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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-457
GULFMARK INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 74-1203713
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 POST OAK PARK, SUITE 1170, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 963-9522
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K
or any amendment to this Form 10-K. [ X ]
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
---- ----
Aggregate market value of the voting stock held by nonaffiliates of
the Registrant based upon the price at which the stock was sold as of March 14,
1997: $200,397,000.
Number of shares of common stock outstanding as of March 14, 1997:
3,339,952.
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TABLE OF CONTENTS
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<S> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
General Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Offshore Marine Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Erosion Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Energy Ventures, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 12
PART II 12
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . 13
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 14
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 41
Item 11. Director and Executive Officer Compensation . . . . . . . . . . . . . . . . . . . . . . 42
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 44
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 46
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PART I
ITEM 1. BUSINESS
GENERAL BUSINESS
GulfMark International, Inc. (together with its subsidiaries, the
"Company") operates in two principal industry segments: offshore marine
services and erosion control services. In addition, the Company has a 9.7%
ownership interest in Energy Ventures, Inc. (NYSE:EVI), an international
oilfield equipment and service company ("EVI"). Originally, the Company was a
consulting engineering firm specializing in onshore oil and gas pipelines which
expanded its operations during the 1970s and 1980s into other engineering and
technology fields. As a result of a five year restructuring which was
completed in 1990, all of these operations were disposed of with the exception
of erosion control services.
The Company then entered the business of providing offshore marine
services in international markets in 1990 through an acquisition of offshore
support vessels operating primarily in the North Sea and Southeast Asia. These
offshore support vessels provide transportation of materials, supplies and
personnel to and from offshore drilling platforms and rigs, production
platforms and other installations. Some of the vessels also perform anchor
handling and towing services. In addition to the vessels, the Company acquired
various support facilities, spare parts inventory and customer and vessel
management contracts. This acquisition marked the Company's expansion into the
oilfield service and equipment industry and signaled the completion of the
Company's transition from what was historically an engineering services
oriented company. The Company then set about the task of expanding and
upgrading its marine operations with the addition of 15 vessels, 4 of which
were newly constructed. These acquisitions were funded with a combination of
internal funds and bank debt. In addition, the Company has 2 vessels in its
fleet under bareboat charters and has 6 vessels under management contracts.
The Company was organized as a Delaware corporation in 1953. Its
principal executive offices are located at 5 Post Oak Park, Suite 1170,
Houston, Texas, 77027, and its telephone number is (713) 963-9522.
PROPOSED DISTRIBUTION AND MERGER
On December 5, 1996, the Company announced it had entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") with EVI, GulfMark
Offshore, Inc. ("New GulfMark") and GulfMark Acquisition Co. pursuant to which
EVI will acquire the Company in a tax-free merger (the "Merger") whereby
approximately 2.2 million shares of EVI common stock will be issued to the
Company's stockholders on the basis of .6695 shares of EVI common stock (as
adjusted per the Merger Agreement) for each share of the Company's common stock
held by such stockholders. As a condition to the Merger, the Company will
contribute its offshore marine services business and certain other related
assets ("the GulfMark Marine Business") to New GulfMark in consideration for
issuance to the Company of approximately 6,679,904 shares of New GulfMark
common stock and the assumption by New GulfMark of all of the liabilities of
the GulfMark Marine Business and certain historical liabilities of the Company
(the "Contribution"). Immediately following the Contribution, the Company will
distribute all of its New GulfMark common stock to the Company's stockholders
on the basis of two shares of New GulfMark common stock for each share of the
Company's common stock held by the Company's stockholders (the "Distribution")
pursuant to the terms of the Agreement and Plan of Distribution entered into on
December 5, 1996, by and among the Company, New GulfMark and EVI. The
Contribution, the Distribution and the Merger and the transactions related
thereto are referred to herein as the "Transactions". It is anticipated that
the Transactions will be consummated in the second quarter of 1997.
RECENT DEVELOPMENTS
The Company contracted with a shipyard in Norway early in 1995 for the
construction of two UT 755 design vessels for deployment in the North Sea.
Delivery of the first vessel, the Highland Piper, was made March 15, 1996. The
second vessel, the Highland Drummer, was delivered January 3, 1997. The
Company made the final payment on the Highland Piper and interim construction
payments on the Highland Drummer totaling $11,508,000 during 1996 and a final
payment on the Highland Drummer of $12,850,000 in 1997. Funding of $7,254,000
for the final payment in 1997 was provided by additional borrowings under
existing credit facilities. In connection with the delivery of these two
vessels, the Company is entitled to receive a subsidy from the Norwegian
government equal to 9.5% of the gross construction price. The Company has
accounted for subsidies as a reduction of the purchase price of the vessels.
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In November 1996 the Company entered into a Norwegian Kroner
denominated contract with a Norwegian shipyard to construct an enhanced UT 755
design, supply vessel at a price of approximately $18.0 million. The new
vessel, to be named the Highland Rover, will be a modified version of the
Company's recently delivered Highland Piper (March 1996) and Highland Drummer
(January 1997). This vessel, scheduled for delivery in the first quarter of
1998, will be available to participate in the growing demand for deep water
remotely operated vehicle (ROV) support and specialized services as well as
standard supply duties in the North Sea. The Company made interim construction
payments of $0.9 million in 1996 and is required to make interim payments of
approximately $2.7 million in 1997. Final payment is due upon delivery of the
vessel. The Company anticipates financing the cost of the vessel through
additional borrowings and existing funds. Subsequent to year end, the Company
entered into a contract to hedge approximately $13.9 million of the Norwegian
Kroner commitment against unfavorable fluctuations in the Sterling to Kroner
exchange rates. Upon delivery, any gain or loss will be included in the cost
of the vessel.
On August 2, 1996, the Company purchased six offshore supply vessels
from Maritime (Pte) Limited which operated in Southeast Asia. Funding for this
acquisition was provided through a new $7,000,000 facility with a bank and a
drawdown available under existing credit facilities. The new facility requires
ten semi-annual payments beginning in 1997.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information regarding revenues, operating income and
identifiable assets for each segment and geographic area is contained in Note
11 to the Consolidated Financial Statements. Financial information about
Energy Ventures, Inc. is contained in Note 4 to the Consolidated Financial
Statements.
OFFSHORE MARINE SERVICES
The Offshore Marine Services segment of the Company will be
contributed to New GulfMark as part of the Transactions. It is anticipated
that operations of this division will continue as outlined below and in the
notes to the Consolidated Financial Statements after the consummation of the
Transactions.
GENERAL
The Company, through its Gulf Offshore Marine Division, operates
twenty-nine offshore support vessels, principally in two major offshore
exploration and production areas of the world: the North Sea and Southeast
Asia. The Company does not currently operate any vessels in offshore U.S.
waters. Offshore support vessels are contracted by major integrated oil
companies and large independent oil and gas operators to transport personnel,
supplies and material, as well as to move and position drilling structures in
support of the exploration and production of oil and gas in offshore waters.
Offshore support vessels generally fall into seven functional
categories: (1) supply vessels, (2) anchor handling, towing and supply
vessels, (3) construction support vessels, (4) standby rescue vessels, (5)
crewboats, (6) specialty vessels and (7) utility vessels. It is not unusual
for a vessel to function in more than one of these categories.
o Supply vessels (150' to 200') are used to transport supplies such
as fuel, water, drilling fluids, equipment and provisions. Large
platform supply vessels (200' to 275'), because of their large,
clear after deck and below deck capacities, are well suited for
large concentrated offshore production centers.
o Anchor handling, towing and supply vessels (150' to 250') are used
to set anchors for the rigs and to tow mobile drilling rigs and
equipment from one location to another. In addition, these
vessels typically can be used as supply vessels when they are not
performing anchor handling and towing services.
o Construction support vessels can be vessels used in the actual
construction effort such as pipe laying barges or they can be
specially designed vessels, such as pipe carriers, used to
transport the large cargos of material and supplies required to
support construction and installation of offshore platforms and
pipelines.
o Standby rescue vessels perform a safety patrol function for an
area and are equipped to provide emergency rescue and first aid in
the event of accidents.
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o Crewboats are smaller vessels (75' to 120') used to transport
personnel and a limited amount of supplies to platforms and rigs.
o Specialty vessels perform diving and seismic support, as well as
other functions such as well stimulation, oil recovery and oil
pollution control.
o Utility vessels (90' to 150') provide limited crew transportation,
some transportation of oilfield support equipment and in some
locations standby functions.
The Company's vessels are capable of transporting supplies and
personnel to offshore drilling platforms and rigs, production platforms and
other installations. Twelve of the twenty-one owned vessels are used primarily
for carriage of cargo. Of these twelve, seven of these vessels are capable of
supporting offshore construction in the North Sea as well as large capacity
platform supply duties. Eight other owned vessels perform anchor handling and
towing services for moving rigs and platforms between locations. One vessel,
the Searunner, is smaller in length and is used primarily to transport crews to
and from offshore facilities.
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VESSELS
The Gulf Offshore Marine Division operates twenty-nine vessels,
twenty-one of which are owned, two bareboat chartered and six managed. The
following table summarizes information on each vessel as of February 26, 1997:
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YEAR LENGTH
NAME LOCATION CLASSIFICATION BUILT (IN FEET) BHP(3) DWT(4)
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<S> <C> <C> <C> <C> <C> <C>
OWNED:
Highland Rover(5) . . . . . North Sea Pipe carrier/platform supply 1998(5) 236 5,450 3,700
Highland Drummer(1) . . . . North Sea Pipe carrier/platform supply 1997 221 5,450 2,800
Highland Piper (1) . . . . North Sea Pipe carrier/platform supply 1996 221 5,450 2,800
Highland Pride(1) . . . . . North Sea Pipe carrier/platform supply 1992 265 6,600 4,000
Highland Star(1). . . . . . North Sea Pipe carrier/platform supply 1991 265 6,600 4,000
Highland Fortress(1). . . . North Sea Pipe carrier/platform supply 1982 255 6,120 3,200
Highland Warrior(1) . . . . North Sea Pipe carrier/platform supply 1981 265 5,300 3,890
Highland Champion(1) . . . North Sea Pipe carrier/platform supply 1979 265 4,800 3,320
Highland Legend(1) . . . . North Sea Supply 1986 194 3,590 1,442
Highland Sprite(1) . . . . North Sea Supply 1986 194 3,590 1,442
Sem Courageous(1) . . . . . Southeast Asia Anchor handling, towing, supply 1981 191 4,000 1,220
Sem Valiant(1) . . . . . . Southeast Asia Anchor handling, towing, supply 1981 191 4,000 1,220
Seawhip(1) . . . . . . . . Southeast Asia Anchor handling, towing, supply 1983 192 3,900 1,200
Seawitch(1) . . . . . . . . Southeast Asia Anchor handling, towing, supply 1983 192 3,900 1,200
Sea Explorer(1) . . . . . . Southeast Asia Anchor handling, towing, supply 1981 192 5,750 1,420
Sea Diligent(1) . . . . . . Southeast Asia Anchor handling, towing, supply 1981 192 4,610 1,219
Sea Endeavor(1) . . . . . . Southeast Asia Anchor handling, towing, supply 1981 191 4,000 1,000
Sea Conquest(1) . . . . . . Southeast Asia Anchor handling, towing, supply 1977 185 3,850 1,142
Sea Searcher(1) . . . . . . Southeast Asia Anchor handling, towing, supply 1976 185 3,850 1,215
Sea Eagle(1) . . . . . . . Southeast Asia Anchor handling, towing, supply 1976 185 3,850 1,215
Searunner . . . . . . . . . Southeast Asia Crewboat 1982 120 2,720 126
Seapower(1) . . . . . . . . Brazil Bulk, supply 1974 222 7,040 1,205
BAREBOAT CHARTERED:
SeaMark South Carolina(2) . Southeast Asia Anchor handling, towing, supply 1983 180 3,000 1,200
SeaMark Mississippi(2) . . Southeast Asia Supply 1982 180 2,250 1,200
MANAGED:
Sea Truck . . . . . . . . . North Sea Pipe carrier/platform supply 1979 266 4,600 2,477
North Prince . . . . . . . North Sea Supply 1978 259 6,000 2,717
Clwyd Supporter . . . . . . North Sea Towing, standby, oil recovery 1984 266 10,700 1,400
Sefton Supporter . . . . . North Sea Standby, oil pollution 1971 250 1,620 1,233
Portosalvo . . . . . . . . North Sea Anchor handling, towing, 1982 227 12,750 2,085
Safe Truck . . . . . . . . North Sea Pipe carrier/platform supply 1996 221 5,450 2,800
</TABLE>
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(1) These vessels are mortgaged under certain debt agreements.
(2) The SeaMark South Carolina and SeaMark Mississippi are bareboat chartered
through August, 1998 to SeaMark Ltd., a Panamanian corporation owned 51% by
Gulf Offshore Marine International, Inc., a wholly owned subsidiary of the
Company and 49% by the vessel owners.
(3) Break horsepower.
(4) Dead weight tons.
(5) This modified and extended UT 755 design vessel is under contract to be
delivered in early 1998, and will be mortgaged under certain debt
agreements.
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OPERATIONS
The offshore marine services industry is directly related to the
activity level in international offshore oil and gas exploration, development
and production which in turn is impacted by changes in oil and gas prices. Oil
and gas prices are affected by a host of geopolitical and economic forces
including the fundamental principles of supply and demand. Declines in oil and
gas prices in the early 1980s and concerns relating to the stability of prices
that followed resulted in a significant reduction in exploration and
development activity worldwide. This decline in activity coupled with the
overbuilding of new vessels in the early 1980s resulted in an oversupply of
offshore support vessels. While there is some interchangeability between
geographic regions, there are barriers such as mobilization costs and vessel
suitability that restrict migration of excess capacity. This is most notably
the case in the North Sea where vessel design requirements dictated by the
harsh operating environment restrict migration of vessels into that market and,
to a lesser degree, high operating costs restrict migration out of the market.
The effect of these restrictions on vessel migration is to segment various
regions into separate markets. These markets for offshore marine services were
impacted differently by the above described forces because of each area's
unique blend of political, operating and economic factors.
North Sea
The operating environment in the North Sea area is such that
exploration and development projects tend to be fewer in number but larger in
scope and therefore require longer planning horizons. Consequently, demand for
support vessels in this market is generally easier to forecast and less
susceptible to abrupt swings. This market requires vessels that are generally
larger and more technically sophisticated. Such equipment constraints require
larger capital commitments that restrict the number of participants to entities
that are larger and better capitalized.
Vessel demand began to decline late in 1991 and continued to remain
low as oil companies reduced exploration activity in reaction to lower world
oil prices and changes in certain United Kingdom tax incentives. In addition,
construction seasons during this period were unusually short and this further
contributed to the softening market. Anticipated improvements in demand in
1994 were delayed when oil prices declined to their lowest level since the end
of the Iraqi war. The decline in prices related to a number of factors,
including a continued sluggish world economy, an inability of the Organization
of Petroleum Exporting Companies ("OPEC") to reach an agreement on production
levels and prices and uncertainty surrounding the resumption of Iraqi oil
exports. Oil prices recovered somewhat during 1995; however, the recovery was
tenuous because of continued uncertainty about exports of Iraqi oil, including
the effect on price levels of a limited and/or temporary resumption of such oil
exports. Nevertheless, exploration activity strengthened with particular
emphasis in the West of Shetlands. A number of long-term drilling contracts
were signed during 1995 increasing the demand for vessels in 1996, and the
expectation is for sharply increased activity in 1997. In addition, long-term
construction projects already underway indicate the market for construction
support vessels will be strong in 1997 and further indicates that demand will
continue to be strong through 1999 and potentially 2000.
Countering the effect of expected improvements in demand from
increased exploration and construction activity is the increase in new vessel
buildings. New vessel construction has been limited in recent years. 1995 saw
the first significant new vessel construction activity since the orders placed
in 1990 and 1991. In 1996, orders for a number of platform supply vessels and
over a dozen anchorhandlers were placed. Financial institutions appear to have
sufficient capacity and interest in supporting new vessel construction
projects. A large number of the vessels are being built against or have been
awarded long-term contracts, and the market appears capable of absorbing the
number of vessels currently on order.
The Company's North Sea fleet includes nine owned vessels and six
managed vessels. These vessels are supported by onshore bases in Aberdeen and
Liverpool. The North Sea fleet accounts for 80% of the Company's vessel assets
measured by net book value.
Southeast Asia
The Company's Southeast Asia activity principally consists of offshore
work in Indonesia, Malaysia and Thailand, but vessels have also worked in
China, India, Vietnam, Cambodia and the Philippines. Historically, the type of
vessels required to service this market were similar in design to those
operating in the U.S. Gulf of Mexico. In this regard, past practice has been
for U.S. operators to retire vessels out of the Gulf of Mexico to work out
their remaining useful lives in this market. In recent years, there has been
pressure (most notably from Malaysia) to upgrade offshore support vessel
capabilities by establishing limits on the age of vessels working in their
waters and by encouraging construction of new vessels designed particularly to
operate in this market.
The Southeast Asia market differs country by country, but generally
the competitive environment is
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characterized by a large number of small companies in contrast to many of the
other major offshore exploration and production areas of the world where a few
large operators dominate the market. Affiliations and joint ventures with
local companies are necessary to maintain a viable marketing presence. The
Company has a 49% ownership in a joint venture with a local company in
Malaysia. Vessels in this market are smaller than in other areas. Yet, the
varying weather conditions, annual monsoons and long distances between supply
centers have allowed for a variety of vessel designs to compete in this market,
each suited for a particular set of operating parameters. For certain
situations, contracts in this market require very specialized vessels, and
building specific vessels to contract is more common than in other markets. As
a result, the competitive pressures from having a large number of smaller
operators are lessened because vessels are not as easily interchangeable
between different locations.
Indonesia is the only major member of OPEC in the region. Exploration
activity in Indonesia has historically focused on oil exploration. Vessel
demand in this country softened in 1992 as exploration activities were reduced
while some of the major oil companies renegotiated their production royalty and
tax structures. This reversed somewhat in 1993 and 1994 as some agreements
were reached. However, in 1995 the oil companies pressed for further
modifications to their production royalty and tax structures and reduced
exploration budgets, resulting in lower than expected activity and only
marginal improvement in 1996.
The rapid economic growth for many countries in the Pacific Rim has
resulted in increased demand for energy and a related increase in oil and gas
exploration. Decisions by local governments to implement policies that will
reduce dependence on energy supplies from the Middle East have stimulated
additional interest in exploration in the region to avoid dependence on the
traditional OPEC sources. Virtually every country in the region has known or
potential reserves. However, exploration activity suffered during 1993 and
1994 when oil prices declined and has been slow to recover. Budgets appear to
be higher for 1997, but there has been a reduction in available drilling rigs
as demand has accelerated faster in other areas of the world.
Brazil
In May 1995, the Seapower returned to Brazil to begin working under a
two year contract with Petrobras. This contract has been extended through
1999. Brazil has traditionally been a high risk area due to its highly
inflationary economy, changing political environment and harsh working
environment. The country's offshore industry requires a large number of highly
sophisticated vessels, and it is a large user of North Sea class vessels.
Other Considerations
Historically, the expenditures necessary to maintain a vessel to
satisfy international certification standards for vessels approaching twenty
years of age made it prohibitively expensive in general to continue to operate
those vessels beyond that age. However, survey results on post-1985 built
vessels now suggest that improvements in coating systems and materials leads to
longer expected useful lives for these vessels. Depressed conditions in the
offshore marine services industry have limited the construction of new vessels,
and as a result, the normal replacement of older vessels has been
substantially curtailed since 1983. The average age of the Company's fleet is
approximately 13 years. This fact, coupled with the low level of new vessel
construction, gives the Company an advantageous marketing position with respect
to certain of its competitors.
Industry conditions, the availability of capital and other factors
will play a part in determining whether the Company will be able to maintain
its fleet through extending the economic life of existing vessels or acquiring
new or used vessels. If the Company is unable to replace its vessels at the
end of their economic useful lives, it could have an adverse effect on the
Company's profitability.
CUSTOMERS, CHARTER TERMS AND COMPETITION
The Company's principal customers are major integrated oil companies
and large independent oil and gas exploration and production companies working
in international markets, as well as foreign government owned or controlled
organizations. During 1996, as a result of multiple contracts in the ordinary
course of business two customers accounted for 10% or more of total
consolidated revenues: Aberdeen Services Company (North Sea) Ltd. at 13% and
Shell U.K. Exploration and Production Ltd. at 12%. The various contracts with
these customers were industry standard time charters with a wholly owned U.K.
subsidiary of the Company, Gulf Offshore N.S., Ltd. The charters involved
various of the Company's vessels for periods ranging from just a few days or
months to, in one case, one year. The charters are generally not cancelable
except for unsatisfactory performance by the vessel. The loss of a major
customer could have an adverse effect on the Company's financial condition and
results of operations until new charters are
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obtained. As of February 26, 1997, ten of the Company's owned and bareboat
chartered vessels are on term charters with initial charter periods of one year
or longer. Six are on charters of less than one year but over 30 days and
seven of the vessels are on spot contracts (less than 30 days). Seven vessels
are currently available for charter.
Offshore supply vessel companies compete principally on the basis of
suitability of equipment, price and service. Also in certain foreign countries,
preferences are given to vessels owned by national companies. The Company has
mitigated some of the impact of such preferences through affiliations and joint
ventures with local companies.
The Company competes with approximately 20 similar companies in the
North Sea market and numerous small and large competitors in the Southeast Asia
market. Many of the Company's competitors have greater financial resources
than the Company.
ENVIRONMENTAL AND GOVERNMENT REGULATION
All of the Company's vessels are subject to various international
conventions including certain safety environmental and construction standards.
In addition, the countries under which the vessels are flagged require certain
periodic inspections and drydock examinations. Generally surveys and
inspections are performed by internationally recognized classification
societies. Most of the owned vessels are flagged either in Panama, the United
Kingdom or Malaysia. Among the more significant of the conventions applicable
to the fleet are: (i) the International Convention for the Prevention of
Pollution of the Sea, 1973, 1979 Protocol, (ii) the International Convention on
the Safety of Life at Sea, 1974, 1978 and 1981/1983 Protocol, and (iii) the
International Convention on Standards of Training, Certification and
Watchkeeping for Seafarers, 1978. These regulations govern oil spills and
other matters of environmental protection, worker health and safety, and the
manning, construction and operation of vessels. The Company believes that it
presently is in material compliance with the environmental laws and regulations
to which its operations are subject. The Company is not a party to any pending
proceeding and is not aware of any threatened litigation or other judicial,
administrative or arbitrable environmental proceeding which, if adversely
determined, would have a material adverse effect on the financial condition or
results of operations of the Company. However, the risks of incurring
substantial compliance costs and liabilities and penalties for non-compliance
are inherent in offshore marine service operations. There can be no assurance
that significant costs, liabilities, and penalties will not be incurred by or
imposed on the Company in the future.
OPERATIONAL RISKS AND INSURANCE
The operation of offshore support vessels is subject to various risks,
such as catastrophic marine disaster, adverse weather conditions, mechanical
failure, collision and errors in navigation, all of which represent a threat to
the safety of personnel and vessels under tow and other property, as well as
the environment. All of the segment's operations are in foreign waters and as
such are subject to the usual risks inherent in doing business in foreign
countries. Such risks include political changes, possible vessel seizure,
company nationalization or other governmental actions, currency restrictions
and revaluations and import/export restrictions, all of which are beyond the
control of the Company. Any of these events could result in revenue and
casualty loss, increased costs and significant liability to third parties.
The Company maintains various types of insurance that management
considers to be adequate based on industry standards and the value of the
fleet, including hull and machinery insurance for the vessels, protection and
indemnity insurance against liabilities to employees and third parties for
injury, damage or pollution and other customary insurance. There can be no
assurance, however, that such insurance coverage would be adequate to cover
losses that the Company may incur or that adequate insurance rates that the
Company considers commercially reasonable will continue to be available.
SEASONALITY OF BUSINESS
The operation of the Company's vessels is subject to seasonal factors.
Operations in the North Sea are generally at their highest level during the
months from April to August and at their lowest levels during the winter
months. Vessels operating in Southeast Asia are generally at their highest
utilization rates during the months of May to August and at their lowest
utilization rates during the monsoon season at the end of the year. In
addition, operations may be affected by unusually long or short construction
seasons due to, among other things, abnormal weather conditions.
9
<PAGE> 10
EROSION CONTROL
The Company's Erosion Control segment ("Ercon") will be acquired by
EVI in connection with the consummation of the Transactions. It is anticipated
that operations of this segment will continue as outlined below and in the
notes to the Consolidated Financial Statements after the consummation of the
Transactions.
GENERAL
Ercon offers a variety of turnkey erosion control products and
installations which incorporate problem analysis, field surveys, engineering
design, permit acquisition, material procurement and installation.
Site-specific systems are installed to protect property such as pipelines,
railroads, buildings, highways, marinas, beaches and fiber optic cable systems.
Each project is reviewed to determine the most cost-effective and technically
proficient technique for the particular job based on engineering analysis,
research and prior experience. Projects typically take three weeks to three
months to complete and are secured generally through fixed-price bids.
A significant portion of the work is related to protection of waterway
crossings for pipelines, transmission companies, railroads, utilities, state
highway departments and major oil companies. When soil erosion causes pipeline
exposure on a creek crossing or riverbed, relocating or lowering the pipeline
can be very costly, and may provide only a temporary solution to a potentially
dangerous problem. Ercon's proprietary erosion control techniques offer
long-term protection at substantial cost-savings by eliminating pipe
relocation. Additionally, there is no downtime or production loss as the
systems allow the line to remain in operation throughout the installation
process. A similar cost-benefit relationship applies to highway and railroad
bridges.
Ercon seeks to develop new products and techniques to address
site-specific erosion problems. Several patents have been granted covering
methods and systems including a "variable permeability" Palisade(TM) system to
control water velocity adjacent to eroding river banks.
Ercon's business is moderately seasonal since many of its products and
systems are installed under field conditions, and projects can be impacted by
inclement weather.
ENERGY VENTURES, INC.
The Company has a 9.7% interest in EVI, a publicly-traded (NYSE: EVI)
international manufacturer and supplier of oilfield equipment that the Company
now accounts for on the cost method (see Note 4 to the Consolidated Financial
Statements). EVI has achieved significant growth in recent years through a
consistent strategy of focused, synergistic acquisitions and internal
development. Acquisitions have sought to take advantage of the consolidating
nature of the industry and have concentrated on under-utilized fixed assets,
proprietary technology and name brand product lines. Internal development has
focused on product development, manufacturing enhancements and international
expansion. EVI's growth strategy has resulted in it becoming the leader in
many of its principal markets.
EVI's operations are conducted through two oilfield equipment
divisions: tubular products (used primarily for natural gas exploration and
production) and artificial lift and completion systems (which are tied to the
maturation of oil producing formations).
Tubular products are provided through EVI's Grant Prideco tubular
products division. This division's products consist of proprietary drill pipe
and premium tubulars. Grant Prideco also designs, manufactures and markets
proprietary premium threaded connections for tubing and casing used in oil and
gas wells. Grant Prideco's products, particularly its premium tubulars, are
used primarily in connection with natural gas exploration and production. EVI
believes that Grant Prideco is the largest manufacturer and supplier of drill
pipe in the world and is the largest manufacturer of premium tubulars in North
America.
Artificial lift and completion systems are provided through its EVI
Oil Tools division. EVI Oil Tools manufactures and services artificial lift
and completion tool equipment and parts used for the production of crude oil.
EVI Oil Tools provides a wide variety of proprietary and patented products,
including the RotaFlex(R) pumping unit, the Corod(TM) continuous sucker rod,
progressive cavity pumps, the Fluid Packed(TM) Pumps and El(TM) sucker rods,
Production Oil Tools packers, Engemaq completion tools and Vitex flow control
equipment. EVI believes that EVI Oil Tools is among the largest manufacturers
and distributors of sucker rod lift equipment in the world.
On December 10, 1996, EVI acquired the operating assets of Arrow
Completion Systems, Inc., a Texas corporation ("Arrow"), from Weatherford
Enterra, Inc., a Delaware corporation. Arrow is a manufacturer and distributor
of downhole packers and oil recovery and completion service tools. EVI is in
the process of integrating the operations
10
<PAGE> 11
of Arrow with those of EVI Oil Tools and intends to offer Arrow's product line
and services in conjunction with EVI's own line of oilfield equipment, tools
and services.
In November 1996, in connection with the desire to concentrate its
efforts on the continued development of its oilfield equipment businesses, EVI
disposed of its Mallard Division which provided contract drilling services.
EVI intends to deploy the net proceeds of the Mallard Division disposition to
finance acquisitions and further the development of its oilfield equipment
business.
The principal customers of EVI are both domestic and international oil
and gas companies and the companies that service them. EVI's business is
highly competitive. Revenues and earnings can be affected by changes in
competitive prices, fluctuations in the level of activity in major markets,
general economic conditions and governmental regulations. EVI competes with a
large number of companies, some of which have greater resources and more
extensive and diversified operations.
EMPLOYEES
At December 31, the Company had 578 employees located in the United
States, the United Kingdom and Southeast Asia. Through its contract with a
crewing agency the Company participates in collective bargaining arrangements
with approximately 352 of its employees working on its North Sea vessels under
agreements covering one to two year periods. The Company has no other
collective bargaining agreements. Relations with the employees are considered
satisfactory. To date, operations of the Company have never been interrupted
by strikes or other work stoppages.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Houston,
Texas. The Gulf Offshore Marine Division has its principal domestic offices in
Lafayette, Louisiana. For local support of its marine operations, the Gulf
Offshore Marine Division also has offices and warehouse facilities in the
United Kingdom and Singapore. Ercon maintains an office and warehouse in
Houston, Texas. Each of these facilities is under lease. The Company's
operations generally do not require highly specialized facilities, and suitable
facilities are generally available on a lease basis as required.
ITEM 3. LEGAL PROCEEDINGS
On May 4, 1992, a lawsuit styled Vila v. Southern Pacific Railroad, et
al, was filed in the 253rd Judicial District Court of Liberty County, Texas
naming as defendants Southern Pacific Railroad, the Company and others. The
Plaintiffs claimed $13.34 million in actual damages and an unspecified amount
in punitive damages resulting from flooding and erosion allegedly caused by
Southern Pacific Railroad and/or the Company. During the third quarter of
1996, the Company was discharged from all claims by the Plaintiffs in exchange
for consideration which was immaterial to the financial statements of the
Company.
