
(s) Loans................................................................14
ARTICLE III COVENANTS OF DAILEY...........................................................................14
3.1 Certain Covenants Concerning the Prospective Bankruptcy Cases.................................14
3.2 Conduct of Business by Dailey Pending the Closing Date........................................15
ARTICLE IV COVENANTS OF WEATHERFORD PRIOR TO THE EFFECTIVE TIME..........................................18
4.1 Reservation of Weatherford Stock..............................................................18
4.2 Stock Exchange Listing........................................................................18
ARTICLE V ADDITIONAL AGREEMENTS.........................................................................18
5.1 Filings; Consents; Reasonable Efforts.........................................................18
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C>
5.2 Notification of Certain Matters...............................................................18
5.3 Certain Fees and Expenses.....................................................................19
ARTICLE VI CONDITIONS....................................................................................20
6.1 Conditions to Obligations of Each Party.......................................................20
6.2 Additional Conditions to Obligations of Weatherford...........................................20
6.3 Additional Conditions to Obligations of Dailey................................................22
ARTICLE VII GENERAL PROVISIONS............................................................................23
7.1 Survival of Representations and Warranties....................................................23
7.2 Public Statements.............................................................................23
7.3 Assignment....................................................................................23
7.4 Notices.......................................................................................23
7.5 Governing Law.................................................................................24
7.6 Severability..................................................................................24
7.7 Counterparts..................................................................................24
7.8 Headings......................................................................................24
7.9 Confidentiality Agreements....................................................................24
7.10 Entire Agreement: Third Party Beneficiaries...................................................24
7.11 Waiver and Amendment..........................................................................24
EXHIBIT A - Joint Plan of Reorganization
</TABLE>
-ii-
<PAGE> 5
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT dated as of May 21, 1999 (this "Agreement"),
is made and entered into by and among Weatherford International, Inc., a
Delaware corporation ("Weatherford"), Dailey International Inc., a Delaware
corporation ("Dailey"), and the subsidiaries of Dailey set forth on the
signature pages hereof (the "Subsidiary Parties").
WHEREAS, subject to and in accordance with the terms and conditions of
this Agreement, the respective Boards of Directors of Weatherford, Dailey, and
the Subsidiary Parties have approved an acquisition of Dailey by Weatherford
(the "Acquisition"), in connection with which (i) all of Dailey's outstanding
9 1/2% Senior Notes due 2008 (the "Dailey Notes") will be cancelled, and the
holders thereof (the "Dailey Noteholders") will receive in exchange shares of
the common stock, $1.00 par value per share, of Weatherford ("Weatherford Common
Stock"), having an aggregate market value of $185,000,000, (ii) all of the
issued and outstanding shares of Class A common stock, $0.01 par value per
share, of Dailey ("Dailey Class A Common Stock") and Class B Common Stock, $0.01
par value per share, of Dailey ("Dailey Class B Common Stock" and collectively
with the Dailey Class A Common Stock, the "Dailey Common Stock") will be
cancelled, and the holders thereof will receive in exchange shares of
Weatherford Common Stock having an aggregate market value of $10,000,000, and
(iii) Dailey shall issue 1,000 newly-issued shares of common stock of Dailey
(the "New Dailey Stock") to Weatherford, in each case as more fully described
herein (together with the other transactions contemplated by this Agreement, the
"Transactions");
WHEREAS, Weatherford is a Dailey Noteholder;
WHEREAS, following the execution of this Agreement by the parties
hereto, each of Dailey and the Subsidiary Parties will file a voluntary petition
for relief (the "Bankruptcy Cases") under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"), together with a Joint
Plan of Reorganization in the form attached hereto as Exhibit A (the "Plan") and
to which this Agreement shall be an Exhibit and a Disclosure Statement (as
defined herein); and
WHEREAS, the parties hereto desire to set forth certain
representations, warranties and covenants made by each to the other as an
inducement to the consummation of the Transactions;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 CLOSING DATE. The closing of the Transactions (the "Closing") shall
take place at the offices of Andrews & Kurth L.L.P, Houston, Texas, as soon as
practicable after the confirmation of the Plan by the Bankruptcy Court and the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time and place and on such other date as Weatherford and Dailey
shall agree; provided that each of the closing conditions set forth in Article
VI hereof shall have been satisfied or waived at or prior to such time. The date
on which the Closing occurs is herein referred to as the "Closing Date."
-1-
<PAGE> 6
1.2 THE TRANSACTIONS. Subject to the terms and conditions of this
Agreement and consistent with the terms of the Plan, on the Closing Date:
(a) (i) As more fully described in the Plan, holders of
allowed interests under the Plan, based upon
ownership of Dailey Common Stock, shall share pro
rata according to share ownership in the
Weatherford-Old DII Equity Consideration (as defined
in the Plan).
(ii) As more fully described in the Plan, holders of
allowed claims under the Plan, based upon ownership
of the Dailey Notes, shall share pro rata in the
Weatherford-Senior Note Holder Consideration (as
defined in the Plan).
(b) Dailey shall issue to Weatherford 1,000 shares of New
Dailey Stock, whereupon Weatherford shall become the
sole stockholder of Dailey.
(c) Any outstanding Dailey Options (as defined herein)
shall be canceled pursuant to the Plan, and all
Dailey Option Plans (as defined herein) shall
automatically be terminated.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF WEATHERFORD. Weatherford hereby
represents and warrants to Dailey and the Subsidiary Parties that:
(a) Organization. Weatherford is a corporation duly
incorporated, validly existing and in good standing under the laws of
the state of Delaware. Weatherford has all requisite corporate power
and corporate authority to own, lease and operate all of its properties
and assets and to carry on its business as now being conducted, except
where the failure to be so organized, existing or in good standing
would not have a material adverse effect on the financial condition of
Weatherford and its subsidiaries, taken as a whole (a "Weatherford
MAE"). Weatherford is duly qualified to do business, and is in good
standing, in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except in such jurisdictions where the failure
to be duly qualified would not have a Weatherford MAE. Weatherford has
heretofore delivered to Dailey true and complete copies of
Weatherford's Restated Certificate of Incorporation, as amended (the
"Weatherford Certificate"), and Weatherford's bylaws as in existence on
the date hereof.
(b) Authorization and Validity of Agreement and Issuance of
Weatherford Shares. The execution and delivery by Weatherford of this
Agreement and the consummation by Weatherford of the transactions
contemplated hereby (including the issuance of shares of Weatherford's
Common Stock in accordance with the terms of this Agreement and the
Plan) have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by Weatherford and is
the legal valid and binding obligation of Weatherford, enforceable
against Weatherford in accordance with its terms, subject to the
approval of the Bankruptcy Court. Upon issuance of the
-2-
<PAGE> 7
shares of Weatherford Common Stock to be issued pursuant to the terms
of this Agreement and the Plan, such shares shall be validly issued,
fully paid and non-assessable.
(c) Ownership of Dailey Notes. Weatherford has, and on the
Closing Date will have, good and valid title to at least $60,550,000
aggregate principal amount of Dailey Notes, free and clear of all liens
and encumbrances.
(d) No Conflict. The execution and delivery of this Agreement
does not, and the consummation of the Transactions will not, conflict
with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with
respect to any obligation or to loss of a material benefit under, or
result in the creation of any lien or encumbrance upon any of the
properties or assets of Weatherford under, any provision of (i) the
Weatherford Certificate or bylaws of Weatherford, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease, guaranty or
other financial assurance agreement or other agreement, instrument,
permit, concession, franchise or license applicable to Weatherford, and
(iii) subject to governmental filing and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation or arbitration award applicable to
Weatherford, other than, in the case of clause (ii), any such
conflicts, violations, defaults, rights or liens or encumbrances that
individually or in the aggregate would not have a Weatherford MAE. No
consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other governmental authority or agency, domestic or
foreign, including local authorities (a "Governmental Entity"), is
required by or with respect to Weatherford in connection with the
execution and delivery of this Agreement by Weatherford or the
consummation by Weatherford of the Transactions, except for (i) the
approval of the Plan by the Bankruptcy Court, (ii) the filing of a
pre-merger notification and report form by Weatherford under the HSR
Act, and (iii) such other consents, approvals, orders, authorizations,
registrations, declarations, filings and notices as are set forth in
Schedule 2.1(d).
