===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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
November 8, 2000 was 67,784,304.
===========================================================================
SUPERIOR ENERGY SERVICES, INC.
Quarterly Report on Form 10-Q for
the Quarterly Period Ended September 30, 2000
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
PART II OTHER INFORMATION
Item 2. Changes in Securities and use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
EXPLANATORY NOTE
On July 15, 1999, we acquired Cardinal Holding Corp. through its merger
with one of our wholly-owned subsidiaries. The merger was treated for
accounting purposes as if Superior was acquired by Cardinal in a purchase
business transaction. The purchase method of accounting required that we
carry forward Cardinal's net assets at their historical book value and
reflect Superior's net assets at their estimated fair value at the date of
the merger. Accordingly, the information presented in this Quarterly
Report for periods prior to July 15, 1999 reflects only Cardinal's
historical financial and operating data. Financial and operating data
relating to our business are included on and after July 15, 1999.
Cardinal's historical operating results were substantially different than
ours for the same periods. Consequently, analyzing prior period results to
determine or estimate our future operating potential will be difficult.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
09/30/00 12/31/99
(Unaudited) (Audited)
___________ ___________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,153 $ 8,018
Accounts receivable - net 65,304 41,878
Income tax receivable - 224
Deferred tax asset 1,437 1,437
Prepaid insurance and other 5,764 4,565
__________ __________
Total current assets 73,658 56,122
__________ __________
Property, plant and equipment - net 182,104 134,723
Goodwill - net 91,501 78,641
Notes receivable 18,928 8,898
Other assets - net 4,158 3,871
__________ __________
Total assets $ 370,349 $282,255
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,737 $ 9,196
Accrued expenses 14,923 15,473
Income tax payable 6,654 -
Current maturities of long-term debt 3,268 2,579
Notes payable - other - 3,669
__________ __________
Total current liabilities 39,582 30,917
__________ __________
Deferred income taxes 13,345 12,392
Long-term debt 118,187 117,459
Stockholders' equity:
Preferred stock of $.01 par value. Authorized
5,000,000 shares; none issued - -
Common stock of $.001 par value. Authorized,
125,000,000 shares; issued and outstanding
67,779,273 at September 30, 2000, 59,810,789
at December 31, 1999 68 60
Additional paid-in capital 315,258 248,934
Accumulated deficit (116,091) (127,507)
__________ __________
Total stockholders' equity 199,235 121,487
__________ __________
Total liabilities and stockholders' equity $ 370,349 $282,255
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999
(in thousands, except per share data)
(unaudited)
Three Months Nine Months
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues $71,251 $33,729 $176,117 $68,974
------- ------- -------- -------
Costs and expenses:
Cost of services 40,203 18,692 101,896 42,627
Depreciation and amortization 6,302 4,099 15,974 8,226
General and administrative 11,842 6,579 30,826 13,927
------- ------- -------- -------
Total costs and expenses 58,347 29,370 148,696 64,780
------- ------- -------- -------
Income from operations 12,904 4,359 27,421 4,194
Other income (expense):
Interest expense (3,145) (3,061) (9,133) (9,975)
Interest income 561 140 1,395 140
------- ------- -------- -------
Income (loss) before income taxes and
extraordinary loss 10,320 1,438 19,683 (5,641)
Income taxes 4,335 460 8,267 (1,805)
------- ------- -------- -------
Income (loss) before extraordinary loss 5,985 978 11,416 (3,836)
Extraordinary loss, net of income tax
benefit of $2,124 - (4,514) - (4,514)
------- ------- -------- -------
Net income (loss) $ 5,985 $(3,536) $ 11,416 $(8,350)
======= ======= ======== =======
Basic earnings (loss) per share:
Earnings (loss) before extraordinary loss $ 0.09 $ 0.02 $ 0.18 $ (0.24)
Extraordinary loss - (0.09) - (0.21)
------- ------- -------- -------
Earnings (loss) per share $ 0.09 $ (0.07) $ 0.18 $ (0.45)
======= ======= ======== =======
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary loss $ 0.09 $ 0.02 $ 0.18 $ (0.24)
Extraordinary loss - (0.09) - (0.21)
------- ------- -------- -------
Earnings (loss) per share $ 0.09 $ (0.07) $ 0.18 $ (0.45)
======= ======= ======== =======
Weighted average common shares used
in computing earnings (loss) per share:
Basic 67,616 51,302 64,052 21,538
Incremental common shares from
stock options 1,056 - 920 -
------- ------- -------- -------
Diluted 68,672 51,302 64,972 21,538
======= ======= ======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(in thousands)
(unaudited)
2000 1999
__________ ________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $11,416 $ (8,350)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Extraordinary loss - 4,514
Deferred income taxes - (102)
Depreciation and amortization 15,974 8,226
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (16,845) 1,012
Other - net 259 1,656
Accounts payable 951 (2,426)
Accrued expenses (2,182) (735)
Income taxes 6,879 (2,029)
__________ _________
Net cash provided by operating activities 16,452 1,766
__________ _________
Cash flows from investing activities:
Payments for purchases of property and equipment (43,624) (5,437)
Acquisitions of business, net of cash acquired (21,128) (1,742)
Increase in notes receivable (10,030) -
__________ _________
Net cash used in investing activities (74,782) (7,179)
__________ _________
Cash flows from financing activities:
Net payments on notes payable (3,713) (4,439)
Proceeds from long-term debt 4,100 115,000
Principal payments on long-term debt (15,326) (156,479)
Debt acquisition costs - (2,615)
Payment of premium on subordinated debt - (835)
Proceeds from issuance of stock 63,247 55,000
Proceeds from exercise of stock options 3,157 293
__________ _________
Net cash provided by financing activities 51,465 5,925
__________ _________
Net increase (decrease) in cash (6,865) 512
Cash and cash equivalents at beginning of period 8,018 421
__________ __________
Cash and cash equivalents at end of period $ 1,153 $ 933
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2000 and 1999
(1) MERGER
On July 15, 1999, Superior consummated a merger (the "Merger") whereby it
acquired all of the outstanding capital stock of Cardinal Holding Corp.