On November 14, 1995, an arbitration panel in Houston awarded a
customer of Ercon, $468,000 in connection with an erosion control system
installed on the customer's property. The project was originally installed in
June 1993 and developed problems during 1994. At December 31, 1994, management
determined that a loss on this matter was likely and after review and
discussions with legal counsel, a reserve of $165,000 was recorded to cover the
probable costs of repair or settlement. The amount was determined based on the
Company's assessment of the loss actually suffered by the customer and the
belief that the customer and his engineer were responsible for a significant
part of the loss. During 1995, the customer filed for arbitration claiming
compensatory and punitive damages and was ultimately successful in convincing
an arbitration panel that his damages suffered were higher than what was
estimated by the Company and furthermore, that the Company should be held
solely responsible. The amount of the award, net of the previously recorded
$165,000, was reflected as expense in the accompanying statements of income in
1995. The Company made a claim to its insurance carrier for the award and
associated legal fees; however, the insurance company initially denied
coverage. In 1996, Ercon settled this claim with the insurance company and
received $117,000, which is reflected in the statements of income in 1996.
The Company is subject to legal proceedings and claims that arise in
the ordinary course of its business.
11
<PAGE> 12
Management believes, based on discussions with its legal counsel and in
consideration of reserves recorded, that the outcome of these legal actions
will not have a material adverse effect upon the consolidated financial
positions and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting to be held on or about April 25, 1997, the
Company's stockholders of record as of March 17, 1997 will be asked to vote on
four major proposals as follows:
1. A proposal to approve and adopt the Agreement and Plan of
Distribution dated as of December 5, 1996, by and among the Company,
New GulfMark, and EVI, pursuant to which the Company will, prior to
the Merger, as defined below, (i) contribute its offshore marine
services business to New GulfMark (the "Contribution") and (ii) then
distribute (the "Distribution") all shares of the common stock, $.01
par value, of New GulfMark pro rata to all holders of the common
stock, $1.00 par value, of the Company ("GulfMark Common Stock");
2. A proposal to approve and adopt the Agreement and Plan of Merger
dated December 5, 1996 as amended, (collectively the "Merger
Agreement"), among EVI, GulfMark Acquisition Co., a wholly owned
subsidiary of EVI ("Sub"), the Company and New GulfMark pursuant to
which Sub will merge with and into the Company (the "Merger") and each
outstanding share of GulfMark Common Stock will be converted into the
right to receive .6695 of one share of EVI common stock, $1.00 par
value as adjusted per the Merger Agreement;
3. An amendment to the GulfMark International, Inc. Amended and
Restated 1993 Non-Employee Director Stock Option Plan to provide for
appropriate anti-dilution adjustments in connection with certain
corporate transactions; and
4. An amendment to the GulfMark International, Inc. 1987 Stock
Option Plan, as amended, to provide for appropriate anti-dilution
adjustments in connection with certain corporate transactions and to
provide that the number of shares reserved for issuance thereunder is
subject to adjustment in accordance with amended anti- dilution
provisions and may serve to increase the number of shares for issuance
thereunder without stockholder approval.
Each proposal will be voted upon separately by the stockholders of the
Company; however, the Company will not proceed with the Contribution,
Distribution and Merger unless the proposals set forth in paragraphs 1 and 2
above are approved by the stockholders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $1.00 par value, is traded on the Nasdaq
national market system under the symbol "GMRK". The following table shows the
range of high and low closing sale prices for the Company's common stock for
the periods indicated, as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ----
<S> <C> <C> <C> <C>
First quarter . . . . . . . . 30 1/4 24 3/4 17 14 3/4
Second quarter . . . . . . . 37 29 19 1/4 15 1/2
Third quarter . . . . . . . . 46 1/4 33 24 18
Fourth quarter . . . . . . . 64 44 27 21
</TABLE>
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<PAGE> 13
The Company has not paid any dividends on the GulfMark Common Stock
since 1984 and anticipates that, for the foreseeable future, any earnings will
be retained for the development of the Company's business.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------ ------ ------ ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues . . . . . . . . . . . . . . . $41,743 $36,077 $34,448 $27,887 $22,955
Direct operating expenses . . . . . . . 20,084 21,340 19,512 15,593 10,769
Selling, general and administrative
expenses . . . . . . . . . . . . . 6,491 5,716 5,565 4,466 4,273
Depreciation and amortization . . . . . 5,129 5,571 5,146 3,852 3,411
------- ------- ------- ------- -------
Operating income . . . . . . . . . . . 10,039 3,450 4,225 3,976 4,502
Interest expense, net . . . . . . . . (3,467) (2,613) (2,179) (2,047) (2,351)
Equity in earnings of EVI . . . . . . . -- 761 1,012 1,333 155
Gain on sale of 300,000 EVI shares . . 6,264 -- -- -- --
Other income (expense), net . . . . . . (86) 180 830 68 294
Income tax provision . . . . . . . . . (4,311) (3,680)(1) (1,108) (686) (732)
Extraordinary item attributable to
EVI (net of tax) . . . . . . . . . -- -- (706) -- --
------- ------- ------- ------- -------
Net income (loss) . . . . . . . . . . . $8,439 $(1,902) $2,074 $2,644 $1,868
======= ======== ======= ======= =======
Earnings (loss) per share . . . . . . . $2.53 $(0.57) $0.62 $0.80 $0.56
Weighted average shares outstanding . . 3,338 3,322 3,320 3,312 3,310
Cash dividends per share . . . . . . . -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . $189,686 $110,935 $88,676 $90,759 $77,983
Long-term debt . . . . . . . . . . . . 50,811 33,600 26,727 30,169 18,730
Stockholders' equity before adjustment 63,536 55,074 56,798 54,714 52,005
Cumulative translation adjustment(2) (1,520) (4,146) (3,773) (4,326) (3,699)
Adjustment for unrealized gain on EVI
investment(3) . . . . . . . . . . 33,979 8,030 -- -- --
Stockholders' equity . . . . . . . . . 95,995 58,958 53,025 50,388 48,306
</TABLE>
- --------------------
(1) Includes a one time charge of $3,374,000 relating to additional deferred tax
provision associated with the Company's change in its method of accounting
for the Company's investment in EVI.
(2) Resulted primarily from translation of the Company's Sterling (U.K.)
invested assets and liabilities, which are substantially long-lived, at the
exchange rate in effect on the last day of the period.
(3) Resulted from the "Mark to Market" rules of SFAS 115 which first impacted
the Company in June, 1995.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $17.6 million in cash and cash
equivalents as compared to $5.2 million at December 31, 1995. Investing and
financing activities provided $2.1 million in cash and cash equivalents in
1996, while $9.4 million of cash and cash equivalents was generated by
operations. This compared to $5.5 million used for investing and financing
activities and $7.9 million generated by operations in 1995.
The Company has entered into a contract with a shipyard to construct
the Highland Rover, an enhanced UT 755 design, supply vessel, at a price of
approximately $18 million denominated in Norwegian Kroner. The new vessel will
be a modified version of the Company's recently delivered Highland Piper (March
1996) and Highland Drummer (January 1997). This vessel, scheduled for delivery
in the first quarter of 1998, will be available to participate in the growing
demand for deep water remotely operated vehicle (ROV) support and other
specialized services as well as standard supply duties in the North Sea. The
Company made interim construction payments of $.9 million in 1996 and is
required to make additional payments of approximately $2.7 million in 1997.
Final payment is due upon delivery of the vessel. The Company anticipates
financing the cost of the vessel through additional borrowings and existing
funds. Subsequent to year end, the Company entered into a contract to hedge
approximately $13.9 million of the Norwegian Kroner commitment against
unfavorable fluctuations in the Sterling to Kroner exchange rates. Upon
delivery, any gain or loss will be included in the cost of the vessel.
The Company estimates that capital expenditures, excluding any
expenditures to build or acquire additional vessels, will be approximately $2.9
million for 1997, of which $2.2 million relates to drydockings. This compares
to actual expenditures of $1.4 million for 1996, of which $1.2 million relates
to drydockings. These expenditures vary from year to year due to the
scheduling of drydockings, which are generally required twice for every five
year period based on the requirements of classification societies. The
remaining proposed 1997 capital expenditures of $0.7 million relate to vessel
upgrades and non-marine expenditures that are not subject to firm commitments,
and the Company may modify its plans as appropriate.
At January 31, 1997, the Company had outstanding long-term debt of
$63.2 million borrowed under various facilities. These facilities are secured
by preferred ship mortgages on nineteen of the Company's vessels and
assignments of such vessels' earnings. Interest on the borrowings accrues at
rates between LIBOR plus 1 1/4% and LIBOR plus 2 1/4% per annum. Scheduled
debt repayments are expected to total $9.3 million for 1997. The loan facility
agreements place certain restrictions on the ability of the subsidiaries
subject to these agreements to pay dividends. Cash held by these subsidiaries
was $6,016,000 as of January 31, 1997. As of January 31, 1997, the Company
could borrow up to $2.0 million under its short-term credit facility.
Substantially all of the Company's tax provision is for deferred
taxes. The Company has net operating loss carryforwards for tax purposes that
are available to offset taxable income generated of $26,267,000 for United
Kingdom tax purposes in future years. The net operating loss available in the
United Kingdom is primarily the result of accelerated depreciation allowances
under United Kingdom tax law. The Company also has foreign tax credits of
$224,000 and alternative minimum tax credits of $597,000 available to offset
taxable income generated for United States tax purposes.
The Company believes that current reserves of cash and short-term
investments, cash flows from operations and access to various credit
arrangements will provide sufficient resources to finance internal operating
requirements. The Company continues, however, to actively seek further
investment opportunities. Such investments may require the expenditure of
significant resources, either in cash, notes, stock or a combination thereof.
RESULTS OF OPERATIONS
GENERAL
The demand and pricing for the Company's services is substantially
dependent on worldwide levels of exploration and production of oil and gas.
Exploration and development activity is in turn largely dependent upon
prevailing oil and natural gas prices. Prices for oil and natural gas have
historically been extremely volatile and have reacted to actual and perceived
changes in demand and supply of oil and natural gas, domestic and worldwide
economic conditions and political instabilities in oil producing countries.
During 1994, world oil prices declined to their lowest level since the
end of the Iraqi war. The decline in
14
<PAGE> 15
prices related to a number of factors, including a continued sluggish world
economy, an inability of OPEC to reach an agreement on production levels and
prices and uncertainty surrounding the resumption of Iraqi oil exports. This
decline in oil prices affected the demand for the Company's offshore marine
services. Oil prices recovered somewhat and stabilized in 1995 and natural gas
prices in the United States improved during the course of 1995. However, gas
prices in the United Kingdom dropped significantly and led to reduced activity
in the Southern sector of the North Sea. In 1996, several factors including
exceptionally cold weather in a wide area encompassing North America, Europe
and Asia; continued strong economic growth particularly in the Pacific Rim
countries and low beginning inventories converged to produce dramatically
stronger oil prices which have driven a now sixteen month long surge in
offshore drilling and production activity. The surge has been particularly
evident in the U.S. Gulf of Mexico as well as in the North Sea. The Southeast
Asia region has been less impacted because of an exodus of quality drilling
units from this area early in the surge. Results for 1997 and future years
will continue to be affected by commodity price levels of oil and natural gas
and other influences on exploration and development, particularly in the North
Sea and Southeast Asia.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
Revenues increased from $36,077,000 in 1995 to $41,743,000 in 1996
while operating income increased from $3,450,000 in 1995 to $10,039,000 due to
the addition of several vessels in 1996 as well as a change in estimate of
depreciable lives of vessels effective January 1, 1996. Revenues and average
number of owned vessels by region and segment compared as follows (in
thousands):
<TABLE>
<CAPTION>
EROSION
CONTROL OFFSHORE MARINE SERVICES
------- -----------------------------------
UNITED BRAZIL
STATES EUROPE** FAR EAST AND OTHER TOTAL
------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
1996:
Revenues . . . . . . . . . . . . . $6,994 $25,552 $7,732 $1,465 $41,743
Average* number of owned vessels . N/A 8 9 1 18
1995:
Revenues . . . . . . . . . . . . . $8,844 $20,176 $6,142 $915 $36,077
Average* number of owned vessels . N/A 6 5 1 12
</TABLE>
* Adjusted for part year availability.
** Primarily U.K.
Operations of the Offshore Marine Services segment improved from 1995
to 1996. Revenue in the North Sea was favorably impacted by an upturn in
dayrates as well as improved utilization. Additionally, revenue and earnings
were increased by the full year impact of the Highland Warrior (acquired
December 1995) and by the addition of the Highland Piper in March of 1996.
Revenues and earnings in the Far East were favorably impacted by the addition
of the six vessels purchased from Maritime (Pte) Limited on August 2, 1996.
Operating income for the segment also benefited from reduced depreciation
resulting from the Company's change (effective January 1, 1996) in its estimate
of vessel useful lives from 20 years to 25 years.
Erosion Control segment revenues decreased by $1,850,000 in 1996 due
to a decrease in the size of jobs compared to 1995. Operating income increased
however due to higher margins in 1996 and the absence of certain expenses
related to pending litigation which burdened the 1995 amount.
In addition to variable expenses associated with the operation of the
Company's fleet, the Company also incurs fixed charges to depreciate its
vessels and amortize certain other assets, including deferred drydocking costs.
Depreciation and amortization for 1996 was $5,129,000, compared to $5,571,000
for 1995. This decrease is due to the change in estimated useful lives and was
partially offset by the addition of new vessels.
Several non-recurring, non-cash charges in 1995 related to the
Company's investment in EVI contributed to the lack of comparability between
1996 and 1995 net income. The loss of ($1,902,000), or ($0.57) per share, for
1995
15
<PAGE> 16
includes $3,374,000, or $1.02 per share, for additional deferred taxes in 1995
related to the EVI investment. Secondly, equity in earnings of EVI of $761,000
is attributable to earnings prior to June 30, 1995, since subsequent to such
date the Company followed the cost method of accounting for this investment and
as such, has not recorded any equity in earnings. Lastly, net income of
$8,439,000 or $2.53 per share for 1996 includes a gain of $4.1 million, $1.24
per share, net of tax, attributable to the sale of 300,000 shares of EVI in
July, 1996.
The effective tax rate of the Company was 33.8% in 1996 as compared to
206.8% in 1995. The decrease in the effective tax rate is due primarily to
additional deferred taxes in 1995 associated with the Company's investment in
EVI discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994
Revenues increased from $34,448,000 in 1994 to $36,077,000 in 1995
while operating income declined from $4,225,000 in 1994 to $3,450,000 as
earnings in the Southeast Asia region decreased between 1994 and 1995.
Revenues and average number of owned vessels by region and segment compared as
follows (in thousands):
<TABLE>
<CAPTION>
EROSION
CONTROL OFFSHORE MARINE SERVICES
------- -----------------------------------
UNITED BRAZIL
STATES EUROPE** FAR EAST AND OTHER TOTAL
------ -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
1995:
Revenues . . . . . . . . . . . . $8,844 $20,176 $6,142 $915 $36,077
Average* number of owned vessels N/A 6 5 1 12
1994:
Revenues . . . . . . . . . . . . $6,756 $18,685 $8,178 $829 $34,448
Average* number of owned vessels N/A 6 6 1 13
</TABLE>
* Adjusted for part year availability.
** Primarily U.K.
Revenues and operating income for the North Sea region improved
somewhat due to a combination of improved dayrates and utilization rates. The
decline in revenues and earnings for Southeast Asia is due primarily to lower
utilization rates as well as the lack of earnings from the Seawind which was
sold in late 1994.
Erosion Control segment revenues increased by $2,088,000 in 1995 due
to an increase in the number of jobs that in turn resulted in higher operating
income for the segment of $759,000 in 1995 compared to $567,000 in 1994.
Selling, general and administrative costs increased by $174,000 in
1995 reflecting an award attributable to a customer claim. Interest expense
increased from $2,408,000 in 1994 to $2,801,000 in 1995 as the result of higher
overall interest rates and the writeoff of certain loan costs on debt which was
refinanced through a new facility with a different bank. Other income in 1994
included a gain of $842,000 from the sale of the Highland Sentinel.
In addition to variable expenses associated with the operation of the
Company's fleet, the Company also incurs fixed charges to depreciate its
vessels and amortize certain other assets, including deferred drydocking costs.
Depreciation and amortization for 1995 was $5,571,000, representing an increase
of $425,000 from 1994. This increase was due to increased drydocking
amortization expense.
Several non-recurring, non-cash charges related to the Company's
investment in EVI contributed to the lack of comparability between 1995 and
1994 net income. The loss of ($1,902,000), or ($0.57) per share, for 1995
includes $3,374,000, or $1.02 per share, for additional deferred taxes related
to the EVI investment. Secondly, equity in earnings of EVI of $761,000 is
attributable to earnings prior to June 30, 1995 since subsequent to such date
the Company followed the cost method of accounting for this investment. This
amount compares to $1,012,000 in 1994 which is attributable to a full year
under the equity method. Lastly, net income of $2,074,000 or $0.62 per share
for 1994 includes an extraordinary charge of $706,000, net of tax, attributable
to EVI's prepayment of certain debt.
The effective tax rate of the Company was 206.8% in 1995 as compared
to 28.5% in 1994. The increase in the effective tax rate is due primarily to
additional deferred taxes associated with the Company's investment in EVI
discussed above.
16
<PAGE> 17
CURRENCY FLUCTUATIONS AND INFLATION
A significant portion of the Company's operations are overseas,
therefore the Company is potentially exposed to currency fluctuations and
exchange risks. Charters for vessels in the Company's North Sea fleet are
primarily denominated in British Pounds Sterling ("Sterling") and substantially
all the operating costs are in Sterling. North Sea operations generated $25.5
million in revenues, $9.8 million in operating income and $9.9 million of cash
flows from operations in 1996 in Sterling. In 1996 the Sterling/Dollar
exchange rate ranged from a high of L. = U.S.$1.7125 to a low of L. =
U.S.$1.4925 for an average of L. = U.S.$1.5624 for the year. As of February
26, 1997, the Sterling/Dollar exchange rate was L. = U.S.$1.6340. The Company
hedged the effect on cash flows of these fluctuations in the Sterling/Dollar
exchange rates through Sterling denominated borrowings that account for 81% or
$48,652,000 of total debt and represented $4,446,000 or all of the debt
repayments made in 1996.
Reflected in the accompanying balance sheet for December 31, 1996, is
a ($1,520,000) cumulative translation adjustment primarily relating to the
lower Sterling exchange rate as of year end in comparison to the exchange rate
when the Company invested capital in its United Kingdom subsidiaries. Changes
in the cumulative translation adjustment are non-cash items that are primarily
attributable to investments in vessels and are partially offset by the Sterling
denominated debt in the North Sea.
Several of the Company's Southeast Asia charters were denominated in
Malaysian ringgits as were a portion of the operating costs. Cash flows for
this currency were $1,593,000 in 1996. Malaysian currency rates have been
relatively stable in recent years, with the exchange rate for ringgits to U.S.
dollars averaging M$ = U.S.$0.40 during 1996 and the high and low during the
year ranging within 3% of this average. Therefore, the Company does not
currently hedge this currency. Where currency risks historically have been
high, as in Brazil, the Company accepts only a small percentage of charter hire
in local currency and the remainder is paid in U.S. dollars.
To date, general inflationary trends have not had a material effect on
the Company's operating revenues or expenses.
ACCOUNTING CHANGES
Prior to January 1, 1996, vessels were depreciated over a useful life
of 20 years. During the first quarter of 1996, management completed an
evaluation of the useful life used for depreciating vessels in light of recent
vessel performance, changes in the materials available to protect vessel hulls
and industry practice. Based on the results, it was determined that a useful
life of 25 years for its vessels was a better estimate than the 20 years used
previously. Therefore, effective January 1, 1996, the estimated useful life
was extended to 25 years. The effect of this change lowered depreciation
expense and materially improved operating results in 1996.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which was effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such
impairment. Adoption of SFAS No. 121 had no effect on the Company's
consolidated financial statements.
17
<PAGE> 18
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark International, Inc.:
We have audited the accompanying consolidated balance sheets of
GulfMark International, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GulfMark
International, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule I is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 26, 1997
18
<PAGE> 19
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,590 $5,163
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,796 6,148
Inventory, prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . 956 1,399
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,342 12,710
-------- --------
INVESTMENT IN EVI, including unrealized gain of $51,483,000 and $12,151,000 . . . . 71,040 34,321
-------- --------
VESSELS AND EQUIPMENT, at cost, net of accumulated depreciation of
$19,791,000 and $14,959,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 87,665 61,582
-------- --------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,639 2,322
-------- --------
$189,686 $110,935
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt . . . . . . . . . . $9,341 $4,066
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,345 1,779
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . 1,037 564
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,931 1,245
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 14,654 7,654
-------- --------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,811 33,600
-------- --------
DEFERRED TAXES AND OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,725 10,308
-------- --------
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 415
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized; 3,339,952 and
3,336,352 shares issued and outstanding . . . . . . . . . . . . . . . . . . 3,340 3,336
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 23,520 23,501
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,676 28,237
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . (1,520) (4,146)
Unrealized gain on investment, net of tax . . . . . . . . . . . . . . . . . . . 33,979 8,030
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 95,995 58,958
-------- --------
$189,686 $110,935
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 20
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,743 $36,077 $34,448
------- ------- -------
COST AND EXPENSES:
Direct operating expenses . . . . . . . . . . . . . . . . . . 20,084 21,340 19,512
Selling, general and administrative expenses . . . . . . . . . 6,491 5,716 5,565
Depreciation and amortization . . . . . . . . . . . . . . . . 5,129 5,571 5,146
------- ------- -------
31,704 32,627 30,223
------- ------- -------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 10,039 3,450 4,225
------- ------- -------
OTHER INCOME (EXPENSES):
Gain on sale of 300,000 EVI shares . . . . . . . . . . . . . 6,264 -- --
Equity in earnings of EVI . . . . . . . . . . . . . . . . . . -- 761 1,012
Interest expense . . . . . . . . . . . . . . . . . . . . . . (3,936) (2,801) (2,408)
Interest income . . . . . . . . . . . . . . . . . . . . . . . 469 188 229
Minority interest . . . . . . . . . . . . . . . . . . . . . . (86) 106 (124)
Gain on sale of vessel . . . . . . . . . . . . . . . . . . . -- -- 842
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 74 112
------- ------- -------
2,711 (1,672) (337)
------- ------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM . . . . . . . . . . . . . . . . . . . . . . 12,750 1,778 3,888
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . (4,311) (3,680) (1,108)
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . . . . . . . . 8,439 (1,902) 2,780
EXTRAORDINARY ITEM ATTRIBUTABLE TO EVI
(Less applicable tax benefit of $51,000) . . . . . . . . . . -- -- (706)
------- ------- -------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . $8,439 $(1,902) $2,074
======= ======= =======
EARNINGS PER SHARE:
Income (loss) before extraordinary item . . . . . . . . . . . $2.53 $(0.57) $0.83
Extraordinary item attributable to EVI . . . . . . . . . . . -- -- (0.21)
------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $2.53 $(0.57) $0.62
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING . . . . . . . . . . . . . . . 3,338 3,322 3,320
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 21
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON
STOCK AT ADDITIONAL CUMULATIVE UNREALIZED TOTAL
$1 PAR PAID-IN RETAINED TRANSLATION GAIN ON STOCKHOLDERS'
VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENT EQUITY
----- ------- -------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 . . $3,320 $23,329 $28,065 $ (4,326) $ -- $50,388
Net income . . . . . . . . . -- -- 2,074 -- -- 2,074
Issuance of stock . . . . . . 1 9 -- -- -- 10
Translation adjustment . . . -- -- -- 553 -- 553
------ ------- ------- ------- ------- -------
Balance at December 31, 1994 . . 3,321 23,338 30,139 (3,773) -- 53,025
Net loss . . . . . . . . . . -- -- (1,902) -- -- (1,902)
Issuance of stock . . . . . . 15 163 -- -- -- 178
Translation adjustment . . . -- -- -- (373) -- (373)
Unrealized gain on
net of tax . . . . . . . -- -- -- -- 8,030 8,030
------ ------- ------- ------- ------- -------
Balance at December 31, 1995 . . 3,336 23,501 28,237 (4,146) 8,030 58,958
Net income . . . . . . . . . -- -- 8,439 -- -- 8,439
Issuance of stock . . . . . . 4 19 -- -- -- 23
Translation adjustment . . . -- -- -- 2,626 -- 2,626
Unrealized gain on investment,
net of tax . . . . . . . -- -- -- -- 25,949 25,949
------ ------- ------- ------- ------- -------
Balance at December 31, 1996 . . $3,340 $23,520 $36,676 $(1,520) $33,979 $95,995
====== ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 22
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS)
1996 1995 1994
-------- -------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,439 $ (1,902) $ 2,074
Adjustments to reconcile net income (loss) to net cash
Depreciation and amortization . . . . . . . . . . . . . . . . . 5,129 5,571 5,146
Equity in earnings of EVI . . . . . . . . . . . . . . . . . . . -- (761) (255)
Deferred and other income tax provision . . . . . . . . . . . . 3,715 3,571 815
Minority interest . . . . . . . . . . . . . . . . . . . . . . . -- (106) 124
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . (6,264) -- (842)
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (3,180) 1,769 (105)
Inventory, prepaids and other . . . . . . . . . . . . . . . 462 (73) (816)
Accounts payable . . . . . . . . . . . . . . . . . . . . . 569 281 (818)
Accrued payroll and related expenses . . . . . . . . . . . 364 (449) 259
Other accrued liabilities . . . . . . . . . . . . . . . . . 406 (498) 394
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (199) 475 (264)
-------- -------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . . 9,441 7,878 5,712
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to vessels and equipment . . . . . . . . . . . . . . . . (23,400) (14,229) (816)
Expenditures for drydocking and main engine overhaul . . . . . . . (1,230) (1,141) (1,592)
Proceeds from sales of vessels and other equipment . . . . . . . . -- 169 2,021
Proceeds from sale of 300,000 EVI shares . . . . . . . . . . . . . 8,888 -- --
-------- -------- -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (15,742) (15,201) (387)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of direct financing costs . . . . . . . . . 22,227 25,188 893
Repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . (4,446) (15,709) (8,873)
Proceeds from issuance of stock . . . . . . . . . . . . . . . . . . 23 178 10
-------- -------- -------
Net cash provided by (used in) financing activities . . . . . . . . . . 17,804 9,657 (7,970)
-------- -------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . 924 (160) 124
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . 12,427 2,174 (2,521)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . 5,163 2,989 5,510
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . $ 17,590 $ 5,163 $ 2,989
======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,613 $ 2,793 $ 2,075
======== ======== =======
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . $ 671 $ 167 $ 360
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 23
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) PENDING TRANSACTIONS
PROPOSED DISTRIBUTION AND MERGER
On December 5, 1996, GulfMark International, Inc. (together with its
subsidiaries "the Company") announced it had entered into a definitive
Agreement and Plan of Merger ("Merger Agreement") with EVI, GulfMark Offshore,
Inc. ("New GulfMark") and GulfMark Acquisition Co. (a subsidiary of EVI)
pursuant to which EVI will acquire the Company in a tax- free merger (the
"Merger") whereby approximately 2.2 million shares of EVI common stock will be
issued to the Company's stockholders on the basis of .6695 shares of EVI common
stock (as adjusted per the Merger Agreement) for each share of the Company's
common stock held by such stockholders. As a condition to the Merger, the
Company will contribute its offshore marine services business and certain other
related assets ("the GulfMark Marine Business") to New GulfMark in
consideration for issuance to the Company of approximately 6,679,904 shares of
New GulfMark common stock and the assumption by New GulfMark of all of the
liabilities of the GulfMark Marine Business and certain historical liabilities
of the Company (the "Contribution"). Immediately following the Contribution,
the Company will distribute all of its New GulfMark common stock to the
Company's stockholders on the basis of two shares of New GulfMark common stock
for each share of the Company's common stock held by the Company's stockholders
(the "Distribution") pursuant to the terms of the Agreement and Plan of
Distribution entered into on December 5, 1996 by and among the Company, New
GulfMark and EVI. The Contribution, the Distribution and the Merger and the
transactions related thereto are referred to herein as (the "Transactions").
It is anticipated that the Transactions will be consummated in the second
quarter of 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of GulfMark International, Inc. and all majority-owned subsidiaries.
All significant intercompany accounts and transactions between affiliated
companies have been eliminated. Entities in which the Company owns 20%-50% are
treated as unconsolidated subsidiaries and are accounted for by the equity
method.
STATEMENT OF CASH FLOWS
U.S. Government securities and commercial paper with original
maturities of up to three months are included in cash and cash equivalents in
the accompanying financial statements.
VESSELS AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided by
the straight-line method. Prior to January 1, 1996, vessels were depreciated
over a useful life of 20 years. During the first quarter of 1996, management
completed an evaluation of the useful life used for depreciating vessels in
light of recent vessel performance, changes in the materials available to
protect vessel hulls and industry practice. Based on the results, it was
determined that a useful life of 25 years for its vessels was a better estimate
than the 20 years used previously. Therefore, effective January 1, 1996, the
estimated useful life was extended to 25 years. The impact of the change on
income before extraordinary item and net income for the year ended December 31,
1996, was an increase of approximately $1,202,000 or $0.36 per share.
Equipment, furniture and fixtures are depreciated over two to five years.
Maintenance and repairs that do not extend the useful life of the asset and are
not attributable to drydockings of vessels are charged to operations as
incurred. Major renovation costs and modifications are capitalized and
amortized over the estimated remaining useful life. Included in net income
(loss) for 1996, 1995, and 1994 is $1,920,000, $1,457,000, and $1,433,000,
respectively, of costs for maintenance and repairs.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which was effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-
23
<PAGE> 24
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
lived assets, including goodwill, and how to measure such impairment. The
adoption of this statement had no impact on the financial statements.
