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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18437
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POOL ENERGY SERVICES CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0263755
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10375 RICHMOND AVENUE
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 954-3000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF NAME OF EACH EXCHANGE
EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO 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 THIS 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
--- ---
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
FEBRUARY 5, 1998 WAS 19,451,508.
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AT FEBRUARY 5, 1998 BASED ON THE CLOSING PRICE ON THE NASDAQ
NATIONAL MARKET ON THAT DATE WAS APPROXIMATELY $451,728,598.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT WITH RESPECT TO THE 1998 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT.
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POOL ENERGY SERVICES CO.
INDEX TO REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 62
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 62
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . 62
</TABLE>
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PART I
ITEM 1. BUSINESS
Pool Energy Services Co. (the "Company") is a leading worldwide provider of
well-servicing, workover, drilling and related services in both land and
offshore markets. The Company performs the ongoing maintenance and major
overhauls necessary to optimize the level of production from existing oil and
natural gas wells and provides certain ancillary services for the drilling and
completion of new oil and natural gas wells. The Company also provides
contract drilling services in Alaska, the Gulf of Mexico and certain
international locations. Typically, the Company provides a well-servicing,
workover or drilling rig, the crew to operate the rig and such other
specialized equipment as may be needed to meet a customer's requirements. The
Company operates onshore and offshore, both domestically and internationally,
providing services for a diverse group of multi-national, foreign national and
independent oil and natural gas producers.
As of December 31, 1997, the Company's worldwide rig fleet included 790
land well-servicing/workover rigs, 27 land drilling rigs and 27 offshore rigs
(15 platform workover rigs, five platform drilling rigs and seven jack-up
rigs). In the United States, the Company operates in several oil and natural
gas producing states, with specific concentration onshore in Texas, California,
Alaska, Oklahoma, New Mexico and North Dakota, and offshore in the Gulf of
Mexico. The Company also owns or leases and operates 354 fluid hauling trucks,
1,056 fluid storage tanks, 14 salt water disposal wells and other auxiliary
equipment in its domestic onshore operations.
Internationally, the Company has a substantial presence in Saudi Arabia
where it is one of the largest providers of drilling and workover services and
has been providing such services for approximately 20 years. Other
international markets where the Company has an established presence include
Argentina, Australia, Ecuador, Guatemala, Malaysia, Oman and Pakistan.
The Company, formed in 1988, made an initial public offering in 1990 in
order to acquire Pool Company, which was founded in 1948. As used in this
document, except where the context otherwise requires, the term "Company"
refers to Pool Energy Services Co., its subsidiaries and its unconsolidated
affiliates.
BUSINESS STRATEGY
In early 1994, the Company developed a strategic plan designed to further
strengthen its competitive position and market share in the oilfield services
industry, in order to achieve growth in revenues, earnings and EBITDA (earnings
before interest, taxes, depreciation and amortization, minority interest and
provision for leasehold impairment). Key components of the Company's business
strategy include: (i) pursuing expansion opportunities in existing core market
areas through acquisitions that result in consolidation savings; (ii) upgrading
and enhancing the capabilities of the Company's existing fleet and constructing
specialized rigs to operate in markets with high levels of activity and strong
pricing fundamentals; (iii) entering new foreign markets that offer significant
development and production activity; and (iv) offering additional services and
equipment that complement the Company's businesses in its existing field
locations.
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STRATEGY IMPLEMENTATION
Notable events in the implementation of the Company's business strategy
include:
Expansion and enhancement of rig fleet:
o In March 1998, the Company's Saudi Arabia joint venture company,
Pool Arabia, Ltd., expects to begin operating a 1,500 horsepower
land drilling rig in Saudi Arabia under a three-year contract.
The Company upgraded and transported this rig from the United
States to Saudi Arabia at a cost of $9.4 million and is leasing
the rig to Pool Arabia, Ltd.
o In February 1998, Pool Arabia, Ltd. began operating a 1,000
horsepower land drilling rig in Saudi Arabia under a three-year
contract. Pool Arabia, Ltd. upgraded and transported this rig
from Oman to Saudi Arabia at a cost of $3.6 million. The Company
is leasing this rig to Pool Arabia, Ltd.
o In February 1998, the Company completed construction of a new
offshore platform drilling rig, Rig 16, at a cost of
approximately $12 million, and began operation of such rig in the
Gulf of Mexico for Forcenergy, Inc. under a two-year contract.
o In February 1998, the Company commenced operations for BP
Exploration (Alaska), Inc. on the North Slope of Alaska under a
five-year contract using one of its Arctic drilling rigs which
was recently upgraded at a cost of $5.3 million to enable it to
operate on the North Slope.
o In October 1997, Pool Arabia, Ltd., acquired a 3,000 horsepower
land drilling rig and three land workover rigs for $9.0 million
from a competitor in Saudi Arabia. In March 1998, after a $7.8
million upgrade, the drilling rig is expected to begin a new
three-year contract and one of the workover rigs is currently
working under a three-year contract that commenced in March 1997.
o In October 1997, the Company purchased the operating assets
(including three coiled tubing units, six pump trucks and a bulk
cementing plant) of Anchor Cementing Service in California for
$2.5 million in cash.
o In August 1997, the Company acquired an offshore jack-up workover
rig for $8.2 million in cash, for operation in the Gulf of
Mexico.
o In August 1997, the Company purchased the operating assets
(including seven land well-servicing rigs) of Dean's Well
Servicing, Inc. in Oklahoma for $1.0 million in cash.
o In December 1996, the Company completed construction of a new
offshore platform workover rig, at a cost of $5.4 million, for
operation offshore California for Chevron U.S.A. under a
four-year term contract.
o In March 1996, the Company received a term contract for Rig 18, a
previously idle platform drilling rig, which was refurbished for
a cost of approximately $8.4 million. This 2,000 horsepower rig
was placed in service in the Gulf of Mexico for Shell Offshore in
September 1996, and, during 1997, the contract was extended for a
second year.
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Rig construction and upgrade projects currently in progress:
o The Company is procuring the materials and equipment necessary to
convert one of its Arctic exploration rigs for development
drilling. As currently configured, the rig is generally limited
to working only in the winter season; following the upgrade, the
rig will be capable of year-round work. The upgrade, expected to
cost $15 million, will begin after the rig completes its winter
operations in April 1998. This rig is expected to begin
year-round drilling operations in September 1998, under a
three-year contract with ARCO Alaska, Inc. on the North Slope of
Alaska.
o The Company is currently constructing a new Arctic land drilling
rig at an estimated cost of $13.8 million. This new rig is
expected to begin year-round operations on the North Slope of
Alaska under a three-year contract for ARCO Alaska, Inc. in
January 1999.
Acquisitions:
o In November 1997, the Company acquired A.A. Oilfield Service,
Inc. ("A.A.") for $4.1 million in cash. This acquisition
included 18 oilfield trucks, one salt water disposal well and
related equipment based in Hobbs, New Mexico.
o In October 1997, the Company acquired Trey Services, Inc.
("Trey") and certain associated operating assets for $31.3
million in cash. Prior to the acquisition, Trey, through its
wholly-owned subsidiary R & H Well Service, Inc. ("R&H"),
operated a fleet of approximately 67 land well-servicing rigs,
104 oilfield trucks, 430 fluid storage tanks and five brine and
disposal wells in the Permian Basin of West Texas.
o In June 1997, the Company acquired D A & S Oil Well Servicing,
Incorporated ("DA&S") for $10.5 million. This acquisition
included among other assets, a fleet of 37 land well-servicing
rigs operating from yards in Hobbs and Eunice, New Mexico and
Andrews, Texas.
o In October 1996, the Company acquired the 51% interest that it
did not already own in Antah Drilling Sdn. Bhd. ("Antah
Drilling") and repaid indebtedness that Antah Drilling owed to
the Company's former partner in that venture for a total of $9.0
million in cash. The assets of Antah Drilling, now Pool
International (Malaysia) Sdn. Bhd. ("Pool Malaysia"), include
Rig 489, a 2,000 horsepower offshore platform drilling rig, which
commenced operations in August 1996 on a three-year term contract
for Esso Australia, Ltd. in Australia and an offshore platform
workover rig currently operating under a term contract in
Malaysia.
o In August 1996, the Company acquired for approximately $8.7
million in cash a 51% controlling interest in Pool International
Argentina S. A. ("PIASA"), a newly formed Argentina corporation
which provides well-servicing, workover and drilling services in
Argentina. PIASA owns nine land drilling rigs and 11 land
workover rigs, all of which are located in Argentina.
o In June 1996, the Company purchased the operating assets
(including approximately 23 land well-servicing rigs) of Western
Oil Well Service Co. ("Western Oil") in the Williston Basin for
approximately $4.0 million in cash.
o In June 1995, the Company acquired Golden Pacific Corp. ("GPC")
for $18.8 million. This acquisition included, among other
assets, the GPC fleet of approximately 155 land well-servicing
rigs in California. The Company is now the market leader in
California with a total of 259 land well-servicing rigs.
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o In September 1994, the Company acquired the 60.7% partnership
interest that it did not already own in Pool Arctic Alaska for
$12.1 million in cash. This acquisition expanded the Company's
wholly-owned Alaska operation to include the three specialized
Arctic land drilling rigs and related equipment formerly owned by
the partnership.
TYPES OF SERVICES PROVIDED
The Company estimates that there are approximately 900,000 producing oil
wells in the world today, of which approximately 570,000 are in the United
States. In addition, there are approximately 300,000 producing natural gas
wells in the United States and a large number in the rest of the world. While
some wells in the United States flow oil to the surface without mechanical
assistance, most are in mature production areas that require pumping or some
other form of artificial lift. Pumping oil wells characteristically require
more maintenance than flowing wells due to the operation of the mechanical
pumping equipment installed. The extent and type of services provided by the
Company on producing wells is dependent upon many variables. The following is
a summary of the services the Company provides.
WELL-SERVICING/MAINTENANCE SERVICES
The Company provides maintenance services on the mechanical apparatus used
to pump or lift oil from producing wells. These services include, among other
things, repairing and replacing pumps, sucker rods and tubing. The Company
provides the rigs, equipment and crews for these tasks, which are performed on
both oil and natural gas wells, but which are more commonly required on oil
wells. Well-servicing rigs have the same basic components as drilling rigs
(i.e., a derrick, a hoisting mechanism and an engine). Many of these rigs also
have pumps and tanks that can be used for circulating fluids into and out of
the well. Maintenance jobs typically take less than 48 hours to complete.
WORKOVER SERVICES
In addition to needing periodic maintenance, producing oil and natural gas
wells occasionally require major repairs or modifications, called "workovers."
Workovers may be done, for example, to remedy equipment failures, deepen a well
in order to reach a new producing reservoir, plug back the bottom of a well to
reduce the amount of water being produced with the oil and natural gas, clean
out and recomplete a well if production has declined, repair leaks, or convert
a producing well to an injection well for secondary or enhanced recovery
projects. These extensive workover operations are normally carried out with a
well-servicing rig that includes additional specialized accessory equipment,
which may include rotary drilling equipment, mud pumps, mud tanks and blowout
preventers, depending upon the particular type of workover operation. Most of
the Company's well-servicing rigs are designed and can be equipped to handle
the more complex workover operations. A workover may last anywhere from a few
days to several weeks.
COMPLETION SERVICES
The kinds of activities necessary to carry out a workover operation are
essentially the same as those that are required to "complete" a well when it is
first drilled. The completion process may involve selectively perforating the
well casing at the depth of discrete producing zones, stimulating and testing
these zones and installing down-hole equipment. Oil and gas production
companies often find it more efficient to move a larger and more expensive
drilling rig off location after an oil or natural gas well has been drilled and
to move in a specialized well-servicing rig to perform completion operations.
The Company's rigs are often used for this purpose. The completion process may
require from a few days to several weeks.
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CONTRACT DRILLING SERVICES
The Company provides contract drilling services to oil and natural gas
operators in all the markets in which it operates, except that the amount of
such services it provides onshore in the lower 48 states is minimal. Workover
rigs can be used for drilling, although specialized drilling rigs are typically
used for such operations. The Company also provides specialized accessory
equipment, including pumps, rotary drilling equipment, top drive units, trucks,
camps and cranes. Several of the Company's land drilling rigs are equipped for
self-sustained operations in remote areas in Alaska and certain overseas
locations.
OFFSHORE SERVICES
The Company generally utilizes its offshore jackup and platform rigs to
service wells located on platforms. Platform rigs consist of well-servicing
and/or drilling equipment and machinery arranged in modular packages which are
transported to and assembled and installed on fixed offshore platforms owned by
the customer. Fixed offshore platforms are steel tower-like structures that
stand on the ocean floor, with the top portion, which is above the water level,
forming the foundation upon which the platform rig is placed. Certain of the
Company's heavy platform rigs are capable of operating at well depths of as
much as 18,000 feet or more, and several of the Company's platform rigs are
specifically designed for drilling. The Company is performing an increasing
amount of drilling and horizontal re-entry services utilizing portable top
drives, enhanced pumps and solids control equipment for drilling fluids.
Jackup rigs are mobile, self-elevating platforms equipped with legs that can be
lowered to the ocean floor until a foundation is established to support the
hull, which contains the drilling and/or workover equipment, jacking system,
crew quarters, loading and unloading facilities, storage areas for bulk and
liquid materials, helicopter landing deck and other related equipment. The rig
legs may operate independently or have a mat attached to the lower portion of
the legs in order to provide a more stable foundation in soft bottom areas.
All of the Company's jackup rigs are cantilever design - - a feature that
permits the drilling platform to be extended out from the hull, allowing it to
perform drilling or workover operations over fixed platforms.
PRODUCTION AND OTHER SPECIALIZED SERVICES
The Company provides other specialized services that are required, or can
be used effectively, in conjunction with the previously described basic
services. The main additional services are production services, consisting of
the provision of onsite temporary fluid-storage facilities, the provision,
removal and disposal of specialized fluids used during certain completion and
workover operations, and the removal and disposal of salt water that is often
produced in conjunction with the production of oil and natural gas. The
Company also provides plugging services for wells from which the oil and
natural gas has been depleted and further production has become uneconomical.
BUSINESS BY GEOGRAPHIC AREA
Financial data by geographic area for the three years ended December 31,
1997 are presented in Note 11 of Notes to Consolidated Financial Statements.
BUSINESS BY SERVICE LINE
The Company operates in only one business segment - the oilfield services
industry. Within that segment, the Company conducts business in the following
distinct markets or business lines: domestic onshore well-servicing and
production services, Gulf of Mexico offshore workover/drilling, international
workover/drilling and related services and Alaska onshore and offshore
workover/drilling.
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DOMESTIC ONSHORE
The Company's domestic onshore operation, which provides well-servicing,
workover and production services, has locations in many of the major oil and
natural gas producing fields in the lower 48 states. This operation currently
provides services in 12 states and is divided into two separate geographic
divisions: (i) the Central division (principally Texas and Oklahoma) and (ii)
the California division. The Company's domestic onshore operation has 758
well-servicing rigs, of which 341 are located in Texas, 259 in California, 61
in Oklahoma, 38 in New Mexico, 27 in North Dakota, and 32 in Montana, Arkansas,
Utah and Louisiana. During the year ended December 31, 1997, approximately 60%
of the Company's domestic onshore rig hours were related to
well-servicing/maintenance with the balance related to workover, completion and
plugging operations.
In general, well-servicing rigs are provided to customers on a call-out
basis. The Company is paid an hourly rate and work is generally performed five
days a week during daylight hours.
The Company's domestic onshore operation also provides production services
consisting chiefly of fluid hauling and fluid storage tank rental. The
production services assets, located primarily in Texas, consist of 354 fluid
hauling trucks and 14 salt water disposal wells, which are utilized for the
transportation and disposal of drilling and used completion fluids and salt
water produced from operating wells, and 1,056 fluid storage tanks, which are
utilized for the storage of fluids used in the fracturing of producing zones
during the completion or workover of wells.
GULF OF MEXICO OFFSHORE
Offshore in the Gulf of Mexico, the Company provides workover,
well-servicing, completion and drilling services with its fleet of 15 platform
rigs, including newly constructed Rig 16, and six jack-up rigs. The Company
also provides crews to oil and natural gas well operators under labor
contracts. During the year ended December 31, 1997, approximately 71% of the
Company's Gulf of Mexico offshore rig hours were related to workover,
well-servicing and completion operations with the balance related to contract
drilling. Offshore operations are normally conducted 24 hours a day, seven days
a week, under a term contract that is either for a specific period of time or
until a program of work is completed. The Company is paid on a daily rate
basis for its services.
INTERNATIONAL
Internationally, the Company provides workover, well-servicing and drilling
services, both onshore and offshore, with specialized rigs designed and
fabricated to meet various types of operating conditions. During 1997, the
Company operated in nine foreign countries. The Company has 59 rigs in foreign
locations, of which 26 are located in the Middle East, principally in Saudi
Arabia, 30 in South America, principally in Argentina, two in Australia and one
in Malaysia. Rig operations are normally conducted 24 hours a day, seven days
a week, under a term contract that is for a specific period of time or until a
customer's program is completed. The Company is paid on a daily rate basis for
its services. The Company currently conducts a part of its foreign operations
through unconsolidated joint venture companies in each of which it has
approximately a 50% participation. The principal joint venture operation is
conducted in Saudi Arabia (Pool Arabia, Ltd.). The Company uses the equity
method to account for its unconsolidated affiliates. See Note 10 of Notes to
Consolidated Financial Statements.
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ALASKA
In Alaska, the Company provides drilling, workover and well-servicing with
its fleet of four specialized Arctic land drilling rigs and two offshore
platform rigs. The Company also provides crews to oil and natural gas well
operators in Alaska under labor contracts. The Company's services are
principally provided onshore on the North Slope and offshore in the Cook Inlet.
Rig operations are normally conducted 24 hours a day, seven days a week, under
a term contract that is for a specific period of time or until a program is
completed. The Company is paid on a daily rate basis for its services.
FINANCIAL DATA BY SERVICE LINES
The following table presents information by service lines:
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FOR THE YEAR ENDED DECEMBER 31
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1997 1996 1995
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(IN THOUSANDS)
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Revenues:
Domestic onshore well-servicing and production services:
Central division .................................. $ 171,118 $ 138,428 $ 134,423
California division ............................... 96,419 81,416 58,780
Gulf of Mexico offshore workover/drilling .............. 80,957 58,545 37,415
International workover/drilling and related services ... 76,631 45,536 26,260
Alaska workover/drilling ............................... 26,797 24,633 20,427
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Total ......................................... $ 451,922 $ 348,558 $ 277,305
========= ========= =========
Earnings Attributable to Unconsolidated Affiliates (1):
International workover/drilling and related services ... $ 3,080 $ 2,244 $ 2,955
========= ========= =========
Depreciation and Amortization:
Domestic onshore well-servicing and production services:
Central division .................................. $ 7,072 $ 5,094 $ 5,238
California division ............................... 3,820 3,230 2,134
Gulf of Mexico offshore workover/drilling .............. 4,435 3,028 2,212
International workover/drilling and related services ... 6,410 3,810 2,424
Alaska workover/drilling ............................... 3,141 3,248 2,845
Corporate .............................................. 144 135 149
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Total ......................................... $ 25,022 $ 18,545 $ 15,002
========= ========= =========
Income (Loss) Before Income Taxes and Minority Interest:
Domestic onshore well-servicing and production services:
Central division .................................. $ 18,195 $ 8,903 $ 5,927
California division ............................... 6,800 4,531 3,828
Gulf of Mexico offshore workover/drilling .............. 15,917 6,536 161
International workover/drilling and related services ... 11,170 4,954 2,682
Alaska workover/drilling ............................... 2,157 1,259 (367)
Corporate .............................................. (11,942) (9,122) (7,118)
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Total ......................................... $ 42,297 $ 17,061 $ 5,113
========= ========= =========
</TABLE>
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(1) Some of the Company's operations are conducted through unconsolidated
affiliates, which are accounted for using the equity method. See Note 3 of
Notes to Consolidated Financial Statements for information related to the
Antah Drilling acquisition in 1996.
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EMPLOYEES
At December 31, 1997, the Company had 6,584 employees, of whom 649 were
employed by unconsolidated affiliates. Approximately 305 employees in
Argentina and 96 employees in Australia are represented by collective
bargaining units. Management believes that the Company's relationship with its
employees is excellent.
OTHER MATTERS
RISKS INHERENT IN INTERNATIONAL OPERATIONS
The Company's foreign operations are subject to various risks associated
with doing business overseas, such as the possibility of armed conflict and
civil disturbance, the instability of foreign economies, currency fluctuations
and devaluations, adverse tax policies and governmental activities that may
limit or disrupt markets, restrict payments or the movement of funds or result
in the deprivation of contract rights or the expropriation of property.
Additionally, the ability of the Company to compete overseas may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from, a particular jurisdiction.
The Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the
statutes and requirements of various domestic and foreign taxing authorities.
Foreign income tax returns of foreign subsidiaries, unconsolidated affiliates
and related entities are routinely examined by foreign tax authorities. The
Company maintains reserves for potential tax audit assessments and, in the
opinion of management, any additional provision ultimately determined to be
required as a result of such examinations or assessments will not be material
to the Company's financial statements.
ENVIRONMENTAL REGULATION AND CLAIMS
The Company's well-servicing, workover and production services operations
routinely involve the handling of significant amounts of waste materials, some
of which are classified as hazardous substances. The Company's operations and
facilities are subject to numerous state and federal environmental laws, rules
and regulations, including, without limitation, laws concerning the containment
and disposal of hazardous materials, oilfield waste and other waste materials,
the use of underground storage tanks and the use of underground injection
wells. The Company employs personnel responsible for monitoring environmental
compliance and arranging for remedial actions that may be required from time to
time and also uses outside experts to advise on and assist with the Company's
environmental compliance efforts. Costs incurred by the Company to investigate
and remediate contaminated sites are expensed unless the remediation extends
the useful lives of the assets employed at the site. Remediation costs that
extend the useful lives of the assets are capitalized and amortized over the
remaining useful lives of such assets. Liabilities are recorded when the need
for environmental assessments and/or remedial efforts become known or probable
and the cost can be reasonably estimated.
Laws protecting the environment have generally become more stringent than
in the past and are expected to continue to do so. Environmental laws and
regulations typically impose "strict liability," which means that in some
situations the Company could be exposed to liability for cleanup costs and
other damages as a result of conduct of the Company that was lawful at the time
it occurred or conduct of, or conditions caused by, others. Cleanup costs and
other damages arising as a result of environmental laws, and costs associated
with changes in environmental laws and regulations could be substantial and
could have a material adverse effect on the Company's financial condition.
From time to time, claims have been made and litigation has been brought
against the Company under such laws. However, the costs incurred in connection
with such claims and other
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costs of environmental compliance have not had any material adverse effect on
the Company's operations or financial statements in the past, and management is
not currently aware of any situation or condition that it believes is likely to
have any such material adverse effect in the future.
Under the Comprehensive Environmental Response, Compensation and Liability
Act and related state laws and regulations, liability can be imposed without
regard to fault or the legality of the original conduct on certain classes of
persons that contributed to the release of a "hazardous substance" into the
environment. The Company has been notified of its possible involvement with
respect to the cleanup of two sites which were formerly operated by parties
unrelated to the Company as oilfield waste disposal facilities, and has been
named as a potentially responsible party with respect to the cleanup of one
other site which was formerly operated by various parties unrelated to the
Company as an oil refining and reclamation facility. The Company has been
released from liability with respect to the cleanup of one of these sites at a
cost of less than $0.1 million. Although at this time information about the
remaining matters has not been fully developed and it is not feasible to
predict their outcome with certainty, management is of the opinion that their
ultimate resolution should not have a material adverse effect on the Company's
financial statements.
Changes to federal and state environmental regulations may also negatively
impact oil and natural gas exploration and production companies, which in turn
could have a material adverse effect on the Company. For example, legislation
has been proposed from time to time in Congress which would reclassify oil and
natural gas production wastes as "hazardous wastes." If enacted, such
legislation could dramatically increase operating costs for domestic oil and
natural gas companies and this could reduce the market for the Company's
services by making many wells and/or oilfields uneconomical to operate. To
date, such legislation has not made significant progress toward enactment.
PATENTS AND TRADEMARKS
The Company owns several U.S. patents on designs for various types of
oilfield equipment and on methods for conducting certain oilfield activities.
The Company uses some of these designs and methods in the conduct of its
business. The patents expire at various times through the year 2014. The
Company also has several trademarks and service marks that it uses in various
aspects of its business. While management believes the Company's patent and
trademark rights are valuable, the expiration or loss thereof would not have a
material adverse effect on the Company's financial statements.
COMPETITIVE CONDITIONS
Although the number of available rigs has materially decreased over the
past ten years, the well-servicing, workover and drilling industry remains very
competitive. The number of rigs continues to exceed demand, resulting in
severe price competition. Many of the total available contracts are currently
awarded on a bid basis, which further increases competition based on price. In
all of the Company's market areas, competitive factors also include: the
availability and condition of equipment to meet both special and general
customer needs; the availability of trained personnel possessing the required
specialized skills; the overall quality of service and safety record; and
domestically, the ability to offer ancillary services such as fluid hauling,
fluid storage tank rental and salt water disposal. As an enhancement to its
competitive position, the Company has been able to establish strategic
alliances with major customers in its domestic onshore, international and
Alaska markets. Many smaller competitors may not be able to allocate the
resources necessary to enter into such alliances. One customer, Shell Oil
Company and its affiliates, accounted for approximately 11% of the Company's
consolidated revenues during both 1996 and 1995. During 1997, no single
customer accounted for more than 10% of the Company's consolidated revenues.
11
<PAGE> 12
Certain competitors are present in more than one of the Company's markets,
although no one competitor operates in all of these areas. In the domestic
onshore market, the Company, with 758 well-servicing rigs, and Key Energy
Group, Inc., with a similar number of well-servicing rigs, are the two largest
well-servicing providers. In this market, the third largest competitor has
approximately 500 well-servicing rigs, and several hundred competitors have
smaller regional or local rig operations. In each of its domestic onshore
locations, the Company competes with several firms of varying size. In the
Gulf of Mexico, the Company is among five principal competitors providing
workover/maintenance services, the two largest of which are Pride Petroleum
Services, Inc. and an affiliate of Nabors Industries, Inc. Internationally,
the Company competes directly with various competitors at each location where
it operates, none of which is dominant. In Alaska, the Company has six major
competitors, the largest of which are Nabors Industries, Inc. and Doyon
Drilling, Inc.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
executive officers of the Company. Officers are elected annually following the
Annual Meeting of Shareholders and serve one-year terms or until their
successors are elected and qualified to serve.
