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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
------------------------
COMMISSION FILE NUMBER 1-13817
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 11-2908692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 POST OAK BOULEVARD, SUITE 800 77056
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (713) 621-7911
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 [ ]
The number of shares of the Registrant's Common Stock, par value $.00001
per share, outstanding at November 12, 1999, was 35,243,683.
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Financial Information....................................... 3
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations....................... 4
Consolidated Statements of Shareholders' Equity............. 5
Consolidated Statements of Cash Flows....................... 6
Notes to Consolidated Financial Statements.................. 7-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................. 13-20
Item 3. Quantitative and Qualitative Disclosures about Market 20
Risk........................................................
PART II
Item 2. Recent Sales of Unregistered Securities..................... 21
Item 3. Defaults Upon Senior Securities............................. 21
Item 6. Exhibits and Reports on Form 8-K............................ 21
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2
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
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DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
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Currents assets:
Cash...................................................... $ 4,213,000 $ 1,249,000
Receivables -- net........................................ 24,721,000 15,381,000
Inventories............................................... 14,819,000 18,612,000
Prepaid expenses and other................................ 987,000 1,830,000
----------- ------------
Total current assets.............................. 44,740,000 37,072,000
----------- ------------
Property and equipment -- net............................... 28,114,000 30,629,000
Other assets:
Deferred financing costs and other assets -- net.......... 5,637,000 6,295,000
Goodwill -- net........................................... 19,094,000 18,873,000
----------- ------------
Total assets...................................... $97,585,000 $ 92,869,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $14,014,000 $ 16,355,000
Accrued liabilities and customer advances................. 8,329,000 10,883,000
Long-term debt and notes payable -- current portion....... 4,584,000 20,569,000
----------- ------------
Total current liabilities......................... 26,927,000 47,807,000
----------- ------------
Deferred income taxes and other............................. 1,346,000 1,409,000
Long-term debt and notes payable -- net of current
portion................................................... 49,076,000 28,067,000
Commitments and contingencies
Shareholders' equity:
Preferred stock ($.00001 par, 5,000,000 shares authorized,
140,000 and 132,000 issued and outstanding at December
31, 1998 and September 30, 1999, respectively)......... -- --
Common stock ($.00001 par, 50,000,000 shares authorized,
33,044,000 and 35,244,000 shares issued and outstanding
at December 31, 1998 and September 30, 1999,
respectively).......................................... -- --
Additional paid-in capital................................ 25,154,000 32,567,000
Accumulated deficit....................................... (4,918,000) (16,981,000)
----------- ------------
Total shareholders' equity........................ 20,236,000 15,586,000
----------- ------------
Total liabilities and shareholders' equity........ $97,585,000 $ 92,869,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- ------------
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Revenues................................ $24,451,000 $16,983,000 $54,975,000 $ 59,983,000
Costs and expenses:
Cost of Sales and Operating
Expenses........................... 16,879,000 13,091,000 38,462,000 48,583,000
Selling, General and Administrative... 4,933,000 5,158,000 11,169,000 14,820,000
Depreciation and Amortization......... 917,000 1,078,000 1,676,000 3,127,000
----------- ----------- ----------- ------------
22,729,000 19,327,000 51,307,000 66,530,000
----------- ----------- ----------- ------------
Operating income (loss)................. 1,722,000 (2,344,000) 3,668,000 (6,547,000)
Other expenses-net, primarily
interest.............................. 1,398,000 1,605,000 2,615,000 4,616,000
----------- ----------- ----------- ------------
Income (loss) before income taxes....... 324,000 (3,949,000) 1,053,000 (11,163,000)
Income tax expense...................... 219,000 36,000 494,000 80,000
----------- ----------- ----------- ------------
Net income (loss)....................... 105,000 (3,985,000) 559,000 (11,243,000)
Preferred stock accretion and dividend
requirements.......................... 391,000 577,000 639,000 1,000,000
----------- ----------- ----------- ------------
Net loss applicable to common
shareholders.......................... $ (286,000) $(4,562,000) $ (80,000) (12,243,000)
----------- ----------- ----------- ------------
Basic loss per common share............. $ (0.01) $ (0.13) $ .00 $ (0.36)
=========== =========== =========== ============
Diluted loss per common share........... $ (0.01) $ (0.13) $ .00 $ (0.36)
=========== =========== =========== ============
Weighted average number of common shares
outstanding -- Basic.................. 32,453,000 35,244,000 31,181,000 34,326,000
=========== =========== =========== ============
-- Diluted............... 32,453,000 35,244,000 31,181,000 34,326,000
=========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
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PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ---------- ------ ----------- ------------ --------------
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Balances, December 31, 1998........... 140,000 $-- 33,044,000 $-- $25,154,000 $(4,918,000) $ 20,236,000
Preferred stock accretion,
dividends, and warrant discount
accretion......................... -- -- -- -- 596,000 (610,000) (14,000)
Preferred stock conversion to common
stock............................. (50,000) -- (788,000) -- -- -- --
Preferred stock redemption.......... (8,000) -- -- -- (200,000) -- (200,000)
Preferred stock issued in private
placement, net of offering cost... 50,000 -- -- -- 4,838,000 -- 4,838,000
Common stock issued upon exercise of
options........................... -- -- 12,000 -- 5,000 -- 5,000
Common stock issued in connection
with equity offering, net of
offering cost..................... -- -- 1,400,000 -- 1,964,000 -- 1,964,000
Warrant discount accretion in
connection with common stock
issuance.......................... -- -- -- -- 210,000 (210,000) --
Net loss............................ -- -- -- -- -- (11,243,000) (11,018,000)
------- --- ---------- --- ----------- ------------ ------------
Balances, September 30, 1999.......... 132,000 $-- 35,244,000 $-- $32,567,000 $(16,981,000) $ 15,811,000
======= === ========== === =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1999
------------ ------------
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Cash flows from operating activities:
Net income (loss)......................................... $ 559,000 $(11,243,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,676,000 3,127,000
Non-cash charges associated with warrant costs......... 516,000 223,000