OTHER ASSETS
Other assets primarily consist of deferred drydocking costs and
deferred loan costs. Costs incurred in connection with drydocking are
capitalized and amortized over approximately a 2 1/2 year period which
approximates the period between required drydockings. Deferred loan costs are
amortized over the expected term of the loan.
REVENUE RECOGNITION
Revenues from charters for offshore marine services are recognized as
earned based on contractual charter rates. Revenues from long-term contracts
for erosion control services are recognized under the percentage-of-completion
method. Revisions in cost and earnings estimates are reflected in the period
when known. On contracts where an ultimate loss is anticipated upon
completion, the entire amount of the estimated loss is accrued when known.
Typically, contracts are short-term in duration.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates and laws in effect in the years in which the differences are
expected to reverse. SFAS No. 109 also requires that the likelihood and amount
of future taxable income be included in the criteria used to determine the
timing and amount of tax benefits recognized for net operating losses and tax
credit carryforwards in the financial statements.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign affiliates, other than
those located in highly inflationary countries, are translated at year-end
exchange rates, while income and expenses are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine currency gains and losses
resulting from financial statement translation and those resulting from
transactions. Translation gains and losses are reported as a component of
stockholders' equity, except for those associated with highly inflationary
countries that are reported directly in the Consolidated Statements of Income.
Transaction gains and losses are reported directly in the Consolidated
Statements of Income.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares
of common stock outstanding. Common stock equivalents have not been included
in the computation of earnings per share since the effect is not significant.
Fully diluted earnings per share is not presented as such amounts do not
materially differ from primary earnings per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company extends credit to various companies in the energy industry
which may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit risk through credit
approvals and limits. Historically write-offs for doubtful accounts have been
insignificant.
24
<PAGE> 25
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NATURE OF OPERATIONS
The nature and location of the Company's operations is discussed in
Note 11 as well as in Part I. Item I - Business.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts previously
reported to conform with the current year presentation.
(3) VESSEL ACQUISITIONS
The Company contracted with a shipyard in Norway for the construction
of two UT 755 design vessels for deployment in the North Sea. Delivery of the
first vessel, the Highland Piper, was made March 15, 1996. The second vessel
named the Highland Drummer was delivered January 3, 1997. The Company made the
final payment on the Highland Piper and interim construction payments on the
Highland Drummer totaling $11,508,000 during 1996 and a final payment on the
Highland Drummer of $12,850,000 in 1997. Funding of $7,254,000 for the final
payment on the Highland Drummer was provided by additional borrowings under
existing credit facilities in 1997. In connection with the delivery of these
two vessels, the Company is entitled to receive a subsidy from the Norwegian
government equal to 9.5% of the gross construction price. The Company has
accounted for subsidies as a reduction of the purchase price of the vessels.
In November 1996, the Company entered into a contract with a Norwegian
shipyard to construct an enhanced UT 755 design, supply vessel at a price of
approximately $18 million denominated in Norwegian Kroner. The new vessel, to
be named the Highland Rover, will be a modified version of the Company's
recently delivered Highland Piper (March 1996) and Highland Drummer (January
1997). This vessel, scheduled for delivery in the first quarter of 1998, will
be available to participate in the growing demand for deep water remotely
operated vehicle (ROV) support and specialized services as well as standard
supply duties in the North Sea. The Company made interim construction payments
of $.9 million in 1996 and is required to make interim payments of
approximately $2.7 million in 1997. Final payment is due upon delivery of the
vessel. The Company anticipates financing the cost of the vessel through
additional borrowings and existing funds. Subsequent to year end, the Company
entered into a contract to hedge approximately $13.9 million of the Norwegian
Kroner commitment against unfavorable fluctuations in the Sterling to Kroner
exchange rates. Upon delivery, any gain or loss will be included in the cost
of the vessel.
On August 2, 1996, the Company purchased six offshore supply vessels
from Maritime (Pte) Limited which operate in Southeast Asia. Funding for this
acquisition was provided through a new $7,000,000 facility with a bank and
drawdown available under existing credit facilities. The new facility requires
ten semi-annual payments beginning in 1997.
On December 21, 1995, the Company acquired the Atlantic Warrior,
renamed Highland Warrior, a 1981 built pipe carrier/platform supply vessel
which had been bareboat chartered by the Company since July 1993. Included in
capital expenditures for 1995 is $13,301,000 related to interim construction
payments on the Highland Piper and the purchase of the Highland Warrior.
The Company's 51% owned company, SeaMark Ltd., has bareboat chartered
certain vessels from the 49% owner, a U.S. owner/operator, at a combined rate
of less than $2,000 per day.
(4) ENERGY VENTURES, INC.
Energy Ventures, Inc. ("EVI") is a publicly-traded (NYSE: EVI)
international oilfield equipment manufacturer and supplier which produces
artificial lift and completion systems, drill pipe and premium tubulars. At
December 31, 1996, the Company owned 2,235,572 shares of stock (9.7%) of EVI.
On July 26, 1996, the Company sold 300,000 shares of its 2,535,572 shares
holding in EVI in conjunction with a public offering by EVI of 3,000,000 newly
issued shares. As a result, the Company received net proceeds of approximately
$8.9 million, resulting in an after-tax gain of approximately $4.1 million
($1.24 per share). As a result of this sale and offering, the Company's
ownership interest in EVI decreased to approximately 9.7 percent.
25
<PAGE> 26
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The shares of EVI owned by the Company are held for investment
purposes. Because of, among other things, the Company's ownership interest in
EVI as well as the two common directors between the two companies, the Company
may be considered an "affiliate" of EVI under federal securities rules and
regulations. As such, these shares may not be able to be sold by the Company
absent registering such shares under the Securities Act of 1933 or an exemption
therefrom.
Prior to June 30, 1995, the Company accounted for EVI on the equity
method; however, the reduction in the Company's ownership interest below 20% on
June 30, 1995, necessitated a change from the equity method to the cost method
and the application of certain requirements of Statement of Financial
Accounting Standards No. 115 - "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Under the cost method the Company no
longer records its proportionate share of EVI's earnings as was done prior to
June 30, 1995, under the equity method.
In addition, under SFAS No. 115, ". . . the portion of the security
that can reasonably be expected to qualify for sale within one year . . ." must
be reported at its "fair value". If the Company is considered an "affiliate"
under the federal securities rules and regulations, approximately 1,222,100
shares represents the number of shares which may be sold by the Company without
registration pursuant to Rule 144 promulgated under the Securities Act of 1933.
Accordingly, the Company has reflected in the accompanying consolidated
balance sheet approximately 1,222,100 shares of the EVI holdings at the closing
price quoted on the New York Stock Exchange as of December 31, 1996. The
related unrealized gains and losses on those shares are reflected as a separate
component of stockholders' equity, net of the related deferred taxes, until
realized. The remaining 1,013,472 shares are carried at historical cost.
The quoted market value of EVI's shares held by the Company may not be
the value that would be realized should the Company dispose of some or all of
the shares. As of February 26, 1997, the quoted market value of EVI's shares
held by the Company was $117,647,000. The equity in earnings of EVI and its
subsidiaries for the six months ended June 30, 1995 and the year ended December
31, 1994, excluding extraordinary item, was $761,000 and $1,012,000,
respectively. In addition, the Company recognized in 1994 an extraordinary
charge of $706,000, net of tax, attributable to the prepayment of certain debt.
The following represents summarized financial information for EVI.
For more information regarding EVI's financial condition and operations,
reference is made to the EVI Form 10-K filed with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
SUMMARIZED BALANCE SHEETS SUMMARIZED INCOME STATEMENTS
AS OF DECEMBER 31, FOR YEAR ENDED DECEMBER 31,
- -------------------------------------------------- ------------------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
1996 1995 1996 1995 1994
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Current assets . . . $558,681 $309,185 Revenues . . . . . . . . $ 478,020 $271,675 $ 185,285
Non-current assets . 294,162 143,940 Expenses . . . . . . . . (431,733) (253,710) (181,647)
-------- -------- Other expenses, net . . (14,741) (15,603) (13,125)
$852,843 $453,125 --------- -------- ---------
======== ======== Income (loss) before
taxes . . . . . . . . 31,546 2,362 (9,487)
Tax (provision) benefit. (7,041) 240 3,795
Current liabilities ..... $233,126 $78,291 --------- -------- ---------
Non-current liabilities.. 165,633 146,768 Income (loss) from
Stockholders' equity ... 454,084 228,066 continuing operations. 24,505 2,602 (5,692)
-------- -------- Discontinued operations,
$852,843 $453,125 net of taxes . . . . 7,468 8,709 10,334
======== ======== Gain on disposal of
discontinued
net of taxes . . . . 66,924 -- --
Extraordinary item . . (731) -- (3,784)
--------- -------- ---------
Net income . . . . . . $ 98,166 $ 11,311 $ 858
========= ======== =========
</TABLE>
26
<PAGE> 27
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SHORT-TERM BORROWINGS
On July 8, 1993, the Company entered into a one-year loan facility
agreement with a bank under which the Company can borrow up to L.3,300,000
($5,651,000). In each of the previous three years this facility was renewed
for a one year period. At December 31, 1996 and 1995, the Company had
borrowings of L.2,100,000 ($3,596,000) and L.600,000 ($932,000), respectively,
under this facility. Interest is charged at 2 1/4% above the lending bank's
LIBOR rate. This facility is secured by second priority mortgages on various
vessels as well as second assignments of such vessels' earnings.
During 1996 and 1995, the Company had average borrowings outstanding
of $1,229,000 and $431,000, respectively, under the facility. The weighted
average interest rates during these periods were 8.3% and 9.0%, respectively.
(6) LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and 1995, consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Loan facility payable in British Pounds Sterling, quarterly principal
payments of L.395,000 ($676,000) with final payment of L.6,475,000
($11,088,000) due in 2002, interest at 1 3/8% over the lending
bank's LIBOR rates (7.8% as of December 31, 1996) . . . . . . . . . . . . . . . . . $25,294 $13,635
Revolving $24,486,000 credit facility (L.11,250,000 ($19,266,000) and
$5,220,000 tranches), facility reduces by 10% semiannually beginning
December 31, 1996, with final payment due in 2000; interest at 1 5/8%
over the lending bank's LIBOR rate (7.8% as of December 31, 1996) . . . . . . . . . 17,087 15,415
Revolving $7,000,000 credit facility, facility reduces by 10% semiannually beginning
January 31, 1997, with final payment due in 2001; interest at 1 5/8% over the
lending bank's LIBOR rate (7.3% as of December 31, 1996) . . . . . . . . . . . . . 7,000 --
Loan facility payable in British Pounds Sterling, semiannual principal payments of
L.350,000 ($599,000) with final payment of L.340,000 ($582,000) due in 2002,
interest at 1 1/4% over the lending bank's LIBOR rate (7.7% as of
December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,175 7,594
------- -------
56,556 36,644
Less: Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . 5,745 3,044
------- -------
$50,811 $33,600
======= =======
</TABLE>
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . $ 5,745
1998 . . . . . . . . . . . . 8,348
1999 . . . . . . . . . . . . 10,746
2000 . . . . . . . . . . . . 13,466
2001 . . . . . . . . . . . . 5,305
Thereafter . . . . . . . . . 12,946
-------
$56,556
=======
</TABLE>
Each of the above facilities is secured by mortgages on various
vessels as well as assignments of such vessels' earnings. The loan facility
agreements restrict Gulf Offshore N.S. Ltd., Gulf Offshore Far East, Inc., Gulf
Offshore Shipping Services, Inc. and Gulf Offshore Marine International, Inc.,
the subsidiaries that own the mortgaged vessels,
27
<PAGE> 28
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from making dividends or other distributions to their parent without consent of
the lenders. The amount of net assets restricted under these loan provisions
was $42.3 million as of December 31, 1996, and includes cash and cash
equivalents of $11.1 million.
(7) COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company had long-term operating leases
covering office space and automobiles. Aggregate lease expense on operating
leases for 1996, 1995 and 1994 was $434,000, $479,000, and $328,000,
respectively. Future minimum rental commitments under these operating leases
are as follows:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . $ 397,000
1998 . . . . . . . . . . . 258,000
1999 . . . . . . . . . . . 216,000
2000 . . . . . . . . . . . 81,000
2001 . . . . . . . . . . . 58,000
Thereafter . . . . . . . . --
----------
$1,010,000
</TABLE> ==========
The Company, along with a major railroad, was named in a lawsuit in
which the Plaintiffs claimed damages resulting from flooding and erosion
allegedly caused by the railroad and/or the Company. During the third quarter
of 1996, the Company was discharged from all claims by the Plaintiffs in
exchange for consideration which was immaterial to the financial statements of
the Company.
On November 14, 1995, an arbitration panel in Houston awarded a
customer of Ercon, $468,000 in connection with an erosion control system
installed on the customer's property. The project was originally installed in
June 1993 and developed problems during 1994. At December 31, 1994, management
determined that a loss on this matter was likely and after review and
discussions with legal counsel, a reserve of $165,000 was recorded to cover the
probable costs of repair or settlement. The amount was determined based on the
Company's assessment of the loss actually suffered by the customer and the
belief that the customer and his engineer were responsible for a significant
part of the loss. During 1995, the customer filed for arbitration claiming
compensatory and punitive damages and was ultimately successful in convincing
an arbitration panel that his damages suffered were higher than what was
estimated by the Company and furthermore, that the Company should be held
solely responsible. The amount of the award, net of the previously recorded
$165,000, was reflected as expense in the accompanying consolidated statements
of income in 1995. The Company made a claim to its insurance carrier for the
award and associated legal fees; however, the insurance company initially
denied coverage. In 1996, Ercon settled this claim with the insurance company
and received $117,000, which is reflected in the consolidated statements of
income in 1996.
The Company is subject to legal proceedings and claims that arise in
the ordinary course of its business. Management believes, based on discussions
with its legal counsel that the outcome of these legal actions will not have a
material adverse effect upon the consolidated financial position and results of
operations of the Company.
(8) STOCKHOLDERS' EQUITY
STOCK OPTIONS AND STOCK OPTION PLANS
Under the terms of the Company's Amended and Restated 1993
Non-Employee Director Stock Option Plan (the "1993 Plan"), options to purchase
5,000 shares of Common Stock were granted to each of the Company's five
non-employee directors in 1993 and in 1996. Additionally, options to purchase
5,000 shares of common stock are to be granted to each new non-employee
director upon his or her election. The exercise price of options granted under
the 1993 Plan is fixed at the market price at the date of grant. In May 1996,
the number of shares reserved for issuance under this Plan was increased from
50,000 to 200,000. The options are for a term of ten years.
Under the terms of the Company's 1987 Employee Stock Option Plan (the
"1987 Plan"), options may be granted to employees to purchase Common Stock at
specified prices. The 1987 Plan also provides for stock
28
<PAGE> 29
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
appreciation rights (SAR's) that give the optionee the right, subject to
certain conditions, to surrender an option and receive cash and/or shares of
Common Stock having a value equal to the appreciation from date of grant of
such option. As of December 31, 1996, 131,333 shares were reserved for
granting of options under the 1987 Plan.
Information with respect to all shares under option is summarized
below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 70,000 $12.99 84,967 $12.80 86,667 $12.67
Granted . . . . . . . . . . . . . 42,000 27.88 -- -- -- --
Exercised . . . . . . . . . . . . (3,400) 6.68 (14,967) 11.88 (1,700) 6.50
------- ------ ------- ------ ------ ------
Outstanding at end of year . . . 108,600 18.95 70,000 12.99 84,967 12.80
======= ====== ======= ====== ====== ======
Weighted average fair value
of options granted during
the year . . . . . . . . . . . N/A N/A $ 6.11
Exercisable as of December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Shares available for future grants as of December 31, 1996 . . . . . . . . . . . . 281,333
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER
OUTSTANDING AT WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES 12/31/96 EXERCISE PRICE
- ------------------------------------- -------------- ----------------
<S> <C> <C>
$ 6.50 to $10.50 . . . . . . . . . . 17,900 $ 8.25
$14.75 to $17.75 . . . . . . . . . . 48,700 15.18
$26.38 to $39.00 . . . . . . . . . . 42,000 27.88
--------------
108,600 18.95
==============
</TABLE>
Historically, the Company has used stock options as a long-term
incentive for its employees, officers and directors under the above mentioned
stock option plans. The exercise price of options granted is equal to or
greater than the market price of the underlying stock on the date of the grant.
Accordingly, consistent with the provisions of Accounting Principles Board No.
25, "Accounting for Stock Issued to Employees" ("APB 25"), no compensation
expense has been recognized in the accompanying financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No.
123 establishes financial accounting and reporting standards for stock-based
employee compensation. The pronouncement defines a fair-value based method of
accounting for an employee stock option or similar equity instrument. SFAS No.
123 also allows an entity to continue to measure compensation cost for those
instruments using the intrinsic value-based method of accounting prescribed by
APB 25. The Company has elected to follow APB 25 and related interpretations
in accounting for employee stock options because the valuation models
prescribed for use by SFAS No. 123 to determine the fair value of options were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of the grant, no compensation expense
has been recognized in the accompanying financial statements.
29
<PAGE> 30
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair-value method described
above. No fair value calculations are required for 1995 as there were no
options issued during that period. The fair value for the 1996 options was
estimated at the date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions: Risk free interest rates of
5%; a weighted average volatility factor of the expected market price of the
Company's stock of .14; no expected dividends; and weighted average expected
option lives of 4 years.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair-value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS No. 123, only the effects of awards granted in 1995 and
1996 are required to be considered in the pro forma calculations.
<TABLE>
<CAPTION>
1996
-----------------------------------
AS REPORTED PRO FORMA
-------------- -------------
<S> <C> <C>
Net income . . . . . . . . . . . $8,439,000 $8,350,000
Earnings per share . . . . . . . $2.53 $2.50
</TABLE>
PREFERRED STOCK
The Company is authorized by its Certificate of Incorporation to issue
up to 500,000 shares of $50 par value cumulative preferred stock. As of
December 31, 1996, none has been issued.
(9) INCOME TAXES
Income before income taxes and extraordinary item attributable to
domestic and foreign operations was (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
U.S. . . . . . . . . . . . $6,770 $1,690 $1,232
Foreign . . . . . . . . . . 5,980 88 2,656
------- ------ ------
$12,750 $1,778 $3,888
======= ====== ======
</TABLE>
The components of the Company's tax provisions attributable to income
before extraordinary item are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- --------------------------- ------------------------------
DEFERRED DEFERRED DEFERRED
CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL
------- -------- ------ ------- --------- ------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. . . $464 $2,008 $2,472 $ -- $3,495 $3,495 $ -- $69 $69
Foreign . 132 1,707 1,839 109 76 185 242 797 1,039
------- -------- ------ ------- --------- ------ ------- --------- ------
$596 $3,715 $4,311 $109 $3,571 $3,680 $242 $866 $1,108
======= ======== ====== ======= ========= ======= ======= ========= =======
</TABLE>
Included in the 1996 tax provision is $2,130,000 of taxes associated
with the sale of 300,000 shares of EVI. The deferred provision in 1995
included $3,374,000 of additional deferred taxes related to the Company's
change in
30
<PAGE> 31
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting for its investment in EVI from the equity method to the cost method.
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. The components of
the net deferred tax liability as of December 31, 1996 and 1995, were (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . $8,668 $9,152
Non-deductible accruals . . . . . . . . . . 1,381 1,462
Foreign tax credits . . . . . . . . . . . . 224 387
Alternative minimum tax credits . . . . . . 597 284
Other tax credits . . . . . . . . . . . . . 175 175
Valuation allowance . . . . . . . . . . . . (267) (846)
-------- -------
10,778 10,614
-------- -------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . (12,866) (8,400)
Investment in EVI . . . . . . . . . . . . . (22,646) (9,929)
Foreign income not currently recognizable . (1,017) (709)
Other . . . . . . . . . . . . . . . . . . . (301) (323)
-------- -------
(36,830) (19,361)
-------- -------
Net deferred tax liability . . . . . . . . . . $(26,052) $(8,747)
======== =======
</TABLE>
A total of $17,604,000 of deferred tax liability is attributable to
the unrealized gain on a portion of the investment in EVI.
The difference between the provision at the statutory U.S. federal
income tax rate and the tax provision attributable to income from continuing
operations in the accompanying Consolidated Financial Statements is analyzed
below.
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ -----
<S> <C> <C> <C>
U.S. federal statutory income tax rate . . . . . . . . . . . . 34.0% 34.0% 34.0%
Differences applicable to income of unconsolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . -- 266.1 (7.1)
Effect of international operations . . . . . . . . . . . . . . (0.2) 2.2 15.8
Utilization of U.S. net operating loss carryforwards . . . . . -- (92.0) (15.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3.5) 1.7
----- ------ -----
33.8% 206.8% 28.5%
===== ====== =====
</TABLE>
As of December 31, 1996, the Company had the following carryforward
losses and credits for income tax purposes that are, subject to certain
limitations, available to offset future taxable income (in thousands):
31
<PAGE> 32
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT EXPIRATION
------ ----------
<S> <C> <C>
U.S. tax purposes:
Foreign tax credits . . . . . . . . . . . $ 224 1997 - 2000
Alternative minimum tax credits . . . . . 597 Indefinite
Other tax credits . . . . . . . . . . . . 175 1997 - 2000
Foreign tax purposes:
Net operating losses . . . . . . . . . . 26,267 Indefinite
</TABLE>
(10) UNAUDITED QUARTERLY FINANCIAL DATA
The following tabulation sets forth unaudited quarterly information
for 1996 and 1995.
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996:
Revenues . . . . . . . . . . . . . . . . $7,161 $8,978 $11,778 $13,826
Income before income taxes . . . . . . . (28) 1,135 8,674 2,969
Net income . . . . . . . . . . . . . . . 47 756 5,711 1,925
Earnings per share . . . . . . . . . . . 0.01 0.23 1.71 0.58
1995:
Revenues . . . . . . . . . . . . . . . . $7,500 $9,535 $10,547 $8,495
Income (loss) before income taxes . . . . (273) 916 826 309
Net income (loss) . . . . . . . . . . . . (221) (2,712) 677 354
Earnings (loss) per share . . . . . . . . (0.07) (0.81) 0.20 0.11
</TABLE>
(11) OPERATING SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company's operations are divided into two segments:
(a) Offshore marine services
The offshore marine services subsidiaries operate
twenty-nine offshore support vessels principally in the North Sea
and Southeast Asia. The vessels provide transportation of
materials, supplies and personnel to and from offshore platforms
and drilling rigs. Some of the vessels also perform anchor
handling and towing services.
(b) Erosion control
The Company offers a variety of turnkey erosion control
services and installations including problem analysis, field
surveys, engineering design, permit acquisition, material
procurement and installation. The site-specific systems are
designed to protect property such as railroads, buildings,
pipelines, highways, offshore platforms, marinas, beaches and
dams.
Segment operating income represents revenues less operating expenses
and is not reduced for interest expense, general corporate expenses and income
taxes.
32
<PAGE> 33
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Offshore marine services . . . . . . . . . . . . . . . . . . . $ 34,749 $ 27,233 $27,692
Erosion control . . . . . . . . . . . . . . . . . . . . . . . . 6,994 8,844 6,756
-------- -------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 41,743 $ 36,077 $34,448
======== ======== =======
Operating income:
Offshore marine services . . . . . . . . . . . . . . . . . . . $ 10,376 $ 3,568 $ 4,993
Erosion control . . . . . . . . . . . . . . . . . . . . . . . . 1,173 759 567
Corporate and other . . . . . . . . . . . . . . . . . . . . . . (1,510) (877) (1,335)
-------- -------- -------
Total operating income . . . . . . . . . . . . . . . . . . . . $ 10,039 $ 3,450 $ 4,225
======== ======== =======
Identifiable assets:
Offshore marine services . . . . . . . . . . . . . . . . . . . $110,110 $ 73,102 $63,604
Erosion control . . . . . . . . . . . . . . . . . . . . . . . . 1,746 1,612 2,603
Corporate and other(1) . . . . . . . . . . . . . . . . . . . . 77,830 36,221 22,469
-------- -------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $189,686 $110,935 $88,676
======== ======== =======
Capital expenditures:
Offshore marine services . . . . . . . . . . . . . . . . . . . $ 23,257 $ 14,518 $ 648
Erosion control . . . . . . . . . . . . . . . . . . . . . . . . 137 160 165
Corporate and other . . . . . . . . . . . . . . . . . . . . . . 6 9 3
-------- -------- -------
Total capital expenditures . . . . . . . . . . . . . . . . . . $ 23,400 $ 14,687 $ 816
======== ======== =======
Depreciation and amortization:
Offshore marine services . . . . . . . . . . . . . . . . . . . $ 4,995 $ 5,446 $ 5,038
Erosion control . . . . . . . . . . . . . . . . . . . . . . . . 116 105 87
Corporate and other . . . . . . . . . . . . . . . . . . . . . . 18 20 21
-------- -------- -------
Total depreciation and amortization . . . . . . . . . . . . . . $ 5,129 $ 5,571 $ 5,146
======== ======== =======
</TABLE>
- ------------------------------------------------------------------------
(1) Includes the Company's investment in Energy Ventures.
Capital expenditures of the offshore marine services segment include
approximately $13,301,000 related to the purchase of the Highland Warrior and
payments to the shipyard related to the purchase of the Highland Piper and the
Highland Drummer in 1995. In 1996, capital expenditures included $22,986,000
related to the final payment on the Highland Piper, interim payments of the
Highland Drummer and Highland Rover and the purchase of six vessels in
Southeast Asia from Maritime, Pte. Ltd.
33
<PAGE> 34
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC REGIONS
Information by geographical area is based on the location where
services were performed. Operating income represents revenues less operating
expenses and is not reduced for interest expense and income taxes. General
corporate expenses incurred in the United States have not been allocated to
foreign operations for purposes of this disclosure.
<TABLE>
<CAPTION>
UNITED BRAZIL
STATES EUROPE FAR EAST AND OTHER TOTAL
------ --------- ----------- --------- -----
PRIMARILY UK
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996:
Revenues . . . . . . . . . . . . . $6,994 $25,552 $7,732 $1,465 $41,743
Operating income (loss) . . . . . . (1,509) 9,813 1,473 262 10,039
Identifiable assets . . . . . . . . 79,790 85,036 23,805 1,055 189,686
1995:
Revenues . . . . . . . . . . . . . $8,844 $20,176 $6,142 $915 $36,077
Operating income (loss) . . . . . . (1,006) 4,027 639 (210) 3,450
Identifiable assets . . . . . . . . 38,184 60,318 10,939 1,494 110,935
1994:
Revenues . . . . . . . . . . . . . $6,756 $18,685 $8,178 $829 $34,448
Operating income (loss) . . . . . . (1,658) 3,699 2,431 (247) 4,225
Identifiable assets . . . . . . . . 25,791 43,607 19,278 -- 88,676
</TABLE>
MAJOR CUSTOMERS
For the years ended December 31, 1996, 1995 and 1994, the Company had
major customers who comprised more than 10% of revenues. The loss of a major
customer could have an adverse effect on the Company's financial condition and
results of operations until new charters are obtained.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13% 11% 11%
Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 -- --
Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 12
</TABLE>
34
<PAGE> 35
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
-------- --------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,087 $ 1,619
Receivables, inventory, prepaids and other . . . . . . . . . . . . . . . . 458 344
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 6,545 1,963
-------- --------
INVESTMENTS IN SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . 108,578 56,011
-------- --------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $503,000 in 1996 and $427,000 in 1995 . . . . . . . . . . . . . . . . . 553 606
-------- --------
ACCOUNTS AND NOTES RECEIVABLE FROM SUBSIDIARIES . . . . . . . . . . . . . . . . 4,198 8,807
-------- --------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 11
-------- --------
$120,209 $ 67,398
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . $1,058 $ 674
-------- --------
DEFERRED TAXES AND OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,156 7,766
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized; 3,339,952 and
3,336,352 shares issued and outstanding . . . . . . . . . . . . . . . . . 3,340 3,336
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 23,520 23,501
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,676 28,237
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . (1,520) (4,146)
Unrealized gain on investment . . . . . . . . . . . . . . . . . . . . . . . 33,979 8,030
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 95,995 58,958
-------- --------
$120,209 $ 67,398
======== =========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
35
<PAGE> 36
SCHEDULE I - (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,223 $ 1,582 $ 1,530
------- ------- -------
COST AND EXPENSES:
Direct operating expenses . . . . . . . . . . . . . . . . . . . . . . . 78 91 90
Selling, general and administrative expenses . . . . . . . . . . . . . 2,208 1,875 2,202
------- ------- -------
2,286 1,966 2,292
------- ------- -------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,063) (384) (762)
------- ------- -------
OTHER INCOME (EXPENSES):
Equity in earnings of subsidiaries . . . . . . . . . . . . . . . . . . 5,073 1,338 3,075
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 568 472
Gain on sale of 300,000 EVI shares . . . . . . . . . . . . . . . . . . 6,264 -- --
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . -- 71 64
------- ------- -------
11,579 1,977 3,611
------- ------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM . . . . . . . . . . . . . 10,516 1,593 2,849
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,077) (3,495) (69)
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . . . . . . . . . . . . . 8,439 (1,902) 2,780
EXTRAORDINARY ITEM ATTRIBUTABLE TO EVI (Less applicable income tax
benefit of $51,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (706)
------- ------- -------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,439 $(1,902) $ 2,074
======== ======= =======
EARNINGS PER SHARE:
Income (loss) before extraordinary item . . . . . . . . . . . . . . . . $ 2.53 $ (0.57) $ 0.83
Extraordinary item attributable to Energy Ventures, Inc. . . . . . . . -- -- (0.21)
------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.53 $ (0.57) $ 0.62
======== ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . 3,338 3,322 3,320
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
36
<PAGE> 37
SCHEDULE I - (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON
STOCK AT ADDITIONAL CUMULATIVE UNREALIZED TOTAL
$1 PAR PAID-IN RETAINED TRANSLATION GAIN ON STOCKHOLDERS'
VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENT EQUITY
------ ------- -------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 . $3,320 $23,329 $ 28,065 $ (4,326) $ -- $ 50,388
Net income . . . . . . . . -- -- 2,074 -- -- 2,074
Issuance of stock . . . . 1 9 -- -- -- 10
Translation adjustment . . -- -- -- 553 -- 553
------ ------- -------- ---------- ---------- ------------
Balance at December 31, 1994 . 3,321 23,338 30,139 (3,773) -- 53,025
Net loss . . . . . . . . . -- -- (1,902) -- -- (1,902)
Issuance of stock . . . . 15 163 -- -- -- 178
Translation adjustment . . -- -- -- (373) -- (373)
Unrealized gain on
investment, net of tax -- -- -- -- 8,030 8,030
------ ------- -------- ---------- ---------- ------------
Balance at December 31, 1995 . 3,336 23,501 28,237 (4,146) 8,030 58,958
Net income . . . . . . . . -- -- 8,439 -- -- 8,439
Issuance of stock . . . . 4 19 -- -- -- 23
Translation adjustment . . -- -- -- 2,626 -- 2,626
Unrealized gain on
investment, net of tax -- -- -- -- 25,949 25,949
------ ------- -------- ---------- ---------- ------------
Balance at December 31, 1996 . $3,340 $23,520 $ 36,676 $ (1,520) $ 33,979 $ 95,995
====== ======= ======== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
37
<PAGE> 38
SCHEDULE I - (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- ------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net cash provided by (used in) operations . . . . . . . . . . . . . . . $ (1,089) $ 53 $ (1,248)
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to subsidiaries, net . . . . . . . . . . (3,331) 809 447
Sales of property and equipment, net . . . . . . . . . . . . . . . 8,865 115 45
-------- ------- --------
Net cash provided by investing activities . . . . . . . . . . . . . . . 5,534 924 492
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and other, net . . . . . . . . . . . . . . 23 178 10
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,468 1,155 (746)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . 1,619 464 1,210
-------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . $ 6,087 $ 1,619 $ 464
======== ======= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ --
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . 479 -- 15
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
38
<PAGE> 39
SCHEDULE I - (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF CASH FLOWS
U.S. Government securities and commercial paper with maturities of up to
three months are included in cash and cash equivalents in the accompanying
Condensed Balance Sheets and Condensed Statements of Cash Flows.
