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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, 1998
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:
TITLE OF NAME OF EACH EXCHANGE
EACH CLASS ON WHICH REGISTERED
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None None
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. [ ]
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 1, 1999 was 21,130,897.
The aggregate market value of the voting stock held by non-affiliates of
the registrant at February 1, 1999 based on the closing price on the Nasdaq
National Market on that date was approximately $198,021,646.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the 1999 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, 1998
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PAGE
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PART I
<S> <C> <C>
Item 1. Business .............................................................. 3
Item 2. Properties ............................................................ 12
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 7A. Quantitative and Qualitative Disclosures About Market Risk ............ 30
Item 8. Financial Statements and Supplementary Data ........................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................ 77
PART III
Item 10. Directors and Executive Officers of the Registrant .................... 77
Item 11. Executive Compensation ................................................ 77
Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 77
Item 13. Certain Relationships and Related Transactions ........................ 77
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....... 77
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PART I
ITEM 1. BUSINESS
Pool Energy Services Co. (the "Company") is a diversified energy services
company principally engaged in providing well-servicing, workover and drilling
rig services and related transportation services on land and offshore in the
U.S. and selected international 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
during the drilling and completion of new oil and natural gas wells. The Company
also provides contract drilling services in Alaska, the Gulf of Mexico, certain
international locations and on occasion in the lower forty-eight states.
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. In addition, the Company owns a fleet of
offshore support vessels that provides marine transportation of drilling
materials, supplies and crews for offshore rig operations and support for other
offshore facilities.
As of December 31, 1998, the Company's worldwide fleet included 783 land
well-servicing/workover rigs, 29 land drilling rigs and 27 offshore rigs (14
platform workover rigs, six platform drilling rigs and seven jack-up rigs). The
Company also owns or leases and operates 337 fluid hauling trucks, 971 fluid
storage tanks, 15 salt water disposal wells and other auxiliary equipment used
in its domestic operations. The Company also operates a fleet of 24 support
vessels to complement its offshore rig fleet.
The Company operates both domestically and internationally. In the United
States, the Company operates in several oil and natural gas producing states,
with specific concentration onshore in Texas, California, Oklahoma, New Mexico,
North Dakota, Montana, Utah and Alaska, and offshore in the Gulf of Mexico,
offshore California and in the Cook Inlet of Alaska. International markets where
the Company has an established presence include land operations in Argentina,
Ecuador, Guatemala, Oman, Pakistan and Saudi Arabia and offshore operations in
Australia, Malaysia and Saudi Arabia.
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
The Company has growth strategies 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,
income taxes, depreciation and amortization, and minority interest). Key
components of these strategies include: (i) pursuing expansion opportunities in
existing core market areas through acquisitions that result in consolidation
cost savings; (ii) upgrading and enhancing the capabilities of the Company's
existing fleet and specialized rig equipment 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 locations.
SUBSEQUENT EVENT
On January 10, 1999, the Company entered into a definitive agreement and
plan of merger (the "Merger Agreement") between the Company, Nabors Industries,
Inc. ("Nabors") and Starry Acquisition Corp., a Texas corporation and a wholly
owned subsidiary of Nabors ("Merger Sub"). The Merger Agreement provides,
subject to
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certain conditions set forth therein, that Merger Sub will be merged (the
"Merger") with and into the Company, with the Company continuing as the
surviving corporation and a wholly owned subsidiary of Nabors. At the effective
time of the Merger, each share of common stock, without par value, of the
Company (the "Pool Common Stock") issued and outstanding (excluding any treasury
shares held by the Company and shares held by Nabors or any of its
subsidiaries), including the associated common stock purchase rights, if any,
outstanding at the effective time of the Merger, will be converted into the
right to receive 1.025 shares of common stock, par value $.10 per share, of
Nabors (the "Nabors Common Stock"). The closing of the Merger is subject to
certain conditions, including, among other things, approval by the holders of at
least two-thirds of the Pool Common Stock, the registration with the Securities
and Exchange Commission of the shares of Nabors Common Stock to be issued in
connection with the Merger and the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended. The Merger is expected to close in the second quarter of 1999.
MAJOR DEVELOPMENTS DURING 1998
On March 31, 1998, the Company acquired all of the outstanding capital
stock of Sea Mar, Inc. ("Sea Mar"), a privately owned Louisiana-based offshore
support vessel company with a fleet of 23 vessels operating primarily in the
Gulf of Mexico, for approximately $76.0 million in cash and 1,538,462 shares of
the Company's common stock. See Note 5 of Notes to Consolidated Financial
Statements.
On March 31, 1998, the Company issued 8 5/8% Senior Subordinated Notes Due
2008, Series A in the aggregate principal amount of $150 million. The net
proceeds from the sale of such notes were used to fund the cash portion of the
purchase price for Sea Mar, to repay the existing debt of Sea Mar and to reduce
the outstanding balance under the Company's three-year $180 million syndicated
bank credit agreement (the "Credit Agreement"). See Note 7 of Notes to
Consolidated Financial Statements.
DESCRIPTION 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.
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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.
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 forty-eight 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.
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The Company's fleet of offshore support vessels provides marine
transportation of drilling materials, supplies and crews for offshore rig
operations and support for other offshore facilities. In addition, the Company
provides offshore logistical support to drilling and workover operations,
pipelaying and other construction, production platforms and geophysical
operations.
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 OPERATING SEGMENT AND GEOGRAPHIC AREA
Financial data by operating segment and geographic area for the three years
ended December 31, 1998 are presented in Note 12 of Notes to Consolidated
Financial Statements.
BUSINESS BY OPERATING SEGMENT
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 operating segments: domestic onshore well-servicing and
production services, Gulf of Mexico offshore workover/drilling, offshore support
vessel operations, international workover/drilling and related services and
Alaska onshore and offshore workover/ drilling.
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 forty-eight states. This operation
currently provides services in eleven 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
750 well-servicing rigs, of which 335 are located in Texas, 264 in California,
53 in Oklahoma, 38 in New Mexico, 35 in North Dakota, and 25 in Montana,
Arkansas, Utah and Louisiana. During the year ended December 31, 1998,
approximately 45% 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 337 fluid
hauling trucks and 15 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 971 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.
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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 and six jackup rigs. The Company also provides crews to oil and natural gas
well operators under labor contracts. During the year ended December 31, 1998,
approximately 67% 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.
OFFSHORE SUPPORT VESSELS
The Company's offshore support vessels, which operate primarily in the Gulf
of Mexico, provide marine transportation of drilling materials, supplies and
crews for offshore rig operations and support for other offshore facilities. The
Company also provides offshore logistical support to drilling and workover
operations, pipelaying and other construction, production platforms and
geophysical operations. The Company has 24 support vessels, including one anchor
handling tug supply vessel, 14 supply vessels, seven mini-supply vessels and two
research vessels. In addition, one supply vessel, that was previously being
constructed, was delivered to the Company in January 1999. Offshore support
vessel operations are conducted throughout the year 24 hours a day, seven days a
week, under vessel charters, which may range from several days to several years.
Some reduction in vessel utilization and charter rates may be experienced during
winter months due to seasonal declines in offshore activities. The Company is
paid on a daily rate basis for vessel charters.
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 1998, the
Company operated in nine foreign countries. The Company has 61 rigs in foreign
locations, of which 28 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 operations are
conducted in Saudi Arabia (Pool Arabia, Ltd.) and in Argentina (Pool
International Argentina S.A.). The Company uses the equity method to account for
its unconsolidated affiliates. See Note 10 of Notes to Consolidated Financial
Statements.
ALASKA
In Alaska, the Company provides drilling, and on occasion workover
services, with its fleet of five specialized Arctic land rigs and one offshore
platform rig. 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.
EMPLOYEES
At December 31, 1998, the Company had 5,422 employees, of whom 860 were
employed by unconsolidated affiliates. Approximately 135 employees in Argentina
and 60 employees in Australia are represented by collective bargaining units.
Management believes that the Company's relationship with its employees is
excellent.
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OTHER MATTERS
RISKS INHERENT IN INTERNATIONAL OPERATIONS
The Company's foreign operations are subject to various risks associated
with doing business in foreign countries, such as the possibility of armed
conflict and civil disturbance, political instability, the instability of
foreign economics, 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
in foreign countries 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 and such
examinations may result in assessments of additional taxes and/or penalties.
SUBSTANTIAL LEVERAGE
As of December 31, 1998, the Company had approximately $172.8 million in
long-term indebtedness, net of current portion. The level of the Company's
indebtedness will have several important effects on the Company's future
operations, including among others, (i) a significant portion of the Company's
cash flow from operations will be dedicated to debt service and will not be
available for other purposes, (ii) certain of the Company's indebtedness
contains financial and other restrictive covenants which, if breached, could
result in an event of default under such indebtedness, (iii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures, acquisitions, and other purposes may be limited, (iv) the
Company's borrowings under the Credit Agreement are and will continue to be at
variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates, and (v) the Company's level of indebtedness could
limit its flexibility in planning for and reacting to, and make it more
vulnerable to, competitive pressures and changes in industry and economic
conditions generally. The Company's ability to meet its debt service obligations
and to reduce its total indebtedness will be dependent upon the Company's future
operating performance, which will be subject to general economic conditions,
industry cycles and financial, business and other factors, many of which are
beyond its control.
ENVIRONMENTAL REGULATION AND CLAIMS AND OTHER GOVERNMENTAL REGULATION
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 substances, oilfield waste and other waste materials,
the use of underground storage tanks and the use of underground injection wells.
The Company's offshore support vessel operations also are subject to federal,
state and local laws and regulations which control the discharge of pollutants
into the environment and which otherwise relate to environmental protection.
Other laws regulate the activities of offshore service vessels, require vessel
owners and operators to demonstrate financial and operational responsibility and
provide for certain limitations on the liability of vessel owners and operators.
Failure to comply with these laws, rules and regulations may result in civil and
even criminal actions against the Company.
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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 generally have 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, natural
resource damages 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, prior
operators or other third parties. 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 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 ("CERCLA"), also known as Superfund, and related state laws and regulations,
joint and several 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. Under CERCLA,
such persons may be liable for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural
resources, and it is not uncommon for the neighboring land owners and other
third parties to file claims for personal injury, property damage and recovery
of response costs allegedly caused by the hazardous substances released into the
environment. The Company has been notified of its possible responsibility with
respect to the cleanup of a federal national priority list ("NPL") site and a
state abandoned site, which were formerly operated by parties unrelated to the
Company as oilfield waste disposal facilities. In addition, the Company was
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 believes that
its cost to clean up the site will be less than $0.1 million. Although at this
time information regarding the Company's possible responsibility with respect to
cleanup of the federal NPL site and the state abandoned site has not been fully
developed and it is not feasible to predict such 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 in 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, while the
Company currently does not handle large amounts of "hazardous wastes" (which are
subject to regulation under the federal Resource Conservation and Recovery Act
("RCRA")) in connection with its operations, legislation has been proposed from
time to time in Congress which would reclassify oil and natural gas production
wastes as RCRA 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.
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With respect to the Company's offshore support vessel operations, the
Company is affected by additional governmental regulations. Under the Merchant
Marine Act of 1920, as amended, if persons other than U.S. citizens own in the
aggregate in excess of 25% of the Company's outstanding stock, the Company's
U.S. flagged vessels would lose the privilege of engaging in the transportation
of merchandise in the U.S. coastwise trade. In addition, the Company's offshore
support vessel operations are materially affected by federal, state and local
regulation, as well as certain international conventions and private industry
organizations. These regulations govern worker health and safety and the
manning, construction and operation of vessels. Private industry organizations
establish safety criteria and are authorized to investigate vessel accidents and
recommend approved safety standards. The failure to comply with the requirements
of any of these laws or the rules or regulations of these agencies and
organizations could have a material adverse effect on the Company's offshore
support vessel operations.
The Oil Pollution Act of 1990, as amended ("OPA"), contains provisions
specifying responsibility for removal costs and damages resulting from
discharges of oil into navigable waters or onto the adjoining shorelines. Among
other requirements, OPA requires owners and operators of vessels over 300 gross
tons to provide the U.S. Coast Guard with evidence of financial responsibility
to cover the costs of cleaning up oil spills from such vessels. The Company
believes it has provided satisfactory evidence of financial responsibility to
the U.S. Coast Guard for all vessels over 300 tons. In addition, the Outer
Continental Shelf Lands Act ("OCSLA") provides the federal government with broad
discretion in regulating the leasing of offshore oil and gas production sites.
Because the Company's offshore support vessel operations rely on offshore oil
and gas exploration and production, if the government were to exercise its
authority under OCSLA to restrict the availability of offshore oil and gas
leases, such an action could have a material adverse effect on the Company's
financial statements.
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.
During 1998 and 1997, no single customer accounted for more than 10% of the
Company's consolidated revenues. One customer, Shell Oil Company and its
affiliates, accounted for approximately 11% of the Company's consolidated
revenues during 1996.
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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 competes with Key Energy Services, Inc., which has
approximately 1,403 well-servicing rigs and with numerous other competitors
having smaller regional or local rig operations. In the Gulf of Mexico, the
Company is among five principal competitors providing workover/maintenance
services. The Company competes with numerous offshore support vessel operators
in the Gulf of Mexico on the basis of quality of service, price, vessel
suitability and availability and reputation. Internationally, the Company
competes directly with various competitors at each location where it operates.
In Alaska, the Company has four major competitors.
EXECUTIVE OFFICERS
Set forth below are the names, ages, position and descriptions of the
backgrounds of the executive officers of the Company and their principal
occupations for at least the past five years. 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.
JAMES T. JONGEBLOED, 57. Mr. Jongebloed has been Chairman of the Board of
Directors since 1994 and President and Chief Executive Officer of the Company
since 1990. He was President and Chief Operating Officer from 1989 to 1990 and
was in various executive positions with the Company since 1978.
RONALD G. HALE, 50. Mr. Hale has been Group Vice President - International
Operations since 1989 and was in various management and executive positions with
the Company since 1978.
ERNEST J. SPILLARD, 59. Mr. Spillard has been Senior Vice President,
Finance of the Company since 1987 and was in various management and executive
positions with the Company since 1979.
G. GEOFFREY ARMS, 55. Mr. Arms has been Vice President and General Counsel
of the Company since 1985 and has been Corporate Secretary since 1990.
LOUIS E. DUPRE, 52. Mr. Dupre has been Vice President, Human Resources of
the Company since 1994, and was the Company's Controller from 1986 to 1994.
11
<PAGE> 12
ITEM 2. PROPERTIES
RIG, VESSEL 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, 1998:
<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) .............. 223 115 339 8
Eastern District (central and east Texas and Louisiana) ... 34 54 158 2
Southwest Texas District .................................. 54 85 293 2
South Texas District ...................................... 46 69 154 1
Rocky Mountain District (North Dakota, Montana and Utah) .. 51 1 -- --
Oklahoma District (north Texas, Arkansas and Oklahoma) .... 78 13 27 2
-------- -------- -------- --------
486 337 971 15
-------- -------- -------- --------
California Division:
Northern District ......................................... 186 -- -- --
Southern District ......................................... 78 -- -- --
-------- -------- -------- --------
264 -- -- --
-------- -------- -------- --------
Total ................................................... 750 337 971 15
======== ======== ======== ========
</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 unconsolidated affiliates as of December 31, 1998:
<TABLE>
<CAPTION>
LAND PLATFORM JACKUP
----------------------- ----------------------- -----------------------
DRILLING WORKOVER DRILLING WORKOVER DRILLING WORKOVER TOTAL
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Alaska .................... 4 1 1 -- -- -- 6
Gulf of Mexico ............ -- -- 3 12 -- 6 21
California Offshore ....... -- -- -- 1 -- -- 1
International:
Saudi Arabia ............ 8 11 -- -- 1 -- 20
Oman .................... 2 3 -- -- -- -- 5
Pakistan ................ 1 2 -- -- -- -- 3
Ecuador ................. 4 5 -- -- -- -- 9
Argentina ............... 9 11 -- -- -- -- 20
Guatemala ............... 1 -- -- -- -- -- 1
Malaysia ................ -- -- -- 1 -- -- 1
Australia ............... -- -- 2 -- -- -- 2
--------- --------- --------- --------- --------- --------- ---------
Total International ... 25 32 2 1 1 -- 61
--------- --------- --------- --------- --------- --------- ---------
Total ................. 29 33 6 14 1 6 89
========= ========= ========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
The following table sets forth the type, number and description of the
offshore support vessel fleet located in the Gulf of Mexico as of December 31,
1998. The table excludes the additional ten, 200 foot supply vessels, currently
under construction.
<TABLE>
<CAPTION>
NUMBER OF
VESSEL TYPE VESSELS DESCRIPTION
- ------------------------------------ ---------- -----------------------------------------------------------------------
<S> <C> <C>
Anchor handling tug supply ......... 1 Used to tow rigs to offshore locations and position anchors of floating
drilling rigs and pipelaying vessels. The vessel is 200 feet long with
6,140 horsepower and could be converted to a larger supply vessel if market
conditions warranted.
Supply ............................. 14 Used as the primary freight-carrying vessel for drill pipe, tubing, casing,
drilling mud and other equipment to drilling rigs and production platforms.
One vessel is bareboat chartered. Lengths range from 166 to 220 feet.
Mini-Supply ........................ 7 Used primarily in support of well service and production operations, such
as moving offshore pipe, fluids and equipment for offshore workovers.
Lengths range from 130 to 150 feet.
Research ........................... 2 Used to carry equipment and personnel necessary to perform offshore seismic
surveys. Lengths range from 150 to 175 feet, with the larger of the two
vessels being a dedicated remotely operated vehicle ("ROV") support vessel.
ROVs are used for subsea construction and inspection.
</TABLE>
In addition, Sea Mar has a contract with a marine shipbuilder for the
construction of ten offshore support vessels at an estimated aggregate cost of
$78.5 million, net of deposits. One new vessel was delivered in January 1999,
and the remaining nine vessels are scheduled to be delivered between early 1999
and late 2000. Each new vessel is at least 200 feet in length and 4,000
horsepower. All of the new vessels have design features, including modifiable
length and propulsion characteristics, which allow them to be supplemented with
dynamic positioning equipment. Such features will enhance the ability of these
vessels to provide services to floating drilling rigs in the deep water region
of the Gulf of Mexico.
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 $4.4
million through March 2003. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other Matters - San Angelo Lease Commitment." The Company owns 41
and leases 59 domestic office and yard locations of which 12 locations are not
currently used. Internationally, the Company leases office and yard facilities
at 12 locations and owns facilities at 5 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.
13
<PAGE> 14
As partial consideration for the acquisition of DA&S Oil Well Servicing,
Incorporated ("DA&S") in 1997 and Golden Pacific Corp. ("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 and Other Governmental
Regulation."
