<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18437
----------------------
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
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 outstanding of each of the issuer's classes of common
stock, as of March 31, 1999: Common Stock, no par value - 21,212,774 shares
===============================================================================
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1999 1998
-------- ---------
<S> <C> <C>
Revenues ..................................................... $ 81,027 $ 117,712
Earnings (Loss) Attributable to Unconsolidated Affiliates .... 3,668 (71)
-------- ---------
Total ............................................... 84,695 117,641
-------- ---------
Costs and Expenses:
Operating expenses ...................................... 56,125 83,363
Selling, general and administrative expenses ............ 14,135 13,175
Depreciation and amortization ........................... 11,326 7,510
-------- ---------
Total ............................................... 81,586 104,048
-------- ---------
Other Income (Expense) - Net ................................. 709 403
Interest Expense ............................................. 4,210 1,763
-------- ---------
Income (Loss) Before Income Taxes ............................ (392) 12,233
Income Tax Provision (Credit) ................................ (927) 4,780
-------- ---------
Net Income ................................................... $ 535 $ 7,453
======== =========
Earnings Per Share of Common Stock ........................... $ .03 $ .38
======== =========
Earnings Per Share of Common Stock-assuming dilution ......... $ .03 $ .38
======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 3
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1999 1998
-------- ---------
<S> <C> <C>
Operating Activities:
Net income .............................................................. $ 535 $ 7,453
Noncash items included above:
Depreciation and amortization ....................................... 11,326 7,510
Amortization of deferred drydocking costs ........................... 803 --
Amortization of deferred rig mobilization ........................... (3,629) (757)
Amortization of deferred gain on sale and leaseback ................. (685) --
Settlement of employee benefit liability in company common stock .... 669 --
Deferred income taxes (credit) ...................................... (1,306) 2,299
Undistributed (earnings) loss of unconsolidated affiliates .......... (2,499) 147
Other - net ......................................................... 180 158
Payment for lease of manufacturing facility ............................. (2,179) (537)
Proceeds from rig mobilization .......................................... -- 8,611
Other - net ............................................................. (198) (200)
Provision for (payment of) prior years personal injury and property
damage claims - net ................................................. 653 (882)
Net effect of changes in operating working capital ...................... (4,649) (6,720)
-------- ---------
Net Cash Flows Provided by (Used for) Operating Activities ..... (979) 17,082
-------- ---------
Investing Activities:
Property additions ...................................................... (17,817) (25,918)
Expenditures for acquisition, including acquisition costs, less cash
acquired ............................................................ (2,881) (50,374)
Expenditures for drydocking costs ....................................... (365) --
Proceeds from disposition of property, plant and equipment .............. 711 438
Other - net ............................................................. 114 36
-------- ---------
Net Cash Flows Used for Investing Activities ................... (20,238) (75,818)
-------- ---------
Financing Activities:
Proceeds from long-term debt ............................................ 25,000 170,000
Principal payments on long-term debt .................................... (10,000) (80,800)
Repayment of debt assumed in acquisition ................................ -- (15,672)
Payment of debt financing costs ......................................... -- (4,691)
Proceeds from exercise of stock options ................................. 3 257
-------- ---------
Net Cash Flows Provided by Financing Activities ................ 15,003 69,094
-------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ......................... (6,214) 10,358
Cash and Cash Equivalents at January 1, ...................................... 33,330 18,993
-------- ---------
Cash and Cash Equivalents at March 31, ....................................... $ 27,116 $ 29,351
======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................... $ 27,116 $ 33,330
Restricted cash ............................................................. 1,500 1,500
Accounts and notes receivable (net of allowance for doubtful accounts of
$748 and $742) ............................................................ 69,984 70,850
Inventories ................................................................. 15,704 15,842
Deferred income tax asset ................................................... 8,602 8,579
Other current assets ........................................................ 11,073 9,896
--------- ---------
Total current assets ...................................................... 133,979 139,997
Property, Plant and Equipment - Net ............................................ 410,021 405,740
Vessel Construction Deposits ................................................... 16,448 18,275
Investment in and Noncurrent Receivables from Unconsolidated Affiliates ........ 30,526 28,027
Goodwill, net .................................................................. 60,309 60,124
Deferred Costs ................................................................. 8,969 9,674
Noncurrent Receivables (net of allowance for doubtful accounts of $1,085
and $1,027) and Other Assets ................................................ 1,955 2,302
--------- ---------
Total ..................................................................... $ 662,207 $ 664,139
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ........................................... $ 625 $ 625
Accounts payable ............................................................ 18,224 25,263
Other current liabilities ................................................... 59,819 63,932
--------- ---------
Total current liabilities ................................................. 78,668 89,820
Long-Term Debt ................................................................. 187,847 172,847
Deferred Income Taxes .......................................................... 60,460 61,320
Other Liabilities .............................................................. 41,171 48,704
Shareholders' Equity:
Common stock, no par value:
40,000,000 shares authorized; 21,212,774 and 21,043,898 shares
issued and outstanding .................................................. 234,015 232,023
Retained earnings ........................................................... 60,572 60,037
Unearned compensation - restricted stock .................................... (204) (290)
Cumulative foreign currency translation adjustments ......................... (322) (322)
--------- ---------
Total shareholders' equity ................................................ 294,061 291,448
--------- ---------
Total ..................................................................... $ 662,207 $ 664,139
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included in this report
are unaudited but in the opinion of management include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods indicated. All dollar
amounts in the tabulations in the notes to the financial statements are stated
in thousands unless otherwise indicated. Certain reclassifications have been
made in the 1998 financial statements to conform with the 1999 presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted.
2. MERGER AGREEMENT
On January 10, 1999, the Company entered into a definitive agreement and
plan of merger (the "Merger Agreement") among 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 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 "HSR Act"). Pool and Nabors are currently
responding to a second request for information from the Department of Justice in
connection with their respective filings under the HSR Act. Subject to meeting
the foregoing conditions, the Merger is expected to close during the third
quarter of 1999.
5
<PAGE> 6
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
3. EARNINGS PER SHARE
The reconciliation of the numerator and denominator used for the
computation of basic and diluted earnings per share ("EPS") is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
-----------------------
1999 1998
------- -------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income for basic and diluted earnings per share ............. $ 535 $ 7,453
======= =======
Weighted-average shares for basic earnings per share ............ 21,155 19,484
======= =======
Effect of dilutive securities:
Employee stock options ........................................ 144 285
------- -------
Adjusted weighted-average shares and assumed conversions for
diluted earnings per share .................................... 21,299 19,769
======= =======
Basic earnings per share ........................................ $ .03 $ .38
======= =======
Diluted earnings per share ...................................... $ .03 $ .38
======= =======
</TABLE>
The 1999 EPS calculation excludes options to purchase approximately
296,000 shares of common stock at exercise prices ranging from $13.50 per share
to $35.50 per share (weighted average exercise price of $18.78 per share) that
were outstanding during the first quarter of 1999 because the inclusion of such
options would have been antidilutive.
The 1998 EPS calculation excludes options to purchase approximately 2,000
shares of common stock at an exercise price of $35.50 per share and
approximately 52,000 shares of common stock at an exercise price of $31.8125
per share that were outstanding during the first quarter of 1998 because the
inclusion of such options would have been antidilutive.