VESSELS AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided by the
straight-line method. Prior to January 1, 1996 vessels were depreciated over a
useful life of 20 years. During the first quarter of 1996, management
completed an evaluation of the useful life used for depreciating vessels in
light of recent vessel performance, changes in the materials available to
protect vessel hulls and industry practice. Based on the results, it was
determined that a useful life of 25 years for its vessels was a better estimate
than the 20 years used previously. Therefore, effective January 1, 1996, the
estimated useful life was extended to 25 years. Maintenance and repairs that
do not extend the useful life of the asset and are not attributable to
drydockings of vessels are charged to operations as incurred. Major renovation
costs and modifications are capitalized and amortized over the estimated
remaining useful life.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived
Assets to be Disposed Of", which was effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such
impairment. Adoption of SFAS No. 121 had no effect on the Company's
consolidated financial statements.
REVENUE RECOGNITION
Revenues from charters for offshore marine services are recognized as
earned based on contractual charter rates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse. SFAS No. 109 also requires that the
likelihood and amount of future taxable income be included in the criteria used
to determine the timing and amount of tax benefits recognized for net operating
losses and tax credit carryforwards in the financial statements.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock outstanding. Common stock equivalents have not been included in
the computation of earnings per share since the effect is not significant.
Fully diluted earnings per share is not presented as such amounts do not
materially differ from primary earnings per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
39
<PAGE> 40
SCHEDULE I - (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NATURE OF OPERATIONS
The nature and location of the Company's operations is discussed in Note 11
as well as in Part I. Item I - Business.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts previously reported to
conform with the current year presentation.
(2) CASH DIVIDENDS PAID BY SUBSIDIARIES
Cash dividends from unconsolidated subsidiaries for 1996, 1995 and 1994
were not significant, and the Company's consolidated subsidiaries have not paid
any cash dividends during the three most recent years. Certain loan facility
agreements entered into by the Company's subsidiaries restrict the amount of
distributions that can be made. The amount of net assets that is subject to
such restrictions is $42.3 million as of December 31, 1996.
40
<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following is a list of directors of the Company as of February 26,
1997. It is expected that the Company, as the sole stockholder of New GulfMark
prior to the Transactions, will elect each of the following to serve as
directors of New GulfMark and such persons will cease to be directors of the
Company upon consummation of the Merger. The business address for each person
listed below is GulfMark International, Inc., 5 Post Oak Park, Suite 1170,
Houston, Texas 77027-3414. Unless otherwise indicated, each individual listed
below is a citizen of the United States. If the Transactions are not
consummated at the special meeting of stockholders to be held on or about April
25, 1997, the Company will hold an annual meeting of its stockholders to elect
directors as soon as practicable.
<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AGE DIRECTOR
- --------------------------------- ----- -----------------
<S> <C> <C>
David J. Butters . . . . . . . . 56 1989
Norman G. Cohen . . . . . . . . . 74 1972
Marshall A. Crowe . . . . . . . . 75 1978
Louis S. Gimbel, 3rd . . . . . . 67 1970
Robert B. Millard . . . . . . . . 46 1989
</TABLE>
David J. Butters is Chairman of the Board and is a member of the Executive,
Audit and Compensation Committees. He is a Managing Director of Lehman
Brothers, an investment banking firm and division of Lehman Brothers, Inc.
("Lehman Brothers"), which is a subsidiary of Lehman, where he has been
employed for more than the past five years. Mr. Butters is currently Chairman
of the Board of Energy Ventures, Inc., a director of Anangel-American
Shipholdings, Ltd., and a member of the Board of Advisors of Energy
International, N.V.
Norman G. Cohen is Chairman of the Audit and Compensation Committees. He
has served as President of Norman G. Cohen, Inc., consultants and mortgage
lenders, for more than five years and is a Director of Brewster Wallcovering
Co., Randolf, Massachusetts. Mr. Cohen is a partner in Orie Co., a private
investment company, and former Chairman of the National Parks and Conservation
Association.
Marshall A. Crowe serves as a member of the Audit Committee. Since January
1978, Mr. Crowe has served as President of M. A. Crowe Consultants, Inc.,
providing consulting services in the energy and financial fields. For four
years prior thereto, he was Chairman of the National Energy Board of Canada and
was previously Chairman of the Board of Canada Development Corporation, which
was engaged in the business of making equity investments in Canadian
enterprises. Mr. Crowe is also of counsel at Johnston & Buchan, barristers
and solicitors, Ottawa, Canada. Mr. Crowe is a Canadian citizen.
Louis S. Gimbel, 3rd is a member of the Executive Committee. He is
President, Chief Executive Officer and a Director of S. S. Steiner, Inc. and
President and Chairman of the Board of Hops Extract Corporation and Co-manager
of Stadelman Fruit LLC. He has been employed by S.S. Steiner, Inc. for more
than the past five years. S. S. Steiner, Inc. is engaged in the farming,
trading, processing, importing and exporting of hops and other specialty crops.
Robert B. Millard is a member of the Executive and Compensation Committees.
He is a Managing Director of Lehman Brothers, where he has been employed for
more than the past five years. Mr. Millard also serves as a Director of Energy
Ventures, Inc.
41
<PAGE> 42
EXECUTIVE OFFICERS
The following are the executive officers of the Company. If the
Transactions are consummated it is expected that the executive officers of New
GulfMark will be substantially similar to the executive officers of the Company
and each will be elected as an executive officer of New GulfMark and each such
person will cease to be an officer of the Company.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ----------------------------------- ------------------------------------------------- -----
<S> <C> <C>
Bruce A. Streeter . . . . . . . . . President, Gulf Offshore Marine 48
Frank R. Pierce . . . . . . . . . . Executive Vice President, Secretary and Treasurer 47
Kevin D. Mitchell . . . . . . . . . Controller and Assistant Secretary 28
</TABLE>
Bruce A. Streeter was elected President of the Gulf Offshore Marine
Division in November 1990 and has continued in that capacity up to the present.
Prior to November 1990 he was with Offshore Logistics, Inc. for a period of
twelve years serving in a number of capacities including General Manager Marine
Division.
Frank R. Pierce was elected Executive Vice President, Secretary and
Treasurer of GulfMark in December 1990 and has been employed with the Company
since July 1987 serving as its Vice President, Finance. In addition, he served
as Director and Vice President, Finance of Energy Ventures, Inc. until 1990.
Prior to July 1987, he was with Daniel Industries, Inc., a supplier of fluid
measurement products and systems to energy companies, for nine years, where he
served as Controller.
Kevin D. Mitchell was elected Controller and Assistant Secretary of the
Company in September, 1996. Prior to that, he served as controller for one
year with E-Stamp Corporation, a start-up software company, having previously
completed five years with Arthur Andersen LLP, a major accounting firm.
ITEM 11. DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
DIRECTOR COMPENSATION
Each non-employee director of the Company is paid $1,000 for each meeting
of the Board of Directors and $500 for each Committee meeting of the Board of
Directors he or she attends. In addition, a $2,000 retainer is paid to each
non- employee director of the Company for each quarter of the year in which
such director serves as a director. The Company also has a retainer
arrangement with Mr. Butters pursuant to which he receives a retainer of $6,250
per month for serving as Chairman of the Board. Total compensation paid in
1996 to the non-employee directors, including director fees and retainers, was
$90,500 for Mr. Butters, $16,000 for Mr. Cohen, $15,000 for Mr. Crowe, $12,500
for Mr. Gimbel and $13,000 for Mr. Millard. In addition, the Company furnishes
Messrs. Cohen, Crowe and Gimbel with a $250,000 life insurance policy.
Premiums paid during 1996 for such policies were $12,757 for Mr. Cohen, $15,428
for Mr. Crowe and $6,805 for Mr. Gimbel.
The Board of Directors of the Company maintains a 1993 Amended and Restated
Non-Employee Director Stock Option Plan (the "1993 Plan"). Under the 1993
Plan, each non-employee director as of December 8, 1993 was granted, and each
new non-employee director as of the date he is first elected as a director of
the Company will be granted, an option to purchase 5,000 shares of common stock
at a price equal to the market price of the shares of common stock on the date
of grant. These options are exercisable for a period beginning one year from
the date of grant and ending ten years from the date of grant. Options granted
terminate three months after the optionee ceases to be a director of the
Company except in the event of death, disability or retirement, in which case
the options terminate one year after he or she ceases to be a director because
of such event. Each of the Company's current directors has received options to
purchase 5,000 shares of common stock under the 1993 Plan having an exercise
price of $14.75 per share.
On March 18, 1996 the Board of Directors of the Company adopted various
amendments to the 1993 Plan including provisions for automatic periodic grants
of options to purchase 5,000 shares of Common Stock to non-employee directors.
These amendments were approved by the stockholders in May 1996. Accordingly,
each non-employee director of the Company was granted on March 18, 1996 an
option to purchase 5,000 shares of common stock at an exercise price of $26.375
per share. Each non-employee director will receive options to purchase 5,000
additional shares of Common Stock at an exercise price equal to the fair market
value of such shares of common stock
42
<PAGE> 43
on the date of grant, upon his re-election as a director at the Company's
Annual Stockholders meetings in 1999, 2002 and 2005, provided, however, if the
Transactions are consummated, New GulfMark will assume the 1993 Plan with such
adjustments necessary to preserve the intrinsic value of the options.
In 1988, the Company adopted an arrangement under which each non-employee
director of the Company as of the time of such adoption and each future
non-employee director of the Company was granted options to purchase an
aggregate of 5,000 shares of common stock. Under this arrangement, each such
non-employee director received an automatic grant of options to purchase 2,500
shares on an annual basis for two years following the adoption of the
arrangement or their first election as a director. Options granted under this
arrangement had exercise prices equal to the market price of the shares of
Common Stock on the date of grant, were exercisable for a period of ten years
from the date of grant and terminate three months after the optionee ceases to
be a director of the Company except in the event of death, disability or
retirement, in which case the option terminates one year after he or she ceases
to be a director because of such event. No further options will be granted
under this arrangement. Each of the Company's current directors has received
options under this arrangement, with the options held by Messrs. Cohen, Crowe
and Gimbel having average exercise prices of $8.63 per share and the options
held by Messrs. Butters and Millard having an average exercise price of $16.50
per share. Upon consummation of the Transactions, New GulfMark has agreed to
assume the outstanding stock options issued under this policy.
EXECUTIVE OFFICER COMPENSATION
The aggregate compensation paid by the Company for services rendered during
the last three years in all capacities to the highest paid executive officers
whose total annual salary and bonus exceeded $100,000 during the year ended
December 31, 1996 was as follows:
<TABLE>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPEN-
ANNUAL COMPENSATION SATION
----------------------------------------- --------------
AWARDS
--------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- -------------------------- ----- -------------- -------- ------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Bruce A. Streeter 1996 $175,000 $75,000 -- 8,000 $2,848(2)
President, Gulf 1995 140,000 70,000 -- -- 2,765(2)
Offshore Marine 1994 135,000 50,000 -- -- 2,708(2)
Division
Frank R. Pierce 1996 $135,000 $25,000 -- 2,000 $1,755(2)
Executive Vice 1995 130,000 15,000 -- -- 1,706(2)
President, Secretary, 1994 125,000 8,000 -- -- 1,663(2)
and Treasurer
</TABLE>
- ------------------------
(1)Other annual compensation excludes perquisites and other benefits
because the aggregate amount of such compensation was less than 10% of the
combined total for salary and bonus.
(2)Includes matching contributions made by the Company pursuant to its
401(k) saving plan of $1,900 and $1,755 for Messrs. Streeter and Pierce,
respectively, and premiums associated with a $500,000 split-dollar life
insurance policy of $948 for Messr. Streeter.
The Company entered into an employment contract with Mr. Streeter on
January 1, 1994 which provided for a salary of at least $135,000 per year until
December 31, 1996. In the event employment was terminated, Mr. Streeter would
have continued to receive the base salary and other benefits until December 31,
1996 except in the event of resignation by Mr. Streeter, termination due to Mr.
Streeter's death or total and permanent disability or termination by the
Company for "cause", as defined in the employment contract. This employment
contract has now expired.
43
<PAGE> 44
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
- ------------------------------------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS/SARS(1) EMPLOYEES IN OR BASE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR PRICE($/SH) DATE 5% ($) 10% ($)
- --------------------------- ------------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce Streeter . . . . . . 8,000 47.1% $26.375 03-18-06 $132,697 $336,280
Frank Pierce . . . . . . . 2,000 11.8% 26.375 03-18-06 33,174 84,070
</TABLE>
- ---------------------------
(1)One-third of the options granted became exercisable at each of one year,
two years and three years, respectively, from date of grant.
The following table presents the total number of options to purchase common
stock held by the named executive officers of the Company at December 31, 1996:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED FISCAL YEAR END FISCAL YEAR END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE(2)
- ----------------------- -------- ---------- ------------- -------------------
<S> <C> <C> <C> <C>
Bruce A. Streeter . . . -- $ -- 5,000 / 8,000 $215,000 / $101,250
Frank R. Pierce . . . . 900 46,350 9,100 / 2,000 $437,200 / $ 63,250
</TABLE>
(1) Value based on difference in market value on date of exercise and option
price.
(2) Value based on difference in market value of common stock on December
31, 1996 and exercise price. The actual value, if any, of the
unexercised options will be dependent upon the market price of the
Common Stock at the time of exercise.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company is or was an officer
or employee of the Company or had any relationship requiring disclosure under
applicable rules, except that Mr. Butters has a retainer arrangement with the
Company, pursuant to which Mr. Butters receives a retainer of $6,250 per month
for serving as Chairman of the Board of the Company. In 1996, Mr. Butters
received $90,500 in director fees and retainers from the Company.
CHANGES IN CONTROL
If the Transactions are consummated, there will be a change in control of
the Company upon the effective date of the Merger. See "Proposed Distribution
and Merger" under Item 1 of this Form 10-K and "Submission of Matters to a Vote
of Security Holders" under Item 4 of this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to each
person who at February 1, 1997, was known by the Company to be the beneficial
owner of more than 5% of the outstanding common stock:
44
<PAGE> 45
<TABLE>
<CAPTION>
NO. OF SHARES
NAME AND ADDRESS OF BENEFICIALLY OWNED PERCENT OF
BENEFICIAL OWNER AS OF RECORD DATE(1) CLASS
- ----------------------------------------------- -------------------- ----------
<S> <C> <C>
Lehman Brothers Holdings Inc. . . . . . . . . . 1,048,913(2) 31.4%
3 World Financial Center
New York, New York 10285
Mutual Beacon Fund . . . . . . . . . . . . . . 319,037(3) 9.6%
c/o Franklin Mutual Advisers, Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Estabrook Capital Management Inc. . . . . . . . 383,950(4) 11.5%
430 Park Avenue, Suite 1800
New York, New York 10022
</TABLE>
- -----------------------------------------------
(1)Unless otherwise indicated below, the persons or group listed have sole
voting and investment power with respect to their shares of Common Stock.
(2)Of the 1,048,913 shares of common stock beneficially owned by Lehman
Brothers Holdings Inc., 33,800 shares are subject to shared investment power.
(3)Mutual Beacon Fund ("Beacon") is a portfolio of Franklin Mutual Series
Fund Inc., a registered investment company for which Franklin Mutual Advisers,
Inc. ("FMAI") acts as investment advisor. Pursuant to contracts with Beacon,
FMAI has sole investment and voting power over the shares owned by Beacon.
FMAI disclaims any economic beneficial interest in these shares.
(4)Estabrook Capital Management Inc. acts as an investment advisor and in
such capacity has shared voting power and sole investment power over the
shares.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth, as of February 1, 1997, the number and
percentage of shares of common stock beneficially owned by each of the
Company's directors, each executive officer named in the summary compensation
table included under "Executive Officers and Compensation", and all directors
and officers as a group.
<TABLE>
<CAPTION>
NO. OF SHARES BENEFICIALLY
OWNED AS OF PERCENT
NAME FEBRUARY 1, 1997(1)(2) OF CLASS(3)
- ------------------------------------------------------- -------------------------- -------------------
<S> <C> <C>
David J. Butters . . . . . . . . . . . . . . . . . . 86,400(4) 2.59%
Norman G. Cohen . . . . . . . . . . . . . . . . . . . 26,991(5) --
Marshall A. Crowe . . . . . . . . . . . . . . . . . . 12,600 --
Louis S. Gimbel, 3rd . . . . . . . . . . . . . . . . 65,767(6) 1.97%
Robert B. Millard . . . . . . . . . . . . . . . . . . 96,400 2.89%
Frank R. Pierce . . . . . . . . . . . . . . . . . . . 14,267 --
Bruce A. Streeter . . . . . . . . . . . . . . . . . . 10,632 --
All directors and officers
as a group (9 persons) . . . . . . . . . . . . . . 313,057 9.37%
</TABLE>
- -------------------------------------------------------
(1)Unless otherwise indicated below, the persons listed have sole voting and
investment power with respect to their shares of common stock.
(2)The amounts set forth in this column include the following shares of
common stock considered to be beneficially owned through the holder's ability
to exercise stock options to purchase such shares within 60 days: Messrs.
Butters, Cohen, Gimbel and
45
<PAGE> 46
Millard - 15,000 shares each; Mr. Crowe - 12,500 shares; Mr. Pierce - 9,767
shares; Mr. Streeter -7,667 shares; and all directors and officers as a group -
95,600 shares.
(3) Less than one percent unless otherwise indicated.
(4) Includes 21,500 shares of Common Stock owned by trusts of which Mr.
Butters is the co-trustee and 20,000 shares beneficially owned by Mr. Butters'
wife.
(5) Includes 11,991 shares owned by a limited partnership in which Mr. Cohen
is a 49.5% limited partner, Mr. Cohen's wife is a 49.5% limited partner, and
the 1% general partner is a limited liability company controlled by Mr. Cohen
and his wife. Mr. Cohen has shared voting and investment power with respect to
all of such shares. Mr. Cohen disclaims beneficial interest of the 5,995.5
shares owned by his wife through her interest in the limited partnership.
(6) Includes 7,605 shares of Common Stock owned by trusts of which Mr. Gimbel
is the co-trustee.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Consolidated Financial Statements and related Schedule I of the Company are
included in Item 8 (Consolidated Financial Statements and Supplementary Data).
All other schedules for the Company have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements or the notes thereto.
Financial Statements and Schedules of Energy Ventures, Inc., a significant
investee of the Company, are included as Exhibit 99.1.
(3) EXHIBITS
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- --------- ----------- ----------------------------------
<S> <C> <C>
2.1 -- Sale and Purchase Agreement dated as of June
29, 1993, made and entered into among BP -- Form 8-K, July 9, 1993
Shipping Limited, Gulf Offshore N.S. Limited
and Gulf Offshore Marine International, Inc.
3.1 -- Certificate of Incorporation, with amendments
through March 28, 1991 -- Form 10-K, December 31, 1993
3.2 -- Bylaws
10.1 -- Gulf Applied Technologies, Inc. 1987 Stock
Option Plan* -- Form 10-K, December 31, 1987
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C> <C>
10.2 -- Loan Facility Agreements dated as of July 8,
1993, made by and between the Chase Manhattan -- Form 10-Q, Quarter Ended June 30,
Bank N.A. and GulfMark North Sea Limited, Gulf 1993
Offshore Marine
10.3 -- GulfMark International, Inc. 1993 Non-Employee -- Form S-8, Registration No. 33-79212
Director Stock Option Plan.*
10.4 -- Loan Facility Agreement dated as of June 7, -- Form 10-Q, Quarter Ended June 30,
1995, made by and between Christiania Bank og 1995
Kreditkasse and Gulf Offshore N.S. Limited
10.5 -- Agreement dated October 20, 1995 Amending and
Restating the Loan Facility Agreement dated
July 8, 1993, made by and between the Chase
Manhattan Bank N.A. and GulfMark North Sea -- Form 10-K, December 31, 1995
Limited, Gulf Offshore Marine International,
Inc., Gulf Offshore N.S. Limited and Gulf
Offshore Far East, Inc.
10.6 -- Loan Facility Agreement dated December 21,
1995, made by and between Christiania Bank og -- Form 10-K, December 31, 1995
Kreditkasse and Gulf Offshore N.S. Limited
10.7 -- GulfMark International, Inc., Amended and
Restated 1993 Non-Employee Director Stock -- Schedule 14A, April 1, 1996
Option Plan*
10.8 -- Loan Facility Agreement dated as of July 26,
1996 made by and between the Chase Manhattan
Bank, Chase Manhattan International Limited,
as agent and Gulf Offshore Shipping Services, -- Form 10-Q, Quarter ended September
Inc., GulfMark International, Inc., GulfMark 30, 1996
North Sea Limited and Gulf Offshore Marine
International, Inc.
21.1 -- Subsidiaries of GulfMark International, Inc. -- Filed herewith
23.1 -- Consent of Independent Public Accountants -- Filed herewith
27.1 -- Financial Data Schedule -- Filed herewith
99.1 -- Form 10-K for Energy Ventures, Inc. -- Filed herewith
</TABLE>
*This contract is a management contract or compensatory plan.
(B) REPORTS ON FORM 8-K
A report on Form 8-K was filed by the Registrant on December 23, 1996.
The Form 8-K reported the execution of the Merger Agreement among the
Registrant, Energy Ventures, Inc., GulfMark Offshore, Inc., and GulfMark
Acquisition Co.
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
GULFMARK INTERNATIONAL, INC.
(Registrant)
By: /S/ FRANK R. PIERCE
--------------------------
Frank R. Pierce
Executive Vice President, Finance
Date: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/S/FRANK R. PIERCE Executive Vice President, Finance March 21, 1997
- -------------------------- (Principal Financial Officer)
Frank R. Pierce
/S/KEVIN D. MITCHELL Controller March 21, 1997
- --------------------------
Kevin D. Mitchell (Principal Accounting Officer)
/S/DAVID J. BUTTERS Director March 21, 1997
- ---------------------------
David J. Butters
/S/NORMAN G. COHEN Director March 21, 1997
- ---------------------------
Norman G. Cohen
/S/MARSHALL A. CROWE Director March 21, 1997
- ---------------------------
Marshall A. Crowe
/S/LOUIS S. GIMBEL, 3RD Director March 21, 1997
- ---------------------------
Louis S. Gimbel, 3rd
/S/ROBERT B. MILLARD Director March 21, 1997
- ---------------------------
Robert B. Millard
</TABLE>
48
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
21.1 Subsidiaries of GulfMark International, Inc.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
99.1 Form 10-K for Energy Ventures, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF GULFMARK INTERNATIONAL, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY OR ORGANIZATION STATE OR COUNTRY OF INCORPORATION
- ------------------------------------------- ------------------------------------
<S> <C>
Ercon Development Co. Texas
Gulf Offshore N.S. Ltd. United Kingdom
GulfMark North Sea Ltd. United Kingdom
Dianne Operating Ltd. United Kingdom
Gulf Marine Far East PTE, Ltd. Singapore
Gulf Offshore Marine International, Inc. Panama
Gulf Offshore Far East Inc. Panama
SeaMark, Ltd. Panama
Gulf Marine do Brazil, Ltd. Brazil
Semaring Logistics (M) Sdn. Bhd. Malaysia
Chalvoyage (M) Sdn. Bhd. Malaysia
Energy Ventures, Inc. Delaware
Gulf Offshore Shipping Services Inc. Panama
GulfMark Offshore, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark International, Inc.:
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-36740 and File No.
33-79212.
ARTHUR ANDERSEN LLP
Houston, Texas
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following sets forth certain financial information extracted from the
consolidated financial statements of GulfMark International, Inc. as of December
31, 1996, and the consolidated statement of income for the year ended December
31, 1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 17,590
<SECURITIES> 0
<RECEIVABLES> 9,796
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,342
<PP&E> 107,456
<DEPRECIATION> (19,791)
<TOTAL-ASSETS> 189,686
<CURRENT-LIABILITIES> 14,654
<BONDS> 0
0
0
<COMMON> 3,340
<OTHER-SE> 92,655
<TOTAL-LIABILITY-AND-EQUITY> 189,686
<SALES> 41,743
<TOTAL-REVENUES> 41,743
<CGS> 20,084
<TOTAL-COSTS> 31,704
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,936)
<INCOME-PRETAX> 12,750
<INCOME-TAX> 4,311
<INCOME-CONTINUING> 8,439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,439
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.53
</TABLE>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-7265
ENERGY VENTURES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2515019
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (713) 297-8400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange in which registered
------------------- ------------------------------------------
Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 17, 1997, was $951,806,075, based upon the closing
price on the New York Stock Exchange as of such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Title of Class Outstanding at March 17, 1997
-------------- -----------------------------
Common Stock, $1.00 Par Value 22,838,318
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13, will be
included in the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Energy Ventures, Inc., a Delaware corporation (together with its
subsidiaries, the "Company") is an international manufacturer and supplier of
oilfield equipment used in the exploration and production of oil and gas. The
Company operates through two business segments: tubular products segment and
production equipment segment. The tubular products segment manufactures drill
pipe and a full line of premium tubulars and accessories used in the
exploration and production of oil and gas. The Company's drill pipe and premium
tubulars are used primarily in connection with the initial stages of the
exploration and development of oil and gas reserves, in particular, natural
gas. The Company's production equipment segment manufactures artificial lift
and production equipment used primarily to assist and enhance the production of
oil from existing and older wells.
In 1996, the Company continued its strategy of making focused strategic
acquisitions in the oilfield equipment segment of the oil and gas industry in
order to strengthen its product lines and increase its market share. During
1996, the Company completed six significant acquisitions in its tubular
products and production equipment segments. Acquisitions within the tubular
products segment included an acquisition of Tubular Corporation of America
("TCA"), a manufacturer of premium casing and connections, ENERPRO
International, Inc. ("ENERPRO"), a manufacturer of premium thread connections,
and Superior Tube Ltd. ("Superior"), a Canadian based premium tubular
manufacturer. Within the production equipment segment, the Company acquired
Irmaos Geremia Ltd. ("Geremia"), a Brazilian based designer, manufacturer and
marketer of progressing cavity pumps, Arrow Completion Systems ("Arrow"), a
manufacturer of packers and completion tools, and Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment. In November
1996, the Company also disposed of its Mallard contract drilling division (the
"Mallard Division") for cash of approximately $306 million and 3,056,600 shares
of Parker Drilling Company ("Parker") preferred stock that were subsequently
converted into an equal number of Parker common stock. The net after tax cash
proceeds from this disposition were approximately $237 million, which the
Company currently intends to utilize to finance additional acquisitions and the
internal development of its oilfield equipment businesses.
The Company has continued its acquisition program since the disposition
of the Mallard Division. On February 24, 1997, the Company entered into an
agreement to acquire TA Industries, Inc. ("TA"), a manufacturer of premium
couplings and accessories, for approximately $64 million, including assumed
debt. The Company also acquired on March 14, 1997, the Griffin Legrand Division
of Taro Industries Ltd. ("Griffin Legrand"), a Canadian manufacturer of
progressing cavity pumps for approximately $21 million. The TA acquisition is
subject to various conditions, including regulatory approvals, and is currently
expected to close during the second quarter of 1997.
TUBULAR PRODUCTS
The Company's drill pipe and tubular products are provided through its
Grant Prideco tubular products segment. Grant Prideco manufactures and markets
two tubular product lines: (i) drill pipe and related products and (ii) the
Atlas Bradford and TCA lines of premium tubulars and premium engineered
connections. Grant Prideco operates through 14 manufacturing facilities, of
which 10 are located in the U.S., one in Canada, one in Scotland, one in India
(through an exclusive manufacturing arrangement with Oil Country Tubular
Limited ("OCTL")) and one in Mexico. Grant Prideco also has over 90 worldwide
licensed manufacturing and repair locations. Grant Prideco markets its product
lines through 11 technical support sales offices and a worldwide network of
agents and suppliers.
Grant Prideco's products are designed and engineered for high
performance applications. Drill pipe serves as the principal mechanical tool to
drill an oil or natural gas well. Drill pipe is designed and manufactured to
provide a reliable connection from the drilling rig to the drill bit thousands
of feet below the surface. Grant Prideco's drilling products include drill
pipe, drill collars, heavyweight drill pipe and kellys. These products
constitute all components of the drill stem used to drill a well from the rig
to the drill bit. Grant Prideco's production tubulars are primarily premium
tubing, casing and connections. Grant Prideco is the largest manufacturer and
supplier of drill pipe in the world and the largest manufacturer of premium
tubulars in North America. Grant Prideco is also one of the largest
manufacturer of drill collars and heavyweight drill pipe in the world.