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 24, 1999, the approximate number of holders of
record of the Company's common stock was 2,168. 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>
1998
Fourth Quarter .............................. $ 14 7/8 $ 6 3/16
Third Quarter ............................... 15 1/2 6 3/4
Second Quarter .............................. 28 5/16 13 7/8
First Quarter ............................... 25 1/2 15
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
</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, as well as the Merger
Agreement, prohibit the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity" and Note 7 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
-------------------------------------------------------------------------
1998(1) 1997(2) 1996(3) 1995(4) 1994(5)
--------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues ........................................... $ 455,741 $ 451,922 $ 348,558 $ 277,305 $ 229,175
Earnings Attributable to Unconsolidated Affiliates . 4,335 3,080 2,244 2,955 5,016
--------- --------- --------- --------- ---------
Total .................................... 460,076 455,002 350,802 280,260 234,191
--------- --------- --------- --------- ---------
Costs and Expenses:
Operating expenses ............................. 316,558 334,592 267,692 219,074 182,012
Selling, general and administrative expenses ... 55,355 53,420 46,806 40,549 36,927
Depreciation and amortization .................. 39,766 25,022 18,545 15,002 13,760
Provision for leasehold impairment (6) ......... -- -- -- -- 23,551
--------- --------- --------- --------- ---------
Total .................................... 411,679 413,034 333,043 274,625 256,250
--------- --------- --------- --------- ---------
Other Income (Expense) - Net ....................... 1,608 4,617 2,095 1,289 1,202
Interest Expense ................................... 14,672 4,288 2,793 1,811 253
--------- --------- --------- --------- ---------
Income (Loss) Before Income Taxes and Minority
Interest ....................................... 35,333 42,297 17,061 5,113 (21,110)
Income Tax Provision (Credit) ...................... 13,525 15,706 7,524 1,981 (8,381)
Minority Interest in Loss of Consolidated
Subsidiary ..................................... -- (87) (103) -- --
--------- --------- --------- --------- ---------
Net Income (Loss) .................................. $ 21,808 $ 26,678 $ 9,640 $ 3,132 $ (12,729)
========= ========= ========= ========= =========
Earnings (Loss) Per Share of Common Stock - basic .. $ 1.06 $ 1.39 $ .58 $ .23 $ (.94)
========= ========= ========= ========= =========
Weighted Average Shares Outstanding - basic ........ 20,659 19,257 16,505 13,840 13,559
========= ========= ========= ========= =========
Earnings (Loss) Per Share of Common Stock -
assuming dilution .............................. $ 1.05 $ 1.36 $ .58 $ .23 $ (.94)
========= ========= ========= ========= =========
Weighted Average Shares Outstanding - assuming
dilution ....................................... 20,836 19,577 16,677 13,881 13,559
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT PERIOD END):
Cash and Cash Equivalents .......................... $ 33,330 $ 18,993 $ 21,837 $ 5,492 $ 2,560
Property, Plant and Equipment - Net ................ 405,740 259,793 189,125 124,024 101,536
Total Assets ....................................... 664,139 479,195 341,217 248,443 209,818
Total Debt ........................................ 173,472 80,347 33,695 20,569 2,095
Shareholders' Equity ............................... 291,448 233,738 197,123 136,027 128,639
CASH FLOW DATA:
Net cash provided by operating activitites ......... $ 80,207 $ 42,387 $ 17,715 $ 23,595 $ 8,324
Net cash used for investing activities ............. (138,146) (84,902) (50,556) (24,109) (12,438)
Net cash provided by financing activities .......... 72,276 39,671 49,186 3,446 2,071
OTHER DATA AND RATIOS:
EBITDA (7) ......................................... $ 89,771 $ 71,607 $ 38,399 $ 21,926 $ (7,097)
Property Additions (8) ............................. 91,416 60,355 30,662 23,436 10,897
Earnings to Fixed Charges (9) ...................... 2.86x 6.47x 3.77x 1.65x --
</TABLE>
- ------------
(See footnotes on following page.)
16
<PAGE> 17
(1) Includes the results from Sea Mar since its March 31, 1998 acquisition,
which was accounted for under the purchase method. See Note 5 of Notes to
Consolidated Financial Statements. Effective January 1, 1998, the Company
began accounting for its 51% interest in Pool International Argentina
S.A. ("PIASA") under the equity method. See Note 1 of Notes to
Consolidated Financial Statements.
(2) Includes the results from A.A. Oilfield Services, Inc. ("A.A.") since its
November 1997 acquisition, Trey Services, Inc. ("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 5 of Notes to
Consolidated Financial Statements.
(3) Includes the results from Antah Drilling Sdn. Bhd. ("Antah Drilling"),
now Pool International Malaysia Sdn. Bhd. ("Pool Malaysia"), since the
acquisition of the interest of the Company's former partner in October
1996 and PIASA since the Company's August 1996 purchase of a 51%
interest, both of which were accounted for under the purchase method. See
Note 5 of Notes to Consolidated Financial Statements.
(4) Includes the results from GPC since its June 1995 acquisition, which was
accounted for under the purchase method.
(5) Includes the results from Pool Arctic Alaska since the acquisition of the
interest of the Company's former partner in September 1994, which was
accounted for under the purchase method.
(6) See Note 8 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
and minority interest) 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. Excluding the $23.6
million non-cash pretax provision for leasehold impairment, the 1994
EBITDA would be $16.5 million (see Note 8 of Notes to Consolidated
Financial Statements).
(8) Excluding acquisitions of businesses.
(9) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest plus the portion of operating lease
rental expense that represents the interest factor which is deemed to be
one-third of rentals). In the year ended December 31, 1994, earnings
(following a significant one-time non-cash charge for leasehold
impairment) were inadequate to cover fixed charges by $3.3 million.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SUBSEQUENT EVENT
The Merger Agreement entered into on January 10, 1999 between the Company,
Nabors and Merger Sub provides, subject to certain conditions set forth therein,
that Merger Sub will be merged with and into the Company, with the Company
continuing as the surviving corporation and a wholly owned subsidiary of Nabors.
At the effective time of the Merger, each share of Pool Common Stock issued and
outstanding (excluding any treasury shares held by the Company and shares held
by Nabors or any of its subsidiaries), including the associated common stock
purchase rights, if any, outstanding at the effective time of the Merger, will
be converted into the right to receive 1.025 shares of Nabors Common Stock. The
closing of the Merger is subject to certain conditions, including, among other
things, approval by the holders of at least two-thirds of the Pool Common Stock,
the registration with the Securities and Exchange Commission of the shares of
Nabors Common Stock to be issued in connection with the Merger and the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Merger is
expected to close in the second quarter of 1999.
NOTES OFFERING
On March 31, 1998, the Company issued 8 5/8% Senior Subordinated Notes Due
2008, Series A, in the aggregate principal amount of $150 million (the "Old
Notes") and used the net proceeds from the sale thereof to fund the cash
portion of the purchase price for Sea Mar, to repay the existing debt of Sea
Mar and to reduce the outstanding balance under the Credit Agreement. In June
1998, the Company offered to exchange its 8 5/8% Senior Subordinated Notes Due
2008, Series B (the "New Notes," and together with the Old Notes, the "Notes"),
which have been registered under the Securities Act of 1933, as amended, (the
"Securities Act") for any and all of the outstanding Old Notes (the "Exchange
Offer"). The terms of the New Notes are identical in all material respects to
the terms of the Old Notes, except that the New Notes have been registered
under the Securities Act and are generally freely transferable by holders
thereof and are issued without any covenant by the Company regarding
registration under the Securities Act. The Exchange Offer was completed on July
15, 1998, whereupon all of the Old Notes were tendered and exchanged for New
Notes.
The Notes are general unsecured obligations of the Company subordinated in
right of payment to all existing and future senior indebtedness of the Company
and are unconditionally guaranteed, jointly and severally, by each of the
Company's wholly owned subsidiaries that are incorporated or organized in the
United States (the "Subsidiary Guarantors"). The Notes contain certain covenants
that, among other things, limit the ability of the Company and the Subsidiary
Guarantors to incur additional indebtedness, issue capital stock of Subsidiary
Guarantors, pay dividends or make other restricted payments, incur liens, enter
into certain transactions with affiliates, enter into certain mergers or
consolidations or sell all or substantially all of the assets of the Company and
its subsidiaries.
ACQUISITIONS
Sea Mar, Inc. ("Sea Mar") On March 31, 1998, the Company acquired all of
the outstanding capital stock of Sea Mar, a privately owned Louisiana-based
offshore support vessel company with operations primarily in the Gulf of Mexico,
for approximately $76.0 million in cash, including a $14.7 million post-closing
purchase price adjustment, and 1,538,462 shares of the Company's common stock.
The purchase price adjustment, which was paid during 1998, was based on the
amount by which the shareholders' equity in Sea Mar at March 31, 1998 exceeded
the amount that existed at August 31, 1997. The Company is obligated to pay
additional cash consideration of approximately $2.5 million as a result of Sea
Mar's financial performance for the fiscal year ended December 31, 1998. The
Company is also obligated to pay additional cash consideration contingent upon
Sea Mar's financial performance for the fiscal year ending December 31, 1999, up
to a maximum of $10 million.
18
<PAGE> 19
As a result of the acquisition of Sea Mar, the Company now operates a
diversified fleet of offshore support vessels in the Gulf of Mexico. In
addition, Sea Mar has a contract with a marine shipbuilder for the construction
of ten offshore support vessels at an estimated aggregate cost of $78.5 million,
net of deposits. One new vessel was delivered in January 1999 and the remaining
nine vessels are scheduled to be delivered between early 1999 and late 2000. The
Company anticipates that the expenditures for these vessels will be financed by
internally generated funds and other financing arrangements as needed. See Note
5 of Notes to Consolidated Financial Statements for a discussion of this
acquisition.
A.A. Oilfield Service, Inc. ("A.A.") 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 - Debt Retired Prior to and Concurrent with
the Notes Offering - A.A. Debt" and Note 5 of Notes to Consolidated Financial
Statements for a discussion of this acquisition.
Trey Services, Inc. ("Trey") 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 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. See "- Financial Condition and Liquidity - Debt Retired Prior to and
Concurrent with the Notes Offering - R&H Debt" and Note 5 of Notes to
Consolidated Financial Statements for a discussion of this acquisition.
D A & S Oil Well Servicing, Incorporated ("DA&S") 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 - Debt Retired Prior to and Concurrent with the Notes Offering -
DA&S Debt" and Note 5 of Notes to Consolidated Financial Statement for a
discussion of this acquisition.
Antah Drilling Sdn. Bhd. ("Antah Drilling") In October 1996, the Company
acquired the 51% beneficial ownership 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 included 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. (Rig 489 was transferred to
another wholly owned subsidiary of the Company during 1998.) See "- Financial
Condition and Liquidity - Debt Retired Prior to and Concurrent with the Notes
Offering - Antah Drilling Acquisition Debt" and Note 5 of Notes to Consolidated
Financial Statements for a discussion of this acquisition.
Pool International Argentina S.A. ("PIASA") In August 1996, the Company
acquired for approximately $8.7 million in cash a 51% interest in PIASA. PIASA's
nine land drilling rigs and 11 land workover rigs operate in the Mendoza and
Neuquen basins of Argentina. See Note 1 of Notes to Consolidated Financial
Statements.
Western Oil Well Service Co. ("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.
1998 COMPARED TO 1997
The Company generated net income of $21.8 million in 1998, compared with
$26.7 million in 1997. The average price of crude oil was approximately 30%
lower in 1998 than in 1997, and average domestic natural gas prices decreased
approximately 17% comparing the same periods. Results from the Company's
domestic
19
<PAGE> 20
operations declined primarily due to reduced activity for the Company's domestic
land well-servicing rigs and platform workover and jackup rigs in the Gulf of
Mexico in response to lower crude oil and natural gas prices. The decline in net
income for the Company's domestic operations was partly offset by (i) the
inclusion of results from Sea Mar's offshore support vessel fleet acquired on
March 31, 1998, (ii) improved results from the Company's Alaska operations due
to increased land drilling and labor contract activity, and (iii) the inclusion
of results from the newly constructed platform drilling Rig 16 which was placed
in service in the Gulf of Mexico in February 1998. Rig hours for the Company's
domestic onshore operation were 11% lower in 1998 than in 1997 despite the full
year effect of the addition of land well-servicing rigs acquired in the June
1997 DA&S acquisition (see "Acquisitions - DA&S") and the October 1997 Trey
acquisition (see "- Acquisitions - Trey"). The Company's offshore rig fleet in
the Gulf of Mexico experienced utilization of 58% in 1998, compared to 76% in
1997, but average rates for these rigs were 11% higher in 1998. Results from the
Company's international operations improved due to (i) higher revenues for Rig
453, a platform drilling rig located in Australia which was recently converted
from a platform workover rig, (ii) lower operating expenses in Australia, (iii)
higher earnings attributable to Pool Arabia, Ltd., the Company's Saudi Arabia
affiliate, and (iv) increased land drilling rig activity in Ecuador.
Revenues. Revenues were $455.7 million in 1998, a 1% increase over revenues
of $451.9 million in 1997. This increase was attributable to (i) the inclusion
of revenues from offshore support vessels acquired in the March 1998 acquisition
of Sea Mar (see "- Acquisitions - Sea Mar"), (ii) the inclusion of revenues from
Rig 16 in the Gulf of Mexico, (iii) increased revenues associated with Rig 453
in Australia, (iv) higher land drilling and labor contract activity in Alaska,
including operation of the recently upgraded Rig 8, (v) the full year effect of
revenues from the rigs acquired in the October 1997 Trey acquisition and June
1997 DA&S acquisition (see "- Acquisitions"), and (vi) increased land drilling
activity in Ecuador. These revenue increases were offset partly by reduced
platform workover and jackup rig activity in the Gulf of Mexico and lower
overall utilization of the Company's land well-servicing rigs located in Texas,
New Mexico and California due to reduced activity in response to lower crude oil
prices. In addition, the Company's revenues in 1998 did not include revenues
related to PIASA as a result of a change in the Company's method of accounting
for its 51% investment in such entity to the equity method, compared to the
inclusion of $18.3 million of PIASA revenues in 1997 (see Note 1 of Notes to the
Consolidated Financial Statements and "- Earnings Attributable to Unconsolidated
Affiliates").
Domestic onshore well-servicing and production services revenues decreased
$13.2 million or 5% in 1998 from 1997, chiefly as a result of overall reduced
activity levels in response to lower crude oil and natural gas prices, partly
offset by the addition of revenues from the rigs acquired in the Trey and DA&S
acquisitions. Domestic onshore rig utilization was 47% in 1998, compared to 56%
in 1997. Domestic onshore well-servicing rig hours decreased from approximately
1,259,000 in 1997 to approximately 1,126,000 in 1998. Gulf of Mexico offshore
workover and drilling revenues decreased $8.2 million or 10%, Alaska operations
revenues increased $4.2 million or 16% and international operations revenues
decreased $16.3 million or 21% (however, excluding the $18.3 million of revenues
from PIASA in 1997, international operations revenues increased $2.0 million or
3%), compared to 1997. Revenues from Sea Mar's fleet of offshore support vessels
for the period from March 31, 1998 (date of acquisition) through December 31,
1998 were $37.3 million.
Earnings Attributable to Unconsolidated Affiliates. Earnings attributable
to unconsolidated affiliates were $4.3 million in 1998, compared to $3.1 million
in 1997. Earnings attributable to Pool Arabia, Ltd. increased $3.5 million from
1997 to $6.6 million in 1998, primarily due to income earned from Pool Arabia's
operation of two rigs leased in 1998 from the Company. The loss attributable to
PIASA was $2.2 million in 1998. Effective January 1, 1998, the Company adopted
EITF 96-16 and changed its method of accounting for PIASA to the equity method
since PIASA no longer qualified for full consolidation (see Note 1 of Notes to
Consolidated Financial Statements).
Costs and Expenses. The Company's costs and expenses were $411.7 million in
1998, a slight decrease compared to costs and expenses of $413.0 million in
1997. As a percentage of revenues, operating expenses declined to 69% of
revenues in 1998 from 74% of revenues in 1997; the improvement in operating
margins was
20
<PAGE> 21
primarily due to the exclusion of costs and expenses related to PIASA and lower
costs and expenses in the Middle East and Australia and the inclusion of results
from Sea Mar's offshore support vessels acquired on March 31, 1998. The decrease
in total costs and expenses was primarily due to decreased costs and expenses
for the Company's domestic land well-servicing rigs and platform workover and
jackup rigs in the Gulf of Mexico due to reduced activity, decreased costs and
expenses in the Middle East due to the transfer of a land drilling rig to Saudi
Arabia where it is being leased to Pool Arabia and lower operating expenses in
Australia where the weakened Australian dollar resulted in reduced local
expenses. In addition, the Company's costs and expenses in 1997 included $19.2
million of costs and expenses related to PIASA (see "- Earnings Attributable to
Unconsolidated Affiliates"). The decrease was partly offset by increased costs
and expenses primarily resulting from the inclusion of costs and expenses
related to operating the newly acquired offshore support vessels and the land
well-servicing rigs acquired in the DA&S and Trey acquisitions.
Other Income - Net. Other income - net was $3.0 million lower in 1998 than
in 1997, primarily due to lower gains on dispositions of equipment and $1.9
million in pre-tax gains from insurance settlements in 1997.
Interest Expense. Interest expense was $10.4 million higher in 1998 than in
1997, primarily as a result of (i) interest expense related to the $150 million
Notes issued in March 1998, (ii) increased borrowings under the Credit
Agreement, and (iii) the full year effect of $10.1 million in long-term notes
issued in connection with the DA&S acquisition in June 1997. These increases
were partially offset by a reduction in interest expense due to certain term
loans being paid off in October 1997 with borrowings under the Credit Agreement
and a reduction in the outstanding principal amount of certain 10% notes issued
in connection with the 1995 purchase of GPC.
Income Taxes. The Company recorded income tax expense of $13.5 million on
income before income taxes of $35.3 million in 1998, compared to income tax
expense of $15.7 million on income before income taxes and minority interest of
$42.3 million in 1997. The decrease in income tax expense in 1998, compared to
1997, was primarily due to a decrease in pre-tax income in 1998, as a result of
the factors described above. See Note 6 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.
1997 COMPARED TO 1996
The Company generated 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 jackup 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 then owned by Pool Malaysia
that 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 jackup 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
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(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 then 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 "), (v) the full-year effect of
revenues from the Argentina rigs owned by PIASA (see "- Acquisitions - PIASA"),
(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 and the DA&S and Trey acquisitions.
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. 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;
however, as a percentage of revenues, operating expenses declined to 74% of
revenues in 1997 from 77% of revenues in 1996. The increase in costs and
expenses was primarily due to the inclusion of costs and expenses related to (i)
increased domestic onshore rig and production services activity, including costs
and expenses of operating the land well-servicing rigs acquired from Western Oil
in June 1996, and in the acquisitions of DA&S in June 1997 and Trey in October
1997, (ii) the operation of Rig 18 for a full year and increased jackup and
platform rig activity in the Gulf of Mexico, (iii) a full year of operations by
PIASA 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
then 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 Credit Agreement,
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 7 of Notes to Consolidated Financial
Statements.
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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 6 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.
FINANCIAL CONDITION AND LIQUIDITY
The Company had cash and cash equivalents of $33.3 million at December 31,
1998 compared to $19.0 million at December 31, 1997. Working capital was $50.2
million and $59.1 million at December 31, 1998 and 1997, respectively.
CASH FLOWS
1998 Compared To 1997. The Company's cash provided by operating activities
increased by $37.8 million in 1998 to $80.2 million, compared to $42.4 million
in 1997. This increase was primarily attributable to changes in working capital
components, including a source of funds of $49.7 million due to a decrease in
receivables balances, which was offset in part by a use of funds of $19.6
million due to a decrease in trade accounts payable balances; both changes were
related to the slowdown in business during the last half of 1998. The Company
used a net $138.1 million for investing activities in 1998, primarily for
capital expenditures of $91.4 million, including (i) approximately $19.5 million
toward the upgrade of an Arctic land drilling rig, (ii) approximately $8.6
million toward the construction of a new Arctic land drilling rig, (iii)
approximately $6.6 million for the purchase, upgrade and mobilization of a land
drilling rig for operation in Oman, (iv) approximately $4.6 million for the
electrification and upgrade of a platform drilling rig located in the Gulf of
Mexico, (v) approximately $3.8 million for the completion of the construction of
Rig 16, a newly constructed offshore platform drilling rig in the Gulf of
Mexico, (vi) approximately $3.5 million for the upgrade of a jackup rig located
in the Gulf of Mexico, and (vii) approximately $2.3 million for the purchase of
two jackup workover rigs located in the Gulf of Mexico that the Company was
leasing and had the option to purchase. Cash used for investing activities in
1998 also included $65.1 million, net of cash acquired, for the purchase of Sea
Mar, partially offset by $20.0 million of proceeds from the sale and leaseback
of two jackup workover rigs located in the Gulf of Mexico.