Bad debt expense....................................... 221,000 291,000
Changes in assets and liabilities, net of acquisitions:
Receivables.......................................... (14,684,000) 9,048,000
Inventories.......................................... (5,245,000) (3,793,000)
Prepaid expenses and other current assets............ (353,000) (839,000)
Deferred financing costs and other assets, net....... (3,619,000) (1,279,000)
Accounts payable..................................... 8,624,000 2,362,000
Accrued liabilities and customer advances............ 3,128,000 2,534,000
------------ ------------
Net cash provided by (used in) operating
activities...................................... (9,177,000) 431,000
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired........... (38,924,000) --
Property and equipment additions.......................... (1,738,000) (4,741,000)
------------ ------------
Net cash used in investing activities............. (40,662,000) (4,741,000)
------------ ------------
Cash flows from financing activities:
Common stock options exercised............................ 442,000 5,000
Deferred financing cost................................... (51,000) --
Proceeds from issuance of debt and warrants............... 55,632,000 --
Proceeds from issuance of preferred and common stock...... 4,600,000 6,802,000
Debt repayments........................................... (9,544,000) (5,247,000)
Preferred stock dividends................................. -- (14,000)
Preferred stock redemption................................ -- (200,000)
------------ ------------
Net cash provided by financing activities................. 51,079,000 1,346,000
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 1,240,000 (2,964,000)
Cash and cash equivalents, beginning of period.............. 1,718,000 4,213,000
------------ ------------
Cash and cash equivalents, end of period.................... $ 2,958,000 $ 1,249,000
============ ============
Supplemental cash flow disclosures:
Cash paid for interest.................................... $ 441,000 $ 4,231,000
============ ============
Cash paid for income taxes................................ $ -- $ --
============ ============
Non-cash investing and financing activities:
Common stock issued for acquisition of business........... $ 5,282,000 $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Boots &
Coots International Well Control, Inc. (the "Company") have been prepared in
accordance with Generally Accepted Accounting Principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. They do not include all information and notes required by Generally
Accepted Accounting Principles for complete financial statements. The
accompanying consolidated financial statements include all adjustments,
including normal recurring accruals, which, in the opinion of management, are
necessary in order to make the consolidated financial statements not misleading.
The accompanying consolidated financial statements should be read in
conjunction with the Audited Consolidated Financial Statements and the notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
The results of operations for the three and nine month periods ended
September 30, 1998 and 1999 are not necessarily indicative of the results to be
expected for the respective full year.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company receives the majority of
its revenues from customers in the energy industry, which experienced a
significant downturn in 1998 that has continued through 1999. The liquidity of
the Company must to be considered in light of the significant fluctuations that
are being experienced by oilfield service providers as changes in oil and gas
exploration and production change customer's forecasts and budgets in response
to demand as well as to oil and gas prices. These fluctuations can rapidly
impact the Company's cash flows as supply and demand factors impact the number
and size of projects available. During 1998 and continuing into the first
quarter of 1999, world-wide oil and gas prices and related activity hit new
lows, on an inflation adjusted basis, for the past several decades, impacting
the Company and its competitors. Although oil and gas prices have recovered
during the second and third quarters of 1999, through the third quarter of 1999
the Company's well control and outsource purchasing businesses have not yet
benefited to a meaningful degree from price improvements due to the lag time in
exploration and production companies restoring capital and operating budgets
that have been materially curtailed since the third quarter of 1998.
Furthermore, there is no assurance that oil and gas commodity price increases
will be sustained or that they will result in increased operational activity by
the Company's customers.
In the three months and nine months ended September 30, 1999, the Company
incurred after-tax losses of $3.8 million and $11.0 million, respectively. The
Company grew significantly through acquisitions made in 1998; a significant
portion of the consideration paid by the Company for these acquisitions was in
the form of cash and debt. As of June 30 and September 30, 1999, the Company was
not in compliance with certain provisions of the Comerica Loan Agreement
(defined below) and such events of non-compliance continue to exist as of the
filing date hereof. The Company has been engaged in discussions with Comerica to
modify the Comerica Loan Agreement to allow for the Company to comply with its
covenants through maturity in May 2000. Outstanding borrowings under the
Comerica Loan Agreement of $18,259,000 at September 30, 1999 have been
classified as a current liability in the accompanying financial statements.
As of June 30 and September 30, 1999, the Company was not in compliance
with certain financial covenants of the Prudential Subordinated Note and Warrant
Purchase Agreement (defined below) respecting the Company's EBITDA to total
liabilities ratio. Further, two quarterly interest payments due through the date
hereof on the Prudential Subordinated Note have not been made by the Company.
Accordingly, the Company is in default under the terms of the Subordinated Note
and Warrant Purchase Agreement. The Company has been engaged in discussions with
Prudential regarding modification of certain financial covenants and deferral of
the two unfunded quarterly interest payments. Based on the status of the
Company's
7
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discussions with Prudential, the outstanding balance of the Prudential
Subordinated Notes has been classified as a non-current liability in the
accompany financial statements.
There can be no assurance that Comerica and Prudential will not seek their
remedies under their respective lending agreements with respect to the
continuing defaults under the Comerica Loan Agreement and the Prudential
Subordinated Note and Warrant Purchase Agreement. These remedies include, among
others, an acceleration of the contractual maturity of the outstanding balances
of those loans, and in the event the Company is unable to repay the then
outstanding balances, the possible foreclosure on the Company's assets securing
those loans. Although the accompanying financial statements for the nine months
ended September 30, 1999 have not been audited by Arthur Andersen LLP, they have
informed the Company that if the conditions described in this Note A continue to
exist at the time of their audit of the financial statements for the year ended
December 31, 1999, their report on those statements will include an explanatory
fourth paragraph because of substantial doubt about going concern.