(e) Commission Filings. Weatherford has filed all reports and
documents required to filed with the Securities and Exchange Commission
(the "Commission") since December 31, 1997. All reports, registration
statements and other filings (including all notes, exhibits and
schedules thereto and documents incorporated by reference therein)
filed by Weatherford with the Commission since December 31, 1997,
through the date of this Agreement, together with any amendments
thereto, are sometimes collectively referred to as the "Weatherford
Commission Filings." As of the respective dates of their filing with
the Commission or, if any such Weatherford Commission Filings were
amended, as of the date of the filing of such amendment, the
Weatherford Commission Filings complied, and as of the Closing Date
will comply, in all material respects with the applicable requirements
of the Securities Act of 1933 (the "Securities Act") or the Securities
Exchange Act of 1934 (the "Exchange Act"), as the case may be, and the
applicable rules and regulations of the Commission thereunder, and did
not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(f) Disclosure Statement. The information provided by
Weatherford in writing expressly for inclusion in the Disclosure
Statement (as defined herein) will not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
-3-
<PAGE> 8
2.2 REPRESENTATIONS AND WARRANTIES OF DAILEY. Dailey and the Subsidiary
Parties hereby jointly and severally represent and warrant to Weatherford that:
(a) Organization. Dailey is a corporation duly organized,
validly existing and in good standing under the laws of the state of
Delaware. Dailey has all requisite corporate power and corporate
authority and all necessary governmental authorizations to own, lease
and operate all of its properties and assets and to carry on its
business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such governmental
authority would not (i) have a material adverse effect on the assets,
properties, business, operations, or condition (financial or otherwise)
of Dailey and the Dailey Subsidiaries (as defined below), taken as a
whole or (ii) prevent or materially adversely affect the ability of
Dailey to perform and comply with its obligations under this Agreement,
or any other agreement to be executed and delivered in connection with
the Transactions (a "Dailey MAE"). Dailey is duly qualified as a
foreign corporation to transact business, and is in good standing, in
each jurisdiction in which the property owned, leased or operated by it
or the nature of the business conducted by it makes such qualification
necessary, except in such jurisdictions where the failure to be duly
qualified does not and would not have a Dailey MAE. Dailey is in
compliance with all applicable laws, judgments, orders, rules and
regulations, domestic and foreign, except where failure to be in such
compliance would not have a Dailey MAE. Dailey has heretofore delivered
to Weatherford true and complete copies of Dailey's Certificate of
Incorporation (the "Dailey Certificate") and bylaws, as in existence on
the date hereof.
(b) Dailey Subsidiaries. Schedule 2.2(b) sets forth a list of
all corporations, partnerships, limited liability companies and other
entities of which Dailey owns, directly or indirectly, an equity
interest (such entities referred to herein as the "Dailey
Subsidiaries"). The Dailey Subsidiaries are duly organized, validly
existing and in good standing under the laws of their respective
jurisdictions of organization and have the requisite power and
authority (as a corporation, partnership, limited liability company or
otherwise) to carry on their respective businesses as they are now
being conducted and to own, operate and lease the assets they now own,
operate or hold under lease, except where the failure to be so
organized, existing or in good standing would not have a Dailey MAE.
The Dailey Subsidiaries are duly qualified to transact business and are
in good standing in each jurisdiction in which the nature of their
respective businesses or the ownership or leasing of their respective
properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified or in good standing
would not have a Dailey MAE. All the outstanding shares of capital
stock or other ownership interests of the Dailey Subsidiaries have been
duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive
rights or other preferential rights of subscription or purchase of any
person. All such stock and ownership interests are owned of record and
beneficially by Dailey or by an Dailey Subsidiary, free and clear of
all liens, pledges, security interests, charges, claims, rights of
third parties and other encumbrances of any kind or nature. Dailey has
heretofore delivered to Weatherford true and complete copies of each
respective Dailey Subsidiary's organizational documents, as in
existence on the date hereof.
(c) Capitalization.
(i) The authorized capital stock of Dailey consists
of 20,000,000 shares of Dailey Class A Common Stock,
10,000,000 shares of Dailey Class B Common Stock, and
5,000,000 shares of preferred stock, $0.01 par value per share
("Dailey Preferred Stock"). As of the date of this Agreement,
there were 5,129,004 shares of Dailey Class A Common Stock
issued and outstanding, 5,000,000 shares of Dailey Class B
Common Stock issued and
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<PAGE> 9
outstanding and 574,651 shares of Dailey Common Stock were
held as treasury shares. There are no outstanding shares of
Dailey Preferred Stock. A total of 976,031 shares of Dailey
Common Stock have been reserved for issuance pursuant to the
stock options and warrants described in Section 2.2(c)(ii).
All issued and outstanding shares of Dailey Common Stock are
validly issued, fully paid and nonassessable, were not issued
in violation of any preemptive rights or other preferential
rights of subscription or purchase of any person, and no
holder thereof is entitled to preemptive rights. Dailey is not
a party to, and is not aware of, (i) any voting agreement,
voting trust or similar agreement or arrangement relating to
any class or series of its capital stock, or (ii) except for
agreements that are filed (or incorporated by reference) as
exhibits to Dailey's Annual Report on Form 10-K for the year
ended December 31, 1998 (the "1998 10-K"), any agreement or
arrangement providing for registration rights with respect to
any capital stock or other securities of Dailey.
(ii) Schedule 2.2(c)(ii) sets forth a list of all
existing plans pursuant to which options to purchase shares of
Dailey Common Stock may be issued (the "Dailey Option Plans").
Each unexpired and unexercised option to purchase shares of
Dailey Common Stock (the "Dailey Options") granted under each
Dailey Option Plan or otherwise that has an exercise price of
less than $3.75 is identified on Schedule 2.2(c)(ii). Other
than as set forth in this Section 2.2(c) or in Schedule
2.2(c)(ii), there are not now and at the Effective Time there
will not be any (A) shares of capital stock or other equity
securities of Dailey outstanding other than Dailey Common
Stock issued pursuant to the exercise of the Dailey Options or
(B) outstanding options (other than the Dailey Options),
warrants, scrip, rights to subscribe for, calls or commitments
of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of any
class of capital stock of Dailey, or contracts, understandings
or arrangements to which Dailey is a party, or by which it is
or may be bound, to issue additional shares of its capital
stock (other than the issuance of the New Dailey Stock
pursuant to this Agreement and the Plan) or options, warrants,
scrip or rights to subscribe for, or securities or rights
convertible into or exchangeable for, any additional shares of
its capital stock.
(d) Authorization and Validity of Agreement. Dailey and each
Subsidiary Party has all requisite corporate power and authority to
enter into this Agreement, the Plan, the Technology Transfer Agreement,
dated as of May 18, 1999, among Dailey, Weatherford, Robert A. Evans
and Evans Engineering & Manufacturing Inc. (the "Technology
Agreement"), and the other agreements and instruments contemplated to
be executed and delivered by it in connection with the Transactions
(collectively with the Technology Agreement, the "Other Agreements")
and to perform its respective obligations hereunder and thereunder,
subject only to the confirmation of the Plan by the Bankruptcy Court.
The execution and delivery by Dailey and each Subsidiary Party of this
Agreement and any of the Other Agreements to which it is a party and
the consummation by it of the Transactions have been duly authorized by
all necessary corporate action. This Agreement has been duly executed
and delivered by Dailey and each Subsidiary Party and is the valid and
binding obligation of Dailey and each Subsidiary Party enforceable
against it in accordance with its terms. The Other Agreements, when
executed and delivered by Dailey and each Subsidiary Party, will
constitute valid and binding obligations of Dailey and each Subsidiary
Party, enforceable against it in accordance with their respective
terms.
(e) No Approvals or Notices Required; No Conflict with
Instruments to which Dailey is a Party. The execution and delivery of
this Agreement and the Other Agreements do not, and the
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<PAGE> 10
consummation of the Transactions and compliance with the provisions
hereof and thereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to
loss of a material benefit under, or result in the creation of any lien
or encumbrance upon any of the properties or assets of Dailey or any of
the Dailey Subsidiaries under, any provision of (i) the Dailey
Certificate or bylaws of Dailey or any of the Dailey Subsidiaries, (ii)
except as set forth in Schedule 2.2(e), any loan or credit agreement,
note, bond, mortgage, indenture, lease, guaranty or other financial
assurance agreement or other agreement, instrument, permit, concession,
franchise or license applicable to Dailey or any of the Dailey
Subsidiaries or any of their respective properties or assets, and (iii)
subject to governmental filing and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation or arbitration award applicable to Dailey
or any of the Dailey Subsidiaries or their respective properties or
assets, other than (A), in the case of clause (ii), any such conflicts,
violations, defaults, rights or liens or encumbrances that individually
or in the aggregate would not have a Dailey MAE and (B) conflicts or
defaults arising solely out of the filing of the Bankruptcy Cases. No
consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or
with respect to Dailey or any of the Dailey Subsidiaries in connection
with the execution and delivery of this Agreement by Dailey or the
consummation by Dailey of the Transactions, except for (i) confirmation
of the Plan by the Bankruptcy Court, (ii) the filing of a pre-merger
notification and report form by Dailey under the HSR Act and (iii) such
other consents, approvals, orders, authorizations, registrations,
declarations, filings and notices as are set forth in Schedule 2.2(e).