1997 Compared To 1996. The Company's cash provided by operating activities
increased by $24.7 million in 1997 to $42.4 million, compared to $17.7 million
in 1996. This increase was primarily due to a $17.0 million increase in net
income, a $6.5 million increase in depreciation and amortization due to recent
acquisitions and rig upgrades and a $6.6 million increase in deferred income
taxes resulting primarily from higher property additions. These increases were
offset in part by changes in the working capital components including an
increase in cash usage of $4.9 million in receivables primarily as a result of
higher revenues generated in 1997 and a $4.8 million increase in cash usage
related to inventory due to new international rig contracts, offset in part by
an $8.9 million decrease in cash usage for trade accounts payable and accrued
liabilities related to higher accruals for rig construction and upgrade
projects. 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 toward
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 sale and 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
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million, net of cash acquired, for the purchase of 51% of Antah Drilling, $8.7
million for the acquisition of a 51% 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.
LONG-TERM DEBT
$150 Million Senior Subordinated Notes. On March 31, 1998, the Company
issued 8 5/8% Notes in the aggregate principal amount of $150 million (see "-
Results of Operations - Notes Offering" and Note 7 of Notes to Consolidated
Financial Statements). The Company incurred $4.8 million of debt financing costs
during 1998 in connection with the issuance of the Notes, which is being
amortized over the term of the Notes.
$180 Million Credit Agreement. On September 30, 1997, the Company entered
into a three-year $130 million Credit Agreement to replace a $40 million
revolving bank line of credit and $15.6 million of long-term debt and to provide
financing for future growth opportunities. In March 1998, simultaneously with
the issuance of the Notes and the acquisition of Sea Mar, the Company executed
an amendment to the Credit Agreement to increase maximum availability thereunder
from $130 million to $180 million, including up to $15 million that may be used
to support letters of credit. At February 22, 1999, the Company had drawn $5.0
million in cash under the Credit Agreement, and an additional $10.0 million was
being utilized to support the issuance of letters of credit, primarily related
to insurance obligations and long-term notes issued in connection with the
acquisition of GPC.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either (i) the Base Rate (defined as the higher of the administrative
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%, or (ii) the Eurodollar Rate
(equivalent to the London Interbank Offered Rate plus a margin ranging from 1%
to 1.75% with the Company's option of a one-, two-, three-, or six-month
interest period). The applicable margin for each interest option depends on the
Company's leverage ratio for the fiscal quarter preceding the interest period;
however, per the terms of the Credit Agreement the applicable Eurodollar margin
through September 1998 could not be less than 1.50%. Based upon the Company's
leverage ratio at December 31, 1998, the applicable Eurodollar margin would be
1.00% for borrowings during the first quarter of 1999. The Credit Agreement will
mature on October 2, 2000 and is subject to being extended on a year-to-year
basis at the discretion of the lenders. Revolving loans issued under the Credit
Agreement are prepayable at any time and are due at expiration on October 2,
2000. The 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. The Company is in compliance with each of these
covenants and has not been at risk of not being in compliance. It also imposes
certain other restrictions, including ones relating to liens, other
indebtedness, asset sales, investments, acquisitions or mergers and the payment
of dividends. The Credit Agreement is guaranteed on an unsecured basis by
substantially all of the Company's domestic subsidiaries. Advances under the
Credit Agreement are secured by a pledge of 66% of the capital stock of certain
of the Company's foreign subsidiaries. The Company incurred $0.7 million and
$1.6 million of debt financing costs during 1998 and 1997, respectively, in
connection with the Credit Agreement, which is being amortized over the term of
the agreement. During 1998, the Company drew $40 million in cash and made
payments of $95.8 million to reduce the borrowings under the Credit Agreement,
of which $54.1 million was from the proceeds from the issuance of the Notes.
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. The Company made principal payments of $0.5 million in 1998 related to
these notes. The total principal balance outstanding under these notes was $9.6
million at December 31, 1998. See Note 7 of Notes to Consolidated Financial
Statements for further discussion.
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GPC 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 in 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 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 1998, $0.6 million in 1997 and $1.5 million in 1996 related to these
notes. The total principal balance outstanding under these notes was $3.9
million as of December 31, 1998. See Notes 5 and 7 of Notes to Consolidated
Financial Statements for further discussion.
DEBT RETIRED PRIOR TO AND CONCURRENT WITH THE NOTES OFFERING
Sea Mar Debt. In March 1998, the Company acquired all the outstanding
capital stock of Sea Mar for approximately $76.0 million in cash and 1,538,462
shares of the Company's common stock. The cash portion of this transaction was
financed with borrowings from the issuance of the Notes. At the time this
transaction was consummated, $15.7 million of Sea Mar debt was immediately
retired with a portion of the proceeds from the issuance of the Notes. See Note
5 of Notes to Consolidated Financial Statements for further information.
R&H Debt. 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 Credit Agreement. See Note 5 of Notes
to Consolidated Financial Statements for further information.
A.A. Debt. 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 Credit Agreement. At the time this transaction was
consummated, $0.3 million of A.A. debt was immediately retired. See Note 5 of
Notes to Consolidated Financial Statements for further information.
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 Credit
Agreement. The Company made scheduled principal payments of $3.9 million in 1997
and $1.4 million between October and December of 1996. See Note 5 of Notes to
Consolidated Financial Statements for further information.
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 Credit Agreement. In October 1997, the
remaining balance of $3.5 million was paid off with borrowings under the Credit
Agreement. The Company made scheduled principal payments on the Australia Loan
of $1.2 million in 1997 and $1.8 million in 1996.
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 credit
agreement. 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 Credit Agreement. During 1997 and 1996, the Company made scheduled principal
payments of $1.9 million and $2.8 million, respectively, on the Alaska Loan.
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DA&S Debt. As part of the DA&S acquisition, the Company assumed $0.8
million of DA&S debt, all of which was immediately retired. See Note 5 of Notes
to Consolidated Financial Statements for further information.
GPC Acquisition Debt. As part of the GPC acquisition, the Company assumed
GPC's debt of $2.0 million, all of which was immediately retired. 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 and 1996 of $0.9 million and $0.4 million, respectively, and
such notes were retired in 1997.
SALE AND LEASEBACK
In December 1998 the Company entered into sale and leaseback agreements
with a leasing company with respect to two offshore jackup rigs. These rigs had
been leased by the Company for the previous five years and were purchased by the
Company for $2.3 million in December 1998 through the exercise of a purchase
option. The rigs were sold to the new leasing company for $20.0 million in cash.
The current leases for the two rigs have an aggregate annual lease rate of
approximately $2.7 million through December 2004.
PUBLIC EQUITY 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.
CAPITAL EXPENDITURES
The Company anticipates that 1999 capital expenditures will consist of (i)
approximately $17.2 million primarily for maintenance of its existing rig and
offshore support vessel fleet and (ii) approximately $39.2 million for payment
of the balance of the purchase price of five vessels currently under
construction which are scheduled for delivery during 1999. The Company
anticipates that these expenditures will be financed by internally generated
funds, borrowings under the Credit Agreement and other financing arrangements as
needed. Capital additions and improvements, as well as business acquisitions,
have been suspended by the Company pending consummation of the Merger.
OTHER MATTERS
MARKET OUTLOOK
Historically, the demand for the Company's services has had a strong
correlation with the fluctuations in oil and natural gas prices. During the past
twelve months, crude oil prices have decreased from an average of approximately
$16.67 per barrel in January 1998 to an average of approximately $11.07 per
barrel in December 1998, and the average price for domestic natural gas has also
declined from $1.99 per MMbtu to $1.66 per MMbtu during this same period. These
declines have been attributed to, among other things, an excess supply of
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oil in the world markets, reduced domestic demand associated with an
unseasonably warm winter and lower worldwide demand due to the impact of the
economic downturn in Asia. As a result, the Company is experiencing a decline in
the overall demand and rates for its services. These market conditions have
negatively affected activity levels and financial results, particularly in the
second half of 1998, and are expected to continue to do so until commodity
prices increase to higher levels. In order to minimize the effects of such low
oil prices, the Company has been and is continuing to review the cost structure
within each of its operating units to assure that it is appropriate given
current market conditions. Despite the current low oil prices and the resulting
softening market conditions, the Company remains optimistic about its long-term
outlook and believes that market conditions in the industry should improve over
the long term as demand and supply become more in balance.
ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than January 1, 2000.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain
disclosures no longer considered useful. The Company adopted this statement in
the fourth quarter of 1998 and there was no effect on the Company's financial
statements.
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 adopted this
statement in the fourth quarter of 1998 and there was no material effect on the
Company's presentation of segment disclosures.
Also in June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted this statement in
the first quarter of 1998 and there was no effect on the Company's financial
statements as there were no items of other comprehensive income in any of the
years in the three year period ended December 31, 1998.
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.
IMPACT OF THE YEAR 2000 ISSUE
Some of the Company's older computer programs were written using a two
digit year. As a result, those computer programs may be unable to process
date-sensitive information beyond the year 2000. This situation, which is not
uncommon, is frequently referred to as the Year 2000 issue and can cause a
temporary disruption of the ordinary course of business. The Company has
developed a plan to address its exposure to the impact of the Year 2000 issue.
An assessment of the critical financial and operational systems has been made
and the remediation of these systems is approximately 70% complete. The testing
phase of the critical systems has begun, and these systems are expected to be
Year 2000 compliant by July 1999. The inventory and assessment of the smaller
less critical financial and operational systems, many located internationally,
have been completed. The
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modification and testing of several of these smaller systems has been
accomplished. For the remaining small systems, modifications or replacements are
in process, and a target date of April 1999 has been set for completion, with
testing of these systems to follow. The assessment of systems embedded in the
Company's buildings, equipment and other infrastructures has been completed. To
date, there has been no discovery of a significant non-compliant embedded
system. As of December 31, 1998, the Company has spent approximately $0.3
million, exclusive of internal costs, on its Year 2000 initiatives, primarily
for incremental software purchases and outside consulting. The Company does not
separately track internal Year 2000 costs, which are largely salaries and
benefits of Company personnel working on the project. The Company expects the
incremental cost of full implementation of its Year 2000 plan to be
approximately $0.6 million, exclusive of internal costs.
The Company has formally communicated with the suppliers, customers and
financial institutions that it considers to be material third parties and is
evaluating its risks related to the failure of such third parties to be Year
2000 compliant. The effect, if any, on the Company's results of operations
arising from the failure of these third parties to be Year 2000 compliant is not
reasonably estimable at this time. Risk assessment and contingency plans related
to these third parties are expected to be complete by July 1999.
Contingency plans to protect the Company from Year 2000-related
interruptions are being developed and are expected to be complete by July 1999.
The dates on which the Company plans to become Year 2000 compliant and the
costs associated with the related 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. There can be no assurance that these time
or cost estimates will be achieved, and the actual results could be materially
different. Although the Company expects to be Year 2000 compliant by July 1999
and believes that in a "most reasonably likely worst case scenario" it will not
be materially impacted by any third party non-compliance, failure by the Company
or by material third parties to fully implement appropriate Year 2000 plans
could have a material adverse effect on the Company's results of operations.
Adverse effects on the Company could include, among other things, business
disruption, increased costs, loss of business and other similar risks.
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 were $2.2 million
through March 1998 and are $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 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
28
<PAGE> 29
result or course of events "should" occur, and similar expressions, are also
intended to identify forward-looking statements. In connection with such
statements, it should be noted that the Company's operations and financial
results 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, the success of the Company and material
third party business partners or suppliers in implementing their Year 2000
compliance plans 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.
29
<PAGE> 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion of the Company's market sensitive financial
instruments contains "forward-looking statements." All items described are
non-trading.
INTEREST RATE RISK
At December 31, 1998, the Company had minimal interest rate risk since a
majority of the Company's long-term debt is fixed-rate and, therefore, does not
expose the Company to risk of earnings loss due to changes in market interest
rates. The Company is subject to the risk of fluctuating interest rates related
to its Credit Agreement, since it provides for borrowings which bear interest at
variable rates (see Note 7 of Notes to Financial Statements for further
information).
<TABLE>
<CAPTION>
FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER TOTAL 12/31/98
---- ---- ---- ---- ---- ---------- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT
8 5/8% Senior Subordinate Notes
Due 2008, Series B
Fixed interest rate - 8 5/8% ....... -- -- -- -- -- $150.0 $150.0 $138.8
9% Notes (DA&S)
Fixed interest rate - 9% ........... -- $ 2.0 $3.6 $2.5 $1.5 -- $ 9.6 $ 10.5
10% Notes (GPC)
Fixed interest rate - 10% .......... $0.6 $ 0.6 $1.5 $1.1 -- -- $ 3.8 $ 4.3
Revolving Credit Agreement Loans
Variable interest rate -
6.05% at December 31, 1998 ......... -- $10.0 -- -- -- -- $ 10.0 $ 10.0
</TABLE>
FOREIGN EXCHANGE RISK
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates to the extent that transactions are
not denominated in U.S. dollars. The Company typically denominates its contracts
in U.S. dollars to mitigate the exposure to fluctuations in foreign currencies.
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 changing
rate movements because gains and losses on these contracts offset gains and
losses on the exposed investments being hedged. The forward exchange contracts
generally have maturities which do not exceed 31 days. The Company had forward
exchange contracts to purchase $5.1 million in Australian dollars at December
31, 1998.
30
<PAGE> 31
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, 1998 and
1997, and the related statements of consolidated operations and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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 18, 1999
31
<PAGE> 32
POOL ENERGY SERVICES CO.
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues ............................................ $ 455,741 $ 451,922 $ 348,558
Earnings Attributable to Unconsolidated Affiliates .. 4,335 3,080 2,244
--------- --------- ---------
Total ...................................... 460,076 455,002 350,802
--------- --------- ---------
Costs and Expenses:
Operating expenses ............................. 316,558 334,592 267,692
Selling, general and administrative expenses ... 55,355 53,420 46,806
Depreciation and amortization .................. 39,766 25,022 18,545
--------- --------- ---------
Total ...................................... 411,679 413,034 333,043
--------- --------- ---------
Other Income (Expense) - Net ........................ 1,608 4,617 2,095
Interest Expense .................................... 14,672 4,288 2,793
--------- --------- ---------
Income Before Income Taxes and Minority Interest .... 35,333 42,297 17,061
Income Tax Provision ................................ 13,525 15,706 7,524
Minority Interest in Loss of Consolidated
Subsidiary ..................................... -- (87) (103)
--------- --------- ---------
Net Income .......................................... $ 21,808 $ 26,678 $ 9,640
========= ========= =========
Earnings Per Share of Common Stock .................. $ 1.06 $ 1.39 $ .58
========= ========= =========
Earnings Per Share of Common Stock -
assuming dilution .............................. $ 1.05 $ 1.36 $ .58
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 33
POOL ENERGY SERVICES CO.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net Income .......................................................... $ 21,808 $ 26,678 $ 9,640
Noncash items included above:
Depreciation and amortization ..................................... 39,766 25,022 18,545
Amortization of deferred drydocking costs ......................... 2,443 -- --
Amortization of deferred rig mobilization ......................... (7,794) (2,921) (717)
Deferred income taxes ............................................. 2,044 10,741 4,178
Undistributed earnings of unconsolidated affiliates ............... (890) (3,018) (2,221)
Other - net ....................................................... 529 (1,976) (625)
Payment for lease of manufacturing facility, net of sublease ........ (2,715) (1,773) (1,610)
Proceeds from rig mobilization ...................................... 8,424 -- --
Cash dividends received from unconsolidated affiliates .............. 1,699 1,607 1,663
Other - net ......................................................... (988) (436) (195)
Provision for (payment of) prior years personal injury and property
damage claims - net ............................................... (2,327) 961 (813)
Net effect of changes in operating working capital .................. 18,208 (12,498) (10,130)
--------- --------- ---------
Net Cash Flows Provided by Operating Activities ................... 80,207 42,387 17,715
--------- --------- ---------
Investing Activities:
Property additions .................................................. (91,416) (60,355) (30,662)
Expenditures for acquisitions, including acquisition costs, less
cash acquired ..................................................... (65,042) (32,869) (22,366)
Expenditures for drydocking costs ................................... (2,287) -- --
Net proceeds from sale and leaseback of rigs ........................ 19,950 -- --
Proceeds from disposition of property, plant and equipment .......... 2,038 6,829 2,335
Decrease (increase) in restricted cash - net ........................ (1,490) 974 152
Other - net ......................................................... 101 519 (15)
--------- --------- ---------
Net Cash Flows Used for Investing Activities ...................... (138,146) (84,902) (50,556)
--------- --------- ---------
Financing Activities:
Proceeds from long-term debt ........................................ 190,000 70,800 6,500
Principal payments on long-term debt ................................ (96,875) (28,395) (7,546)
Proceeds from issuance of common stock, net ......................... -- -- 47,455
Repayment of debt assumed in acquisitions ........................... (15,672) (3,522) --
Payments of debt financing costs .................................... (5,556) (1,587) (199)
Proceeds from exercise of stock options ............................. 379 3,300 3,376
Principal payments on notes payable to related parties .............. -- (925) (400)
--------- --------- ---------
Net Cash Flows Provided by Financing Activities ................... 72,276 39,671 49,186
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ................... 14,337 (2,844) 16,345
Cash and Cash Equivalents at January 1, ................................ 18,993 21,837 5,492
--------- --------- ---------
Cash and Cash Equivalents at December 31, .............................. $ 33,330 $ 18,993 $ 21,837
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 34
POOL ENERGY SERVICES CO.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................................... $ 33,330 $ 18,993
Restricted cash ............................................................... 1,500 10
Accounts and notes receivable (net of allowance for doubtful accounts of
$742 and $1,272) ............................................................ 62,804 89,943
Other receivables ............................................................. 2,278 5,705
Accounts receivable from affiliates ........................................... 5,768 1,635
Inventories ................................................................... 15,842 19,500
Deferred income tax asset ..................................................... 8,579 8,594
Other current assets .......................................................... 9,896 8,295
---------- ----------
Total current assets ........................................................ 139,997 152,675
Property, Plant and Equipment - Net .............................................. 405,740 259,793
Vessel Construction Deposits ..................................................... 18,275 --
Investment in and Noncurrent Receivables from Unconsolidated Affiliates .......... 28,027 20,515
Goodwill, net .................................................................... 60,124 42,395
Deferred Costs ................................................................... 9,674 1,270
Noncurrent Receivables (net of allowance for doubtful accounts of $1,027 and
$1,113) and Other Assets ...................................................... 2,302 2,547
---------- ----------
Total........................................................................ $ 664,139 $ 479,195
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ............................................. $ 625 $ 1,025
Trade accounts payable ........................................................ 25,263 38,217
Accounts payable to affiliate ................................................. -- 3,088
Accrued liabilities ........................................................... 53,830 44,644
Accrued taxes ................................................................. 10,102 6,631
---------- ----------
Total current liabilities ................................................... 89,820 93,605
Long-Term Debt ................................................................... 172,847 79,322
Deferred Income Taxes ............................................................ 61,320 21,575
Other Liabilities ................................................................ 48,704 46,995
Minority Interest ................................................................ - 3,960
Shareholders' Equity:
Common stock, no par value:
40,000,000 shares authorized; 21,043,898 and 19,448,946 shares
issued and outstanding .................................................... 232,023 196,532
Retained earnings ............................................................. 60,037 38,229
Unearned compensation - restricted stock ...................................... (290) (701)
Cumulative foreign currency translation adjustments ........................... (322) (322)
---------- ----------
Total shareholders' equity .................................................. 291,448 233,738
---------- ----------
Total ....................................................................... $ 664,139 $ 479,195
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 35
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 1996 and 1997
consolidated financial statements to conform with the 1998 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. In addition, the
Company owns a fleet of offshore support vessels that provides marine
transportation of drilling materials, supplies and crews for offshore rig
operations and support for other offshore facilities. 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. In 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board (the "FASB") reached a consensus on Issue 96-16,
"Investor's Accounting for an Investee When the Investor has a Majority of the
Voting Interest but the Minority Shareholder or Shareholders Have Certain
Approval or Veto Rights" ("EITF 96-16"). EITF 96-16, which is effective for
fiscal years ending after December 15, 1998, sets forth new criteria for
evaluating whether or not the rights of the minority shareholder are sufficient
to overcome the presumption that all majority-owned investees should be
consolidated. After reviewing the guidance provided by EITF 96-16 with respect
to what constitutes "control," together with the specific rights of the minority
shareholder of Pool International Argentina S.A. ("PIASA") in the shareholders'
agreement, the Company concluded that it could not clearly overcome the
presumption that certain of the rights of the minority shareholder were
substantive participating rights. Specific reasons for such conclusion are as
follows: (i) the shareholders' agreement between the Company and the minority
shareholder of PIASA requires the unanimous approval by PIASA's Board of
Directors of the annual capital and operating budgets of PIASA and the making of
any significant revisions to such budgets (two of the five Directors of PIASA
are appointed by the minority shareholder) and (ii) the shareholders' agreement
requires the unanimous approval by PIASA's Board of Directors for the purchase,
leasing, chartering or other acquisition of property or assets, not already
approved in the annual capital budget, which exceed $50,000. The minority rights
identified above as participating rights are significant in the ordinary course
of PIASA's business.