As a result of the continued weakness in the industries which the Company
serves and the Company's financial position, the Company's management has taken
actions in 1999 which include among others, (a) downsizing personnel, (b)
attempting to improve its working capital, (c) closing and/or consolidating
certain of its field offices, (d) consolidating certain administrative
functions, and (e) evaluating certain business lines to ensure that the
Company's resources are deployed in the more profitable operations. The
Company's initial efforts to rationalize its operations commenced in the first
quarter of 1999. Through the second quarter of 1999, the results of these
efforts were not sufficient to prevent operating losses. During the third
quarter of 1999, additional cost cutting measures were taken which, together
with improved business activities, reduced the operating loss from $3,733,000
for the quarter ended June 30, 1999 to $2,344,000 for the quarter ended
September 30, 1999. In addition, the Company is exploring opportunities for new
equity infusions and/or improved debt financing. However, should any new
financing be obtained, it would have a significantly dilutive impact on existing
common shareholders. There can be no assurance that the Company will be able to
obtain new capital, and if new capital is obtained, that it will be on terms
favorable to the Company.
The Company believes that (a) should low demand for its services persist
for a prolonged period, or (b) if management's actions are not effective in
reducing the Company's operating losses and negative cash flows, these
conditions will have a material adverse effect on the Company's financial
position and results of operations and its ability to continue as a going
concern. The Company's consolidated financial statements should be read in
consideration of the foregoing.
NOTE B -- BUSINESS ACQUISITIONS
On January 2, 1998, the Company funded the acquisition, effective as of
December 31, 1997, of all of the capital stock of ITS Supply Corporation
("ITS"), an ISO 9002 certified materials and equipment procurement,
transportation and logistics company that serves the energy industry worldwide,
with offices in Houston, Venezuela, Peru, Dubai (UAE) and the United Kingdom.
ITS also serves as a distributor in Venezuela and Peru of artificial lift oil
recovery systems. Total consideration of $6,000,000 for the acquisition was
provided from working capital ($500,000); proceeds from the issuance of 10%
Senior Secured Notes due May 2, 1998 ($4,500,000); and short-term bridge
financing from the seller ($1,000,000). This transaction was accounted for as a
purchase and the acquired assets and liabilities were valued at fair market
value resulting in goodwill of $4,551,000 which is amortized over 40 years.
On February 20, 1998, the Company completed the acquisition of all of the
stock of Code 3, Inc. ("Code 3"). Consideration for the acquisition of Code 3
(subsequently renamed Boot & Coots Special Services, Inc.,) included $571,000
cash; the repayment of Code 3 corporate secured debt and interest thereon of
approximately $1,250,000; the allotment of $550,000 of Code 3 accounts
receivable to the former shareholders; and the issuance of 488,000 shares of the
Company's common stock valued at $5.06 per share, of
8
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which 159,000 shares were delivered into escrow to secure the indemnification
obligations of the stockholders of Code 3. This transaction was accounted for as
a purchase and the acquired underlying net assets of Code 3 were valued at fair
market value resulting in goodwill of $4,064,000 which is amortized over 40
years.
On July 23, 1998, the Company completed the acquisition of all of the stock
of Elmagco, Inc., a Delaware Corporation ("Elmagco") from Begemann, Inc., a
Delaware Corporation ("Begemann"). Elmagco and its subsidiaries conduct business
using the trade name Baylor Company ("Baylor"). Baylor is engaged in the design
and manufacture of electrical braking and control equipment predominantly used
in the drilling and marine markets, highly engineered specialty products such as
SCR systems and custom pedestal leg locking systems for the offshore market.
Additionally, Baylor designs and manufactures a broad line of custom AC
generators, which are used in a variety of industrial, commercial and
governmental applications.
Consideration for the acquisition of Baylor was approximately $25,000,000
in cash, a $2,000,000 dividend payment and the issuance at closing of 540,000
shares of the Company's common stock valued at $5.63 per share. This transaction
was accounted for as a purchase and the acquired net assets and liabilities of
Baylor were valued at fair market value resulting in goodwill of $7,336,000
which is amortized over 40 years.
On November 4, 1998, the Company's wholly-owned subsidiary, Boots & Coots
Special Services, Inc., completed the acquisition through merger of HAZ-TECH
Environmental Services, Inc. ("HAZ-TECH"), an emergency prevention and response
services company with operations in Arkansas, Oklahoma, Louisiana and Northeast
Texas. Consideration for the HAZ-TECH acquisition was $316,000 in cash and the
issuance of 269,000 shares of the Company's common stock valued at $2.69 per
share and assumed liabilities. This transaction was accounted for as a purchase
and the acquired net assets of HAZ-TECH were valued on a preliminary basis at
fair market value resulting in goodwill of $1,413,000 which is amortized over 40
years.
For all acquisitions, the fair value of common stock issued is estimated
using management's and the board of directors' judgment, which is based on
recent transactions, the trading value of Company stock, trading value of
similar investments, discussions with financial advisors, and the negotiations
with sellers. Upon acquisition, the Company records its preliminary purchase
price allocation based on available information. If additional facts become
available, the Company's finalizes its allocation within one year from the date
of acquisition.