2
<PAGE> 3
Drill Pipe
Drill pipe is manufactured within specific metallurgical and engineering
guidelines to meet stringent requirements necessary for its use in the drilling
of oil and natural gas wells. Customers for drill pipe consist primarily of
major oil and natural gas companies and drilling contractors who consider drill
pipe to be a material portion of their overall drilling costs. Accordingly,
purchasing decisions are sensitive to price, quality, operational needs and
fluctuations in oil and gas prices.
Grant Prideco's drill pipe product line consists primarily of specialty
pipe that is marketed under the H-Series trade name. Grant Prideco owns a
number of patents on tool joint design and drill pipe manufacturing processes
and has licensed a number of foreign drill pipe manufacturers the use of Grant
Prideco's H-Series patents and technologies.
Drill Collars and Heavyweights
Drill collars are the components of the drill stem generally located
directly above the drill bit in a vertical well. A drill collar is machined
from a solid steel bar and is used to provide weight on the drill bit. Grant
Prideco's heavyweight drill pipe is a seamless tubular product that is less
rigid than a drill collar and provides a transitional zone between the drill
collar in a vertical well and the more flexible drill pipe. Heavyweight drill
pipe also serves to apply weight to the drill bit in a directional well.
Premium Tubulars and Connections
Grant Prideco's premium tubular product line consists of premium tubing,
casing and premium engineered connections. The term "premium" refers to high
alloy, seamless tubulars with specific molecular structure and highly
engineered connections. The Company's premium tubulars, whether casing or
tubing, are designed and engineered to withstand deep, high pressure, high
temperature and highly corrosive well environments. Premium tubulars are
generally used in deep natural gas and offshore wells. The product line is
marketed under the trade names Atlas Bradford and TCA and utilizes a number of
proprietary and patented processes for threading and manufacturing premium
tubulars. Atlas Bradford was a pioneer in the development of high performance
connections for premium tubulars. The Company's premium engineered connections
are marketed in conjunction with Grant Prideco's premium tubular product lines
in order to provide its customers with a complete product. Premium tubulars,
like the lower performance variety known as API tubulars, are made up of casing
and tubing, products that respectively line the walls of a wellbore and serve
as a conduit for hydrocarbons up the wellbore. Grant Prideco's casing products
consist of larger outside diameter, high performance seamless casing for
critical service applications. The Company manufactures a wide range of sizes
and types of premium casing. Casing is used to line and maintain the integrity
of a wellbore.
Sales and Backlog
Total sales of drill pipe for the years ended December 31, 1996, 1995
and 1994 were $156.5 million, $87.2 million and $58.6 million, respectively,
representing approximately 33%, 32% and 32% of the Company's total sales. The
sales backlog for drill pipe and tubular products at December 31, 1996, totaled
approximately $170 million compared to $78 million at December 31, 1995. The
increase in the 1996 backlog was primarily due to a large increase in demand
for drill pipe during 1996. The Company anticipates that all of the backlog
existing at December 31, 1996, will be shipped during 1997.
Competition
Grant Prideco is the largest manufacturer and supplier of drill pipe in
the world and the largest manufacturer of premium tubulars in North America.
Grant Prideco is also one of the largest manufacturer of drill collars and
heavyweight drill pipe in the world.
Competition is based on price, quality and service. The market for the
Company's drill pipe is essentially worldwide and the Company competes with
four large international and domestic manufacturers, some of whom are licensees
of the Company, as well as manufacturing operations in China and the
Commonwealth of Independent States ("CIS"). Other large domestic and
international manufacturers not currently in the market also have the ability
to compete with the Company. Market conditions for drill pipe have
significantly improved over the past two years with the decline in excess
inventories of used pipe and the associated increase in demand for new drill
pipe. This improvement has resulted in higher sales, prices and margins.
3
<PAGE> 4
In the United States, the Company competes with four major manufacturers
of premium tubulars. Competitors include large domestic and foreign
corporations and small specialty manufacturers. Internationally, the Company
competes with five manufacturers of premium tubulars. Many of the Company's
competitors have greater financial resources than the Company.
The market for premium casing is limited to some extent by
transportation costs. As a result, the Company's sales of these products has
primarily been concentrated in North and South America. The exclusive
manufacturing arrangement with OCTL has added the Eastern Hemisphere markets to
the Company's markets for casing. The Company currently competes with four
large manufacturers for engineered premium connections and with the integrated
steel mills and various other large providers for semifinished casing. Casing
may also be manufactured by the integrated steel mills that provide the green
tubing for the tubular products manufactured by the Company.
Raw Materials
The Company uses plain-end green steel tubing stock and forging billets
as raw material in the manufacture of drill pipe, casing and premium tubing.
The primary raw material for drill collars is solid steel bars. Heavyweight
drill pipe is manufactured from heavy walled tubular products. The Company's
suppliers are major domestic and international steel mills. The Company has
established relations with several domestic and foreign mill sources that
provide a competitive availability of green tubing stock supplies. Prices for
green tubing and forging billets have recently increased. The Company, however,
has been able, to date, to pass through these increased costs to its customers.
Facilities
The Company's drill pipe and premium tubulars are manufactured at eight
locations in Texas, one location in Louisiana, one location in Oklahoma, one
location in Canada, one location in Scotland, one location in Mexico and one
location (through OCTL) in India. The Company continues to focus on product
development and manufacturing efficiencies. The Company also has sales offices
in Houston and Dallas, Texas; Fribourg, Switzerland; New Orleans, Louisiana;
Abu Dhabi, United Arab Emirates; Aberdeen, Scotland; Moscow, Russia; Caracas,
Venezuela; The Hague, The Netherlands; Kuala Lumpur, Malaysia; and Shanghai,
China.
Customers and Markets
The customers for the Company's tubular products include both domestic
and international oil and natural gas companies, drilling contractors and
distributors of oilfield supplies. Because the Company's tubular products are
designed primarily for drilling and production in deep wells and harsh
environments, they are generally used in connection with the exploration and
production of natural gas and international exploration. Accordingly, sales of
these products are sensitive to fluctuations in the price outlook for natural
gas and related levels of exploration activity.
PRODUCTION EQUIPMENT
The Company's artificial lift products and completion equipment are
manufactured by the Company's EVI Oil Tools division. EVI Oil Tools' products
are used in the production segment of the oil and gas industry, with an
emphasis on the production of oil. EVI Oil Tools provides products and
services in 55 locations in the U.S., 14 locations in Canada, one location in
Argentina, two locations in Venezuela and five locations in Brazil.
Artificial Lift
EVI Oil Tools manufactures a broad line of artificial lift equipment.
The Company's artificial lift equipment includes a complete line of downhole
pumps, sucker rods, surface pump drive units and gas lift. The Company's
downhole pumps consist of both progressing cavity pumps and rod pumps. The
Company's sucker rod line is comprised of both traditional sucker rods and the
Company's unique patented continuous sucker rod. The Company's surface drive
pumping units consist of the Company's unique RotaFlex mechanical, long-stroke
surface drive pump unit and traditional pumpjacks. The Company believes that
EVI Oil Tools is among the largest manufacturers of rod lift equipment in the
world and provides the only integrated product line in this class of lift from
the above ground equipment to the tools submersed in the producing reservoir.
4
<PAGE> 5
Artificial lift is used for recovering oil from maturing fields that
lack sufficient pressure to flow under their own power. Artificial lift
technologies include rod lift, electrical submersible lift, gas lift and
hydraulic lift. The Company's artificial lift equipment emphasizes rod lift
products and utilizes various proprietary and patented technology. Rod lift is
a form of artificial lift technology in which oil is recovered through a
suction process utilizing an above ground drive system connected to sucker rods
to a downhole pump placed in the reservoir. Rod lift is particularly suited for
oil wells with depths of up to 10,000 feet or production rates of 1,000 barrels
per day. The Company currently estimates that rod lift represents approximately
50% of the total artificial lift market in the world. Gas lift is generally the
desirable form of artificial lift when natural gas is produced with oil or is
available from nearby wells for injection.
The Company manufactures two types of above ground pump drive systems,
the Company's unique patented RotaFlex system and the traditional pumpjack
system. RotaFlex is a 100% mechanical, long-stroke surface drive pump unit that
is used to artificially lift oil from deep or high volume wells as opposed to
low volume stripper wells. The Company believes that the RotaFlex system is
over 20% more efficient than the traditional pumpjack system that is used for
lower volume wells. The Company also manufactures, through its newly acquired
Griffin Legrand unit, traditional pumpjack units for lower volume wells.
The Company's RotaFlex system and traditional pumpjack systems compete
with the traditional pumping units manufactured by Lufkin Industries.
The Company's sucker rods consist of both traditional sucker rods, which
require a coupling every 25 to 30 feet, and the Company's unique continuous
sucker rod. A sucker rod is an integral part of a rod pump system and is used
to connect the surface drive unit of an oil well, such as the Company's
RotaFlex system or a traditional pumpjack drive system, to a subsurface pump.
The Company's downhole pumps consist of progressing cavity pumps and rod
pumps. Progressing cavity pumps lift oil by using a rotating motion and
elastomer lined cavities. Rod pumps lift oil by using a vertical motion and a
set of mechanical valves. Both types of pumps are connected to the above ground
pump drive system by either traditional coupled rods or the Company's
continuous sucker rods. The Company produces a complete line of progressing
cavity pumps using proprietary hydraulic gear boxes and patented vertical
electric drives. The Company's progressing cavity pumps are particularly suited
for shallow to medium wells with high volumes of produced water, low gravity
crude or sandy conditions. The Company believes that progressing cavity pumps
represent one of the faster growing forms of artificial lift.
Completion Equipment
EVI Oil Tools' completion equipment includes packers, service tools and
flow control equipment. Packers are used in the completion and production of
oil and gas wells. Packers maintain the separation between productive zones and
seal off the space between the tubing and casing. EVI Oil Tools' flow control
equipment and service tools are used for a variety of applications from the
initial completion of an oil or natural gas well to the workover and
recompletion of an existing well.
Competition
EVI Oil Tools distinguishes itself from its competitors in that it has a
fully integrated product line and utilizes new technologies for the production
of oil using artificial lift. EVI Oil Tools' integrated product line offers all
artificial lift equipment from the wellhead to the reservoir. To the Company's
knowledge, none of its competitors has as broad a product line.
The market for artificial lift and completion equipment is very
competitive. Competition is based on product design and quality, ability to
meet delivery requirements and pricing. The RotaFlex system competes with
conventional pumping units, which are manufactured by Lufkin Industries.
Corod's continuous sucker rods compete with conventional sucker rods, which are
manufactured and sold by both EVI Oil Tools and three major competitors. The
Company's packers compete with packers manufactured by two large manufacturing
companies as well as various smaller specialty and commodity manufacturers.
There are two competitors for the Company's gas lift products and three major
competitors for the Company's flow control products and service tools. The
Company's progressing cavity pumps compete with two major competitors. EVI Oil
Tools has identified in the industry six large competitors that individually
have significant shares of the entire artificial lift equipment market
(inclusive of all other forms of lift). The Company believes that it currently
has the first or second largest market share for artificial lift equipment in
the world, although its market share varies depending on the type of product.
5
<PAGE> 6
Customers and Markets
EVI Oil Tools' products and services are designed primarily for oil
production from maturing fields. Demand is, therefore, not significantly
affected by short-term changes in exploration and drilling activity. The
Company believes that the crude oil production side of the industry is a
growing market for artificial lift products in that there is an increasing need
for artificial lift to aid production as oil fields mature worldwide. However,
declines in prices of oil may reduce demand for EVI Oil Tools' products due to
reduced capital expenditures by customers and decisions by customers not to
pursue additional work on marginal wells. Currently, most of the Company's
artificial lift equipment is sold in the United States and Canada. However, the
Company believes that significant opportunities exist for its products in other
areas with maturing fields such as South America. In recognition of this
opportunity, the Company has taken extensive efforts to expand EVI Oil Tools'
products internationally, including its recent acquisition of Geremia.
Approximately 22%,11% and 8% of the Company's revenues from the sale of
production equipment for 1996, 1995 and 1994, respectively, were derived from
sales provided outside the United States and Canada.
Facilities
The Company manufactures its production equipment at four locations in
Texas, two locations in Louisiana, one location in Oklahoma, one location in
New Mexico, one location in Wyoming, two locations in Canada, one location in
Argentina and two locations in Brazil.
Backlog
Backlog of production equipment is generally not considered to be a
meaningful indication of future sales or results due to the nature of the
business.
RAW MATERIALS
The Company purchases a variety of raw materials for its manufacturing
operations and a variety of parts and components fabricated by other
manufacturers and suppliers. The Company is not dependent on any single source
of supply for any of its raw materials and components. A loss of one or more of
the Company's suppliers could disrupt production.
PATENTS
The Company's oilfield equipment segments utilize various patents and
proprietary technology in the manufacture of their products. The Company
recently entered into an exclusive license and technology transfer agreement
with Netzsch-Mohnopumpen Beteiligungs QMBH & Co. KG ("Netzsch") in Germany
pursuant to which the Company has obtained the rights to manufacture and sell
rotors and stators for its progressing cavity pumps. Although the Company
considers its patents important to the operation of its business and a loss of
one or more patents could adversely affect a particular product, because of the
proprietary processes that the Company has developed in using its patents, and
the nature of the business conducted with the patents, it does not believe that
any significant portion of its business is materially dependent upon any single
patent or group of patents or generally upon patent protection.
INSURANCE
The Company is required to carry workers' compensation insurance to
comply with state laws and customer requirements. Grant Prideco has elected to
opt out of the mandatory Texas workers' compensation pools and secures its
workers' compensation through outside insurance. Although it has been able to
reduce insurance costs through this election, certain benefits provided under
the workers' compensation statutes may not be available to the Company. The
cost of insurance is subject to substantial fluctuation due to a variety of
factors, some of which are beyond the Company's control. Although the Company
has generally been able to obtain insurance on terms it considers to be
reasonable, there can be no assurance that such insurance will continue to be
available on terms as favorable as those for its existing arrangements. The
Company is partially self-insured for employee health insurance claims and
certain workers' compensation claims.
Although the Company maintains product liability insurance with respect
to its products, such insurance is limited in coverage. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company with
respect to its products could have a material adverse effect on the Company.
6
<PAGE> 7
The Company also maintains political risk insurance to insure against
certain risks of doing business in foreign countries. Although the Company
believes that these actions have helped it to minimize the cost of its
insurance, any increase in the number or amount of claims or losses could
require greater cash payments and reserves by the Company and could result in
the Company having higher rates, deductibles and retainers for its insurance
coverage. However, neither insurance nor indemnity agreements can provide
complete protection against casualty losses. There can be no assurance that
such coverage is adequate for the risks involved, that the coverage limits
would not be exceeded or that such insurance would apply to all such
liabilities. Further, there can be no assurance that such insurance will be
sufficient to cover any future losses, will continue to be available on
commercially reasonable terms or will continue to be available on terms as
favorable as those for its existing arrangements. The occurrence of an adverse
claim in excess of the coverage limits maintained by the Company could have a
material adverse effect on the Company's financial condition and results of
operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is affected by changes in public policy and by
federal, state and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental and other policy reasons
may adversely affect the Company's operations by limiting available drilling
and other opportunities in the energy service industry. The Company is also
subject to various health and safety regulations as established by the
Occupational Safety and Health Administration.
The Company's operations are subject to federal, state and local laws
and regulations controlling the discharge of materials into or otherwise
relating to the protection of the environment. In recent years, laws and
regulations protecting the environment have generally become more stringent and
have sought to impose greater liability on a larger number of potentially
responsible parties. However, the Company is not currently aware of any
situation or condition that it believes is likely to have a material adverse
effect on its results of operations or financial condition.
The Company's expenditures in 1996 in order to comply with applicable
environmental laws and regulations were not material, and the Company expects
that the costs of compliance with such laws and regulations for 1997 will not
be material. The Company does not believe that its costs for compliance with
applicable environmental laws and regulations is, on a relative basis, greater
than that of its competitors.
FOREIGN OPERATIONS
The Company's equipment and services are used in approximately 55
countries by U.S. customers operating abroad and by foreign customers. Sales of
equipment and services outside the U.S. accounted for approximately 51%, 46%
and 46% of total revenues for 1996, 1995 and 1994, respectively, based upon the
ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company.
7
<PAGE> 8
The following tabulation sets forth summarized financial information for
the three years ended December 31, 1996, by geographic area. The information
presented has been restated to reflect the Mallard Division as discontinued
operations. Identifiable assets exclude net assets relating to the Mallard
Division of approximately $95.5 million and $74.7 million at December 31, 1995
and 1994, respectively.
<TABLE>
<CAPTION>
FOREIGN
----------------------------
UNITED LATIN
STATES CANADA AMERICA OTHER ELIMINATIONS TOTAL
------ ------ ------- ----- ------------ -----
(IN THOUSANDS)
1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues from
unaffiliated customers ...... $253,675 $ 65,113 $ 36,214 $ 34,048 $(21,395) $367,655
Export sales to
unaffiliated customers ...... 110,365 -- -- -- -- 110,365
-------- -------- -------- -------- -------- --------
Total revenues ................ 364,040 65,113 36,214 34,048 (21,395) 478,020
1995
Operating revenues from
unaffiliated customers ...... $166,627 $ 37,575 $ 23,068 $ 1,156 $(19,754) $208,672
Export sales to
unaffiliated customers ...... 63,003 -- -- -- -- 63,003
-------- -------- -------- -------- -------- --------
Total revenues ................ 229,630 37,575 23,068 1,156 (19,754) 271,675
1994
Operating revenues from
unaffiliated customers ...... $109,197 $ 26,774 $ 8,812 $ 1,601 $ (9,101) $137,283
Export sales to
unaffiliated customers ...... 48,002 -- -- -- -- 48,002
-------- -------- -------- -------- -------- --------
Total revenues ................ 157,199 26,774 8,812 1,601 (9,101) 185,285
</TABLE>
See Note 15 to the Consolidated Financial Statements of the Company for
additional financial information related to the Company's revenues by
geographic region.
Operations and sales in foreign markets are subject to substantial
competition from large multinational corporations and government-owned entities
and to a variety of local laws and regulations requiring qualifications, use of
local labor, the provision of financial assurances or other restrictions and
conditions on operations. Foreign operations are also subject to risks
associated with doing business outside the U.S., including risk of war, civil
disturbances and governmental activities that may limit or disrupt markets,
restrict the movement of funds or result in the deprivation of contract rights
or the taking of property without fair compensation. Foreign operations may
also subject the Company to risks relating to fluctuations in currency exchange
rates. However, to date, currency fluctuations have not had a material adverse
impact on the Company.
The Company has drill pipe and other products manufactured for it by
OCTL in India under a long-term exclusive manufacturing arrangement with OCTL.
Although the Company has sought to minimize the risks of this operation through
its manufacturing arrangement and insurance, the Company is providing OCTL with
a substantial amount of raw materials and inventory for the products
manufactured by it. Operations in India are subject to various political and
economic risks as well as financial risks with respect to OCTL.
The Company also has manufacturing operations in Mexico, Brazil and
Argentina. The Company's operations in each of these countries are subject to
various political and economic conditions existing in them which could disrupt
operations. The Company generally seeks to obtain, where economical, insurance
against certain political risks and attempts to structure its contracts and
arrangements in the foreign countries in which it operates in a manner that
would minimize the exposure of its assets to losses in those countries. Such
efforts include structuring substantially all of its sales and service
contracts to be in U.S. dollars and utilizing lease arrangements and joint
ventures for manufacturing facilities so as not to require substantial
investment of funds in fixed assets in foreign countries. Although the Company
believes that its exposure to foreign risks is not materially greater than that
of its competitors, there can be no assurance that disruptions will not occur
in the Company's foreign operations or that any losses that do occur will be
covered by insurance.
8
<PAGE> 9
EMPLOYEES
As of December 31, 1996, the Company employed approximately 4,000
employees. The Company considers its relations with its employees to be
generally satisfactory.
ITEM 2. PROPERTIES
The Principal offices of the Company and facilities used by the Company
in its tubular products and production equipment segments are set forth in the
table below:
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
TUBULAR PRODUCTS:
<S> <C> <C> <C> <C>
Navasota, Texas......................... 251,600 182.80 Owned Manufacture drill pipe, premium
threaded casing, liners and tubing
Vera Cruz, Mexico....................... 214,000 42.00 Leased Manufacture tool joints
Muskogee, Oklahoma...................... 163,000 97.00 Owned Manufacture TCA premium casing
Bryan, Texas............................ 160,000 55.27 Owned Manufacture premium tubing
Bastrop, Texas.......................... 108,300 21.00 Owned Manufacture tool joints
Edmonton, Alberta, Canada............... 106,925 10.22 Owned Manufacture drill pipe, premium
threaded casing, liners and tubing
Houston, Texas.......................... 68,500 13.50 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
31,500 10.00 Owned Manufacture drill pipe, drill collars
heavyweights and kellys
21,900 11.00 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
12,400 -- Leased Principal offices of Grant Prideco
Channelview, Texas...................... 60,600 20.00 Owned Threading of premium casing
Morgan City, Louisiana.................. 19,300 2.40 Leased Repair drill pipe, drill collars,
heavyweights and kellys
Aberdeen, Scotland...................... 11,500 5.90 Leased Threading of premium casing
PRODUCTION EQUIPMENT:
Woodward, Oklahoma...................... 148,800 53.02 Leased Manufacture sucker rod pump parts
Odessa, Texas........................... 97,000 7.20 Owned Manufacture of RotaFlex pumping units
Sao Leopoldo, Brazil.................... 86,080 17.00 Owned Manufacture progressing cavity pumps
Huntsville, Texas....................... 81,680 20.00 Owned Manufacture downhole packers and
completion systems
Caxias do Sul, Brazil................... 62,400 6.00 Leased Manufacture downhole packers
and completion systems
Santa Teresa, New Mexico................ 43,000 7.50 Owned Manufacture sucker rods
Longview, Texas......................... 40,000 22.10 Owned Manufacture pump barrels and plungers
Edmonton, Alberta, Canada............... 40,000 11.00 Leased Manufacture of progressing cavity
pumps
Midland, Texas.......................... 30,000 3.00 Owned Manufacture and repair pumping
unit parts
26,000 8.00 Owned Sales and service of downhole
packers
Aberdeen, Scotland...................... 17,600 .50 Leased Sales and service of downhole
packers
Powell, Wyoming......................... 16,000 1.80 Leased Manufacture of downhole packers
and completion systems
Nisku, Alberta, Canada.................. 15,900 8.30 Owned Manufacture continuous rods
Lafayette, Louisiana.................... 10,825 1.00 Leased Manufacture gas lift equipment
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C>
6,500 1.00 Leased Manufacture gas lift equipment
Macae, Brazil........................... 10,200 2.00 Owned Repair facility
Oklahoma City, Oklahoma................. 9,500 1.20 Leased Repair pumping unit parts
Irving, Texas........................... 6,765 1.00 Leased Principal offices of EVI Oil Tools
CORPORATE:
Houston, Texas.......................... 14,500 -- Leased Principal offices of the Company
</TABLE>
In addition to the above facilities, the Company has an agreement with
OCTL pursuant to which OCTL's manufacturing facility in Narketpally, India is
to be dedicated by OCTL to the production of drill pipe and other tubular
products exclusively for the Company. This facility is owned by OCTL and
consists of 262,000 sq. ft. located on 60 acres.
ITEM 3. LEGAL PROCEEDINGS
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known to the Company, it
believes that the ultimate liability, if any, which may result from these
disputes, claims and litigation would not have a material adverse affect on the
Company's consolidated financial position or its results of operations with or
without consideration of insurance coverage. See Note 10 to Consolidated
Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1996, to a vote of shareholders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "EVI". The following table sets forth, for the periods indicated,
the range of high and low sale prices per share for the Common Stock as
reported on the NYSE.
<TABLE>
<CAPTION>
PRICE
-------------------
HIGH LOW
-------- ------
<S> <C> <C>
Year ending December 31, 1996
First Quarter.............................. $28 7/8 $22 1/4
Second Quarter............................. 35 25 3/4
Third Quarter.............................. 40 1/2 28
Fourth Quarter............................. 51 1/2 39
Year ending December 31, 1995
First Quarter.............................. $14 5/8 $11 7/8
Second Quarter............................. 20 5/8 13 1/4
Third Quarter.............................. 24 17 3/8
Fourth Quarter............................. 25 1/4 18 3/8
</TABLE>
The Company has not paid any dividends on the Common Stock since 1984
and currently anticipates that, for the foreseeable future, any earnings will
be retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock for the
foreseeable future. The declaration of all dividends is at the discretion of
the Company's Board of Directors. The Company's dividend policy will be
reviewed by the Board of Directors at such future time as may be appropriate in
light of relevant factors at the time; however, the Company and the Company's
principal operating subsidiaries are subject to certain prohibitions on the
declaration and payment of dividends under the terms of their existing credit
facilities. In addition, under the terms of the Company's 10 1/4% Senior Notes
due 2004 ("Senior Notes"), the Company is limited, based on a specific formula,
in the amount of funds it may distribute as dividends or distributions to
stockholders. The Company is also restricted to a specific formula under its
principal working capital facilities in the amount of dividends, distributions
and other restricted payments that it may make to stockholders. As of December
31, 1996, the Company was
10
<PAGE> 11
limited in the amount of cash dividends,distributions and other restricted
payments that could be made by it under the terms of the Senior Notes and the
Company's credit facility to approximately $278 million and $133 million,
respectively.
As of March 17, 1997, there were 1,013 stockholders of record. The Common
Stock is traded on the NYSE under the symbol EVI.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of the Company and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The following information may not be deemed indicative of
future operating results of the Company. The information presented has been
restated to reflect the Mallard Division as discontinued operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 478,020 $ 271,675 $ 185,285 $ 171,638 $ 139,349
Operating Income (Loss) ..................... 46,287 17,965 3,638 6,758 (56)
Income (Loss) from Continuing Operations .... 24,505 2,602 (5,692) 77 (3,848)
Earnings (Loss) Per Share from Continuing
Operations ............................. 1.20 .18 (.45) .01 (.32)
Total Assets ................................ 852,843 453,125 311,497 251,377 210,887
Long-term Debt .............................. 126,710 124,183 125,108 38,982 37,304
Stockholders' Investment .................... 454,084 228,066 110,913 107,736 101,156
Cash Dividends Per Share .................... -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is an international manufacturer and supplier of oilfield
equipment. The Company manufactures and markets its drill pipe and premium
tubular products through its tubular products segment and manufactures and
markets a complete line of artificial lift and production equipment through its
production equipment segment. The Company's products are used in the
exploration and production of oil and natural gas. In recent periods, the
Company has benefited from improved market conditions, a continuing
consolidation in the markets in which it competes and a decline in excess
inventories of used drill pipe.
The Company has achieved significant growth in recent years through a
consistent strategy of focused acquisitions and internal development. This
strategy, combined with increased demand for the Company's products, has
resulted in significantly higher revenues and operating income. The Company is
currently the largest manufacturer and supplier of drill pipe in the world, the
largest manufacturer of premium tubulars in North America and among the largest
manufacturers of rod lift equipment in the world.
Income from continuing operations for 1996 was $24.5 million, or $1.20
per share, on revenues of $478 million, as compared to income from continuing
operations for 1995 of $2.6 million, or $.18 per share, on revenues of $271.7
million. The increase in income from continuing operations for 1996 was
primarily attributable to increased sales and margins of drill pipe and other
tubular products. Improved results also reflected the Company's acquisitions of
Prideco, Inc. ("Prideco") in June 1995, ENERPRO in May 1996, TCA in August 1996
and the operating assets of Superior in September 1996.
Net income for the year ended December 31, 1996 was $98.2 million, or
$4.82 per share, compared to net income of $11.3 million, or $.77 per share,
for the year ended December 31, 1995. Included in net income for 1996 was a
one-time gain, net of taxes of $44.6 million, of $66.9 million, or $3.29 per
share, from the November 1996 sale by the Company of its Mallard Division to
Parker for cash of approximately $306 million and 3,056,600 shares of Parker
preferred stock that were subsequently converted into 3,056,600 shares of
Parker common stock in December 1996. The Company intends to use the net
proceeds from this disposition to finance acquisitions and internal development
of its oilfield equipment businesses.
11
<PAGE> 12
As a result of the sale of the Mallard Division, all current and prior
year financial results attributable to the Mallard Division have been
reclassified as discontinued operations in the accompanying consolidated
financial statements. For the year ended December 31, 1996, income from
discontinued operations, net of taxes, for the Mallard Division was $7.5
million. Also included in net income for 1996 was an extraordinary after-tax
charge of $731,000, or $.04 per share, in the second quarter of 1996 relating
to the termination of the Company's $60 million credit facility that was
replaced with a $120 million revolving credit facility.
The demand for the Company's tubular products is particularly affected
by the price of natural gas and the level of oil and gas exploration activity,
while the demand for the Company's production equipment is directly dependent
on oil production activity. Exploration and production activity is also
affected by worldwide economic conditions, supply and demand for oil and
natural gas, seasonal trends and the political stability of oil producing
countries. The Company is also taking action to increase its presence in new
and complementary phases of the premium tubulars market through acquisitions,
including a pending $64 million acquisition of TA Industries, a U.S.
manufacturer of premium couplings and accessories.
Sales of the Company's production equipment products have historically
been concentrated in North America. The Company had recently significantly
expanded its production equipment operations in South America with its
September 1996 acquisition of Geremia, a manufacturer of progressing cavity
pumps, and the early 1997 acquisition of Anbert Cilindros S.A.I.C. ("Anbert"),
a manufacturer of rod pumps in Argentina.
The Company currently expects that 1997 results will continue to benefit
from strong tubular products sales and from the 1996 and 1997 acquisitions.