Based on the foregoing, the Company concluded that it should change from
consolidation accounting to the equity method for its 51% investment in PIASA,
which it did effective January 1, 1998. Prior to
35
<PAGE> 36
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
January 1, 1998, 100% of PIASA's assets, liabilities, results of operations and
cash flows were included in the Company's respective consolidated totals. The
change in method of accounting had no effect on the Company's consolidated net
income for the year ended December 31, 1998. The following table summarizes the
effect of adopting EITF 96-16 on the Company's balance sheet at January 1, 1998.
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
----------
<S> <C>
Total Current Assets .............................. $ (4,465)
Property, Plant and Equipment - Net ............... (11,583)
Investment in and Noncurrent Receivables from
Unconsolidated Affiliates ....................... 8,161
Goodwill, net ..................................... (1,542)
--------
Total ........................................... $ (9,429)
========
Total Current Liabilities ......................... $ (6,455)
Deferred Income Taxes ............................. 986
Minority Interest ................................. (3,960)
--------
Total ........................................... $ (9,429)
========
</TABLE>
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.
Cash Equivalents
The Company considers all unrestricted highly liquid investments with less
than a three-month maturity when purchased as cash equivalents.
Inventories
Inventories of spare parts, materials and supplies held for consumption are
stated principally at average cost.
Restricted Cash
At December 31, 1998, $1.5 million was in a restricted investment account
as collateral for an unconsolidated affiliate's short-term line of credit and
overdraft facility. Such item is classified as restricted cash on the Company's
balance sheet. The unconsolidated affiliate had drawn $1.5 million under the
short-term facility at December 31, 1998.
36
<PAGE> 37
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. Offshore support vessels have estimated useful lives ranging from 15 to
25 years from date of construction. 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. Estimated salvage values are assigned to the offshore
support vessels based on 10% of cost.
Effective January 1, 1996 the Company adopted FASB 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 required.
Goodwill
Goodwill, totaling $60.1 million and $42.4 million at December 31, 1998 and
1997, respectively, represents the cost in excess of fair value of the net
assets of companies acquired (see Note 5). Goodwill is amortized using the
straight-line method over 25 to 30 years and is recorded net of accumulated
amortization of $3.5 million and $1.3 million at December 31, 1998 and 1997,
respectively. Amortization of goodwill for the years ended December 31, 1998,
1997 and 1996 amounted to $2.2 million, $0.7 million and $0.4 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.
Deferred Costs
Deferred costs consist primarily of drydocking costs incurred in
conjunction with marine inspections of offshore support vessels and debt
financing costs. Under applicable maritime regulations, vessels must be
drydocked twice in a five-year period for inspection. Drydocking costs are
deferred and amortized on a straight-line basis over a period normally not to
exceed 30 months. Debt financing costs are amortized over the terms of the
related borrowings. The major components of deferred costs are net unamortized
deferred drydocking costs of $5.1 million at December 31, 1998 and unamortized
debt financing costs, current and non-current portions, of $5.9 million and $1.5
million at December 31, 1998 and 1997, respectively.
Deferred Rig Mobilization
In connection with its rig contracts, the Company may receive lump sum fees
for the mobilization of equipment. The net amount of the lump sum fees received
and the mobilization expenses incurred are deferred and amortized over the term
of the contract.
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
37
<PAGE> 38
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", 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 4 the pro
forma information required under SFAS 123.
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.
Fair Values of Financial Instruments
The recorded amounts for financial instruments such as cash and cash
equivalents, receivables, payables and forward exchange contracts approximate
fair value due to the short-term nature of these instruments. The Company's
investments in its unconsolidated affiliates are accounted for under the equity
method.
See Note 7 for a discussion of the fair value of long-term debt outstanding
at December 31, 1998.
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 SFAS 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.
38
<PAGE> 39
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Earnings Per Share of Common Stock
In February 1997, the FASB issued SFAS 128 "Earnings Per Share," which
established new standards for computing, presenting and disclosing earnings per
share ("EPS"). This statement requires restatement of all prior-period EPS data
presented herein. See Note 3.
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 1998 and 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 1996. 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.
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 $5.1 million in Australian dollars at
December 31, 1998 and $2.3 million in Australian dollars, $1.8 million in
Argentine pesos and $1.7 million in Malaysian ringgits at December 31, 1997. The
Company does not hold or issue financial instruments for trading purposes.
2. SUBSEQUENT EVENT
On January 10, 1999, the Company entered into a definitive agreement and
plan of merger (the "Merger Agreement") between the Company, Nabors Industries,
Inc. ("Nabors") and Starry Acquisition Corp., a Texas corporation and a wholly
owned subsidiary of Nabors ("Merger Sub"). The Merger Agreement provides,
subject to certain conditions set forth therein, that Merger Sub will be merged
(the "Merger") with and into the Company, with the Company continuing as the
surviving corporation and a wholly owned subsidiary of Nabors. At the effective
time of the Merger, each share of common stock, without par value, of the
Company (the "Pool Common Stock") issued and outstanding (excluding any treasury
shares held by the Company and shares held by Nabors or any of its
subsidiaries), including the associated common stock purchase rights, if any,
outstanding at the effective time of the Merger, will be converted into the
right to receive 1.025 shares of common stock, par value $.10 per share, of
Nabors (the "Nabors Common Stock"). The closing of the Merger is subject to
certain conditions, including, among other things, the approval of the holders
of at least two-thirds of the Pool Common Stock, the
39
<PAGE> 40
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
registration with the Securities and Exchange Commission of the shares of Nabors
Common Stock to be issued in connection with the Merger and the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The Merger is expected to close
in the second quarter of 1999.
3. EARNINGS PER SHARE
The reconciliation of the numerator and denominator used for the
computation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income for basic and diluted earnings per share .............. $ 21,808 $ 26,678 $ 9,640
========= ========= =========
Weighted-average shares for basic earnings per share ............. 20,659 19,257 16,505
========= ========= =========
Effect of dilutive securities:
Employee stock options ......................................... 177 320 172
--------- --------- ---------
Adjusted weighted-average shares and assumed conversions for
diluted earnings per share ..................................... 20,836 19,577 16,677
========= ========= =========
Basic earnings per share ........................................... $ 1.06 $ 1.39 $ .58
========= ========= =========
Diluted earnings per share ......................................... $ 1.05 $ 1.36 $ .58
========= ========= =========
</TABLE>
The 1998 EPS computation excludes options to purchase approximately 858,000
shares of common stock at exercise prices ranging from $10.00 per share to
$35.50 per share (weighted average exercise price of $14.43 per share) that were
outstanding during the third quarter of 1998 because such options were
antidilutive. Additionally the computation excludes options to purchase
approximately 747,000 shares of common stock at exercise prices ranging from
$11.50 per share to $35.50 per share (weighted average exercise price of $15.01
per share) that were outstanding during the fourth quarter of 1998 because the
inclusion of such options would have been antidilutive.
The 1996 EPS computation excludes options to purchase approximately 593,000
shares of common stock at a weighted average exercise price of $10.26 per share
that were outstanding during the first quarter of 1996 because such options were
antidilutive.
40
<PAGE> 41
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SHAREHOLDERS' EQUITY
The following is a summary of transactions affecting shareholders' equity
for the last three fiscal years:
<TABLE>
<CAPTION>
CUMULATIVE
UNEARNED FOREIGN
COMPENSATION CURRENCY
COMMON RETAINED - RESTRICTED TRANSLATION
STOCK EARNINGS STOCK ADJUSTMENTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 .................. $ 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 7) ................. 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)
Net income ........................... -- 21,808 -- -
Issuance of common stock for:
Stock options exercised .......... 379 -- -- -
Business acquisition.............. 34,254 -- -- -
Issuance of restricted common stock .. 382 -- (147) -
Forfeiture of restricted common stock (69) -- 69 -
Tax benefit from stock options
exercised ........................ 209 -- -- -
Compensation expense ................. 336 -- 489 -
----------- ----------- ----------- -----------
Balance, December 31, 1998 ................ $ 232,023 $ 60,037 $ (290) $ (322)
=========== =========== =========== ===========
</TABLE>
Common Stock
On March 31, 1998, the Company issued 1,538,462 shares of its common stock,
valued at $34.3 million, net of expenses, to the sellers of Sea Mar, Inc. ("Sea
Mar"), a privately-owned offshore support vessel company, as partial
consideration for the purchase of all the outstanding capital stock of Sea Mar.
See Note 5 for a further discussion of the acquisition.
41
<PAGE> 42
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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% 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 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 5 for additional descriptions of
these acquisitions.
Preferred Stock
The 1,000 shares of the Company's authorized and issued preferred stock are
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, 1998, a total of 6,430,234 shares of the Company's common stock were
reserved for issuance upon exercise of Rights.
Effective as of January 10, 1999, the Rights Agreement was amended to
provide that the Rights will expire immediately prior to the effective time of
the Merger and that neither the execution of the Merger Agreement nor the
consummation of the Merger will, among other things, constitute a Triggering
Event.
42
<PAGE> 43
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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, 1998 the Company had issued 93,262
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,
1998, the Company had awarded 76,972 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 636,049 shares had been issued as of December
31, 1998 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, 1998, the Company had issued 16,000 shares as the result of the
exercise of options and had awarded 15,000 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 74,000 shares had been issued as of December 31, 1998 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.
43
<PAGE> 44
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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>
1998 1997
------------ -----------
(IN THOUSANDS EXCEPT NUMBER OF
SHARES AND PER SHARE AMOUNTS)
<S> <C> <C>
Number of restricted shares awarded .................................. 16,823 13,500
Weighted average fair market value on date of issue .................. $ 19.69 $ 23.89
Restricted stock outstanding at December 31 .......................... 91,972 78,149
Pre-tax compensation expense ......................................... $ 489 $ 416
</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 1998 and 1997, $0.2 million and $2.1 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>
1998 1997 1996
------------------------- ------------------------ --------------------------
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 ....... 877 $11.40 1,043 $ 9.42 1,142 $ 9.07
Granted ................. 600 $12.74 197 $18.85 274 $10.81
Exercised ............... (41) $ 9.20 (348) $ 9.49 (361) $ 9.36
Forfeited ............... (5) $21.04 (15) $16.01 (12) $ 9.17
------- ------ -------
Outstanding, December 31 ..... 1,431 $11.99 877 $11.40 1,043 $ 9.42
======= ====== =======
Exercisable, December 31 ..... 558 $10.26 394 $ 9.05 569 $ 9.04
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1998 (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, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICE
--------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.125 - $ 8.75 362 6.9 years $ 7.68 182 $ 7.29
$ 9.25 - $13.50 904 7.5 years $11.68 359 $10.84
$18.34375 -
$24.00 114 9.2 years $19.14 4 $24.00
$31.8125 -
$35.50 51 8.7 years $31.88 13 $31.88
----- -----
1,431 558
===== =====
</TABLE>
44
<PAGE> 45
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Income:
As reported .................................................... $ 21,808 $ 26,678 $ 9,640
Pro forma ...................................................... 20,510 26,038 9,240
Earnings Per Share of Common Stock:
As reported .................................................... $ 1.06 $ 1.39 $ .58
Pro forma ...................................................... .99 1.35 .56
Earnings Per Share of Common Stock - assuming dilution:
As reported .................................................... $ 1.05 $ 1.36 $ .58
Pro forma ...................................................... .99 1.33 .56
</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
1998, 1997 and 1996 was $9.46, $12.69 and $6.42, 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
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate ...................................... 5.39% 6.67% 6.36%
Expected life of options ..................................... 8 years 8 years 8 years
Expected volatility of the Company's stock price ............. 70% 51% 43%
Expected dividends ........................................... none none none
</TABLE>
5. ACQUISITIONS
1998 Acquisition
Sea Mar, Inc. On March 31, 1998, the Company acquired all of the
outstanding capital stock of Sea Mar, a privately-owned Louisiana-based offshore
support vessel company with a fleet of 23 vessels operating primarily in the
Gulf of Mexico, for approximately $76.0 million in cash, including a $14.7
million post-closing purchase price adjustment, and 1,538,462 shares of the
Company's common stock (the "Sea Mar Acquisition"). The purchase price
adjustment, which has been paid in full, was based on the amount by which the
shareholders' equity in Sea Mar at March 31, 1998 exceeded the amount that
existed at August 31, 1997. The Company is obligated to pay additional cash
consideration of approximately $2.5 million as a result of Sea Mar's financial
performance for the fiscal year ended December 31, 1998 and has recorded such
amount as a liability in the accompanying December 31, 1998 consolidated balance
sheet. The Company is also obligated to pay additional cash consideration
contingent upon Sea Mar's financial performance for the fiscal year ending
45
<PAGE> 46
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1999, up to a maximum of $10 million. Such amount will not be
recorded as a liability of the Company until earned.
The acquisition was accounted for under the purchase method of accounting,
and Sea Mar's results of operations are included in the Company's consolidated
financial statements from the date of the acquisition. The purchase price was
allocated based on preliminary estimates of the fair market value of the assets
acquired and the liabilities assumed as of the date of acquisition. The purchase
price allocation is subject to adjustment as additional information becomes
available and is evaluated. The primary items that may be subject to further
adjustment are fair value assessments of property, plant and equipment and
reserves for income taxes. The preliminary purchase price allocation resulted in
goodwill of approximately $23.5 million, which is being amortized on a
straight-line basis over 25 years.
Expenditures for the acquisition, including acquisition costs, less cash
acquired were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill) ............... $178,918
Company's common stock issued .................................... (34,254)
Liability for additional cash consideration payable to sellers ... (2,500)
Liabilities assumed .............................................. (66,207)
--------
Cash paid, including acquisition related expenditures ............ 75,957
Less: cash acquired ............................................. 10,831
--------
Net cash used for the acquisition ................................ $ 65,126
========
</TABLE>
Sea Mar has a contract with a marine shipbuilder for the construction of
ten offshore support vessels at an estimated aggregate cost of $78.5 million,
net of deposits. One new vessel was delivered in January 1999 and the remaining
nine vessels are scheduled to be delivered between early 1999 and late 2000.
The following unaudited pro forma summary of financial information presents
the Company's consolidated results of operations as if the Sea Mar Acquisition
had occurred at the beginning of the periods indicated, after including the
impact of certain adjustments, such as: additional depreciation expense,
amortization of goodwill, amortization of the portion of the purchase price
allocated to a noncompete agreement, reduction of gains on sales due to the
purchase price allocation, increased interest expense and amortization of the
related debt financing costs associated with the $150 million of notes,
reduction of interest expense for the repayment of existing Sea Mar debt and
repayments on the Company's syndicated bank credit agreement and related income
tax effects thereon.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1998 1997
--------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
(In thousands except earnings per share)
<S> <C> <C> <C> <C>
Revenues ................................... $ 455,741 $ 469,274 $ 451,922 $ 497,736
=========== =========== =========== ===========
Net Income ................................. $ 21,808 $ 24,000 $ 26,678 $ 30,642
=========== =========== =========== ===========
Earnings Per Share of Common Stock ......... $ 1.06 $ 1.14 $ 1.39 $ 1.47
=========== =========== =========== ===========
Weighted Average Shares Outstanding ........ 20,659 21,034 19,257 20,795
=========== =========== =========== ===========
Earnings Per Share of Common Stock -
assuming dilution ..................... $ 1.05 $ 1.13 $ 1.36 $ 1.45
=========== =========== =========== ===========
Weighted Average Shares Outstanding ........ 20,836 21,211 19,577 21,115
=========== =========== =========== ===========
</TABLE>
46
<PAGE> 47
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The preceding pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred if the Sea Mar Acquisition had taken place at the beginning
of the periods presented, nor is it necessarily indicative of future operating
results.
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 credit agreement.
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 credit agreement.
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 the estimated fair market value of
the assets acquired and liabilities assumed at the date of acquisition. Such
allocations resulted in goodwill of approximately $28.4 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 included 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. 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% interest in PIASA. PIASA owns nine land
drilling rigs and 11 land workover rigs, all of which are located in Argentina.
Effective January 1, 1998, the Company began accounting for the 51% interest in
PIASA under the equity method. See Note 1.
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
47
<PAGE> 48
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
acquisition was allocated based on the estimated fair market value of the assets
acquired and liabilities assumed at the date of acquisition.
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.
6. INCOME TAXES
Provision for income taxes is summarized below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal .......................................................... $ 6,000 $ 2,998 $ 166
State ............................................................ 1,717 539 316
Foreign .......................................................... 3,764 1,428 2,864
--------- --------- ---------
Total current ................................................ 11,481 4,965 3,346
--------- --------- ---------
Deferred:
Federal .......................................................... 1,633 9,503 4,680
State ............................................................ (590) -- --
Foreign .......................................................... 1,001 1,238 (502)
--------- --------- ---------
Total deferred ............................................... 2,044 10,741 4,178
--------- --------- ---------
Provision for income taxes ....................................... $ 13,525 $ 15,706 $ 7,524
========= ========= =========
</TABLE>
The 1998 current federal income tax provision includes the effect of
utilizing all of the Company's available U.S. federal net operating loss ("NOL")
carryforwards and $1.2 million of alternative minimum tax ("AMT") carryforwards
to reduce its U.S. federal regular income tax liability. The provision for
deferred U.S. federal income taxes in 1998 includes a corresponding decrease in
deferred tax assets due to the utilization of the federal NOL and AMT
carryforwards.