The operations of the acquired entities are included in the Company's
consolidated operations from their respective acquisition dates. For the three
and nine month periods ended September 30, 1998, revenues, net income (loss)
available to common shareholders, and net income (loss) per share on an
unaudited pro forma basis, assuming that the ITS, B & C Special Services, Baylor
and HAZ-TECH acquisitions occurred on January 1, 1998 would be as follows:
<TABLE>
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THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30,1998 SEPTEMBER 30, 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues............................................ $26,432,000 $82,679,000
Net (Loss) Available to Common Shareholders......... $ (776,000) $ (271,000)
Basic (Loss) Per Common Share....................... $ (.02) $ (.01)
Diluted (Loss) Per Common Share..................... $ (.02) $ (.01)
</TABLE>
On July 23, 1998, the Company completed a $45 million private placement
with The Prudential Insurance Company of America ("Prudential") consisting of
$15,000,000 of Senior Secured Notes due January 6, 1999 (the "Prudential Senior
Notes") and $30,000,000 of 11.28% Senior Subordinated Notes due July 23, 2006
(the "Prudential Subordinated Notes"), the proceeds of which were used to fund
the acquisition of Baylor, repay $5,000,000 in bridge financing provided through
Prudential Securities Credit Corporation on July 6, 1998 and to provide working
capital. The Company was not in compliance with one financial covenant
9
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and obtained a waiver and modification from the lender at December 31, 1998. As
described in Note A, the Company was not in compliance at June 30 and September
30, 1999 with certain financial covenants and two quarterly interest payments
due through the date hereof have not been made. The Company has been engaged in
discussions with Prudential regarding modification of certain financial
covenants and deferral of the two unfunded quarterly interest payments. Based on
the status of the Company's discussions with Prudential, the outstanding balance
of the Prudential Subordinated Notes has been classified as a non-current
liability in the accompanying financial statements.
On October 28, 1998, the Company entered into a Loan Agreement with
Comerica Bank Texas ("Comerica"), as agent and lender, providing for a
$25,000,000 revolving loan facility (the "Comerica Loan Agreement"), subject to
borrowing base determination. The Company used $15,458,000 of the initial draw
of $20,000,000 from the Comerica loan facility to repay the Prudential Senior
Notes which had provided interim working capital. The balance of funds from the
initial Comerica loan draw was added to working capital.
The Comerica Loan Agreement imposes certain restrictions on the Company's
activities, including a prohibition, unless permitted, on the payment of cash
dividends on the Company's equity securities; limitations on incurring
additional borrowed money indebtedness; limitations on incurring or permitting
liens upon the assets of Company and its subsidiaries; limitations on making
loans or advances to, or investments in, other persons or entities; limitations
on the Company or its subsidiaries liquidating, dissolving or merging with
another company; limitations on the disposition of assets by the Company and its
subsidiaries; a prohibition on the Company changing the nature of its business;
and a prohibition of the Company repurchasing its equity securities. The
Subordinated Note and Warrant Purchase Agreement relating to the Prudential
Subordinated Notes imposes restrictions on the Company's activities which are
similar to those imposed by the Comerica Loan Agreement. The Comerica Loan
Agreement and the Subordinated Note and Warrant Purchase Agreement each require
that the Company meet certain minimum financial tests. Such restrictions would
make it difficult for the Company to acquire businesses and raise the capital
necessary to pursue its business strategy without the consent and cooperation of
the holders of such notes.
Effective April 15, 1999, the Comerica Loan Agreement was amended to waive
non-compliance with certain financial covenants through December 31, 1998 and to
modify certain financial covenants prospectively. Comerica's commitment under
this credit facility was reduced to $20,000,000, the interest rate was adjusted
to a base rate approximating prime plus 1%, and the maturity date was modified
to May 31, 2000. As described in Note A, the Company was not in compliance with
certain financial covenants in the Comerica Loan Agreement as of June 30 and
September 30, 1999. The outstanding loan balance of $18,259,000 is classified
with current liabilities in the accompanying financial statements coinciding
with the maturity date thereof.
NOTE C -- SHAREHOLDERS' EQUITY
On April 15, 1999, the Company completed the sale of $5,000,000 of Series A
Cumulative Senior Preferred Stock ("Series A Stock") to Halliburton Energy
Services, Inc. ("Halliburton"), a wholly-owned subsidiary of Halliburton
Company. The Series A Stock has a dividend requirement of 6.25% per annum
payable quarterly until the fifth anniversary at the date of issuance, whereupon
the dividend requirement increases to the greater of prime plus 6.25% or 14% per
annum, which is subject to adjustment for stock splits, stock dividends and
certain other events. In addition, Halliburton received warrants to purchase,
for a 7 year period, 1,250,000 shares of the Company's $.00001 par value Common
Stock at $4.00 per share. Also in connection with the equity investment, the
Company and Halliburton entered into an expanded Alliance Agreement which
effectively broadens and extends the term of the alliance between the Company
and Halliburton that has been in effect since 1995.
In April and May 1999, two unaffiliated investor groups purchased from
certain holders of 70,000 shares of the Company's 10% Junior Redeemable
Preferred Stock with a face amount of $1,750,000, plus accrued
10
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payment-in-kind dividends thereon. The Company entered into an agreement with
the two investor groups for the preferred shares to cancel further dividend
requirements and be convertible into 1,271,000 shares of Common Stock 90 days
after closing. As of September 30, 1999, 50,000 preferred shares had been
converted into 667,000 common shares. The two investor groups received warrants
to purchase, for a five year period, 181,000 shares of Common Stock at $5.00 per
share.
In May 1999, the Company completed the sale of $2,100,000 of Common Stock
in private placements. In connection with these private placement transactions,
warrants were issued to purchase 420,000 shares of Common Stock for a five year
period at $5.00 per share and 700,000 shares of Common Stock for a four year
period at $4.00 per share.
During 1999, the Company has been actively exploring opportunities for
improved and/or replacement secured debt financing and, in addition, new equity
infusions. A financing plan has been agreed to in principle which would waive
existing loan covenant violations, modify future covenants and provide
additional interim debt financing of $3 million (increasing under certain
circumstances up to $5 million) to supplement the existing secured credit
facility. This interim credit facility is intended to permit the orderly
replacement of the current secured credit facility. Closing is subject to
completion of legal documentation and requisite reviews and approvals.
Furthermore, the Company has confidentiality agreements and is in active
discussions with certain investor groups regarding the making of an equity
investment in the Company. However, there is no assurance that the Company will
be able to complete either of these transactions, or that they will necessarily
be on terms favorable to the Company. Furthermore, should such financings be
obtained, they would have a significantly dilutive impact on common
shareholders.