Results, however, will be dependent on market conditions and demand for drill
pipe and other tubular products. Accordingly, there can be no assurance as to
future results or profitability.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Tubular Products Segment
Sales of tubular products in 1996 were $342.5 million compared to $154.2
million in 1995. Operating income associated with the tubular products segment
in 1996 was $44.4 million as compared to $15.2 million in 1995. Results in the
fourth quarter include a $4.3 million charge attributable to the relocation of
a tool joint manufacturing facility. Results for 1996 reflected a 73% increase
in sales of drill pipe and a 27% increase in sales of premium tubulars. The
increase in drill pipe sales reflected an overall increase in demand for drill
pipe and the Company's June 1995 acquisition of Prideco. The increase in demand
for drill pipe was due to increased drilling activity, particularly offshore,
higher sales prices and a continuing decline in the supply of used drill pipe
inventory, against which the Company has historically competed. The increase in
sales of premium tubular products reflected the acquisitions of ENERPRO, TCA
and Superior and an increase in demand associated with increased natural gas
and deep offshore exploration and production activity. The acquisitions
complimented the Company's engineered premium threading technology.
The improvement in operating income reflected the effects of increased
sales, improved pricing and lower average manufacturing costs due to
consolidation savings. In the third and fourth quarters of 1996 the Company
implemented price increases on drill pipe, which are expected to benefit 1997
results as the existing backlog turns. Price improvements, however, were
partially offset by an increase in the price of raw materials, particularly
"green" tubing, the primary material used by the Company in the production of
its tubular goods.
Of the Company's sales of drill pipe and other tubular products, 59%, 4%
and 7% were attributable to sales in the U.S., Canada and Latin America,
respectively. Sales of drill pipe and other tubular products in the U.S.,
Canada and Latin America for 1995 represented 62%, 4% and 12%, respectively, of
such sales for 1995.
The Company is currently in the process of implementing various
manufacturing changes at its tubular products division in light of recent
acquisitions and to reduce costs and improve efficiencies. These changes
include the closing of the Company's tool joint manufacturing facility in
Bastrop, Texas and the relocation of various equipment and personnel to
Veracruz, Mexico and to other facilities. The Company incurred a $4.3 million
charge to operating income in the fourth quarter of 1996 associated with these
changes. The Company expects to realize costs savings in 1997 as a result of
such changes.
12
<PAGE> 13
Backlog for tubular products at December 31, 1996 was approximately $170
million compared to $78 million at December 31, 1995. The Company currently
expects that all of this backlog will be shipped within the next twelve months.
Production Equipment Segment
Revenues and operating income at the Company's production equipment
segment were $135.5 million and $8.2 million, respectively, for 1996, compared
to $117.4 million and $7.8 million, respectively, for 1995. The production
equipment segment recorded a charge of $1.5 million in the fourth quarter of
1996 associated with the consolidation of two packer manufacturing facilities
arising from the Company's acquisition of the packer manufacturing operations
of Arrow in December 1996. The Company expects to benefit in 1997 from the
packer facilities consolidation. The Company has also benefited from the
reduction in manufacturing expenses from process efficiencies realized at the
segment's primary facilities.
Sales of production equipment in North America constituted approximately
78% of total sales in 1996 in this segment, compared to 88% of sales in 1995,
while sales in South America increased to 17% in 1996 from 8% in 1995. The
increased South American sales were primarily attributable to $4.7 million in
revenues from Geremia, a manufacturer of progressing cavity pumps, acquired in
October 1996.
Canadian sales were $54.9 million for 1996, representing an increase of
approximately 46% from 1995 levels. The Company is near completion on the
construction of a new Canadian manufacturing plant to produce continuous rod,
which is expected to expand capacity by over 150%. The Company is also in the
process of expanding the capabilities at this facility to manufacture rotors
and stators for its progressing cavity pumps pursuant to an exclusive license
and technology transfer arrangement with Netzsch in Germany. Production of
rotors and stators at this facility is expected to commence in early 1998. The
Company anticipates that the increase in capacity of the new continuous rod
plant along with manufacturing efficiencies will benefit 1997 results.
Sales in the United States were $50.3 million in 1996, as compared to
$65.2 million in 1995. Revenues in 1996 did not include any sales from the
Company's Highland Pump distribution business, which was sold in the first
quarter of 1996 in connection with the Company's decision to focus the efforts
of this division on manufacturing and product design.
General
Corporate expenses as a percentage of revenues for 1996 were 1.3% as
compared to 1.9% for 1995. The percentage decrease in 1996 was primarily
attributable to the growth in revenues from the Company's tubular products
segment.
The Company's effective tax rate on income from continuing operations
for 1996 was approximately 22%. The effective rate was favorably impacted by a
$4 million tax benefit in the fourth quarter of 1996 resulting from the
Company's $6.4 million settlement in October 1996 with the United States
Internal Revenue Service (the "IRS") in connection with the dissolution in
October 1990 of the COLEVE joint venture. The Company also recorded a tax
charge of approximately $44.6 million associated with the Company's gain on the
sale of the Mallard Division.
The Company realized a net tax benefit on income from continuing
operations of $240,000 in 1995 primarily through the benefit of certain net
operating losses that had been previously subject to separate company
limitations.
Interest expense for 1996 was $16.5 million compared to $16.3 million
for 1995. Following the Company's sale of the Mallard Division, the Company
repaid substantially all of its outstanding working capital indebtedness. As a
result, interest expense for 1997 is expected to decline from 1996 levels.
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations.
13
<PAGE> 14
FISCAL YEAR 1995 COMPARISON WITH FISCAL YEAR 1994
Tubular Products Segment
The Company recorded a $60.6 million increase in sales of tubular
products in 1995 over 1994 sales. The increase in sales for 1995 resulted from
the acquisition of Prideco on June 30, 1995, higher sales prices and an overall
increase in demand for drill pipe. The Company implemented price increases in
the second half of 1995 from which the Company benefited in 1996 as the
existing backlog turned.
Results in the tubular products segment include a $0.75 million royalty
payment in the fourth quarter of 1995, which benefited operating income for
1995. The oilfield equipment segment also benefited from lower average
manufacturing costs for its tubulars associated with increased sales and higher
gross margins at the Company's facility in Mexico, which has a lower cost base
than the United States facilities.
In the third quarter of 1995, the Company experienced increases in its
cost of "green" tubing, the primary material used by it in the production of
its tubular goods. The Company was able to pass through the additional costs of
this raw material to its customers.
Of the Company's 1995 sales of drill pipe and other tubular products,
62%, 4% and 12% were attributable to sales in the U.S., Canada and Latin
America, respectively. Sales of drill pipe and other tubular products in the
U.S., Canada and Latin America for 1994 represented 54%, 4% and 12%,
respectively, of such sales for 1994. The U.S. increase reflects the increase
in demand and the acquisition of Prideco.
Production Equipment Segment
Revenues and operating income associated with the Company's production
equipment segment were $117.4 million and $7.8 million, respectively, for 1995
compared to $90.3 million and $5.1 million, respectively, for 1994. The
increases in revenues and operating income for 1995 were primarily attributable
to the Company's increases in Canadian progressing cavity pumps and Corod
sales.
Sales of production equipment in North America constituted approximately
88% of total sales in 1995 in this segment, compared to 91% of sales in 1994,
while sales in South America increased to 8% in 1995 from 3% in 1994. The
increased South American sales were primarily attributable to a $2.2 million
increase in revenue following the Company's acquisition of Engemaq S.A. in
1995.
General
Selling, general and administrative expenses increased approximately 16%
to $48.4 million in 1995 from $41.7 million in 1994. The increase in 1995 was
attributable to the Prideco acquisition and to increased sales and
international expansion.
Interest expense increased during 1995 to $16.3 million from $13.5
million for 1994. The increase in interest expense was attributable to higher
levels of indebtedness during 1995 under the Company's working capital lines of
credit due to increases in the level of the Company's business. The Company's
interest expense declined in the fourth quarter of 1995 as a result of the
reduction in debt following the 1995 equity offering of $72.6 million.
The Company realized a $240,000 tax benefit in 1995 on income from
continuing operations as compared to a $3.8 million tax benefit in 1994. The
1995 tax benefit reflects the impact of net operating loss carryforwards and
certain tax benefits which occurred in 1995.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, effective January 1, 1996. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. Accordingly, the Company's long-lived assets for certain
identifiable intangibles are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of any assets may not be
recoverable. In performing the review for recoverability, the Company estimates
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash
14
<PAGE> 15
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. The adoption of SFAS
No. 121 did not impact the Company's consolidated financial position or results
of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123 ("SFAS No. 123"), Accounting
for Stock-Based Compensation. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation. The pronouncement
allows an entity to continue to measure compensation cost for those instruments
using the intrinsic value-based method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 ("APB No. 25"), under which no
compensation cost has been recognized in the accompanying financial statements
for stock options since the exercise price of the Company's stock options
issued equals the market value of the underlying stock on the date of grant.
The Company does not intend to adopt the fair value method of accounting for
stock-based compensation under SFAS No. 123.
LIQUIDITY AND CAPITAL RESOURCES
On November 11, 1996, the Company sold its Mallard Division to Parker
for cash of approximately $306 million and shares of Parker's preferred stock
that were subsequently converted into 3,056,600 shares of Parker's common stock
in December 1996. The net cash proceeds to the Company after taxes from the sale
of the Mallard Division were approximately $237 million. The Company is also in
the process of disposing of Parker's common stock received in the sale of the
Mallard Division pursuant to a public offering to be effected by Parker. The
Company intends to deploy the net proceeds from the Mallard Division disposition
to finance acquisitions and the further development of its oilfield equipment
business.
In July 1996, the Company completed a public offering of 3,450,000
shares of its Common Stock. The net proceeds of this offering were
approximately $101 million. The funds from the offering were utilized to fund
the TCA acquisition, the Company's acquisition of two rigs in Nigeria (which
were subsequently sold to Parker as part of the Mallard Division sale) and for
general corporate purposes, including the reduction in the Company's working
capital facility.
At December 31, 1996, the Company had cash and cash equivalents of
approximately $224 million compared to approximately $2.9 million at December
31, 1995. At December 31, 1996, the Company's working capital was approximately
$326 million compared to approximately $231 million at December 31, 1995. The
increase in working capital is primarily attributable to the Company's sale of
the Mallard Division and increased operations. At December 31, 1996, the
Company's debt to total capitalization ratio was approximately 23% as compared
to 37% at December 31, 1995.
At December 31, 1996 and December 31, 1995, the Company had in place
various working capital lines of credit secured by the inventory and
receivables of the Company's subsidiaries. At December 31, 1996 and December
31, 1995, approximately $2.9 million and $4.6 million, respectively, was
outstanding under its revolving lines of credit and approximately $10.1 million
and $5.1 million, respectively, had been used to support outstanding letters of
credit. At December 31, 1996 and December 31, 1995, $117.9 million and $55.6
million, respectively, were available for additional borrowing under these
credit facilities. The average interest rates under these facilities were
10.22% for fiscal 1995 and 8.48% for 1996.
The Company currently has available to it working capital facilities
providing for up to $130.9 million in borrowings. Borrowings under the these
facilities are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. Borrowings
bear interest at variable rates and are secured by accounts receivables,
inventory and stock of various of the Company's domestic and foreign
subsidiaries. These facilities contain customary affirmative and negative
covenants relating to working capital, earnings and net worth. These facilities
also impose limitations on the Company's and its subsidiaries' use of funds for
future acquisitions and capital expenditures, the incurrence of additional debt
and other operational matters and certain expenditures, as well as prohibitions
on the declaration and payment of cash dividends by the Company. At December
31, 1996, the Company was limited under its principal credit facility in the
amount of dividends, distributions and other restricted payments that could be
made by it to $133 million.
15
<PAGE> 16
The Company currently has outstanding $120 million of 10 1/4 Senior
Notes due 2004 (the "Senior Notes") with semi-annual interest payments in March
and September. The Senior Notes were issued pursuant to the terms of an
Indenture dated March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
The Indenture relating to the Senior Notes contains various customary
affirmative and negative covenants. The Indenture also limits, based on a
specific formula, the ability of the Company and certain of its subsidiaries to
pay dividends and make other distributions. At December 31, 1996, the Company
was limited under the Indenture in the amount of cash dividends, distributions
and other restricted payments that could be made by it to approximately $278
million.
On October 11, 1996, the Company entered into a $3.9 million tax
settlement plus accrued interest of $2.5 million with the IRS relating to a
dispute regarding the tax impact to the Company upon the dissolution of COLEVE
in October 1990. The tax liability with respect to the dissolution had been
previously provided for as a deferred tax liability in the Company's
consolidated financial statements. This settlement resulted in the Company
recognizing a $4 million tax benefit in the fourth quarter due to the
elimination of certain previously accrued deferred taxes that will no longer be
required to be paid as a result of this settlement.
The Company's current sources of capital are its current cash, including
the net proceeds from the sale of the Mallard Division, cash generated from
operations and borrowings under its working capital lines of credit. The
Company believes that current reserves of cash and short-term investments,
access to existing credit lines and internally generated cash from operations
are sufficient to finance the projected cash requirements of its current and
future operations.
In December 1996, the Company entered into an agreement to acquire
GulfMark International, Inc., ("GulfMark") pursuant to a tax free merger in
which approximately 2.2 million shares of the Company's Common Stock currently
held by GulfMark will be issued to the stockholders of GulfMark. Prior to the
merger, GulfMark will spin-off to its stockholders its marine transportation
services business. Such merger is subject to, among other things, approval by
the stockholders of the Company and GulfMark. The company expects that the
merger will be consummated in the second quarter of 1997.
ACQUISITIONS AND DISPOSITIONS
Tubular Products Segment
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with OCTL pursuant to which OCTL manufactures drill pipe and
premium tubulars for the Company on an exclusive basis at OCTL's plant in
India. As part of the agreement, the Company made an $8 million deposit in
January 1996 to OCTL and funds the facilities working capital requirements.
On May 3, 1996, the Company acquired ENERPRO, a manufacturer of premium
threads and thread connections, for 312,714 shares of Common Stock and the
assumption of approximately $3.1 million in indebtedness. The operations of
ENERPRO have been combined with the premium thread operations of the Company's
tubular division.
On August 5, 1996, the Company acquired TCA for approximately 500,000
shares of Common Stock, $14.35 million in cash, a $650,000 note due January
1997 and assumed debt of approximately $15 million. The acquisition of TCA,
which manufactures premium casing, expanded the range of the Company's premium
tubular products line to add a broader line of premium casing.
The Company acquired Superior, an Alberta, Canada based premium tubular
manufacturer, for total cash consideration of approximately $16 million on
September 4, 1996.
On February 24, 1997, the Company entered into an agreement to acquire
TA, which designs, manufactures and markets premium couplings and accessories,
for total consideration including assumed debt, of approximately $64 million.
The acquisition of TA is subject to various conditions, including the receipt
of all required regulatory approvals and expiration of all waiting periods. The
transaction is expected to close by April 30, 1997.
16
<PAGE> 17
Production Equipment Segment
In February 1996, the Company sold its United States retail store
distribution system to Continental Emsco for approximately $7.5 million. The
Company received $3 million in cash, a $4 million vendor credit and a $0.5
million note receivable. The consideration received in the sale approximated
the net book value of the assets sold, resulting in no material gain or loss.
In April 1996, the Company acquired Production Specialties, a
manufacturer of gas lift equipment, for approximately $3.1 million.
On October 1, 1996, the Company acquired the stock of Geremia, a Porto
Alegre, Brazil based designer, manufacturer and marketer of progressing cavity
pumps, for approximately $24.5 million in cash and assumed debt.
On December 10, 1996, the Company acquired Arrow for total cash
consideration of approximately $21.5 million. The operations of Arrow are
currently being integrated into the production equipment division through plant
consolidations. The allocation of the purchase price to the fair market value
of the net assets acquired in the Arrow acquisition is subject to revision as
the purchase price is subject to adjustment pending the resolution of certain
asset valuations which must be agreed to by the buyer and seller. The Company
believes the ultimate resolution to the cost of the acquisition will not have a
material impact on the assets acquired or the results of operations as a result
of such revision.
On February 13, 1997, the Company acquired Anbert, an Argentinian rod
pump business, for approximately $8 million.
On March 14, 1997 the Company acquired Griffin Legrand, a manufacturer
of progressing cavity pumps and conventional pumping units, for total cash
consideration of approximately $21 million.
CAPITAL EXPENDITURES
Capital expenditures by the Company during 1996, totaled approximately
$26 million. During 1996, capital expenditures included approximately $7
million relating to plant expansions. Ongoing routine capital expenditures for
1997 are estimated to be approximately $25 million. Capital expenditures are
expected to be funded with available cash, cash flow from operations and
borrowings under existing lines of credit and other facilities.
OTHER MATTERS
At the Company's Annual Meeting on May 6, 1997, the agenda includes,
among other things, a proposal to increase the Company's authorized shares of
Common Stock from 40 million shares to 80 million shares to effect a two for
one stock split and a proposal to change the name of the Company from Energy
Ventures, Inc. to EVI, Inc. The effect of the pending stock split has not been
reflected in this December 31, 1996 Form 10-K.
Certain statements made herein and in other public filings and releases
by the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
sales, earnings, margins, production levels and costs, expected savings from
acquisitions, demand for products, product deliveries, market trends in the oil
and gas industry and the oilfield service sector thereof, research and
development, environmental and other expenditures, currency fluctuations and
various business trends. Projections have also been made as to the net proceeds
and effects of the Mallard Division sale and savings from recent acquisitions.
Forward-looking statements may be made by management orally or in writing
including, but not limited to, this Management's Discussion and Analysis of
Financial Condition and Results of Operations section and other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending
on a variety of factors including, but not limited to, changes in the price of
oil and gas, changes in the domestic and international rig count, global trade
policies, domestic and international drilling activities, world-wide political
stability and economic growth, including currency fluctuations, government
export and import policies, technological advances involving the Company's
products, the Company's successful execution of internal operating plans and
manufacturing consolidations and
17
<PAGE> 18
restructurings, performance issues with key suppliers and subcontractors, the
ability of the Company to maintain price increases and market shares, raw
material costs changes, collective bargaining labor disputes, regulatory
uncertainties and legal proceedings. Future results will also be dependent upon
the ability of the Company to continue to identify and complete successful
acquisitions at acceptable prices, integrate those acquisitions with the
Company's other operations and penetrate existing and new markets. The results
from the Mallard Division sale are also subject to various assumptions,
including the adjustments that will be required in connection with the sale,
the Company's U.S. and foreign tax treaties applicable to the sale, the final
structure for the transfer of certain assets required to be transferred to the
Mallard Division in connection with the sale and other matters.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
<S> <C>
----
Report of Independent Public Accountants.......................................... 20
Consolidated Balance Sheets - December 31, 1996 and 1995.......................... 21
Consolidated Statements of Income, for each of the three years in the
period ended December 31, 1996................................................. 22
Consolidated Statements of Stockholders' Investment, for each of the three
years in the period ended December 31, 1996.................................... 23
Consolidated Statements of Cash Flows, for each of the three years in
the period ended December 31, 1996............................................. 24
Notes to Consolidated Financial Statements........................................ 25
Financial Statement Schedule:
II. - Valuation and Qualifying Accounts and Allowances......................... 53
</TABLE>
All other schedules are omitted because they are not required or because
the required information is included in the financial statements or notes
thereto.
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Energy Ventures, Inc.:
We have audited the accompanying consolidated balance sheets of Energy
Ventures, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Energy Ventures, Inc. and subsidiaries as of December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedule listed in Part II - Item 8 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of
the basic consolidated financial statements. The Financial Statement Schedule
has been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1997
20
<PAGE> 21
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
ASSETS (IN THOUSANDS)
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents ........................................... $ 223,966 $ 2,885
Accounts Receivable, Net of Allowance for Uncollectible Accounts
of $583,000 in 1996 and $362,000 in 1995 .......................... 119,152 76,417
Inventories ......................................................... 157,631 124,772
Marketable Securities ............................................... 23,841 --
Net Assets of Discontinued Operations ............................... -- 95,491
Other Current Assets ................................................ 34,091 9,620
--------- ---------
558,681 309,185
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property .................................. 51,037 31,964
Machinery and Equipment ............................................. 154,945 91,958
Furniture and Vehicles .............................................. 16,339 13,991
--------- ---------
222,321 137,913
Less: Accumulated Depreciation ..................................... 49,597 37,754
--------- ---------
172,724 100,159
--------- ---------
GOODWILL, NET ............................................................ 102,474 35,784
OTHER ASSETS ............................................................. 18,964 7,997
--------- ---------
$ 852,843 $ 453,125
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit .... $ 4,451 $ 4,577
Current Maturities of Long-Term Debt ................................ 3,622 3,492
Accounts Payable .................................................... 80,783 44,254
Accrued Salaries and Benefits ....................................... 11,817 5,153
Current Tax Liability ............................................... 81,916 1,342
Other Accrued Liabilities ........................................... 50,537 19,473
--------- ---------
233,126 78,291
--------- ---------
LONG-TERM DEBT ........................................................... 126,710 124,183
DEFERRED INCOME TAXES AND OTHER .......................................... 38,923 22,585
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock, $1 Par Value, Authorized 40,000,000 Shares, Issued
22,964,625 Shares in 1996 and 18,522,183 Shares in 1995 ........... 22,965 18,522
Capital in Excess of Par Value ...................................... 281,686 157,953
Retained Earnings ................................................... 158,333 60,167
Cumulative Foreign Currency Translation Adjustment .................. (8,712) (6,915)
Treasury Stock, at Cost ............................................. (2,569) (1,661)
Unrealized Gain on Marketable Securities ............................ 2,381 --
--------- ---------
454,084 228,066
--------- ---------
$ 852,843 $ 453,125
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
21
<PAGE> 22
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES ............................................... $ 478,020 $ 271,675 $ 185,285
--------- --------- ---------
COSTS AND EXPENSES:
Cost of Sales ..................................... 373,509 205,230 139,901
Selling, General and Administrative Attributable to
Segments ..................................... 51,885 43,357 36,998
Corporate General and Administrative .............. 6,339 5,123 4,748
--------- --------- ---------
431,733 253,710 181,647
--------- --------- ---------
OPERATING INCOME ....................................... 46,287 17,965 3,638
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Income ................................... 2,163 21 194
Interest Expense .................................. (16,454) (16,287) (13,537)
Other, Net ........................................ (450) 663 218
--------- --------- ---------
(14,741) (15,603) (13,125)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ...................... 31,546 2,362 (9,487)
PROVISION (BENEFIT) FOR INCOME TAXES ................... 7,041 (240) (3,795)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... 24,505 2,602 (5,692)
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAXES ...................................... 7,468 8,709 10,334
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF TAXES ...................................... 66,924 -- --
EXTRAORDINARY CHARGE, NET OF TAXES ..................... (731) -- (3,784)
--------- --------- ---------
NET INCOME ............................................. $ 98,166 $ 11,311 $ 858
========= ========= =========
EARNINGS PER COMMON SHARE:
Income (Loss) from Continuing Operations .......... $ 1.20 $ .18 $ (.45)
Income from Discontinued Operations ............... .37 .59 .82
Gain on Disposal of Discontinued Operations ....... 3.29 -- --
Extraordinary Charge .............................. (.04) -- (.30)
--------- --------- ---------
Net Income ........................................ $ 4.82 $ .77 $ .07
========= ========= =========
Weighted Average Common Shares Outstanding ........ 20,353 14,724 12,629
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
22
<PAGE> 23
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL FOREIGN UNREALIZED
COMMON STOCK IN CURRENCY TREASURY STOCK GAIN ON TOTAL
------------------ EXCESS RETAINED TRANSLATION ------------------ MARKETABLE STOCKHOLDERS'
SHARES $1 PAR OF PAR EARNINGS ADJUSTMENT SHARES AMOUNT SECURITIES INVESTMENT
------------------ ------ -------- ---------- ------ ------ ---------- ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 ...... 12,315,756 $12,316 $ 50,442 $ 47,998 $(2,111) (64,975) $ (909) $ -- $ 107,736
Net Income ............. -- -- -- 858 -- -- -- -- 858
Shares Issued in
Connection with
Acquisition .......... 433,333 433 4,692 -- -- -- -- -- 5,125
Options Exercised ...... 5,160 5 8 -- -- -- -- -- 13
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan .... -- -- -- -- -- (29,234) (394) -- (394)
Foreign Currency
Translation
Adjustment ........... -- -- -- -- (2,425) -- -- -- (2,425)
---------- ------- -------- -------- ------- -------- ------- ------ ---------
Balance at
December 31, 1994 ...... 12,754,249 12,754 55,142 48,856 (4,536) (94,209) (1,303) -- 110,913
Net Income ............. -- -- -- 11,311 -- -- -- -- 11,311
Shares Issued in
Connection with
Acquisition .......... 2,255,198 2,255 33,020 -- -- -- -- -- 35,275
Options Exercised ...... 62,736 63 593 -- -- -- -- -- 656
Issuance of Common
Stock ................ 3,450,000 3,450 69,198 -- -- -- -- -- 72,648
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan .... -- -- -- -- -- (19,392) (358) -- (358)
Foreign Currency
Translation
Adjustment ........... -- -- -- -- (2,379) -- -- -- (2,379)
---------- ------- -------- -------- ------- -------- ------- ------ ---------
Balance at
December 31, 1995 ...... 18,522,183 18,522 157,953 60,167 (6,915) (113,601) (1,661) -- 228,066
Net Income ............. -- -- -- 98,166 -- -- -- -- 98,166
Shares Issued in
Connection with
Acquisitions ........ 812,710 813 23,401 -- -- -- -- -- 24,214
Options Exercised ...... 179,732 180 2,922 -- -- -- -- -- 3,102
Issuance of Common
Stock ............... 3,450,000 3,450 97,410 -- -- -- -- -- 100,860
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan ... -- -- -- -- -- (22,103) (908) -- (908)
Foreign Currency
Translation
Adjustment .......... -- -- -- -- (1,797) -- -- -- (1,797)
Unrealized Gain on
Marketable Securities -- -- -- -- -- -- -- 2,381 2,381
---------- ------- -------- -------- ------- -------- ------- ------ ---------
Balance at
December 31,1996 ....... 22,964,625 $22,965 $281,686 $158,333 $(8,712) (135,704) $(2,569) $2,381 $ 454,084
========== ======= ======== ======== ======= ======== ======= ====== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE> 24
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income ..................................................... $ 98,166 $ 11,311 $ 858
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operations:
Depreciation and Amortization ................................ 16,771 12,446 9,398
Net Income from Discontinued Operations ...................... (7,468) (8,709) (10,334)
Gain on Disposal of Discontinued Operations, Net ............. (66,924) -- --
Extraordinary Charge on Prepayment of Debt, Net .............. 731 -- 3,784
Deferred Income Tax Provision (Benefit) from Continuing
Operations ................................................ (7,965) 2,109 (2,454)
Tax Dispute Settlement ....................................... (6,412) -- --
Provision for Uncollectible Accounts Receivable .............. 486 252 158
Change in Assets and Liabilities, Net of Effects of Businesses
Acquired:
Accounts Receivable ........................................ (20,853) (16,104) (13,832)
Inventories ................................................ (16,296) (33,076) (8,463)
Other Current Assets ....................................... 2,469 (5,283) (756)
Accounts Payable ........................................... 17,196 17,045 (8,215)
Accrued Salaries and Benefits and Other .................... (10,123) (10,246) (1,681)
Other Assets ............................................... (2,697) 1,661 (1,709)
Other, Net ................................................. (2,553) (2,257) 5,545
--------- --------- ---------
Net Cash Used by Continuing Operations .................. (5,472) (30,851) (27,701)
Net Cash Provided by Discontinued Operations ............ 8,294 10,745 6,906
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities ........ 2,822 (20,106) (20,795)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Disposal of Discontinued Operations .............. 306,854 -- --
Acquisitions and Capital Expenditures of Discontinued
Operations ................................................ (63,136) (22,884) (11,738)
Acquisition of Businesses, Net of Cash Acquired ................ (87,814) (8,105) (10,452)
Capital Expenditures for Property, Plant and Equipment ......... (25,890) (11,132) (7,869)
Proceeds from Sale of Assets ................................... 1,261 3,369 28
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities .......... 131,275 (38,752) (30,031)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net .................................. 100,860 72,648 --
Issuance of Long-Term Debt ..................................... -- -- 120,000
Termination Costs on Retirement of Debt ........................ (1,125) -- (4,872)
Debt Issuance Costs ............................................ (1,602) -- (4,155)
Repayments Under Revolving Lines of Credit, Net ................ (1,653) (11,105) (22,095)
Repayments on Term Debt, Net ................................... (11,711) (2,434) (38,752)
Stock Options Exercised, Purchase of Treasury Stock and
Other Financing Activities, Net .............................. 2,194 298 (381)
--------- --------- ---------
Net Cash Provided by Financing Activities .................... 86,963 59,407 49,745
--------- --------- ---------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH ............................ 21 81 (300)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... 221,081 630 (1,381)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................... 2,885 2,255 3,636
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 223,966 $ 2,885 $ 2,255
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE> 25
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Energy
Ventures, Inc. and all majority-owned subsidiaries (the "Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Company is an international manufacturer and supplier of oilfield
equipment. The Company manufactures drill pipe, premium tubulars and a complete
line of artificial lift and production equipment used in the exploration and
production of oil and natural gas.
INVENTORIES
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities are accounted for in accordance
with Statement of Financial Standards No. 115 ("SFAS No. 115") and accordingly,
these investments are recorded at their fair market value with unrealized gains
or losses recorded as a separate component of stockholders' investment. The
Company has classified these investments as available for sale with any other
than temporary decline in fair value of securities charged to earnings.
The marketable securities of $23.8 million held as of December 31, 1996
consists of 3,056,600 shares of Parker Drilling Company ("Parker") common
stock. The Company has applied a 20% discount factor to the common stock as the
shares are restricted and the Company's ability to sell such shares is subject
to the terms of a registration rights agreement with Parker that allows Parker
to restrict the ability of the Company to resell such shares.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Maintenance and
repairs are expensed as incurred. The costs of renewals, replacements and
betterments are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The useful lives of the major classes of property, plant and
equipment are as follows:
LIFE
----
Buildings................................................. 15 - 40 years
Machinery and equipment................................... 5 - 20 years
Furniture and vehicles.................................... 3 - 7 years
INTANGIBLE ASSETS AND AMORTIZATION
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, primarily patents and technology licenses. The
Company reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of any applicable assets may
not be recoverable. In assessing recoverability of such assets, the Company
estimates the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Management believes that there
have been no events or circumstances which warrant revision to the remaining
useful life or which affect the recoverability of goodwill. The goodwill is
being amortized on a
25
<PAGE> 26
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INTANGIBLE ASSETS AND AMORTIZATION - (CONTINUED)
straight-line basis over 40 years. Other identifiable intangible assets,
included as a component of other assets, are amortized on a straight-line basis
over the years expected to be benefited, ranging from 5 to 15 years.