The 1997 current federal provision includes approximately $3.0 million in
AMT. As AMT is effectively a prepayment of regular income taxes, a corresponding
deferred tax benefit was also recorded. The 1997 deferred tax provision also
includes a decrease in deferred tax assets due to the utilization of U.S.
federal NOL carryforwards.
The deferred federal income tax provision in 1996 resulted primarily from a
decrease in deferred tax assets due to the utilization of U.S. federal NOL
carryforwards.
48
<PAGE> 49
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment in subsidiaries and affiliates $ 2,130 $ 1,806 $ 2,131 $ 1,811
Property ................................. -- 80,155 244 43,603
Deferred gain on sale and leaseback ...... 6,008 -- -- --
Personal injury and property
damage claims .......................... 2,647 -- 4,779 --
Leases ................................... 6,482 -- 7,814 --
Accrued liabilities ...................... 10,177 24 7,453 --
Deferred dry dock costs .................. -- 1,936 -- --
Inventory valuation ...................... 318 -- 405 26
Accounts receivable valuation ............ 629 -- 861 --
Net operating loss carryforward .......... 2,423 -- 8,826 --
AMT credit carryforward .................. 1,848 -- 2,998 --
Other .................................... 1,071 386 1,219 799
-------------- ------------- ------------- -------------
Subtotal ............................... 33,733 84,307 36,730 46,239
Valuation allowance ...................... (2,167) -- (3,472) --
-------------- ------------- ------------- -------------
Total .................................. $ 31,566 $ 84,307 $ 33,258 $ 46,239
============== ============= ============= =============
</TABLE>
The total valuation allowance decreased a net $1.3 million in 1998 and $1.9
million in 1997.
At December 31, 1998, the Company had fully utilized its available U.S.
federal NOL carryforwards to reduce its 1998 U.S. federal regular income tax
liability. The $1.8 million AMT credit carryforward at December 31, 1998 is
primarily from 1997 and can be carried forward indefinitely to reduce U.S.
federal regular income taxes in future years. State NOL carryforwards have been
substantially reserved for in the Company's consolidated balance sheet.
The Company had $9.3 million of foreign NOL carryforwards at December 31,
1998, with $0.1 million fully reserved. Management believes the Company will
generate future foreign taxable income sufficient to utilize the remaining $9.2
million of foreign NOL carryforwards with $0.9 million expiring after 2000, $1.9
million expiring after 2001, $1.2 million expiring after 2002 and $5.2 million
expiring after 2003.
49
<PAGE> 50
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes and minority interest ..................... $ 35,333 $ 42,297 $ 17,061
U.S. federal statutory tax rate ...................................... 35% 35% 35%
Provision for income taxes computed at U.S. federal
statutory tax rate ................................................ $ 12,367 $ 14,804 $ 5,971
Effect of:
Foreign tax rates different than U.S. federal statutory tax rate .. (1,117) (640) 738
State income taxes ................................................ 733 350 205
Amortization of goodwill .......................................... 784 237 136
Other - net ....................................................... 758 955 474
-------- -------- --------
Provision for income taxes ........................................... $ 13,525 $ 15,706 $ 7,524
======== ======== ========
Effective income tax rate ............................................ 38.3% 37.1% 44.1%
======== ======== ========
</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
-----------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Domestic ..................................................... $ 14,910 $ 28,250 $ 9,423
Foreign ...................................................... 20,423 14,047 7,638
--------- -------- --------
Total ................................................... $ 35,333 $ 42,297 $ 17,061
========= ======== ========
</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.
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, 1998, 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.
50
<PAGE> 51
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. LONG-TERM DEBT, CREDIT AGREEMENT AND SHORT-TERM LINES OF CREDIT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<C> <C> <C>
8 5/8% Senior Subordinated Notes Due 2008, Series B .. $150,000 $ --
Revolving Credit Agreement Loans .................... 10,000 65,800
9% Notes (DA&S) ..................................... 9,600 10,050
10% Notes (GPC) ..................................... 3,872 4,497
-------- --------
173,472 80,347
Less current maturities of long-term debt ........... 625 1,025
-------- --------
$172,847 $ 79,322
======== ========
</TABLE>
Senior Subordinated Notes
On March 31, 1998, the Company issued its 8 5/8% Senior Subordinated Notes
Due 2008, Series A in the aggregate principal amount of $150 million (the "Old
Notes"). The net proceeds from the sale of the Old Notes were used to fund the
cash portion of the purchase price for Sea Mar (see Note 5), to repay the
existing debt of Sea Mar and to reduce the outstanding balance under the
Company's three-year $180 million syndicated bank credit agreement (the "Credit
Agreement"). In June 1998, the Company offered to exchange its 8 5/8% Senior
Subordinated Notes Due 2008, Series B (the "New Notes," and together with the
Old Notes, the "Notes"), which have been registered under the Securities Act of
1933, as amended, (the "Securities Act") for any and all of the outstanding Old
Notes (the "Exchange Offer"). The terms of the New Notes are identical in all
material respects to the terms of the Old Notes, except that the New Notes have
been registered under the Securities Act and are generally freely transferable
by holders thereof and are issued without any covenant by the Company regarding
registration under the Securities Act. The Exchange Offer was completed on July
15, 1998, whereupon all of the Old Notes were tendered and exchanged for New
Notes.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after April 1, 2003 at a redemption price equal to 104.313% of
the principal amount thereof, plus accrued interest, declining ratably to par on
April 1, 2006. The Company may also redeem up to 35% of the aggregate principal
amount of the Notes at its option, from time to time on or prior to April 1,
2001, at a redemption price equal to 108.625% of the principal amount thereof,
plus accrued interest, with the net proceeds of one or more equity offerings of
the Company's common stock.
The Notes are general unsecured obligations of the Company subordinated in
right of payment to all existing and future senior indebtedness of the Company
and are unconditionally guaranteed, jointly and severally, by all of the
Company's wholly owned subsidiaries that are incorporated or organized in the
United States (the "Subsidiary Guarantors"). The Notes contain certain covenants
that, among other things, limit the ability of the Company and the Subsidiary
Guarantors to incur additional indebtedness, issue capital stock of Subsidiary
Guarantors, pay dividends or make other restricted payments, incur liens, enter
into certain transactions with affiliates, enter into certain mergers or
consolidations or sell all or substantially all of the assets of the Company and
its subsidiaries. See Note 15 for the condensed consolidating financial
information for Pool Energy Services Co., the Subsidiary Guarantors and the
other subsidiaries of the Company that are not guarantors of the Notes (the
"Non-Guarantor Subsidiaries").
The Company incurred $4.8 million of debt financing costs during 1998 in
connection with the Notes offering, which is being amortized over the term of
the notes.
51
<PAGE> 52
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Credit Agreement
On September 30, 1997, the Company entered into a three-year $130 million
credit agreement 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. In March 1998, simultaneously with the issuance of the Old
Notes and the closing of the Sea Mar Acquisition, the Company executed an
amendment to the credit agreement to increase maximum availability thereunder
from $130 million to $180 million, including up to $15 million that may be used
to support letters of credit. At December 31, 1998, the Company had drawn $10.0
million in cash under the Credit Agreement, and an additional $10.0 million was
being utilized to support the issuance of letters of credit, primarily related
to insurance obligations and long-term notes issued in connection with the
acquisition of Golden Pacific Corp ("GPC") in 1995, leaving $160.0 million
unused and available.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either, (i) the Base Rate (defined as the higher of the
administrative 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%, or (ii) the
Eurodollar Rate (equivalent to the London Interbank Offered Rate plus a margin
ranging from 1% to 1.75% with the Company's option of a one-, two-, three- or
six-month interest period). The applicable margin for each interest option
depends on the Company's leverage ratio for the fiscal quarter preceding the
interest period. Based upon the Company's leverage ratio at December 31, 1998,
the applicable Eurodollar margin would be 1.00% for borrowings during the first
quarter of 1999. The applicable interest rate was 6.05% at December 31, 1998.
The Credit Agreement will mature on October 2, 2000 and is subject to being
extended on a year-to-year basis at the discretion of the lenders. Revolving
loans issued under the Credit Agreement are prepayable at any time and are due
at expiration on October 2, 2000. The 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 related to liens, other indebtedness,
asset sales, investments, acquisitions or mergers and the payment of dividends.
A commitment fee of 1/2 of 1% per annum is payable on the average daily unused
portion of the $180 million commitment. There are also letter of credit fees
that range from 1% to 1.75% per annum (depending on the Company's leverage
ratio) for letters of credits outstanding. Advances under the Credit Agreement
are secured by a pledge of 66% of the capital stock of certain of the Company's
foreign subsidiaries.
The Company incurred $0.7 million and $1.6 million of debt financing costs
during 1998 and 1997, respectively, in connection with the Credit Agreement,
which are being amortized over the term of the agreement.
DA&S Notes
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 $3.8 million at December 31, 1998 and (ii) certain
real property of the acquired business which had a carrying value of $0.6
million at December 31, 1998.
52
<PAGE> 53
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
GPC Notes
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 $6.4
million at December 31, 1998, (ii) certain real property of the acquired
business which had a carrying value of $1.3 million at December 31, 1998, and
(iii) a $3.9 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.
The annual maturities of long-term debt outstanding as of December 31, 1998
(including current portion) are as follows:
<TABLE>
<S> <C>
1999 .......................... $ 625
2000 .......................... 12,625
2001 .......................... 5,054
2002 .......................... 3,632
2003 .......................... 1,536
Thereafter .................... 150,000
--------
$173,472
========
</TABLE>
Borrowings outstanding under the Credit Agreement at December 31, 1998
approximate fair value, as the individual borrowings bear interest at current
market rates. The fair value of the Company's $150 million Notes is
approximately $138.8 million, based on the quoted market price at December 31,
1998. The fair value of the Company's remaining long-term debt which bears
interest at fixed interest rates (carrying value of approximately $13.4 million
at December 31, 1998) is estimated to be $14.8 million, based on the discounting
of future cash flows using the Company's incremental borrowing rate at December
31, 1998 for similar instruments.
These fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgement. Changes in assumptions or
estimation methods may significantly affect the fair value estimates.
Short-term Lines of Credit
At December 31, 1998, the Company's unconsolidated affiliates had $5.5
million of unused short-term lines of credit and overdraft facilities.
53
<PAGE> 54
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. 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.
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, 1998 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 $4.4 million, $4.0 million and $3.5 million in 1998, 1997 and
1996, respectively, as estimates of the aggregate uninsured portion of claims
incurred after 1989. The accrued liability for the uninsured portion of workers'
compensation and third-party claims incurred after 1989 was $8.0 million at
December 31, 1998, of which $0.4 million was held in a deposit account
accessible by the insurance underwriters. In addition, at December 31, 1998 the
Company had a $0.2 million receivable related to claims payments made by the
Company that are reimbursable by insurance underwriters.
In connection with business acquisitions in 1995 and 1997, 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 $2.4 million at December 31, 1998.
Similar liabilities were not assumed for the 1996 and 1998 acquisitions.
Lease Commitments
At December 31, 1998, 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 $10.8 million for
1999; $9.5 million for 2000; $9.3 million for 2001; $9.1 million for 2002; $4.7
million for 2003; and $3.7 million thereafter. Rental expense incurred under
operating leases aggregated $13.3 million in 1998, $13.0 million in 1997 and
$13.5 million in 1996.
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 $4.4 million through March
2003. 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
54
<PAGE> 55
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
In December 1993 the Company entered into sale and leaseback agreements
with a leasing company with respect to three offshore jackup rigs located in the
Gulf of Mexico, of which two rigs were still under lease in 1998. The leases
were classified as operating leases and had an aggregate annual lease rate of
approximately $0.8 million per year. The sale and leaseback agreements also
required the Company to place cash in a restricted investment account to serve
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.
The Company purchased the two rigs for $2.3 million in December 1998 through the
exercise of a purchase option.
In December 1998 the Company entered into new sale and leaseback agreements
with another leasing company with respect to the two offshore jackup rigs
purchased under the previous sale and leaseback arrangement. The jackup rigs
were sold to the new leasing company for $20.0 million in cash. The $16.3
million net aggregate gain realized from such transactions was not immediately
recognized in income, but was deferred in the consolidated balance sheet at
December 31, 1998 and will be amortized to income (as reductions in rental
expense) over the six-year lease term.
The current leases for the two offshore jackup rigs, classified as
operating leases, have an aggregate annual lease rate of approximately $2.7
million through December 2004. The company has the option to purchase the two
rigs on the third anniversary date of the commencement of the leases and each
subsequent anniversary date thereafter at a price, at the lessee's option, equal
to the then fair market value or a percentage of the original purchase price of
the equipment as set forth in the lease agreements.
Vessel Construction
Sea Mar has a contract with a marine shipbuilder for the construction of
ten offshore support vessels at an estimated aggregate cost of $78.5 million,
net of deposits. One new vessel was delivered in January 1999 and the remaining
nine vessels are scheduled to be delivered between early 1999 and late 2000.
55
<PAGE> 56
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Employment Contract
In connection with the Sea Mar Acquisition, the Company entered into a
three-year employment contract with an executive officer of Sea Mar. The
Company's salary and bonus obligation remaining at December 31, 1998 under such
contract was approximately $0.6 million.
Other Contingent Liabilities
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 ($19.6 million
outstanding at December 31, 1998). The Company is obligated to reimburse ENSERCH
for any amounts paid out under this guarantee.
9. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Pension Plans
Prior to January 1, 1999, the Company provided retirement benefits to
substantially all of its domestic employees under the Pool Company Retirement
Income Plan (the "Plan"). On June 19, 1998, the Plan was amended to freeze
participation in the Plan as of January 1, 1998 and to discontinue benefit
accruals under the Plan as of December 31, 1998. Benefits under the Plan were
frozen and participants became fully vested in their accrued retirement benefit
on such date, resulting in a curtailment gain of $3.4 million which was used to
substantially offset the Plan's unrecognized net actuarial loss at December 31,
1998.
Certain management employees continue to earn retirement benefits under the
Company's supplementary executive retirement plans.
Postretirement Benefits Other Than Pensions
The Company provides certain postretirement health care and life insurance
benefits to eligible retirees who have attained 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. 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 Company has adopted and retroactively applied the disclosure
requirements prescribed by SFAS No. 132, "Employers' Disclosures About Pensions
and Other Postretirement Benefits." This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets and eliminates certain disclosures no
longer considered useful. Adoption of this statement in the fourth quarter of
1998 had no effect on the Company's financial statements, since the required
changes were limited to the form and content of the disclosures required.
56
<PAGE> 57
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Summarized information on the Company's pension and other postretirement
plans is as follows:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------------ ------------------------
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year ........ $ 20,690 $ 11,660 $ 4,973 $ 8,446
Service cost ................................... 2,813 2,488 505 372
Interest cost .................................. 1,331 1,031 374 315
Participants' contributions .................... -- -- 78 67
Plan amendment ................................. -- -- -- (2,531)
Plan curtailment ............................... (3,367) -- -- --
Actuarial loss (gain) .......................... 2,361 5,964 951 (1,185)
Benefit payments ............................... (509) (302) (623) (511)
Plan expenses and other payments ............... (203) (151) -- --
--------- --------- --------- ---------
Benefit obligation at end of year .............. 23,116 20,690 6,258 4,973
========= ========= ========= =========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year . 13,672 8,093 -- --
Actual return on plan assets ................... 2,238 1,614 -- --
Employer contributions ......................... 4,346 4,418 545 444
Participants' contributions .................... -- -- 78 67
Benefit payments ............................... (509) (302) (623) (511)
Plan expenses and other payments ............... (203) (151) -- --
--------- --------- --------- ---------
Fair value of plan assets at end of year ....... 19,544 13,672 -- --
========= ========= ========= =========
FUNDED STATUS:
Funded status at end of year ................... (3,572) (7,018) (6,258) (4,973)
Unrecognized net actuarial loss ................ 2,857 4,982 1,384 460
Unrecognized prior service cost ................ 1,022 1,386 (67) (80)
--------- --------- --------- ---------
Net amount recognized .......................... 307 (650) (4,941) (4,593)
========= ========= ========= =========
Prepaid benefit cost ........................... 3,807 2,088 -- --
Accrued benefit cost ........................... (3,500) (2,738) (4,941) (4,593)
--------- --------- --------- ---------
Net asset (liability) recognized ............... $ 307 $ (650) $ (4,941) $ (4,593)
========= ========= ========= =========
</TABLE>
57
<PAGE> 58
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE ASSUMPTIONS: 1998 1997
----- ------
<S> <C> <C>
Pool Company Retirement Income Plan:
Weighted average discount rate ........................................... 6.25% 6.75%
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% 6.75%
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%
Postretirement benefits other than pensions:
Weighted average discount rate ........................................... 6.75% 6.75%
Initial health care cost trend rate ...................................... 6.00% 6.00%
</TABLE>
The assumed health care cost trend rate used to measure the expected cost
of postretirement benefits other than pensions is expected to remain at the 6%
level for future years.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
--------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST:
Service cost .................... $ 2,813 $ 2,488 $ 2,000 $ 505 $ 372 $ 1,023
Interest cost ................... 1,331 1,031 781 374 315 546
Expected return on plan assets .. (1,328) (1,040) (601) -- -- --
Amortization of prior
service cost ................. 365 365 365 (12) (12) 23
Amortization of transition
amount ....................... -- -- -- -- -- 140
Recognized net actuarial loss ... 209 168 62 26 -- 144
------- ------- ------- ------- ------- -------
Net periodic benefit cost ....... $ 3,390 $ 3,012 $ 2,607 $ 893 $ 675 $ 1,876
======= ======= ======= ======= ======= =======
</TABLE>
The aggregate benefit obligation and fair value of plan assets for the
Company's pension plan with an accumulated benefit obligation in excess of plan
assets were $14,112,000 and $10,609,000, respectively, at December 31, 1998.
Health care cost trend rate assumptions have a significant effect on the
amounts reported for postretirement benefits other than pensions. A
one-percentage-point change in assumed health care cost trend rates would have
had the following effects at December 31, 1998:
<TABLE>
<CAPTION>
ONE-PERCENTAGE-POINT
-----------------------
INCREASE (DECREASE)
----------- ----------
<S> <C> <C>
Effect on total service and interest cost components ........................ $ 135 $ (110)
Effect on obligation for postretirement benefits other than pensions ........ 791 (657)
</TABLE>
58
<PAGE> 59
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Postemployment Benefits
The Company accounts for postemployment benefits based on SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires the accrual
of benefits provided after employment but before retirement to former or
inactive salaried employees.
10. UNCONSOLIDATED AFFILIATES
Some of the Company's operations are conducted through unconsolidated
affiliates, in which the Company held the following indicated ownership
interests at December 31, 1998: Pool Arabia, Ltd. - 51%, Pool International
Argentina S.A. - 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.