6
<PAGE> 7
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
4. UNCONSOLIDATED AFFILIATES
The following table sets forth certain summarized financial information of
the Company's unconsolidated affiliates as derived from the unaudited condensed
financial statements of the affiliates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Pool Arabia, Ltd. ................... $ 11,590 $ 11,457
Pool International Argentina S.A .... 2,858 3,179
Intairdril Oman L.L.C ............... -- 10
-------- --------
Total ......................... $ 14,448 $ 14,646
======== ========
Gross Profit (Loss) (a):
Pool Arabia, Ltd. ................... $ 3,821 $ 3,890
Pool International Argentina S.A .... 238 (1,336)
Intairdril Oman L.L.C ............... (4) 4
-------- --------
Total ......................... $ 4,055 $ 2,558
======== ========
Net Income (Loss):
Pool Arabia, Ltd. ................... $ 359 $ 373
Pool International Argentina S.A .... (666) (1,570)
Intairdril Oman L.L.C ............... (8) (9)
-------- --------
Total ......................... $ (315) $ (1,206)
======== ========
</TABLE>
(a) Gross profit is computed as revenues less operating expenses (which
excludes depreciation and amortization and selling, general and
administrative expenses).
Earnings (loss) attributable to unconsolidated affiliates is summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------- -------
<S> <C> <C>
The Company's portion of net loss .................................... $ (161) $ (615)
Adjustment to reconcile differences between affiliates' bases and
Company's carrying value ........................................ 2,660 468
------- -------
Equity in income (loss) .............................................. 2,499 (147)
Lease income (expense) - net ......................................... 1,144 46
Other income (expense) - net ......................................... 25 30
------- -------
Total ........................................................... $ 3,668 $ (71)
======= =======
</TABLE>
7
<PAGE> 8
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. OPERATING SEGMENTS
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,
divided into two separate geographic divisions - the Central division
(principally Texas and Oklahoma) and the California division; Gulf of Mexico
offshore; Offshore support vessels; International and Alaska. The following
table presents certain financial information of the Company for the three
months ended March 31, 1999 and 1998 by operating segment.
<TABLE>
<CAPTION>
DOMESTIC ONSHORE GULF OFFSHORE
---------------------- OF MEXICO SUPPORT
CENTRAL CALIFORNIA OFFSHORE VESSELS(a) INTERNATIONAL ALASKA CORPORATE TOTAL
--------- ---------- -------- ---------- ------------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
- -----------------------
Revenues ............. $ 23,413 $20,409 $ 6,702 $ 5,545 $ 12,095 $12,863 $ -- $ 81,027
Net income (loss) .... (2,650) 527 (2,213) (1,282) 6,681 4,904 (5,432) 535
Total assets ......... 97,215 45,153 78,023 160,025 140,888 74,556 66,347 662,207
1998
- -----------------------
Revenues ............. $ 51,077 $23,181 $ 18,259 $ -- $ 14,276 $10,919 $ -- $117,712
Net income (loss) .... 2,729 905 1,933 -- 2,471 2,010 (2,595) 7,453
Total assets ......... 133,287 52,434 86,791 176,816 141,147 51,508 33,614 675,597
</TABLE>
- -----------
(a) 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 operations primarily in the Gulf of Mexico.
6. ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
("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.
7. CONSOLIDATING FINANCIAL STATEMENTS
On March 31, 1998, the Company issued 8 5/8% Senior Subordinated Notes Due
2008 (the "Notes") in the aggregate principal amount of $150 million which 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 other subsidiaries of the Company are
not guarantors of the Notes (the "Non-Guarantor Subsidiaries"). The following
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.
8
<PAGE> 9
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ -- $ 69,263 $ 11,764 $ -- $ 81,027
Earnings Attributable to Unconsolidated
Affiliates .............................. -- 2,524 1,144 -- 3,668
------------ ------------ ------------ ------------ ------------
Total ............................. -- 71,787 12,908 -- 84,695
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Operating expenses ...................... -- 51,449 4,676 -- 56,125
Selling, general and administrative
expenses .............................. 763 12,575 797 -- 14,135
Depreciation and amortization ........... -- 9,259 2,074 (7) 11,326
------------ ------------ ------------ ------------ ------------
Total ............................. 763 73,283 7,547 (7) 81,586
------------ ------------ ------------ ------------ ------------
Other Income (Expense) - Net ............... -- 536 173 -- 709
Interest Expense ........................... 3,355 627 228 -- 4,210
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes and
Equity in Earnings of Consolidated
Subsidiaries ............................ (4,118) (1,587) 5,306 7 (392)
Income Tax Provision (Credit) .............. (1,441) (49) 560 3 (927)
Equity in Earnings of Consolidated
Subsidiaries ............................ 3,212 4,746 -- (7,958) --
------------ ------------ ------------ ------------ ------------
Net Income ................................. $ 535 $ 3,208 $ 4,746 $ (7,954) $ 535
============ ============ ============ ============ ============
</TABLE>
9
<PAGE> 10
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used for)
Operating Activities ..................... $ (2,544) $ (3,508) $ 5,078 $ (5) $ (979)
------------ ------------ ------------ ------------ ------------
Investing Activities:
Property additions .......................... -- (17,307) (510) -- (17,817)
Expenditures for acquisition, including
acquisition costs, less cash acquired .... -- (2,881) -- -- (2,881)
Expenditures for drydocking costs ........... -- (365) -- -- (365)
Proceeds from disposition of property,
plant and equipment ...................... -- 701 10 -- 711
Other - net ................................. (15) 123 6 -- 114
------------ ------------ ------------ ------------ ------------
Net Cash Flows Used for Investing
Activities ............................... (15) (19,729) (494) -- (20,238)
------------ ------------ ------------ ------------ ------------
Financing Activities:
Proceeds from long-term debt ................ -- 25,000 -- -- 25,000
Principal payments on long-term debt ........ -- (10,000) -- -- (10,000)
Proceeds from exercise of stock options ..... 3 -- -- -- 3
Payments from (advances to) consolidated
subsidiaries, net ........................ 2,502 2,556 (5,063) 5 --
------------ ------------ ------------ ------------ ------------
Net Cash Flows Provided by (Used for)
Financing Activities ..................... 2,505 17,556 (5,063) 5 15,003
------------ ------------ ------------ ------------ ------------
Net Decrease in Cash and Cash
Equivalents .............................. (54) (5,681) (479) -- (6,214)
Cash and Cash Equivalents at January 1, ..... 70 31,774 1,486 -- 33,330
------------ ------------ ------------ ------------ ------------
Cash and Cash Equivalents at March 31, ...... $ 16 $ 26,093 $ 1,007 $ -- $ 27,116
============ ============ ============ ============= ============
</TABLE>
10
<PAGE> 11
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................... $ 16 $ 26,093 $ 1,007 $ -- $ 27,116
Restricted cash ............................. -- 1,500 -- -- 1,500
Accounts and notes receivable ............... -- 61,854 8,130 -- 69,984
Inventories ................................. -- 4,356 11,348 -- 15,704
Deferred income tax asset ................... 201 6,979 1,311 111 8,602
Other current assets ........................ 12,046 (1,855) 882 -- 11,073
------------ ------------ ------------ ------------ ------------
Total current assets .................. 12,263 98,927 22,678 111 133,979
Property, Plant and Equipment - Net ............ -- 335,042 75,300 (321) 410,021
Investment in Consolidated Subsidiaries ........ 86,278 49,105 -- (135,383) --
Investment in and Noncurrent Receivables
from Unconsolidated Affiliates .............. -- 30,526 -- -- 30,526
Goodwill, net .................................. -- 60,309 -- -- 60,309
Vessel Construction Deposits ................... -- 16,448 -- -- 16,448
