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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
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 No. 0-20310
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2379388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 Peters Road
Harvey, Louisiana 70058
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 362-4321
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
April 30, 1999 was 28,792,523.
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PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
The demand for Superior's rental tools and well services is primarily a function
of the oil and gas exploration and workover activity in the Gulf of Mexico and
along the gulf coast. The level of oilfield activity is affected in turn by the
willingness of oil and gas companies to make capital expenditures for the
exploration, development and production of oil and natural gas, and the levels
of such capital expenditures are influenced by oil and gas prices, the cost of
exploring for, producing and delivering oil and gas, the sale and expiration
dates of leases in the United States, the discovery rate of new oil and gas
reserves, local and international political and economic conditions and the
ability of oil and gas companies to generate capital. Demand for Superior's
plug and abandonment services is primarily a function of the number of offshore
producing wells that have ceased to be commercially productive, increased
environmental awareness and the desire of oil and gas companies to minimize
abandonment liabilities.
The oilfield services industry experienced a significant decline in activity in
the last half of 1998 which has continued into the first quarter of 1999.
Superior's rental tool business has been impacted, but not as much as many other
areas of the oilfield service industry because it is primarily concentrated on
workover activity and deep water drilling projects which have not been affected
as much as other areas of the industry. Superior's well services segment has
been adversely affected as some major and independent oil and gas companies have
elected to defer making these expenditures. However, as a result of these
deferrals and increased depletion rates, the backlog of wells requiring plug and
abandonment continues to increase. Should the decline in overall industry
activity levels continue, it could have a material adverse effect on
Superior's financial condition and results of operations.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1999
AND 1998
The Company's revenues were $18 million for the quarter ended March 31, 1999 as
compared to $22.7 million for the same period in 1998. In the first quarter of
1999, the Company continued to be affected by the downturn in the industry
activity, which began in the last half of 1998. The decline in revenue is
primarily attributable to the well services segment since it is more susceptible
to the major and independent oil and gas companies' deferment of discretionary
spending. The rental tools segment's revenue has not been as adversely affected
by industry conditions as a result of its focus on workover, remediation and
deep water drilling activity. Although the Company's revenues declined in the
first quarter of 1999 compared to the same period in 1998, the Company's gross
margin remained constant at 58% for both quarters.
Depreciation and amortization increased 29%, to $2.1 million for the three
months ended March 31, 1999 from $1.7 million for the three months ended March
31, 1998. Most of the increase resulted from the larger asset base that has
resulted from the Company's 1998 acquisitions and capital expenditures.
General and administrative expenses increased 18%, to $6.1 million for the first
quarter of 1999 as compared to $5.2 million for the same period of 1998. The
increase is the result of the 1998 acquisitions completed during the second and
third quarters in 1998.
Net income for the quarter ended March 31, 1999 decreased 77.2% to $1 million as
compared to $4.5 million for the comparable period last year. While the $1.2
million gain on the sale of subsidiary increased the net income in the first
quarter of 1998, the Company's results for the first quarter of 1999 reflected
the impact of the economic slowdown in the oil and gas industry and customers'
decisions to limit or defer investments in exploration, drilling, production and
plug and abandonment services.
CAPITAL RESOURCES AND LIQUIDITY
For the three months ended March 31, 1999, the Company had net income of $1
million and net cash provided by operating activities of $6 million, compared to
$4.5 million and $7 million, respectively, for the same period in 1998. The
Company's EBITDA decreased to $4.3 million, as compared to $7.9 million,
exclusive of the gain on sale of a subsidiary, for the same period in 1998.
The decrease in net income, cash flow and EBITDA was primarily the result of the
significant decline in overall industry activity in the last half of 1998 which
has continued into the first quarter of 1999.
The Company maintains a bank credit facility which provides for a revolving
line of credit up to $45 million, matures on April 30, 2000, and bears interest
at an annual rate of LIBOR plus a margin that depends on the Company's debt
coverage ratio (currently 6.76% per annum). As of April 30, 1999, there was
$24.5 million outstanding under the bank credit facility. Borrowings under the
bank credit facility are available for acquisitions, working capital, letters of
credit and general corporate purposes. Indebtedness under the bank credit
facility is guaranteed by the Company's subsidiaries, collateralized by
substantially all of the assets of the Company and its subsidiaries, and a
pledge of all the common stock of the Company's subsidiaries. Pursuant to the
bank credit facility, the Company has also agreed to maintain certain financial
ratios. The bank credit facility also imposes certain limitations on the
ability of the Company to make capital expenditures, pay dividends or other
distributions to shareholders, make acquisitions or incur indebtedness outside
of the bank credit facility.