(f) Commission Filings; Financial Statements. Dailey has filed
all reports, registration statements and other filings, together with
any amendments required to be made with respect thereto, that it has
been required to file with the Commission. All reports, registration
statements and other filings (including all notes, exhibits and
schedules thereto and documents incorporated by reference therein)
filed by Dailey with the Commission since August 31, 1996, through the
date of this Agreement, together with any amendments thereto, are
sometimes collectively referred to as the "Dailey Commission Filings."
Dailey has heretofore delivered to Weatherford copies of the Dailey
Commission Filings. As of the respective dates of their filing with the
Commission or, if any such Dailey Commission Filings were amended, as
of the date of the filing of such amendment, the Dailey Commission
Filings complied, and as of the Closing Date will comply, in all
material respects with the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the Commission
thereunder, and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading. All
documents required to be filed as exhibits to Dailey Commission Filings
pursuant to the Exchange Act and the Securities Act and the rules and
regulations thereunder have been so filed.
Each of the consolidated financial statements (including any
related notes or schedules) included in the Dailey Commission Filings
(i) was prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be noted
therein or in the notes or schedules thereto) and (ii) except for
non-compliance that would not have a Dailey MAE, complied with the
rules and regulations of the Commission. Such consolidated financial
statements included in the Dailey Commission Filings fairly present the
consolidated financial position of Dailey as of the dates thereof and
the results of operations, cash flows and changes in stockholders'
equity for the periods then ended (subject, in the case of the
unaudited interim financial statements, to the exclusion
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<PAGE> 11
of normal year-end audit adjustments and footnote disclosures). As of
the date hereof, Dailey has no liabilities, absolute or contingent,
that may reasonably be expected to have a Dailey MAE, that are not
reflected in the Dailey Commission Filings, except (i) those incurred
in the ordinary course of business consistent with past operations and
not relating to the borrowing of money (ii) those set forth in Schedule
2.2(f) or (iii) those identified in Dailey's draft Form 10-Q (printer's
edgarized proof, as of May 18, 1999, at 4:16 a.m.) for the three months
ended March 31, 1999, which has been previously provided to Weatherford
(the "Draft 10-Q").
(g) Disclosure Statement. The disclosure statement to be filed
by Dailey and the Subsidiary Parties with the Bankruptcy Court pursuant
to Section 1125 of the Bankruptcy Code and in accordance with Section
3.1(a) hereof, is herein called the "Disclosure Statement." The
Disclosure Statement will not, as of the date as of which it speaks,
contain an untrue statement of a material fact or omit to state a
material fact required to make the statements therein, in light of the
circumstances under which they are made, not misleading and will
describe accurately in all material respects the business and
operations of Dailey and the Dailey Subsidiaries and the provisions of
the Plan and this Agreement and will, as of the date of mailing of the
Bankruptcy Court-approved Disclosure Statement and other ballot
materials to the creditors and shareholders of Dailey, contain
"adequate information" (as defined in Section 1125(a)(1) of the
Bankruptcy Code) with respect to the Plan, Dailey and the Subsidiary
Parties and will describe accurately in all material respects the
provisions of the Plan and this Agreement.
(h) Conduct of Business in the Ordinary Course; Absence of
Certain Changes and Events. Since December 31, 1998, except as
contemplated by this Agreement or as disclosed in the Dailey Commission
Filings or the Draft 10-Q or set forth in Schedule 2.2(h), Dailey and
the Dailey Subsidiaries have conducted their respective businesses only
in the ordinary and usual course in accordance with past practice, and
there has not been: (i) a Dailey MAE; (ii) to the knowledge of Dailey,
any other condition, event or development that reasonably may be
expected to result in a Dailey MAE; (iii) any change by Dailey in its
accounting methods, principles or practices; (iv) any revaluation by
Dailey of any of its assets, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past
practice; (v) any entry by Dailey into any commitment or transaction
that would be material to Dailey; (vi) any declaration, setting aside
or payment of any dividends or distributions in respect of the Dailey
Common Stock or any redemption, purchase or other acquisition of any of
its securities; (vii) any damage, destruction or loss (whether or not
covered by insurance) materially adversely affecting the properties or
business of Dailey; (viii) any increase in indebtedness of borrowed
money other than borrowing under existing credit facilities, the amount
of which is disclosed in Schedule 2.2(h); (ix) any granting of a
security interest or lien or encumbrance on any property or assets of
Dailey, other than (A) liens or encumbrances for taxes not due and
payable and (B) inchoate mechanics', warehousemen's and other statutory
liens or encumbrances incurred in the ordinary course of business; or
(x) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted
stock awards), stock purchase or other employee benefit plan or any
other increase in the compensation payable or to become payable to any
directors, officers or key employees of Dailey or the Dailey
Subsidiaries or for which Dailey or any of the Dailey Subsidiaries
would be responsible.
(i) Litigation. Except as disclosed in the Dailey Commission
Filings or the Draft 10-Q or as set forth in Schedule 2.2(i), there are
no claims, actions, suits, investigations, inquiries or
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<PAGE> 12
proceedings (collectively, "Demands"), pending or, to the knowledge of
Dailey, threatened against Dailey or any of the Dailey Subsidiaries or
any of their respective properties at law or in equity, or any of their
employee benefit plans or fiduciaries of such plans, before or by any
Governmental Entity, wherever located (i) that exist today or (ii) that
would otherwise, if adversely determined, have a Dailey MAE. Neither
Dailey nor any of the Dailey Subsidiaries are subject to any judicial,
governmental or administrative order, writ, judgment, injunction or
decree.
(j) Employee Benefit Plans.
(i) Schedule 2.2(j) provides a description of each of
the following that is sponsored, maintained or contributed to
by, or to which there is any liability (secondary, contingent
or otherwise) of, Dailey, any Dailey Subsidiary or any
corporation, trade, business or entity under common control
with Dailey or any Dailey Subsidiary within the meaning of
Section 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended (the "Code"), or Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
(a "Dailey ERISA Affiliate"), for the benefit of its employees
(or former employees) or directors (or former directors), or
has been so sponsored, maintained or contributed to within
three years prior to the Closing Date:
(A) each "employee benefit plan" (each a
"Benefit Plan"), as such term is defined in Section
3(3) of ERISA; and
(B) each stock option plan, collective
bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan or other arrangement, policy or
agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment
agreement and each other employee benefit plan,
agreement, arrangement, program, practice or
understanding that is not described in Section
2.2(j)(i)(A) ("Benefit Program or Agreement").
True and complete copies of each of the Benefit Plans and
Benefit Programs or Agreements, related trusts, if applicable,
and all amendments thereto, together with (i) the Forms 5500,
as applicable, for the three most recent plan years, (ii) all
current summary plan descriptions for each such Benefit Plan,
and (iii) the most recent Internal Revenue Service
determination letters for each such Benefit Plan, as
applicable, and all correspondence with the Internal Revenue
Service and the Department of Labor within the past thirty-six
months relating to such Benefit Plans, Benefit Programs and
Agreements have been furnished to Weatherford.
(ii) Except as otherwise set forth in Schedule
2.2(j),
(A) None of the Benefit Plans are subject to
Title IV of ERISA or Section 412 of the Code; no plan
is a multiemployer plan within the meaning of Section
3(37) of ERISA; each Benefit Plan is a single
employer plan; and no Benefit Plan has engaged in any
transaction described in Sections 406 and 407 of
ERISA (unless exempt under Section 408) or Section
4975 of the Code (unless exempt), which in the
aggregate would have a Dailey MAE;
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<PAGE> 13
(B) Each Benefit Plan and each Benefit
Program or Agreement has been administered,
maintained and operated in all material respects in
accordance with the terms thereof and in compliance
with its governing documents and applicable law
(including, where applicable, ERISA and the Code and
timely filing of Form 5500's for each year);
(C) There is no matter pending with respect
to any of the Benefit Plans before any governmental
agency, and there are no actions, suits or claims
pending (other than routine claims for benefits) or,
to the knowledge of Dailey, threatened against, or
with respect to, any of the Benefit Plans or Benefit
Programs or Agreements or its assets;
(D) No act, omission or transaction has
occurred which would result in imposition on Dailey
or any Dailey ERISA Affiliate of breach of fiduciary
duty liability damages under Section 409 of ERISA, a
civil penalty assessed pursuant to subsections (c),
(i) or (l) of Section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code,
which in the aggregate would have a Dailey MAE;
(E) The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby will not require Dailey or any
Dailey ERISA Affiliate to make a larger contribution
to, or pay greater benefits under, any Benefit Plan
or Benefit Program or Agreement than it otherwise
would or create or give rise to any additional vested
rights or service credits under any Benefit Plan or
Benefit Program or Agreement or cause the companies
to make accelerated payments; and
(F) Each Benefit Plan intended to be a
"qualified plan" under Section 401(a) of the Code is
so qualified.