59
<PAGE> 60
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth certain summarized financial information of
the Company's unconsolidated affiliates as derived from 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
-----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Pool Arabia, Ltd. ...................... $ 53,720 $ 36,964 $ 29,238
Pool International Argentina S.A. (b) .. 11,734 -- --
Antah Drilling Sdn. Bhd. (c) ........... -- -- 4,363
Pool Santana, Limited (d) .............. -- -- 960
Intairdril Oman L.L.C .................. 36 206 334
-------- -------- --------
Total .............................. $ 65,490 $ 37,170 $ 34,895
======== ======== ========
Gross profit (loss) (a):
Pool Arabia, Ltd. ...................... $ 17,081 $ 12,640 $ 9,192
Pool International Argentina S.A. (b) .. (1,148) -- --
Antah Drilling Sdn. Bhd. (c) ........... -- -- 2,442
Pool Santana, Limited (d) .............. -- -- 333
Intairdril Oman L.L.C .................. 13 169 153
-------- -------- --------
Total .............................. $ 15,946 $ 12,809 $ 12,120
======== ======== ========
Net income (loss):
Pool Arabia, Ltd. ...................... $ 1,836 $ 1,066 $ (3,586)
Pool International Argentina S.A. (b) .. (3,893) -- --
Antah Drilling Sdn. Bhd. (c) ........... -- -- (50)
Pool Santana, Limited (d) .............. -- -- 89
Intairdril Oman L.L.C .................. 25 134 (30)
-------- -------- --------
Total .............................. $ (2,032) $ 1,200 $ (3,577)
======== ======== ========
</TABLE>
(a) Gross profit is computed as revenues less operating expenses (which
excludes depreciation and amortization and selling, general and
administrative expenses).
(b) Effective January 1, 1998, the Company began accounting for its 51%
interest in PIASA under the equity method. See Note 1.
(c) 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 5).
(d) 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.
60
<PAGE> 61
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
---------------------
1998 1997
-------- --------
<S> <C> <C>
Combined Balance Sheet Data of Unconsolidated Affiliates:
Current assets ....................................................... $ 27,462 $ 17,527
Noncurrent assets .................................................... 72,512 59,197
-------- --------
Total assets ..................................................... 99,974 76,724
-------- --------
Current liabilities .................................................. 29,788 15,163
Noncurrent liabilities ............................................... 43,132 41,654
-------- --------
Total liabilities ................................................ 72,920 56,817
-------- --------
Net assets of unconsolidated affiliates .............................. $ 27,054 $ 19,907
======== ========
Investment in and Noncurrent Receivables from Unconsolidated Affiliates:
The Company's portion of net assets .................................. $ 13,780 $ 10,136
Long-term advances ................................................... 19,207 19,312
Differences between affiliates' bases and Company's carrying value ... (6,286) (10,259)
-------- --------
Equity in net assets ................................................. 26,701 19,189
Noncurrent receivables ............................................... 1,326 1,326
-------- --------
Total ............................................................ $ 28,027 $ 20,515
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Earnings Attributable to Unconsolidated Affiliates:
The Company's portion of net income (loss)............... $ (1,037) $ 610 $ (1,825)
Adjustment to reconcile differences between affiliates'
bases and Company's carrying value .................... 1,927 2,408 4,046
--------- -------- --------
Equity in income ........................................ 890 3,018 2,221
Lease income (expense) - net ............................ 3,309 (60) (60)
Other income (expense) - net ............................ 136 122 83
--------- -------- --------
Total ............................................... $ 4,335 $ 3,080 $ 2,244
========= ======== ========
</TABLE>
At December 31, 1998, the Company's investment in unconsolidated affiliates
included $6.3 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 $1.7 million in
1998, $1.6 million in 1997 and $1.7 million in 1996.
In management's opinion, the Company has no significant exposure from
currency restrictions on its foreign subsidiaries and affiliates (see Note 1).
61
<PAGE> 62
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31
---------------------
1998 1997
-------- --------
<S> <C> <C>
BALANCE SHEET ITEMS:
Property, plant and equipment comprised the following:
Rigs and related equipment ............................... $407,663 $343,998
Offshore support vessels and related equipment ........... 113,522 --
Transportation equipment ................................. 6,219 6,000
Other machinery and equipment ............................ 4,317 4,811
Land and buildings ....................................... 9,014 9,523
Leasehold improvements ................................... 3,055 2,799
Furniture and office equipment ........................... 4,206 3,976
-------- --------
Total ............................................... 547,996 371,107
Less - Accumulated depreciation .......................... 142,256 111,314
-------- --------
Property, plant and equipment - net ................ $405,740 $259,793
======== ========
Accrued liabilities are summarized below:
Accrued compensation and benefits ........................ $ 21,463 $ 21,459
Deferred gain on sale and leaseback ...................... 2,716 --
Deferred rig mobilization ................................ 4,985 2,887
Personal injury and property damage claims ............... 7,304 4,439
Accrued Sea Mar earnout payment .......................... 2,500 --
Accrued capital expenditures ............................. 1,393 4,097
Accrued interest ......................................... 3,582 586
Accrued maintenance costs ................................ 1,325 2,033
Other accruals ........................................... 8,562 9,143
-------- --------
Total ............................................... $ 53,830 $ 44,644
======== ========
Other liabilities (noncurrent) are summarized below:
Accrued rental cost of underutilized facilities .......... $ 18,522 $ 22,327
Deferred gain on sale and leaseback ...................... 13,582 --
Personal injury and property damage claims - noncurrent .. 5,504 11,241
Accrued benefits - noncurrent ............................ 5,182 4,788
Deferred rig mobilization ................................ 586 2,051
Other .................................................... 5,328 6,588
-------- --------
Total ............................................... $ 48,704 $ 46,995
======== ========
</TABLE>
62
<PAGE> 63
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
INCOME STATEMENT ITEMS:
Costs and expenses included:
Provision (credit) for uncollectible accounts .................... $ 13 $ 501 $ (551)
========= ========= =========
Other income (expense) - net:
Interest income .................................................. $ 954 $ 999 $ 1,302
Gain on disposal of assets ....................................... 542 3,718 1,015
Foreign currency gain (loss) ..................................... 77 (82) (191)
Other ............................................................ 35 (18) (31)
--------- --------- ---------
Total ................................................... $ 1,608 $ 4,617 $ 2,095
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Federal, state and foreign income tax payments (refunds), net ......... $ 8,938 $ 4,035 $ 2,499
Interest payments, net of amounts capitalized, to third parties ....... 10,783 3,669 2,744
Net changes in the components of operating working capital
were as follows:
Receivables ...................................................... $ 32,323 $ (17,345) $ (12,472)
Accounts receivable from affiliates .............................. (919) (571) (604)
Inventories ...................................................... 1,575 (4,811) 72
Other current assets ............................................. (673) (2,734) (127)
Trade accounts payable and accrued liabilities ................... (15,357) 11,914 1,877
Accrued taxes .................................................... 1,259 1,049 1,124
--------- --------- ---------
Total ................................................... $ 18,208 $ (12,498) $ (10,130)
========= ========= =========
</TABLE>
Expenditures for acquisitions, including acquisition costs, less cash acquired:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Fair value of assets acquired (including goodwill) ............. $ 178,613 $ 72,818 $ 56,881
Long-term notes issued ......................................... -- (10,050) --
Company's common stock issued .................................. (34,254) -- --
Liability for additional cash consideration payable to sellers . (2,500) -- --
Liabilities assumed ............................................ (65,978) (26,528) (33,756)
--------- --------- ---------
Cash paid, including acquisition related expenditures .......... 75,881 36,240 23,125
Less: cash acquired ........................................... 10,839 3,371 759
--------- --------- ---------
Net cash used for acquisitions ................................. $ 65,042 $ 32,869 $ 22,366
========= ========= =========
</TABLE>
See Note 7 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 5).
Effective January 1, 1998, the Company began accounting for its 51%
interest in PIASA under the equity method. See Note 1.
63
<PAGE> 64
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. OPERATING SEGMENTS AND GEOGRAPHIC ANALYSIS
The Company has adopted 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 adopted this
statement in the fourth quarter of 1998. Its adoption did not have any effect on
the Company's financial statements, since required changes were limited to the
form and content of the disclosures required.
The Company operates in only one business segment - the oilfield services
industry. Within this segment, the Company conducts business in the following
distinct geographic markets or reportable operating segments:
Domestic onshore: The Company's domestic onshore operation provides
well-servicing (ongoing maintenance of existing oil and natural gas wells),
workover (major repairs or modifications necessary to optimize the level of
production from existing oil and natural gas wells) and production services
(fluid hauling and fluid storage tank rental) and is divided into two separate
geographic divisions: (i) the Central division (principally Texas and Oklahoma)
and (ii) the California division.
Gulf of Mexico offshore: Offshore in the Gulf of Mexico, the Company
provides workover, well-servicing, completion (completion of a well when it is
first drilled) and drilling services and provides crews to oil and natural gas
well operators under labor contracts.
Offshore support vessels: The Company operates offshore support vessels
primarily in the Gulf of Mexico. The Company's services include the marine
transportation of drilling materials, supplies and crews for offshore rig
operations and support for other offshore facilities. In addition, the Company
provides offshore logistical support to drilling and workover operations,
pipelaying and other construction, production platforms and geophysical
operations.
International: Internationally, the Company provides workover,
well-servicing and drilling services, both onshore and offshore, principally in
the Middle East, South America and Australia.
Alaska: In Alaska, the Company provides contract drilling, and on occasion
workover services, and provides crews to oil and natural gas well operators
under labor contracts. The Company's services are principally provided onshore
on the North Slope and offshore in the Cook Inlet.
The accounting policies of the reportable operating segments are the same
as those described in Note 1. The Company's management evaluates the performance
of its operating segments based on net income. Corporate includes general
corporate expenses associated with managing all reportable operating segments
and interest income and expense not allocated to the reportable operating
segments. Corporate assets consist principally of cash and cash equivalents,
deferred debt financing costs, prepaid pension cost and deferred income tax
assets.
64
<PAGE> 65
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
DOMESTIC ONSHORE GULF OFFSHORE
------------------------- OF MEXICO SUPPORT
CENTRAL CALIFORNIA OFFSHORE VESSELS INTERNATIONAL ALASKA
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998
- -----------------------------------
Revenues .......................... $ 160,347 $ 94,000 $ 72,792 $ 37,271 $ 60,354 $ 30,977
Earnings attributable to
unconsolidated affiliates ...... -- -- -- -- 4,335 --
Depreciation and amortization ..... 11,125 4,395 6,202 6,991 7,126 3,762
Interest expense .................. 11 1 -- -- -- --
Income (loss) before income taxes . 3,431 7,502 9,613 12,521 20,079 5,781
Income tax provision (credit) ..... 1,897 3,111 3,369 4,748 6,619 2,033
Net income (loss) ................. 1,534 4,391 6,244 7,773 13,460 3,748
Other significant noncash items:
Deferred income taxes .......... 1,175 (238) (5,037) 2,260 1,228 1,710
Amortization of deferred rig
mobilization ................. -- -- -- -- 7,620 174
Total assets ...................... 108,183 50,769 87,672 159,937 142,733 67,285
Property additions (a) ............ 7,590 5,522 24,181 1,572 19,946 32,482
Investment in unconsolidated
affiliates ..................... -- -- -- -- 26,701 --
1997
- -----------------------------------
Revenues .......................... $ 171,118 $ 96,419 $ 80,957 $ -- $ 76,631 $ 26,797
Earnings attributable to
unconsolidated affiliates ...... -- -- -- -- 3,080 --
Depreciation and amortization ..... 7,072 3,820 4,435 -- 6,410 3,141
Interest expense .................. 13 46 -- -- 1,100 24
Income (loss) before income
taxes and minority interest .... 18,195 6,800 15,917 -- 11,170 2,157
Income tax provision (credit) ..... 6,791 2,827 5,454 -- 3,282 639
Net income (loss) ................. 11,404 3,973 10,463 -- 7,975 1,518
Other significant noncash items:
Deferred income taxes .......... 6,447 2,359 5,398 -- 1,393 511
Amortization of deferred rig
mobilization ................. -- -- -- -- 2,921 --
Total assets ...................... 133,058 52,720 77,592 -- 144,483 41,018
Property additions (a) ............ 9,984 6,061 27,139 -- 10,305 6,788
Investment in unconsolidated
affiliates ..................... -- -- -- -- 19,189 --
1996
- -----------------------------------
Revenues .......................... $ 138,428 $ 81,416 $ 58,545 $ -- $ 45,536 $ 24,633
Earnings attributable to
unconsolidated affiliates ...... -- -- -- -- 2,244 --
Depreciation and amortization ..... 5,094 3,230 3,028 -- 3,810 3,248
Interest expense .................. 29 124 -- -- 727 --
Income (loss) before income
taxes and minority interest .... 8,903 4,531 6,536 -- 4,954 1,259
Income tax provision (credit) ..... 3,551 1,384 2,582 -- 2,542 118
Net income (loss) ................. 5,352 3,147 3,954 -- 2,515 1,141
Other significant noncash items:
Deferred income taxes .......... 3,191 1,437 2,582 -- (322) 109
Amortization of deferred rig
mobilization ................. -- -- -- -- 717 --
Total assets ...................... 50,459 44,040 48,659 -- 129,217 23,229
Property additions (a) ............ 4,039 6,725 15,371 -- 3,319 1,117
Investment in unconsolidated
affiliates ..................... -- -- -- -- 17,778 --
<CAPTION>
CORPORATE TOTAL
---------- ----------
<S> <C> <C>
1998
- -----------------------------------
Revenues .......................... $ -- $ 455,741
Earnings attributable to
unconsolidated affiliates ...... -- 4,335
Depreciation and amortization ..... 165 39,766
Interest expense .................. 14,660 14,672
Income (loss) before income taxes . (23,594) 35,333
Income tax provision (credit) ..... (8,252) 13,525
Net income (loss) ................. (15,342) 21,808
Other significant noncash items:
Deferred income taxes .......... 946 2,044
Amortization of deferred rig
mobilization ................. -- 7,794
Total assets ...................... 47,560 664,139
Property additions (a) ............ 123 91,416
Investment in unconsolidated
affiliates ..................... -- 26,701
1997
- -----------------------------------
Revenues .......................... $ -- $ 451,922
Earnings attributable to
unconsolidated affiliates ...... -- 3,080
Depreciation and amortization ..... 144 25,022
Interest expense .................. 3,105 4,288
Income (loss) before income
taxes and minority interest .... (11,942) 42,297
Income tax provision (credit) ..... (3,287) 15,706
Net income (loss) ................. (8,655) 26,678
Other significant noncash items:
Deferred income taxes .......... (5,367) 10,741
Amortization of deferred rig
mobilization ................. -- 2,921
Total assets ...................... 30,324 479,195
Property additions (a) ............ 78 60,355
Investment in unconsolidated
affiliates ..................... -- 19,189
1996
- -----------------------------------
Revenues .......................... $ -- $ 348,558
Earnings attributable to
unconsolidated affiliates ...... -- 2,244
Depreciation and amortization ..... 135 18,545
Interest expense .................. 1,913 2,793
Income (loss) before income
taxes and minority interest .... (9,122) 17,061
Income tax provision (credit) ..... (2,653) 7,524
Net income (loss) ................. (6,469) 9,640
Other significant noncash items:
Deferred income taxes .......... (2,819) 4,178
Amortization of deferred rig
mobilization ................. -- 717
Total assets ...................... 45,613 341,217
Property additions (a) ............ 91 30,662
Investment in unconsolidated
affiliates ..................... -- 17,778
</TABLE>
- -------
(a) Excluding acquisitions of businesses.
65
<PAGE> 66
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following tables present information by country:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues (a):
United States ....................... $396,669 $377,518 $304,406
Australia ........................... 25,134 21,453 10,529
Argentina (b) ....................... -- 18,302 4,583
Ecuador ............................. 16,164 14,949 17,109
Oman ................................ 5,854 7,390 4,066
Pakistan ............................ 4,530 4,014 5,008
Malaysia ............................ 4,035 4,398 1,158
Guatemala ........................... 2,584 2,935 --
Other ............................... 771 963 1,699
-------- -------- --------
Total ........................... $455,741 $451,922 $348,558
======== ======== ========
Property, plant and equipment - net:
United States ....................... $328,760 $181,646 $121,498
Australia ........................... 39,955 40,287 40,513
Argentina (b) ....................... -- 11,583 9,928
Saudi Arabia (c) .................... 12,647 9,492 551
Ecuador ............................. 8,908 7,218 6,640
Oman ................................ 7,930 1,693 2,019
Malaysia ............................ 4,217 4,445 4,617
Pakistan ............................ 1,712 1,680 1,268
Guatemala ........................... 1,427 1,490 --
Other ............................... 184 259 2,091
-------- -------- --------
Total ........................... $405,740 $259,793 $189,125
======== ======== ========
Investment in unconsolidated affiliates:
Saudi Arabia ........................ $ 20,257 $ 18,858 $ 17,432
Argentina (b) ....................... 6,125 -- --
Oman ................................ 319 331 346
-------- -------- --------
Total ........................... $ 26,701 $ 19,189 $ 17,778
======== ======== ========
</TABLE>
- -------
(a) Revenues are attributed to countries based on location of customers.
(b) Effective January 1, 1998, the Company began accounting for its 51%
interest in PIASA under the equity method. See Note 1.
(c) Consists primarily of two land drilling rigs being leased to Pool Arabia.
66
<PAGE> 67
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for 1998
and 1997.
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998:
Revenues ................................ $ 94,843 $115,187 $127,999 $ 117,712
Earnings Attributable to Unconsolidated
Affiliates ............................ 1,583 1,644 1,179 (71)
Gross Profit (a) ........................ 28,777 38,054 42,409 34,278
Income Before Income Taxes .............. 606 9,528 12,966 12,233
Net Income .............................. 1,397 5,353 7,605 7,453
Earnings Per Share of Common Stock -
basic ................................. $ .07 $ .25 $ .36 $ .38
Earnings Per Share of Common Stock -
assuming dilution ..................... $ .07 $ .25 $ .36 $ .38
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 -
basic ................................. $ .44 $ .43 $ .31 $ .20
Earnings Per Share of Common Stock -
assuming dilution ..................... $ .43 $ .43 $ .31 $ .20
</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 and depreciation and
amortization).
67
<PAGE> 68
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. OTHER NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than January 1, 2000.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted this statement in
the first quarter of 1998 and there was no effect on the Company's financial
statements as there were no items of other comprehensive income in any of the
years in the three year period ended December 31, 1998.
15. CONSOLIDATING FINANCIAL STATEMENTS
Presented below is condensed consolidating financial information for Pool
Energy Services Co. (on a stand-alone basis) ("PESCO"), the Subsidiary
Guarantors (on a combined basis), and the Non-Guarantor Subsidiaries (on a
combined basis). Separate financial information of each Subsidiary Guarantor is
not presented because the Company has concluded that such financial information
is not material to investors.