Amortization expense for goodwill and other intangible assets was
$2,063,000, $1,307,000 and $726,000 for 1996, 1995 and 1994, respectively.
Accumulated amortization for goodwill at December 31, 1996 and 1995 was
$3,465,000 and $1,846,000, respectively.
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign subsidiaries with functional
currencies other than the U.S. dollar are translated using average exchange
rates during the period. Assets and liabilities of these foreign subsidiaries
are translated using the exchange rates in effect at the balance sheet date and
the resulting translation adjustments are included as a separate component of
stockholders' investment. Currency transaction gains and losses are reflected
in income for the period.
At the end of 1996, Mexico became a highly inflationary economy.
Accordingly, effective January 1, 1997, the translation adjustments related to
the Company's operations in Mexico will be reflected in the results of
operations. The Company does not expect this change to have a material effect
on its consolidated financial position or future results of operations.
REVENUE RECOGNITION
The Company recognizes revenue as products are shipped or accepted by
the customer. Service revenues are recognized as services are performed.
ACCOUNTING FOR INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" ("SFAS No. 109"), deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
WEIGHTED AVERAGE SHARES
Earnings per share has been computed based on the weighted average
number of common shares outstanding during the respective periods. Stock
options outstanding are excluded from the weighted average number of shares
since the dilutive effect is not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, effective January 1, 1996. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. Accordingly, the Company's long-lived assets for certain
identifiable intangibles are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of any assets may not be
recoverable. In performing the review for recoverability, the Company estimates
the future cash
26
<PAGE> 27
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS - (CONTINUED)
flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. The adoption of SFAS No. 121 did not impact the
Company's consolidated financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 123 ("SFAS No. 123"), Accounting for
Stock-Based Compensation. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation. The pronouncement
allows an entity to continue to measure compensation cost for those instruments
using the intrinsic value-based method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 ("APB No. 25"), under which no
compensation cost has been recognized in the accompanying financial statements
for stock options since the exercise price of the Company's stock options
issued equals the market value of the underlying stock on the date of grant.
The Company does not intend to adopt the fair value method of accounting for
stock-based compensation under SFAS No. 123.
RECLASSIFICATIONS AND RESTATEMENTS
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1996 classifications. The consolidated
financial statements have been restated to reflect the sale of the Company's
Mallard Division on November 11, 1996. See Note 5.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
Cash paid during the years ended December 31, 1996, 1995, and 1994 for
interest and income taxes (net of refunds) was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid............................................ $ 15,242 $15,254 $13,012
Income taxes paid, net of refunds........................ $ 6,715 $ 1,529 $ 1,566
</TABLE>
Refer to Note 4 for additional information concerning noncash investing
and financing activities.
3. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components............................. $ 88,595 $ 61,578
Work in process.......................................... 20,889 17,167
Finished goods........................................... 39,129 39,191
Supplies................................................. 9,018 6,836
-------- --------
$157,631 $124,772
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
27
<PAGE> 28
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
4. ACQUISITIONS AND DISPOSITIONS
On December 10, 1996, the Company acquired Arrow Completion Systems
("Arrow") for total cash consideration of approximately $21.5 million. The
operations of Arrow are currently being integrated into the production
equipment division through plant consolidations.
The allocation of the purchase price to the fair market value of the net
assets acquired in the Arrow acquisition is subject to revision as the purchase
price is subject to adjustment pending the resolution of certain asset
valuations which must be agreed to by the buyer and seller. The Company
believes the ultimate resolution to the cost of the acquisition will not have a
material impact on the assets acquired or the Company's results of operations
as a result of such revision.
On October 1, 1996, the Company acquired the stock of Irmaos Geremia
Ltd. ("Geremia"), a Porto Alegre, Brazil based designer, manufacturer and
marketer of progressing cavity pumps, for approximately $24.5 million in cash
and assumed debt.
The Company acquired Superior Tube Limited ("Superior"), an Alberta,
Canada based premium tubular manufacturer, for total cash consideration of
approximately $16 million on September 4, 1996.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA") for approximately 500,000 shares of Common Stock, $14.35 million
in cash, a $650,000 note due January 1997 and assumed debt of approximately $15
million.
On May 3, 1996, the Company acquired ENERPRO International, Inc.
("ENERPRO"), a manufacturer of premium threads and thread connections, for
312,714 shares of Common Stock and the assumption of approximately $3.1 million
in indebtedness.
In April 1996, the Company acquired Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment, for
approximately $3.1 million.
In February 1996, the Company sold its United States retail store
distribution system to Continental Emsco for approximately $7.5 million. The
Company received $3 million in cash, a $4 million vendor credit and a $0.5
million note receivable. The consideration received in the sale approximated
the net book value of the assets sold, resulting in no material gain or loss.
In July 1995, the Company acquired Engemaq S.A. ("Engemaq"), a Brazilian
completion tool business, for $4 million.
On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares of
Common Stock.
On September 1, 1994, the Company completed the acquisition of the Fluid
Packed(TM) pumps line of rod pumps, parts and accessories, and the sucker rod
line from National-Oilwell for $13.5 million in cash.
On July 29, 1994, the Company acquired a tubular finishing facility
located in Bryan, Texas ("Bryan facility"). The Company exchanged Eastman
Cherrington Environmental, Inc. ("Eastman Cherrington") including a cash
payment of approximately $2 million for the Bryan facility. See Note 5 for
additional information on Eastman Cherrington.
The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Statements of Income from the respective dates of acquisition. The
results of operations related to the acquisitions of Arrow, Geremia, Superior,
ENERPRO, Production Specialties and Engemaq are not material individually nor
in the aggregate, therefore, pro forma information is not presented.
28
<PAGE> 29
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
4. ACQUISITIONS AND DISPOSITIONS - (CONTINUED)
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the Prideco and TCA
acquisitions, the July 1996 equity offering of 3,450,000 shares of Common Stock
and the October 1995 equity offering of 3,450,000 shares of Common Stock had
occurred on January 1, 1995. The pro forma information set forth below is not
necessarily indicative of the results that actually would have been achieved
had such transactions been consummated as of January 1, 1995, or that may be
achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues................................................. $ 506,280 $ 350,456
Income from continuing operations........................ 26,456 5,078
Net income............................................... 100,117 13,787
Earnings per common share from continuing operations..... 1.17 0.23
Net income per common share.............................. 4.42 0.62
</TABLE>
5. DISCONTINUED OPERATIONS
On November 11, 1996, the Company completed the sale of its contract
drilling segment which was comprised of the Mallard Bay contract drilling
division ("Mallard Division") to Parker, in exchange for cash of approximately
$306 million and 3,056,600 shares of Parker preferred stock valued by the
Company at $20 million. The Company reported a net gain on the disposal of the
Mallard Division of $66.9 million, net of taxes of $44.6 million. The Company
applied a 20% discount factor to the Parker preferred stock because of the
restricted nature of the stock received. Subsequently Parker converted the
preferred stock to Parker common stock. At December 31, 1996, the Company
reported in connection with the Parker common stock a $2.4 million unrealized
gain, net of taxes, as a component of stockholders' investment.
The results of operations for the Mallard Division are reflected in the
accompanying Consolidated Statements of Income as "Discontinued Operations, Net
of Taxes" and the Company's Consolidated Balance Sheets and Statements of
Income for prior periods have been restated. Condensed results of the Mallard
Division discontinued operations were as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 11, 1996 DECEMBER 31, 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Revenues....................................... $ 81,310 $ 79,912
----------- ----------
Income before income taxes..................... 11,490 14,029
Provision for income taxes..................... 4,022 5,320
----------- ----------
Net income..................................... $ 7,468 $ 8,709
=========== ==========
</TABLE>
In 1992, the Company established an environmental services group,
Eastman Cherrington Environmental ("Eastman Cherrington"), which provided
horizontal drilling and related services for purpose of performing remediation,
sampling, containment and monitoring. In December 1993, the Company determined
that the business of Eastman Cherrington was not consistent with the Company's
long-term strategic objectives and adopted a plan of disposition of the
division. The Company's plan of disposition contemplated a disposition of the
division in April 1994. At the time the Company adopted its plan of
disposition, the Company had contacted and had preliminary discussions with a
number of potential purchasers for the division that would have involved a
disposition of the division through a sale to an institutional purchaser.
Based on these discussions, the historical operations of the division and the
operating budget and outstanding contracts of the division, the Company
estimated the incurrence of approximately $330,000 in net losses through the
anticipated date of disposition after giving effect to the projected
disposition and accrued this amount in 1993.
During the first quarter of 1994, the Company worked toward a
definitive agreement with one of the potential purchasers. These negotiations
failed to result in a definitive agreement due to the purchaser's desire for
one of the directors of the Company to participate in the purchase and the
Board's view that it would be inappropriate to sell Eastman Cherrington to that
purchaser under those circumstances. Following this occurrence, the Company
proceeded with negotiations with alternative purchasers, including the ultimate
purchaser. At this time, the Company estimated the potential additional
operating losses pending the new projected disposition date in the third
quarter of 1994. In light of this estimate and the consideration that was then
projected to be recieved on the disposition based on discussions with the
ultimate purchaser, the Company deferred losses of $797,000 until the
disposition of Eastman Cherrington in July 1994 in exchange for a tubular
finishing facility in Bryan, Texas. At the time of the disposition, the
consideration received approximated the then book value of the division plus
the 1994 deferred losses. As a result, there was no material gain or loss
realized on the disposition. Eastman Cherrington had revenues of $3.3 million
and a net loss of $2.1 million in 1993, including the $330,000 accrual for 1994
losses, and revenues of $1.4 million and a net loss of $797,000 in 1994,
excluding the $330,000 accrued at year end 1993.
29
<PAGE> 30
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
6. SHORT-TERM BORROWINGS AND LINES OF CREDIT
The Company's short-term borrowings at December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------------ -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
Payable to banks under lines of credit, interest of 8.75%
at December 31, 1996; principal and interest payable on demand..... $ 2,924 $ 4,577
Other short-term borrowings............................................ $ 1,527 $ --
Weighted average interest rate on notes outstanding during
the year........................................................... 8.48% 10.22%
Average borrowings during the year..................................... $ 23,871 $ 24,382
Maximum outstanding during the year.................................... $ 57,619 $ 43,189
</TABLE>
On June 26, 1996, the Company entered into a new $120 million working
capital facility which replaced the Company's prior U.S. working capital line
of credit. In the second quarter of 1996, the Company incurred an extraordinary
charge of $731,000, net of taxes of $394,000, relating to the termination of
its prior working capital facility.
The Company currently has available to it working capital facilities
providing for up to $130.9 million in borrowings. Borrowings under these
facilities are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. Borrowings
bear interest at variable rates and are secured by accounts receivables,
inventory and stock of various of the Company's domestic and foreign
subsidiaries. These facilities contain customary affirmative and negative
covenants relating to working capital, earnings and net worth. These facilities
also impose limitations on the Company's and its subsidiaries' use of funds for
future acquisitions and capital expenditures, the incurrence of additional debt
and other operational matters and certain expenditures. At December 31, 1996,
the Company was limited under principal credit facility in the amount of cash
dividends, distributions and other restricted payments that could be made by it
to $133 million.
At December 31, 1996, approximately $2.9 million was outstanding under
the revolving lines of credit and approximately $10.1 million had been used to
support outstanding letters of credit. Additional borrowings of approximately
$117.9 million were available based on collateral values at December 31, 1996.
7. LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes due in 2004, interest at 10.25% .................. $120,000 $120,000
Capitalized lease obligations under various leases with various
installment amounts ....................................... 5,475 4,505
Other notes payable at various rates .......................... 4,857 3,170
-------- --------
130,332 127,675
Less: current maturities of long-term debt ................... 3,622 3,492
-------- --------
$126,710 $124,183
======== ========
</TABLE>
30
<PAGE> 31
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. LONG-TERM DEBT - (CONTINUED)
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<C> <C>
1997 ............... $ 3,622
1998 ............... 2,832
1999 ............... 1,652
2000 ............... 787
2001 ............... 348
Thereafter ......... 121,091
--------
$130,332
========
</TABLE>
On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25%
Senior Notes due 2004 with semi-annual interest payments in March and
September. Both issues of Senior Notes were issued pursuant to the terms of an
Indenture dated March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
See Note 17. The Company is restricted to a specific formula in the amount of
cash dividends, distributions and other restricted payments that could be made
by it under the terms of the Senior Notes to approximately $278 million at
December 31, 1996.
The estimated fair value of the Company's $120 million Senior Notes at
December 31, 1996 and 1995 was $126 million and $125 million, respectively,
using a rate currently available to the Company for similar debt.
8. STOCKHOLDERS' INVESTMENT
PUBLIC STOCK OFFERINGS
On July 25, 1996, the Company completed a public offering of 3,450,000
shares of its Common Stock ("Public Offering"). The net proceeds of this
offering were approximately $100.9 million. The Company also completed a public
offering early in the fourth quarter of 1995, of 3,450,000 shares of its Common
Stock. The net proceeds of this offering were approximately $72.6 million.
STOCK OPTION PLANS
In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non-qualified stock option plan. The plan
expired in May 1991. Under the Option Plan, options were provided to officers
and key employees of the Company (including directors who are also key
employees) and its subsidiaries to purchase up to an aggregate of 1,000,000
shares of Common Stock of the Company.
The Company maintains a Non-Employee Director Stock Option Plan
("Director Plan"), a non-qualified stock option plan. Under the Director Plan,
options to purchase up to an aggregate of 500,000 shares of Common Stock of the
Company may be granted to non-employee directors of the Company. Options to
purchase 5,000 shares of Common Stock are automatically granted to each
non-employee director on the date of their initial election and their
re-election. At December 31, 1996, 330,000 shares were available for the
granting of options.
The Company also has in effect a 1992 Employee Stock Option Plan ("ESO
Plan"). Under the ESO Plan, options to purchase up to an aggregate of 1,000,000
shares of Common Stock of the Company may be granted to officers and key
employees of the Company (including directors who are also key employees) and
its subsidiaries. At December 31, 1996, 286,000 shares were available for
granting of such options.
31
<PAGE> 32
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT - (CONTINUED)
Stock options vest after one to five years and expire after ten years
from the date of grant. Information about the above stock option plans for the
three years ended December 31, 1996, is set forth below:
<TABLE>
<CAPTION>
NUMBER OPTION WEIGHTED AVERAGE
OF PRICE/RANGE EXERCISE PRICE
SHARES PER SHARE PER SHARE
------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding, December 31, 1993 .... 667,063 $ 2.69 - $23.88 $ 12.72
Granted ................................. 52,000 13.75 13.75
Exercised ............................... (5,160) 2.69 2.69
Canceled ................................ (74,167) 11.50 - 18.25 13.38
-------
Options outstanding, December 31, 1994 .... 639,736 2.69 - 23.88 14.52
Granted ................................. 127,000 13.75 - 18.00 16.90
Exercised ............................... (62,736) 2.69 - 16.50 10.45
-------
Options outstanding, December 31, 1995 .... 704,000 9.38 - 23.88 15.20
Granted ................................. 285,000 26.13 - 29.50 26.54
Exercised ............................... (179,732) 11.50 - 23.88 17.76
-------
Options outstanding, December 31, 1996 .... 809,268 9.38 - 29.50 18.74
=======
Options exercisable as of December 31, 1996 433,333 9.38 - 23.88 14.17
=======
</TABLE>
The 809,268 options outstanding at December 31, 1996, have a weighted
average remaining contractual life of 7.4 years. The 433,333 options
exercisable at December 31, 1996, have a weighted average remaining contractual
life of 5.4 years. The weighted average fair value of the options granted in
1996 and 1995 were $19.61 and $11.65, respectively.
STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its stock options under the fair value method as provided
therein. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for options issued in 1996 and 1995,
respectively: risk-free interest rates: 6.6% and 6.7%; expected lives of 7
years; expected volatility of 48% and 47%; and no expected dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS No. 123, only the effects of awards granted after January
1, 1995 are considered in the pro forma calculation.
<TABLE>
<CAPTION>
1996 1995
------------------------ ----------------------
As Reported Pro Forma As Reported Pro Forma
------------------------ ----------------------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 98,166 $ 96,808 $ 11,311 $ 10,942
Earnings per share $ 4.82 $ 4.72 $ 0.77 $ 0.74
</TABLE>
PREFERRED STOCK
The Company is authorized to issue up to 3,000,000 shares of $1.00 par
value preferred stock. As of December 31, 1996, none has been issued.
32
<PAGE> 33
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT - (CONTINUED)
PROFIT SHARING PLANS
The Company and certain of its subsidiaries have adopted retirement
plans which qualify under Section 401(k) of the Internal Revenue Code. The
plans generally provide for 40% matching contributions by the Company, up to a
maximum liability of 1.2% of each participating employee's annual compensation.
The Company, under each plan, also has the right to make additional
discretionary matching contributions. Total contributions by the Company under
these plans were $513,000, $226,000 and $138,000 during 1996, 1995 and 1994,
respectively.
EXECUTIVE DEFERRED COMPENSATION PLAN
In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits under
the EDC Plan. The funds provided to such trust are invested by a trustee
independent of the Company primarily in Common Stock of the Company which is
purchased by the trustee on the open market. The assets of the trust are
available to satisfy the claims of all general creditors of the Company in the
event of bankruptcy or insolvency. Accordingly, the Common Stock held by the
trust has been consolidated for accounting purposes and is included in the
accompanying Consolidated Statements of Stockholders' Investment as "Treasury
Stock, at Cost" and reflected as such on the Consolidated Balance Sheets.
9. INCOME TAXES
The domestic and foreign components of Income before Income Taxes from
Continuing Operations consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ....................................................... $22,755 $ (2,840) $ (9,418)
Foreign......................................................... 8,791 5,202 (69)
------- -------- --------
$31,546 $ 2,362 $ (9,487)
======= ======== ========
Total income tax provision (benefit) was recorded as follows:
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
Income (loss) from continuing operations......................... $ 7,041 $ (240) $ (3,795)
Discontinued operations.......................................... 4,022 5,320 5,601
Gain on disposal of discontinued operations...................... 44,600 -- --
Extraordinary charge............................................. (394) -- (1,949)
------- -------- --------
$55,269 $ 5,080 $ (143)
======= ======== ========
</TABLE>
33
<PAGE> 34
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES - (CONTINUED)
The Company's provision (benefit) for income taxes of continuing
operations for the three years ended December 31, 1996, consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
(IN THOUSANDS)
Current
<S> <C> <C> <C>
U.S. Federal ..... $ 11,878 $ (4,060) $ (2,817)
Foreign .......... 2,845 1,317 1,531
State ............ 283 394 (55)
-------- -------- --------
15,006 (2,349) (1,341)
-------- -------- --------
Deferred
U.S. Federal ..... (9,454) (55) (2,631)
Foreign .......... 1,250 2,126 177
State ............ 239 38 --
-------- -------- --------
(7,965) 2,109 (2,454)
-------- -------- --------
$ 7,041 $ (240) $ (3,795)
======== ======== ========
</TABLE>
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing
operations before income taxes for the three years ended December 31, 1996, in
the accompanying Consolidated Statements of Income is analyzed below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................................ 35.0% 35.0% (34.0)%
Effect of state income tax, net.................................. 1.1 3.4 0.5
Effect of non-deductible expenses................................ 1.8 14.9 2.4
Utilization of net operating loss carryforward................... (1.3) (37.7) (10.5)
Effect of foreign income tax, net................................ (.6) (11.8) 5.4
Foreign losses not benefited (benefited) ........................ (1.8) (6.4) 3.7
Foreign Sales Corporation benefit................................ (1.0) (3.3) --
Research and development credit benefit.......................... -- (8.2) --
Benefit of tax dispute settlement................................ (12.7) -- --
Other............................................................ 1.8 3.9 (7.5)
----- ----- ------
22.3% (10.2)% (40.0)%
===== ====== ======
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated
future tax effects of temporary differences between the tax basis of an asset
or liability and its reported amount in the financial statements. The
measurement of deferred tax assets and liabilities is based on enacted tax laws
and rates currently in effect in each of the jurisdictions in which the Company
has operations. Generally, deferred tax assets and liabilities are classified
as current or noncurrent according to the classification of the related asset
or liability for financial reporting. The components of the net deferred tax
asset (liability) were as follows:
34
<PAGE> 35
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -----------
(IN THOUSANDS)
Deferred tax assets:
<S> <C> <C>
Domestic and foreign operating losses .......... $ 7,505 $ 6,236
Alternative minimum tax credit carryforward .... -- 864
Accrued liabilities and reserves ............... 36,976 7,374
Foreign tax credits ............................ 7,443 5,310
Tax benefit transfer leases acquired ........... 4,807 --
Valuation allowance ............................ (2,630) (3,046)
-------- --------
Total deferred tax asset ................ 54,101 16,738
-------- --------
Deferred tax liabilities:
Property and equipment ......................... (21,452) (11,080)
Unremitted foreign earnings .................... (7,971) (4,340)
Inventory basis differences .................... (11,191) (3,989)
Goodwill basis differences ..................... (5,561) (799)
COLEVE production payment ...................... -- (14,907)
Other .......................................... (2,131) (95)
-------- --------
Total deferred tax liability ............ (48,306) (35,210)
-------- --------
Net deferred tax asset (liability) ............... $ 5,795 $(18,472)
======== ========
</TABLE>
At December 31, 1996 the Company had $13,229,000 of U.S. net operating
losses which were generated by certain subsidiaries prior to their acquisition.
The use of these pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code and is also restricted to the taxable
income of one subsidiary. These U.S. carryforwards, if not utilized, will
expire between 2001 and 2009. The Company also had approximately $7,743,000 of
foreign net operating loss carryforwards of which $7,357,000 will expire
between 1998 and 2001 and the remainder can be carried forward indefinitely.
The realization of a portion of the deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of the carryforward
amounts. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.
The Company had a valuation allowance to reflect the estimated amount of
deferred tax assets for which realization is uncertain. The net change in the
valuation allowance for the year ended December 31, 1996 was a decrease of
$416,000. The net change principally relates to a reduction in the valuation
allowance required for certain deferred tax assets which realization became
certain during 1996.
On October 11, 1996, the Company entered into a $3.9 million tax
settlement plus accrued interest of $2.5 million with the United States
Internal Revenue Service ("IRS") relating to a dispute regarding the tax impact
to the Company upon the dissolution of the COLEVE joint venture in 1990. The
tax liability with respect to the dissolution had been previously provided for
as a deferred tax liability in the Company's consolidated financial statements.
This settlement resulted in the Company recognizing a $4 million tax benefit in
the fourth quarter due to the elimination of certain previously accrued
deferred taxes that will no longer be required to be paid as a result of this
settlement.
35
<PAGE> 36
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. DISPUTES, LITIGATION AND CONTINGENCIES
LITIGATION AND OTHER DISPUTES
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation would not have a material adverse effect on the
Company's consolidated financial position or its results of operations with or
without consideration of insurance coverage.
INSURANCE
The Company is partially self-insured for employee health insurance
claims and for workers' compensation for certain of its employees. Although the
Company believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is reasonably
possible that management's estimates of these liabilities will change over the
near term as circumstances develop.
11. INSURANCE SETTLEMENT
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover contract
with the National Iranian Oil Company ("NIOC"). Under the terms of the
settlement with the Company's insurance carriers, the Company received a net
cash payment of $23 million for reimbursement of certain operating costs
incurred and amounts to be received in accordance with the terms of the
workover drilling contract. The Company also retained all rights to any funds
collected or recovered by the Company from NIOC and to the rigs and equipment
deployed in Iran. The rigs and equipment were moved out of Iran by December 31,
1994.
In 1994, the Company reduced the carrying value of the receivables by
$8.8 million to reflect the uncertainties with respect to the collection of the
entire amount of the NIOC receivables and the value of its rigs and equipment
by $3.5 million to reflect the estimated fair value of those rigs. The Company
also wrote off $2.6 million in mobilization costs that were being amortized
over the life of the Company's contract with NIOC and that were required to be
reimbursed to the Company by NIOC. In addition, the Company established a
reserve of $2.8 million to cover its anticipated costs for the demobilization
of its rigs outside of Iran, including estimated costs of export, storage,
overseas shipping and local transportation, and $500,000 relating to additional
costs anticipated to be incurred by it in connection with the final settlement
of its contract and arrangements with NIOC. These reductions in carrying value
and reserves were based on information available to the Company at the time of
the settlement.
12. COMMITMENTS
The Company is committed under various noncancelable operating leases
which primarily relate to office space and equipment. Total lease expense
incurred under noncancelable operating leases was approximately $5,230,000,
$3,812,000 and $3,698,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
Future minimum rental commitments under these operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1997 ............... $ 7,632
1998 ............... 7,907
1999 ............... 6,666
2000 ............... 5,369
2001 ............... 4,688
Thereafter ......... 8,699
-------
$40,961
=======
</TABLE>
In January 1996, the Company entered into a long-term manufacturing
and sales agreement with Oil Country Tubular, Ltd. ("OCTL") pursuant to
which OCTL manufactures drill pipe and premium tubulars for the Company
36
<PAGE> 37
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. COMMITMENTS - (CONTINUED)
on an exclusive basis at OCTL's plant in India. The OCTL arrangement is being
used by the Company to pursue a strategic expansion of its sales and operations
in the Eastern Hemisphere.
13. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $1,596,000, $594,000, and $748,000
during 1996, 1995 and 1994, respectively, with a law firm in which a director
of the Company is a partner.
The Company paid Lehman Brothers, an affiliate of Lehman Brothers
Holdings Inc., a major stockholder of the Company, approximately $5,175,000 and
$4,037,000 for underwriting fees associated with the Public Offerings in 1996
and 1995, respectively and approximately $1,536,000 for fees related to the
disposition of Mallard in 1996. The fee arrangements associated with these
offerings were on terms standard in the industry.
14. SUBSEQUENT EVENT
On February 13, 1997, the Company acquired Anbert Cilindros S.A.I.C.
("Anbert"), an Argentina based sucker rod business, for total consideration of
approximately $8 million.
On February 24, 1997, the Company entered into an agreement to acquire
TA Industries, Inc. ("TA"), a manufacturer of premium couplings and premium
accessories, for total cash consideration of approximately $64 million. The
acquisition of TA is subject to various conditions, including the receipt of
all required regulatory approvals and expiration of all waiting periods. The
transaction is expected to close prior to April 30, 1997.
On March 14, 1997, the Company acquired Griffin Legrand for total cash
consideration of approximately $21 million. Griffin Legrand, based in Alberta,
Canada, designs, manufactures and markets progressing cavity pumps and
conventional pumping units.
In December 1996, the Company entered into an agreement to acquire
GulfMark International, Inc., ("GulfMark") pursuant to a tax free merger in
which approximately 2.2 million shares of the Company's Common Stock currently
held by GulfMark will be issued to the stockholders of GulfMark. Prior to the
merger, GulfMark will spin-off to its stockholders its marine transportation
services business. Such merger is subject to, among other things, approval by
the stockholders of the Company and GulfMark. The Company expects that the
merger will be consummated in the second quarter of 1997.
At the Company's Annual Meeting on May 6, 1997, the agenda includes,
among other things, a proposal to increase the Company's authorized shares of
Common Stock from 40 million shares to 80 million shares to effect a two for
one stock split and a proposal to change the name of the Company from Energy
Ventures, Inc. to EVI, Inc. The effect of the pending stock split has not been
reflected in this December 31, 1996 Form 10-K.
15. SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company operates through two business segments: tubular products and
production equipment. The tubular products segment manufactures drill pipe and
high performance tubulars and the production equipment segment manufactures a
complete line of artificial lift and production equipment. The Company's
products are used in the exploration and production of oil and natural gas.
37
<PAGE> 38
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION - (CONTINUED)
Financial information by industry segment for each of the three years
ended December 31, 1996, is summarized below (in thousands). The information
presented has been restated to reflect the Mallard Division as discontinued
operations. Identifiable assets exclude net assets relating to the Mallard
Division of approximately $95.5 million and $74.7 million at December 31, 1995
and 1994, respectively. Identifiable assets included in the Corporate and Other
column includes the elimination of intercompany transactions.
<TABLE>
<CAPTION>
CORPORATE
TUBULAR PRODUCTION AND
PRODUCTS EQUIPMENT OTHER TOTAL
-------- --------- ---------- -----
1996
<S> <C> <C> <C> <C>
Sales to unaffiliated customers .......... $ 342,530 $ 135,490 $ -- $ 478,020
Operating income (loss) .................. 44,394 8,237 (6,344) 46,287
Identifiable assets ...................... 388,096 225,579 239,168 852,843
Depreciation and amortization ............ 11,046 5,642 83 16,771
Capital expenditures and acquisitions .... 62,008 27,871 68 89,947
1995
Sales to unaffiliated customers .......... $ 154,241 $ 117,434 $ -- $ 271,675
Operating income (loss) .................. 15,248 7,843 (5,126) 17,965
Identifiable assets ...................... 218,592 130,266 8,776 357,634
Depreciation and amortization ............ 7,170 5,187 89 12,446
Capital expenditures and acquisitions .... 25,422 7,939 18 33,379
1994
Sales to unaffiliated customers .......... $ 94,941 $ 90,344 $ -- $ 185,285
Operating income (loss) .................. 3,082 5,144 (4,588) 3,638
Identifiable assets ...................... 122,638 105,923 8,194 236,755
Depreciation and amortization ............ 5,329 3,973 96 9,398
Capital expenditures and acquisitions .... 15,770 16,764 91 32,625
</TABLE>
MAJOR CUSTOMERS AND CREDIT RISK
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1996, 1995 and 1994, there was no individual customer who accounted
for 10% of consolidated revenues.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's equipment and services are used in approximately 55
countries by U.S. customers operating abroad and by foreign customers. Sales of
equipment and services outside the United States accounted for 51%, 46% and 46%
of total revenues in 1996, 1995 and 1994, respectively, based upon the ultimate
destination in which equipment or services were sold, shipped or provided to
the customer by the Company.