NOTE D -- COMMITMENTS AND CONTINGENCIES
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Management of the
Company does not believe that any liabilities resulting from such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
NOTE E -- BUSINESS SEGMENT INFORMATION
Information concerning operations in different business segments at
September 30, 1998 and 1999, and for the nine-month periods then ended is
presented below (in thousands). The Company operates in three segments: (a)
Emergency Response and Restoration, (b) Programs and Services (risk management,
outsource purchasing, manufacturer's representation and services); and (c)
Manufacturing and Distribution. Inter-segment transfers were not material. The
accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies in the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1998. For purposes of this
presentation, selling, general, administrative and corporate expenses have been
allocated pro rata among segments using on the basis of relative revenues. In
addition, general and corporate expenses are included in the calculation of
identifiable assets and are included in the Emergency Response and Restoration
business segment.
<TABLE>
<CAPTION>
EMERGENCY PROGRAMS MANUFACTURING
RESPONSE AND AND AND
RESTORATION SERVICES DISTRIBUTION CONSOLIDATED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues...................... $22,096,000 $ 9,701,000 $28,186,000 $59,983,000
Operating income (loss)....... (4,318,000) (2,443,000) 214,000 (6,547,000)
Identifiable operating
assets..................... 33,560,000 13,741,000 45,693,000 92,994,000
Equity income................. -- -- 26,000 26,000
Capital expenditures.......... 3,121,000 188,000 1,432,000 4,741,000
</TABLE>
11
<PAGE> 12
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EMERGENCY PROGRAMS MANUFACTURING
RESPONSE AND AND AND
RESTORATION SERVICES DISTRIBUTION CONSOLIDATED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Depreciation and amortization... 1,626,000 254,000 1,247,000 3,127,000
Interest expense.............. 4,551,000 109,000 7,000 4,667,000
NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues...................... $20,668,000 $21,186,000 $13,121,000 $54,975,000
Operating income (loss)....... 2,611,000 (242,000) 1,299,000 3,668,000
Identifiable operating
assets..................... 29,185,000 18,933,000 47,325,000 95,443,000
Capital expenditures.......... 984,000 263,000 16,000 1,263,000
Depreciation and
amortization............... 864,000 310,000 502,000 1,676,000
Interest expense.............. 2,506,000 -- 10,000 2,516,000
</TABLE>
For the three and nine months ended September 30, 1998 and 1999, the
Company's revenues were substantially consistent with those for the year ended
December 31, 1998 (domestic -- 47%, foreign -- 53%).
None of the Company's customers at December 31, 1998 and September 30, 1999
accounted for greater than ten percent of outstanding accounts receivable. The
Company believes that future accounts receivable will continue to be collected
under normal credit terms based on previous experience. The Company performs
ongoing evaluations of its customers and generally does not require collateral.
The Company assesses its credit risk and provides an allowance for doubtful
accounts for any accounts which are deemed doubtful of collection.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS/INDUSTRY CONDITIONS/ABILITY TO CONTINUE AS A GOING CONCERN
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto and the other financial
information contained in the Company's periodic reports filed herewith and those
previously filed with the Commission.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company receives the majority of
its revenues from customers in the energy industry, which experienced a
significant downturn in 1998 that has continued through 1999. The liquidity of
the Company must to be considered in light of the significant fluctuations that
are being experienced by oilfield service providers as changes in oil and gas
exploration and production change customer's forecasts and budgets in response
to oil and gas prices. These fluctuations can rapidly impact the Company's cash
flows as supply and demand factors impact the number and size of projects
available. During 1998 and continuing into the first quarter of 1999, world-wide
oil and gas prices and related activity hit new lows, on an inflation adjusted
basis, for the past several decades, impacting the Company and its competitors.
Although oil and gas prices have recovered during the second and third quarters
of 1999, through the third quarter of 1999 the Company's well control and
outsource purchasing businesses have not yet benefited to a meaningful degree
from price improvements due to the lag time in exploration and production
companies restoring capital and operating budgets that have been materially
curtailed since the third quarter of 1998. Furthermore, there is no assurance
that oil and gas commodity price increases will be sustained or that they will
result in increased operational activity by the Company's customers. In the
three months and nine months ended September 30, 1999, the Company incurred
after-tax losses of $3.9 million and $11.2 million, respectively. The Company
grew significantly through acquisitions made in 1998; a significant portion of
the consideration paid by the Company for these acquisitions was in the form of
cash and debt. As of June 30 and September 30, 1999, the Company was not in
compliance with certain provisions of the Comerica Loan Agreement (defined
below) and such events of non-compliance continue to exist as of the filing date
hereof. The Company has been engaged in discussions with Comerica to modify the
Comerica Loan Agreement to allow for the Company to comply with its covenants
through maturity in May 2000. Outstanding borrowings under the Comerica Loan
Agreement of $18,259,000 at September 30, 1999 have been classified as a current
liability in the accompanying financial statements.
As of June 30 and September 30, 1999, the Company was not in compliance
with certain financial covenants of the Prudential Subordinated Note and Warrant
Purchase Agreement (defined below) respecting the Company's EBITDA to total
liabilities ratio. Further, two quarterly interest payments due through the date
hereof on the Prudential Subordinated Note have not been made by the Company.
Accordingly, the Company is in default under the terms of the Subordinated Note
and Warrant Purchase Agreement. The Company has been engaged in discussions with
Prudential regarding modification of certain financial covenants and deferral of
the two unfunded quarterly interest payments. Based on the status of the
Company's discussions with Prudential, the outstanding balance of the Prudential
Subordinated Notes has been classified as a non-current liability in the
accompany financial statements.