68
<PAGE> 69
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ............................... $ -- $ 396,669 $ 59,072 $ -- $ 455,741
Earnings Attributable to
Unconsolidated Affiliates ........... -- 1,050 3,285 -- 4,335
----------- ----------- ----------- ----------- -----------
Total ......................... -- 397,719 62,357 -- 460,076
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Operating expenses .................. -- 285,549 31,009 -- 316,558
Selling, general and administrative
expenses .......................... 1,952 47,322 6,081 -- 55,355
Depreciation and amortization ....... -- 32,747 7,047 (28) 39,766
----------- ----------- ----------- ----------- -----------
Total ......................... 1,952 365,618 44,137 (28) 411,679
----------- ----------- ----------- ----------- -----------
Other Income (Expense) - Net ........... -- 1,332 276 -- 1,608
Interest Expense ....................... 10,057 3,091 1,524 -- 14,672
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes and
Equity in Earnings of Consolidated
Subsidiaries ........................ (12,009) 30,342 16,972 28 35,333
Income Tax Provision (Credit) .......... (3,825) 12,575 4,765 10 13,525
Equity in Earnings of Consolidated
Subsidiaries ........................ 29,992 12,207 -- (42,199) --
----------- ----------- ----------- ----------- -----------
Net Income ............................. $ 21,808 $ 29,974 $ 12,207 $ (42,181) $ 21,808
=========== =========== =========== =========== ===========
</TABLE>
69
<PAGE> 70
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used for)
Operating Activities ......................... $ (11,765) $ 67,599 $ 24,376 $ (3) $ 80,207
---------- ---------- ---------- ---------- ----------
Investing Activities:
Property additions .............................. -- (71,585) (20,273) 442 (91,416)
Expenditures for acquisitions, including
acquisition costs, less cash acquired ........ -- (65,042) -- -- (65,042)
Expenditures for drydocking costs ............... -- (2,287) -- -- (2,287)
Net proceeds from sale and leaseback of rigs .... -- 19,950 -- -- 19,950
Proceeds from disposition of property,
plant and equipment .......................... -- 2,289 191 (442) 2,038
Increase in restricted cash ..................... -- (1,490) -- -- (1,490)
Other - net ..................................... 1 95 2 3 101
---------- ---------- ---------- ---------- ----------
Net Cash Flows Provided by (Used for)
Investing Activities ......................... 1 (118,070) (20,080) 3 (138,146)
---------- ---------- ---------- ---------- ----------
Financing Activities:
Proceeds from long-term debt .................... 150,000 40,000 -- -- 190,000
Principal payments on long-term debt ............ -- (96,875) -- -- (96,875)
Repayment of debt assumed in acquisition ........ -- (15,672) -- -- (15,672)
Payments for debt financing costs ............... (4,834) (722) -- -- (5,556)
Proceeds from exercise of stock options ......... 379 -- -- -- 379
Payments from (advances to) consolidated
subsidiaries, net ............................ (133,921) 139,119 (5,198) -- --
---------- ---------- ---------- ---------- ----------
Net Cash Flows Provided by (Used for)
Financing Activities ......................... 11,624 65,850 (5,198) -- 72,276
---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents .................................. (140) 15,379 (902) -- 14,337
Cash and Cash Equivalents at January 1, ......... 210 16,395 2,388 -- 18,993
---------- ---------- ---------- ---------- ----------
Cash and Cash Equivalents at
December 31, ................................. $ 70 $ 31,774 $ 1,486 $ -- $ 33,330
========== ========== ========== ========== ==========
</TABLE>
70
<PAGE> 71
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................. $ 70 $ 31,774 $ 1,486 $ -- $ 33,330
Restricted cash ............................ -- 1,500 -- -- 1,500
Accounts and notes receivable .............. -- 52,345 10,459 -- 62,804
Other receivables .......................... -- 1,547 731 -- 2,278
Accounts receivable from affiliates ........ -- 5,347 421 -- 5,768
Inventories ................................ -- 4,552 11,290 -- 15,842
Deferred income tax asset .................. 131 7,004 1,311 133 8,579
Other current assets ....................... 511 8,424 961 -- 9,896
----------- ----------- ----------- ----------- -----------
Total current assets ................. 712 112,493 26,659 133 139,997
Property, Plant and Equipment - Net ........... -- 328,760 77,308 (328) 405,740
Vessel Construction Deposits .................. -- 18,275 -- -- 18,275
Investment in Consolidated Subsidiaries ....... 83,066 44,360 -- (127,426) --
Investment in and Noncurrent Receivables
from Unconsolidated Affiliates ............. -- 28,027 -- -- 28,027
Goodwill, net ................................. -- 60,124 -- -- 60,124
Deferred Costs ................................ 3,990 5,684 -- -- 9,674
Noncurrent Receivables and Other Assets ....... -- 2,284 18 -- 2,302
----------- ----------- ----------- ----------- -----------
Total ................................ $ 87,768 $ 600,007 $ 103,985 $ (127,621) $ 664,139
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .......... $ -- $ 625 $ -- $ -- $ 625
Trade accounts payable ..................... -- 22,782 2,481 -- 25,263
Payable (receivable) to (from)
consolidated subsidiaries ................ (236,391) 210,662 25,961 (232) --
Accrued liabilities ........................ 4,149 37,719 11,965 (3) 53,830
Accrued taxes .............................. (8,533) 14,039 4,579 17 10,102
----------- ----------- ----------- ----------- -----------
Total current liabilities ............ (240,775) 285,827 44,986 (218) 89,820
Long-Term Debt ................................ 150,000 22,847 -- -- 172,847
Long-Term Payable (Receivable) to (from)
Consolidated Subsidiaries .................. (111,595) 104,406 7,189 -- --
Deferred Income Taxes ......................... (1,632) 57,129 5,819 4 61,320
Other Liabilities ............................. -- 47,073 1,631 -- 48,704
Shareholders' Equity:
Common stock ............................... 232,023 1 500 (501) 232,023
Paid-in capital ............................ -- 12,399 18,619 (31,018) --
Retained earnings .......................... 60,037 70,647 25,241 (95,888) 60,037
Unearned compensation - restricted stock ... (290) -- -- -- (290)
Cumulative foreign currency translation
adjustments .............................. -- (322) -- -- (322)
----------- ----------- ----------- ----------- -----------
Total shareholders' equity ........... 291,770 82,725 44,360 (127,407) 291,448
----------- ----------- ----------- ----------- -----------
Total ................................ $ 87,768 $ 600,007 $ 103,985 $ (127,621) $ 664,139
=========== =========== =========== =========== ===========
</TABLE>
71
<PAGE> 72
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ -- $ 377,518 $ 74,404 $ -- $ 451,922
Earnings (Loss) Attributable to
Unconsolidated Affiliates ................ -- 3,140 (60) -- 3,080
----------- ----------- ----------- ----------- -----------
Total .............................. -- 380,658 74,344 -- 455,002
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Operating expenses ....................... -- 283,943 50,649 -- 334,592
Selling, general and administrative
expenses ............................... 638 44,519 8,263 -- 53,420
Depreciation and amortization ............ -- 18,727 6,323 (28) 25,022
----------- ----------- ----------- ----------- -----------
Total .............................. 638 347,189 65,235 (28) 413,034
----------- ----------- ----------- ----------- -----------
Other Income (Expense) - Net ................ -- 4,148 469 -- 4,617
Interest Expense ............................ -- 2,728 1,560 -- 4,288
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes, Equity
in Earnings of Consolidated Subsidiaries
and Minority Interest .................... (638) 34,889 8,018 28 42,297
Income Tax Provision (Credit) ............... (223) 13,265 2,654 10 15,706
Equity in Earnings of Consolidated
Subsidiaries ............................. 27,093 5,451 -- (32,544) --
Minority Interest in Loss of Consolidated
Subsidiary ............................... -- -- -- (87) (87)
----------- ----------- ----------- ----------- -----------
Net Income .................................. $ 26,678 $ 27,075 $ 5,364 $ (32,439) $ 26,678
=========== =========== =========== =========== ===========
</TABLE>
72
<PAGE> 73
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used for)
Operating Activities ...................... $ (81) $ 36,517 $ 5,951 $ -- $ 42,387
----------- ----------- ----------- ----------- -----------
Investing Activities:
Property additions ........................... -- (50,664) (14,601) 4,910 (60,355)
Expenditures for acquisitions, including
acquisition costs, less cash acquired ..... -- (32,856) (13) -- (32,869)
Proceeds from disposition of property,
plant and equipment ....................... -- 10,250 1,489 (4,910) 6,829
Decrease in restricted cash .................. -- 974 -- -- 974
Other - net .................................. (1) 160 360 -- 519
----------- ----------- ----------- ----------- -----------
Net Cash Flows Used for Investing Activities . (1) (72,136) (12,765) -- (84,902)
----------- ----------- ----------- ----------- -----------
Financing Activities:
Proceeds from exercise of stock options ...... 3,300 -- -- -- 3,300
Retirement of debt assumed in acquisitions ... -- (3,522) -- -- (3,522)
Payments for debt financing costs ............ -- (1,587) -- -- (1,587)
Proceeds from long-term debt ................. -- 70,800 -- -- 70,800
Principal payments on long-term debt ......... -- (10,484) (17,911) -- (28,395)
Principal payments on notes payable to
related parties ........................... -- (925) -- -- (925)
Payments from (advances to) consolidated
subsidiaries, net ......................... (3,995) (18,636) 22,631 -- --
----------- ----------- ----------- ----------- -----------
Net Cash Flows Provided by (Used for)
Financing Activities ...................... (695) 35,646 4,720 -- 39,671
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents ............................... (777) 27 (2,094) -- (2,844)
Cash and Cash Equivalents at January 1, ...... 987 16,368 4,482 -- 21,837
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents at December 31, .... $ 210 $ 16,395 $ 2,388 $ -- $ 18,993
=========== =========== =========== =========== ===========
</TABLE>
73
<PAGE> 74
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................. $ 210 $ 16,395 $ 2,388 $ -- $ 18,993
Restricted cash ............................ -- 10 -- -- 10
Accounts and notes receivable .............. -- 73,307 16,636 -- 89,943
Other receivables .......................... -- 3,134 2,571 -- 5,705
Accounts receivable from affiliates ........ -- 1,635 -- -- 1,635
Inventories ................................ -- 7,168 12,332 -- 19,500
Deferred income tax asset .................. 20 8,450 -- 124 8,594
Other current assets ....................... 49 6,601 1,645 -- 8,295
----------- ----------- ----------- ----------- -----------
Total current assets ................. 279 116,700 35,572 124 152,675
----------- ----------- ----------- ----------- -----------
Property, Plant and Equipment - Net ........... -- 181,641 78,508 (356) 259,793
Investment in Consolidated Subsidiaries ....... 53,074 40,313 -- (93,387) --
Investment in and Noncurrent Receivables
from Unconsolidated Affiliates ............. -- 20,515 -- -- 20,515
Goodwill, net ................................. -- 40,853 1,542 -- 42,395
Deferred Costs ................................ -- 1,270 -- -- 1,270
Noncurrent Receivables and Other Assets ....... -- 2,519 28 -- 2,547
----------- ----------- ----------- ----------- -----------
Total ................................ $ 53,353 $ 403,811 $ 115,650 $ (93,619) $ 479,195
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .......... $ -- $ 1,025 $ -- $ -- $ 1,025
Trade accounts payable ..................... -- 35,610 2,607 -- 38,217
Accounts payable to affiliate .............. -- -- 3,088 -- 3,088
Payable (receivable) to (from)
consolidated subsidiaries ................ (67,981) 40,714 27,257 10 --
Accrued liabilities ........................ 177 30,558 13,909 -- 44,644
Accrued taxes .............................. (1,308) 4,893 3,046 -- 6,631
----------- ----------- ----------- ----------- -----------
Total current liabilities ............ (69,112) 112,800 49,907 10 93,605
Long-Term Debt ................................ -- 79,322 -- -- 79,322
Long-Term Payable (Receivable) to (from)
Consolidated Subsidiaries .................. (111,595) 97,131 14,464 -- --
Deferred Income Taxes ......................... -- 18,877 2,698 -- 21,575
Other Liabilities ............................. -- 42,687 4,308 -- 46,995
Minority Interest ............................. -- -- -- 3,960 3,960
Shareholders' Equity:
Common stock ............................... 196,532 1 8,970 (8,971) 196,532
Paid-in capital ............................ -- 12,400 23,109 (35,509) --
Retained earnings .......................... 38,229 40,915 12,194 (53,109) 38,229
Unearned compensation - restricted stock ... (701) -- -- -- (701)
Cumulative foreign currency translation
adjustments .............................. -- (322) -- -- (322)
----------- ----------- ----------- ----------- -----------
Total shareholders' equity ........... 234,060 52,994 44,273 (97,589) 233,738
----------- ----------- ----------- ----------- -----------
Total ................................ $ 53,353 $ 403,811 $ 115,650 $ (93,619) $ 479,195
=========== =========== =========== =========== ===========
</TABLE>
74
<PAGE> 75
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ -- $ 304,406 $ 44,152 $ -- $ 348,558
Earnings Attributable to
Unconsolidated Affiliates ................ -- 1,781 463 -- 2,244
----------- ----------- ----------- ----------- -----------
Total .............................. -- 306,187 44,615 -- 350,802
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Operating expenses ....................... -- 237,293 30,399 -- 267,692
Selling, general and administrative
expenses ............................... 513 40,804 5,489 -- 46,806
Depreciation and amortization ............ -- 14,856 3,717 (28) 18,545
----------- ----------- ----------- ----------- -----------
Total .............................. 513 292,953 39,605 (28) 333,043
----------- ----------- ----------- ----------- -----------
Other Income (Expense) - Net ................ -- 1,849 246 -- 2,095
Interest Expense ............................ -- 2,066 727 -- 2,793
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes, Equity
in Earnings of Consolidated Subsidiaries
and Minority Interest .................... (513) 13,017 4,529 28 17,061
Income Tax Provision (Credit) ............... (178) 5,330 2,362 10 7,524
Equity in Earnings of Consolidated
Subsidiaries ............................. 9,975 2,270 -- (12,245) --
Minority Interest in Loss of Consolidated
Subsidiary ............................... -- -- -- (103) (103)
----------- ----------- ----------- ----------- -----------
Net Income .................................. $ 9,640 $ 9,957 $ 2,167 $ (12,124) $ 9,640
=========== =========== =========== =========== ===========
</TABLE>
75
<PAGE> 76
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used for)
Operating Activities ........................ $ (466) $ 12,350 $ 5,831 $ -- $ 17,715
----------- ----------- ----------- ----------- -----------
Investing Activities:
Property additions ............................. -- (28,950) (2,660) 948 (30,662)
Expenditures for acquisitions, including
acquisition costs, less cash acquired ....... -- (14,068) (8,298) -- (22,366)
Proceeds from disposition of property,
plant and equipment ......................... -- 2,061 1,222 (948) 2,335
Decrease in restricted cash .................... -- 152 -- -- 152
Other - net .................................... -- (52) 37 -- (15)
----------- ----------- ----------- ----------- -----------
Net Cash Flows Used for Investing Activities ... -- (40,857) (9,699) -- (50,556)
----------- ----------- ----------- ----------- -----------
Financing Activities:
Proceeds from issuance of common stock, net .... 47,455 -- -- -- 47,455
Proceeds from exercise of stock options ........ 3,376 -- -- -- 3,376
Payments for debt financing costs .............. -- -- (199) -- (199)
Proceeds from long-term debt ................... -- -- 6,500 -- 6,500
Principal payments on long-term debt ........... -- (4,385) (3,161) -- (7,546)
Principal payments on notes payable to related
parties ..................................... -- (400) -- -- (400)
Payments from (advances to) consolidated
subsidiaries, net ........................... (49,439) 45,139 4,300 -- --
----------- ----------- ----------- ----------- -----------
Net Cash Flows Provided by Financing
Activities .................................. 1,392 40,354 7,440 -- 49,186
----------- ----------- ----------- ----------- -----------
Net Increase in Cash and Cash Equivalents ...... 926 11,847 3,572 -- 16,345
Cash and Cash Equivalents at January 1, ........ 61 4,521 910 -- 5,492
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents at December 31, ...... $ 987 $ 16,368 $ 4,482 $ -- $ 21,837
=========== =========== =========== =========== ===========
</TABLE>
76
<PAGE> 77
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, 1998.
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 .................................................... 31
Statements of Consolidated Operations for Each of the Three Years in the
Period Ended December 31, 1998 .............................................. 32
Statements of Consolidated Cash Flows for Each of the Three Years in the
Period Ended December 31, 1998 .............................................. 33
Consolidated Balance Sheets at December 31, 1998 and 1997 ....................... 34
Notes to Consolidated Financial Statements ...................................... 35
(a)-2 FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Pool Energy Services Co.:
Consolidated Supplementary Financial Statement Schedules As of and for Each
of the Three Years Ended December 31, 1998:
II - Consolidated Valuation and Qualifying Accounts ......................... 86
</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.
77
<PAGE> 78
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
2.1 - Agreement and Plan of Merger dated as of January 10, 1999 by and
among Nabors Industries, Inc., Starry Acquisition Corp. 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: January 10,
1999) dated January 11, 1999, Commission File No. 0-18437)
3.1 - Articles of Incorporation of Pool Energy Services Co., as amended
(incorporated by reference to the Exhibit 3.1 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.2 - Bylaws of Pool Energy Services Co. (incorporated by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K (Date of
Event: December 2, 1998) dated December 24, 1998, Commission File No.
0-18437)
3.3 - Articles of Incorporation of Associated Petroleum Services, Inc.
(incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.4 - Bylaws of Associated Petroleum Services, Inc. (incorporated by
reference to Exhibit 3.4 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.5 - Articles of Incorporation of Big 10 Fishing Tool Company, Inc.
(incorporated by reference to Exhibit 3.5 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.6 - Bylaws of Big 10 Fishing Tool Company, Inc. (incorporated by
reference to Exhibit 3.6 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.7 - Articles of Incorporation of The International Air Drilling
Company, as amended (incorporated by reference to Exhibit 3.7 to the
Company's Registration Statement on Form S-4 No. 333-53897)
3.8 - Bylaws of The International Air Drilling Company (incorporated by
reference to Exhibit 3.8 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.9 - Joint Venture Agreement of Kuukpik/Pool Arctic Alaska (incorporated
by reference to Exhibit 3.9 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.10 - Articles of Incorporation of PCNV, Inc. (incorporated by reference
to Exhibit 3.10 to the Company's Registration Statement on Form S-4
No. 333-53897)
3.11 - Bylaws of PCNV, Inc. (incorporated by reference to Exhibit 3.11 to
the Company's Registration Statement on Form S-4 No. 333-53897)
3.12 - Articles of Incorporation of Pool Alaska, Inc. (incorporated by
reference to Exhibit 3.12 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.13 - Bylaws of Pool Alaska, Inc. (incorporated by reference to Exhibit
3.13 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.14 - Articles of Incorporation of Pool Americas, Inc., as amended
(incorporated by reference to Exhibit 3.14 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.15 - Bylaws of Pool Americas, Inc. (incorporated by reference to Exhibit
3.15 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.16 - Articles of Incorporation of Pool-Australia, Inc. (incorporated by
reference to Exhibit 3.16 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.17 - Bylaws of Pool-Australia, Inc. (incorporated by reference to
Exhibit 3.17 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.18 - Articles of Incorporation of Pool California Energy Services, Inc.,
as amended (incorporated by reference to Exhibit 3.18 to the
Company's Registration Statement on Form S-4 No. 333-53897)
3.19 - Bylaws of Pool California Energy Services, Inc. (incorporated by
reference to Exhibit 3.19 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.20 - Certificate of Incorporation of Pool Company, as amended
(incorporated by reference to Exhibit 3.20 to the Company's
Registration Statement on Form S-4 No. 333-53897)
78
<PAGE> 79
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
3.21 - Bylaws of Pool Company (incorporated by reference to Exhibit 3.21
to the Company's Registration Statement on Form S-4 No. 333-53897)
3.22 - Certificate of Limited Partnership of Pool Company Houston Ltd.
(incorporated by reference to Exhibit 3.22 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.23 - Limited Partnership Agreement of Pool Company Houston Ltd., as
amended (incorporated by reference to Exhibit 3.23 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.24 - Certificate of Limited Partnership of Pool Company Texas Ltd.