In the first three months of 1999, the Company made capital expenditures of
$2.6 million primarily for additional rental equipment. Management currently
believes that the Company will make additional capital expenditures, excluding
acquisitions, of approximately $5 to $7 million in 1999 primarily to further
expand its rental tool inventory. The Company believes that cash generated from
operations and availability under the bank credit facility will provide
sufficient funds for the Company's identified capital projects and working
capital requirements. However, part of the Company's strategy involves the
acquisition of companies that have products and services complementary to
the Company's existing base of operations. Depending on the size of any future
acquisitions, the Company may require additional equity financing and debt
financing possibly in excess of the Company's bank credit facility.
On April 20, 1999, Superior entered into a definitive agreement (Merger
Agreement) to merge a wholly-owned Superior subsidiary with and into Cardinal
Holding Corporation (Cardinal) in a stock transaction, pursuant to which
Cardinal would become a wholly-owned subsidiary of Superior. The terms of the
Merger Agreement provide that, at the time of the merger, all of the
outstanding shares of Cardinal capital stock will be converted into the right to
receive in the aggregate a number of shares of Superior Common Stock equal to
51% of the then outstanding Superior Common Stock after giving effect to such
issuance, calculated on a fully diluted basis. The number of shares of Superior
Common Stock that will be issued upon consummation of the merger will be
calculated based on the number of shares of Superior Common Stock that will be
used by Superior to calculate its fully diluted earnings per share in accordance
with Generally Accepted Accounting Standards for its fiscal quarter ending June
30, 1999.
The Merger Agreement contains certain terms and conditions to the merger. Prior
to the consummation of the merger, Superior must obtain a new credit facility,
containing usual and customary covenants, mutually agreed upon by Superior and
Cardinal, in a principal amount that will produce proceeds sufficient to repay
or refinance certain existing indebtedness of both Cardinal and Superior. The
merger is also conditioned upon Cardinal's completion of a private placement of
$45 million of equity to the current holders of Cardinal capital stock or other
institutional investors, the net proceeds of which will be used to reduce
Cardinal's indebtedness upon consummation of the merger, and the merger is
subject to other usual and customary conditions, including stockholder approval.
Assuming all the conditions are met, the merger is scheduled to close in the
third quarter of 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. FAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. FAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
to be recorded each period in current earning or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Earlier application of the
provisions of the Statement is encouraged and is permitted as of the beginning
of any fiscal quarter that begins after the issuance of the Statement. Due to
the fact that the Company does not currently use derivative instruments,
adoption of the Statement will not have a material effect on Superior's results
of operations, financial position, or liquidity.
Year 2000
The Company is assessing both the cost of addressing and the cost or the
consequence of incomplete or untimely resolution of the Year 2000 issue. This
process includes (i) the development of Year 2000 awareness, (ii) a review to
identify systems that could be affected by the Year 2000 issue, (iii) an
assessment of potential risk factors (including non-compliance by the Company's
suppliers, subcontractors and customers), (iv) the allocation of required
resources, (v) a determination of the extent of remediation work required, (vi)
the development of an implementation plan and time table, and (vii) the
development of contingency plans.
The Company makes use of computers in its processing of accounting, financial,
administrative, and management information. Additionally, the Company uses
computers as a tool for its employees to communicate among themselves and with
other persons outside the organization. The Company has identified its key
vendors, alternate vendors and key customers, and will contact the identified
group through questionnaires in early July to assess their efforts and progress
with Year 2000 issues. The Company is currently evaluating its non-information
technology equipment and any remedial action and/or contingency plan, and it
anticipates completion of its evaluations by August 31, 1999.
The Company is in the process of analyzing and evaluating the operational
problems and costs that would be reasonably likely to result from the failure by
the Company or certain third parties to complete efforts necessary to achieve
Year 2000 compliance on a timely basis. The Company is in the process of
evaluating all the material information technology ("IT") and non-IT systems
that it uses directly in its operations. The Company presently believes that
the year 2000 issue will not pose significant operational problems for the
Company's computer systems. However, if all significant Year 2000 issues are
not properly identified, or assessment, remediation and testing of its systems
are not effected timely, the Year 2000 issue could potentially have an adverse
impact on the Company's operations and financial condition. The Company
believes that the most reasonably likely worst-case scenario would be that the
Company would revert to the use of manual accounting records for billings,
payments and collections. In addition, the inability of principal suppliers and
major customers to be Year 2000 compliant could result in delays in deliveries
from those suppliers and collections of accounts receivable.
The Company believes that it will be able to implement successfully the changes
necessary to address the Year 2000 issues with reliance on its third party
vendors and does not expect the cost of such changes to have a material impact
on the Company's financial position, results of operations or cash flows in
future periods.
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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.
SUPERIOR ENERGY SERVICES, INC.
Date: June 18, 1999 By: /s/ Robert S. Taylor
Robert S. Taylor
Chief Financial Officer
(Principal Financial and
Accounting Officer)