There can be no assurance that Comerica and Prudential will not seek their
remedies under their respective lending agreements with respect to the
continuing defaults under the Comerica Loan Agreement and the Prudential
Subordinated Note and Warrant Purchase Agreement. These remedies include, among
others, an acceleration of the contractual maturity of the outstanding balances
of those loans, and in the event the Company is unable to repay the then
outstanding balances, the possible foreclosure on the Company's assets securing
those loans. Although the accompanying financial statements for the nine months
ended September 30, 1999 have not been audited by Arthur Andersen LLP, they have
informed the Company that if the conditions described in this Note A continue to
exist at the time of their audit of the financial statements for the year ended
December 31, 1999, their report on those statements will include an explanatory
fourth paragraph because of substantial doubt about going concern.
As a result of the continued weakness in the industries which the Company
serves and the Company's financial position, the Company's management has taken
actions in 1999 which include among others,
13
<PAGE> 14
(a) downsizing personnel, (b) attempting to improve its working capital, (c)
closing and/or consolidating certain of its field offices, (d) consolidating
certain administrative functions, and (e) evaluating certain business lines to
ensure that the Company's resources are deployed in the more profitable
operations. The Company's initial efforts to rationalize its operations
commenced in the first quarter of 1999. Through the second quarter of 1999, the
results of these efforts were not sufficient to prevent operating losses. During
the third quarter of 1999, additional cost cutting measures were taken which,
together with improved business activities, reduced the operating loss from
$3,733,000 for the quarter ended June 30, 1999 to $2,344,000 for the quarter
ended September 30, 1999. In addition, the Company is exploring opportunities
for new equity infusions and/or improved debt financing. However, should any new
financing be obtained, it could have a significantly dilutive impact on existing
common shareholders. There can be no assurance that the Company will be able to
obtain new capital, and if new capital is obtained, that it will be on terms
favorable to the Company.
The Company believes that (a) should low demand for the Company's services
persist for a prolonged period, or (b) if management's actions are not effective
in reducing the Company's operating losses and negative cash flows, these
conditions will have a material adverse effect on the Company's financial
position and results of operations and its ability to continue as a going
concern. The Company's consolidated financial statements should be read in
consideration of the foregoing.
During 1999, the Company has been actively exploring opportunities for
improved and/or replacement secured debt financing and, in addition, new equity
infusions. A financing plan has been agreed to in principle which would waive
loan covenant violations, modify future covenants and provide additional interim
debt financing of $3 million (increasing under certain circumstances up to $5
million) to supplement the existing secured credit facility. This interim credit
facility is intended to permit the orderly replacement of the current secured
credit facility. Closing is subject to completion of legal documentation and
requisite reviews and approvals. Furthermore, the Company has confidentiality
agreements and is in active discussions with certain investor groups regarding
the making of an equity investment in the Company. However, there is no
assurance that the Company will be able to complete either of these
transactions, or that they will necessarily be on terms favorable to the
Company. Furthermore, should such financings be obtained, they would have a
significantly dilutive impact on common shareholders.
As discussed herein, the Company completed the acquisitions of ITS Supply
Corporation as of January 2, 1998; Boots & Coots Special Services, Inc.
(formerly known as Code 3, Inc.) as of February 20, 1998; Baylor Company as of
July 23, 1998, and HAZ-TECH Environmental Services, Inc. as of November 4, 1998.
The results of operations for such acquisitions are included in the accompanying
consolidated statement of operations and the condensed business segment
operating data set forth hereinafter from their respective dates of
acquisitions.
14
<PAGE> 15
Business segment operating data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Emergency Response and
Restoration................. $ 7,404,000 $ 6,689,000 $20,668,000 $22,096,000
Programs and Services.......... 5,794,000 3,014,000 21,186,000 9,701,000
Manufacturing and
Distribution................ 11,253,000 7,280,000 13,121,000 28,186,000
----------- ----------- ----------- -----------
$24,451,000.. $16,983,000 $54,975,000 $59,983,000
=========== =========== =========== ===========
COST OF SALES AND OPERATING
EXPENSES
Emergency Response and
Restoration................. $ 4,266,000 $ 5,474,000 $11,976,000 $20,144,000
Programs and Services.......... 4,893,000 2,681,000 17,574,000 8,538,000
Manufacturing and
Distribution................ 7,720,000 4,936,000 8,911,000 19,901,000
----------- ----------- ----------- -----------
$16,879,000 $13,091,000 $38,461,000 $48,583,000
=========== =========== =========== ===========
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES(1)
Emergency Response and
Restoration................. $ 1,880,000 $ 1,734,000 $ 5,217,000 $ 4,644,000
Programs and Services.......... 1,270,000 1,130,000 3,544,000 3,352,000
Manufacturing and
Distribution................ 1,783,000 2,294,000 2,409,000 6,824,000
----------- ----------- ----------- -----------
$ 4,933,000 $ 5,158,000 $11,170,000 $14,820,000
=========== =========== =========== ===========
DEPRECIATION AND AMORTIZATION
Emergency Response and
Restoration................. $ 346,000 $ 581,000 $ 864,000 $ 1,626,000
Programs and Services.......... 123,000 73,000 310,000 254,000
Manufacturing and
Distribution................ 448,000 424,000 502,000 1,247,000
----------- ----------- ----------- -----------
$ 917,000 $ 1,078,000 $ 1,676,000 $ 3,127,000
=========== =========== =========== ===========
OPERATING INCOME (LOSS)
Emergency Response and
Restoration................. $ 912,000 $(1,100,000) $ 2,611,000 $(4,318,000)
Programs and Services.......... (492,000) (870,000) (242,000) (2,443,000)
Manufacturing and
Distribution................ 1,302,000 (374,000) 1,299,000 214,000
----------- ----------- ----------- -----------
$ 1,722,000 $(2,344,000) $ 3,668,000 $(6,547,000)
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Selling, general, administrative and corporate expenses have been allocated
pro rata among segments using relative revenues as the basis for allocation.