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------- ------- -----------------------------------------------------------
<S> <C> <C>
James T. Jongebloed 56 Chairman, President and Chief Executive Officer
William J Myers 61 Group Vice President - U.S. Operations
Ronald G. Hale 49 Group Vice President - International Operations
Ernest J. Spillard 58 Senior Vice President, Finance
G. Geoffrey Arms 54 Vice President and General Counsel; Corporate Secretary
Louis E. Dupre 51 Vice President, Human Resources
</TABLE>
Set forth below are descriptions of the backgrounds of the executive
officers of the Company and their principal occupations for at least the past
five years.
Mr. Jongebloed has been Chairman since 1994 and President and Chief
Executive Officer of the Company since 1990. He served as President and Chief
Operating Officer from 1989 to 1990 and in various executive positions with the
Company since 1978.
Mr. Myers has served as Group Vice President - U.S. Operations of the
Company since 1988.
Mr. Hale has served as Group Vice President - International Operations
since 1989 and in various management and executive positions with the Company
since 1978.
Mr. Spillard has served as Senior Vice President, Finance of the Company
since 1987 and in various management and executive positions with the Company
since 1979.
Mr. Arms has served as Vice President and General Counsel of the Company
since 1985 and Corporate Secretary since 1990.
Mr. Dupre has been Vice President, Human Resources of the Company since
1994, and served as the Company's Controller from 1986 to 1994.
12
<PAGE> 13
ITEM 2. PROPERTIES
RIG AND EQUIPMENT FLEET
The following table sets forth the type, number and location of the
domestic onshore equipment operated by the Company (excluding Alaska) as of
December 31, 1997:
<TABLE>
<CAPTION>
WELL- FLUID FLUID SALT WATER
SERVICING HAULING STORAGE DISPOSAL
RIGS TRUCKS TANKS WELLS
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Central Division:
Western District (West Texas and New Mexico) ............. 198 127 339 7
Eastern District (Central and East Texas and Louisiana).. 34 52 175 2
Southwest Texas District ................................. 91 100 389 2
South Texas District ..................................... 45 56 126 1
Rocky Mountain District (North Dakota, Montana and Utah).. 52 2 -- --
Oklahoma District (North Texas, Arkansas and Oklahoma) ... 79 17 27 2
----- ----- ----- -----
499 354 1,056 14
----- ----- ----- -----
California Division:
Northern District ........................................ 178 -- -- --
Southern District ........................................ 81 -- -- --
----- ----- ----- -----
259 -- -- --
----- ----- ----- -----
Total ...................................................... 758 354 1,056 14
===== ===== ===== =====
</TABLE>
The following table sets forth the type, number and location of the Alaska,
Gulf of Mexico, California offshore and International rigs owned by the Company
and its joint ventures as of December 31, 1997:
<TABLE>
<CAPTION>
LAND PLATFORM JACKUP
------------------ ------------------- ------------------
DRILLING WORKOVER DRILLING WORKOVER DRILLING WORKOVER TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alaska ................. 4 -- 2 -- -- -- 6
Gulf of Mexico ......... -- -- 2 12 -- 6 20
California Offshore .... -- -- -- 1 -- -- 1
International:
Saudi Arabia ......... 7 11 -- -- 1 -- 19
Oman ................. 1 3 -- -- -- -- 4
Pakistan ............. 1 2 -- -- -- -- 3
Ecuador .............. 4 5 -- -- -- -- 9
Argentina ............ 9 11 -- -- -- -- 20
Guatemala ............ 1 -- -- -- -- -- 1
Malaysia ............. -- -- -- 1 -- -- 1
Australia ............ -- -- 1 1 -- -- 2
---- ---- ---- ---- ---- ---- ----
Total International 23 32 1 2 1 -- 59
---- ---- ---- ---- ---- ---- ----
Total .................. 27 32 5 15 1 6 86
==== ==== ==== ==== ==== ==== ====
</TABLE>
13
<PAGE> 14
OTHER PROPERTIES
The Company's corporate offices are located in Houston, Texas, where the
Company leases office space from ENSERCH Corporation at market rates under an
agreement that expires in December 2002. The Company also leases from an
unrelated party a 65-acre former rig and equipment manufacturing and storage
facility in San Angelo, Texas, which includes approximately 245,000 square feet
of buildings and other structural facilities. The annual lease payments are
$2.2 million through March 1998 and $4.4 million thereafter for the remaining
five years of the lease. Effective October 1, 1994, the Company vacated this
facility and subleased it in its entirety for $0.5 million per year under an
operating sublease which expired in September 1997. Based on a conclusion that
none of the facility is likely to be used in its future operations, the
Company, in the fourth quarter of 1994, recorded a provision of $23.6 million
to recognize all future lease expense, net of anticipated sublease income. The
Company owns 42 and leases 60 domestic office and yard locations of which six
locations are not currently used. Internationally, the Company leases office
and yard facilities at 12 locations and owns facilities at five locations, all
of which are currently used. In Alaska, the Company leases an office and yard
facility in Anchorage and a yard facility on the North Slope.
As partial consideration for the acquisition of DA&S in 1997 and GPC in
1995, the Company issued notes which are collateralized by the well-servicing
rigs and related equipment and certain real property obtained in the respective
acquisitions.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in ordinary and routine
litigation incidental to its business, which often involves claims for
significant monetary amounts, some, but not all, of which would be covered by
insurance. In the opinion of management, none of the existing litigation will
have any material adverse effect on the Company. See also "Item 1. Business -
Other Matters - Environmental Regulation and Claims."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICES AND COMMON STOCK DATA
The Company's common stock is traded on the Nasdaq National Market under
the symbol "PESC." At February 5, 1998, the approximate number of holders of
record of the Company's common stock was 2,575. The following table sets forth
the high and low sale prices per share of the Company's common stock for the
periods indicated, as reported by Nasdaq.
<TABLE>
<CAPTION>
PRICE
----------------------
HIGH LOW
--------- ---------
<S> <C> <C>
1997
Fourth Quarter . . . . . . . . . . . . $41 1/2 $19 1/2
Third Quarter . . . . . . . . . . . . 39 1/8 18 1/4
Second Quarter . . . . . . . . . . . . 18 1/2 12
First Quarter . . . . . . . . . . . . 18 3/4 12 5/8
1996
Fourth Quarter . . . . . . . . . . . . $16 5/8 $12 1/2
Third Quarter . . . . . . . . . . . . 13 1/2 10 1/8
Second Quarter . . . . . . . . . . . . 14 5/8 11
First Quarter . . . . . . . . . . . . 11 5/8 8 5/8
</TABLE>
DIVIDEND POLICY
The Company has not paid dividends on its common stock. The Board of
Directors currently intends to retain any earnings for use in the Company's
business and does not intend to pay dividends in the foreseeable future. In
addition, certain of the Company's credit facilities prohibit the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition and Liquidity" and Note 6 of Notes
to the Consolidated Financial Statements.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain 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 data have been derived from the Company's audited consolidated
financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1997 (1) 1996 (2) 1995 (3) 1994 (4) 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues ......................................... $ 451,922 $ 348,558 $ 277,305 $ 229,175 $ 240,524
Earnings Attributable to Unconsolidated
Affiliates ................................... 3,080 2,244 2,955 5,016 6,860
Costs and Expenses:
Operating expenses ........................... 334,592 267,692 219,074 182,012 187,412
Selling, general and administrative
expenses ................................. 53,343 46,773 39,927 36,927 37,797
Depreciation and amortization ................ 25,022 18,545 15,002 13,760 16,307
Acquisition related costs (5) ................ 77 33 622 -- --
Provision for leasehold impairment (6) ....... -- -- -- 23,551 --
--------- --------- --------- --------- ---------
Total ............................. 413,034 333,043 274,625 256,250 241,516
--------- --------- --------- --------- ---------
Other Income (Expense) - Net ..................... 4,617 2,095 1,289 1,202 2,239
Interest Expense ................................. 4,288 2,793 1,811 253 508
--------- --------- --------- --------- ---------
Income (Loss) Before Income Taxes and Minority
Interest ..................................... 42,297 17,061 5,113 (21,110) 7,599
Income Tax Provision (Credit) .................... 15,706 7,524 1,981 (8,381) 1,399
Minority Interest in Loss of Consolidated
Subsidiary ................................... (87) (103) -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss) ................................ $ 26,678 $ 9,640 $ 3,132 $ (12,729) $ 6,200
========= ========= ========= ========= =========
Earnings (Loss) Per Share of Common Stock ........ $ 1.39 $ .58 $ .23 $ (.94) $ .46
========= ========= ========= ========= =========
Earnings (Loss) Per Share of Common Stock -
assuming dilution ............................ $ 1.36 $ .58 $ .23 $ (.94) $ .46
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT PERIOD END):
Cash and Cash Equivalents ........................ $ 18,993 $ 21,837 $ 5,492 $ 2,560 $ 4,603
Property, Plant and Equipment - Net .............. 259,793 189,125 124,024 101,536 85,297
Total Assets ..................................... 479,195 341,217 248,443 209,818 193,154
Long-Term Debt and Notes Payable to Related
Parties (excluding current maturities) ....... 79,322 23,068 15,784 369 --
Shareholders' Equity ............................. 233,738 197,123 136,027 128,639 141,345
OTHER DATA:
EBITDA (7) ....................................... $ 71,607 $ 38,399 $ 21,926 $ 16,454 $ 24,414
Property Additions (8) ........................... 60,355 30,662 23,436 10,897 14,223
</TABLE>
- ------------
(See footnotes on following page.)
16
<PAGE> 17
(1) Includes the results from A.A. since its November 1997 acquisition, Trey
since its October 1997 acquisition and DA&S since its June 1997
acquisition, all of which were accounted for under the purchase method.
See Note 3 of Notes to Consolidated Financial Statements.
(2) Includes the results from Antah Drilling (now Pool Malaysia) since the
acquisition of the interest of the Company's partner in October 1996 and
PIASA since the August 1996 purchase of the 51% controlling interest,
both of which were accounted for under the purchase method. See Note 3
of Notes to Consolidated Financial Statements.
(3) Includes the results from GPC since its June 1995 acquisition, which was
accounted for under the purchase method. See Note 3 of Notes to
Consolidated Financial Statements.
(4) Includes the results from Pool Arctic Alaska since the acquisition of the
interest of the Company's partner in September 1994, which was accounted
for under the purchase method.
(5) See Note 3 of Notes to Consolidated Financial Statements for a discussion
of the June 1995 GPC acquisition related costs of $0.6 million pretax
($0.4 million, or $.03 per share, after-tax).
(6) See Note 7 of Notes to Consolidated Financial Statements for a discussion
of the $23.6 million pretax ($15.3 million, or $1.13 per share,
after-tax) provision for leasehold impairment.
(7) EBITDA (earnings before interest, taxes, depreciation and amortization,
minority interest and provision for leasehold impairment) is not a
measure of financial performance under generally accepted accounting
standards, but is presented here to provide additional information about
the Company's operations. EBITDA should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a better measure of
liquidity. EBITDA presented above may not be comparable to similarly
titled measures of other companies. See Consolidated Financial
Statements - Statements of Consolidating Cash Flows for information
regarding the Company's operating, investing and financial cash flow
activities.
(8) Excluding acquisitions of businesses.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
ACQUISITIONS
A.A. Oilfield Service, Inc. In November 1997, the Company acquired A.A.
for $4.1 million in cash. This acquisition included 18 oilfield trucks, one salt
water disposal well and related equipment based in Hobbs, New Mexico. See "-
Financial Condition and Liquidity - Long-Term Debt - Revolving Line of Credit"
and Note 3 of Notes to Consolidated Financial Statements for a discussion of
this acquisition.
Trey Services, Inc. In October 1997, the Company acquired all of the
outstanding capital stock of Trey and certain associated operating assets for
$31.3 million in cash. Prior to the acquisition, Trey, through its wholly-owned
subsidiary, R&H, operated a fleet of approximately 67 land well-servicing rigs,
104 oilfield trucks, 430 fluid storage tanks and five brine and disposal wells
in the Permian Basin of West Texas. See "- Financial Condition and Liquidity -
Long-Term Debt - Revolving Line of Credit" and Note 3 of Notes to Consolidated
Financial Statements for a discussion of this acquisition.
D A & S Oil Well Servicing, Incorporated. In June 1997, the Company
acquired all the outstanding capital stock of DA&S for $10.5 million. Prior to
the acquisition, DA&S operated a fleet of 37 land well-servicing rigs from
yards in Hobbs and Eunice, New Mexico and Andrews, Texas. See "- Financial
Condition and Liquidity - Long-Term Debt - DA&S Acquisition Debt" and Note 3 of
Notes to Consolidated Financial Statement for a discussion of this acquisition.
Antah Drilling Sdn. Bhd. In October 1996, the Company acquired the 51%
interest that it did not already own in Antah Drilling (now Pool Malaysia).
The purchase price and the repayment of certain indebtedness that Antah
Drilling owed to the Company's former partner in that venture totaled $9.0
million. Pool Malaysia's assets include Rig 489, a 2,000 horsepower offshore
platform drilling rig, which commenced a three-year contract in Australia in
August 1996, and an offshore platform workover rig currently operating under a
contract in Malaysia. See "- Financial Condition and Liquidity - Long-Term
Debt - Antah Drilling Acquisition Debt" and Note 3 of Notes to Consolidated
Financial Statements for a discussion of this acquisition.
Pool International Argentina S.A. In August 1996, the Company acquired
for approximately $8.7 million in cash a 51% controlling interest in PIASA.
PIASA's nine land drilling rigs and 11 land workover rigs operate in the
Mendoza and Neuquen basins of Argentina. For financial reporting purposes,
100% of the assets, liabilities, results of operations and cash flows of PIASA
are consolidated with those of the Company. The minority shareholder's
interest in PIASA and the earnings or losses therefrom have been reflected as
"minority interest" in the Company's consolidated financial statements.
Western Oil. In June 1996, the Company purchased the operating assets
(including approximately 23 land well-servicing rigs) of Western Oil for
approximately $4.0 million in cash.
Golden Pacific Corp. In June 1995, the Company acquired all of the
outstanding capital stock of GPC. GPC's assets included a fleet of
approximately 155 land well-servicing rigs and related equipment in California.
See "- Financial Condition and Liquidity - Long-Term Debt - Golden Pacific
Corp. Acquisition Debt" and Note 3 of Notes to Consolidated Financial
Statements for a discussion of this acquisition.
18
<PAGE> 19
1997 COMPARED TO 1996
The Company had net income of $26.7 million in 1997, compared with $9.6
million in 1996, despite the fact that the average price of crude oil was
approximately 7% lower in 1997 than in 1996 and average domestic natural gas
prices decreased approximately 2% comparing the same periods. Results from the
Company's domestic operations improved primarily due to (i) increased activity
and rates for the jack-up and platform rigs in the Gulf of Mexico, including
the full-year effect of operating Rig 18, a previously idle platform drilling
rig which was refurbished and placed in service in the Gulf of Mexico in
mid-September 1996, (ii) inclusion of results from the land well-servicing rigs
acquired from Western Oil in June 1996, from the DA&S acquisition in June 1997
and from the Trey acquisition in October 1997 (see "- Acquisitions"), (iii)
increased land rig activity and rates in California and the Austin Chalk and
lower Gulf coast areas of Texas, and (iv) increased production services
activity and rates in Texas. The Company's domestic onshore operation rig
hours were 13% higher for 1997 than in 1996. The Company's offshore operation
in the Gulf of Mexico experienced rig utilization of 76% in 1997, compared to
71% in 1996; and average rig rates were 35% higher in the 1997 period. Results
from the Company's international operations increased primarily due to the
full-year effect of operating Rig 489 (an offshore platform drilling rig owned
by Pool Malaysia that was newly constructed in 1996 and commenced a three-year
contract in Australia in August 1996) and higher rig activity in Oman and Saudi
Arabia.
Revenues. Revenues were $451.9 million in 1997, a 30% increase over
revenues of $348.6 million in 1996. This increase was attributable to (i)
increased activity and rates for the Company's jack-up and platform rigs in the
Gulf of Mexico, including the full-year effect of operating Rig 18, (ii) the
inclusion of revenues from the 23 land well-servicing rigs purchased from
Western Oil in June 1996, the 37 land well-servicing rigs acquired in the June
1997 DA&S acquisition and the 67 land well-servicing rigs acquired in the
October 1997 Trey acquisition (see "- Acquisitions"), (iii) higher domestic
land well-servicing activity and rates in California and the Austin Chalk and
lower Gulf coast areas of Texas, (iv) the inclusion of revenues from the two
offshore platform rigs owned by Pool Malaysia (previously Antah Drilling), the
results of which were included in earnings attributable to unconsolidated
affiliates in the first nine months of 1996 (see "- Acquisitions - Antah
Drilling Sdn. Bhd."), (v) the full-year effect of revenues from the Argentina
rigs owned by PIASA (see "- Acquisitions - Pool International Argentina S.A."),
(vi) higher production services activity and rates in Texas, and (vii) higher
rig activity in Oman and Guatemala during 1997. These revenue increases were
offset partly by lower revenues from operations in Ecuador, Pakistan and
Tunisia, where land rig activity declined.
Domestic onshore well-servicing and production services revenues increased
$47.7 million or 22% in 1997 from 1996, chiefly as a result of the inclusion of
results from rigs acquired from Western Oil, DA&S and Trey. Domestic onshore
rig utilization was 56% in 1997, compared to 52% in 1996. Domestic onshore
well-servicing rig hours increased from approximately 1,119,000 in 1996 to
approximately 1,259,000 in 1997. Gulf of Mexico offshore workover and drilling
revenues increased $22.4 million or 38%, international operations revenues
increased $31.1 million or 68%, and Alaska operations revenues increased $2.2
million or 9%, compared to 1996.
Earnings Attributable to Unconsolidated Affiliates. Earnings
attributable to unconsolidated affiliates were $3.1 million in 1997, compared
to $2.2 million in 1996. Earnings attributable to Pool Arabia, Ltd., the
Company's Saudi Arabia affiliate, increased $1.4 million from 1996 to $3.1
million in 1997 partly as a result of higher rig utilization during 1997 and a
day rate increase for one of the drilling rigs in 1997. Earnings from Antah
Drilling (now Pool Malaysia) ceased to be included in earnings attributable to
unconsolidated affiliates immediately following the Company's purchase of its
partner's interest in October 1996.
Costs and Expenses. The Company's costs and expenses were $413.0 million
in 1997, a 24% increase compared to costs and expenses of $333.0 million in
1996. The increase was primarily due to the inclusion of costs and expenses
related to (i) increased domestic onshore rig and production services activity,
including
19
<PAGE> 20
costs and expenses of operating the land well-servicing rigs acquired from
Western Oil in June 1996, DA&S in June 1997 and Trey in October 1997, (ii) the
operation of Rig 18 for a full year and increased jack-up and platform rig
activity in the Gulf of Mexico, (iii) a full year of operations for PIASA's 20
land rigs in Argentina, (iv) the inclusion, after the Company's acquisition of
its partner's interest in Antah Drilling (now Pool Malaysia) in October 1996,
of costs and expenses associated with the operation of two offshore platform
rigs owned by Pool Malaysia, and (v) higher rig activity in Oman and Guatemala.
The increase was partly offset by decreased costs and expenses in Ecuador,
Pakistan and Tunisia due to lower land rig activity in those operations during
1997.
Other Income - Net. Other income-net was $2.5 million higher in 1997
than in 1996 primarily due to higher gains on dispositions of equipment,
including a $0.7 million pre-tax gain on the sale of an obsolete offshore rig
which had been idle for several years and $1.9 million in pre-tax gains from
insurance settlements in 1997.
Interest Expense. Interest expense was $1.5 million higher in 1997 than
in 1996 primarily due to interest expense on borrowings under the Company's
$130 million syndicated bank revolving line of credit, the term loans assumed
in the October 1996 Antah Drilling acquisition and the $10.1 million in
long-term notes issued in connection with the DA&S acquisition in June 1997,
partially offset by a reduction in interest expense due to the scheduled
principal payments made on the Company's other debt and a reduction in the
outstanding principal amount of certain 10% notes issued in connection with the
1995 purchase of GPC. See Note 6 of Notes to Consolidated Financial Statements.
Income Taxes. The Company recorded income tax expense of $15.7 million
(which included $10.7 million of deferred taxes) on income before income taxes
and minority interest of $42.3 million in 1997, compared to income tax expense
of $7.5 million on income before income taxes and minority interest of $17.1
million in 1996. The increase in income tax expense in 1997 compared to 1996
was primarily due to an increase in pre-tax income in 1997, as a result of the
factors described above. See Note 5 of Notes to Consolidated Financial
Statements for the reconciliation between income taxes computed at the U.S.
federal statutory rate and the Company's income taxes for financial reporting
purposes.
1996 COMPARED TO 1995
The Company had net income of $9.6 million in 1996, compared with $3.1
million in 1995. The 1995 net income included a $0.4 million after-tax charge
for costs related to the GPC acquisition. The average price of crude oil was
approximately 20% higher in 1996 than in 1995, and average natural gas prices
increased approximately 64%, comparing the same periods. Results from the
Company's domestic operations improved primarily due to the higher activity and
increased rates for the Company's jackup rigs in the Gulf of Mexico and the
inclusion in 1996 of a full year's results from rigs and equipment acquired in
the June 1995 GPC acquisition. The Company's domestic onshore operation
reported rig hours 12% higher for 1996 than 1995, primarily due to the
inclusion of rigs acquired in the GPC acquisition. The Company's offshore
operation in the Gulf of Mexico experienced rig utilization of 71% in 1996,
compared to 65% in 1995; average rig rates were 29% higher in the 1996 period.
Results from the Company's international operations increased primarily due to
higher land drilling activity in Ecuador and the operation of two new offshore
platform rigs in Australia (Rig 453, an offshore platform workover rig
constructed in 1995, and Rig 489, a newly constructed offshore platform
drilling rig owned by Pool Malaysia). See "- Acquisitions - Antah Drilling
Sdn. Bhd."
Revenues. Revenues were $348.6 million in 1996, compared to $277.3
million in 1995. This increase was attributable to (i) the inclusion of
revenues for the entire year of 1996 from rigs and equipment acquired in the
June 1995 GPC acquisition (see "- Acquisitions - Golden Pacific Corp."), (ii)
higher activity and increased rates for the jackup rigs, increased rates for
the platform rigs and increased labor contract activity in the Gulf of Mexico,
(iii) a full year's revenues for Rig 453 in Australia, (iv) higher land
drilling activity in Ecuador, (v) the inclusion since October 1996 of revenues
from the two offshore rigs owned by Pool Malaysia
20
<PAGE> 21
(see "- Acquisitions - Antah Drilling Sdn. Bhd."), (vi) the inclusion since
August 1996 of revenues from the Argentina rigs acquired in the PIASA
acquisition (see "- Acquisitions - Pool International Argentina S.A."), and
(vii) higher revenues from the operation of an Arctic land drilling rig that
had been on standby status for all of 1995.
Domestic onshore well-servicing and production services revenues increased
$26.6 million or 14% in 1996 from 1995, chiefly as a result of the GPC
acquisition. Domestic onshore rig utilization was 52% in both 1996 and 1995.
Domestic onshore well-servicing rig hours increased from approximately
1,003,000 in 1995 to approximately 1,119,000 in 1996, due primarily to the GPC
acquisition. In 1996, Gulf of Mexico offshore workover and drilling revenues
increased $21.1 million or 56%, international operations revenues increased
$19.3 million or 73%, and Alaska operations revenues increased $4.2 million or
21%, compared to 1995.
Earnings Attributable to Unconsolidated Affiliates. Earnings
attributable to unconsolidated affiliates were $2.2 million in 1996, compared
to $3.0 million in 1995. Earnings attributable to Pool Arabia, Ltd., the
Company's Saudi Arabia affiliate, decreased $0.6 million from 1995 to $1.7
million in 1996 primarily as a result of higher margins earned on rig moves
during 1995. Earnings from Antah Drilling (now Pool Malaysia) ceased to be
included in earnings attributable to unconsolidated affiliates immediately
following the Company's purchase of its partner's interest in October 1996.
Costs and Expenses. The Company's costs and expenses were $333.0 million
in 1996, compared to $274.6 million in 1995. Such increase was chiefly
attributable to the inclusion in 1996 of a full year's costs and expenses
related to the rigs and equipment obtained in the June 1995 acquisition of GPC.
In addition, costs and expenses increased due to (i) the higher jackup rig and
labor contract activity in the Gulf of Mexico, (ii) a full year's operating
costs for Rig 453 in Australia, (iii) higher land drilling activity in Ecuador,
(iv) the inclusion since October 1996 of costs and expenses related to the rigs
owned by Pool Malaysia, (v) the inclusion since August 1996 of costs and
expenses related to the Argentina rigs owned by PIASA, (vi) higher costs and
expenses relating to the operation of the Arctic land drilling rig that had
been on standby status for all of 1995, and (vii) higher corporate expenses due
to increased bonus and supplementary executive retirement plans expenses. Costs
and expenses in 1995 included $0.6 million of expenses related to the GPC
acquisition, primarily for yard closings.
Other Income - Net. Other income-net was $0.8 million higher in 1996
than in 1995 primarily due to interest income earned on temporary cash
investments.
Interest Expense. Interest expense was $1.0 million higher in 1996 than
in 1995 primarily due to the term loan used to refinance the construction costs
for Rig 453 located in Australia, the GPC acquisition debt and the term loans
assumed in the Antah Drilling acquisition, offset partly by lower average
borrowings in 1996 under the Company's syndicated bank revolving line of
credit.