Deferred Costs ................................. 3,875 5,094 -- -- 8,969
Noncurrent Receivables and Other Assets ........ -- 1,939 16 -- 1,955
------------ ------------ ------------ ------------ ------------
Total ................................. $ 102,416 $ 597,390 $ 97,994 $ (135,593) $ 662,207
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ........... $ -- $ 625 $ -- $ -- $ 625
Accounts payable ............................ -- 17,560 664 -- 18,224
Payable (receivable) to (from)
consolidated subsidiaries ................. (235,994) 213,538 22,687 (231) --
Other current liabilities ................... 7,063 40,301 12,459 (4) 59,819
------------ ------------ ------------ ------------ ------------
Total current liabilities ............. (228,931) 272,024 35,810 (235) 78,668
Long-Term Debt ................................. 150,000 37,847 -- -- 187,847
Long-Term Payable (Receivable) to (from)
Consolidated Subsidiaries ................... (111,595) 106,195 5,400 -- --
Deferred Income Taxes .......................... (1,441) 55,849 6,049 3 60,460
Other Liabilities .............................. -- 39,542 1,629 -- 41,171
Shareholders' Equity:
Common stock ................................ 234,015 1 500 (501) 234,015
Paid-in capital ............................. -- 12,399 18,619 (31,018) --
Retained earnings ........................... 60,572 73,855 29,987 (103,842) 60,572
Unearned compensation - restricted stock .... (204) -- -- -- (204)
Cumulative foreign currency translation
adjustments ............................... -- (322) -- -- (322)
------------ ------------ ------------ ------------ ------------
Total shareholders' equity ............ 294,383 85,933 49,106 (135,361) 294,061
------------ ------------ ------------ ------------ ------------
Total ................................. $ 102,416 $ 597,390 $ 97,994 $ (135,593) $ 662,207
============ ============ ============ ============ ============
</TABLE>
11
<PAGE> 12
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ -- $ 103,637 $ 14,075 $ -- $ 117,712
Earnings (Loss) Attributable to
Unconsolidated Affiliates .............. -- (106) 35 -- (71)
------------ ------------ ------------ ------------ ------------
Total ............................ -- 103,531 14,110 -- 117,641
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Operating expenses ..................... -- 75,419 7,944 -- 83,363
Selling, general and administrative
expenses ............................. 147 12,043 985 -- 13,175
Depreciation and amortization .......... -- 6,193 1,324 (7) 7,510
------------ ------------ ------------ ------------ ------------
Total ............................ 147 93,655 10,253 (7) 104,048
------------ ------------ ------------ ------------ ------------
Other Income (Expense) - Net .............. -- 316 87 -- 403
Interest Expense .......................... -- 1,355 408 -- 1,763
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes and
Equity in Earnings of Consolidated
Subsidiaries ........................... (147) 8,837 3,536 7 12,233
Income Tax Provision (Credit) ............. (52) 3,741 1,088 3 4,780
Equity in Earnings of Consolidated
Subsidiaries ........................... 7,548 2,448 -- (9,996) --
------------ ------------ ------------ ------------ ------------
Net Income ................................ $ 7,453 $ 7,544 $ 2,448 $ (9,992) $ 7,453
============ ============ ============ ============ ============
</TABLE>
12
<PAGE> 13
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by Operating
Activities ............................... $ 10 $ 9,028 $ 8,045 $ (1) $ 17,082
------------ ------------ ------------ ------------ ------------
Investing Activities:
Property additions .......................... -- (18,898) (7,467) 447 (25,918)
Expenditures for acquisition, including
acquisition costs, less cash acquired .... -- (50,374) -- -- (50,374)
Proceeds from disposition of property,
plant and equipment ...................... -- 791 94 (447) 438
Other - net ................................. 1 30 4 1 36
------------ ------------ ------------ ------------ ------------
Net Cash Flows Provided by (Used for)
Investing Activities ..................... 1 (68,451) (7,369) 1 (75,818)
------------ ------------ ------------ ------------ ------------
Financing Activities:
Proceeds from long-term debt ................ 150,000 20,000 -- -- 170,000
Principal payments on long-term debt ........ -- (80,800) -- -- (80,800)
Repayment of debt assumed in acquisition .... -- (15,672) -- -- (15,672)
Proceeds from exercise of stock options ..... 257 -- -- -- 257
Payment of debt financing costs ............. (4,186) (505) -- -- (4,691)
Payments from (advances to) consolidated
subsidiaries, net ........................ (146,029) 147,835 (1,806) -- --
------------ ------------ ------------ ------------ ------------
Net Cash Flows Provided by (Used for)
Financing Activities ..................... 42 70,858 (1,806) -- 69,094
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents .............................. 53 11,435 (1,130) -- 10,358
Cash and Cash Equivalents at January 1, ..... 210 16,395 2,388 -- 18,993
------------ ------------ ------------ ------------ ------------
Cash and Cash Equivalents at March 31, ...... $ 263 $ 27,830 $ 1,258 $ -- $ 29,351
============ ============ ============ ============ ============
</TABLE>
13
<PAGE> 14
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 ................. -- 59,239 11,611 -- 70,850
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
Accounts payable .............................. -- 22,782 2,481 -- 25,263
Payable (receivable) to (from)
consolidated subsidiaries ................... (236,391) 210,662 25,961 (232) --
Other current liabilities ..................... (4,384) 51,758 16,544 14 63,932
------------ ------------ ------------ ------------ ------------
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>
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MERGER AGREEMENT
The Merger Agreement entered into on January 10, 1999 among 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 it 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 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 HSR Act. Pool and Nabors
are currently responding to a second request for information from the Department
of Justice in connection with their respective filings under the HSR Act.
Subject to meeting the foregoing conditions, the Merger is expected to close
during the third quarter of 1999.
SEA MAR ACQUISITION
The Company's acquisition on March 31, 1998 of 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, involved
purchase consideration at closing of approximately $76.0 million in cash and
1,538,462 shares of the Company's common stock. During the first quarter of
1999, the Company paid additional cash consideration of approximately $2.9
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.
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 the second quarter
of 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.
RESULTS OF OPERATIONS - QUARTERS ENDED MARCH 31, 1999 AND 1998
The Company generated net income of $0.5 million in the first quarter of
1999, compared with $7.5 million in the first quarter of 1998. The average
price of crude oil was approximately 18% lower in the first quarter of 1999
than in the first quarter of 1998, and average domestic natural gas prices also
decreased approximately 18% comparing the same periods. Results from the
Company's domestic operations declined primarily due to reduced activity for
the Company's domestic land well-servicing rigs and offshore 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 revenue
related to the early termination by a customer of a contract for the Company's
Rig 8, in Alaska. Rig hours for the Company's domestic onshore operation were
41% lower in the first quarter of 1999 than in the corresponding quarter of
1998. The Company's offshore rig fleet in the Gulf of Mexico experienced
utilization of 28% in the first quarter of 1999, compared to 59% in the
comparable period of 1998, and average rates for these rigs were 26% lower in
the 1999 period. Results from the Company's international operations improved
primarily due to higher earnings attributable to Pool Arabia, Ltd., the
Company's unconsolidated affiliate in Saudi Arabia.