Comparison of the Three Months Ended September 30, 1998 with the Three Months
Ended September 30, 1999 (Unaudited)
REVENUES
The net decrease in Emergency Response and Restoration Revenues of $715,000
from the 1998 to 1999 quarter resulted from lower revenues in Well Control
operations ($940,000) partially offset by higher revenues from Special Services
hazardous material operations ($225,000). The frequency and magnitude of oil and
gas well blowout critical events were unusually low in July and August 1999, and
are attributed to both timing coincidence and continuing curtailed drilling and
workover operations by the exploration and production oil
15
<PAGE> 16
and gas industry sector. The Special Services operating unit experienced a
slight increase in emergency response volume during the third quarter of 1999
(approximately $225,000) compared to the 1998 third quarter.
The net decrease in Programs and Services revenues of $2,780,000 from the
1998 to 1999 quarter is primarily due to the continuation since September 1998
of lower international customer outsource purchasing orders and substantially
reduced sales of oil well artificial lift systems in South America. These
reductions in customer activity resulted from sharply curtailed industry
activities which has continued through the first three quarters of 1999.
The net decrease in Manufacturing and Distribution revenues from the 1998
to 1999 third quarter of $3,973,000 is primarily the result of delays
experienced by Baylor Company during the 1999 third quarter on two major custom
projects and a reduction in drilling rig brake repairs and services as a result
of significantly reduced drilling activity through most of the third quarter of
1999.
COST OF SALES AND OPERATING EXPENSES
The net increase in Emergency Response and Restoration cost of sales and
operating expenses of $1,208,000 from the 1998 to 1999 third quarter is
primarily the result of increased operating costs in Special Services. This
increase was due to an increase in the number of field office locations,
including related start-up costs, in 1999 compared to 1998, together with higher
third-party subcontractor costs incurred during the third quarter of 1999 on
certain petrochemical and refinery maintenance contracts. In August 1999, a cost
reduction initiative began for Special Services to reduce operating costs
including: work force reductions, closure and/or consolidation of field offices;
and curtailment of non-essential expenditures. The net effects of these cost
reductions, after consideration of severance and other structural cost
modifications, began to take effect in September 1999.
The net decrease in Programs and Services cost of sales and operating
expenses of $2,212,000 from the 1998 to 1999 third quarter is primarily
($2,339,000) the result of substantially lower international customer outsource
purchasing orders and reduced sales of oil well artificial lift systems in South
America. These reductions in customer activity result from sharply curtailed
activities continuing in 1999 through the third quarter due to continued
curtailment of capital projects by exploration and production company customers.
Also included in the 1999 third quarter are costs related to the Company's
proprietary risk management program WELLSURE(SM).
The net decrease in Manufacturing and Distribution cost of sales and
operating expenses of $2,784,000 from the 1998 to 1999 quarter is primarily the
result of delays in shipment by Baylor Company on two major custom projects and
the resultant absence related of cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The net decrease in Emergency Response and Restoration selling, general and
administrative expenses of $146,000 from the 1998 to 1999 third quarter
primarily results from cost curtailment initiatives implemented during the third
quarter of 1999.
The net decrease in Programs and Services selling, general and
administrative expenses from the 1998 to 1999 third quarter of $140,000 is
primarily due to the ongoing effects of overhead cuts initiated during the first
quarter of 1999 and expanded during the third quarter for the Outsource
Purchasing and Logistics operating unit.
The net increase in Manufacturing and Distribution selling, general and
administrative expenses of $511,000 from the 1998 to 1999 third quarter is
primarily the result of the ownership of Baylor Company for only a portion of
the 1998 quarter acquired on July 23, 1998 ($139,000 of direct Selling, General
and Administrative Expenses).
16
<PAGE> 17
DEPRECIATION AND AMORTIZATION
The net increase in Emergency Response and Restoration depreciation and
amortization of $235,000 from the 1998 to 1999 third quarter is the result of an
increased asset base associated with .
Depreciation and amortization in Programs and Services is materially
comparable from the 1998 to 1999 quarters.
Manufacturing and Distribution depreciation and amortization is materially
comparable between the 1998 and 1999 third quarters.
OTHER
Other expense (primarily interest expense) of $1,398,000 for the three
months ended September 30, 1998 increased to $1,605,000 for the three months
ended September 30, 1999. The increase is primarily interest expense on
increased debt levels incurred for business acquisitions during 1998.
Income taxes for the three months ended September 30, 1998 and 1999
represents foreign taxes payable on international operations which fluctuate
from quarter to quarter based on operational activity levels.
Comparison of the Nine Months Ended September 30, 1998 with the Nine Months
Ended September 30, 1999 (Unaudited)
REVENUES
The net increase in Emergency Response and Restoration revenues of
$1,428,000 from the 1998 to 1999 nine month periods resulted from higher
revenues in Well Control operations ($2,351,000) for the first nine months of
1999 compared to 1998, offset by lower revenues in Special Services hazardous
materials operations ($923,000) in the 1999 period. Although Well Control
revenues were lower in the 1999 third quarter compared to 1998 as discussed
above, first quarter 1999 revenues exceeded 1998 by $4,282,000, primarily the
result of a well control project in which the Company served as the lead
contractor with a larger revenue base for rebilled subcontractor costs. There is
a period effect in 1999 of $288,000 in revenues of Special Services which was
acquired February 20, 1998. However, this effect was more than offset by a net
decrease in revenues for the second quarter 1999 compared to the 1998 period
($1,936,000) due to substantially lower activity in emergency response out calls
in 1999 ($900,000) and the effect of a large ship fire project ($1,036,000) in
1998.
The net decrease in Programs and Services Revenues of $11,485,000 from 1998
compared to 1999 is primarily ($12,866,000) the result of continued reductions
since September 1998 in outsource purchasing orders and substantially reduced
sales of oil well artificial lift systems in South America. These reductions in
customer activity are the result of sharply curtailed industry activities
continuing through the third quarter of 1999 due to low oil and gas prices.
Partially offsetting the above decrease is $1,511,000 in incremental revenues in
1999 from the Company's proprietary Risk Management Program -- WELLSURE(SM). A
significant part of these revenues resulted from two WELLSURE(SM) events during
May and June 1999 where the Company served as lead contractor on the projects.