Income Taxes. The Company recorded income tax expense of $7.5 million on
income before income taxes and minority interest of $17.1 million in 1996,
compared to income tax expense of $2.0 million on income before income taxes of
$5.1 million in 1995. The increase in income tax expense was primarily due to
stronger operating results in 1996 compared to 1995. The 1995 income tax
expense included the effect of certain amendments to prior period U.S. federal
tax returns, partly offset by the reversal of no longer needed deferred foreign
taxes for 1990 income tax indemnities and the elimination of the Company's
valuation allowance related to its U.S. federal net operating loss
carryforwards.
21
<PAGE> 22
FINANCIAL CONDITION AND LIQUIDITY
The Company had cash and cash equivalents of $19.0 million at December 31,
1997 compared to $21.8 million at December 31, 1996. Working capital was $59.1
million and $47.6 million at December 31, 1997 and 1996, respectively.
CASH FLOWS
For the year ended December 31, 1997, net cash flows provided by operating
activities were $42.4 million, compared with $17.7 million and $23.6 million in
1996 and 1995, respectively. The Company used a net $84.9 million for
investing activities in 1997, primarily for capital expenditures of $60.4
million, including $9.1 million for the purchase and modification of a jack-up
workover rig and $8.3 million for the construction of a new platform drilling
rig, both for operation in the Gulf of Mexico. Cash used for investing
activities in 1997 also included $28.9 million, net of cash acquired, for the
purchase of Trey, $3.5 million, net of cash acquired, for the purchase of A.A.,
and $0.4 million, net of cash acquired, for the purchase of DA&S, partially
offset by $6.8 million of proceeds from dispositions of equipment and the
return of $1.0 million of cash that had been placed in escrow as collateral in
connection with a leaseback arrangement. The Company used a net $50.6 million
for investing activities in 1996, primarily for capital expenditures of $30.7
million, including $8.4 million for the refurbishment of Rig 18. Cash used for
investing activities during 1996 also included $8.9 million, net of cash
acquired, for the purchase of 51% of Antah Drilling, $8.7 million for the
acquisition of a 51% controlling interest in PIASA, and $4.0 million for the
purchase of the operating assets of Western Oil, offset partly by $2.3 million
of proceeds from dispositions of equipment. The Company used a net $24.1
million for investing activities in 1995, primarily for capital expenditures of
$23.4 million, including $6.9 million for the construction of a new offshore
platform workover rig, Rig 453, which began earning revenues in Australia in
the third quarter of 1995, and $3.4 million, net of cash acquired, used in
connection with the GPC acquisition and the related direct acquisition costs,
partly offset by $2.4 million of proceeds from dispositions of equipment
SECONDARY PUBLIC OFFERING
In July 1996, the Company completed the sale to the public of 4,600,000
shares of its common stock, no par value, from which it received cash proceeds
of approximately $47.5 million, net of expenses. The Company used the net
proceeds principally as follows: (i) $10.9 million in connection with the
August 1996 PIASA acquisition, (ii) approximately $9 million in connection with
the October 1996 Antah Drilling acquisition, (iii) $4.5 million in connection
with the June 1996 Western Oil asset acquisition, (iv) $8.4 million in
connection with the refurbishment of Rig 18, a previously idle platform
drilling rig in the Gulf of Mexico, and (v) for repayment of debt under the
Company's syndicated bank revolving line of credit and general corporate
purposes. The amounts described above include both acquisition expenditures
and related working capital advances.
LONG-TERM DEBT
Revolving Line of Credit. On September 30, 1997, the Company entered
into a three-year $130 million syndicated bank revolving line of credit
agreement (the "Line of Credit") to replace its existing $40 million revolving
bank line of credit and $15.6 million of long-term debt and to provide financing
for future growth opportunities. The maximum availability under the Line of
Credit is $130 million, including up to $15 million that may be used to support
letters of credit. At February 6, 1998, the Company had drawn $65.8 million in
cash under the Line of Credit, and an additional $11.8 million was being
utilized to support the issuance of letters of credit, primarily related to
insurance obligations. During February 1998, the Company received a commitment
for an increase in the amount available under the Line of Credit from $130
million to $180 million, which is expected to become effective by March 31,
1998. This additional financing may be used to initially finance the
acquisition of Sea Mar, Inc. (see "- Subsequent Event"), although the Company
22
<PAGE> 23
plans to complete a private placement of $150 million 10-year subordinated notes
for the purpose of providing funds for the acquisition and to reduce the
outstanding balance under the Line of Credit. Notes issued under the Line of
Credit are prepayable at any time and are due at expiration on October 2, 2000.
The Line of Credit agreement imposes certain financial covenants, including ones
requiring the maintenance of a minimum net worth, a minimum interest coverage
ratio, a minimum fixed charge coverage ratio, a maximum leverage ratio and a
maximum debt-to-equity ratio. It also imposes certain other restrictions,
including ones relating to liens, other indebtedness, asset sales, investments,
acquisitions or mergers and the payment of dividends. Advances under the Line of
Credit are secured by a pledge of 66% of the capital stock of certain of the
Company's foreign subsidiaries. The Company incurred $1.6 million of debt
financing costs during 1997 in connection with the Line of Credit, which is
being amortized over the term of the agreement.
In October 1997, the Company acquired all of the outstanding capital stock
of Trey and certain associated operating assets for $31.3 million in cash. At
the time this transaction was consummated, $2.4 million of R&H debt was
retired, and $6.4 million was paid to certain key employees of R&H in
connection with incentive compensation arrangements. These transactions were
financed in part with borrowings under the Line of Credit. See Note 3 of Notes
to Consolidated Financial Statements for further discussion.
In November 1997, the Company acquired all of the outstanding capital stock
of A.A. for $4.1 million in cash. This transaction was financed with
borrowings under the Line of Credit. At the time this transaction was
consummated, $0.3 million of A.A. debt was immediately retired. See Note 3 of
Notes to Consolidated Financial Statements for further discussion.
DA&S Acquisition Debt. In June 1997, the Company acquired all of the
outstanding capital stock of DA&S for $10.5 million, consisting of $10.1
million of 9% long-term notes, the last of which are due in 2003, and $0.4
million in cash. As part of the DA&S acquisition, the Company assumed $0.8
million of DA&S debt, all of which was immediately retired. See Notes 3 and 6
of Notes to Consolidated Financial Statements for further discussion.
Antah Drilling Acquisition Debt. In connection with the Antah Drilling
acquisition, the Company agreed to assume liability under Antah Drilling's term
loans, which aggregated $14.6 million at October 1996. In October 1997, the
remaining balance of $9.3 million was paid off with borrowings under the Line
of Credit. The Company made scheduled principal payments of $3.9 million in
1997 and $1.4 million between October and December of 1996. See Notes 3 and 6
of Notes to Consolidated Financial Statements for further discussion.
Australia Rig 453 Debt. In January 1996, the Company received $6.5
million under a four-year term loan agreement (the "Australia Loan") in order
to refinance the construction costs incurred during 1995 to build Rig 453. The
rig construction costs were initially funded from the Company's cash resources
and borrowings under its then existing line of credit. In October 1997, the
remaining balance of $3.5 million was paid off with borrowings under the Line
of Credit. The Company made scheduled principal payments on the Australia Loan
of $1.2 million in 1997 and $1.8 million in 1996. See Note 6 of Notes to
Consolidated Financial Statements for further discussion.
Golden Pacific Corp. Acquisition Debt. In June 1995, the Company
acquired all of the outstanding capital stock of GPC for approximately $18.8
million, consisting of $11.5 million of 10% notes due in 2005, approximately
$3.1 million in cash and 493,543 shares of the Company's common stock valued at
$4.2 million. The outstanding principal amount of such notes was reduced $4.0
million as of August 31, 1997 as a result of an August 1997 agreement between
the sellers of GPC ("Sellers") and the Company that resolved certain issues
that had arisen in connection with the GPC purchase agreement. There was a
corresponding $4.0 million increase to common stock, as the August 1997
agreement effectively revalued the shares of the Company's common stock
received by the Sellers in connection with the June 1995 acquisition. The
August
23
<PAGE> 24
1997 agreement also resulted in a further reduction of $0.9 million, as of
November 30, 1997, of the Sellers' notes in satisfaction of a receivable from
the Sellers of like amount. Due to this reduction in principal amount, payment
of these notes is now due to be completed in 2002. The Company made scheduled
principal payments of $0.6 million in 1997 and $1.5 million in 1996 related to
these notes. See Notes 3 and 6 of Notes to Consolidated Financial Statements
for further discussion.
Also in connection with the GPC acquisition, the Company assumed a
liability for certain deferred compensation obligations of GPC. To evidence
such obligations, the Company issued notes aggregating $1.5 million in
principal amount to three employees of GPC and made scheduled principal
payments with respect to such notes during 1997, 1996 and 1995 of $0.9 million,
$0.4 million and $0.2 million, respectively. See Note 6 of Notes to
Consolidated Financial Statements for further discussion.
As part of the GPC acquisition, the Company assumed GPC's debt of $2.0
million, all of which was immediately retired.
Pool Arctic Alaska Acquisition Debt. The September 1994 Pool Arctic
Alaska acquisition was initially funded from the Company's cash resources and
approximately $6.7 million borrowed under the Company's then existing line of
credit. In April 1995, the Company obtained a three-year term loan (the
"Alaska Loan") to refinance $10.0 million of the purchase price. In October
1997, the remaining balance of $2.7 million was paid off with borrowings under
the Line of Credit. During 1997, 1996 and 1995, the Company made scheduled
principal payments of $1.9 million, $2.8 million and $2.6 million,
respectively, on the Alaska Loan. See Note 6 of Notes to Consolidated Financial
Statements for further discussion.
CAPITAL EXPENDITURES
The Company anticipates that 1998 capital expenditures, excluding business
acquisitions, will consist of (i) approximately $52 million for additions and
improvements to its existing rig fleet, (ii) approximately $10 million towards
the upgrade of an Arctic land drilling rig, (iii) approximately $14 million
toward the construction of a new Arctic land drilling rig, (iv) approximately
$4.5 million for the electrification and upgrade of a platform workover rig
located in the Gulf of Mexico, and (v) $2.3 million for the purchase of two
jack-up workover rigs located in the Gulf of Mexico that the Company currently
leases. It is anticipated that these expenditures will be financed chiefly
through internally generated funds, although the Company may avail itself of
borrowings as needed. Acquisitions of additional assets and businesses are
expected to continue to be an important part of the Company's strategy for
growth. The Company would, under certain circumstances, need to obtain
additional debt and/or equity financing to fund such acquisitions.
SUBSEQUENT EVENT
On February 10, 1998, the Company signed a definitive agreement to acquire
all the outstanding capital stock of Sea Mar, Inc. ("Sea Mar"), a privately
owned Louisiana-based offshore support vessel company with operations primarily
in the Gulf of Mexico. The consideration includes $60 million in cash, of
which $10 million relates to the assignment of rights under a vessel
construction contract, and 1,538,462 shares of the Company's common stock. The
cash portion is subject to certain adjustments following closing, and the
Company will pay additional cash consideration contingent upon Sea Mar reaching
certain financial performance targets for the years 1998 and 1999, with the
maximum additional payments being $10 million in each year. Sea Mar has a
diversified fleet of 25 support vessels, including 15 supply vessels, eight
mini-supply vessels and two research vessels. Furthermore, during 1997 Sea Mar
contracted with a marine vessel builder to construct ten additional supply and
anchor-handling/tug-supply vessels at an estimated aggregate cost of $86
million. These new vessels, with lengths of 200 feet or more and scheduled
delivery dates between late 1998 and early 2000, will allow Sea Mar to better
serve deeper water markets. Four of the new vessels are under three- to
five-year contracts with Rowan Companies, Inc. Sea Mar's services include the
marine transportation of drilling materials, supplies and crews for offshore
rig operations and support for other
24
<PAGE> 25
offshore facilities. It also provides offshore logistical support to drilling
and workover operations, pipelaying and other construction, production platforms
and geophysical operations. In international markets, Sea Mar currently has a
contract for operations in Venezuela. For the year ended December 31, 1997, Sea
Mar reported revenues of approximately $46 million and net income of
approximately $14 million. The chief executive officer of Sea Mar will continue
to manage the operations of Sea Mar following the acquisition, under a
three-year employment contract. This transaction, expected to be completed by
March 31, 1998, will be accounted for under the purchase method, and the cash
portion of the purchase price is expected to be financed with part of the
proceeds from a $150 million debt financing, which is intended to be completed
on or about March 31, 1998. See "- Long-Term Debt - Revolving Line of Credit."
In addition, Sea Mar has debt of approximately $17 million, which the Company
will retire upon acquisition. This acquisition is subject to regulatory
approval and other customary closing conditions, and there can be no assurance
that the transaction will be consummated.
OTHER MATTERS
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components. The Company plans to adopt
this statement in the first quarter of 1998. Its adoption is not expected to
have a material effect on the Company's financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. The Company
plans to adopt this statement in the fourth quarter of 1998. Its adoption is
not expected to have a material effect on the Company's financial statements,
and any effect will be limited to the form and content of the disclosure it
requires.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes new standards for computing and presenting earnings per share.
This statement was adopted in the fourth quarter of 1997 and had no material
effect on the Company's computation of earnings per share.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets including certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of this statement in 1996 had no
effect on the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which sets forth alternative accounting and
disclosure requirements for stock-based compensation arrangements. SFAS 123
does not rescind the existing accounting for employee stock-based compensation
under APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"). Companies may continue to follow the current accounting to measure and
recognize employee stock-based compensation; however, SFAS 123 requires
disclosure of pro forma net income and earnings per share that would have been
reported under the "fair value" based recognition provisions of SFAS 123. The
Company has elected to continue to follow the provisions of APB 25 for employee
compensation and has disclosed the pro forma information required under SFAS
123 in Note 2 of Notes to Consolidated Financial Statements.
25
<PAGE> 26
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is currently assessing what computer software will require
modification or replacement so that its computer systems will properly utilize
dates beyond December 31, 1999. The operation of the Company's rigs, however,
will not be directly affected by this Year 2000 Issue, since only a few of the
Company's rigs have any functions controlled by computer. The software vendors
for the Company's two primary computer systems, the accounting system for its
domestic operations and the human resources/payroll system, have recently
issued releases which are Year 2000 compliant. The Company plans to implement
these new releases before the end of 1998. The Company has several smaller
computer systems, particularly in its foreign locations, which are expected to
be modified or replaced by mid-1999 in order to become Year 2000 compliant.
The Company will use both internal and external resources to reprogram, or
replace, and test its software for Year 2000 modifications. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 Issue can be resolved in a timely manner.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company. The Company presently does not believe that costs
to become Year 2000 compliant will have a material adverse effect on the
Company's financial statements.
The costs of becoming Year 2000 compliant and the dates on which the
Company plans to complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions regarding
future events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no guarantee
that these cost or time estimates will be achieved, and actual results could
differ materially. Specific factors that might cause such material differences
include, but are not limited to, the availability of personnel trained in this
area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
SAN ANGELO LEASE COMMITMENT
The Company has an operating lease, effective through March 2003, for a
65-acre facility at San Angelo, Texas, which it previously used for rig and
equipment manufacturing and storage. Annual lease payments are $2.2 million
through March 1998 and $4.4 million thereafter for the remaining five years of
the lease. Effective October 1, 1994, the Company vacated this facility and
subleased it in its entirety for $0.5 million per year under an operating
sublease which expired in September 1997. In September 1988, the Company,
anticipating that it would not be able to fully utilize the facility for a
period of years, accrued a $15.9 million liability for the expected
underutilization. After September 1988, the cost associated with the
unutilized portion of the facility was charged against this accrued liability,
which as of the fourth quarter of 1994 had substantially been used. In the
fourth quarter of 1994 the Company recorded a provision for leasehold
impairment of $23.6 million, as the Company did not anticipate utilizing any of
this facility in its future operations nor did it expect to be able to sublease
this facility to third parties for an amount equivalent to the annual lease
payments. This provision recognized all future lease expense, net of
anticipated sublease income. Future lease payments will be charged against
such provision.
FORWARD-LOOKING INFORMATION
The statements included in this report on Form 10-K regarding future
financial performance and results of operations and other statements that are
not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities
26
<PAGE> 27
Exchange Act of 1934, as amended. Statements to the effect that the Company or
management "anticipates," "believes," "estimates," "expects," "predicts," or
"projects" a particular result or course of events, or that such result or
course of events "should" occur, and similar expressions, are also intended to
identify forward-looking statements. Such statements are subject to numerous
risks, uncertainties and assumptions, including but not limited to
uncertainties relating to industry and market conditions, prices of crude oil
and natural gas, foreign exchange and currency fluctuations, political
instability in foreign jurisdictions, the ability of the Company to integrate
newly acquired operations and other factors discussed in this annual report and
in the Company's other filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those stated.
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Pool Energy Services Co.:
We have audited the accompanying consolidated balance sheets of Pool Energy
Services Co. and its subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related statements of consolidated operations and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Pool Energy Services Co. and
its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 17, 1998
28
<PAGE> 29
POOL ENERGY SERVICES CO.
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues ........................................... $ 451,922 $ 348,558 $ 277,305
Earnings Attributable to Unconsolidated Affiliates.. 3,080 2,244 2,955
--------- --------- ---------
Total ..................................... 455,002 350,802 280,260
--------- --------- ---------
Costs and Expenses:
Operating expenses ............................. 334,592 267,692 219,074
Selling, general and administrative expenses ... 53,343 46,773 39,927
Depreciation and amortization .................. 25,022 18,545 15,002
Acquisition related costs ...................... 77 33 622
--------- --------- ---------
Total ..................................... 413,034 333,043 274,625
--------- --------- ---------
Other Income (Expense) - Net ....................... 4,617 2,095 1,289
Interest Expense ................................... 4,288 2,793 1,811
--------- --------- ---------
Income Before Income Taxes and Minority Interest ... 42,297 17,061 5,113
Income Tax Provision ............................... 15,706 7,524 1,981
Minority Interest in Loss of Consolidated
Subsidiary ..................................... (87) (103) --
--------- --------- ---------
Net Income ......................................... $ 26,678 $ 9,640 $ 3,132
========= ========= =========
Earnings Per Share of Common Stock ................. $ 1.39 $ .58 $ .23
========= ========= =========
Earnings Per Share of Common Stock -
assuming dilution .............................. $ 1.36 $ .58 $ .23
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 30
POOL ENERGY SERVICES CO.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net Income ....................................................... $ 26,678 $ 9,640 $ 3,132
Noncash items included above:
Depreciation and amortization .................................. 25,022 18,545 15,002
Deferred income taxes .......................................... 10,741 4,178 1,261
Undistributed earnings of unconsolidated affiliates ............ (3,018) (2,221) (2,895)
Other - net .................................................... (1,064) (753) (218)
Payment of pre-1990 personal injury and property damage claims ... (820) (45) (37)
Payment for lease of manufacturing facility, net of sublease ..... (1,773) (1,610) (2,060)
Cash dividends received from unconsolidated affiliates ........... 1,607 1,663 2,885
Other - net ...................................................... (794) (963) (723)
Net effect of changes in operating working capital ............... (14,192) (10,719) 7,248
-------- -------- --------
Net Cash Flows Provided by Operating Activities .................. 42,387 17,715 23,595
-------- -------- --------
Investing Activities:
Property additions ............................................... (60,355) (30,662) (23,436)
Expenditures for acquisitions, including acquisition costs, less
cash acquired .................................................. (32,869) (22,366) (3,431)
Proceeds from disposition of property, plant and equipment ....... 6,829 2,335 2,400
Decrease in restricted cash ...................................... 974 152 154
Other - net ...................................................... 519 (15) 204
-------- -------- --------
Net Cash Flows Used for Investing Activities ..................... (84,902) (50,556) (24,109)
-------- -------- --------
Financing Activities:
Proceeds from issuance of common stock, net ...................... -- 47,455 --
Proceeds from exercise of stock options .......................... 3,300 3,376 61
Proceeds and repayments of short-term borrowings - net ........... -- -- (1,600)
Retirement of debt assumed in acquisitions ....................... (3,522) -- (1,962)
Payments for debt financing costs ................................ (1,587) (199) (102)
Proceeds from long-term debt ..................................... 70,800 6,500 10,000
Principal payments on long-term debt ............................. (28,395) (7,546) (2,751)
Principal payments on notes payable to related parties ........... (925) (400) (200)
-------- -------- --------
Net Cash Flows Provided by Financing Activities .................. 39,671 49,186 3,446
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ............... (2,844) 16,345 2,932
Cash and Cash Equivalents at January 1, ............................ 21,837 5,492 2,560
-------- -------- --------
Cash and Cash Equivalents at December 31, .......................... $ 18,993 $ 21,837 $ 5,492
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 31
POOL ENERGY SERVICES CO.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................ $ 18,993 $ 21,837
Restricted cash .......................................................... 10 183
Accounts and notes receivable (net of allowance for doubtful accounts of
$1,272 and $1,235) ..................................................... 89,943 63,067
Other receivables ........................................................ 5,705 5,483
Accounts receivable from affiliates ...................................... 1,635 1,064
Inventories .............................................................. 19,500 14,726
Deferred income tax asset ................................................ 8,594 3,807
Other current assets ..................................................... 8,295 4,213
--------- ---------
Total current assets ................................................... 152,675 114,380
Property, Plant and Equipment - Net ........................................ 259,793 189,125
Investment in and Noncurrent Receivables from Unconsolidated Affiliates .... 20,515 19,104
Goodwill, net .............................................................. 42,395 12,880
Noncurrent Deferred Income Tax Asset ....................................... -- 1,506
Noncurrent Receivables (net of allowance for doubtful accounts of $1,113 and
$1,219) and Other Assets ................................................. 3,817 3,421
Noncurrent Restricted Cash ................................................. -- 801
--------- ---------
Total .................................................................. $ 479,195 $ 341,217
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ........................................ $ 1,025 $ 9,702
Current portion of notes payable to related parties ...................... -- 925
Trade accounts payable ................................................... 38,217 20,771
Accounts payable to affiliate ............................................ 3,088 1,251
Accrued liabilities ...................................................... 44,644 29,505
Accrued taxes ............................................................ 6,631 4,590
--------- ---------
Total current liabilities .............................................. 93,605 66,744
Long-Term Debt ............................................................. 79,322 23,068
Deferred Income Taxes ...................................................... 21,575 4,199
Other Liabilities .......................................................... 46,995 46,036
Minority Interest .......................................................... 3,960 4,047
Shareholders' Equity:
Common stock, no par value:
40,000,000 shares authorized; 19,448,946 and 19,094,824 shares
issued and outstanding ............................................... 196,532 186,785
Retained earnings ........................................................ 38,229 11,551
Unearned compensation - restricted stock ................................. (701) (891)
Cumulative foreign currency translation adjustments ...................... (322) (322)
--------- ---------
Total shareholders' equity ............................................. 233,738 197,123
--------- ---------
Total .................................................................. $ 479,195 $ 341,217
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 32
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All dollar amounts in the tabulations in the notes to the consolidated
financial statements are stated in thousands unless otherwise indicated. All
dollar amounts included in the text are in whole dollars, unless otherwise
indicated. Certain reclassifications have been made in the 1995 and 1996
consolidated financial statements to conform with the 1997 presentation.
The Company
Pool Energy Services Co. (the "Company") was formed in November 1988 to
acquire all of the oilfield services business of ENSERCH Corporation
("ENSERCH"), and such acquisition was consummated in April 1990. As used
herein, except where the context otherwise requires, the term "Company" refers
to Pool Energy Services Co., its subsidiary corporations and its unconsolidated
affiliates. The Company operates in only one business segment - the oilfield
services industry. Within the oilfield services industry, the Company provides
services and products to oil and natural gas well operators for the workover,
maintenance and plugging of existing oil and natural gas wells and for the
drilling and completion of new oil and natural gas wells. The Company operates
in the United States, South America, the Middle East, Asia and Australia.
Principles of Consolidation
The consolidated financial statements include the financial statements of
the Company and all subsidiaries in which a controlling interest is held. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company uses the equity method to account for affiliates in
which it does not have control. The Company acquired a 51% controlling
interest in a newly formed Argentina corporation, Pool International Argentina
S.A. ("PIASA"), in August 1996 (see Note 3). For financial reporting
purposes, 100% of the assets, liabilities, results of operations and cash flows
of PIASA are consolidated with those of the Company. The minority
shareholder's interest in PIASA and the earnings or losses therefrom have been
reflected as "minority interest" in the Company's consolidated financial
statements.
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 could differ from those estimates.
Revenue Recognition
The Company generally recognizes revenue when services are rendered or
products are shipped.
Foreign Currency Gains and Losses
The U.S. dollar is the functional currency for all of the Company's foreign
operations, and for those operations, foreign currency gains and losses are
included in the statement of consolidated operations as incurred. The
cumulative translation gains and losses reflected as a separate component of
shareholders' equity arose prior to April 1996, when the functional currency of
the Company's then unconsolidated affiliate in Trinidad was the Trinidad and
Tobago dollar.
32
<PAGE> 33
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment
Depreciation of plant and equipment is provided on a straight-line basis
over the estimated useful lives of the assets. The components of a rig that
generally require replacement during the rig's life have useful lives that
range from three to 12 years. The basic rigs, excluding such components, have
estimated useful lives from date of original manufacture ranging from 22 to 35
years. Other property and equipment have useful lives that range from three to
seven years. Estimated salvage values are assigned to the rigs based on an
individual assessment of each rig and generally approximate 15% of cost.
Effective January 1, 1996 the Company adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement requires
that long-lived assets including certain identifiable intangibles held and
used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Since adoption of this statement no impairment losses have been
recognized.
Goodwill
Goodwill, totaling $42.4 million and $12.9 million at December 31, 1997 and
1996, respectively, represents the cost in excess of fair value of the net
assets of companies acquired (see Note 3). Goodwill is amortized using the
straight-line method over 25 to 30 years and is recorded net of accumulated
amortization of $1.3 million and $0.6 million at December 31, 1997 and 1996,
respectively. Amortization of goodwill for the years ended December 31, 1997,
1996 and 1995 amounted to $0.7 million, $0.4 million and $0.2 million,
respectively. The carrying amount of unamortized goodwill is reviewed for
potential impairment loss when events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable.