(iii) Except as set forth in Schedule 2.2(j),
termination of employment of any employee of Dailey or any
Dailey Sub immediately after consummation of the Transactions
would not result in payments under the Benefit Plans or
Benefit Programs or Agreements which, in the aggregate, would
result in imposition of the sanctions imposed under Sections
280G and 4999 of the Code.
(iv) Each Benefit Plan may be unilaterally amended or
terminated in its entirety without liability except as to
benefits accrued thereunder prior to such amendment or
termination.
(v) Except as set forth in Schedule 2.2(j), none of
the employees of Dailey or any Dailey Sub are subject to union
or collective bargaining agreements.
(vi) None of Dailey or any of the Dailey ERISA
Affiliates has agreed or is obligated to provide retiree
medical coverage, other than COBRA-required coverage, and each
of such companies has fully complied with all obligations
under COBRA applicable to it.
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<PAGE> 14
(k) Taxes. Except as set forth in Schedule 2.2(k),
(i) all returns and reports, including, without
limitation, information and withholding returns and reports
("Tax Returns"), of or relating to any foreign, federal, state
or local tax, assessment or other governmental charge ("Taxes"
or a "Tax") that are required to be filed on or before the
Closing Date by or with respect to Dailey or any Dailey
Subsidiary, have been or will be duly and timely filed, all
such Tax Returns are or will be true, correct and complete in
all material respects, and all Taxes, including interest and
penalties, due and payable whether or not shown on any such
Tax Return have been or will be duly and timely paid or
adequately provided for in reserves established by Dailey in
its consolidated financial statements or any such Dailey
Subsidiary, except where the failure to file Tax Returns or to
pay or provide for Taxes would not result in a Dailey MAE;
(ii) the charges, accruals and reserves for Taxes
with respect to Dailey and the Dailey Subsidiaries reflected
in the consolidated financial statements included in the
Dailey Commission Filings have been prepared in accordance
with generally accepted accounting principles and are
sufficient to cover the payment of all material Taxes,
including any penalties or interest thereon and whether or not
assessed or disputed, that are, or are hereafter found to be,
or to have been, due with respect to the operations of Dailey
or any Dailey Subsidiary through the periods covered thereby
and Dailey and any Dailey Subsidiary has (and as of the
Closing Date will have) made all estimated tax payments
required with respect to Taxes for Tax Returns not yet due;
(iii) there is no action, suit, proceeding, audit or
claim now proposed or pending against or with respect to
Dailey or any Dailey Subsidiary in respect to any Taxes, and
no material assessment, deficiency or adjustment has been
asserted or proposed with respect to any Tax Return of or with
respect to Dailey or any Dailey Subsidiary that has not been
adequately provided for in reserves established by Dailey or
such Dailey Subsidiary;
(iv) no waiver or extension of any statute of
limitations or the period of assessment or collection of any
Taxes relating to any federal, state, local or foreign Tax
matter has been given by or requested from Dailey or any
Dailey Subsidiary and no power of attorney with respect to any
such Taxes has been filed or entered into with any
Governmental Authority, in either case that will be
outstanding as of the Effective Time and the time for filing
any Tax Return relating to Dailey has not been extended to a
date later than the date of this Agreement;
(v) except for statutory liens or encumbrances for
current Taxes not yet delinquent, no liens or encumbrances for
Taxes exist upon the assets of Dailey or any Dailey
Subsidiary;
(vi) none of Dailey or any Dailey Subsidiary is a
party to or bound by or has an obligation under any written
Tax separation, sharing or similar agreement or arrangement;
(vii) at the time of the spin-off of MacLaw Holdings,
Inc. by Lawrence Administrative Services, Inc. and at the time
of the acquisition of Lawrence Administrative Services, Inc.
by Dailey, there was no plan or intention to acquire directly
or indirectly stock
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<PAGE> 15
representing a 50 percent or greater interest in MacLaw
Holdings, Inc. or Dailey within the meaning of Section 355(e)
of the Code.
(l) Environmental Matters. Except as set forth in Schedule
2.2(l), (i) the properties, operations and activities of Dailey and
each of the Dailey Subsidiaries comply in all material respects with
all applicable Environmental Laws; (ii) assuming no change in permitted
activities and timely notification of change of ownership, all the
material environmental permits of Dailey are transferable; (iii) none
of Dailey or any of the Dailey Subsidiaries is subject to any existing,
pending or, to the knowledge of Dailey, threatened action, suit,
investigation, inquiry, removal, remediation or corrective action
requirements, citation, outstanding administrative order, judicial
decree or proceeding by or before any governmental authority under any
Environmental Law; (iv) except where the failure would not have a
Dailey MAE, all notices, permits, licenses, or similar authorizations,
if any, required to be obtained or filed by Dailey under any
Environmental Law in connection with any aspect of the business of
Dailey or any Dailey Subsidiary, including without limitation those
relating to the treatment, storage, disposal or release of a hazardous
substance or solid waste, have been duly obtained or filed and will
remain valid and in effect after the Closing Date, and Dailey and each
Dailey Subsidiary is in compliance with the terms and conditions of all
such notices, permits, licenses and similar authorizations; (v) Dailey
and each of the Dailey Subsidiaries has satisfied and is currently in
compliance with all financial responsibility requirements applicable to
its operations and imposed by any governmental authority under any
other Environmental Law, and none of such parties has received any
notice of noncompliance with any such requirements; (vi) there are no
physical or environmental conditions existing on any property currently
owned, leased or operated or previously owned, leased or operated by
Dailey or any entity in which it has or had ownership interest that
could reasonably be expected to give rise to any on-site or off-site
remedial obligations under any Environmental Laws; and (vii) to
Dailey's knowledge, since the effective date of the relevant
requirements of applicable Environmental Laws, all hazardous substances
or solid wastes generated by Dailey or any Dailey Subsidiary or used in
connection with their properties or operations have been transported
only by carriers authorized under Environmental Laws to transport such
substances and wastes, and disposed of only at treatment, storage, and
disposal facilities authorized under environmental laws to treat, store
or dispose of such substances and wastes, and, to the knowledge of
Dailey, such carriers and facilities have been and are operating in
compliance with such authorizations and are not the subject of any
existing, pending, or threatened action, investigation, inquiry, or
corrective action measures by any governmental authority in connection
with any Environmental Laws.
For purposes of this Agreement, the term "Environmental Laws"
shall mean any and all laws, statutes, ordinances, rules, regulations,
orders or determinations of any Governmental Authority pertaining to
health or the environment currently in effect in any and all
jurisdictions in which the party in question and its subsidiaries own
property or conduct business, including without limitation, the Clean
Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), the
Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the
Hazardous & Solid Waste Amendments Act of 1984, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, the Oil Pollution
Act of 1990 ("OPA"), any state laws pertaining to the handling of oil
and gas exploration and production wastes or the use, maintenance, and
closure of pits and impoundments, and all other environmental
conservation or protection laws. For purposes of this Agreement, the
terms "hazardous substance" and "release" have
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<PAGE> 16
the meanings specified in CERCLA and shall also include PCBs, asbestos,
crude oil and refined products; provided, however, that to the extent
the laws of the state in which the property is located establish a
meaning for "hazardous substance," "release," "solid waste" or
"disposal" that is broader than that specified in CERCLA, such broader
meaning shall apply. For purposes of this Agreement, the term
"Governmental Authority" includes the United States, any foreign
jurisdiction, the state, county, city and political subdivisions in
which the party in question owns or leases property or conducts
business, and any agency, department, commission, board, bureau or
instrumentality of any of them.
(m) Severance Payments. Except as set forth in Schedule
2.2(m), neither Dailey nor any of the Dailey Subsidiaries will have any
liability or obligation to pay a severance payment or similar
obligation to any of their respective employees, officers or directors
as a result of the Transactions, nor will any of such persons be
entitled to an increase in severance payments or other benefits as a
result of the Transactions in the event of the subsequent termination
of their employment.
(n) Brokers. Except as set forth in Schedule 2.2(n), no
broker, investment banker, or other Person acting on behalf of Dailey
is or will be entitled to any broker's, finder's or other similar fee
or commission in connection with the Transactions.
(o) Compliance with Laws. Dailey and each of the Dailey
Subsidiaries hold all required, necessary or applicable permits,
licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities, except where the failure to so hold could
not reasonably be expected to have a Dailey MAE (the "Dailey Permits").
All applications with respect to such Dailey Permits, were complete and
correct in all material respects when made and Dailey does not know of
any reason why any of such permits, licenses, variances, exemptions,
orders, franchises and approvals would be subject to cancellation.