Revenues. Revenues were $81.0 million in the first quarter of 1999, a 31%
decrease from revenues of $117.7 million in the first quarter of 1998. This
decrease was attributable to lower overall utilization of the Company's land
well-servicing rigs located in Texas, New Mexico and California, reduced
offshore rig activity in the Gulf of
15
<PAGE> 16
Mexico and lower land drilling activity in Ecuador due to reduced activity in
response to lower crude oil prices. These revenue decreases were offset partly
by the inclusion of revenues from offshore support vessels acquired in the
March 1998 acquisition of Sea Mar and revenue related to early termination of
the Rig 8 contract.
Domestic onshore well-servicing and production services revenues decreased
$30.4 million or 41% in the first quarter of 1999 from the corresponding
quarter of 1998, chiefly as a result of overall reduced activity levels in
response to lower crude oil and natural gas prices. Domestic onshore rig
utilization was 34% in the first quarter of 1999, compared to 54% in the first
quarter of 1998. Domestic onshore well-servicing rig hours decreased from
approximately 330,000 in the first quarter of 1998 to approximately 195,000 in
the first quarter of 1999. Gulf of Mexico offshore workover and drilling
revenues decreased $11.6 million or 63%, international operations revenues
decreased $2.2 million or 15%, and Alaska operations revenues increased $1.9
million or 18%, compared to the first quarter of 1998. Revenues from Sea Mar's
fleet of offshore support vessels were $5.5 million in the first quarter of
1999.
Earnings Attributable to Unconsolidated Affiliates. Earnings attributable
to unconsolidated affiliates were $3.7 million in the first quarter of 1999,
compared to a loss of $0.1 million in the first quarter of 1998. Earnings
attributable to Pool Arabia, Ltd. increased $3.3 million from the first quarter
of 1998 to $4.1 million in the first quarter of 1999, primarily due to income
earned from Pool Arabia's operation of two rigs leased from the Company and the
reversal of $2.2 million of excess deferred foreign income tax reserves related
to the 1996 tax year, which has now been audited by the applicable foreign tax
authorities.
Costs and Expenses. The Company's costs and expenses were $81.6 million in
the first quarter of 1999, a 22% decrease compared to costs and expenses of
$104.0 million in the corresponding quarter of 1998. As a percentage of
revenues, operating expenses declined to 69% of revenues in the first quarter
of 1999 from 71% of revenues in the first quarter of 1998; the improvement in
operating margins was primarily attributable to the inclusion of the revenue
from early termination of the Rig 8 contract. 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 offshore rigs in the Gulf of Mexico as a
result of reduced activity levels. The decrease was partly offset by increases
in other costs and expenses primarily resulting from the inclusion of costs and
expenses related to operating the Sea Mar vessels.
Interest Expense. Interest expense was $2.4 million higher in the first
quarter of 1999 than in the corresponding quarter of 1998, primarily as a
result of interest expense related to the $150 million Notes issued in March
1998.
Income Taxes. The Company recorded an income tax credit of $0.9 million on
a loss before income taxes of $0.4 million in the first quarter of 1999,
compared to income tax expense of $4.8 million on income before income taxes of
$12.2 million in the first quarter of 1998. The decrease in income tax expense
in the first quarter of 1999, compared to the first quarter of 1998, was
primarily due to a decrease in pre-tax income in the first quarter of 1999, as
a result of the factors described above, and a $0.7 million reversal of
overaccrued deferred foreign income tax liabilities. The Company's interim
period tax expense is determined by utilizing the aggregate of estimated annual
effective tax rates for each of the Company's domestic and foreign locations.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows. The Company had cash and cash equivalents of $27.1 million at
March 31, 1999 compared to $33.3 million at December 31, 1998. Working capital
was $55.3 million and $50.2 million at March 31, 1999 and December 31, 1998,
respectively. The Company used a net $20.2 million for investing activities in
the first quarter of 1999, primarily for capital expenditures of $17.8 million,
including approximately $7.9 million for the balance of the purchase price for
an offshore support vessel and $2.9 million of additional cash consideration
paid as a result of Sea Mar's financial performance for the fiscal year ended
December 31, 1998. The Company used a net $75.8 million for investing
activities in the first quarter of 1998, primarily for capital expenditures of
$25.9 million and $50.4 million, net of cash acquired, for the purchase of Sea
Mar.
16
<PAGE> 17
$150 Million Senior Subordinated Notes. On March 31, 1998, the Company
issued 8 5/8% Notes in the aggregate principal amount of $150 million 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 Company's three-year $180 million syndicated bank
credit agreement (the "Credit Agreement").
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
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.
$180 Million Credit Agreement. In March 1998, simultaneously with the
issuance of the Notes and the acquisition of Sea Mar, the Company executed an
amendment to its three-year $130 million Credit Agreement to provide for
maximum borrowings of up to $180 million, including up to $15 million that may
be used to support letters of credit. At March 31, 1999, the Company had drawn
$25.0 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 1995 acquisition of Golden Pacific Corp.
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 March 31, 1999, the
applicable Eurodollar margin would be 1.00% for borrowings during the second
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. It also imposes certain other restrictions, including ones related 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. During the
first quarter of 1999, the Company drew $25.0 million in cash and made payments
of $10.0 million to reduce borrowings under the Credit Agreement. During the
first quarter of 1998, the Company made payments of $80.8 million to reduce
borrowings under the Credit Agreement and repaid Sea Mar's existing debt of
$15.7 million.
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.
Capital Expenditures. The Company anticipates that 1999 capital
expenditures will consist of (i) approximately $12 million primarily for
maintenance of its existing rig and offshore support vessel fleet, (ii)
approximately $4 million to complete construction of a new Arctic drilling rig,
Rig 9, in Alaska and (iii) approximately $32 million for payment of the balance
of the purchase price of four newly constructed offshore support vessels for the
Sea Mar operation. The Company anticipates that these expenditures will be
financed by internally generated funds, borrowings under the Credit Agreement
and other financing arrangements as needed. Except for the foregoing, capital
spending generally has been suspended by the Company pending consummation of the
Merger.
17
<PAGE> 18
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.
Crude oil prices 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, while the average price was $13.07 per barrel in the first quarter of
1999. Likewise, the average price for domestic natural gas declined from $1.99
per MMbtu in January 1998 to $1.66 per MMbtu in December 1998, while the
average price was $1.68 per MMbtu in the first quarter of 1999. As a result of
the depressed state of the industry, the Company experienced a decline in the
overall demand and rates for its services. These market conditions negatively
affected activity levels and financial results, particularly since mid-1998,
and are expected to continue to do so until commodity prices are at higher
levels for a period of time. In order to minimize the effects of such low oil
prices, the Company has made significant reductions to the cost structure
within each of its operating units. Encouragingly, oil prices have recently
increased due largely to pledged production cutbacks by the Organization of
Petroleum Exporting Countries. Although not expected to significantly increase
overall industry activity right away, this development, if sustained, should
cause a recovery in the energy service industry. Accordingly, while the
near-term market conditions remain depressed, the Company is optimistic about
the long-term outlook and believes that market conditions in the industry will
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.
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 85% 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
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 May 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 March 31, 1999, 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 any possible 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 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.
18
<PAGE> 19
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 disruptions, increased costs, loss of business and other similar
risks.
Forward-Looking Information. The statements included in this report on
Form 10-Q 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 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 related 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 quarterly 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.
ITEM 3. 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
There have been no material changes in the Company's market risk during
the three months ended March 31, 1999. The Company currently has 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.