Environmental Remediation and Compliance
Costs incurred to investigate and remediate contaminated sites are expensed
unless the remediation extends the useful lives of the assets employed at the
site. Remediation costs that extend the useful lives of the assets are
capitalized and amortized over the remaining economic lives of such assets.
Liabilities are recorded when the need for environmental assessments and/or
remedial efforts become known or probable and the cost can be reasonably
estimated.
Income Taxes
The Company is subject to both U.S. and foreign income taxes. The Company
accounts for income taxes based upon Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" which requires recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred income tax liabilities
and assets are determined based on the temporary differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities and available tax credit carryforwards.
33
<PAGE> 34
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Inventories
Inventories of spare parts, materials and supplies held for consumption are
stated principally at average cost.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. The Company restricts temporary cash investments to
financial institutions with high credit standing and by policy limits the
amount of credit exposure to any one financial institution. The Company's
customer base consists primarily of multi-national, foreign national and
independent oil and natural gas producers. During 1997, no single customer
accounted for more than 10% of the Company's consolidated revenues. One
customer accounted for approximately 11% of the Company's consolidated revenues
in both 1996 and 1995. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on its trade receivables.
Such credit risk is considered by management to be limited due to the large
number of customers comprising the Company's customer base. The Company
maintains reserves for potential credit losses, and such losses have been
within management's expectations.
Fair Values of Financial Instruments
Except for investments in its unconsolidated affiliates, which are
accounted for under the equity method, the Company's financial instruments
consist primarily of variable rate items for which management believes fair
value approximates carrying value.
Foreign Exchange Risk Management
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 the U.S. dollar. The Company uses forward exchange
contracts as economic hedges of exposed net investments in foreign entities in
which that exposure exceeds $0.2 million and for which contracts in the
appropriate currency are available. The Company's foreign exchange contracts
do not subject the Company to the risk of exchange rate movements because gains
and losses on these contracts offset gains and losses on the exposed
investments being hedged. Realized and unrealized gains and losses on these
contracts are recognized currently in the statement of consolidated operations.
The forward exchange contracts generally have maturities which do not exceed 31
days. The Company had forward exchange contracts to purchase $2.3 million in
Australian dollars, $1.8 million in Argentine pesos and $1.7 million in
Malaysian ringgits at December 31, 1997 and $2.5 million in Malaysian ringgits
and $2.0 million in Australian dollars at December 31, 1996. The Company does
not hold or issue financial instruments for trading purposes.
34
<PAGE> 35
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stock Incentive Plans
The Company accounts for stock option grants to employees using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under the Company's
stock incentive plans, the price of the stock on the grant date is the same as
the amount an employee must pay to exercise the option to acquire the stock;
accordingly, the options have no intrinsic value at grant date, and in
accordance with the provisions of APB 25 no compensation cost is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which sets forth alternative accounting and
disclosure requirements for stock-based compensation arrangements. SFAS 123
does not rescind the existing accounting for employee stock-based compensation
under APB 25. Companies may continue to follow the current accounting to
measure and recognize employee stock-based compensation; however, SFAS 123
requires disclosure of pro forma net income and earnings per share that would
have been reported under the "fair value" based recognition provisions of SFAS
123. The Company has disclosed in Note 2 the pro forma information required
under SFAS 123.
Cash Equivalents
The Company considers all unrestricted highly liquid investments with less
than a three-month maturity when purchased as cash equivalents.
Earnings Per Share of Common Stock
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which
establishes new standards for computing, presenting and disclosing earnings per
share ("EPS"). This statement requires restatement of all prior-period EPS
data presented herein.
The following tables set forth the amounts used in computing EPS and the
weighted average number of shares of dilutive potential common stock for the
three years ended December 31, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
(In thousands except number of shares and per share amounts)
<S> <C> <C> <C>
Earnings per Share of Common Stock
Net Income ....................................... $ 26,678 19,257,185 $ 1.39
========
Dilutive Effect of Potential Common Stock
Stock Options .................................... -- 319,798
---------- ------------
Earnings per Share of Common Stock - Assuming Dilution
Net Income ....................................... $ 26,678 19,576,983 $ 1.36
========== ============ ========
</TABLE>
Options to purchase approximately 52,000 shares of common stock at $31.81
per share were outstanding during the fourth quarter of 1997 but were not
included in the computation of diluted EPS because the options were
antidilutive.
35
<PAGE> 36
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
(In thousands except number of shares and per share amounts)
<S> <C> <C> <C>
Earnings per Share of Common Stock
Net Income ....................................... $ 9,640 16,504,853 $ .58
=======
Dilutive Effect of Potential Common Stock
Stock Options .................................... -- 172,074
---------- ------------
Earnings per Share of Common Stock - Assuming Dilution
Net Income ....................................... $ 9,640 16,676,927 $ .58
========== ============ =======
</TABLE>
Options to purchase approximately 593,000 shares of common stock at a
weighted average exercise price of $10.26 per share were outstanding during the
first quarter of 1996 but were not included in the computation of diluted EPS
because the options were antidilutive.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
(In thousands except number of shares and per share amounts)
<S> <C> <C> <C>
Earnings per Share of Common Stock
Net Income ....................................... $ 3,132 13,840,122 $ .23
=======
Dilutive Effect of Potential Common Stock
Stock Options .................................... -- 40,662
---------- ------------
Earnings per Share of Common Stock - Assuming Dilution
Net Income ....................................... $ 3,132 13,880,784 $ .23
========== ============ =======
</TABLE>
Options to purchase approximately 740,000 shares of common stock at a
weighted average exercise price of $10.14 per share were outstanding during
1995 but were not included in the computation of diluted EPS because the
options were antidilutive.
36
<PAGE> 37
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SHAREHOLDERS' EQUITY
The following is a summary of transactions affecting shareholders' equity
for the last three fiscal years:
<TABLE>
<CAPTION>
CUMULATIVE
UNEARNED FOREIGN
RETAINED COMPENSATION CURRENCY
COMMON EARNINGS - RESTRICTED TRANSLATION
STOCK (DEFICIT) STOCK ADJUSTMENTS
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 .................. $ 130,177 $ (1,221) $ -- $ (317)
Net income ............................ -- 3,132 -- --
Issuance of common stock for:
Stock options exercised .......... 61 -- -- --
Business acquisition ............. 4,200 -- -- --
Translation adjustment ................ -- -- -- (5)
--------- --------- --------- ---------
Balance, December 31, 1995 ................ 134,438 1,911 -- (322)
Net income ............................ -- 9,640 -- --
Issuance of common stock for:
Stock options exercised .......... 3,376 -- -- --
Public offering, net ............. 47,455 -- -- --
Issuance of restricted common stock ... 949 -- (949) --
Tax benefit from stock options
exercised ........................ 567 -- -- --
Compensation expense .................. -- -- 58 --
--------- --------- --------- ---------
Balance, December 31, 1996 ................ 186,785 11,551 (891) (322)
Net income ............................ -- 26,678 -- --
Issuance of common stock for:
Stock options exercised .......... 3,300 -- -- --
Business acquisition adjustment
(see Note 3) .................. 3,978 -- -- --
Issuance of restricted common stock ... 272 -- (272) --
Forfeiture of restricted common stock.. (46) -- 46 --
Tax benefit from stock options
exercised ........................ 2,136 -- -- --
Compensation expense .................. 107 -- 416 --
--------- --------- --------- ---------
Balance, December 31, 1997 ................ $ 196,532 $ 38,229 $ (701) $ (322)
========= ========= ========= =========
</TABLE>
Common Stock
In July 1996, the Company completed the sale to the public of 4,600,000
shares of its common stock, no par value, from which it received cash proceeds
of approximately $47.5 million, net of expenses. The Company used the net
proceeds principally as follows: (i) $10.9 million in connection with the
August 1996 acquisition of a 51% controlling interest in PIASA, a newly formed
Argentina corporation which provides well-servicing, workover and drilling
services in Argentina, (ii) approximately $9 million in connection with the
October 1996 acquisition of the 51% interest not already owned by the Company
in Antah Drilling Sdn. Bhd. ("Antah Drilling"), (iii) $4.5 million in
connection with the June 1996 Western Oil Well Service Co. ("Western Oil")
asset acquisition, (iv) $8.4 million in connection with the refurbishment of
Rig 18, a previously idle platform drilling rig in the Gulf of Mexico, and (v)
for repayment of debt under the Company's
37
<PAGE> 38
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
syndicated bank revolving line of credit and general corporate purposes. The
amounts described above include both acquisition expenditures and related
working capital advances. See Note 3 for additional descriptions of these
acquisitions.
Preferred Stock
The 1,000 shares of the Company's authorized and issued preferred stock is
currently held in treasury.
Shareholder Rights Plan
The Company maintains a Shareholder Rights Plan (the "Rights Plan") that is
designed to deter coercive or unfair takeover tactics, to prevent a person or
group from gaining control of the Company without offering fair value to all
shareholders and to deter other abusive takeover tactics which are not in the
best interests of shareholders. The Company's Board of Directors adopted the
Rights Plan in June 1994 and declared a dividend to the shareholders of one
right ("Right") for each outstanding share of the Company's common stock. The
Rights only become exercisable, and transferable apart from the Company's
common stock, ten business days following a public announcement that a person
or group ("Acquirer") has acquired beneficial ownership of, or has commenced a
tender or exchange offer for, 15% or more of the Company's common stock (each a
"Triggering Event").
Each Right initially entitles the holder to purchase one-third of one share
of the Company's common stock at a price of $9.00, subject to adjustment. Upon
the occurrence of a Triggering Event, each Right, in the absence of timely
redemption of the Rights by the Company, will entitle the holder thereof (other
than the Acquirer), instead, to receive upon exercise of the Right a number of
the Company's common shares (or, in certain circumstances, cash, property or
other securities of the Company) having a current market value equal to twice
the exercise price for a full share of common stock. Following the occurrence
of a Triggering Event, if the Company is acquired in a merger or other business
combination, or 50% or more of the Company's assets or earning power are sold
or transferred, each Right, in the absence of timely redemption of the Rights
by the Company, will entitle the holder thereof (other than the Acquirer) to
receive a number of shares of common stock of the acquiring company having a
current market value equal to twice the exercise price for a full share of
common stock.
The Rights may be redeemed by the Company in whole, but not in part, at a
redemption price of $.01 per Right at any time prior to the Rights becoming
exercisable. The Rights will expire in June 2004. Until the Rights become
exercisable, they have no dilutive effect on earnings per share. As of
December 31, 1997, a total of 5,994,337 shares of the Company's common stock
were reserved for issuance upon exercise of Rights.
The description and terms of the Rights are set forth in a Rights Agreement
between the Company and the First National Bank of Boston, as Rights Agent.
Stock Incentive Plans
The Company's 1993 Employee Stock Incentive Plan is for officers and key
employees, which plan reserved for issuance up to 600,000 shares of the
Company's common stock. In 1997, the plan was amended to increase the number
of shares of the Company's common stock reserved for issuance thereunder by
850,000 shares (thereby resulting in 1,450,000 shares reserved). The shares
may be issued upon the exercise of non-qualified stock options granted under
the plan or may be granted as restricted stock awards or bonus stock
38
<PAGE> 39
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
awards. Subject to earlier termination under certain circumstances, stock
options are exercisable over a ten-year term and, unless specified otherwise at
the time of the grant, vest at the rate of 25 percent per year of continuous
employment following the grant of the options. As of December 31, 1997 the
Company had issued 86,407 shares as a result of the exercise of options
pursuant to such plan. Shares of common stock awarded as restricted stock are
subject to restrictions on transfer and subject to risk of forfeiture until
earned by continued employment or the achievement of specific goals. During
the restriction period, holders of restricted stock have the right to vote;
cash dividends, if any, are accrued but not paid until satisfaction of the
applicable restrictions. As of December 31, 1997, the Company had awarded
65,649 shares of restricted stock, net of forfeitures, pursuant to such plan.
The Company also has a 1990 Employee Stock Option Plan for officers and key
employees, which plan reserved for issuance up to 1,000,000 shares of the
Company's common stock, of which 627,737 shares had been issued as of December
31, 1997 through the exercise of options. Subject to earlier termination under
certain circumstances, options are exercisable over a ten-year term and, unless
specified otherwise at the time of the grant, vest at the rate of 25 percent
per year of continuous employment following the grant of the options. Since the
adoption of the 1993 Employee Stock Incentive Plan, no additional options may
be granted under the 1990 Employee Stock Option Plan.
Effective February 1996, the Company adopted the 1996 Directors' Stock
Incentive Plan for members of its Board of Directors who are not full-time
employees of the Company. The plan reserved for issuance up to 200,000 shares
of the Company's common stock which may be issued upon the exercise of stock
options or may be awarded as restricted stock. The plan provides for each
person who is elected or appointed a director for the first time after the
effective date to receive automatically an initial stock option of 8,000 shares
and to receive automatically a stock option for 4,000 shares on the date of
each Annual Meeting of Shareholders after the initial grant at which such
director is reelected. Options expire ten years after the date of grant. Each
option becomes exercisable at the end of one year from the date of grant.
Also, each director receives an award of 1,000 shares of restricted stock, with
a one-year restriction period, on the date of each Annual Meeting of
Shareholders. As of December 31, 1997, the Company had issued 8,000 shares as
the result of the exercise of options and had awarded 11,000 shares of
restricted stock, net of forfeitures, pursuant to such plan.
The Company also has a 1991 Directors' Stock Option Plan for members of its
Board of Directors who are not full-time employees of the Company. Such plan
reserved for issuance up to 150,000 shares of the Company's common stock, of
which 56,000 shares had been issued as of December 31, 1997 through the
exercise of options. Subject to earlier termination under certain
circumstances, options expire ten years after the date of the grant. Each
option becomes exercisable as to 50% of the shares covered thereby at the end
of one year from the date of grant and as to the remaining 50% at the end of
two years from the date of grant. Since the adoption of the 1996 Directors'
Stock Incentive Plan no additional options may be granted under the 1991
Directors' Stock Option Plan.
The fair market value at the date the restricted stock was issued has been
recorded as unearned compensation - restricted stock and is shown as a separate
component of shareholders' equity. The unearned
39
<PAGE> 40
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
restricted stock compensation is amortized to operations over the related
restriction period. The following table summarizes the restricted stock
activity related to the Company's plans:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS EXCEPT NUMBER OF
SHARES AND PER SHARE AMOUNTS)
<S> <C> <C>
Number of restricted shares awarded ................. 12,000 70,000
Weighted average fair market value on date of issue.. $22.66 $13.56
Restricted stock outstanding at December 31 ......... 76,649 70,000
Pre-tax compensation expense ........................ $416 $58
</TABLE>
The exercise price of options under all plans is the fair market value per
share on the date the options are granted. The exercise of stock options
results in a U.S. tax deduction to the Company equal to the income tax effect
of the difference between the exercise price and the market price at the
exercise date. For financial reporting purposes, this tax benefit is accounted
for as a credit to common stock. During 1997 and 1996, $2.1 million and $0.6
million, respectively, were credited to common stock as a result of the tax
benefit associated with stock option exercises. The following table summarizes
the stock option activity related to the Company's plans (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ---------------------- -----------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ --------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 ... 1,043 $ 9.42 1,142 $ 9.07 1,000 $ 9.27
Granted .............. 195 $18.68 274 $10.81 205 $ 8.20
Exercised ............ (348) $ 9.49 (361) $ 9.36 (9) $ 6.80
Forfeited ............ (15) $16.01 (12) $ 9.17 (54) $10.00
------ ------ ------
Outstanding, December 31.. 875 $11.34 1,043 $ 9.42 1,142 $ 9.07
====== ====== ======
Exercisable, December 31.. 394 $ 9.05 569 $ 9.04 799 $ 9.36
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------------
NUMBER OF SHARES WEIGHTED-AVERAGE NUMBER OF SHARES
RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
- --------------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$6.125 - $8.75 242 6 years $ 7.41 157 $ 7.04
$9.25 - $13.50 581 7.2 years $11.16 237 $10.38
$31.8125 52 9.7 years $31.81 -- $ --
------ -----
875 394
====== =====
</TABLE>
The Company applies the intrinsic value based method of APB 25 in
accounting for its employee stock incentive plans. Accordingly, no
compensation expense has been recognized for any stock options issued under the
employee plans. Had compensation expense for stock options granted to
employees been recognized
40
<PAGE> 41
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
based on the fair value at the grant dates, using the methodology prescribed by
SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Income:
As reported ......................................... $26,678 $ 9,640 $ 3,132
Pro forma ........................................... 26,038 9,240 3,019
Earnings Per Share of Common Stock:
As reported ......................................... $ 1.39 $ .58 $ .23
Pro forma ........................................... 1.35 .56 .22
Earnings Per Share of Common Stock - assuming dilution:
As reported ......................................... $ 1.36 $ .58 $ .23
Pro forma ........................................... 1.33 .56 .22
</TABLE>
SFAS 123 does not apply to options granted prior to January 1, 1995;
therefore, the pro forma effect disclosed above may not be representative of
pro forma amounts in future years.
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $12.55, $6.42 and $4.97, respectively. The fair value
of each stock option grant was estimated on the date of grant using the Black-
Scholes option-pricing model based on the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR OF GRANT
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Risk-free interest rate ............................. 6.68% 6.36% 6.78%
Expected life of options ............................ 8 years 8 years 8 years
Expected volatility of the Company's stock price..... 51% 43% 44%
Expected dividends .................................. none none none
</TABLE>
3. ACQUISITIONS
1997 Acquisitions
A.A. Oilfield Service, Inc. In November 1997, the Company acquired all
of the outstanding capital stock of privately owned A.A. Oilfield Service, Inc.
("A.A.") for $4.1 million in cash. This acquisition included 18 oilfield
trucks, one salt water disposal well and related equipment based in Hobbs, New
Mexico. This acquisition was financed through borrowings under the Company's
syndicated bank revolving line of credit.
Trey Services, Inc. In October 1997, the Company acquired all of the
outstanding capital stock of Trey Services, Inc. ("Trey") and certain
associated operating assets for cash of $31.3 million. Prior to the
acquisition, Trey, through its wholly-owned subsidiary R & H Well Service, Inc.
("R&H"), operated a fleet of approximately 67 land well- servicing rigs, 104
oilfield trucks, 430 fluid storage tanks and five brine and disposal wells in
the Permian Basin of West Texas. This acquisition was financed through
borrowings under the Company's syndicated bank revolving line of credit.
41
<PAGE> 42
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
D A & S Oil Well Servicing, Incorporated. In June 1997, the Company
acquired all of the outstanding capital stock of D A & S Oil Well Servicing,
Incorporated ("DA&S"), a privately owned well-servicing company with a fleet of
37 land well-servicing rigs, for $10.5 million, consisting of long-term notes
in the amount of $10.1 million and $0.4 million in cash.
Each of the 1997 acquisitions discussed above was recorded under the
purchase method of accounting, and accordingly, the results of operations of
each acquired entity have been included in the accompanying consolidated
financial statements from the date such entity was acquired. The purchase
price of each acquisition was allocated based on preliminary estimates of the
fair market value of the assets acquired and liabilities assumed at the date of
acquisition and is subject to adjustment as additional information becomes
available and is evaluated. The primary areas subject to further purchase
price adjustment are reserves associated with insurance related matters and
taxes. Such allocations resulted in goodwill of approximately $30.4 million,
which is being amortized on a straight-line basis over 25 years.
1996 Acquisitions
Antah Drilling Sdn. Bhd. In October 1996, the Company acquired the 51%
interest that it did not already own in Antah Drilling and, in March 1997, such
entity's name was changed to Pool International (Malaysia) Sdn. Bhd. ("Pool
Malaysia"). The purchase price and the repayment of certain indebtedness that
Antah Drilling owed to the Company's former partner in that venture totaled $9.0
million. Pool Malaysia's assets include Rig 489, a 2,000 horsepower offshore
platform drilling rig, which commenced a three-year contract in Australia in
August 1996, and an offshore platform workover rig currently operating under a
term contract in Malaysia. In connection with the Antah Drilling acquisition,
the Company agreed to assume liability under Antah Drilling's term loans, which
aggregated $14.6 million (see Note 6). Prior to the date of acquisition, Antah
Drilling was accounted for under the equity method based upon the Company's 49%
ownership interest.
Pool International Argentina S. A. In August 1996, the Company acquired
for approximately $8.7 million in cash a 51% controlling interest in PIASA.
PIASA owns nine land drilling rigs and 11 land workover rigs, all of which are
located in Argentina.
Each of the 1996 acquisitions discussed above was recorded under the
purchase method of accounting and, accordingly, the results of operations of
each acquired entity have been included in the accompanying consolidated
financial statements from the date such entity was acquired. The purchase
price of each acquisition was allocated based on the estimated fair market
value of the assets acquired and liabilities assumed at the date of
acquisition. Such allocations resulted in goodwill of approximately $1.6
million, which is being amortized on a straight-line basis over 30 years.
Western Oil. In June 1996, the Company purchased the operating assets,
including approximately 23 land well-servicing rigs, of Western Oil for
approximately $4.0 million in cash.
1995 Acquisition
Golden Pacific Corp. In June 1995, the Company acquired all of the
outstanding capital stock of GPC, a privately owned California well-servicing
company with a fleet of approximately 155 rigs and related equipment, for $18.8
million, consisting of long-term notes in the amount of $11.5 million, $3.1
million in cash and 493,543 shares of the Company's common stock valued at $4.2
million. The cash paid in the transaction was provided by the Company's existing
syndicated bank revolving line of credit.
42
<PAGE> 43
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In August 1997, the Company entered into an agreement with the sellers of
GPC that resolved certain issues that had arisen in connection with the GPC
purchase agreement (see Note 6).
The acquisition was accounted for under the purchase method, and
accordingly the results of GPC have been included in the accompanying
consolidated financial statements since the date of acquisition. The purchase
price was allocated on the basis of the estimated fair market value of the
assets acquired and the liabilities assumed as of the date of acquisition.
This allocation resulted in goodwill of approximately $11.7 million, which is
being amortized on a straight-line basis over 30 years. In connection with the
purchase of GPC, the Company recorded acquisition related costs totaling $0.6
million, primarily for yard closings.
4. SUBSEQUENT EVENT
On February 10, 1998, the Company signed a definitive agreement to acquire
all the outstanding capital stock of Sea Mar, Inc. ("Sea Mar"), a privately
owned Louisiana-based offshore support vessel company with operations primarily
in the Gulf of Mexico. The consideration includes $60 million in cash, of which
$10 million relates to the assignment of rights under a vessel construction
contract, and 1,538,462 shares of the Company's common stock. The cash portion
is subject to certain adjustments following closing, and the Company will pay
additional cash consideration contingent upon Sea Mar reaching certain financial
performance targets for the years 1998 and 1999, with the maximum additional
payments being $10 million in each year. Sea Mar has a diversified fleet of 25
support vessels, including 15 supply vessels, eight mini-supply vessels and two
research vessels. Furthermore, during 1997 Sea Mar contracted with a marine
vessel builder to construct ten additional supply and anchor-handling/tug-supply
vessels at an estimated aggregate cost of $86 million. These new vessels, with
lengths of 200 feet or more and scheduled delivery dates between late 1998 and
early 2000, will allow Sea Mar to better serve deeper water markets. Four of
the new vessels are under three- to five-year contracts with Rowan Companies,
Inc. Sea Mar's services include the marine transportation of drilling materials,
supplies and crews for offshore rig operations and support for other offshore
facilities. It also provides offshore logistical support to drilling and
workover operations, pipelaying and other construction, production platforms and
geophysical operations. In international markets, Sea Mar currently has a
contract for operations in Venezuela. For the year ended December 31, 1997, Sea
Mar reported revenues of approximately $46 million and net income of
approximately $14 million. The chief executive officer of Sea Mar will continue
to manage the operations of Sea Mar following the acquisition, under a
three-year employment contract. This transaction, expected to be completed by
March 31, 1998, will be accounted for under the purchase method, and the cash
portion of the purchase price is expected to be financed with part of the
proceeds from a $150 million debt financing, which is intended to be completed
on or about March 31, 1998 (See Note 6). In addition, Sea Mar has debt of
approximately $17 million, which the Company will assume upon acquisition. This
acquisition is subject to regulatory approval and other customary closing
conditions, and there can be no assurance that the transaction will be
consummated.
43
<PAGE> 44
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. INCOME TAXES
Provision for income taxes is summarized below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,998 $ 166 $ --
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 316 270
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 1,428 2,864 450
--------- -------- --------
Total current . . . . . . . . . . . . . . . . . . . . . 4,965 3,346 720
--------- -------- --------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . 9,503 4,680 1,564
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 1,238 (502) (303)
--------- -------- --------
Total deferred . . . . . . . . . . . . . . . . . . . . 10,741 4,178 1,261
--------- -------- --------
Provision for income taxes . . . . . . . . . . . . . . . . $ 15,706 $ 7,524 $ 1,981
========= ======== ========
</TABLE>
The 1997 and 1996 deferred income tax provisions resulted primarily from a
decrease in deferred tax assets due to utilization of U.S. federal net
operating loss ("NOL") carryforwards. The 1997 current federal provision
includes approximately $3.0 million for alternative minimum tax ("AMT")
liability. As AMT is effectively a prepayment of regular income taxes, a
corresponding deferred tax benefit was also recorded. The 1995 deferred income
tax provision resulted primarily from the effect of certain amendments to prior
period U.S. federal tax returns, partly offset by the reversal of no longer
needed deferred foreign taxes for 1990 income tax indemnities and the
elimination of the Company's valuation allowance related to the NOL
carryforwards.
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in subsidiaries and affiliates.. $ 2,131 $ 1,811 $ 2,130 $ 1,780
Property .................................. 244 43,603 931 32,922
Personal injury and property
damage claims ......................... 4,779 -- 3,624 --
Leases .................................... 7,814 -- 8,680 --
Accrued liabilities ....................... 7,453 -- 4,819 --
Inventory valuation ....................... 405 26 461 27
Accounts receivable valuation ............. 861 -- 472 --
Net operating loss carryforward ........... 8,826 -- 20,383 --
AMT credit carryforward ................... 2,998 -- -- --
Other ..................................... 1,219 799 592 872
-------- -------- -------- --------
Subtotal .............................. 36,730 46,239 42,092 35,601
Valuation allowance ....................... (3,472) -- (5,377) --
-------- -------- -------- --------
Total ................................. $ 33,258 $ 46,239 $ 36,715 $ 35,601
======== ======== ======== ========
</TABLE>
The total valuation allowance decreased a net $1.9 million in 1997 and $1.3
million in 1996.