The net increase in Manufacturing and Distribution revenues of $15,065,000
from 1998 compared to 1999 is primarily the result of the acquisition of Baylor
Company on July 23, 1998 ($17,901,000) and increased sales by ABASCO during the
1999 period ($1,500,000) resulting from second and third quarter 1999 sales of
industrial fire fighting equipment, foam and spill clean-up equipment and
supplies.
COST OF SALES AND OPERATING EXPENSES
The net increase in Emergency Response and Restoration cost of sales and
operating expenses of $8,168,000 from 1998 to 1999 is the result of increased
operating costs of Well Control operations ($4,793,000) and the Special Services
hazardous material unit acquired February 20, 1998 ($3,225,000). Of this
increase in Well Control operating expenses, approximately $4,900,000 is
attributable to third party subcontractor costs associated with a well control
project during the second quarter of 1999 in which the
17
<PAGE> 18
Company served as lead contractor. The increase in Special Services costs is due
to a net increase in the number of field office locations in 1999 compared to
1998 together with above average third party subcontractor costs incurred during
the second quarter of 1999 on certain lower margin petrochemical and refinery
maintenance contracts.
The net decrease in Programs and Services cost of sales and operating
expenses of $9,036,000 from 1998 to 1999 is primarily the result of
substantially lower international customer outsource purchasing orders and
reduced sales of oil well artificial lift systems in South America ($10,547,000)
offset by direct costs associated with the two WELLSURE(SM) events discussed
above.
The net increase in Manufacturing and Distribution cost of sales and
operating expenses of $10,990,000 from 1998 to 1999 is primarily the result of
the acquisition of the Baylor Company on July 23, 1998 ($12,500,000) with the
balance representing additional costs of sales associated with increased second
quarter 1999 ABASCO sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The net decrease in Emergency Response and Restoration selling, general and
administrative expenses of $573,000 from 1998 to 1999 primarily results from
cost curtailment initiatives initiated during the third quarter of 1999; and the
allocation to additional business units in 1999 of an increased overhead base
for additional corporate investments in personnel, systems and infrastructure
necessary to support the expanded scope of operations and new marketing and
advertising programs to increase market share.
The net decrease of $192,000 from 1998 to 1999 in Programs and Services
selling, general and administrative expenses from 1998 to 1999 is primarily due
to reduced activities and related costs associated with outsource purchasing;
the allocation to additional business units in 1999 of an increased overhead
base for additional corporate investments in personnel, systems and
infrastructure necessary to support the expanded scope of operations and new
marketing and advertising programs to increase market share; offset by $65,000
of development and marketing costs associated with Company's WELLSURE(SM) and
HAZSURE(SM) Proprietary Risk Management Programs.
The net increase in Manufacturing and Distribution selling, general and
administrative expenses of $4,415,000 from the 1998 to 1999 period is primarily
the result of the acquisition of Baylor Company on July 23, 1998.
DEPRECIATION AND AMORTIZATION
The net increase in Emergency Response and Restoration depreciation and
amortization of $762,000 from 1998 to 1999 is the result of the acquisition of
Boots & Coots Special Services acquired on February 20, 1998 ($260,000) with the
balance of the increase primarily ($500,000) the result of an increased asset
base.
Depreciation and Amortization for Programs and Services was materially
comparable between 1998 and 1999.
The net increase in Manufacturing and Distribution depreciation and
amortization of $745,000 from 1998 to 1999 is primarily due to the acquisition
of Baylor Company on July 23, 1998.
OTHER
Other expense (primarily interest expense) of $2,615,000 for the nine
months ended September 30, 1998 increased to $4,616,000 for the nine months
ended September 30, 1999. The increase is primarily due to interest expense on
increased debt levels incurred for business acquisitions.
Income taxes for the nine months ended September 30, 1998 and 1999
represents foreign taxes payable on international operations which fluctuate
based on operational activity levels.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
See the notes to the accompanying financial statements and Results of
Operations/Industry Conditions/ Ability to Continue as a Going Concern for a
discussion of current defaults on the Company's debt, the Company's current
operating losses, significant industry conditions impacting the Company, and
related matters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of the Company's market sensitive financial
instruments contains "forward looking statements".
Interest Rate Risk. At September 30, 1999, the Company had minimal interest
rate risk since a majority of the Company's long-term debt is fixed-rate and,
therefore, does not expose the Company to a significant risk of earnings loss
due to changes in market interest rates.
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates to the extent that transactions are
not denominated in U.S. dollars. The Company typically denominates its contracts
in U.S. dollars to mitigate the exposure to fluctuations in foreign currencies.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ from those projected in any forward-looking statements for the reasons
detailed in this report. The forward-looking statements contained herein are
made as of the date of this report and the Company assumes no obligation to
update such forward-looking statements, or to update the reasons why actual
results could differ from those projected in such forward-looking statements.
Investors should consult the information set forth from time to time in the
Company's reports on Forms 10-K, 10-Q and 8-K, and its Annual Report to
Stockholders.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements 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.
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC.
By: /s/ THOMAS L. EASLEY
----------------------------------
Thomas L. Easley
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
Date: November 15, 1999
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*27.01 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,249,000
<SECURITIES> 0
<RECEIVABLES> 15,381,000
<ALLOWANCES> 0
<INVENTORY> 18,612,000
<CURRENT-ASSETS> 37,072,000
<PP&E> 30,629,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,869,000
<CURRENT-LIABILITIES> 47,807,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,586,000
<TOTAL-LIABILITY-AND-EQUITY> 92,869,000
<SALES> 59,983,000
<TOTAL-REVENUES> 59,983,000
<CGS> 66,530,000
<TOTAL-COSTS> 66,530,000
<OTHER-EXPENSES> 4,616,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,163,000)
<INCOME-TAX> 80,000
<INCOME-CONTINUING> (11,243,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,243,000)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
</TABLE>