<TABLE>
<CAPTION>
FAIR VALUE
03/31/99
-------------
(IN MILLIONS)
LONG-TERM DEBT
<S> <C>
8 5/8% Senior Subordinate Notes Due 2008, Series B
Fixed interest rate - 8 5/8% ........................... $ 152.3
9% Notes (DA&S)
Fixed interest rate - 9% ............................... $ 10.5
10% Notes (GPC)
Fixed interest rate - 10% .............................. $ 4.2
Revolving Credit Agreement Loans
Variable interest rate - 5.94% at March 31, 1999 ....... $ 25.0
</TABLE>
19
<PAGE> 20
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.
20
<PAGE> 21
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 6, 1999, the Company held its Annual Meeting of Shareholders. At
such meeting the following matters were voted upon:
(i) The following persons were elected to serve as directors of the
Company, each for a term of three years or until a successor is elected and
qualified:
<TABLE>
<CAPTION>
VOTES VOTES
FOR WITHHELD
---------- --------
<S> <C> <C>
Dennis R. Hendrix 16,975,839 83,216
John F. Lauletta 16,970,229 88,826
</TABLE>
(ii) A proposal to ratify the appointment of Deloitte and Touche LLP as
independent auditors of the Company for the year 1999 was approved. Such
proposal received 17,022,977 affirmative votes, 11,265 negative votes, and
there were 24,813 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.1(*) - Pool Energy Services Co. 1999 Senior Executive Bonus Plan
10.2(*) - December 1998 Amendment, Waiver and Consent dated as of
December 29, 1998 to the Company's $180,000,000 Credit
Agreement.
27(*) - Financial Data Schedule
</TABLE>
(*) Filed herewith
(b) Reports on Form 8-K - 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.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POOL ENERGY SERVICES CO.
(Registrant)
MAY 13, 1999 /s/ E. J. SPILLARD
---------------------------- ----------------------------
(Date) E. J. Spillard
Senior Vice President, Finance
(principal financial officer)
MAY 13, 1999 /s/ B. G. GORDON
---------------------------- ----------------------------
(Date) B. G. Gordon
Controller
(principal accounting officer)
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
10.1(*) - Pool Energy Services Co. 1999 Senior Executive Bonus Plan
10.2(*) - December 1998 Amendment, Waiver and Consent dated as of
December 29, 1998 to the Company's $180,000,000 Credit
Agreement.
27(*) - Financial Data Schedule
</TABLE>
(*) Filed herewith
<PAGE> 1
EXHIBIT 10.1
POOL ENERGY SERVICES CO. 1999 SENIOR EXECUTIVE BONUS PLAN
1. Plan Period
The Plan shall be effective for the calendar year 1999 (the "Plan Period")
subject to early termination in accordance with Paragraph 8 hereof.
2. Purpose
The purposes of the Plan are to provide additional motivation to
management:
a. to cause the financial performance of Pool Energy Services Co. (the
"Company") to be equal to or better than budget;
b. to cause the Stock Performance of the Company to exceed that of
comparable companies; and
c. to cause the achievement of safety goals.
3. Eligibility and Participation
Subject to the provisions of Paragraphs 7 and 8 hereof, the period of an
individual's participation in the Plan shall be concurrent with the period
of his full-time employment in a position which is designated herein or has
been designated by the Compensation Committee of the Board of Directors of
the Company (the "Compensation Committee") as a Participating Position.
Full-time employee incumbents of Participating Positions shall be Plan
participants ("Participants"). Participating Positions shall include the
Company's President ("CEO"); Senior Vice President, Finance ("CFO"); Group
Vice Presidents and Senior Vice Presidents in charge of a Group ("GVP");
Vice President and General Counsel ("VPGC"); Vice President, Human
Resources ("VPHR"); and the Operations Vice Presidents ("OVP") reporting
directly to Senior or Group Vice Presidents.
4. Administration
The Plan shall be administered by the Compensation Committee, which may
amend or, subject to the provisions of Paragraph 8 hereof, terminate the
Plan at any time. The Compensation Committee shall interpret Plan
provisions, and such interpretations shall be conclusive. The Compensation
Committee may increase or decrease the amount of a bonus award payable to
any Participant when in the judgment of the Compensation Committee the
bonus award otherwise payable would be excessive or inadequate in view of
the Participant's contribution to achieving the purpose of the Plan.
<PAGE> 2
Senior Executive
Page 2
5. Calculation of Benefits
a. For purposes of the calculation of bonus awards hereunder the following
definitions shall apply:
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
AEBITD* Actual earnings before interest expense,
income tax provision (credit), depreciation,
amortization, and minority interest of the
Company for the Plan Period.
ANI* Actual Net Income of the Company for the Plan
Period.
ANI (Group)* Actual Net Income of a Group for the Plan
Period.
ANI (Operation)* Actual Net Income of an Operation for the Plan
Period.
BEBITD Budgeted earnings before interest expense,
income tax provision (credit), depreciation,
amortization, and minority interest of the
Company for the Plan Period as reflected in
the Company's approved budget for the Plan
Period.
BNI Budgeted Net Income of the Company for the
Plan Period, as reflected in the Company's
approved budget for the Plan Period.
BNI (Group) Budgeted Net Income for a Group for the Plan
Period, as reflected in the Company's
approved budget for that Group for the Plan
Period.
BNI (Operation) Budgeted Net Income for an Operation for the
Plan Period, as reflected in the Company's
approved budget for that Operation for the
Plan Period.
</TABLE>
- ------------------------
* AEBITD, ANI, ANI (Group) and ANI (Operation) shall include an
accrued amount for bonus awards to be paid under the Plan.
<PAGE> 3
Senior Executive
Page 3
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Base Salary The base salary of a Participant, as
specified in the personnel and payroll
records of the employing subsidiary of the
Company on the date the employee becomes a
Participant.
For employees who are promoted, or otherwise
transferred, from one Participating Position
to another after the beginning of the Plan
Period, Base Salary for each period of
service in a Participating Position shall be
the base salary for the Participant as
specified in the personnel and payroll
records of the employing subsidiary of the
Company on the date the employee assumed each
such position or at the beginning of the Plan
Period, whichever is later.
Dividends The total of dividends per share of common
stock paid during the Plan Period.
Group Any one of the following: Eastern U.S.
Operations, Western U. S. Operations, or
International Operations.
The ANI (Group), BNI (Group), SP, and SG
applicable to a GVP shall be that of the
Group for which the individual has functional
responsibility.
Operation Any one of the following: Gulf Offshore
Operation, Alaska Operation, or Middle East
and Asia/Pacific Operation.
The ANI (Operation), BNI (Operation), SP and
SG applicable to an OVP shall be that of the
Operation for which the OVP has functional
responsibility.
</TABLE>
<PAGE> 4
Senior Executive
Page 4
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Peer Group Baker Hughes Incorporated; BJ Services
Company; Daniel Industries, Inc.; Global
Marine Inc.; Halliburton Company; Helmerich &
Payne, Inc.; Key Energy Group, Inc.;
McDermott International, Inc.; Nabors
Industries, Inc.; Parker Drilling Company;
Petroleum Geo-Services A/S; Pride
International, Inc.; Rowan Companies, Inc.;
Schlumberger Ltd.; Smith International, Inc.;
Tidewater, Inc.; Transocean Offshore, Inc.;
Tuboscope, Inc.; Varco International, Inc.;
Weatherford Inc.; and the Company. If during
the Plan Period a Peer Group company ceases
to exist or changes to such an extent that,
in the opinion of the Compensation Committee,
it no longer qualifies as a Peer Group
company, then the Total Return to
Shareholders for such company shall be deemed
to be the average Total Return to
Shareholders of the other companies in the
Peer Group.