Dailey and each of the Dailey Subsidiaries are in compliance with the
terms of the Dailey Permits except where the failure to so comply could
not reasonably be expected to have a Dailey MAE. None of Dailey or any
of the Dailey Subsidiaries has violated or failed to comply with any
statute, law, ordinance, regulation, rule, permit or order of any
Federal, state or local government, domestic or foreign, or any
Governmental Entity, any arbitration award or any judgment, decree or
order of any court or other Governmental Entity, applicable to Dailey
or any of the Dailey Subsidiaries or their respective business, assets
or operations, except for violations and failures to comply that would
not have a Dailey MAE.
(p) Contracts.
(i) Schedule 2.2(p) contains a complete list of the
following contracts, agreements, arrangements and commitments:
(A) all employment or consulting contracts or agreements to
which Dailey or any of the Dailey Subsidiaries is
contractually obligated; (B) current leases, sales contracts
and other agreements with respect to any real property of
Dailey or any of the Dailey Subsidiaries or to which Dailey or
any of the Dailey Subsidiaries is contractually obligated and
current leases, sales contracts or other agreements with
respect to personal property of Dailey or any of the Dailey
Subsidiaries or to which Dailey or any of the Dailey
Subsidiaries is contractually obligated, in each case having
(1) a remaining term of greater than one year or (2) total
payments that may be required of Dailey or the Dailey
Subsidiaries exceeding $50,000; (C) contracts or commitments
for capital expenditures or acquisitions in excess of $500,000
to which Dailey or any of the Dailey Subsidiaries is
obligated; (D) agreements, contracts, indentures or other
instruments relating to the borrowing
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<PAGE> 17
of money, or the guarantee of any obligation for the borrowing
of money, to which Dailey or any of the Dailey Subsidiaries is
a party or any of their respective properties is bound; (E)
contracts or agreements or amendments thereto that would be
required to be filed as an exhibit to an Annual Report on Form
10-K filed by Dailey as of the date hereof that has not been
filed as an exhibit to Dailey's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed by Dailey with
the Commission or any report filed with the Commission under
the Exchange Act since such date; (F) all material
indemnification and guaranty or other similar obligations
(other than those obligations which occur in the ordinary
course of business) to which Dailey or any of the Dailey
Subsidiaries is bound; (G) any outstanding bonds, letters of
credit posted or guaranteed by Dailey or any of the Dailey
Subsidiaries with respect to any Person, other than those that
do not exceed $500,000 in the aggregate (H) any covenants not
to compete or other obligations affecting Dailey or any Dailey
Subsidiary that would materially restrict any of them or their
affiliates from engaging in any business or activity; and (I)
contracts under which Dailey or any Dailey Subsidiary has
received any material advance, "take-or-pay" or other similar
payments and that entitle purchasers to receive deliveries
without paying at such time the contract price therefor.
(ii) True and correct copies of all the instruments
described in Schedule 2.2(p) have been furnished or made
available to Weatherford. Except as noted in Schedule 2.2(p),
all such agreements, arrangements or commitments are valid and
subsisting and each of Dailey and the Dailey Subsidiaries, to
the extent each is a party, has duly performed its obligations
thereunder in all material respects to the extent such
obligations have accrued, and no breach or default exists
thereunder by Dailey or the Dailey Subsidiaries or, to the
knowledge of Dailey, any other party thereto. There are no
material liabilities of any of the parties to any of the
contracts between Dailey or any of the Dailey Subsidiaries and
third parties arising from any breach of or default in any
provision thereof, other than such breaches that, individually
or in the aggregate, could not reasonably be expected to have
a Dailey MAE, or that would permit the acceleration of any
obligation of any party thereto or the creation of a lien or
encumbrance upon any asset of Dailey or any of the Dailey
Subsidiaries.
(iii) The Subsidiary Parties are the only Dailey
Subsidiaries that have guaranteed the Dailey Notes or are
required to do so pursuant to the indenture for the Dailey
Notes.
(q) Title to Property.
(i) Dailey and each of the Dailey Subsidiaries have
good and indefeasible title to, or valid leasehold interests
in, all of their properties and assets including all real
property and all other properties (tangible or intangible,
real or personal) carried on their books as an asset or used
exclusively by them in their business.
(ii) Except as set forth in Schedule 2.2(q)(ii),
Dailey and each of the Dailey Subsidiaries has complied in all
material respects with the terms of all leases to which it is
a party and under which it is in occupancy, and all such
leases are in full force and effect. Dailey and each of the
Dailey Subsidiaries enjoys peaceful and undisturbed possession
under all such leases.
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(r) Insurance Policies. Schedule 2.2(r) contains a correct and
complete description of all insurance policies of Dailey covering
Dailey and the Dailey Subsidiaries, any employees or other agents of
Dailey and the Dailey Subsidiaries or any assets of Dailey and the
Dailey Subsidiaries. Each such policy is in full force and effect, is
with responsible insurance carriers and is substantially equivalent in
coverage and amount to policies covering companies of the size of
Dailey and in the business in which Dailey and the Dailey Subsidiaries
is engaged, in light of the risk to which such companies and their
employees, businesses, properties and other assets may be exposed. All
retroactive premium adjustments under any worker's compensation policy
of Dailey or any of the Dailey Subsidiaries have been recorded in
Dailey's financial statements in accordance with generally accepted
accounting principles and are reflected in the financial statements
contained in the Dailey Commission Filings.
(s) Loans. Schedule 2.2(s) sets forth all existing loans,
advances or other extensions of credit (excluding accounts receivable
arising in the ordinary course of business) by Dailey or the Dailey
Subsidiaries to any party, including intercompany loans, advances,
guaranties or extensions of credit.
(t) Voting Requirements. Dailey has taken all action to assure
that no state takeover statute or similar statute or regulation,
including, without limitation Section 203 of the Delaware General
Corporation Law, shall apply to the Transactions or to Weatherford.
Dailey has also taken such other action with respect to any other
anti-takeover provisions in its by-laws or Certificate of Incorporation
to the extent necessary to consummate the Transactions on the terms set
forth in this Agreement.
ARTICLE III
COVENANTS OF DAILEY
3.1 CERTAIN COVENANTS CONCERNING THE PROSPECTIVE BANKRUPTCY CASES.
(a) On or before June 1, 1999, each of Dailey and the
Subsidiary Parties shall file the Bankruptcy Cases, together with the
Plan substantially in the form attached as Exhibit A hereto and to
which this Agreement shall be an Exhibit and the Disclosure Statement,
with the Bankruptcy Court pursuant to Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code"). Weatherford and its counsel
shall be given reasonable opportunity to review and comment upon drafts
of the Disclosure Statement before its filing.
(b) Dailey and the Subsidiary Parties shall seek Bankruptcy
Court approval of the Disclosure Statement as expeditiously as
permitted by the Bankruptcy Code, the Federal Rules of Bankruptcy
Procedure and the local rules, if any, of the Bankruptcy Court.
(c) Subject to their fiduciary obligations as debtors in
possession in the Bankruptcy Cases, Dailey and the Subsidiary Parties
shall exercise all reasonable efforts diligently and in good faith to
cause the Plan to be confirmed by the Bankruptcy Court as promptly as
practicable and in substantially the form of Exhibit A hereto. Dailey
shall not amend or permit the Plan to be amended without the prior
written consent of Weatherford and, upon the reasonable request of
Weatherford, shall promptly file with the Bankruptcy Court all such
amendments to the Plan, the Disclosure
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Statement or any exhibit to either as are necessary in order to give
effect to the provisions of this Agreement. Subject to confirmation of
the Plan, Dailey and the Dailey Subsidiaries shall take all action not
inconsistent with the provisions of this Agreement that is necessary or
appropriate in order to effect the consummation of the Plan and the
Transactions.