44
<PAGE> 45
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In 1995, the Company eliminated the valuation allowance related to its U.S.
federal NOL carryforwards. Management believes that it is now more likely than
not that the Company will generate taxable income sufficient to realize the tax
benefit of the NOL and AMT carryforwards prior to their expiration.
At December 31, 1997, the Company had $3.6 million of NOL and approximately
$3 million of AMT available for carryforward to reduce U.S. federal regular
income taxes payable in future years. The U.S. NOL carryforward is from 1995
and is available for utilization through the year 2010. The AMT credit
carryforward is primarily from 1997 and can be carried forward indefinitely.
State NOL carryforwards have been substantially reserved for in the Company's
consolidated balance sheet.
The Company had $13.4 million of foreign NOL carryforwards at December 31,
1997, with $1.3 million fully reserved. Management believes the Company will
generate future foreign taxable income sufficient to utilize the remaining
$12.1 million of foreign NOL carryforwards with $0.9 million expiring after
2000, $1.6 million expiring after 2001, $1.8 million expiring after 2002 and
$7.8 million being carried forward indefinitely.
A reconciliation between income taxes computed at the U.S. federal
statutory rate and the Company's income taxes for financial reporting purposes
is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes and minority interest .................. $ 42,297 $ 17,061 $ 5,113
U.S. federal statutory tax rate ................................... 35% 35% 35%
Provision for income taxes computed at U.S. federal
statutory tax rate .............................................. $ 14,804 $ 5,971 $ 1,790
Effect of:
Foreign tax rates different than U.S. federal statutory tax rate. (640) 738 (132)
State income taxes .............................................. 350 205 175
Other - net ..................................................... 1,192 610 148
-------- -------- --------
Provision for income taxes ........................................ $ 15,706 $ 7,524 $ 1,981
======== ======== ========
Effective income tax rate ......................................... 37.1% 44.1% 38.7%
======== ======== ========
</TABLE>
Foreign income before income taxes is defined as income generated from
operations in a foreign country, regardless of whether it is currently
reportable for U.S. tax purposes. Components of income before income taxes and
minority interest are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . . . . . . $ 28,250 $ 9,423 $ 513
Foreign . . . . . . . . . . . . . . . . . . . . . . . . 14,047 7,638 4,600
-------- -------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 42,297 $ 17,061 $ 5,113
======== ======== =========
</TABLE>
The earnings of the Company's foreign subsidiaries and affiliates are
indefinitely invested outside the United States, and the Company estimates that
no U.S. income taxes would be payable upon distribution of those unremitted
earnings.
45
<PAGE> 46
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the
statutes and requirements of various domestic and foreign taxing authorities.
At December 31, 1997, foreign income tax returns for prior years of certain
foreign subsidiaries, unconsolidated affiliates and related entities were under
examination and/or tax deficiencies had been assessed. In the opinion of
management, any additional provisions for taxes which may ultimately be
determined to be required as a result of such examinations or assessments will
not be material to the Company's financial statements.
6. LONG-TERM DEBT AND LINES OF CREDIT
Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Revolving Credit Facility Notes . . . . . . . . . . . . . . . . . . . $ 65,800 $ --
$23.5 Million Term Loan (Antah Drilling - Australia Rig 489) . . . . . -- 12,066
9% Notes (DA&S) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,050 --
10% Notes (GPC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,497 10,000
$6.5 Million Term Loan (Australia Rig 453) . . . . . . . . . . . . . . -- 4,695
$10 Million Term Loan (Alaska) . . . . . . . . . . . . . . . . . . . . -- 4,625
$4 Million Term Loan (Antah Drilling - Malaysia Rig 488) . . . . . . . -- 1,150
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 234
-------- ---------
80,347 32,770
Less current maturities of long-term debt . . . . . . . . . . . . . . 1,025 9,702
-------- ---------
$ 79,322 $ 23,068
======== =========
</TABLE>
On September 30, 1997, the Company entered into a three-year $130 million
syndicated bank revolving line of credit agreement (the "Line of Credit") to
replace its existing $40 million revolving bank line of credit and $15.6 million
of long-term debt and to provide financing for future growth opportunities. The
maximum availability under the Line of Credit is $130 million, including up to
$15 million that may be used to support letters of credit. At December 31,
1997, the Company had drawn $65.8 million in cash and $11.8 million was being
utilized to support the issuance of letters of credit, leaving $52.4 million
unused and available. During February 1998, the Company received a commitment
for an increase in the amount available under the Line of Credit from $130
million to $180 million, which is expected to become effective by March 31,
1998. This additional financing may be used to initially finance the
acquisition of Sea Mar (see Note 4), although the Company plans to complete a
private placement of $150 million 10-year subordinated notes for the purpose of
providing funds for this acquisition and to reduce the outstanding balance
under the Line of Credit. Notes issued under the Line of Credit are prepayable
at any time and are due at expiration on October 2, 2000. The notes bear
interest, at the Company's option, at either (i) a base rate, defined as the
higher of the agent bank's prime lending rate or 1/2 of 1% in excess of the
federal funds rate, plus a margin ranging from zero to .50% (the amount of which
depends on the Company's leverage ratio), or (ii) a Eurodollar rate plus a
margin ranging from 1% to 1.75% (the amount of which depends on the Company's
leverage ratio) with the Company's choice of a one-, two-, three- or six-month
interest period; however, through September 1998, the applicable Eurodollar rate
margin shall not be less than 1.50%. The applicable interest rate was 7.47% at
December 31, 1997. A commitment fee of 1/2 of 1% per annum is payable on the
average daily unused portion of the $130 million commitment. There are also
letter of credit fees that range from 1.25% to 2% per annum (depending on the
Company's leverage ratio) for letters of credit outstanding; however, through
September 1998, such fees shall not be less than 1.75%. Advances under the Line
of Credit are secured by a pledge of
46
<PAGE> 47
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
66% of the capital stock of certain of the Company's foreign subsidiaries. The
Company incurred $1.6 million of debt financing costs during 1997 in connection
with the Line of Credit, which is being amortized over the term of the
agreement.
The Line of Credit agreement imposes certain financial covenants, including
ones requiring the maintenance of a minimum net worth, a minimum interest
coverage ratio, a minimum fixed charge coverage ratio, a maximum leverage ratio
and a maximum debt-to-equity ratio. It also imposes certain other
restrictions, including ones relating to liens, other indebtedness, asset
sales, investments, acquisitions or mergers and payment of dividends. In
addition to customary default provisions, an event of default will occur under
the Line of Credit upon a change of control of the Company, as defined in the
agreement.
In June 1997, as partial consideration for the acquisition of DA&S, the
Company issued 9% notes aggregating $10.1 million, the last of which are due in
2003. These notes are collateralized by security interests in (i) the well-
servicing rigs and related equipment of the acquired business, which had an
aggregate net book value of $4.2 million at December 31, 1997 and (ii) certain
real property of the acquired business which had a carrying value of $0.7
million at December 31, 1997.
In connection with the October 1996 acquisition of Antah Drilling (now Pool
Malaysia), the Company agreed to assume liability under Antah Drilling's term
loans, which loans aggregated $14.6 million as of October 1, 1996. In October
1997 the remaining term loan balance was paid off with borrowings under the
Line of Credit. Such loans bore interest at the Singapore Interbank Offered
Rate plus 1%, with the Company's choice of a one-, three-, or six-month
interest period; the applicable interest rates approximated 6.65% at December
31, 1996.
In January 1996, the Company received $6.5 million under a term loan
agreement in order to refinance the construction costs incurred during 1995 to
build a new offshore platform workover rig, Rig 453, under contract in
Australia. The rig construction costs were initially funded from the Company's
cash resources and borrowings under its then existing line of credit. This
term loan was paid off in October 1997 with borrowings under the Line of
Credit. At the Company's option, interest accrued at a floating rate based
upon (i) the lenders' prime rate plus 0.5% or (ii) the London Interbank Offered
Rate (LIBOR) plus 2.75%, with the Company's choice of a one-, two-, three- or
six-month interest period. The applicable interest rate on amounts outstanding
was 8.13% at December 31, 1996.
In June 1995, as partial consideration for the acquisition of GPC, the
Company issued 10% notes aggregating $11.5 million due in 2005. The
outstanding principal amount of such notes was reduced $4.0 million as of
August 31, 1997 as a result of an August 1997 agreement between the sellers of
GPC ("Sellers") and the Company that resolved certain issues that had arisen in
connection with the GPC purchase agreement. There was a corresponding $4.0
million increase to common stock, as the August 1997 agreement effectively
revalued the shares of the Company's common stock received by the Sellers in
connection with the June 1995 acquisition. The August 1997 agreement also
resulted in a further reduction of $0.9 million, as of November 30, 1997, of
the Sellers' notes in satisfaction of a receivable from the Sellers of like
amount. Due to the principal reductions described above, payment of these notes
is now due to be completed in 2002. These notes are collateralized by (i) the
well-servicing rigs and related equipment of the acquired business which had an
aggregate net book value of $6.8 million at December 31, 1997, (ii) certain
real property of the acquired business which had a carrying value of $1.4
million at December 31, 1997, and (iii) a $4.5 million letter of credit. The
agreement pertaining to the notes contains various restrictive covenants,
including covenants pertaining to the creation of certain encumbrances, the
transaction of certain mergers or sales of assets, the creation of certain
additional debt and other matters.
47
<PAGE> 48
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In April 1995, the Company obtained a three-year term loan (the "Alaska
Loan") to refinance $10 million of the purchase price for the 60.7% partnership
interest in Pool Arctic Alaska which was acquired in September 1994. This term
loan was paid off in October 1997 with borrowings under the Line of Credit. At
the Company's option, interest accrued at a floating rate based upon (i) the
lenders' prime rate plus 0.5%, or (ii) LIBOR plus 2.75%, with the Company's
choice of a one-, two-, three-, or six-month interest period. The applicable
interest rate on amounts outstanding at December 31, 1996 was 8.13%.
The annual maturities of long-term debt outstanding as of December 31, 1997
(including current portion) are as follows:
<TABLE>
<S> <C>
1998 . . . . . . . . . . . $ 1,025
1999 . . . . . . . . . . . 625
2000 . . . . . . . . . . . 68,425
2001 . . . . . . . . . . . 5,104
2002 . . . . . . . . . . . 3,632
Thereafter . . . . . . . . 1,536
--------
$ 80,347
========
</TABLE>
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the Company believes that the recorded value of
long-term debt approximates fair market value at December 31, 1997.
Notes Payable to Related Parties
In connection with the GPC acquisition in June 1995 the Company issued 10%
two-year promissory notes, aggregating $1.5 million in principal amount, to
three employees related to certain deferred compensation obligations of GPC,
and such notes were retired in 1997.
Short-term Lines of Credit
At December 31, 1997, the Company's unconsolidated affiliates had $2.4
million of unused short-term lines of credit and overdraft facilities.
7. COMMITMENTS AND CONTINGENT LIABILITIES
Legal Proceedings
The Company is routinely involved in litigation incidental to its business,
which often involves claims for significant monetary amounts, some, but not
all, of which would be covered by insurance. In the opinion of management,
none of the existing litigation will have any material adverse effect on the
Company.
48
<PAGE> 49
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Personal Injury and Property Damage Liability Claims
Some of the operations of the Company are hazardous, and the Company has
experienced personal injury and property damage incidents. For claims prior to
1990, the Company maintains a reserve for the self-insured portion of its
personal injury and property damage coverage. Periodically, the Company
evaluates the adequacy of this reserve as compared with estimated settlements
for filed and anticipated claims. Estimated settlements for claims are based
on the Company's historical experience, type of claim, knowledge of the
specific circumstances of the claim and judgment of the possible effect that
future economic and legal factors might have on the ultimate settlement of the
claim. The Company believes that for claims prior to 1990, the accrued
liability for personal injury and property damage claims aggregating $2.4
million at December 31, 1997 is adequate.
Beginning in 1990, the Company obtained workers' compensation and
third-party liability insurance under which its exposure to the risks covered
by those policies is significantly lower than under the pre-1990 coverage. The
Company provided $4.0 million, $3.5 million and $4.0 million in 1997, 1996 and
1995, respectively, as estimates of the aggregate uninsured portion of claims
for those years. The accrued liability for the uninsured portion of workers'
compensation and third-party claims incurred after 1989 was $10.2 million at
December 31, 1997, of which $0.5 million was held in a deposit account
accessible by the insurance underwriters. In addition, at December 31, 1997
the Company had a $0.1 million receivable related to claims payments made by
the Company that are reimbursable by insurance underwriters.
In connection with the business acquisitions in 1995 and 1997 (see Note 3),
the Company assumed liabilities for the uninsured portions of workers'
compensation and third-party liability claims incurred prior to the date the
businesses were acquired. The accrued liability for such was $2.9 million at
December 31, 1997. Similar liabilities were not assumed for the 1996
acquisitions.
Lease Commitments
At December 31, 1997, the Company had a number of noncancelable long-term
operating leases, principally for yards and office space, rigs, computer
equipment, and a manufacturing and storage facility, with various expiration
dates. Future minimum net rentals under such leases aggregate $7.3 million for
1998; $6.6 million for 1999; $6.4 million for 2000; $6.0 million for 2001; $6.0
million for 2002; and $1.9 million thereafter. Rental expense incurred under
operating leases aggregated $13.0 million in 1997, $13.5 million in 1996, and
$13.3 million in 1995.
The Company has an operating lease, effective through March 2003, for a
65-acre facility at San Angelo, Texas which it previously used for rig and
equipment manufacturing and storage. The annual lease payments, which are
included in future minimum net rentals above, are $2.2 million through March
1998 and $4.4 million thereafter for the remaining five years of the lease.
Effective October 1, 1994, the Company vacated this facility and subleased it
in its entirety under an operating sublease which expired in September 1997.
The sublease provided for minimum sublease payments of $0.5 million per year
for three years. In September 1988, the Company, anticipating that it would
not be able to fully utilize the facility for a period of years, accrued a
$15.9 million liability for the expected underutilization. After September
1988, the cost associated with the unutilized portion of the facility was
charged against this accrued liability, which as of the fourth quarter of 1994,
had substantially been used. For the remainder of the lease term, the Company
did not anticipate utilizing any of this facility in its future operations nor
did it expect to be able to sublease this facility to third parties for an
amount equivalent to the annual lease payments; therefore, in the fourth
quarter of 1994 the Company recorded a provision for leasehold impairment of
$23.6 million (see Note 11). The provision recognized all future lease
expense, net of anticipated sublease income.
49
<PAGE> 50
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In December 1993 the Company entered into sale/leaseback agreements with a
leasing company with respect to three offshore jackup rigs located in the Gulf
of Mexico, of which two rigs remain under lease. The leases, classified as
operating leases, have an aggregate annual lease rate of approximately $0.8
million per year. The Company has given notice to the leasing company of its
plans to purchase the two rigs for $2.3 million in December 1998. The sale and
leaseback agreements required the Company to place cash in a restricted
investment account which served as collateral for the leases; however, during
1997 the leasing company no longer required this collateral and the restricted
cash was returned to the Company.
8. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Pension Plans
The Pool Company Retirement Income Plan, a defined benefit plan, covers
substantially all of the Company's domestic employees. The Company's policy
is to fund the minimum amount required by the Employee Retirement Income
Security Act of 1974. The benefits are based on years of service and the
average of the highest five consecutive years of compensation during the final
ten years of employment.
Supplementary executive retirement plans provide certain management
employees with defined benefits in excess of those provided by the Retirement
Income Plan. The Company's policy is to fund annually, within 60 days
following the end of the plan year, the amount necessary to make plan assets
sufficient to pay each participant or beneficiary the benefits payable as of
the close of that plan year. The benefits are based on years of service and
the average of the five highest years of compensation, including any bonus
earned, during the final ten years of employment.
The following is a summary of the components of net pension cost:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Service cost - benefits earned during the period . . $ 2,488 $ 2,000 $ 1,580
Interest cost on projected benefit obligation . . . 1,031 781 525
Actual return on plan assets . . . . . . . . . . . (1,613) (841) (869)
Net amortization and deferral . . . . . . . . . . . 1,106 667 509
-------- -------- ---------
Net pension cost . . . . . . . . . . . . . . . . . $ 3,012 $ 2,607 $ 1,745
======== ======== =========
</TABLE>
50
<PAGE> 51
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
POOL COMPANY SUPPLEMENTARY EXECUTIVE
RETIREMENT INCOME PLAN RETIREMENT PLANS
------------------------ -----------------------
1997 1996 1997 1996
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation ........................ $ (9,147) $ (5,475) $ (4,908) $ (2,440)
======== ======== ======== ========
Accumulated benefit obligation ................... $(10,276) $ (6,370) $ (4,908) $ (2,440)
======== ======== ======== ========
Projected benefit obligation ..................... $(13,346) $ (8,227) $ (7,008) $ (3,433)
Plan assets at fair value ............................. 8,376 6,460 5,296 1,665
-------- -------- -------- --------
Projected benefit obligation in excess of plan assets.. (4,970) (1,767) (1,712) (1,768)
Unrecognized net (gain) loss .......................... 2,233 (219) 2,414 (53)
Unrecognized prior service cost ....................... -- -- 1,386 1,751
Adjustment to recognize minimum liability ............. -- -- -- (706)
-------- -------- -------- --------
Prepaid (accrued) pension cost ........................ $ (2,737) $ (1,986) $ 2,088 $ (776)
======== ======== ======== ========
</TABLE>
51
<PAGE> 52
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Assumptions used in the accounting at December 31 were:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Pool Company Retirement Income Plan:
Weighted average discount rate . . . . . . . . . . . . . . . 6.75% 7.75%
Annual rate of increase in future compensation levels . . . . 4.50% 4.50%
Expected long-term rate of return on plan assets . . . . . . 9.00% 9.00%
Supplementary executive retirement plans:
Weighted average discount rate . . . . . . . . . . . . . . . 6.75% 7.75%
Annual rate of increase in future compensation levels . . . . 6.00% 6.00%
Expected long-term rate of return on plan assets . . . . . . 9.00% 9.00%
</TABLE>
Postretirement Benefits Other Than Pensions
The Company provides certain health care and life insurance benefits to
eligible employees who attain specific age and years of service requirements.
The benefits are paid from the general funds of the Company and, in the case of
the health care benefits, are partially funded by contributions from the
retirees.
The Company accounts for postretirement benefits other than pensions based
upon Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") which
requires the Company to accrue the estimated cost of its retiree health care
and life insurance benefits during the years the employees provide services
entitling them to the benefits. In accordance with the provisions of SFAS 106,
the Company had elected to recognize the liability of approximately $2.9
million at the January 1, 1993 implementation date over a period of twenty
years. During 1997, the Company amended its postretirement benefit plan by
terminating postretirement health care coverage for hourly employees who were
not eligible by December 31, 1997 and modifying the cost-sharing for eligible
dependents. The effect of this amendment was to reduce the Company's
postretirement benefit obligation by approximately $2.5 million.
The following table sets forth certain information with respect to the
Company's postretirement benefits obligation at December 31:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,281) $ (1,630)
Other fully eligible plan participants . . . . . . . . . . . . . (1,607) (2,096)
Other active plan participants . . . . . . . . . . . . . . . . . (2,086) (4,720)
------- --------
Total accumulated postretirement benefit obligation . . . . . . . . (4,974) (8,446)
Unrecognized transition obligation . . . . . . . . . . . . . . . . -- 2,236
Unrecognized prior service cost (credit) . . . . . . . . . . . . . (80) 203
Unamortized net loss . . . . . . . . . . . . . . . . . . . . . . . 461 1,646
------- --------
Accrued postretirement benefit liability . . . . . . . . . . . . . $(4,593) $ (4,361)
======= ========
</TABLE>
52
<PAGE> 53
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Net periodic postretirement benefit cost consisted of the following
components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Service cost - benefits earned during the year . . . $ 373 $ 1,023 $ 750
Interest cost on accumulated postretirement
benefit obligation . . . . . . . . . . . . . . . . 315 546 461
Net amortization and deferral . . . . . . . . . . . . (13) 167 93
Amortization of transition obligation . . . . . . . . -- 140 140
-------- -------- ---------
Net periodic postretirement benefit cost . . . . . . $ 675 $ 1,876 $ 1,444
======== ======== =========
</TABLE>
The assumed health care cost trend rate used to measure the expected cost
of the benefits was 6.0% for 1997 and thereafter. If the assumed health care
cost trend rate were increased by one percent, the accumulated postretirement
benefit obligation as of December 31, 1997 would have increased by 11%, and the
aggregate of service and interest cost components for 1997 would have increased
17%. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% in 1997, 7.75% in 1996 and 7.25% in
1995.
Postemployment Benefits
The Company accounts for postemployment benefits based on Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which requires the accrual of benefits provided after
employment but before retirement to former or inactive employees, their
beneficiaries, and covered dependents.
9. TRANSACTIONS WITH ENSERCH
ENSERCH (see Note 1) leases office space to the Company at negotiated rates
under an agreement that expires in December 2002. The total costs charged by
ENSERCH for such office space was $0.8 million in each of the three years ended
December 31, 1997.
In connection with the Company becoming an independent public company,
ENSERCH and the Company entered into a contingent support agreement which
relates to ENSERCH's guarantee of the Company's lease obligations with respect
to the facility in San Angelo, Texas, through March 2003 ($22.3 million
outstanding at December 31, 1997). The Company is obligated to reimburse
ENSERCH for any amounts paid out under this guarantee.
Certain oilfield services are performed for various affiliates and entities
managed by affiliates of ENSERCH at prices comparable to those received from
nonaffiliated customers. Revenues from the performance of those services,
amounted to $1.2 million in 1997, $2.3 million in 1996 and $1.8 million in
1995.
53
<PAGE> 54
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. UNCONSOLIDATED AFFILIATES
Some of the Company's operations are conducted through unconsolidated
affiliates, in which the Company held the following indicated ownership
interest at December 31, 1997: Pool Arabia, Ltd. - 51% and Intairdril Oman
L.L.C. - 49%. The Company charges its unconsolidated affiliates for the
provision of management services and, in some cases, financing and equipment
rental.
The following table sets forth certain summarized financial information of
the Company's unconsolidated affiliates as shown by the financial statements of
the affiliates. Pool Arabia's 1996 net loss included a $2.3 million pretax
loss on disposal of two offshore jackup rigs sold to a third party. The loss
on disposal had no effect on the Company's equity in income from Pool Arabia
because the Company's basis in the rigs was lower than Pool Arabia's basis in
the rigs.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Pool Arabia, Ltd. ............ $ 36,964 $ 29,238 $ 28,150
Antah Drilling Sdn. Bhd. (b).. -- 4,363 4,218
Pool Santana, Limited (c)..... -- 960 5,785
Intairdril Oman L.L.C. ....... 206 334 434
-------- -------- --------
Total ................... $ 37,170 $ 34,895 $ 38,587
======== ======== ========
Gross profit (a):
Pool Arabia, Ltd. ............ $ 12,640 $ 9,192 $ 10,106
Antah Drilling Sdn. Bhd. (b).. -- 2,442 2,357
Pool Santana, Limited (c)..... -- 333 2,522
Intairdril Oman L.L.C. ....... 169 153 223
-------- -------- --------
Total ................... $ 12,809 $ 12,120 $ 15,208
======== ======== ========
Net income (loss):
Pool Arabia, Ltd. ............ $ 1,066 $ (3,586) $ (536)
Antah Drilling Sdn. Bhd. (b).. -- (50) (210)
Pool Santana, Limited (c)..... -- 89 927
Intairdril Oman L.L.C. ....... 134 (30) (392)
-------- -------- --------
Total ................... $ 1,200 $ (3,577) $ (211)
======== ======== ========
</TABLE>
- ----------------
(a) Gross profit is computed as revenues less operating expenses (which
excludes depreciation and amortization and selling, general and
administrative expenses).
(b) In October 1996, the Company acquired the 51% interest not already owned by
the Company in Antah Drilling. Antah Drilling's results have been included
in the accompanying financial statements since the date of such acquisition
(see Note 3).
(c) In April 1996, the Company acquired the 51% interest not already owned by
the Company in Pool Santana, Limited, a Trinidad corporation, the assets of
which consisted primarily of a platform workover rig and its related
equipment which were subsequently transferred to the Company's Gulf of
Mexico operation.
54
<PAGE> 55
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's investment in its unconsolidated affiliates differs from its
ownership percentage of the affiliates' equity based on the financial
statements of the affiliates chiefly because of the allocation of the purchase
price for the 1990 purchase of ENSERCH's oilfield services business,
unrecognized gains on asset sales and other transactions as set forth below.
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------------------
1997 1996
-------- --------
<S> <C> <C>
Combined Balance Sheet Data of Unconsolidated Affiliates:
Current assets ....................................................... $ 17,527 $ 29,277
Noncurrent assets .................................................... 59,197 39,342
-------- --------
Total assets .................................................... 76,724 68,619
-------- --------
Current liabilities .................................................. 15,163 4,752
Noncurrent liabilities ............................................... 41,654 42,562
-------- --------
Total liabilities ............................................... 56,817 47,314
-------- --------
Net assets of unconsolidated affiliates .............................. $ 19,907 $ 21,305
======== ========
Investment in and Noncurrent Receivables from Unconsolidated Affiliates:
The Company's portion of net assets .................................. $ 10,136 $ 10,852
Long-term advances ................................................... 19,312 19,334
Differences between affiliates' bases and Company's carrying value ... (10,259) (12,408)
-------- --------
Equity in net assets ................................................. 19,189 17,778
Noncurrent receivables ............................................... 1,326 1,326
-------- --------
Total ........................................................... $ 20,515 $ 19,104
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Earnings Attributable to Unconsolidated Affiliates:
The Company's portion of net income (loss) ............ $ 610 $(1,825) $ (114)
Adjustment to reconcile differences between affiliates'
bases and Company's carrying value .................. 2,408 4,046 3,009
------- ------- -------
Equity in income ...................................... 3,018 2,221 2,895
Other income (expense) ................................ 62 23 60
------- ------- -------
Total ............................................ $ 3,080 $ 2,244 $ 2,955
======= ======= =======
</TABLE>
At December 31, 1997, the Company's investment in unconsolidated affiliates
included $6.5 million of net undistributed earnings of the affiliates. Pool
Arabia, Ltd. is party to an agreement which contains a covenant restricting the
ability to distribute, by dividend or otherwise, its earnings to the Company.