Safety Goals ("SG") (1) For domestic operations: The targeted
frequency in the Plan Period of OSHA
Recordable Incidents ("ORI") as defined by
the Occupational Safety and Health Act of
1970 for a Group or Operation approved by the
CEO.
(2) For international operations: The
targeted frequency in the Plan Period of
lost-time incidents ("LTI") for a Group or
Operation as approved by the CEO.
Safety Performance ("SP") (1) For domestic operations: The actual
frequency in the Plan Period of ORI reported
for a Group or Operation in the Pool Energy
Services Co. Management Report for the Plan
Period.
(2) For international operations: The actual
frequency in the Plan Period of LTI as
reported for a Group or Operation in the Pool
Energy Services Co. Management Report for the
Plan Period.
</TABLE>
<PAGE> 5
Senior Executive
Page 5
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Stock Appreciation The change over the Plan Period in the value
of a share of common stock measured as the
difference between (1) the average of the
closing prices of the stock on the twenty
trading days ended on the last trading day
preceding the Plan Period and (2) the average
of the closing prices of the stock on the
twenty trading days ending on the last
trading day in the Plan Period, all such
closing prices as reported on the principal
securities exchange on which such stock is
listed or admitted to trading, or if a stock
is not listed or admitted to trading on any
such exchange but is traded over-the-counter
and reported on the National Association of
Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") or any similar system then
in use, then as reported on that system.
Stock Performance The sum of Dividends and Stock Appreciation
divided by the value of a share of common
stock at the beginning of the Plan Period,
such value to be based on the average of the
closing prices of the stock on the twenty
trading days ended on the last trading day
preceding the Plan Period, with all such
closing prices as reported on the securities
exchange or over-the-counter systems
specified in the preceding paragraph.
</TABLE>
b. Subject to the limitations and restrictions specified in Paragraph 5.i.
below, each Participant will be awarded a bonus equal to his or her Base
Salary multiplied by the sum of the applicable percentages calculated
under:
(a) Paragraph 5.c.,
(b) Paragraph 5.d., 5.e. or 5.f. as applicable,
(c) Paragraph 5.g., and
(d) Paragraph 5.h. if applicable.
<PAGE> 6
Senior Executive
Page 6
c. Stock Performance
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
VPGC/
GVP/ VPHR/
CEO SVP OVP
--- --- ---
<S> <C> <C> <C>
(1) The Stock Performance of the Company exceeds the Stock
Performance of six or less of the
companies in the Peer Group. None None None
(2) The Stock Performance of the Company exceeds the Stock
Performance of 7, 8, 9, 10, 11, 12 or 13 of the
companies in the
Peer Group. [Target]. 15.0% 11.25% 8.75%
(3) The Stock Performance of the Company exceeds the Stock
Performance of 14 or more of the
Companies in the Peer Group. 30.0% 22.5% 17.5%
</TABLE>
In the event that a Peer Group company ceases to exist, is acquired by or
merged with another entity, or otherwise becomes inappropriate for
inclusion in the Peer Group during the Plan Period, such company shall be
removed from the Peer Group, and its Stock Performance shall be replaced by
the average Stock Performance of the companies remaining in the Peer Group.
d. BNI Achievement Applicable to Staff Participants
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
VPGC/
CEO CFO VPHR
--- --- ----
<S> <C> <C> <C>
(1) ANI is equal to 100% of 22.5% 16.875% 13.125%
BNI. [Target]
</TABLE>
<PAGE> 7
Senior Executive
Page 7
<TABLE>
<CAPTION>
(2) ANI is at least equal to 90% The percentage specified in 5.d.(1) above reduced by:
but less than 100% of BNI.
VPGC/
CEO CFO VPHR
--- --- ----
<S> <C> <C> <C>
56.25-(56.25xANI/BNI) 42.1875-(42.1875xANI/BNI) 32.8125-(32.8125xANI/BNI)
(3) ANI is more than 100% The percentage specified in 5.d.(1) above increased by:
of BNI.
VPGC/
CEO CFO VPHR
--- --- ----
ANI-BNI ANI-BNI ANI-BNI
------- x 112.5 ------- x 84.375 ------- x 65.625
BNI BNI BNI
</TABLE>
e. BNI Achievement Applicable to GVP
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
<S> <C>
(1) ANI is equal to 100% of BNI and 6.1875%
ANI (Group) is at least equal to
BNI (Group). [Target].
(2) ANI is at least 90% but less than The percentage specified in 5.e.(1) above
100% of BNI, and ANI (Group) reduced by:
is at least equal to BNI (Group).
15.46875-(15.46875xANI/BNI)
(3) ANI is more than 100% of BNI, The percentage specified in 5.e.(1) above
and ANI (Group) is at least increased by:
equal to BNI (Group).
ANI-BNI
------- x 30.9375
BNI
(4) ANI (Group) is equal to BNI 6.1875%
(Group). [Target].
</TABLE>
<PAGE> 8
Senior Executive
Page 8
<TABLE>
<S> <C>
BNI Achievement Applicable to GVP (continued)
(5) ANI (Group) is at least 90% The percentage specified in 5.e.(4) above
but less than 100% of BNI reduced by:
(Group).
15.46875-[15.46875xANI (Group)/ BNI
(Group)]
(6) ANI (Group) is more than 100% The percentage specified in 5.e.(4) above
of BNI (Group). increased by:
ANI (Group)-BNI (Group)
----------------------- x 30.9375
BNI (Group)
</TABLE>
f. BNI Achievement Applicable to OVP
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
<S> <C>
(1) ANI is equal to 100% of BNI, and 4.8125%
ANI (Operation) is at least equal to
BNI (Operation). [Target].
(2) ANI is at least 90% but less than The percentage specified in 5.f.(1) above
100% of BNI, and ANI (Operation) reduced by:
is at least equal to BNI (Operation).
12.03125-(12.03125xANI/BNI)
(3) ANI is more than 100% of BNI, The percentage specified in 5.f.(1) above
and ANI (Operation) is at least increased by:
equal to BNI (Operation).
ANI-BNI
------- x 24.0625
BNI
(4) ANI (Operation) is equal to BNI 4.8125%
(Operation). [Target].
(5) ANI (Operation) is at least 90% The percentage specified in 5.f.(4) above
but less than 100% of BNI reduced by:
(Operation).
12.03125-[12.03125xANI (Operation)/ BNI
(Operation)]
</TABLE>
<PAGE> 9
Senior Executive
Page 9
<TABLE>
<S> <C>
BNI Achievement Applicable to OVP (continued)
(6) ANI (Operation) is more than 100% The percentage specified in 5.f.(4) above
of BNI (Operation). increased by:
ANI (Operation)-BNI (Operation)
------------------------------- x 24.0625
BNI (Operation)
</TABLE>
g. BEBITD Achievement
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
VPGC/
CEO CFO GVP VPHR OVP
--- --- --- ---- ---
<S> <C> <C> <C> <C> <C>
(1) AEBITD is equal to 100%
of BEBITD. [Target]. 22.5% 16.875% 12.375% 13.125% 9.625%
(2) AEBITD is at least equal to 90% The percentage specified in 5.g.(1) above reduced by:
but less than 100% of BEBITD.