(d) Neither Dailey nor any Dailey Subsidiaries shall have
filed any motion or other pleading, or otherwise shall have brought any
action or proceeding, challenging or objecting to the Dailey Note
Claims of the holders of the Dailey Notes that are signatories to that
certain agreement among such signatories and Dailey and the Subsidiary
Parties (each a "Consenting Noteholder" and collectively, the
"Consenting Noteholders") or otherwise seeking any recovery from, or
injunctive relief against, a Consenting Noteholder (other than with
respect to any alleged or actual breach by a Consenting Noteholder of
the terms of this Agreement);
3.2 CONDUCT OF BUSINESS BY DAILEY PENDING THE CLOSING DATE. Dailey
covenants and agrees that, from the date of this Agreement until the Closing
Date, unless Weatherford shall otherwise agree in writing or as otherwise
expressly and specifically contemplated by this Agreement or expressly and
specifically permitted in the Plan:
(a) The business of Dailey and the Dailey Subsidiaries shall
be conducted only in, and Dailey and the Dailey Subsidiaries shall not
take any action except in, the ordinary course of business and
consistent with past practice;
(b) Dailey and the Dailey Subsidiaries shall not, except as
contemplated hereby or by the Plan, directly or indirectly do any of
the following: (i) issue, sell, pledge, dispose of or
encumber any capital stock or grant or issue any right to acquire any
capital stock; (ii) split, combine or reclassify any outstanding
capital stock, or declare, set aside or pay any dividend payable in
cash, stock, property or otherwise with respect to its capital stock
whether now or hereafter outstanding; (iii) redeem, purchase or acquire
or offer to acquire any of its capital stock or outstanding
indebtedness; (iv) acquire, agree to acquire or make any offer to
acquire for cash or other consideration, any equity interest in or
assets of any corporation, partnership, joint venture or other entity;
or (v) enter into any contract, agreement, commitment or arrangement
with respect to any of the matters set forth in this Section 3.2(b);
(c) Dailey and the Dailey Subsidiaries shall not enter into
any contract regarding its business having a term greater than 120 days
or involving an amount in excess of $500,000 nor commit to do the same;
provided, however, that Weatherford shall not unreasonably withhold any
consent sought by Dailey or any of the Dailey Subsidiaries with respect
to this covenant;
(d) Dailey and the Dailey Subsidiaries shall not become bound
by any agreement or obligation in an amount in excess of $500,000 in
the aggregate for all such agreements and obligations; provided,
however, that Weatherford shall not unreasonably withhold any consent
sought by Dailey or any of the Dailey Subsidiaries with respect to this
covenant;
(e) Neither Dailey nor any of the Dailey Subsidiaries shall
(i) increase the compensation payable or to become payable to its
officers or employees, except for increases in compensation of
non-officer employees in accordance with past practices in salaries or
wages of employees of Dailey or any of the Dailey Subsidiaries who are
not officers of Dailey or any of the Dailey Subsidiaries, (ii) grant
any severance or termination pay to any director, officer or other
employee of Dailey or any
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<PAGE> 20
of the Dailey Subsidiaries, (iii) enter into or amend any employment or
severance agreement with any director, officer or other employee of
Dailey or any of the Dailey Subsidiaries or (iv) establish, adopt,
enter into, extend, or, except as set forth on Schedule 3.2(e), amend
or terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(f) Neither Dailey nor any of the Dailey Subsidiaries shall
enter into any collective bargaining agreement or any agreement to
change or modify any existing collective bargaining agreement, except
for such changes or modifications as may be required by law;
(g) Neither Dailey nor any of the Dailey Subsidiaries shall
merge or consolidate with any corporation or business entity, acquire
control or acquire any capital shares of other securities of any other
corporation or business entity, or take any steps incident to or in
furtherance of any such actions, whether by entering into an agreement
providing therefor or otherwise;
(h) Neither Dailey nor any of the Dailey Subsidiaries shall
enter, or agree to enter, into any contract or agreement (i) granting
any rights of first refusal or similar preferential rights to purchase
any assets or rights of Dailey or any of the Dailey Subsidiaries, other
than in the ordinary course of business with respect to non-material
assets or rights, (ii) requiring the consent of any party to the
consummation of any of the transactions contemplated by this Agreement
or the Plan, or (iii) that if effective on the date hereof would be
required to be identified as a disclosure pursuant to Schedule 2.2(p);
(i) Neither Dailey nor any of the Dailey Subsidiaries shall
sell, lease, mortgage, pledge, grant a lien or encumbrance on or
otherwise encumber or otherwise dispose of any of Dailey's or the
Dailey Subsidiaries' properties or assets, except sales of inventory
and rental of equipment in the ordinary course of business consistent
with past practice, or cancel any material liabilities owed to it, or
agree to do any of the foregoing;
(j) Except as disclosed in Schedule 3.2(j), neither Dailey nor
any of the Dailey Subsidiaries shall, directly or indirectly, incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of Dailey or any of the Dailey
Subsidiaries, guarantee any debt securities of another person (other
than endorsements of drafts, checks and notes in the ordinary course of
business), enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing or make
or permit to remain outstanding any loans, advances or capital
contributions to, or investments in, any other person, other than to
Dailey or any Subsidiary Party;
(k) Neither Dailey nor any of the Dailey Subsidiaries shall
make any election relating to Taxes or settle or compromise any
material federal, state, local or foreign income tax liability;
(l) Neither Dailey nor any of the Dailey Subsidiaries shall
change any accounting principle or practices used by it except as
required by generally accepted accounting principles;
(m) Dailey shall use its reasonable efforts to (i) preserve
intact the business organization of Dailey and the Dailey Subsidiaries,
(ii) maintain in effect any material authorizations or similar
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rights of Dailey and the Dailey Subsidiaries, (iii) preserve the
goodwill of those having material business relationships with Dailey
and the Dailey Subsidiaries; (iv) maintain and keep each of Dailey's
and the Dailey Subsidiaries' properties in the same repair and
condition as presently exists, except for deterioration due to ordinary
wear and tear and damage due to casualty; and (v) maintain in full
force and effect insurance comparable in amount and scope of coverage
to that currently maintained by it;
(n) Dailey shall, and shall cause the Dailey Subsidiaries to,
perform their respective obligations under any contracts and agreements
to which it is a party or to which any of its assets is subject, except
to the extent such failure to perform would not have a Dailey MAE;
(o) Neither Dailey nor any of the Dailey Subsidiaries shall
(i) settle any unsecured claims in the Bankruptcy Cases without
Weatherford's prior written consent or (ii) reject any executory
contracts with respect to which the damages resulting from such
rejection would exceed $50,000;
(p) Upon Weatherford's written request, Dailey and the
Subsidiary Parties shall file and prosecute claims and objections in
the Bankruptcy Cases;
(q) Neither Dailey nor any of the Dailey Subsidiaries shall
amend or otherwise change its Certificate of Incorporation or bylaws or
equivalent organizational documents;
(r) Neither Dailey nor any of the Dailey Subsidiaries shall
take any action that would prevent or impede any party to this
Agreement from obtaining any consent or approval the receipt of which
is a condition to the consummation of the Plan;
(s) Neither Dailey nor any of the Dailey Subsidiaries shall
enter into any agreement or arrangement that would limit or otherwise
restrict Dailey or any of the Dailey Subsidiaries or any successor
thereto or, after consummation of the Plan, Weatherford or any
subsidiary thereof or any successor thereto, from engaging or competing
in any line of business or in any geographic area;
(t) Neither Dailey nor any of the Dailey Subsidiaries shall
take any action that is inconsistent with the terms of the Plan;
(u) Dailey shall not authorize any of, or commit or agree to
take any of, or permit any Dailey Subsidiary to take any of, the
foregoing actions to the extent prohibited by the foregoing and shall
not, and shall not permit any of the Dailey Subsidiaries to, take any
action that would, or that reasonably could be expected to, result in
any of the representations and warranties set forth in this Agreement
becoming untrue or any of the conditions to the Acquisition set forth
in Article VI not being satisfied. Dailey promptly shall advise
Weatherford orally and in writing of any change or event having, or
which, insofar as reasonably can be foreseen, would have, a material
adverse effect on Dailey and the Dailey Subsidiaries, taken as a whole,
or cause a Dailey MAE; and
(v) Prior to the time the Bankruptcy Cases, the Plan and the
Disclosure Statement are filed with the Bankruptcy Court, Dailey shall
not, nor shall Dailey authorize or knowingly permit any affiliate,
officer, director, employee, subsidiary, investment banker, attorney,
advisor, agent or representative (collectively, any "Affiliate") of
Dailey to, directly or indirectly, (i) solicit, initiate or encourage
the submission of any Alternative Transaction (as defined in Section
5.3(a)), (ii) enter into any agreement with respect to any Alternative
Transaction, or (iii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or
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take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to,
any Alternative Transaction. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any Affiliate of Dailey, whether or not such
Affiliate is purporting to act on behalf of Dailey, shall be deemed to
be a material breach of this Agreement by Dailey.
In addition to the obligations of Dailey set forth in the
foregoing paragraph, Dailey shall promptly advise Weatherford orally
and in writing of any Alternative Transaction or any inquiry with
respect to or which could lead to any Alternative Transaction, the
material terms and conditions of such inquiry or Alternative
Transaction (including any proposed financing for such Alternative
Transaction), and the identity of the person proposing such Alternative
Transaction. Dailey will keep Weatherford fully informed of the status
and details of any such proposed Alternative Transaction.
ARTICLE IV
COVENANTS OF WEATHERFORD PRIOR TO THE EFFECTIVE TIME
4.1 RESERVATION OF WEATHERFORD STOCK. Weatherford shall reserve for
issuance, out of its authorized but unissued capital stock, such number of
shares of Weatherford Common Stock as may be issuable pursuant to this Agreement
upon consummation of the Acquisition.