38
<PAGE> 39
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN
------------------------------
UNITED LATIN
STATES CANADA AMERICA OTHER ELIMINATIONS TOTAL
------ ------ ------- ----- ------------ -----
(IN THOUSANDS)
1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues from
unaffiliated customers ....... $ 253,675 $ 65,113 $ 36,214 $ 34,048 $ (21,395) $ 367,655
Export sales to
unaffiliated customers ....... 110,365 -- -- -- -- 110,365
--------- --------- --------- --------- --------- ---------
Total revenues ................. 364,040 65,113 36,214 34,048 (21,395) 478,020
Operating income ............... 24,037 6,985 15,125 521 (381) 46,287
Identifiable assets ............ 681,906 89,609 95,352 31,325 (45,349) 852,843
1995
Operating revenues from
unaffiliated customers ....... $ 166,627 $ 37,575 $ 23,068 $ 1,156 $ (19,754) $ 208,672
Export sales to
unaffiliated customers ....... 63,003 -- -- -- -- 63,003
--------- --------- --------- --------- --------- ---------
Total revenues ................. 229,630 37,575 23,068 1,156 (19,754) 271,675
Operating income (loss) ........ 7,046 4,386 7,915 (291) (1,091) 17,965
Identifiable assets ............ 298,135 30,197 21,068 20,857 (12,623) 357,634
1994
Operating revenues from
unaffiliated customers ....... $ 109,197 $ 26,774 $ 8,812 $ 1,601 $ (9,101) $ 137,283
Export sales to
unaffiliated customers ....... 48,002 -- -- -- -- 48,002
--------- --------- --------- --------- --------- ---------
Total revenues ................. 157,199 26,774 8,812 1,601 (9,101) 185,285
Operating income (loss) ........ 139 3,876 1,296 (1,091) (582) 3,638
Identifiable assets ............ 214,446 26,572 5,837 8,040 (18,140) 236,755
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data
for 1996 and 1995. The information presented has been restated to reflect the
Mallard Division as discontinued operations.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996
<S> <C> <C> <C> <C> <C>
Revenues ...................................................... $ 90,326 $ 98,937 $ 134,376 $ 154,381 $ 478,020
Gross Profit .................................................. 21,036 24,044 29,328 30,103 104,511
Income before Income Taxes .................................... 4,224 6,226 10,641 10,455 31,546
Income from Continuing Operations ............................. 2,747 4,046 6,917 10,795 24,505
Income from Discontinued Operations, Net of Taxes ............. 1,600 1,748 2,842 1,278 7,468
Gain on Disposal of Discontinued Operations,
Net of Taxes ................................................ -- -- -- 66,924 66,924
Extraordinary Charge, Net of Taxes ............................ -- (731) -- -- (731)
Net Income .................................................... $ 4,347 $ 5,063 $ 9,759 $ 78,997 $ 98,166
Net Income (Loss) Per Common Share:
Income from Continuing Operations ........................... $ .15 $ .22 $ .32 $ .47 $ 1.20 (1)
Income from Discontinued Operations ......................... .09 .09 .13 .06 .37
Gain on Disposal of Discontinued Operations ................. -- -- -- 2.93 3.29 (1)
Extraordinary Charge ........................................ -- (.04) -- -- (.04)
--------- --------- --------- --------- ---------
Net Income .................................................. $ .24 $ .27 $ .45 $ 3.46 $ 4.82 (1)
========= ========= ========= ========= =========
</TABLE>
39
<PAGE> 40
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995
<S> <C> <C> <C> <C> <C>
Revenues .............................................. $ 53,270 $ 61,198 $ 72,196 $ 85,011 $271,675
Gross Profit .......................................... 13,954 15,003 17,638 19,850 66,445
Income (Loss) before Income Taxes ..................... (1,243) (785) 736 3,654 2,362
Income (Loss) from Continuing Operations .............. (772) (438) 1,104 2,708 2,602
Income from Discontinued Operations, Net of Taxes ..... 2,403 2,191 2,452 1,663 8,709
Net Income ............................................ $ 1,631 $ 1,753 $ 3,556 $ 4,371 $ 11,311
Net Income Per Common Share:
Income from Continuing Operations ................... $ (.06) $ (.03) $ .08 $ .15 $ .18(2)
Income from Discontinued Operations ................. .19 .17 .16 .09 .59(2)
-------- -------- -------- -------- --------
Net Income .......................................... $ .13 $ .14 $ .24 $ .24 $ .77(2)
======== ======== ======== ======== ==========
</TABLE>
(1) Net Income Per Common Share for the year ended December 31, 1996,
differs from the summation of the individual quarters within that year
due to the impact of the Public Offering of Common Stock and shares
issued in connection with the TCA and ENERPRO acquisitions.
(2) Net Income Per Common Share for the year ended December 31, 1995,
differs from the summation of the individual quarters within that year
due to the impact of the Public Offering of Common Stock and shares
issued in connection with the Prideco acquisition.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The $120 million Senior Notes which are described in Note 7 are
unconditionally guaranteed on a full and unconditional, joint and several,
basis by certain subsidiaries of the Company. Each of the subsidiary guarantors
are wholly owned by the Company or a subsidiary guarantor. Accordingly, the
following condensed consolidating balance sheets as of December 31, 1996 and
1995, and the related condensed consolidating statements of income and cash
flows for each of the three years in the period ended December 31, 1996, have
been provided. The condensed consolidating financial statements herein are
followed by notes which are an integral part of these statements.
40
<PAGE> 41
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents ................ $ 221,275 $ 1,625 $ 1,066 $ -- $ 223,966
Other Current Assets ..................... 40,694 233,862 60,159 -- 334,715
--------- --------- --------- --------- ---------
261,969 235,487 61,225 -- 558,681
--------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ............................. 144 124,804 47,776 -- 172,724
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET ..................... 412,287 (241,456) (87,064) (83,767) --
OTHER ASSETS ................................ 5,850 84,322 31,266 -- 121,438
--------- --------- --------- --------- ---------
$ 680,250 $ 203,157 $ 53,203 $ (83,767) $ 852,843
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings .................... $ -- $ -- $ 4,451 $ -- $ 4,451
Current Maturities of Long-Term Debt ..... -- 1,883 1,739 -- 3,622
Accounts Payable and Other Accrued
Liabilities ........................... 89,692 107,712 27,649 -- 225,053
--------- --------- --------- --------- ---------
89,692 109,595 33,839 -- 233,126
--------- --------- --------- --------- ---------
LONG-TERM DEBT .............................. 120,000 3,895 2,815 -- 126,710
DEFERRED INCOME TAXES AND OTHER ............. 16,474 18,707 3,742 -- 38,923
--------- --------- --------- --------- ---------
STOCKHOLDERS' INVESTMENT .................... 454,084 70,960 12,807 (83,767) 454,084
--------- --------- --------- --------- ---------
$ 680,250 $ 203,157 $ 53,203 $ (83,767) $ 852,843
========= ========= ========= ========= =========
</TABLE>
41
<PAGE> 42
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ................ $ 532 $ 1,492 $ 861 $ -- $ 2,885
Other Current Assets ..................... 1,564 174,653 34,592 -- 210,809
Net Assets of Discontinued Operations .... -- 94,650 841 -- 95,491
--------- --------- --------- --------- ---------
2,096 270,795 36,294 -- 309,185
--------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION ............................. 159 85,429 14,571 -- 100,159
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET ..................... 342,844 (169,153) 18,416 (192,107) --
OTHER ASSETS ................................ 4,969 42,322 (3,510) -- 43,781
--------- --------- --------- --------- ---------
$ 350,068 $ 229,393 $ 65,771 $(192,107) $ 453,125
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings .................... $ -- $ 546 $ 4,031 $ -- $ 4,577
Current Maturities of Long-Term Debt ..... -- 3,082 410 -- 3,492
Accounts Payable and Other Accrued
Liabilities ............................ 4,055 56,408 9,759 -- 70,222
--------- --------- --------- --------- ---------
4,055 60,036 14,200 -- 78,291
--------- --------- --------- --------- ---------
LONG-TERM DEBT .............................. 120,000 3,596 587 -- 124,183
DEFERRED INCOME TAXES AND OTHER ............. (2,053) 5,950 18,688 -- 22,585
--------- --------- --------- --------- ---------
STOCKHOLDERS' INVESTMENT .................... 228,066 159,811 32,296 (192,107) 228,066
--------- --------- --------- --------- ---------
$ 350,068 $ 229,393 $ 65,771 $(192,107) $ 453,125
========= ========= ========= ========= =========
</TABLE>
42
<PAGE> 43
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 373,725 $ 104,295 $ -- $ 478,020
COSTS AND EXPENSES ...................... 6,339 335,817 89,577 -- 431,733
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (6,339) 37,908 14,718 -- 46,287
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense ..................... 15,811 (26,870) (5,395) -- (16,454)
Equity in Subsidiaries, Net of Taxes . 18,577 -- -- (18,577) --
Other, Net ........................... 2,002 166 (455) -- 1,713
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .............. 30,051 11,204 8,868 (18,577) 31,546
PROVISION (BENEFIT) FOR INCOME TAXES .... (1,285) 4,893 3,433 -- 7,041
--------- -------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ....... 31,336 6,311 5,435 (18,577) 24,505
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES ............. -- 7,521 (53) -- 7,468
GAIN ON DISPOSAL OF DISCONTINUED
OPERATIONS, NET OF TAXES ............. 66,924 -- -- -- 66,924
EXTRAORDINARY CHARGE, NET OF TAXES ...... (94) (637) -- -- (731)
--------- --------- --------- --------- ---------
NET INCOME .............................. $ 98,166 $ 13,195 $ 5,382 $ (18,577) $ 98,166
========= ========= ========= ========= =========
</TABLE>
43
<PAGE> 44
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 210,603 $ 61,072 $ -- $ 271,675
COSTS AND EXPENSES ...................... 5,123 199,525 49,062 -- 253,710
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (5,123) 11,078 12,010 -- 17,965
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense .................... 2,539 (16,856) (1,970) -- (16,287)
Equity in Subsidiaries, Net of Taxes 11,179 -- -- (11,179) --
Other, Net .......................... 360 1,134 (810) -- 684
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ....... 8,955 (4,644) 9,230 (11,179) 2,362
PROVISION (BENEFIT) FOR INCOME TAXES .... (2,356) (1,214) 3,330 -- (240)
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS .......................... 11,311 (3,430) 5,900 (11,179) 2,602
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES ............ -- 8,662 47 -- 8,709
--------- --------- --------- --------- ---------
NET INCOME .............................. $ 11,311 $ 5,232 $ 5,947 $ (11,179) $ 11,311
========= ========= ========= ========= =========
</TABLE>
44
<PAGE> 45
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................ $ -- $ 148,299 $ 36,986 $ -- $ 185,285
COSTS AND EXPENSES ...................... 4,748 144,030 32,869 -- 181,647
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) ................. (4,748) 4,269 4,117 -- 3,638
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Expense ..................... (6,973) (6,074) (490) -- (13,537)
Equity in Subsidiaries, Net of Taxes . 11,343 -- -- (11,343) --
Other, Net ........................... 153 512 (253) -- 412
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ....... (225) (1,293) 3,374 (11,343) (9,487)
PROVISION (BENEFIT) FOR INCOME TAXES .... (4,867) (1,022) 2,094 -- (3,795)
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ........................... 4,642 (271) 1,280 (11,343) (5,692)
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES ............. -- 10,113 221 -- 10,334
EXTRAORDINARY CHARGE, NET OF TAXES ...... (3,784) -- -- -- (3,784)
--------- --------- --------- --------- ---------
NET INCOME .............................. $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
========= ========= ========= ========= =========
</TABLE>
45
<PAGE> 46
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Income ....................................... $ 98,166 $ 13,195 $ 5,382 $ (18,577) $ 98,166
Net (Income) Loss from Discontinued
Operations ..................................... -- (7,521) 53 -- (7,468)
Gain on Disposal of Discontinued
Operations, Net ................................ (66,924) -- -- -- (66,924)
Equity in Earnings of Subsidiaries ............... (18,577) -- -- 18,577 --
Other Adjustments and Charges .................... (18,329) 5,571 (16,488) -- (29,246)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Continuing
Operations ................................... (5,664) 11,245 (11,053) -- (5,472)
Net Cash Provided (Used) by Discontinued
Operations ................................... -- 8,699 (405) -- 8,294
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Operating
Activities ................................... (5,664) 19,944 (11,458) -- 2,822
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Disposal of Discontinued
Operations ..................................... 306,854 -- -- -- 306,854
Capital Expenditures of Discontinued
Operations ..................................... -- (63,136) -- -- (63,136)
Acquisition of Businesses ........................ -- (47,934) (39,880) -- (87,814)
Capital Expenditures for Property, Plant
and Equipment .................................. (67) (11,358) (14,465) -- (25,890)
Proceeds from Sale of Assets ..................... -- 521 740 -- 1,261
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Investing
Activities ................................... 306,787 (121,907) (53,605) -- 131,275
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock, Net .................... 100,860 -- -- -- 100,860
Repayments Under Revolving Lines of
Credit, Net .................................. -- (546) (1,107) -- (1,653)
Borrowings (Repayments) on Term Debt, Net ........ -- (11,829) 118 -- (11,711)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net ......................... (183,434) 115,502 67,932 -- --
Other, Net ....................................... 2,194 (1,031) (1,696) -- (533)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities ................................... (80,380) 102,096 65,247 -- 86,963
--------- --------- --------- --------- ---------
Effect of Translation Adjustment on Cash ............ -- -- 21 -- 21
--------- --------- --------- --------- ---------
Net Increase in Cash and Cash Equivalents ........... 220,743 133 205 --
221,081
Cash and Cash Equivalents at Beginning of Year ...... 532 1,492 861 -- 2,885
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at End of Year ............ $ 221,275 $ 1,625 $ 1,066 $ -- $ 223,966
========= ========= ========= ========= =========
</TABLE>
46
<PAGE> 47
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
<S> <C> <C> <C> <C> <C>
ACTIVITIES:
Net Income ........................................ $ 11,311 $ 5,232 $ 5,947 $(11,179) $ 11,311
Net Income from Discontinued Operations ........... -- (8,662) (47) -- (8,709)
Equity in Earnings of Subsidiaries ................ (11,179) -- -- 11,179 --
Other Adjustments and Charges ..................... (3,808) (42,820) 13,175 -- (33,453)
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Continuing
Operations ..................................... (3,676) (46,250) 19,075 -- (30,851)
Net Cash Provided (Used) by Discontinued
Operations ..................................... -- 11,326 (581) -- 10,745
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Operating
Activities ..................................... (3,676) (34,924) 18,494 -- (20,106)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital Expenditures of Discontinued
Operations ....................................... -- (22,884) -- -- (22,884)
Acquisition of Businesses ......................... -- (4,007) (4,098) -- (8,105)
Capital Expenditures for Property, Plant
and Equipment .................................... (19) (4,751) (6,362) -- (11,132)
Proceeds from Sale of Assets ...................... -- 2,880 489 -- 3,369
-------- -------- -------- -------- --------
Net Cash Used by Investing Activities ............ (19) (28,762) (9,971) -- (38,752)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock, Net ..................... 72,648 -- -- -- 72,648
Borrowings (Repayments) Under Revolving
Lines of Credit, Net ............................. -- (11,498) 393 -- (11,105)
Repayments on Term Debt, Net ...................... -- (2,082) (352) -- (2,434)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net ........................... (68,885) 78,005 (9,120) -- --
Other, Net ........................................ 298 -- -- -- 298
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Financing
Activities ...................................... 4,061 64,425 (9,079) -- 59,407
-------- -------- -------- -------- --------
Effect of Translation Adjustment on Cash .............. -- -- 81 -- 81
-------- -------- -------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents ........................................ 366 739 (475) -- 630
Cash and Cash Equivalents at Beginning of Year ........ 166 753 1,336 -- 2,255
-------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Year .............. $ 532 $ 1,492 $ 861 $ -- $ 2,885
======== ======== ======== ======== ========
</TABLE>
47
<PAGE> 48
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Income ................................ $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
Net Income from Discontinued Operations ... -- (10,113) (221) -- (10,334)
Equity in Earnings of Subsidiaries ........ (11,343) -- -- 11,343 --
Other Adjustments and Charges ............. 11,329 (22,736) (6,818) -- (18,225)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Continuing
Operations ............................ 844 (23,007) (5,538) -- (27,701)
Net Cash Provided by Discontinued
Operations ............................ -- 6,903 3 -- 6,906
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Operating
Activities ............................ 844 (16,104) (5,535) -- (20,795)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital Expenditures of Discontinued
Operations .............................. -- (11,738) -- -- (11,738)
Acquisition of Businesses ................. -- (8,163) (2,289) -- (10,452)
Capital Expenditures for Property, Plant
and Equipment ........................... (91) (5,293) (2,485) -- (7,869)
Proceeds from Sale of Assets .............. -- -- 28 -- 28
--------- --------- --------- --------- ---------
Net Cash Used by Investing
Activities............................ (91) (25,194) (4,746) -- (30,031)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Long-Term Debt ................ 120,000 -- -- -- 120,000
Repayments Under Revolving Lines
of Credit, Net .......................... -- (21,050) (1,045) -- (22,095)
Repayments on Term Debt, Net .............. (34,442) (2,242) (2,068) -- (38,752)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net .................. (78,181) 64,227 13,954 -- --
Other, Net ................................ (9,408) -- -- -- (9,408)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities ............................ (2,031) 40,935 10,841 -- 49,745
--------- --------- --------- --------- ---------
Effect of Translation Adjustment on Cash ..... -- -- (300) -- (300)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents ............................... (1,278) (363) 260 -- (1,381)
Cash and Cash Equivalents at Beginning of Year 1,444 1,116 1,076 -- 3,636
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at End of Year ..... $ 166 $ 753 $ 1,336 $ -- $ 2,255
========= ========= ========= ========= =========
</TABLE>
48
<PAGE> 49
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications and Restatements
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1996 classifications. The consolidated
financial statements have been restated to reflect the sale of the Company's
Mallard Division on November 11, 1996. See Note 5 for additional information.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. LONG-TERM DEBT
The Company's summary of scheduled debt maturities by year, description
of debt and other information is disclosed in Note 7.
C. INSURANCE SETTLEMENT
On September 30, 1994, the Company received a net cash payment of $23
million from its insurance carriers as settlement for the termination of its
workover drilling contract with NIOC. See Note 11 for additional information
regarding this settlement.
D. OTHER
Notes 1 through 16 should be read in conjunction with the Condensed
Consolidating Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information on directors and
executive officers of the Registrant is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information on executive
compensation is incorporated by reference from the Registrant's Definitive
Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information on security ownership of
certain beneficial owners and management is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information on certain relationships
and related transactions is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
49
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or incorporated
herein by reference:
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and financial statement schedule of
the Company are listed on the index on page 19.
REPORTS ON FORM 8-K
On October 3, 1996, the Company filed a Current Report on Form 8-K
announcing the completed acquisition of Irmaos Geremia Ltd., announcing the
signing of an agreement to sell the Company's Mallard Drilling rig contracting
division to Parker Drilling Company and including pro forma financial
statements of the Company giving effect to the disposition of the Mallard
Drilling rig contracting division.
On November 26, 1996, the Company filed a Current Report on Form 8-K
announcing the completion of the previously announced sale of its Mallard
Drilling rig contracting division to Parker Drilling company and including pro
forma financial statements of the Company giving effect to the disposition of
the Mallard Drilling rig contracting division.
On December 26, 1996, the Company filed a Current Report on Form 8-K
announcing the completion of the acquisition of the assets of Arrow Completion
Systems from Weatherford Enterra, Inc. and the signing of a merger agreement
with GulfMark International, Inc. and New GulfMark, Inc. pursuant to which the
Company would acquire GulfMark International, Inc. in a tax-free merger in
exchange for the issuance of approximately 2.2 million shares of the Company's
Common Stock.
EXHIBITS
3.1 - Restated Certificate of Incorporation of the Company,
(incorporated by reference to Exhibit No. 3.1 to the Registration
Statement on Form S-3; Registration No. 333-03407).
3.2 - By-laws as amended (incorporated by reference to Exhibit No.3.2 to
Form 10-K, File 0-7265, filed March 1, 1994).
4.1 - Restated Certificate of Incorporation of the Company,
(incorporated by reference to Exhibit No. 3.1 to the Registration
Statement on Form S-3; Registration No. 333-03407).
4.2 - By-laws as amended (incorporated by reference to Exhibit No. 3.2
to Form 10-K, File 0-7265, filed March 1, 1994).
4.3 - Indenture dated March 15, 1994, among Energy Ventures, Inc., as
Issuer, the Subsidiary Guarantors party thereto, as Guarantors,
and Chemical Bank, as Trustee (incorporated by reference to Form
8-K, File 0-7265, filed April 5, 1994).
4.4 - Specimen 10 1/4% Senior Note due 2004 of Energy Ventures, Inc.
(incorporated by reference to Form 8-K, File 0-7265, filed April
5, 1994).
4.5 - First Supplemental Indenture by and among Energy Ventures, Inc.,
Prideco and Chemical Bank, as trustee, dated June 30, 1995
(incorporated by reference to Exhibit No. 4.4 to the Registration
Statement on Form S-3; Registration No. 33-61933).
**4.6 - Second Supplemental Indenture by and among Energy Ventures, Inc.,
EVI Arrow, Inc., EVI Watson, Inc. and The Chase Manhattan Bank, as
trustee, dated effective as of December 6, 1996.
4.7 - Amended and Restated Credit Agreement among Energy Ventures, Inc.,
the Subsidiary Guarantors defined therein, the Lenders defined
therein and The Chase Manhattan Bank dated as of December 6, 1996,
including the form of Note (incorporated by reference to Exhibit
No. 4.1 to Form 8-K, File 0-7265, filed December 26, 1996).
*10.1 - Executive Deferred Compensation Stock Ownership Plan and related
Trust Agreement (incorporated by reference to Form 10-Q, File
0-7265, filed November 16, 1992).
*10.2 - First Amendment to Energy Ventures, Inc. Executive Deferred
Compensation Stock Ownership Plan dated June 28, 1993
(incorporated by reference to Exhibit No. 4.3 to the Registration
Statement on Form S-8; Registration No. 33-65790).
50
<PAGE> 51
*10.3 - Non-Employee Director Deferred Compensation Plan (incorporated
by reference to Form 10-Q, File 0-7265, Filed November 16,
1992).
*10.4 - 1991 Non-Employee Director Stock Option Plan and Form of
Agreement (incorporated by reference to Form 10-Q, File 0-7265,
filed August 8, 1991).
*10.5 - 1992 Employee Stock Option Plan, as amended (incorporated by
reference to Exhibit No. 4.7 to the Registration Statement on Form
S-8; Registration No. 333-13531).
*10.6 - Energy Ventures, Inc. Employees Stock Option Plan (incorporated by
reference to Exhibit No. 4.1 to the Registration Statement on Form
S-8; Registration No. 33-31662).
*10.7 - Form of Stock Option Agreement under the Company's Employees'
Stock Option Plan (incorporated by reference to Exhibit No. 4.2 to
the Registration Statement on Form S-8; Registration No.
33-31662).
*10.8 - Amended and Restated Non-Employee Director Stock Option Plan
(incorporated by reference to Form 10-Q, File 0-7265, filed August
12, 1995).
10.9 - Lease Agreement dated September 30, 1993, among T.F. de Mexico,
S.A. de C.V. as Lessor, Grant T.F. de Mexico, S.A. de C.V., as
Lessee, Energy Ventures, Inc. as Guarantor, and Revemex, S.A. de
C.V. as Owner of subleased assets (incorporated by reference to
Form 10-K, File 0-7265, filed March 1, 1994).
10.10 - Registration Rights Agreement dated March 24, 1994, between Energy
Ventures, Inc. and Lehman Brothers Inc. (incorporated by reference
to Form 8-K, File 0-7265, filed April 5, 1994).
10.11 - The Woodward, Oklahoma Lease agreements as amended (incorporated
by reference to Form 10-K, File 0-7265, filed March 23, 1995).
10.12 - Agreement and Plan of Merger dated as of May 22, 1995, as amended
by Amendment No. 1 dated as of June 30, 1995, by and among
Prideco, Inc., Christiana Companies, Inc., William Chunn, Donald
Morris, Sandra Hamilton, Energy Ventures, Inc. and Grant
Acquisition Company (incorporated by reference to Exhibit No. 2.1
to Form 8-K, File 0-7265, filed July 12, 1995).
10.13 - Manufacturing and Sales Agreement dated as of January 1, 1996, by
and between Grant Prideco, S.A. and Oil Country Tubular Limited
(incorporated by reference to Exhibit No. 10.34 to Form 10-K, File
0-7265, filed March 20, 1996).
**10.14 - Amended and Restated Lease Agreement dated May 3, 1996, between
Baker Hughes Oilfield Operations, Inc. and Grant Prideco, Inc.
10.15 - Agreement and Plan of Merger dated as of June 20, 1996 between
Energy Ventures, Inc., TCA Acquisition, Inc. and Tubular
Corporation of America (incorporated by reference to Exhibit No.
2.1 to Form 8-K, File 0-7265, filed June 24, 1996).
10.16 - Asset Purchase Agreement dated as of June 21, 1996, by and between
Energy Ventures, Inc. and Mallard Bay Drilling, Inc. and Noble
Drilling (West Africa) Inc. and Noble Drilling Corporation
(incorporated by reference to Exhibit No. 2.3 to form 8-K, file
0-7265, filed June 24, 1996).
10.17 - Stock Purchase Agreement dated as of September 14, 1996, by and
among Parker Drilling Company and Energy Ventures, Inc.
(incorporated by reference to Exhibit 2.1 to Form 8-K, File 0-7265,
filed October 3, 1996).
10.18 - Asset Purchase Agreement dated as of October 18, 1996, by and among
Energy Ventures, Inc., Arrow Completion Systems, Inc. and
Weatherford Enterra, Inc. (incorporated by reference to Exhibit No.
2.1 to Form 8-K, File 0-7265, filed December 26, 1996).
10.19 - Agreement and Plan of Merger dated as of December 5, 1996, among
Energy Ventures, Inc., GulfMark Acquisition Co., GulfMark
International, Inc. and New GulfMark International, Inc.
(incorporated by reference to Exhibit No. 2.2 to Form 8-K, File
0-7265, file December 26, 1996).
10.20 - Agreement and Plan of Distribution dated as of December 5, 1996, by
and among GulfMark International, Inc., New GulfMark International,
Inc. and Energy Ventures, Inc. (incorporated by reference to
Exhibit No. 2.3 to Form 8-K, File 0-7265, filed December 26, 1996).
**21.1 - Subsidiaries of Energy Ventures, Inc.
**23.1 - Consent of Arthur Andersen LLP.
**27.1 - Financial Data Schedule.
*Management Compensation or Incentive Plan
**Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has
not filed with this Annual Report on Form 10-K certain instruments
defining the rights of holder of long-term debt of the Company and its
subsidiaries because the total amount of securities authorized under any
of such instruments does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of any such agreements to the Securities and Exchange
Commission upon request.
51
<PAGE> 52
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ENERGY VENTURES, INC.
BY: /s/ BERNARD J. DUROC-DANNER
----------------------------
BERNARD J. DUROC-DANNER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
AND DIRECTOR
Date: March 20, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
BY: /s/ BERNARD J. DUROC-DANNER President and Chief Executive Officer March 20, 1997
-------------------------------- (Principal Executive Officer)
BERNARD J. DUROC-DANNER and Director
BY: /s/ JAMES G. KILEY Vice President and Chief Financial Officer March 20, 1997
--------------------------------- (Principal Financial Officer)
JAMES G. KILEY
BY: /s/ FRANCES R. POWELL Vice President, Accounting and Controller March 20, 1997
--------------------------------- (Principal Accounting Officer)
FRANCES R. POWELL
BY: /s/ DAVID J. BUTTERS Director March 20, 1997
--------------------------------- and Chairman of the Board
DAVID J. BUTTERS
BY: /s/ URIEL E. DUTTON Director March 20, 1997
---------------------------------
URIEL E. DUTTON
BY: /s/ ELIOT M. FRIED Director March 20, 1997
---------------------------------
ELIOT M. FRIED
BY: /s/ SHELDON S. GORDON Director March 20, 1997
--------------------------------
SHELDON S. GORDON
BY: /s/ SHELDON B. LUBAR Director March 20, 1997
--------------------------------
SHELDON B. LUBAR
BY: /s/ ROBERT B. MILLARD Director March 20, 1997
--------------------------------
ROBERT B. MILLARD
BY: /s/ ROBERT A. RAYNE Director March 20, 1997
--------------------------------
ROBERT A. RAYNE
</TABLE>
52
<PAGE> 53
SCHEDULE II
ENERGY VENTURES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
===============================================================================================
ADDITIONS
----------------
CHARGED
BALANCE TO CHARGED
BEGINNING COSTS TO BALANCE
OF AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for uncollectible accounts
receivable ....................... $ 362 $ 486 $ 4 $(269) $ 583
YEAR ENDED DECEMBER 31, 1995:
Allowance for uncollectible accounts
receivable ....................... $ 551 $ 252 $ 92 $(533) $ 362
YEAR ENDED DECEMBER 31, 1994:
Allowance for uncollectible accounts
receivable ....................... $ 656 $ 158 $ 31 $(294) $ 551
</TABLE>
53
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.6 Second Supplemental Indenture by and among Energy Ventures, Inc.,
EVI Arrow, Inc., EVI Watson, Inc. and the Chase Manhattan Bank, as trustee,
dated effective as of December 6, 1996.
10.14 Amended and Restated Lease Agreement dated May 3, 1996, between Baker
Hughes Oilfield Operations, Inc. and Grant Prideco, Inc.
21.1 Subsidiaries of Energy Ventures, Inc.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
54