CEO
---------------------------------
56.25-(56.25xAEBITD/BEBITD)
CFO
---------------------------------
42.1875-(42.1875xAEBITD/BEBITD)
GVP
---------------------------------
30.9375-(30.9375xAEBITD/BEBITD)
VPGC/
VPHR
---------------------------------
32.8125-(32.8125xAEBITD/BEBITD)
OVP
---------------------------------
24.0625-(24.0625XAEBITD/BEBITD)
</TABLE>
<PAGE> 10
Senior Executive
Page 10
<TABLE>
<S> <C>
BEBITD Achievement (continued)
(3) AEBITD is more than 100% of The percentage specified in 5.g.(1) above increased by:
BEBITD.
CEO
---------------------------------
AEBITD-BEBITD
------------- x 112.5
BEBITD
CFO
---------------------------------
AEBITD-BEBITD
------------- x 84.375
BEBITD
GVP
---------------------------------
AEBITD-BEBITD
------------- x 61.875
BEBITD
VPGC/
VPHR
---------------------------------
AEBITD-BEBITD
------------- x 65.625
BEBITD
OVP
---------------------------------
AEBITD-BEBITD
------------- x 48.125
BEBITD
</TABLE>
h. Safety Achievement
<TABLE>
<CAPTION>
Condition Applicable Percentage
--------- ---------------------
<S> <C> <C>
(1) SP is equal to SG. [Target]. GVP OVP
---- ---
9.0% 7.0%
</TABLE>
<PAGE> 11
Senior Executive
Page 11
<TABLE>
<S> <C>
Safety Achievement (continued)
(2) SP is less than SG. The percentage specified in 5.h.(1) above increased
by:
GVP OVP
------------- -------------
36-(36xSP/SG) 28-(28xSP/SG)
(3) SP is greater than SG. None
</TABLE>
i. Restrictions and Limitations
The maximum bonus payable to any Participant shall be a percentage of
Base Salary which is 120% for the CEO, 90% for the CFO and GVP and
70% for the VPGC, VPHR, and OVP. In addition, the maximum bonus
payable for achieving and exceeding each of the targets in the Plan
is limited to twice the amount that would be payable for achieving
that target. Bonus amounts calculated in accordance with the
applicable provisions of Paragraphs 5.c., 5.d., 5.e., 5.f., 5.g., and
5.h., hereof will be reduced as necessary so as not to exceed the
limitations of this Paragraph 5.i.
6. Payment of Bonus Awards
A Participant's bonus award shall be paid in a single payment, less
applicable withholding taxes, no later than 75 days after the end of the
Plan Period, provided, however, that at the discretion of the
Compensation Committee, payment may be in cash or in a combination of
cash and shares of common stock of the Company. In the event of the
latter, not less than 50% of the bonus award due will be paid in cash
and the remainder (the "Remainder") will be paid in Restricted Stock or
Bonus Stock under the provisions of the Pool Energy Services Co. 1993
Employee Stock Incentive Plan (the "Stock Plan"). The number of shares
so awarded will be determined on the basis of the Fair Market Value, as
defined in the Stock Plan, on the final trading day of the Plan Period,
or such other date as the Compensation Committee shall determine, and
will be a number of shares, the aggregate Fair Market Value of which
equals 115% of the Remainder.
7. Termination of Employment
a. In the event of a Participant's becoming employed in, terminated
from, reassigned to or reassigned from a Participating Position during
the Plan Period, any bonus award shall be prorated for the portion of
the Plan Period he was employed in the Participating Position, and such
prorated amount shall be paid when due except that no bonus award
whatsoever shall be payable to Participants whose employment is
terminated during the Plan Period for reasons other than death, total
disability, retirement or redundancy. Bonus awards due to Participants
who die during the Plan Period shall be paid to the beneficiary
designated by the Participant for Company sponsored life insurance.
b. Notwithstanding anything in Paragraph 7.a. to the contrary, no bonus
award shall be paid pursuant to this Plan to a Participant whose
employment is terminated during the Plan Period if such Participant is
entitled to receive payments pursuant to a Change in Control Agreement
with the
<PAGE> 12
Senior Executive
Page 12
Company ("CIC Severance Payments") as a result of such termination of
employment, and the prorated bonus awards referred to in Paragraph 7.a.
shall apply only to Participants who do not become entitled to receive
CIC Severance Payments during the Plan Period.
8. Termination of Plan
The Plan may be terminated at any time. No termination of the Plan shall
affect the Company's obligation with respect to any bonus theretofore
accrued. In the event of Plan termination the Plan Period shall end on
the effective date of the termination of the Plan.
<PAGE> 1
EXHIBIT 10.2
DECEMBER 1998 AMENDMENT TO THE CREDIT AGREEMENT
AND WAIVER AND CONSENT
-----------------------------------------------
DECEMBER 1998 AMENDMENT TO THE CREDIT AGREEMENT AND WAIVER AND CONSENT
(this "Amendment"), dated as of December 29, 1998, among Pool Energy Services
Co. ("PESCO"), Pool Company (formerly Pool Energy Holding, Inc. and the
successor by merger to Pool Company (the "Borrower")), and various banks party
to the hereinafter defined Credit Agreement. All capitalized terms defined in
the Credit Agreement shall have the same meaning when used herein unless
otherwise defined herein.
W I T N E S S E T H:
WHEREAS, PESCO, Pool Energy Holdings, 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 (the "Documentation Agent"), entered into an Amended and
Restated Credit Agreement, dated as of March 26, 1998 (the "Credit Agreement");
and
WHEREAS, UBS AG, New York Branch, is the successor by merger to the
Documentation Agent; and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided; and
WHEREAS, the Banks party hereto are willing to grant the waivers of and
consents with respect to the Credit Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Amendments to the Credit Agreement. (a) Section 2.02 of the Credit
Agreement is hereby amended by deleting the amount "$15,000,000" and replacing
it with the amount "$25,000,000".
(b) Section 9.10 of the Credit Agreement is hereby amended by deleting
the ratio "0.45:1.00" and replacing it with the ratio "0.50:1.00".
(c) The definition of "Contingent Obligation" in Section 11.01 of the
Credit Agreement is hereby amended by deleting the word "and" immediately before
clause (L) therein, replacing it with a comma, and adding the following at the
end of the first sentence of such definition:
and (M) any guarantees by PESCO of any Short Term Overdraft Borrowings
<PAGE> 2
(d) The definition of "Funded Debt" in Section 11.01 of the Credit
Agreement is hereby amended by deleting the word "or" immediately before clause
(c) therein, replacing it with a comma, and adding the following at the end of
such definition:
or (d) any Short Term Overdraft Borrowings
(e) The definition of "1998 Indenture" in Section 11.01 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"1998 Indenture" shall mean the Indenture, dated as of March 31, 1998,
among PESCO, the guarantors named therein and Marine Midland Bank, as trustee,
with respect to PESCO's Series A and Series B 8-5/8% Senior Subordinated Notes
due 2008.
(f) Section 11.01 of the Credit Agreement is hereby amended by adding
the following defined terms thereto in proper alphabetical order:
"Ranger Rigs" shall mean the United States Coast Guard
documented vessels Pool Ranger V, official no. 642308, and Pool Ranger
VI, official no. 640547.
"Short Term Overdraft Borrowings" shall mean up to $6,000,000
aggregate amount of indebtedness outstanding at any time under one or
more short term overdraft credit facilities entered into by the
Borrower and/or any Domestic Subsidiary, provided, however, that any
Short Term Overdraft Borrowing outstanding for more than two Business
Days shall cease to be a Short Term Overdraft Borrowing and, thus,
become Funded Debt.