4.2 STOCK EXCHANGE LISTING. Weatherford shall use its best efforts to
cause the shares of Weatherford Common Stock to be issued in the Acquisition to
be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FILINGS; CONSENTS; REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, Dailey and Weatherford shall (i) make all
necessary filings with respect to the Plan and this Agreement under the HSR Act,
the Securities Act, the Exchange Act, and applicable blue sky or similar
securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto; (ii) use reasonable efforts to
obtain all consents, waivers, approvals, authorizations, and orders required in
connection with the authorization, execution, and delivery of this Agreement and
the consummation of the Plan; and (iii) use reasonable efforts to take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper, or advisable to consummate the Plan and make effective as
promptly as practicable the Transactions, including (with respect to Dailey)
causing any Dailey Subsidiary that is not a Subsidiary Party to authorize and
execute any Other Agreements.
5.2 NOTIFICATION OF CERTAIN MATTERS. Dailey shall give prompt notice to
Weatherford, and Weatherford shall give prompt notice to Dailey, orally and in
writing, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
hereof to the Effective Time; and (ii) any material failure of Dailey or
Weatherford, as the case may be, or any officer, director, employee or agent
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thereof, to comply with or satisfy any covenant, condition or agreement to be
compiled with or satisfied by it hereunder.
5.3 CERTAIN FEES AND EXPENSES. In the event that the Transactions and
the Plan are not consummated under one of the circumstances set forth below
(other than as a result of the breach of this Agreement by Weatherford), then
Dailey and the Dailey Subsidiaries, jointly and severally, shall reimburse
Weatherford for its reasonable out-of-pocket fees and expenses (including
reasonable attorneys' fees and disbursements at such attorneys' normal hourly
rates) incurred in connection this Agreement, the Plan, the Transactions and the
Bankruptcy Cases, and shall also make the indicated payment to Weatherford to
compensate Weatherford for its time and expense incurred in connection with this
Agreement:
(a) If the Transactions and the Plan are not consummated
because of the failure of the condition set forth in Section 6.2(d) to
occur, Dailey shall issue to Weatherford 2,000,000 shares of Dailey
Class A Common, provided that if such failure is the result of an
injunction or similar order issued by a Governmental Entity of
competent jurisdiction and such injunction or order is subsequently
dissolved or rescinded, Weatherford shall promptly return such shares
to Dailey; in addition, if this Agreement is terminated by Weatherford
because of the failure of the condition in Section 6.2(d) to be
satisfied, and if within one year of such termination of this
Agreement, an agreement or an agreement in principle is reached, a
tender or exchange offer is commenced or a bankruptcy plan is filed, in
any such case that results in an Alternative Transaction that is
ultimately consummated, Dailey and the Dailey Subsidiaries shall also
pay to Weatherford the amount of $6,000,000 as a condition to and upon
consummation of the Alternative Transaction; for purposes of this
Agreement, "Alternative Transaction" means (A) any merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction
involving Dailey or any of the Dailey Subsidiaries where the
shareholders of Dailey cease to own at least 60% of the voting power
and equity of the surviving entity, (B) the acquisition from Dailey or
any of its affiliates in any manner, directly or indirectly, of a
greater than 35% voting or equity interest in Dailey or the acquisition
of in excess of $25 million in assets or businesses of Dailey and the
Dailey Subsidiaries, on a consolidated basis or a sale of a material
portion of Dailey's jar business or underbalanced or air drilling
businesses, (C) the acquisition from the stockholders of Dailey, by
tender offer, exchange offer or otherwise, of more than 35% of any
class of common stock of Dailey then outstanding, or (D) any plan of
reorganization providing for any of the foregoing, unless such plan of
reorganization contemplates only the conversion of creditor claims into
equity of Dailey and does not provide for any third-party additional
equity or debt (except for working capital or capital facility
financing);
(b) If the Transactions and the Plan are not consummated
because any of the conditions set forth in Sections 6.1 or 6.2 hereof,
excluding the conditions set forth in Section 6.2(b) and 6.2(d), fails
to be satisfied or waived, Dailey and the Dailey Subsidiaries shall pay
to Weatherford the amount of $6,000,000 provided, however, that if the
failure of the condition contained in Section 6.2(e) to be satisfied is
the result of Dailey's breach of its covenant contained in Section
3.2(v), then Weatherford's remedies shall be limited to such $6,000,000
plus the reimbursement of its reasonable out-of-pocket fees and
expenses as set forth above in this Section 5.3; or
(c) If the Transactions and the Plan are not consummated
because the condition set forth in Section 6.2(b) fails to be satisfied
or waived, Dailey and the Dailey Subsidiaries shall not be required to
pay any amounts other than the reimbursement provided for by this
Section 5.3.
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<PAGE> 24
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
of each party to consummate the Agreement and the Transactions shall be subject
to the fulfillment of the following conditions:
(a) (i) none of the Bankruptcy Cases shall have been dismissed
or converted to a case under chapter 7 of the Bankruptcy Code, (ii) the
Plan shall incorporate the terms of this Agreement and (iii) the Plan
shall have been confirmed pursuant to an order of the Bankruptcy Court,
which order shall have become final, non-appealable and not subject to
further review (the "Confirmation Order") in accordance with the
provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy
Procedure and the local rules of the Bankruptcy Court.
(b) The waiting period (and any extension thereof) applicable
to the consummation of the Acquisition under the HSR Act shall have
expired or been terminated;
(c) No order shall have been entered and remain in effect in
any action or proceeding before any foreign, federal or state court or
governmental agency or other foreign, federal or state regulatory or
administrative agency or commission that would prevent or make illegal
the consummation of the Transactions or the Plan;
(d) There shall have been obtained any and all material
permits, approvals and consents of any governmental body, commission or
agency that reasonably may be deemed necessary so that the consummation
of the Plan and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which would
have a Dailey MAE or Weatherford MAE; and
(e) The receipt of all approvals and consents of third persons
the granting of which is necessary for the consummation of the Plan or
the Transactions contemplated in connection therewith.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF WEATHERFORD. The obligation
of Weatherford to consummate the Agreement and the Transactions is, at the
option of Weatherford, also subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) The representations and warranties of Dailey and the
Dailey Subsidiaries in this Agreement shall be true and correct on the
Closing Date as if made on and as of that date, except for changes that
do not constitute a breach or violation of Section 3.2 hereof, or with
the prior written consent of Weatherford;
(b) There shall have been no material adverse change in the
assets, properties, business, operations, or condition (financial or
otherwise) of Dailey and the Dailey Subsidiaries (taken as a whole),
other than those changes arising out of the filing of the Bankruptcy
Cases and
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<PAGE> 25
the Plan (including any adverse effect on the interest of Air Drilling
Services, Inc. in International Nitrogen Services, LLC), provided,
however, that a continuation of trends of the type and magnitude as
reflected in the consolidated financial statements contained in the
Dailey Commission Filings filed since January 1, 1998 and the Draft
10-Q shall not be considered to be such a material adverse change;
(c) There shall be no liability or claim existing with respect
to Dailey or any Subsidiary Party that is material to Dailey and the
Subsidiary Parties, taken as a whole, other than such liabilities or
claims the nature and amount of which have been disclosed in all
material respects in this Agreement as of the date hereof;
(d) (i) the Dailey Noteholders shall not have elected to
exercise their right to terminate their obligations under the Agreement
dated May 21, 1999, among Weatherford, Dailey, the Subsidiary Parties,
J. D. Lawrence, and certain Dailey Noteholders (the "Voting
Agreement"), which right arose as a result of Dailey's failure to
timely file the Bankruptcy Cases, the Plan and the Disclosure Statement
on or before June 1, 1999, and (ii) Weatherford shall not have notified
Dailey of its election to terminate this Agreement pursuant to this
Section 6.2(d) by noon, Houston time on June 3, 1999 based on
Weatherford's determination in its sole discretion that Dailey and the
Subsidiary Parties have not made or are not making a good faith effort
to file the Bankruptcy Cases, the Plan and the Disclosure Statement on
or prior to June 1, 1999;
(e) All of the other terms, conditions, covenants and
agreements to be complied with or performed by Dailey under this
Agreement on or before the Closing Date shall have been duly complied
with or performed in all material respects;
(f) Unless otherwise agreed to in writing by Weatherford, on
or before September 30, 1999 the Confirmation Order shall have become a
final non-appealable (and not subject to pending appeal) order that,
among other things, (A) approves the terms of this Agreement and
Dailey's execution, delivery and performance of this Agreement, the
Technology Agreement, and all other agreements contemplated by this
Agreement; (B) approves the sale of the New Dailey Stock to Weatherford
free and clear of all liens, claims, interests, rights of others and
encumbrances of every kind; (C) includes an express finding that