The Company received dividends from unconsolidated affiliates of $1.6 million
in 1997, $1.7 million in 1996 and $2.9 million in 1995.
In management's opinion, the Company has no significant exposure from
currency restrictions on its foreign subsidiaries and affiliates (see Note 1).
55
<PAGE> 56
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
BALANCE SHEET ITEMS:
Property, plant and equipment comprised the following:
Rigs and related equipment . . . . . . . . . . . . . . . . . $ 343,998 $ 257,789
Transportation equipment . . . . . . . . . . . . . . . . . . 6,000 5,302
Other machinery and equipment . . . . . . . . . . . . . . . 4,811 4,584
Land and buildings . . . . . . . . . . . . . . . . . . . . . 9,523 7,765
Leasehold improvements . . . . . . . . . . . . . . . . . . . 2,799 2,463
Furniture and office equipment . . . . . . . . . . . . . . . 3,976 2,699
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 371,107 280,602
Less - Accumulated depreciation . . . . . . . . . . . . . . 111,314 91,477
------------- -------------
Property, plant and equipment - net . . . . . . . . . $ 259,793 $ 189,125
============= =============
Accrued liabilities are summarized below:
Accrued compensation and benefits . . . . . . . . . . . . . $ 21,459 $ 18,934
Deferred rig mobilization . . . . . . . . . . . . . . . . . 2,887 3,155
Personal injury and property damage claims . . . . . . . . . 4,439 925
Accrued capital expenditures . . . . . . . . . . . . . . . . 4,097 246
Accrued maintenance costs . . . . . . . . . . . . . . . . . 2,033 938
Other accruals . . . . . . . . . . . . . . . . . . . . . . . 9,729 5,307
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,644 $ 29,505
============= =============
Other liabilities (noncurrent) are summarized below:
Accrued rental cost of underutilized facilities . . . . . . $ 22,327 $ 24,476
Personal injury and property damage claims - noncurrent . . 11,241 9,436
Accrued benefits - noncurrent . . . . . . . . . . . . . . . 4,788 3,279
Deferred rig mobilization . . . . . . . . . . . . . . . . . 2,051 5,055
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,588 3,790
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,995 $ 46,036
============= =============
</TABLE>
56
<PAGE> 57
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
INCOME STATEMENT ITEMS:
Revenues:
Domestic onshore
Central division well-servicing ........................ $ 114,596 $ 91,304 $ 86,880
California division well-servicing ..................... 82,417 71,519 52,511
Production services .................................... 54,357 44,459 43,221
Gulf of Mexico offshore workover and drilling ............... 80,957 58,545 37,415
International workover and drilling ......................... 71,117 42,191 23,579
Alaska workover and drilling ................................ 26,797 24,633 20,427
Other services .............................................. 21,681 15,907 13,272
--------- --------- ---------
Total .............................................. $ 451,922 $ 348,558 $ 277,305
========= ========= =========
Costs and expenses included:
Provision (credit) for uncollectible accounts ............... $ 501 $ (551) $ 765
========= ========= =========
Other income (expense) - net:
Interest income ............................................. $ 999 $ 1,302 $ 435
Gain (loss) on disposal of assets ........................... 3,718 1,015 1,164
Foreign currency gain (loss) ................................ (82) (191) (285)
Other ....................................................... (18) (31) (25)
--------- --------- ---------
Total .............................................. $ 4,617 $ 2,095 $ 1,289
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Federal, state and foreign income tax payments (refunds), net ... $ 4,035 $ 2,499 $ 138
Interest payments, net of amounts capitalized, to third parties.. 3,669 2,744 1,458
Net changes in the components of operating working capital
were as follows:
Receivables ................................................. $ (17,345) $ (12,472) $ 5,653
Accounts receivable from affiliates ......................... (571) (604) (1,587)
Inventories ................................................. (4,811) 72 (38)
Other current assets ........................................ (2,734) (127) 123
Trade accounts payable and accrued liabilities .............. 10,220 1,288 5,295
Accrued taxes ............................................... 1,049 1,124 (2,198)
--------- --------- ---------
Total .............................................. $ (14,192) $ (10,719) $ 7,248
========= ========= =========
</TABLE>
57
<PAGE> 58
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Expenditures for acquisitions, including acquisition costs, less cash acquired:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Fair value of assets acquired (including goodwill) . . . $ 72,818 $ 56,881 $ 37,808
Long-term notes issued . . . . . . . . . . . . . . . . . (10,050) -- (11,500)
Company's common stock issued . . . . . . . . . . . . . . -- -- (4,200)
Liabilities assumed . . . . . . . . . . . . . . . . . . . (26,528) (33,756) (18,023)
---------- ---------- ----------
Cash paid, including acquisition related expenditures . . 36,240 23,125 4,085
Less: cash acquired . . . . . . . . . . . . . . . . . . 3,371 759 654
---------- ---------- ----------
Net cash used for acquisitions . . . . . . . . . . . . . $ 32,869 $ 22,366 $ 3,431
========== ========== ==========
</TABLE>
See Note 6 for a discussion of the August 1997 agreement between the
sellers of GPC and the Company that resolved certain issues that had arisen in
connection with the GPC purchase.
The Company also reclassified its investments in Antah Drilling and Pool
Santana in 1996 of $1.6 million and $1.5 million, respectively, to their
related assets and liabilities at the time of each acquisition (see Note 3).
58
<PAGE> 59
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
BUSINESS BY GEOGRAPHIC AREA:
The following table sets forth certain financial data of the Company by
geographic area:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States . . . . . . . . . . . . . . . . $ 377,518 $ 304,406 $ 252,056
Middle East . . . . . . . . . . . . . . . . . 11,404 9,074 7,873
Australia . . . . . . . . . . . . . . . . . . 21,453 10,529 2,248
South America . . . . . . . . . . . . . . . . 37,149 22,592 13,263
Asia . . . . . . . . . . . . . . . . . . . . 4,398 1,158 --
Europe and Africa . . . . . . . . . . . . . . -- 799 1,865
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . $ 451,922 $ 348,558 $ 277,305
=========== =========== ===========
Earnings Attributable to Unconsolidated Affiliates:
Middle East . . . . . . . . . . . . . . . . . $ 3,080 $ 1,669 $ 2,163
South America . . . . . . . . . . . . . . . . -- 52 521
Asia . . . . . . . . . . . . . . . . . . . . -- 523 271
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . $ 3,080 $ 2,244 $ 2,955
=========== =========== ===========
Operating Income (Loss) (a):
United States . . . . . . . . . . . . . . . . $ 28,359 $ 9,563 $ 1,105
Middle East . . . . . . . . . . . . . . . . . 2,185 1,522 928
Australia . . . . . . . . . . . . . . . . . . 6,418 2,937 902
South America . . . . . . . . . . . . . . . . 682 1,569 177
Asia . . . . . . . . . . . . . . . . . . . . 1,733 326 (2)
Europe and Africa . . . . . . . . . . . . . . (489) (402) (430)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . $ 38,888 $ 15,515 $ 2,680
=========== =========== ===========
Income (Loss) Before Income Taxes and Minority Interest:
United States . . . . . . . . . . . . . . . . $ 28,250 $ 9,423 $ 513
Middle East . . . . . . . . . . . . . . . . . 5,546 3,230 3,279
Australia . . . . . . . . . . . . . . . . . . 5,566 2,234 891
South America . . . . . . . . . . . . . . . . 991 1,709 602
Asia . . . . . . . . . . . . . . . . . . . . 2,346 853 269
Europe and Africa . . . . . . . . . . . . . . (402) (388) (441)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . $ 42,297 $ 17,061 $ 5,113
=========== =========== ===========
</TABLE>
- -----------------
(a) Operating income (loss) is revenues less related costs and expenses; it
excludes earnings attributable to unconsolidated affiliates.
59
<PAGE> 60
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Identifiable Assets:
United States . . . . . . . . . . . . . . . . $ 343,246 $ 222,656 $ 183,850
Middle East . . . . . . . . . . . . . . . . . 29,398 28,065 26,655
Australia . . . . . . . . . . . . . . . . . . 45,447 46,769 8,334
South America . . . . . . . . . . . . . . . . 45,424 35,974 19,566
Asia . . . . . . . . . . . . . . . . . . . . 6,139 6,062 8,035
Europe and Africa . . . . . . . . . . . . . . 9,541 1,691 2,003
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . $ 479,195 $ 341,217 $ 248,443
=========== =========== ===========
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for 1997
and 1996.
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997:
Revenues ................................ $ 125,147 $ 118,636 $ 109,755 $ 98,384
Earnings Attributable to Unconsolidated
Affiliates ............................ 813 629 634 1,004
Gross Profit (a) ........................ 35,166 31,982 28,590 24,672
Income Before Income Taxes and
Minority Interest ..................... 12,507 13,872 9,937 5,981
Net Income .............................. 8,552 8,369 5,952 3,805
Earnings Per Share of Common Stock ...... $ .44 $ .43 $ .31 $ .20
Earnings Per Share of Common Stock -
assuming dilution ..................... $ .43 $ .43 $ .31 $ .20
1996:
Revenues ................................ $ 99,910 $ 83,978 $ 82,988 $ 81,682
Earnings Attributable to Unconsolidated
Affiliates ............................ 334 728 524 658
Gross Profit (a) ........................ 25,450 19,910 18,991 18,759
Income Before Income Taxes and
Minority Interest ..................... 6,965 3,992 3,377 2,727
Net Income .............................. 3,798 2,586 1,833 1,423
Earnings Per Share of Common Stock ...... $ .20 $ .14 $ .13 $ .10
Earnings Per Share of Common Stock -
assuming dilution ..................... $ .20 $ .14 $ .13 $ .10
</TABLE>
- ---------------
(a) Gross profit is computed as consolidated revenues plus earnings
attributable to unconsolidated affiliates, less operating expenses (which
excludes selling, general and administrative expenses, depreciation and
amortization and acquisition related costs).
60
<PAGE> 61
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components. The Company plans to adopt
this statement in the first quarter of 1998. Its adoption is not expected to
have a material effect on the Company's financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. The Company
plans to adopt this statement in the fourth quarter of 1998. Its adoption is
not expected to have a material effect on the Company's financial statements,
and any effect will be limited to the form and content of the disclosure it
requires.
61
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10-13.
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10-13 is incorporated by reference from the Company's definitive proxy
statement, which will be filed with the Commission pursuant to Regulation 14A
within 120 days of December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)-1 FINANCIAL STATEMENTS
Included in Part II of this report:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Pool Energy Services Co.:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . 28
Statements of Consolidated Operations for Each of the Three Years in the
Period Ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 29
Statements of Consolidated Cash Flows for Each of the Three Years in the
Period Ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 32
</TABLE>
(a)-2 FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
<TABLE>
<S> <C>
Pool Energy Services Co.:
Consolidated Supplementary Financial Statement Schedules As of and for Each of
the Three Years Ended December 31, 1997:
II - Consolidated Valuation and Qualifying Accounts . . . . . . . . . . 68
</TABLE>
The supplemental schedules other than the one listed above are omitted
because of the absence of the conditions under which they are required or
because the required information is included in the Financial Statements or
Notes thereto.
62
<PAGE> 63
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
3.1 - Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996, Commission File No. 0-
18437)
3.2 - Bylaws of the Company as currently in effect (incorporated by reference to Exhibit 3.2.1 to the
Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994, Commission File No. 0-
18437)
4.1 - Rights Agreement dated as of June 7, 1994 between Pool Energy Services Co. and The First National Bank
of Boston, as Rights Agent, which includes as Exhibit A the form of Rights Certificate and as Exhibit B
the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated June 7, 1994, Commission File No. 0-18437)
10.1 - Contingent Support Agreement (incorporated by reference to Exhibit 10.2.1 to the Company's Registration
Statement on Form S-1 No. 33-33726)
10.1.1 - Amendment to Contingent Support Agreement (incorporated by reference to Exhibit 10.2.1 to the Company's
Form 10-K for the year ended December 31, 1990, Commission File No. 0-18437)
10.2 - Sublease Agreement (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-1 No. 33-25535)
10.2.1 - First Amendment to Sublease Agreement (incorporated by reference to Exhibit 10.3.1 to the Company's
Registration Statement on Form S-1 No. 33-36622)
10.2.2 - Second Amendment to Sublease Agreement (incorporated by reference to Exhibit 10.3.2 to the Company's
Form 10-K for the year ended December 31, 1992, Commission File No. 0-18437)
10.3(+) - Pool Energy Services Co. Stock Option Plan (incorporated by reference to Exhibit 10.4.1 to the
Company's Registration Statement on Form S-1 No. 33-36622)
10.4 - $30 million Restated Credit Agreement dated as of August 15, 1994 between Pool Company and NationsBank
of Texas, N.A., as Agent (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1994, Commission File No. 0-18437)
10.4.1 - First Amendment to 1994 Restated Credit Agreement dated February 28, 1995 (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995,
Commission File No. 0-18437)
10.4.2 - Second Amendment to 1994 Restated Credit Agreement dated April 21, 1995 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995,
Commission File No. 0-18437)
10.4.3 - Third Amendment and Waiver to 1994 Restated Credit Agreement, and First Amendment and Waiver to 1995
Term Loan Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1995, Commission File No. 0-18437)
10.4.4 - Fourth Amendment to 1994 Restated Credit Agreement (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1995, Commission File No. 0-
18437)
10.5 - Term Loan Agreement among Pool Company, NationsBank of Texas, N.A. and Certain Lenders dated April 21,
1995 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1995, Commission File No. 0-18437)
</TABLE>
63
<PAGE> 64
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.6(+) - Pool Energy Services Co. 1991 Directors Stock Option Plan (incorporated by reference to Exhibit 10.6.2
to the Company's Registration Statement on Form S-8 No. 33-50844)
10.7 - Sublease Agreement dated March 15, 1983 between Pool Company and Sanan Leasing Corporation
(incorporated by reference to Exhibit 19.1 of the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1992, Commission File No. 0-18437)
10.8(+) - Supplemental Executive Retirement Plan of Pool Company, as amended (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993,
Commission File No. 0-18437)
10.8.1(+) - Amended and Restated Supplementary Executive Retirement Plan of Pool Company (incorporated by reference
to Exhibit 10.9.1 to the Company's Form 10-K for the year ended December 31, 1996, Commission File No.
0-18437)
10.9 - Agreement in Relation to Bareboat Charter (Pool Ranger IV) dated December 30, 1993 between Pool Company
and Nationsbanc Leasing Corporation of North Carolina (incorporated by reference to Exhibit 10.13 to
the Company's Form 10-K for the year ended December 31, 1993, Commission File No. 0-18437)
10.10 - Agreement in Relation to Bareboat Charter (Pool Ranger V) dated December 30, 1993 between Pool Company
and Nationsbanc Leasing Corporation of North Carolina (incorporated by reference to Exhibit 10.14 to
the Company's Form 10-K for the year ended December 31, 1993, Commission File No. 0-18437)
10.11 - Agreement in Relation to Bareboat Charter (Pool Ranger VI) dated December 30, 1993 between Pool
Company and Nationsbanc Leasing Corporation of North Carolina (incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the year ended December 31, 1993, Commission File No. 0-18437)
10.12(+) - Pool Energy Services Co. 1993 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.16
to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994, Commission File No.
0-18437)
10.13(+) - Change in Control Agreement, as amended, between the Company and J. T. Jongebloed (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1994, Commission File No. 0-18437)
10.14(+) - Change in Control Agreement, as amended, between the Company and E. J. Spillard (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1994, Commission File No. 0-18437)
10.15(+) - Change in Control Agreement, as amended, between the Company and W. J Myers (incorporated by reference
to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.16(+) - Change in Control Agreement, as amended, between the Company and R. G. Hale (incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.17(+) - Change in Control Agreement, as amended, between the Company and G. G. Arms (incorporated by reference
to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.18(+) - Change in Control Agreement, as amended, between the Company and L. E. Dupre (incorporated by reference
to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.19(+) - Pool Energy Services Co. 1995 Management Bonus Plan - Senior Executive Level (incorporated by reference
to Exhibit 10.23 to the Company's Form 10-K for the year ended December 31, 1994, Commission File No.
0-18437)
</TABLE>
64
<PAGE> 65
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.20 - Stock Purchase Agreement dated June 13, 1995 by and among Robert D. Hillman, Barbara A. Hillman,
Richard H. Hillman, Robert D. Hillman, Jr., Golden Pacific Corp., Pool Company and Pool Energy Services
Co. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K (Date of
Event: June 13, 1995) dated June 27, 1995, Commission File No. 0-18437)
10.21 - Agreement regarding Deferred Payment of Purchase Price dated June 13, 1995 by and among Robert D.
Hillman, Barbara A. Hillman, Richard H. Hillman, Robert D. Hillman, Jr., Golden Pacific Corp., Pool
Company and Pool Energy Services Co., including Promissory Notes, and Exhibits B, C, D and F to such
agreement (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K (Date
of Event: June 13, 1995) dated June 27, 1995, Commission File No. 0-18437)
10.22 - Voting Agreement and Agreement Restricting Transfer dated June 13, 1995 by and among Robert D. Hillman,
Barbara A. Hillman, Richard H. Hillman, Robert D. Hillman, Jr., Golden Pacific Corp., Pool Company and
Pool Energy Services Co. (incorporated by reference to Exhibit 2.3 to the Company's Current Report on
Form 8-K (Date of Event: June 13, 1995) dated June 27, 1995, Commission File No. 0-18437)
10.23 - $35 million Restated Revolving Credit Agreement dated as of November 30, 1995 between Pool Company and
NationsBank of Texas, N.A., as Agent (incorporated by reference to Exhibit 10.26 to the Company's Form
10-K for the year ended December 31, 1995, Commission File No. 0-18437)
10.23.1 - First Amendment and Waiver to $35 million Restated Revolving Credit Agreement and $10 million Restated
Term Loan Agreement (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement
on Form S-3 No. 333-5229)
10.23.2 - First Amendment to ISDL Term Loan Agreement, Second Amendment to Pool Company Restated Revolving Credit
Agreement, and Restated Term Loan Agreement (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996, Commission File No. 0-18437)
10.23.3 - Second Amendment to ISDL Term Loan Agreement, Third Amendment to Pool Company Restated Revolving Credit
Agreement, and Third Amendment to Pool Company Restated Term Loan Agreement (incorporated by reference
to Exhibit 10.25.3 to the Company's Form 10-K for the year ended December 31, 1996, Commission File No.
0-18437)
10.23.4 - Fourth Amendment and Waiver to Pool Company Restated Revolving Credit Agreement and Pool Company
Restated Term Loan Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1997, Commission File No. 0-18437)
10.24 - $6.5 million Term Loan Agreement dated as of November 30, 1995 between International Sea Drilling Ltd.
and NationsBank of Texas, N.A., as Agent (incorporated by reference to Exhibit 10.27 to the Company's
Form 10-K for the year ended December 31, 1995, Commission File No. 0-18437)
10.25 - $10 million Restated Term Loan Agreement dated as of November 30, 1995 between Pool Company and
NationsBank of Texas, N.A., as Agent (incorporated by reference to Exhibit 10.28 to the Company's Form
10-K for the year ended December 31, 1995, Commission File No. 0-18437)
10.26(+) - Pool Energy Service Co. 1996 Management Bonus Plan - Senior Executive Level (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996,
Commission File No. 0-18437)
</TABLE>
65
<PAGE> 66
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.27(+) - Pool Energy Service Co. 1996 Longterm Incentive Plan (corrected version replacing Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996, Commission File No. 0-
18437; incorporated by reference to Exhibit 10.29 to the Company's Form 10-K for the year ended
December 31, 1996, Commission File No. 0-18437)
10.28(+) - Pool Energy Service Co. 1996 Directors' Stock Incentive Plan (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement of Form S-8 No. 333-03159 filed with the commission on May 3,
1996)
10.28.1(+) - Form of Stock Option Agreement, Pool Energy Services Co. 1996 Directors' Stock Incentive Plan
(incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 No. 333-
03159 filed with the commission on May 3, 1996)
10.29 - Loan Agreement between Antah Drilling Sdn. Bhd. and the Hongkong and Shanghai Banking Corporation
Limited (incorporated by reference to Exhibit 10.31 to the Company's Form 10-K for the year ended
December 31, 1996, Commission File No. 0-18437)
10.29.1 - Supplemental Agreement between Antah Drilling Sdn. Bhd. and the Hongkong and Shanghai Banking
Corporation Limited (incorporated by reference to Exhibit 10.31.1 to the Company's 10-K for the year
ended December 31, 1996, Commission File No. 0-18437)
10.30(+) - Pool Energy Services Co. 1997 Senior Executive Bonus Plan (incorporated by reference to Exhibit 10.32
to the Company's 10-K for the year ended December 31, 1996, Commission File No. 0-18437)
10.31(+) Pool Energy Services Co. 1997 Longterm Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission File No. 0-
18437)
10.32(+) Pool Company 1996 Supplementary Executive Retirement Plan (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission File No. 0-
18437)
10.33 - U.S. $130,000,000 Credit Agreement between Pool Energy Services Co., Pool Energy Holding, Inc., Pool
Company, various banks, SBC Warburg Dillon Read Inc., as Arranger, Credit Lyonnais New York Branch, as
Administrative Agent, and Swiss Bank Corporation, New York Branch, as Documentation Agent, dated as of
September 30, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1997, Commission File No. 0-18437)
10.34 - Purchase Agreement by and among Pool Company, R&H Well Service, Inc., Trey Services, Inc. and Steve L.
Holifield dated as of October 6, 1997 (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1997, Commission File No. 0-18437)
10.35(+) - Pool Energy Services Co. 1997 Employee SAR/Phantom Stock Plan (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997, Commission
File No. 0-18437)
10.36(+)(*) - Pool Energy Services Co. 1998 Senior Executive Bonus Plan
10.37(+)(*) - Pool Energy Services Co. 1998 Long-term Incentive Plan
10.38(*) - Letter Agreement dated August 20, 1997 in connection with the Stock Purchase Agreement dated June 13,
1995 by and among Robert D. Hillman, Barbara A. Hillman, Richard H. Hillman, Robert D. Hillman, Jr.,
Golden Pacific Corp., Pool Company and Pool Energy Services Co.
</TABLE>
66
<PAGE> 67
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
21(*) - List of Subsidiaries
23(*) - Consent of Deloitte & Touche LLP
24(*) - Powers of Attorney
27(*) - Financial Data Schedule
</TABLE>
- ---------------
(+) Management contract or compensatory plan or arrangement
(*) Filed herewith
The schedules to Exhibits 10.23, 10.24 and 10.25 have been omitted. The
Company hereby agrees to furnish supplementally to the Commission upon request
copies of any such omitted schedules.
(b) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed during the
quarter ended December 31, 1997.
67
<PAGE> 68
SCHEDULE II
POOL ENERGY SERVICES CO.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
AS OF DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER OTHER AT END
OF YEAR EXPENSES ACCOUNTS CHANGES OF YEAR
---------- ---------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1997............................ $ 1,235 $ 195 $ 352(b) $ (510)(a) $ 1,272
1996............................ 1,059 249 29 (102)(a)(c) 1,235
1995............................ 1,622 1,255 191 (2,009)(a)(d) 1,059
Allowance for Inventory Shrinkage:
1997............................ $ 1,856 $ 480 $ -- $ (80) $ 2,256
1996............................ 1,585 341 34 (104) 1,856
1995............................ 1,432 244 -- (91) 1,585
Allowance for Doubtful Noncurrent
Receivables:
1997............................ $ 1,219 $ -- $ -- $ (106)(a)(e) $ 1,113
1996............................ 2,824 -- -- (1,605)(a)(f) 1,219
1995............................ 3,667 -- -- (843)(a)(g) 2,824
</TABLE>
- -----------
(a) Includes amounts reclassified between allowance for doubtful accounts and
allowance for doubtful noncurrent receivables.
(b) Includes an increase of $325 related to business acquisitions.
(c) Includes a reduction of $800 of allowance related to a revised estimate of
the accounts receivable allowance.
(d) Includes a reduction of $490 of allowance related to a revised estimate of
the accounts receivable allowance.
(e) Includes a reduction of $616 of allowance related to accounts receivable
written off.
(f) Includes a reduction of $908 of allowance related to accounts receivable
written off.
(g) Includes a reduction of $2,362 of allowance related to accounts receivable
written off.
68
<PAGE> 69
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.
By: /s/ J. T. JONGEBLOED
-----------------------------------------------
J. T. Jongebloed
Chairman, President and Chief Executive Officer
Dated: February 23, 1998
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 date indicated.
<TABLE>
<CAPTION>
NAME AND
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. T. JONGEBLOED Chairman, President and Chief
- ---------------------------------- Executive Officer ----
J. T. Jongebloed )
)
/s/ E. J. SPILLARD Senior Vice President, Finance )
- ---------------------------------- (principal financial officer) )
E. J. Spillard )
)
/s/ B. G. GORDON Controller (principal accounting )
- ---------------------------------- officer) )
B. G. Gordon )
)
WILLIAM H. MOBLEY Director* ) February 23, 1998
)
JOSEPH R. MUSOLINO Director* )
)
JAMES L. PAYNE Director* )
)
DONALD D. SYKORA Director* )
)
)
)
*By: /s/ J. T. JONGEBLOED )
- ---------------------------------- )
(J. T. Jongebloed, as )
Attorney-In-Fact for each of )
the persons indicated) ----
</TABLE>
69
<PAGE> 70
POOL ENERGY SERVICES CO.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
3.1 - Articles of Incorporation of the Company, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1996, Commission File No. 0-18437)
3.2 - Bylaws of the Company as currently in effect (incorporated by reference
to Exhibit 3.2.1 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1994, Commission File No. 0-18437)
4.1 - Rights Agreement dated as of June 7, 1994 between Pool Energy Services
Co. and The First National Bank of Boston, as Rights Agent, which includes
as Exhibit A the form of Rights Certificate and as Exhibit B the form of
Summary of Rights to Purchase Shares (incorporated by reference to Exhibit
1 to the Company's Current Report on Form 8-K dated June 7, 1994,
Commission File No. 0-18437)
10.1 - Contingent Support Agreement (incorporated by reference to Exhibit 10.2.1
to the Company's Registration Statement on Form S-1 No. 33-33726)
10.1.1 - Amendment to Contingent Support Agreement (incorporated by
reference to Exhibit 10.2.1 to the Company's Form 10-K for the year
ended December 31, 1990, Commission File No. 0-18437)
10.2 - Sublease Agreement (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1 No. 33-25535)
10.2.1 - First Amendment to Sublease Agreement (incorporated by reference
to Exhibit 10.3.1 to the Company's Registration Statement on Form S-1
No. 33-36622)
10.2.2 - Second Amendment to Sublease Agreement (incorporated by reference to
Exhibit 10.3.2 to the Company's Form 10-K for the year ended December 31,
1992, Commission File No. 0-18437)
10.3(+) - Pool Energy Services Co. Stock Option Plan (incorporated by reference
to Exhibit 10.4.1 to the Company's Registration Statement on Form S-1 No.