2. Consents and Waivers. The Required Banks hereby grant the following
consents and waivers with respect to the Credit Agreement:
(a) The Banks party hereto hereby consent to (i) the acquisition by the
Borrower of the Ranger Rigs at the stipulated purchase price set forth in the
relevant sale/leaseback documentation, (ii) the Borrower entering into a new
operating lease sale/leaseback transaction with respect to the Ranger Rigs
similar to the sale/leaseback transaction presently in effect (the "New
Sale/Leaseback") and (iii) the use by the Borrower of the proceeds from the New
Sale/Leaseback for the acquisition of capital assets and/or business additions.
In addition, the Banks party hereto hereby waive the applicability of and
compliance by the Borrower with the provisions of Sections 3.03(a), 3.03(b),
4.02(d), 4.02(f) and 9.02 of the Credit Agreement with respect to the New
Sale/Leaseback, agree that the New Sale/Leaseback shall not be included in the
determination of the aggregate value of asset sales permitted pursuant to
Section 9.02(iv) of the Credit Agreement and agree that the provisions of clause
(G) of the definition of Contingent Obligation in Section 11.01 of the Credit
Agreement shall apply to the New Sale/Leaseback. Upon entering into the New
Sale/Leaseback, it is anticipated that the Borrower will recognize a gain of
approximately $14,900,000 and incur federal capital gains tax liability of up to
$6,100,000. Such capital gains tax will be payable with respect to the year in
which the New Sale/Leaseback occurs, while the gain for accounting purposes will
be recognized over six years. In connection therewith, PESCO, the Borrower and
the Banks party hereto agree
-2-
<PAGE> 3
that the gain from the New Sale/Leaseback, and the capital gains tax payable
with respect thereto, shall both be spread over a period of six years, with
1/6th of the gain being deemed recognized, and 1/6th of the capital gain tax
being deemed paid, on the last day of each year from 1998 through 2003,
inclusive. Without limiting the generality of the foregoing, PESCO, the Borrower
and the Banks party hereto agree that (A) Consolidated EBIT shall include the
amounts of gain determined pursuant to the preceding sentence, notwithstanding
the fact that the definition of Consolidated EBIT in Section 11.01 of the Credit
Agreement would otherwise not give effect to extraordinary gains or gains from
sale of assets other than in the ordinary course of business, and (B) the
"amount of all cash taxes paid", as such term is used in the definition of
"Fixed Charge Coverage Ratio" in Section 11.01 of the Credit Agreement, for
years 1998 through 2003, inclusive, shall include the portion of capital gains
tax deemed paid in such years pursuant to the preceding sentence.
(b) Anything contained in the Credit Agreement (and, in particular, in
Section 9.01, 9.04 or 9.05 thereof) to the contrary notwithstanding, (i) a
"back-to-back" loan investment transaction whereby any Foreign Subsidiary incurs
indebtedness and uses the proceeds thereof to repay existing inter-company
indebtedness owing to another Subsidiary of PESCO, and a Subsidiary of PESCO
(other than the Borrower) simultaneously deposits an amount equal to such
indebtedness with the relevant lender to effectively secure the relevant loan,
shall not in and of itself constitute a Default or an Event of Default, (ii) any
indebtedness incurred by any Foreign Subsidiary in connection with any such
transaction shall not constitute Funded Debt and (iii) any guarantee of any such
indebtedness by PESCO shall not constitute a Contingent Obligation.
3. Amendment, Consent and Waiver Fee. Provided the Required Banks and
all Issuing Banks execute this Amendment on or prior to December 29, 1998, the
Borrower agrees to pay each Bank that executes this Amendment on or prior to
December 29, 1998 an amendment, consent and waiver fee equal to 0.10% of such
Bank's Revolving Loan Commitment. Such fee shall be paid by the Borrower on or
prior to December 31, 1998.
4. Representations and Warranties. In order to induce the Required
Banks to enter into this Amendment, each of PESCO and the Borrower hereby
represents and warrants that:
(a) no Default or Event of Default will exist as of the date hereof and
after giving effect to this Amendment; and
(b) as of the date hereof, after giving effect to this Amendment, all
representations, warranties and agreements of PESCO or the Borrower contained in
the Credit Agreement will be true and correct in all material respects.
5. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS
THEREOF.
-3-
<PAGE> 4
6. Agreement Not Otherwise Amended. This Amendment is limited precisely
as written and shall not be deemed to be an amendment, consent, waiver or
modification of any other term or condition of the Credit Agreement or any of
the instruments or agreements referred to therein, or prejudice any right or
rights which the Banks, the Arranger, the Administrative Agent, the
Documentation Agent or any of them now have or may have in the future under or
in connection with the Credit Agreement or any of the instruments or agreements
referred to therein. Except as expressly modified hereby, the terms and
provisions of the Credit Agreement shall continue in full force and effect.
Whenever the Credit Agreement is referred to in the Credit Agreement or any of
the instruments, agreements or other documents or papers executed and delivered
in connection therewith, it shall be deemed to be a reference to the Credit
Agreement as modified hereby.
7. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
POOL ENERGY SERVICES CO.
By /s/ E. J. SPILLARD
----------------------------------
Name: E. J. Spillard
Title: Senior Vice President,
Finance
By /s/ R. A. JOHANNSEN
----------------------------------
Name: R. A. Johannsen
Title: Treasurer
POOL COMPANY
By /s/ E. J. SPILLARD
----------------------------------
Name: E. J. Spillard
Title: Senior vice President,
Finance
By /s/ R. A. JOHANNSEN
----------------------------------
Name: R. A. Johannsen
Title: Treasurer
-4-
<PAGE> 5
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ RATOUIS
----------------------------------
Name: Ratouis
Title: Senior Vice President
UBS AG, NEW YORK BRANCH
By /s/ ROBERT W. CASEY, JR.
----------------------------------
Name: Robert W. Casey, Jr.
Title: Executive Director
By /s/ ERIC C. HANSON
----------------------------------
Name: Eric C. Hanson
Title: Associate Director
BANK ONE, TEXAS, N.A.
By /s/ RICHARD G. SYLVAN
----------------------------------
Name: Richard G. Sylvan
Title: Senior Vice President
MARINE MIDLAND BANK
By /s/ LINCOLN MCMAHON
----------------------------------
Name: Lincoln McMahon
Title: Regional Manager
ARAB BANKING CORPORATION (B.S.C.)
By /s/ STEPHEN A. PLAUCHE
----------------------------------
Name: Stephen A. Plauche
Title: Vice President
-5-
<PAGE> 6
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. ASHBY
----------------------------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By /s/ WARREN ROSS
----------------------------------
Name: Warren Ross
Title: Assistant Vice President
DEN NORSKE BANK ASA
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By
----------------------------------
Name:
Title:
GULF INTERNATIONAL BANK B.S.C.
By
----------------------------------
Name:
Title:
-6-
<PAGE> 7
HIBERNIA NATIONAL BANK
By /s/ BRUCE ROSS
----------------------------------
Name: Bruce Ross
Title: Senior Vice President
NATEXIS BANQUE BFCE
By /s/ MARK A. HARRINGTON
----------------------------------
Name: Mark A. Harrington
Title: Senior Vice President
and Regional Manager
By /s/ N. ERIC DITGES
----------------------------------
Name: N. Eric Ditges
Title: Assistant Vice President
NATIONAL BANK OF ALASKA
By /s/ PATRICIA JELLEY BENZ
----------------------------------
Name: Patricia Jelley Benz
Title: Vice President
-7-
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0
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