(incorporated by reference to Exhibit 3.24 the Company's Registration
Statement on Form S-4 No. 333-53897)
3.25 - Limited Partnership Agreement of Pool Company Texas Ltd., as
amended (incorporated by reference to Exhibit 3.25 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.26 - Articles of Incorporation of Pool International, Inc. (incorporated
by reference to Exhibit 3.26 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.27 - Bylaws of Pool International, Inc. (incorporated by reference to
Exhibit 3.27 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.28 - Certificate of Incorporation of Pool Production Services, Inc., as
amended (incorporated by reference to Exhibit 3.28 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.29 - Bylaws of Pool Production Services, Inc. (incorporated by reference
to Exhibit 3.29 to the Company's Registration Statement on Form S-4
No. 333-53897)
3.30 - Articles of Incorporation of PTX, Inc., as amended (incorporated by
reference to Exhibit 3.30 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.31 - Bylaws of PTX, Inc. (incorporated by reference to Exhibit 3.31 to
the Company's Registration Statement on Form S-4 No. 333-53897)
3.32 - Articles of Incorporation of Sea Mar, Inc., as amended (incorporated
by reference to Exhibit 3.32 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.33 - Bylaws of Sea Mar, Inc. (incorporated by reference to Exhibit 3.33
to the Company's Registration Statement on Form S-4 No. 333-53897)
3.34 - Articles of Incorporation of Sea Mar Management, Inc. (incorporated
by reference to Exhibit 3.34 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.35 - Bylaws of Sea Mar Management, Inc. (incorporated by reference to
Exhibit 3.35 to the Company's Registration Statement on Form S-4 No.
333-53897)
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)
4.2 - Indenture dated as of March 31, 1998 by and among Pool Energy
Services Co., the Subsidiary Guarantors named therein and Marine
Midland Bank, as Trustee, including the forms of the Old Notes and
the New Notes issued pursuant to such Indenture (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 6, 1998)
79
<PAGE> 80
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
4.3 - Registration Rights Agreement dated as of March 31, 1998 by and
among Pool Energy Services Co. and SBC Warburg Dillon Read Inc.,
Morgan Stanley & Co. Incorporated and Johnson Rice & Company L.L.C.,
and the Subsidiary Guarantors named therein (incorporated by
reference to Exhibit 4.2 to the Company's Current Report on Form 8-K
dated April 6, 1998)
4.4 - Purchase Agreement dated March 26, 1998 by and among Pool Energy
Services Co. and SBC Warburg Dillon Read Inc., Morgan Stanley & Co.
Incorporated and Johnson Rice & Company, L.L.C., and the Subsidiary
Guarantors named therein (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 6, 1998)
4.5 - Supplemental Indenture dated as of March 31, 1998 among The
Company, the Guarantors named therein and the Trustee (incorporated
by reference to Exhibit 4.4 to the Company's Registration Statement
on Form S-4 No. 333-53897)
4.6 - Form of First Amendment to Rights Agreement, dated as of January
10, 1999, by and between Pool Energy Services Co. and the First
National Bank of Boston (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K (Date of Event: January 10,
1999) dated January 11, 1999, 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)
80
<PAGE> 81
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
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)
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)
81
<PAGE> 82
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
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)
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)
82
<PAGE> 83
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
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 Services 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 Services 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 Services 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)
83
<PAGE> 84
(a)-3 EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
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
(incorporated by reference to Exhibit 10.36 to the Company's Form
10-K for the year ended December 31, 1997, Commission File No.
0-18437)
10.37(+) - Pool Energy Services Co. 1998 Long-term Incentive Plan
(incorporated by reference to Exhibit 10.37 to the Company's Form
10-K for the year ended December 31, 1997, Commission File No.
0-18437)
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.
(incorporated by reference to Exhibit 10.38 to the Company's Form
10-K for the year ended December 31, 1997, Commission File No.,
0-18437)
10.39 - U.S. $180,000,000 Amended and Restated Credit Agreement, dated as
of March 26, 1998, among 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, Stamford Branch,
as Documentation Agent (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K dated April 6, 1998)
10.40 - Stock Purchase Agreement dated February 10, 1998 by and among Al
A. Gonsoulin, Gonsoulin Enterprises, Inc, Sea Mar, Inc., Pool
Company, and Pool Energy Services Co. (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated March
9, 1998)
10.41 - Vessel Construction Contract dated August 1, 1997 between Sea Mar
Equipment, Inc. and Halter Marine, Inc. (incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
March 9, 1998)
10.42 - Form of Indemnification Agreement between the Company and each of
its Directors (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998, Commission File No. 0-18437)
10.43(+) - Definitive Form of Change in Control Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K (Date of Event: December 2, 1998) dated December 24, 1998,
Commission File No. 0-18437)
10.44(+) - Pool Energy Services Co. 1999 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K (Date of Event: December 2, 1998) dated December
24, 1998, Commission File No. 0-18437)
12.1(*) - Statement of Computation of Ratio of Earnings to Fixed Charges
21(*) - List of Subsidiaries
23(*) - Consent of Deloitte & Touche LLP
24(*) - Powers of Attorney
27(*) - Financial Data Schedule
- --------------------
(+) 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.
84
<PAGE> 85
(b) REPORTS ON FORM 8-K - The Registrant filed a Current Report on Form 8-K
dated December 24, 1998 (Date of Event: December 2, 1998) with respect to
(i) the amendment, on December 2, 1998, of Section 4 of Article III of the
Company's Bylaws to eliminate the automatic reduction in the number of
directors upon the resignation, death or disability of a director, (ii) the
Company's execution as of December 9, 1998, of amended and restated Change
in Control Agreements with certain executive officers and other employees
and (iii) the adoption on December 2, 1998, of the Company's 1999 Long-Term
Incentive Plan covering the performance period commencing on January 1,
1999 and ending December 31, 2001. The items reported were (i) Item 5,
Other Events, and (ii) Item 7, Financial Statements and Exhibits.
The Registrant filed a Current Report on Form 8-K dated January 11, 1999
(Date of Event: January 10, 1999) in respect of the Agreement and Plan of
Merger dated as of January 10, 1999 by and among Nabors Industries, Inc.,
Starry Acquisition Corp. and Pool Energy Services Co. The items reported in
such Current Report were (i) Item 5, Other Events, and (ii) Item 7,
Financial Statements and Exhibits.
85
<PAGE> 86
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:
1998 .......................... $ 1,272 $ 163 $ 55 $ (748) (a) (c) $ 742
1997 .......................... 1,235 195 352 (b) (510) (a) 1,272
1996 .......................... 1,059 249 29 (102) (a) (d) 1,235
Allowance for Inventory Shrinkage:
1998........................... $ 2,256 $ 190 $ - $ (278) (e) $ 2,168
1997 .......................... 1,856 480 - (80) 2,256
1996 .......................... 1,585 341 34 (104) 1,856
Allowance for Doubtful Noncurrent
Receivables:
1998........................... $ 1,113 $ - $ - $ (86) (a) (f) $ 1,027
1997 .......................... 1,219 - - (106) (a) (g) 1,113
1996 .......................... 2,824 - - (1,605) (a) (h) 1,219
</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 reductions of $150 and $131 related to a revised estimate of the
accounts receivable allowance and business acquisitions, respectively.
(d) Includes a reduction of $800 of allowance related to a revised estimate of
the accounts receivable allowance.
(e) Includes a reduction of $242 related to inventory sold.
(f) Includes a reduction of $553 of allowance related to accounts receivable
written off.
(g) Includes a reduction of $616 of allowance related to accounts receivable
written off.
(h) Includes a reduction of $908 of allowance related to accounts receivable
written off.
86
<PAGE> 87
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: March 15, 1999
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 )
)
DENNIS R. HENDRIX Director* ) -- March 15, 1999
)
JOHN F. LAULETTA Director* )
)
WILLIAM H. MOBLEY Director* )
)
JOSEPH R. MUSOLINO Director* )
)
JAMES L. PAYNE Director* )
*By: /S/ J. T. JONGEBLOED
-------------------------------------------
(J. T. Jongebloed, as Attorney-In-Fact
for each of the persons indicated)
</TABLE>
87
<PAGE> 88
POOL ENERGY SERVICES CO.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
2.1 - Agreement and Plan of Merger dated as of January 10, 1999 by and
among Nabors Industries, Inc., Starry Acquisition Corp. 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: January 10,
1999) dated January 11, 1999, Commission File No. 0-18437)
3.1 - Articles of Incorporation of Pool Energy Services Co., as amended
(incorporated by reference to the Exhibit 3.1 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.2 - Bylaws of Pool Energy Services Co. (incorporated by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K (Date of
Event: December 2, 1998) dated December 24, 1998, Commission File No.
0-18437)
3.3 - Articles of Incorporation of Associated Petroleum Services, Inc.
(incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.4 - Bylaws of Associated Petroleum Services, Inc. (incorporated by
reference to Exhibit 3.4 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.5 - Articles of Incorporation of Big 10 Fishing Tool Company, Inc.
(incorporated by reference to Exhibit 3.5 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.6 - Bylaws of Big 10 Fishing Tool Company, Inc. (incorporated by
reference to Exhibit 3.6 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.7 - Articles of Incorporation of The International Air Drilling
Company, as amended (incorporated by reference to Exhibit 3.7 to the
Company's Registration Statement on Form S-4 No. 333-53897)
3.8 - Bylaws of The International Air Drilling Company (incorporated by
reference to Exhibit 3.8 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.9 - Joint Venture Agreement of Kuukpik/Pool Arctic Alaska (incorporated
by reference to Exhibit 3.9 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.10 - Articles of Incorporation of PCNV, Inc. (incorporated by reference
to Exhibit 3.10 to the Company's Registration Statement on Form S-4
No. 333-53897)
3.11 - Bylaws of PCNV, Inc. (incorporated by reference to Exhibit 3.11 to
the Company's Registration Statement on Form S-4 No. 333-53897)
3.12 - Articles of Incorporation of Pool Alaska, Inc. (incorporated by
reference to Exhibit 3.12 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.13 - Bylaws of Pool Alaska, Inc. (incorporated by reference to Exhibit
3.13 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.14 - Articles of Incorporation of Pool Americas, Inc., as amended
(incorporated by reference to Exhibit 3.14 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.15 - Bylaws of Pool Americas, Inc. (incorporated by reference to Exhibit
3.15 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.16 - Articles of Incorporation of Pool-Australia, Inc. (incorporated by
reference to Exhibit 3.16 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.17 - Bylaws of Pool-Australia, Inc. (incorporated by reference to
Exhibit 3.17 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.18 - Articles of Incorporation of Pool California Energy Services, Inc.,
as amended (incorporated by reference to Exhibit 3.18 to the
Company's Registration Statement on Form S-4 No. 333-53897)
3.19 - Bylaws of Pool California Energy Services, Inc. (incorporated by
reference to Exhibit 3.19 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.20 - Certificate of Incorporation of Pool Company, as amended
(incorporated by reference to Exhibit 3.20 to the Company's
Registration Statement on Form S-4 No. 333-53897)
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
3.21 - Bylaws of Pool Company (incorporated by reference to Exhibit 3.21
to the Company's Registration Statement on Form S-4 No. 333-53897)
3.22 - Certificate of Limited Partnership of Pool Company Houston Ltd.
(incorporated by reference to Exhibit 3.22 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.23 - Limited Partnership Agreement of Pool Company Houston Ltd., as
amended (incorporated by reference to Exhibit 3.23 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.24 - Certificate of Limited Partnership of Pool Company Texas Ltd.
(incorporated by reference to Exhibit 3.24 the Company's Registration
Statement on Form S-4 No. 333-53897)
3.25 - Limited Partnership Agreement of Pool Company Texas Ltd., as
amended (incorporated by reference to Exhibit 3.25 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.26 - Articles of Incorporation of Pool International, Inc. (incorporated
by reference to Exhibit 3.26 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.27 - Bylaws of Pool International, Inc. (incorporated by reference to
Exhibit 3.27 to the Company's Registration Statement on Form S-4 No.
333-53897)
3.28 - Certificate of Incorporation of Pool Production Services, Inc., as
amended (incorporated by reference to Exhibit 3.28 to the Company's
Registration Statement on Form S-4 No. 333-53897)
3.29 - Bylaws of Pool Production Services, Inc. (incorporated by reference
to Exhibit 3.29 to the Company's Registration Statement on Form S-4
No. 333-53897)
3.30 - Articles of Incorporation of PTX, Inc., as amended (incorporated by
reference to Exhibit 3.30 to the Company's Registration Statement on
Form S-4 No. 333-53897)
3.31 - Bylaws of PTX, Inc. (incorporated by reference to Exhibit 3.31 to
the Company's Registration Statement on Form S-4 No. 333-53897)
3.32 - Articles of Incorporation of Sea Mar, Inc., as amended (incorporated
by reference to Exhibit 3.32 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.33 - Bylaws of Sea Mar, Inc. (incorporated by reference to Exhibit 3.33
to the Company's Registration Statement on Form S-4 No. 333-53897)
3.34 - Articles of Incorporation of Sea Mar Management, Inc. (incorporated
by reference to Exhibit 3.34 to the Company's Registration Statement
on Form S-4 No. 333-53897)
3.35 - Bylaws of Sea Mar Management, Inc. (incorporated by reference to
Exhibit 3.35 to the Company's Registration Statement on Form S-4 No.
333-53897)
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)
4.2 - Indenture dated as of March 31, 1998 by and among Pool Energy
Services Co., the Subsidiary Guarantors named therein and Marine
Midland Bank, as Trustee, including the forms of the Old Notes and
the New Notes issued pursuant to such Indenture (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 6, 1998)
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
4.3 - Registration Rights Agreement dated as of March 31, 1998 by and
among Pool Energy Services Co. and SBC Warburg Dillon Read Inc.,
Morgan Stanley & Co. Incorporated and Johnson Rice & Company L.L.C.,
and the Subsidiary Guarantors named therein (incorporated by
reference to Exhibit 4.2 to the Company's Current Report on Form 8-K
dated April 6, 1998)
4.4 - Purchase Agreement dated March 26, 1998 by and among Pool Energy
Services Co. and SBC Warburg Dillon Read Inc., Morgan Stanley & Co.
Incorporated and Johnson Rice & Company, L.L.C., and the Subsidiary
Guarantors named therein (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 6, 1998)
4.5 - Supplemental Indenture dated as of March 31, 1998 among The
Company, the Guarantors named therein and the Trustee (incorporated
by reference to Exhibit 4.4 to the Company's Registration Statement
on Form S-4 No. 333-53897)
4.6 - Form of First Amendment to Rights Agreement, dated as of January
10, 1999, by and between Pool Energy Services Co. and the First
National Bank of Boston (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K (Date of Event: January 10,
1999) dated January 11, 1999, 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)
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
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)
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)
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
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)
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)
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
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 Services 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 Services 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 Services 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)
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
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
(incorporated by reference to Exhibit 10.36 to the Company's Form
10-K for the year ended December 31, 1997, Commission File No.
0-18437)
10.37(+) - Pool Energy Services Co. 1998 Long-term Incentive Plan
(incorporated by reference to Exhibit 10.37 to the Company's Form
10-K for the year ended December 31, 1997, Commission File No.
0-18437)
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.
(incorporated by reference to Exhibit 10.38 to the Company's Form
10-K for the year ended December 31, 1997, Commission File No.,
0-18437)
10.39 - U.S. $180,000,000 Amended and Restated Credit Agreement, dated as
of March 26, 1998, among 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, Stamford Branch,
as Documentation Agent (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K dated April 6, 1998)
10.40 - Stock Purchase Agreement dated February 10, 1998 by and among Al
A. Gonsoulin, Gonsoulin Enterprises, Inc, Sea Mar, Inc., Pool
Company, and Pool Energy Services Co. (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated March
9, 1998)
10.41 - Vessel Construction Contract dated August 1, 1997 between Sea Mar
Equipment, Inc. and Halter Marine, Inc. (incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
March 9, 1998)
10.42 - Form of Indemnification Agreement between the Company and each of
its Directors (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998, Commission File No. 0-18437)
10.43(+) - Definitive Form of Change in Control Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K (Date of Event: December 2, 1998) dated December 24, 1998,
Commission File No. 0-18437)
10.44(+) - Pool Energy Services Co. 1999 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K (Date of Event: December 2, 1998) dated December
24, 1998, Commission File No. 0-18437)
12.1(*) - Statement of Computation of Ratio of Earnings to Fixed Charges
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.
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income before provision for income taxes
and minority interest per statement of
consolidated operations .................... $ 35,333 $ 42,297 $ 17,061 $ 5,113 $ (21,110)
Adjusted for:
Unconsolidated Subsidiaries ................ 809 (1,411) (636) (65) (3,409)
Lease payment for San Angelo
manufacturing and storage facility not
included in income ....................... (2,715) (2,148) (2,148) (2,148) (2,148)
Provision for leasehold impairment of the
lease for San Angelo manufacturing and
storage facility ......................... -- -- -- -- 23,551
Add:
Portion of rents representative of the
interest factor (including San Angelo
manufacturing and storage facility) ...... 3,064 2,738 2,354 2,343 2,240
Interest on indebtedness ................... 13,608 3,848 2,691 1,748 263
Amortization of debt expense and premium ... 1,064 440 102 63 11
--------- --------- --------- --------- ---------
Income as adjusted ..................... $ 51,163 $ 45,764 $ 19,424 $ 7,054 $ (602)
========= ========= ========= ========= =========
Fixed Charges:
Interest on indebtedness
PESCO (including consolidated
subsidiaries) ............................ $ 13,608 $ 3,848 $ 2,691 $ 1,748 $ 242
Unconsolidated Subsidiaries .............. -- -- -- -- 21
--------- --------- --------- --------- ---------
(A) $ 13,608 $ 3,848 $ 2,691 $ 1,748 $ 263
========= ========= ========= ========= =========
Amortization of debt expense and premium ... (B) $ 1,064 $ 440 $ 102 $ 63 $ 11
Capitalized interest (including
unconsolidated subsidiaries) ............. (C) $ 172 $ 44 $ -- $ 114 $ 163
Rents:
PESCO (including consolidated
subsidiaries and San Angelo
manufacturing facility) .................... $ 9,192 $ 8,215 $ 7,063 $ 7,030 $ 6,720
Portion of rents representative of interest
factor ................................... (D) $ 3,064 $ 2,738 $ 2,354 $ 2,343 $ 2,240
Fixed Charges (A+B+C+D) ....................... $ 17,908 $ 7,070 $ 5,147 $ 4,268 $ 2,677
Ratio of Earnings to Fixed Charges ............ 2.86 6.47 3.77 1.65 (.22)
</TABLE>
<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 Company ............................................................................... Delaware
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
International Sea Drilling Ltd............................................................... Cayman Islands
Sea Mar, Inc................................................................................. Louisiana
</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, and Registration
Statement No. 333-49481 on Form S-3, of our report dated February 18, 1999,
appearing in this Annual Report on Form 10-K of Pool Energy Services Co. for the
year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Houston, Texas
March 15, 1999
<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, 1998, 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 22nd day of February, 1999.
/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, 1998, 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 22nd day of February, 1999.
/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, 1998, 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 23rd day of February, 1999.
/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, 1998, 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 22nd day of February, 1999.
/s/ John F. Lauletta
--------------------------------
John F. Lauletta
<PAGE> 5
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, 1998, 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 25th day of February, 1999.
/s/ Dennis R. Hendrix
--------------------------------
Dennis R. Hendrix
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 33,330
<SECURITIES> 0
<RECEIVABLES> 63,543
<ALLOWANCES> 742
<INVENTORY> 15,842
<CURRENT-ASSETS> 139,997
<PP&E> 547,996
<DEPRECIATION> 142,256
<TOTAL-ASSETS> 664,139
<CURRENT-LIABILITIES> 89,820
<BONDS> 172,847
0
0
<COMMON> 232,023
<OTHER-SE> 59,425
<TOTAL-LIABILITY-AND-EQUITY> 664,139
<SALES> 0
<TOTAL-REVENUES> 455,741
<CGS> 0
<TOTAL-COSTS> 316,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 14,672
<INCOME-PRETAX> 35,333
<INCOME-TAX> 13,525
<INCOME-CONTINUING> 21,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,808
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
</TABLE>