33-36622)
10.4 - $30 million Restated Credit Agreement dated as of August 15, 1994 between
Pool Company and NationsBank of Texas, N.A., as Agent (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1994, Commission File No. 0-18437)
10.4.1 - First Amendment to 1994 Restated Credit Agreement dated February 28,
1995 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1995, Commission File
No. 0-18437)
10.4.2 - Second Amendment to 1994 Restated Credit Agreement dated April 21, 1995
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1995, Commission File No. 0-18437)
10.4.3 - Third Amendment and Waiver to 1994 Restated Credit Agreement, and First
Amendment and Waiver to 1995 Term Loan Agreement (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1995, Commission File No. 0-18437)
10.4.4 - Fourth Amendment to 1994 Restated Credit Agreement (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1995, Commission File No. 0-18437)
</TABLE>
70
<PAGE> 71
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.5 - Term Loan Agreement among Pool Company, NationsBank of Texas, N.A. and
Certain Lenders dated April 21, 1995 (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1995, Commission File No. 0-18437)
10.6(+) - Pool Energy Services Co. 1991 Directors Stock Option Plan
(incorporated by reference to Exhibit 10.6.2 to the Company's Registration
Statement on Form S-8 No. 33-50844)
10.7 - Sublease Agreement dated March 15, 1983 between Pool Company and Sanan
Leasing Corporation (incorporated by reference to Exhibit 19.1 of the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1992, Commission File No. 0-18437)
10.8(+) - Supplemental Executive Retirement Plan of Pool Company, as amended
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1993, Commission File No.
0-18437)
10.8.1(+) - Amended and Restated Supplementary Executive Retirement Plan of Pool
Company (incorporated by reference to Exhibit 10.9.1 to the Company's Form
10-K for the year ended December 31, 1996, Commission File No. 0-18437)
10.9 - Agreement in Relation to Bareboat Charter (Pool Ranger IV) dated December
30, 1993 between Pool Company and Nationsbanc Leasing Corporation of North
Carolina (incorporated by reference to Exhibit 10.13 to the Company's Form
10-K for the year ended December 31, 1993, Commission File No. 0-18437)
10.10 - Agreement in Relation to Bareboat Charter (Pool Ranger V) dated December
30, 1993 between Pool Company and Nationsbanc Leasing Corporation of North
Carolina (incorporated by reference to Exhibit 10.14 to the Company's Form
10-K for the year ended December 31, 1993, Commission File No. 0-18437)
10.11 - Agreement in Relation to Bareboat Charter (Pool Ranger VI) dated
December 30, 1993 between Pool Company and Nationsbanc Leasing Corporation
of North Carolina (incorporated by reference to Exhibit 10.15 to the
Company's Form 10-K for the year ended December 31, 1993, Commission File
No. 0-18437)
10.12(+) - Pool Energy Services Co. 1993 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.16 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, Commission File
No. 0-18437)
10.13(+) - Change in Control Agreement, as amended, between the Company and J.
T. Jongebloed (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.14(+) - Change in Control Agreement, as amended, between the Company and E.
J. Spillard (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.15(+) - Change in Control Agreement, as amended, between the Company and W. J
Myers (incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1994, Commission File No.
0-18437)
10.16(+) - Change in Control Agreement, as amended, between the Company and R.
G. Hale (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.17(+) - Change in Control Agreement, as amended, between the Company and G.
G. Arms (incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
</TABLE>
71
<PAGE> 72
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.18(+) - Change in Control Agreement, as amended, between the Company and L.
E. Dupre (incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1994,
Commission File No. 0-18437)
10.19(+) - Pool Energy Services Co. 1995 Management Bonus Plan - Senior
Executive Level (incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended December 31, 1994, Commission File
No. 0-18437)
10.20 - Stock Purchase Agreement dated June 13, 1995 by and among Robert D.
Hillman, Barbara A. Hillman, Richard H. Hillman, Robert D. Hillman,
Jr., Golden Pacific Corp., Pool Company and Pool Energy Services
Co. (incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K (Date of Event: June 13, 1995) dated June 27, 1995,
Commission File No. 0-18437)
10.21 - Agreement regarding Deferred Payment of Purchase Price dated June 13,
1995 by and among Robert D. Hillman, Barbara A. Hillman, Richard H.
Hillman, Robert D. Hillman, Jr., Golden Pacific Corp., Pool Company and
Pool Energy Services Co., including Promissory Notes, and Exhibits B, C, D
and F to such agreement (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K (Date of Event: June 13, 1995) dated
June 27, 1995, Commission File No. 0-18437)
10.22 - Voting Agreement and Agreement Restricting Transfer dated June 13, 1995
by and among Robert D. Hillman, Barbara A. Hillman, Richard H. Hillman,
Robert D. Hillman, Jr., Golden Pacific Corp., Pool Company and Pool Energy
Services Co. (incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K (Date of Event: June 13, 1995) dated June 27,
1995, Commission File No. 0-18437)
10.23 - $35 million Restated Revolving Credit Agreement dated as of November 30,
1995 between Pool Company and NationsBank of Texas, N.A., as Agent
(incorporated by reference to Exhibit 10.26 to the Company's Form 10-K for
the year ended December 31, 1995, Commission File No. 0-18437)
10.23.1 - First Amendment and Waiver to $35 million Restated Revolving Credit
Agreement and $10 million Restated Term Loan Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
S-3 No. 333-5229)
10.23.2 - First Amendment to ISDL Term Loan Agreement, Second Amendment to Pool
Company Restated Revolving Credit Agreement, and Restated Term Loan
Agreement (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996,
Commission File No. 0-18437)
10.23.3 - Second Amendment to ISDL Term Loan Agreement, Third Amendment to Pool
Company Restated Revolving Credit Agreement, and Third Amendment to Pool
Company Restated Term Loan Agreement (incorporated by reference to Exhibit
10.25.3 to the Company's Form 10-K for the year ended December 31, 1996,
Commission File No. 0-18437)
10.23.4 - Fourth Amendment and Waiver to Pool Company Restated Revolving Credit
Agreement and Pool Company Restated Term Loan Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1997, Commission File No. 0-18437)
10.24 - $6.5 million Term Loan Agreement dated as of November 30, 1995 between
International Sea Drilling Ltd. and NationsBank of Texas, N.A., as Agent
(incorporated by reference to Exhibit 10.27 to the Company's Form 10-K for
the year ended December 31, 1995, Commission File No. 0-18437)
</TABLE>
72
<PAGE> 73
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.25 - $10 million Restated Term Loan Agreement dated as of November 30, 1995
between Pool Company and NationsBank of Texas, N.A., as Agent (incorporated
by reference to Exhibit 10.28 to the Company's Form 10-K for the year ended
December 31, 1995, Commission File No. 0-18437)
10.26(+) - Pool Energy Service Co. 1996 Management Bonus Plan - Senior Executive
Level (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1996, Commission File
No. 0-18437)
10.27(+) - Pool Energy Service Co. 1996 Longterm Incentive Plan (corrected
version replacing Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1996, Commission File No. 0-18437;
incorporated by reference to Exhibit 10.29 to the Company's Form 10-K for
the year ended December 31, 1996, Commission File No. 0-18437)
10.28(+) - Pool Energy Service Co. 1996 Directors' Stock Incentive Plan
(incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement of Form S-8 No. 333-03159 filed with the commission on May 3,
1996)
10.28.1(+) - Form of Stock Option Agreement, Pool Energy Services Co. 1996
Directors' Stock Incentive Plan (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 No. 333-03159 filed
with the commission on May 3, 1996)
10.29 - Loan Agreement between Antah Drilling Sdn. Bhd. and the Hongkong and
Shanghai Banking Corporation Limited (incorporated by reference to Exhibit
10.31 to the Company's Form 10-K for the year ended December 31, 1996,
Commission File No. 0-18437)
10.29.1 - Supplemental Agreement between Antah Drilling Sdn. Bhd. and the
Hongkong and Shanghai Banking Corporation Limited (incorporated by
reference to Exhibit 10.31.1 to the Company's 10-K for the year ended
December 31, 1996, Commission File No. 0-18437)
10.30(+) - Pool Energy Services Co. 1997 Senior Executive Bonus Plan
(incorporated by reference to Exhibit 10.32 to the Company's 10-K for the
year ended December 31, 1996, Commission File No. 0-18437)
10.31(+) Pool Energy Services Co. 1997 Longterm Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1997, Commission File No. 0-18437)
10.32(+) Pool Company 1996 Supplementary Executive Retirement Plan (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1997, Commission File No. 0-18437)
10.33 - U.S. $130,000,000 Credit Agreement between Pool Energy Services Co.,
Pool Energy Holding, Inc., Pool Company, various banks, SBC Warburg Dillon
Read Inc., as Arranger, Credit Lyonnais New York Branch, as Administrative
Agent, and Swiss Bank Corporation, New York Branch, as Documentation Agent,
dated as of September 30, 1997 (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, Commission File No. 0-18437)
10.34 - Purchase Agreement by and among Pool Company, R&H Well Service, Inc.,
Trey Services, Inc. and Steve L. Holifield dated as of October 6, 1997
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1997, Commission
File No. 0-18437)
10.35(+) - Pool Energy Services Co. 1997 Employee SAR/Phantom Stock Plan
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1997, Commission
File No. 0-18437)
10.36(+)(*) - Pool Energy Services Co. 1998 Senior Executive Bonus Plan
</TABLE>
73
<PAGE> 74
(a)-3 EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.37(+)(*) - Pool Energy Services Co. 1998 Long-term Incentive Plan
10.38(*) - Letter Agreement dated August 20, 1997 in connection with the Stock
Purchase Agreement dated June 13, 1995 by and among Robert D. Hillman,
Barbara A. Hillman, Richard H. Hillman, Robert D. Hillman, Jr., Golden
Pacific Corp., Pool Company and Pool Energy Services Co.
21(*) - List of Subsidiaries
23(*) - Consent of Deloitte & Touche LLP
24(*) - Powers of Attorney
27(*) - Financial Data Schedule
</TABLE>
- ---------------
(+) Management contract or compensatory plan or arrangement
(*) Filed herewith
The schedules to Exhibits 10.23, 10.24 and 10.25 have been omitted. The Company
hereby agrees to furnish supplementally to the Commission upon request copies of
any such omitted schedules.
74
<PAGE> 1
EXHIBIT 10.36
POOL ENERGY SERVICES CO. 1998 SENIOR EXECUTIVE BONUS PLAN
1. Plan Period
The Plan shall be effective for the calendar year 1998 (the "Plan
Period") subject to early termination in accordance with Paragraph 8
hereof.
2. Purpose
The purposes of the Plan are to provide additional motivations to
management:
a. to cause the financial performance of Pool Energy Services Co.
(the "Company") to be equal to or better than budget;
b. to cause the Stock Performance of the Company to exceed that
of comparable companies; and
c. to cause the achievement of safety goals.
3. Eligibility and Participation
Subject to the provisions of Paragraphs 7 and 8 hereof, the period of
an individual's participation in the Plan shall be concurrent with the
period of his full-time employment in a position which is designated
herein or has been designated by the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee") as a
Participating Position. Full-time employee incumbents of
Participating Positions shall be Plan participants ("Participants").
Participating positions shall include the Company's President ("CEO");
Senior Vice President, Finance ("CFO"); Group Vice Presidents ("GVP");
Vice President and General Counsel ("VPGC"); Vice President, Human
Resources ("VPHR"); and the Operations Vice Presidents ("OVP")
reporting directly to the Group Vice Presidents.
4. Administration
The Plan shall be administered by the Compensation Committee, which
may amend or, subject to the provisions of Paragraph 8 hereof,
terminate the Plan at any time. The Compensation Committee shall
interpret Plan provisions, and such interpretations shall be
conclusive. The Compensation Committee may increase or decrease the
amount of a bonus award payable to any Participant when in the
judgment of the Compensation Committee the bonus award otherwise
payable would be excessive or inadequate in view of the Participant's
contribution to achieving the purpose of the Plan.
<PAGE> 2
Senior Executive
Page 2
5. Calculation of Benefits
a. For purposes of the calculation of bonus awards hereunder the
following definitions shall apply:
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
AEBITD* Actual earnings before interest
expense, income tax provision
(credit), depreciation,
amortization, and minority interest
of the Company for the Plan Period.
ANI* Actual Net Income of the Company
for the Plan Period.
ANI (Group)* Actual Net Income of a Group for
the Plan Period.
ANI (Operation)* Actual Net Income of an Operation
for the Plan Period.
BEBITD Budgeted earnings before interest
expense, income tax provision
(credit), depreciation,
amortization, and minority interest
of the Company for the Plan Period
as reflected in the Company's
approved budget for the Plan
Period.
BNI Budgeted Net Income of the Company
for the Plan Period, as reflected
in the Company's approved budget
for the Plan Period.
BNI (Group) Budgeted Net Income for a Group for
the Plan Period, as reflected in
the Company's approved budget for
that Group for the Plan Period.
BNI (Operation) Budgeted Net Income for an
Operation for the Plan Period, as
reflected in the Company's approved
budget for that Operation for the
Plan Period.
</TABLE>
- ------------------------
* AEBITD, ANI, ANI (Group) and ANI (Operation) shall include an
accrued amount for bonus awards to be paid under the Plan.
<PAGE> 3
Senior Executive
Page 3
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Base Salary The base salary of a Participant,
as specified in the personnel and
payroll records of the employing
subsidiary of the Company on the
date the employee becomes a
Participant.
For employees who are promoted, or
otherwise transferred, from one
Participating Position to another
after the beginning of the Plan
Period, Base Salary for each period
of service in a Participating
Position shall be the base salary
for the Participant as specified in
the personnel and payroll records
of the employing subsidiary of the
Company on the date the employee
assumed each such position or at
the beginning of the Plan Period,
whichever is later.
Dividends The total of dividends per share of
common stock paid during the Plan
Period.
Group Either of the following: U.S.
Operations or International
Operations.
The ANI (Group), BNI (Group), SP,
and SG applicable to a GVP shall be
that of the Group for which the
individual has functional
responsibility.
Operation Any one of the following: U.S. Land
Central Operation, U.S. Land
California Operation, Gulf Offshore
Operation, Alaska Operation or
Middle East Operation.
The ANI (Operation), BNI
(Operation), SP and SG applicable
to an OVP shall be that of the
Operation for which the OVP has
functional responsibility.
</TABLE>
<PAGE> 4
Senior Executive
Page 4
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Peer Group Baker Hughes Incorporated; BJ
Services Company; Daniel
Industries, Inc.; Dresser
Industries, Inc.; Global Marine
Inc.; Halliburton Company;
Helmerich & Payne, Inc.; Key Energy
Group, Inc.; McDermott
International, Inc.; Nabors
Industries, Inc.; Parker Drilling
Company; Petroleum Geo-Services
A/S; Rowan Companies, Inc.;
Schlumberger Ltd.; Smith
International, Inc.; Tidewater,
Inc.; Transocean Offshore, Inc.;
Varco International, Inc.;
Weatherford Enterra, Inc.; Western
Atlas, Inc.; and the Company.
Safety Goals ("SG") (1) For domestic operations: The
targeted frequency in the Plan
Period of OSHA Recordable Incidents
("ORI") as defined by the
Occupational Safety and Health Act
of 1970 for a Group or Operation
approved by the CEO.
(2) For international operations:
The targeted frequency in the Plan
Period of lost-time incidents
("LTI") for a Group or Operation as
approved by the CEO.
Safety Performance ("SP") (1) For domestic operations: The
actual frequency in the Plan
Period of ORI reported for a Group
or Operation in the Pool Energy
Services Co. Management Report for
the Plan Period.
(2) For international operations:
The actual frequency in the Plan
Period of LTI as reported for a
Group or Operation in the Pool
Energy Services Co. Management
Report for the Plan Period.
</TABLE>
<PAGE> 5
Senior Executive
Page 5
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Stock Appreciation The change over the Plan Period in
the value of a share of common
stock measured as the difference
between (1) the average of the
closing prices of the stock on the
twenty trading days ended on the
last trading day preceding the Plan
Period and (2) the average of the
closing prices of the stock on the
twenty trading days ending on the
last trading day in the Plan
Period, all such closing prices as
reported on the principal
securities exchange on which such
stock is listed or admitted to
trading, or if a stock is not
listed or admitted to trading on
any such exchange but is traded
over-the-counter and reported on
the National Association of
Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or any
similar system then in use, then as
reported on that system.
Stock Performance The sum of Dividends and Stock
Appreciation divided by the value
of a share of common stock at the
beginning of the Plan Period, such
value to be based on the average of
the closing prices of the stock on
the twenty trading days ended on
the last trading day preceding the
Plan Period, with all such closing
prices as reported on the
securities exchange or over-
the-counter systems specified in
the preceding paragraph.
</TABLE>
b. Subject to the limitations and restrictions specified in
Paragraph 5.i. below, each Participant will be awarded a bonus
equal to his or her Base Salary multiplied by the sum of the
applicable percentages calculated under:
(a) Paragraph 5.c.,
(b) Paragraph 5.d., 5.e. or 5.f. as applicable,
(c) Paragraph 5.g., and
(d) Paragraph 5.h. if applicable.
<PAGE> 6
Senior Executive
Page 6
c. Stock Performance
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
VPGC/
CEO CFO VPHR
--- --- -------
<S> <C> <C> <C>
(1) The Stock Performance of the
Company exceeds the Stock Per-
formance of six or less of the
companies in the Peer Group. None None None
(2) The Stock Performance of the
Company exceeds the Stock Per-
formance of 7, 8, 9, 10, 11, 12
or 13 of the companies in the
Peer Group. [Target]. 15.0% 11.25% 8.75%
(3) The Stock Performance of the
Company exceeds the Stock Per-
formance of 14 or more of the
companies in the Peer Group. 30.0% 22.5% 17.5%
</TABLE>
d. BNI Achievement Applicable to Staff Participants
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
VPGC/
CEO CFO VPHR
--- --- -------
<S> <C> <C> <C>
(1) ANI is equal to 100% of 22.5% 16.875% 13.125%
BNI. [Target]
(2) ANI is at least equal to 90% The percentage specified in 5.d.(1) above reduced by:
but less than 100% of BNI.
</TABLE>
<PAGE> 7
Senior Executive
Page 7
<TABLE>
<CAPTION>
VPGC/
CEO CFO VPHR
--- --- -------
<S> <C> <C>
56.25-(56.25xANI/BNI) 42.1875-(42.1875xANI/BNI) 32.8125-(32.8125xANI/BNI)
(3) ANI is more than 100% The percentage specified in 5.d.(1) above increased by:
of BNI.
</TABLE>
<TABLE>
<CAPTION>
VPGC/
CEO CFO VPHR
--- --- -------
<S> <C> <C>
ANI-BNI ANI-BNI ANI-BNI
------- x 112.5 -------- x 84.375 -------- x 65.625
BNI BNI BNI
</TABLE>
e. BNI Achievement Applicable to GVP
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
<S> <C>
(1) ANI is equal to 100% of BNI and 6.1875%
ANI (Group) is at least equal to
BNI (Group). [Target].
(2) ANI is at least 90% but less than The percentage specified in 5.e.(1) above
100% of BNI, and ANI (Group) reduced by:
is at least equal to BNI (Group).
15.46875-(15.46875xANI/BNI)
(3) ANI is more than 100% of BNI, The percentage specified in 5.e.(1) above
and ANI (Group) is at least increased by:
equal to BNI (Group).
ANI-BNI
--------- x 30.9375
BNI
(4) ANI (Group) is equal to BNI 6.1875%
(Group). [Target].
</TABLE>
<PAGE> 8
Senior Executive
Page 8
BNI Achievement Applicable to GVP (continued)
<TABLE>
<S> <C>
(5) ANI (Group) is at least 90% The percentage specified in 5.e.(4) above
but less than 100% of BNI reduced by:
(Group).
15.46875-[15.46875xANI (Group)/ BNI
(Group)]
(6) ANI (Group) is more than 100% The percentage specified in 5.e.(4) above
of BNI (Group). increased by:
ANI (Group)-BNI (Group)
---------------------- x 30.9375
BNI (Group)
</TABLE>
f. BNI Achievement Applicable to OVP
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
<S> <C>
(1) ANI is equal to 100% of BNI, and 4.8125%
ANI (Operation) is at least equal to
BNI (Operation). [Target].
(2) ANI is at least 90% but less than The percentage specified in 5.f.(1) above
100% of BNI, and ANI (Operation) reduced by:
is at least equal to BNI (Operation).
12.03125-(12.03125xANI/BNI)
(3) ANI is more than 100% of BNI, The percentage specified in 5.f.(1) above
and ANI (Operation) is at least increased by:
equal to BNI (Operation).
ANI-BNI
--------- x 24.0625
BNI
(4) ANI (Operation) is equal to BNI 4.8125%
(Operation). [Target].
(5) ANI (Operation) is at least 90% The percentage specified in 5.f.(4) above
but less than 100% of BNI reduced by:
(Operation).
12.03125-[12.03125xANI (Operation)/ BNI
(Operation)]
</TABLE>
<PAGE> 9
Senior Executive
Page 9
BNI Achievement Applicable to OVP (continued)
<TABLE>
<S> <C>
(6) ANI (Operation) is more than 100% The percentage specified in 5.f.(4) above
of BNI (Operation). increased by:
ANI (Operation)-BNI (Operation)
------------------------------ x 24.0625
BNI (Operation)
</TABLE>
g. BEBITD Achievement
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
VPGC/
-----
CEO CFO GVP VPHR OVP
--- --- --- ---- ---
<S> <C>
(1) AEBITD is equal to 100%
of BEBITD. [Target]. 22.5% 16.875% 12.375% 13.125% 9.625%
(2) AEBITD is at least equal to 90% The percentage specified in 5.g.(1) above reduced by:
but less than 100% of BEBITD.
CEO
----------------------------------
56.25-(56.25xAEBITD/BEBITD)
CFO
----------------------------------
42.1875-(42.1875xAEBITD/BEBITD)
GVP
----------------------------------
30.9375-(30.9375xAEBITD/BEBITD)
VPGC/
VPHR
----------------------------------
32.8125-(32.8125xAEBITD/BEBITD)
OVP
----------------------------------
24.0625-(24.0625XAEBITD/BEBITD)
</TABLE>
<PAGE> 10
Senior Executive
Page 10
BEBITD Achievement (continued)
<TABLE>
<S> <C>
(3) AEBITD is more than 100% of The percentage specified in 5.g.(1) above increased by:
BEBITD.
CEO
------------------------
AEBITD-BEBITD
------------- x 112.5
BEBITD
CFO
------------------------
AEBITD-BEBITD
------------- x 84.375
BEBITD
GVP
------------------------
AEBITD-BEBITD
------------- x 61.875
BEBITD
VPGC/
VPHR
------------------------
AEBITD-BEBITD
------------- x 65.625
BEBITD
OVP
------------------------
AEBITD-BEBITD
------------- x 48.125
BEBITD
</TABLE>
h. Safety Achievement
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
<S> <C> <C>
(1) SP is equal to SG. [Target]. GVP OVP
--- ---
9.0% 7.0%
</TABLE>
<PAGE> 11
Senior Executive
Page 11
Safety Achievement (continued)
<TABLE>
<S> <C>
(2) SP is less than SG. The percentage specified in 5.h.(1) above increased
by:
GVP OVP
------------ -------------
36-(36xSP/SG) 28-(28xSP/SG)
(3) SP is greater than SG. None
</TABLE>
i. Restrictions and Limitations
The maximum bonus payable to any Participant shall be a
percentage of Base Salary which is 120% for the CEO, 90% for
the CFO and GVP and 70% for the VPGC, VPHR, and OVP. In
addition, the maximum bonus payable for achieving and
exceeding each of the targets in the Plan is limited to twice
the amount that would be payable for achieving that target.
Bonus amounts calculated in accordance with the applicable
provisions of Paragraphs 5.c., 5.d., 5.e., 5.f., 5.g., and
5.h., hereof will be reduced as necessary so as not to exceed
the limitations of this Paragraph 5.i.
6. Payment of Bonus Awards
A Participant's bonus award shall be paid in a single payment, less
applicable withholding taxes, no later than 75 days after the end of
the Plan Period, provided, however, that at the discretion of the
Compensation Committee, payment may be in cash or in a combination of
cash and shares of common stock of the Company. In the event of the
latter, not less than 50% of the bonus award due will be paid in cash
and the remainder (the "Remainder") will be paid in Restricted Stock
or Bonus Stock under the provisions of the Pool Energy Services Co.
1993 Employee Stock Incentive Plan (the "Stock Plan"). The number of
shares so awarded will be determined on the basis of the Fair Market
Value, as defined in the Stock Plan, on the final trading day of the
Plan Period, or such other date as the Compensation Committee shall
determine, and will be a number of shares, the aggregate Fair Market
Value of which equals 115% of the Remainder.
7. Termination of Employment
In the event of a Participant's becoming employed in, terminated (with
or without cause) from, reassigned to or reassigned from a
Participating Position during the Plan Period, any bonus award shall
be prorated for the portion of the Plan Period he was employed in the
Participating Position, and such prorated amount shall be paid when
due except that no bonus award whatsoever shall be payable to
Participants whose employment is terminated during the Plan Period for
reasons other than death, total disability, retirement or redundancy.