Weatherford is a "good faith purchaser" of the New Dailey Stock; (D)
includes an express finding that Weatherford has acted in good faith
with respect to the Acquisition pursuant to Section 363(m) of the
Bankruptcy Code; (E) expressly effects the assumption of this Agreement
by Dailey and the Subsidiary Parties, and of the Technology Agreement
by Dailey pursuant to Section 365(a) of the Bankruptcy Code; (F)
enjoins and restrains all creditors of Dailey or any of the Subsidiary
Parties from asserting any lien, claim, interest or encumbrance (other
than any lien, claim, interest or encumbrance that cannot be removed
under the Bankruptcy Code) that any of them has or had against the
Dailey Stock or any of the assets of Dailey or the Subsidiary Parties;
(G) includes a reservation, pursuant to the Plan, of jurisdiction by
the Bankruptcy Court to implement and enforce this Agreement and
Weatherford's peaceful use and enjoyment of the assets of Dailey or any
of the Subsidiary Parties after the Closing Date, free and clear of all
liens, claims, and encumbrances to the fullest extent permitted under
the Bankruptcy Code; (H) terminates the automatic stay under Section
362 of the Bankruptcy Code to the extent necessary to permit
Weatherford to enforce the terms of this Agreement; (I) releases
Weatherford and its post-closing affiliates, representatives, employees
and agents from any claims related to or arising in the Bankruptcy Case
through the Closing Date other than claims arising
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<PAGE> 26
under this Agreement; (J) provides that the transfer of the Dailey
Stock to Weatherford is exempt from any tax to the fullest extent
permitted by Section 1146 of the Bankruptcy Code; (K) provides that the
issuance of Weatherford Common Stock pursuant to the Plan in accordance
with the terms of this Agreement is exempt from registration under the
Securities Act and all applicable state and local securities laws; and
(L) any other matter that Weatherford shall reasonably determine is
necessary or appropriate to effect the transactions contemplated by,
and to carry out the intent of, this Agreement;
(g) The Disclosure Statement, the Plan and the Confirmation
Order shall (i) incorporate, and otherwise be consistent in all
material respects with, the terms of this Agreement and (ii) be in form
and substance reasonably satisfactory to Weatherford;
(h) Dailey shall deliver to Weatherford customary closing
documents, each of which shall be dated as of the Closing Date, duly
executed and in a form reasonably satisfactory to Weatherford,
including a certificate of Dailey's president or a vice president
confirming all of the matters set forth in Sections 6.2(a)-(c);
(i) The Lease Modification Agreement between Dailey and
Lawrence International, Inc., in substantially the form as attached to
the Plan, shall have been entered into by such parties and shall remain
in effect;
(j) There shall not have occurred (i) any suspension or
limitation on trading in securities generally on the New York Stock
Exchange or the establishment of minimum prices on such Exchange, (ii)
a declaration of a banking moratorium either by Federal or New York
State authorities or (iii) any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war, or
other calamity or crisis the effect of which on financial markets is
such as to make it, in the sole judgment of Weatherford, impractical or
inadvisable to proceed with the consummation of the transactions
contemplated hereby to be consummated at the Closing Date; and
(k) the Voting Agreement shall not have been terminated on or
before September 30, 1999.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF DAILEY. The obligation of
Dailey to consummate the transactions contemplated by this Agreement is, at the
option of Dailey, also subject to the fulfillment at or prior to the Closing
Date of the following conditions:
(a) The representations and warranties of Weatherford
contained in Section 2.1 shall be accurate as of the date of this
Agreement and (except to the extent such representations and warranties
speak specifically as of an earlier date) as of the Closing Date as
though such representations and warranties had been made at and as of
that time; all the terms, covenants and conditions of this Agreement to
be complied with and performed by Weatherford on or before the Closing
Date shall have been duly complied with and performed in all material
respects; and a certificate to the foregoing effect dated the Closing
Date and signed by any vice president or senior vice president of
Weatherford shall have been delivered to Dailey; and
-22-
<PAGE> 27
(b) The Bankruptcy Court shall have entered an order of
confirmation of the Plan with respect to all debtors in the Bankruptcy
Cases, which order shall have become a final order.
ARTICLE VII
GENERAL PROVISIONS
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties in this Agreement shall survive the confirmation of the Plan and the
Closing Date.
7.2 PUBLIC STATEMENTS. Dailey and Weatherford agree to consult with
each other prior to issuing any press release or otherwise making any public
statement with respect to the transactions contemplated hereby.
7.3 ASSIGNMENT. This Agreement shall inure to the benefit of and will
be binding upon the parties hereto and their respective legal representatives,
successors and permitted assigns.
7.4 NOTICES. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i) delivered
in Person or by courier, (ii) sent by telecopy or facsimile transmission, answer
back requested, or (iii) mailed, certified first class mail, postage prepaid,
return receipt requested, to the parties hereto at the following addresses:
if to Dailey:
Dailey International, Inc.
2507 N. Frazier
Conroe, Texas 77303
Attn: Al Kite
Facsimile: 409-539-2132
with a copy to:
Haynes and Boone, LLP
1000 Louisiana, Suite 4300
Houston, Texas 77002
Attn: Marc H. Folladori
Robert D. Albergotti
Facsimile: 713-547-2600
if to Weatherford or Sub:
Weatherford International, Inc.
515 Post Oak Blvd., Suite 600
Houston, Texas 77027
Attn: Curtis W. Huff
Facsimile: 713-693-4484
-23-
<PAGE> 28
with a copy to:
Andrews & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
Attn: Robert V. Jewell
Facsimile: 713-220-4285
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 7.4. Such notices shall be
effective, (i) if delivered in Person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when the
answer back is received, or (iii) if mailed, upon the earlier of five days after
deposit in the mail and the date of delivery as shown by the return receipt
therefor.
7.5 GOVERNING LAW. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach shall be governed by the laws of the State
of Delaware, without regard to conflict of laws principles.
7.6 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
7.7 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same agreement.
7.8 HEADINGS. The Section headings herein are for convenience only and
shall not affect the construction hereof.
7.9 CONFIDENTIALITY AGREEMENTS. The Confidentiality Agreements entered
into between Weatherford and Dailey on August 12, 1998, and May 12, 1999 (the
"Confidentiality Agreements") are hereby incorporated by reference herein and
made a part hereof.
7.10 ENTIRE AGREEMENT: THIRD PARTY BENEFICIARIES. This Agreement, the
Other Agreements and the Confidentiality Agreements constitute the entire
agreement and supersede all other prior agreements and understandings, both oral
and written, among the parties or any of them, with respect to the subject
matter hereof and neither this nor any document delivered in connection with
this Agreement confers upon any Person not a party hereto any rights or remedies
hereunder.
7.11 WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto.
The waiver by any party hereto of any condition or of a breach of another
provision of this Agreement shall not operate or be construed as a waiver of any
other condition or subsequent breach. The waiver by any party hereto of any of
the conditions precedent to its obligations under this Agreement shall not
preclude it from seeking redress for breach of this Agreement other than with
respect to the condition so waived.
-24-
<PAGE> 29
IN WITNESS WHEREOF, each of the parties caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
WEATHERFORD
WEATHERFORD INTERNATIONAL, INC.
By: /s/ Curtis W. Huff
-------------------------------
Name: Curtis W. Huff
----------------------------
Title: Senior Vice President
---------------------------
DAILEY
DAILEY INTERNATIONAL INC.
By: /s/ J.D. Lawrence
-------------------------------
Name: J.D. Lawrence
----------------------------
Title: Chairman of the Board
---------------------------
SUBSIDIARY PARTIES
DAILEY ENERGY SERVICES, INC.
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
---------------------------
DAILEY INTERNATIONAL SALES
CORPORATION
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
---------------------------
-25-
<PAGE> 30
COLOMBIA PETROLEUM SERVICES
CORP.
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
---------------------------
INTERNATIONAL PETROLEUM
SERVICES, INC.
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title:
---------------------------
DAILEY ENVIRONMENTAL
REMEDIATION TECHNOLOGIES
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
---------------------------
DAILEY WORLDWIDE SERVICES, CORP.
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
---------------------------
AIR DRILLING INTERNATIONAL, INC.
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
---------------------------
-26-
<PAGE> 31
AIR DRILLING SERVICES, INC.
By: /s/ Al E. Kite
-------------------------------
Name: Al E. Kite
----------------------------
Title: President
----------------------------
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE 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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 29,952
<SECURITIES> 0
<RECEIVABLES> 387,298
<ALLOWANCES> 19,141
<INVENTORY> 499,951
<CURRENT-ASSETS> 1,046,275
<PP&E> 1,016,032
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 3,041,099
<CURRENT-LIABILITIES> 548,169
<BONDS> 630,957
0
0
<COMMON> 108,484
<OTHER-SE> 1,394,079
<TOTAL-LIABILITY-AND-EQUITY> 3,041,099
<SALES> 377,882
<TOTAL-REVENUES> 696,929
<CGS> 283,460
<TOTAL-COSTS> 518,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,287
<INCOME-PRETAX> 2,640
<INCOME-TAX> 796
<INCOME-CONTINUING> 518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
<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.
</FN>
</TABLE>