Bonus awards due to Participants who die during the Plan Period shall
be paid to the beneficiary designated by the Participant for Company
sponsored life insurance.
<PAGE> 12
Senior Executive
Page 12
8. Termination of Plan
The Plan may be terminated at any time. No termination of the Plan
shall affect the Company's obligation with respect to any bonus
theretofore accrued. In the event of Plan termination the Plan Period
shall end on the effective date of the termination of the Plan.
<PAGE> 1
EXHIBIT 10.37
POOL ENERGY SERVICES CO.
1998 LONG-TERM INCENTIVE PLAN
SECTION 1. NAME
The name of the plan is the Pool Energy Services Co. 1998 Long-term
Incentive Plan (the "Plan").
SECTION 2. PURPOSE
The purpose of the Plan is to assist Pool Energy Services Co. (the
"Company") and its Affiliates in attracting and retaining qualified individuals
to serve as executive officers of the Company and to encourage such executive
officers to protect and increase shareholder value by aligning the interests of
the executive officers with those of the shareholders.
SECTION 3. PLAN PERIOD
The Plan shall be effective for the three-year period beginning
January 1, 1998 and ending December 31, 2000 (the "Plan Period").
SECTION 4. DEFINITIONS
The following words shall have the indicated meanings unless otherwise
required by the context:
a. "Affiliate" means any corporation, partnership or other entity
in which the Company owns, directly or indirectly, an equity interest of at
least thirty-five percent (35%).
b. "Base Salary" means the base salary of a Participant at the
beginning of the Plan Period as specified in the personnel and payroll records
of the employing Affiliate.
c. "Award" means the dollar amount granted to a Participant,
calculated in accordance with the provisions of Section 7 of the Plan.
d. "Cause" means (1) the willful and continued failure by a
Participant to substantially perform his duties with the Company or employing
Affiliates (other than any such failure resulting from his incapacity due to
physical or mental illness) or (2) the willful engaging by the Participant in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For this purpose, no act or failure to act shall be
deemed willful unless done in other than good faith and without reasonable
belief that the action or omission was in the best interest of the Company.
<PAGE> 2
1998 Long-term Incentive Plan
Page 2
e. "Compensation Committee" means the Compensation Committee of
the Board of Directors of the Company, in its capacity as the committee
administering this Plan as provided for in Section 6 of the Plan, as such
committee may be constituted from time to time.
f. "Dividends" means the total of dividends per share of common
stock paid during the Plan Period.
g. "EBITD" means earnings before Interest, Income Tax Provision
(Credit), Depreciation and Amortization and Minority Interest for the Plan
Period as reflected in the audited financial statements of the Company.
h. "Participant" means the incumbent of any of the following
positions:
Level I: Chairman, President and Chief Executive Officer
Level II: Group Vice President, U.S. Operations
Group Vice President, International Operations
Senior Vice President, Finance
Level III: Vice President, U.S. Central Operations
Vice President, California Operations
Vice President, Gulf Offshore Operations
Vice President, Alaska Operations
Vice President, International Operations Support
Vice President and General Counsel
Vice President, Human Resources
i. "Peer Group" means Baker Hughes Incorporated; BJ Services
Company; Daniel Industries, Inc.; Dresser Industries, Inc.; Global Marine Inc.;
Halliburton Company; Helmerich & Payne, Inc.; Key Energy Group, Inc.; McDermott
International, Inc.; Nabors Industries, Inc.; Parker Drilling Company;
Petroleum Geo-Services A/S; Rowan Companies, Inc.; Schlumberger Ltd.; Smith
International, Inc.; Tidewater, Inc.; Transocean Offshore, Inc.; Varco
International, Inc.; Weatherford Enterra, Inc.; Western Atlas Inc.; and the
Company. If during the Plan Period a Peer Group company ceases to exist or
changes to such an extent that, in the opinion of the Compensation Committee,
it no longer qualifies as a Peer Group company, then the Total Return to
Shareholders for such company shall be deemed to be the average Total Return to
Shareholders of the other companies in the Peer Group.
j. "Restricted Stock" means Restricted Stock as defined in the
Pool Energy Services Co. 1993 Employee Stock Incentive Plan (the "Stock Plan").
k. "Retirement" means leaving the employment of the Company or an
Affiliate, other than for Cause, after attaining the age of fifty-five and
after having completed not less than five years employment with the Company or
an Affiliate.
<PAGE> 3
1998 Long-term Incentive Plan
Page 3
l. "Stock Appreciation" means the change over the Plan Period in
the value of a share of common stock, measured as the difference between (1)
the average of the closing prices of the stock on the twenty trading days ended
on the last trading day preceding the Plan Period and (2) the average of the
closing prices of the stock on the twenty trading days ending on the last
trading day in the Plan Period, all such closing prices as reported on the
principal securities exchange on which such stock is listed or admitted to
trading, or if a stock is not listed or admitted to trading on any such
exchange but is traded over-the-counter and reported on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
or any similar system then in use, then as reported on that system.
m. "Total Return to Shareholders" means the sum of Dividends and
Stock Appreciation divided by the value of a share of common stock at the
beginning of the Plan Period, such value to be based on the average of the
closing prices of the stock on the twenty trading days ended on the last
trading day preceding the Plan Period, with all such closing prices as reported
on the securities exchange or over-the-counter systems specified in Paragraph
4.l. hereof.
SECTION 5. ELIGIBILITY
The persons who shall be eligible to receive Awards shall be full-time
salaried employees of the Company or any of its Affiliates, including directors
of the Company who are full-time salaried employees, who are incumbents of the
position of President or of any vice president's position including Vice
President, Group Vice President and Senior Vice President.
SECTION 6. ADMINISTRATION
The Plan shall be administered by, and the decisions concerning the
Plan shall be made solely by, the Compensation Committee. All questions of
interpretation or application of the Plan or of an Award shall be subject to
the determination of the Compensation Committee, which determination shall be
final and binding upon all parties. The Compensation Committee shall make
Awards to Participants in accordance with the provisions of Section 7 of the
Plan. The Compensation Committee may increase or decrease the amount of an
Award payable to any Participant when in the judgment of the Compensation
Committee the Award otherwise payable would be excessive or inadequate in view
of the Participant's contribution to achieving the purpose of the Plan.
Subject to the express provisions of the Plan, the Compensation
Committee shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend or rescind administrative and interpretive rules and regulations
relating to the Plan, (b) to make all determinations necessary or advisable for
administering the Plan, and (c) to exercise any other powers conferred on the
Committee by the Plan. The Compensation Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan in the manner
and to the extent it shall deem
<PAGE> 4
1998 Long-term Incentive Plan
Page 4
proper, and it shall be the sole and final judge of such propriety. The
Compensation Committee may amend or, subject to the provisions of Sections 11
and 12 hereof, terminate the Plan at any time. The determinations of the
Compensation Committee on the matters referred to in this Section 6 shall be
final and conclusive.
SECTION 7. CALCULATION OF AWARDS
a. EBITD. For each of the following conditions that is met, a
Participant shall receive an Award equivalent to the indicated percentage of
Base Salary:
<TABLE>
<CAPTION>
Condition Percentage
----------------- ------------------------------------------------------------
Level I Level II Level III
Participants Participants Participants
------------ ------------ ------------
<S> <C> <C> <C> <C>
(1) EBITD is less None None None
than $248.69
million
(2) EBITD is $248.69 15% 10% 6.25%
million
(3) EBITD is $260.72 30% 20% 12.50%
million
(4) EBITD is $285.95 45% 30% 18.75%
million
</TABLE>
If EBITD falls between two of the above levels, the percentage of Base
Salary will be calculated on the basis of straight-line interpolation between
the two levels.
b. Total Return to Shareholders ("TRS"). If the TRS achieved by the
Company exceeds the TRS achieved by the following number of the companies in
the Peer Group, a Participant shall receive an Award equivalent to the
indicated percentage of Base Salary:
<TABLE>
<CAPTION>
Number of Companies Percentage
------------------- ---------------------------------------------------------
Level I Level II Level III
Participants Participants Participants
------------ ------------ ------------
<S> <C> <C> <C>
6 or less None None None
7, 8, 9, 10,
11, 12, or 13 30% 20% 12.50%
14 or more 45% 30% 18.75%
</TABLE>
<PAGE> 5
1998 Long-term Incentive Plan
Page 5
SECTION 8. PAYMENT OF AWARDS
a. Except as provided in Paragraphs c. and d. of this Section 8,
a Participant's Award shall be paid, no later than the March 15th first
following the close of the Plan Period, in Restricted Stock subject to the
restrictions specified in Section 9 hereof and in accordance with the
provisions of the Stock Plan. The number of shares of Restricted Stock so
awarded will be determined by dividing the dollar amount of the Award
calculated under Section 7 hereof by the Fair Market Value of a share of the
Company's common stock, where such Fair Market Value is equal to the average of
the closing prices of the Company's common stock on the twenty trading days
ended on the last trading day preceding the Plan Period, with all such closing
prices as reported on the securities exchange or over-the-counter system
specified in Paragraph 4.l hereof.
b. In the event that a sufficient number of shares to meet the
requirements of Paragraph 8.a. is not available under the Stock Plan, a portion
of the Award will be paid in cash as follows:
(1) The portion of the Award to be paid in Restricted
Stock will be determined by (a) multiplying the Fair
Market Value of a share of the Company's common
stock, as described in Paragraph 8.a., by the number
of shares available under the Stock Plan and (b)
allocating to each participant a percentage of the
amount so determined, which percentage shall equal
the Participant's Award divided by the total of all
Awards.
(2) The portion of the Award to be paid in cash will be
determined by subtracting from each Participant's
Award the amount to be paid to that Participant in
Restricted Stock under Paragraph 8.b.(1).
c. In the event that an individual, by reason of death, total
disability, Retirement or redundancy, ceases to be a Participant during the
Plan Period, any Award granted to such Participant shall be paid as specified
in Paragraph 10.b.
d. In the event that a Participant's employment or the Plan is
terminated or constructively terminated following a Change in Control of the
Company, as hereinafter defined, Awards shall be paid as specified in Section
11 hereof.
e. Awards due to Participants who die prior to payment shall be
paid to the beneficiary designated for Company-sponsored life insurance, or, if
no such beneficiary is specified, to the Participant's estate.
<PAGE> 6
1998 Long-term Incentive Plan
Page 6
SECTION 9. RESTRICTIONS ON RESTRICTED STOCK
a. Restricted Stock issued under the Stock Plan pursuant to
Section 8 hereof is issued subject to the provisions of Section 11 of the Stock
Plan and, except as provided in Paragraph b. of this Section 9, may not be
sold, assigned, transferred, discounted, exchanged, pledged or otherwise
encumbered or disposed of until the Participant has completed the following
periods of continuous employment with the Company immediately following the end
of the Plan Period:
<TABLE>
<CAPTION>
Number of Years of Continuous
Employment Immediately Following Percent of Shares of Restricted Stock
End of Plan Period No Longer Subject to Restriction
-------------------------------- -------------------------------------
<S> <C>
Less than one year 0%
One year 50%
Two years 100%
</TABLE>
b. In the event that a Participant's employment with the Company
is terminated at any time prior to the expiration of two years following the
end of the Plan Period by reason of death, total disability, Retirement or
redundancy, any restrictions to which Restricted Stock awarded to such
Participant under the Plan would otherwise be subject at the date of such
termination shall cease to exist as of the date of such termination.
SECTION 10. PRORATION OF AWARDS
a. In the event that an individual becomes a Participant during
the Plan Period, any Award granted to such Participant will be prorated for the
period of participation in the Plan and will be paid in accordance with the
provisions of Section 8 hereof.
b. In the event that a Participant's employment with the Company
is terminated by reason of death, total disability, Retirement or redundancy at
any time during the Plan Period, any Award granted to such Participant will be
prorated for the period of participation in the Plan and will be paid no later
than the March 15th first following the close of the Plan Period.
SECTION 11. CHANGE IN CONTROL
For purposes of this Plan, a "Change in Control of the Company" shall
mean a change in control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act") or would have been required to be so reported
but for the fact that such event had been "previously reported" as that term is
defined in Rule 12b-2 of Regulation 12B of the Exchange Act; provided that,
without limitation
<PAGE> 7
1998 Long-term Incentive Plan
Page 7
such a change in control shall be deemed to have occurred if (a) any Person is
or becomes the beneficial owner (as defined in rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities
ordinarily (apart from rights accruing under special circumstances) having the
right to vote at election of directors ("Voting Securities"), or (b)
individuals who constitute the Board of Directors of the Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three-quarters of the
directors comprising the remaining members of the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this clause (b), considered as though
such person were a member of the Incumbent Board, or (c) a recapitalization of
the Company occurs which results in either a decrease by 33% or more in the
aggregate percentage ownership of Voting Securities held by Independent
Shareholders (on a primary basis or on a fully diluted basis after giving
effect to the exercise of stock options and warrants) or an increase in the
aggregate percentage ownership of Voting Securities held by non-Independent
Shareholders (on a primary basis or on a fully diluted basis after giving
effect to the exercise of stock options and warrants) to greater than 50%. For
purposes of this paragraph, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person" as
such term is used in Section 14(d) of the Exchange Act, other than the Company,
a subsidiary of the Company or any employee benefit plan(s) sponsored or
maintained by the Company or any subsidiary thereof, and the term "Independent
Shareholder" shall mean any shareholder of the Company except any employee(s)
or director(s) of the Company or any employee benefit plan(s) sponsored or
maintained by the Company or any subsidiary thereof.
In the event that a Participant's employment with the Company is
terminated or constructively terminated or changed in any of the ways
contemplated by Section B, "Termination Following Change in Control," of the
Company's agreement with the Participant relating to Change in Control of the
Company, as such agreement may be amended from time to time, such Participant
shall immediately receive a lump-sum, cash Award in an amount equal to:
a. his Base Salary multiplied by the sum of the maximum
percentages allowable for his position under each of Paragraphs 7.a. and 7.b.
hereof, multiplied by
b. one third (1/3) if the Change in Control occurs in the first
year of the Plan Period or two thirds (2/3) if the Change in Control occurs in
the second year of the Plan Period or one (1) if the Change in Control occurs
in the third year of the Plan Period.
SECTION 12. TERMINATION OF THE PLAN
The Plan may be terminated at any time. No termination of the Plan
shall affect the Company's obligation with respect to any benefits theretofore
accrued. In the event of Plan termination, the Plan Period shall end on the
effective date of the termination of the Plan.
<PAGE> 1
EXHIBIT 10.38
POOL COMPANY
POOL ENERGY SERVICES CO.
10375 RICHMOND AVENUE
HOUSTON, TEXAS 77042
August 20, 1997
Robert D. Hillman
P.O. Box 884
Rancho Santa Fe, CA 92067
Barbara A. Hillman
11436 Berwick Street
Los Angeles, CA 90049
Richard H. Hillman
Hillman Capital Partners
2665 Main Street, Suite 260
Santa Monica, CA 90405
Robert D. Hillman, Jr.
307 E. 8th Street, #4A
New York, NY 10009
Ladies and Gentlemen:
In connection with the Stock Purchase Agreement (the "Agreement") dated
as of June 13, 1995 by and among Robert D. Hillman, Barbara A. Hillman, Richard
H. Hillman, Robert D. Hillman, Jr., Golden Pacific Corp., Pool Company, a Texas
corporation ("Pool"), and Pool Energy Services Co., a Texas corporation
("PESCO"), and in order to resolve various issues that have arisen in connection
with the interpretation of Section 2.3(e) of the Agreement and PESCO's claim for
indemnification pursuant to Section 8.1(a)(ii) of the Agreement, this will
confirm that we have agreed as follows:
1. Sales of PESCO Stock
(a) Each of you have the option to sell any or all of the shares of
PESCO Stock that you received at the Closing within the next ninety
(90) days in accordance with the provisions of this letter agreement,
rather than the provisions of Section 2.3(e) of the Agreement.
Notwithstanding the terms of Section 2.3(e) or any other contrary
provision of the Agreement, each of you shall be entitled to retain
all of the proceeds realized upon any such sales of your shares of
PESCO Stock, provided, however, that the outstanding principal amount
of each of your respective Notes shall be reduced as of the month-end
following such sales by an amount (the "Stock Reduction Amount")
equivalent to forty percent (40%) of the net amount of (i) the gross
<PAGE> 2
August 20, 1997
Page 2
proceeds you realize upon the consummation of such sales, minus (ii)
$8.9355 per share sold, minus (iii) the amount of all brokerage
commissions and other similar expenses you incur in consummating such
sales.
(b) PESCO will apply the Stock Reduction Amount adjustments to the last
maturing principal installments on the Notes and such adjustments shall
not be treated as a prepayment of the Notes subject to prepayment
penalties. In order to facilitate calculation of your respective Stock
Reduction Amounts, you will promptly deliver true and complete copies
of all relevant sales confirmations and other related documentation to
PESCO.
(c) Immediately upon receipt of a duly executed certificate in the form
attached hereto as Exhibit A, PESCO will cause its counsel to supply to
its transfer agent such opinions as are necessary to cause the transfer
agent to promptly transfer and/or issue replacement certificates
evidencing your shares free of any restrictive legend or stop transfer
orders.
2. Release of Indemnification Liabilities. If, and only if, all of you
sell all of the shares of PESCO Stock that you received at the Closing
within the next ninety (90) days, then:
(a) Effective as of November 30, 1997, PESCO will reduce the
outstanding principal amount of the Notes by an aggregate amount of
$900,000 (the "Indemnification Reduction Amount") in full settlement
and release of any and all amounts payable to PESCO, Pool or any of
their past, present or former affiliates by any of you pursuant to the
provisions of Sections 8.1(a) and 8.1(c) of the Agreement. PESCO will
divide the Indemnification Reduction Amount among each of your
respective Notes as follows: Robert D. Hillman -- $358,083.00, Barbara
A. Hillman -- $241,213.50, Richard H. Hillman -- $241,213.50, and
Robert D. Hillman, Jr. -- $59,490.00. Such adjustments shall be made to
the last maturing principal installments on the Notes and such
adjustments shall not be treated as a prepayment of the Notes subject
to prepayment penalties; and
(b) Notwithstanding any contrary provision of the Agreement, the Notes,
or any of the agreements related thereto, none of you shall under any
circumstances have any further liability of any kind or nature
whatsoever to PESCO, Pool or any of their past, present or future
affiliates in any way arising out of or relating to the transactions
contemplated by the Agreement, the operations of the Business, or the
terms of the Agreement, the Notes, or any of the agreements related
thereto, except as expressly set forth herein and in Sections 8.1(b),
7.1 and 7.2 of the Agreement.
<PAGE> 3
August 20, 1997
Page 3
3. No Admission. The Indemnification Reduction Amount provided for in
Section 2(a) above represents a compromise and settlement with respect
to an issue currently in dispute and does not constitute an admission
by any party with respect to indemnification amounts that would be due
pursuant to Sections 8.1(a) and 8.1(c) of the Agreement in the absence
of the compromise and settlement contemplated by Section 2 above.
4. No Amendment. Except as expressly set forth herein, nothing herein
shall be deemed to amend, modify or waive any of the terms or
provisions of the Agreement, the Notes, or any of the agreements
related thereto.
As evidence of your agreement with, and consent to, the foregoing,
kindly execute and return the enclosed copy of this letter, which will render it
a binding agreement by and among PESCO and each of you as of the date first set
forth above. This letter agreement may be executed in one or more counterparts
each of which taken together shall constitute but one and the same instrument.
Capitalized terms used herein and not otherwise defined have the meanings
ascribed to them in the Agreement.
Very truly yours,
/s/ E. J. SPILLARD
--------------------------------
E. J. Spillard
Senior Vice President -- Finance
Pool Company
Pool Energy Services Co.
Accepted and Agreed:
/s/ ROBERT D. HILLMAN
- -------------------------------
Robert D. Hillman
/s/ BARBARA A. HILLMAN
- -------------------------------
Barbara A. Hillman
/s/ RICHARD H. HILLMAN
- -------------------------------
Richard H. Hillman
/s/ ROBERT D. HILLMAN, JR.
- -------------------------------
Robert D. Hillman, Jr.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES*
I. MAJORITY OWNED SUBSIDIARIES**
<TABLE>
<CAPTION>
STATE OR COUNTRY OF
INCORPORATION OR
NAME OF COMPANY ORGANIZATION
--------------- ------------
<S> <C>
Pool Energy Holding, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Pool Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Pool International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cayman Islands
Pool Alaska, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Pool California Energy Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . California
Pool International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
PCNV, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nevada
Pool Company Texas Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Pool International (Malaysia) Sdn. Bhd. . . . . . . . . . . . . . . . . . . . . . . . Malaysia
</TABLE>
- --------------
* Certain subsidiaries and affiliates which would not individually or in
the aggregate constitute a significant subsidiary have been omitted.
** Ownership is 100% unless otherwise indicated.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-03159, Registration Statement No. 33-37229 and Registration Statement No.
33-42194 of Pool Energy Services Co., each on Form S-8, of our report dated
February 17, 1998, appearing in this Annual Report on Form 10-K of Pool Energy
Services Co. for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, Pool Energy Services Co., a Texas corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Act"), an Annual
Report on Form 10-K for the year ended December 31, 1997, with such amendment or
amendments thereto in each case as may be necessary or appropriate, together
with any and all exhibits and other documents having relation to said Annual
Report (the "Annual Report");
NOW, THEREFORE, the undersigned, in his capacity as a Director of the
Company, does hereby appoint J. T. Jongebloed and E. J. Spillard, and each of
them severally, his true and lawful attorney or attorneys with power to act with
or without the other and with full power of substitution and resubstitution, to
execute in his name, place and stead in his capacity as a Director of the
Company said Annual Report and any and all amendments thereto and all
instruments necessary or incidental in connection therewith and to file the same
with the Commission. Each of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned in the aforesaid
capacity every act whatsoever necessary or desirable to be done in the premises
as fully and to all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of said
attorneys and each of them pursuant to this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
this 12th day of January, 1998
/s/ WILLIAM H. MOBLEY
------------------------------------
William H. Mobley
<PAGE> 2
POWER OF ATTORNEY
WHEREAS, Pool Energy Services Co., a Texas corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Act"), an Annual
Report on Form 10-K for the year ended December 31, 1997, with such amendment or
amendments thereto in each case as may be necessary or appropriate, together
with any and all exhibits and other documents having relation to said Annual
Report (the "Annual Report");
NOW, THEREFORE, the undersigned, in his capacity as a Director of the
Company, does hereby appoint J. T. Jongebloed and E. J. Spillard, and each of
them severally, his true and lawful attorney or attorneys with power to act with
or without the other and with full power of substitution and resubstitution, to
execute in his name, place and stead in his capacity as a Director of the
Company said Annual Report and any and all amendments thereto and all
instruments necessary or incidental in connection therewith and to file the same
with the Commission. Each of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned in the aforesaid
capacity every act whatsoever necessary or desirable to be done in the premises
as fully and to all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of said
attorneys and each of them pursuant to this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
this 12th day of January, 1998.
/s/ JOSEPH R. MUSOLINO
------------------------------------
Joseph R. Musolino
<PAGE> 3
POWER OF ATTORNEY
WHEREAS, Pool Energy Services Co., a Texas corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Act"), an Annual
Report on Form 10-K for the year ended December 31, 1997, with such amendment or
amendments thereto in each case as may be necessary or appropriate, together
with any and all exhibits and other documents having relation to said Annual
Report (the "Annual Report");
NOW, THEREFORE, the undersigned, in his capacity as a Director of the
Company, does hereby appoint J. T. Jongebloed and E. J. Spillard, and each of
them severally, his true and lawful attorney or attorneys with power to act with
or without the other and with full power of substitution and resubstitution, to
execute in his name, place and stead in his capacity as a Director of the
Company said Annual Report and any and all amendments thereto and all
instruments necessary or incidental in connection therewith and to file the same
with the Commission. Each of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned in the aforesaid
capacity every act whatsoever necessary or desirable to be done in the premises
as fully and to all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of said
attorneys and each of them pursuant to this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
this 12th day of January, 1998.
/s/ JAMES L. PAYNE
------------------------------------
James L. Payne
<PAGE> 4
POWER OF ATTORNEY
WHEREAS, Pool Energy Services Co., a Texas corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Act"), an Annual
Report on Form 10-K for the year ended December 31, 1997, with such amendment or
amendments thereto in each case as may be necessary or appropriate, together
with any and all exhibits and other documents having relation to said Annual
Report (the "Annual Report");
NOW, THEREFORE, the undersigned, in his capacity as a Director of the
Company, does hereby appoint J. T. Jongebloed and E. J. Spillard, and each of
them severally, his true and lawful attorney or attorneys with power to act with
or without the other and with full power of substitution and resubstitution, to
execute in his name, place and stead in his capacity as a Director of the
Company said Annual Report and any and all amendments thereto and all
instruments necessary or incidental in connection therewith and to file the same
with the Commission. Each of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned in the aforesaid
capacity every act whatsoever necessary or desirable to be done in the premises
as fully and to all intents and purposes as the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of said
attorneys and each of them pursuant to this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
this 12th day of January, 1998.
/s/ DONALD D. SYKORA
------------------------------------
Donald D. Sykora
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,993
<SECURITIES> 0
<RECEIVABLES> 91,212
<ALLOWANCES> 1,272
<INVENTORY> 19,500
<CURRENT-ASSETS> 152,675
<PP&E> 371,107
<DEPRECIATION> 111,314
<TOTAL-ASSETS> 479,195
<CURRENT-LIABILITIES> 93,605
<BONDS> 79,322
0
0
<COMMON> 196,532
<OTHER-SE> 37,206
<TOTAL-LIABILITY-AND-EQUITY> 479,195
<SALES> 0
<TOTAL-REVENUES> 451,922
<CGS> 0
<TOTAL-COSTS> 334,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 501
<INTEREST-EXPENSE> 4,288
<INCOME-PRETAX> 42,297
<INCOME-TAX> 15,706
<INCOME-CONTINUING> 26,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,678
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.36
</TABLE>