("Cardinal") from the stockholders of Cardinal in exchange for an aggregate
of 30,239,568 shares of Superior's common stock (or 51% of the then
outstanding common stock). The acquisition was affected through the merger
of a wholly-owned subsidiary of Superior, formed for this purpose, with and
into Cardinal, with the effect that Cardinal became a wholly-owned
subsidiary of Superior.
As used in the consolidated financial statements for Superior Energy
Services, Inc., the term "Superior" refers to the Company as of dates and
periods prior to the Merger and the term "Company" refers to the combined
operations of Superior and Cardinal after the consummation of the Merger.
Due to the fact that the former Cardinal shareholders received 51% of the
outstanding common stock at the date of the Merger, among other factors,
the Merger has been accounted for as a reverse acquisition (i.e., a
purchase of Superior by Cardinal) under the purchase method of accounting.
As such, the Company's consolidated financial statements and other
financial information reflect the historical operations of Cardinal for
periods and dates prior to the Merger. The net assets of Superior, at the
time of the Merger, have been reflected at their estimated fair value
pursuant to the purchase method of accounting at the date of the Merger.
(2) BASIS OF PRESENTATION
Certain information and footnote disclosures normally in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission; however, management
believes the disclosures which are made are adequate to make the
information presented not misleading. These financial statements and
footnotes should be read in conjunction with the financial statements and
notes thereto included in Superior Energy Services, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999 and Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The financial information for the three and nine months ended September 30,
2000 and 1999 has not been audited. However, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the results of operations for the periods presented have
been included therein. The results of operations for the first nine months
of the year are not necessarily indicative of the results of operations
that might be expected for the entire year. Certain previously reported
amounts have been reclassified to conform to the 2000 presentation.
(3) EARNINGS PER SHARE
On July 15, 1999, as a result of the accounting treatment of the Merger,
the Company was deemed to have affected an approximate 364 to 1 stock
issuance. All earnings per common share amounts, references to common
stock, and stockholders' equity amounts have been restated as if the stock
issuance had occurred as of the earliest period presented. The effect of
preferred dividends distributed prior to the Merger used in determining the
income available to common stockholders was zero and $1,330,000 for the
three and nine months ended September 30, 1999, respectively.
(4) BUSINESS COMBINATIONS.
In the nine months ended September 30, 2000, the Company acquired
businesses for a total of $21.3 million in cash consideration. Additional
consideration, if any, will be based upon the respective company's average
EBITDA (earnings before interest, income taxes, depreciation and
amortization expense) less certain adjustments. The total additional
consideration, if any, will not exceed $9.9 million. These acquisitions
have been accounted for as purchases and the acquired companies' assets and
liabilities have been valued at their estimated fair market value. The
purchase price allocated to net assets was approximately $9.8 million, and
the excess purchase price over the fair value of the net assets of
approximately $11.5 million was allocated to goodwill. The results of
operations have been included from the respective company's acquisition
date.
Effective November 1, 1999, the Company acquired Production Management
Companies, Inc. ("PMI") for aggregate consideration consisting of
approximately $2.9 million in cash and 597,000 shares of the Company's
common stock at an approximate trading price of $5.66. The acquisition was
accounted for as a purchase, and PMI's results of operations have been
included from November 1, 1999.
On July 15, 1999, the Company acquired Cardinal through a merger by issuing
30,239,568 shares of the Company's common stock (see note 1). The valuation
of Superior's net assets is based upon the 28,849,523 common shares
outstanding prior to the Merger at the approximate trading price of $3.78
at the time of the negotiation of the Merger on April 21, 1999. The
acquisition was accounted for as a purchase, and Superior's results of
operations have been included from July 15, 1999.
Effective July 1, 1999, Superior sold two subsidiaries for a promissory
note having an aggregate principal amount of $8.9 million, which bears
interest of 7.5% per annum. As part of the sale, the purchasers were
granted the right to resell the capital stock of the two companies to the
Company in 2002 subject to certain terms and conditions.
The following unaudited pro forma information for the three and nine months
ended September 30, 2000 and 1999 presents a summary of the consolidated
results of operations as if the Merger, the business acquisitions and the
sale of the subsidiaries described above had occurred on January 1, 1999,
with pro forma adjustments to give effect to amortization of goodwill,
depreciation and certain other adjustments, together with related income
tax effects (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
_________ _________ __________ __________
<S> <C> <C> <C> <C>
Revenues $74,775 $55,803 $191,440 $159,455
========= ========= ========== ==========
Net income (loss) before extraordinary loss $ 5,600 $ (268) $ 10,644 $ (1,087)
========= ========= ========== ==========
Basic earnings (loss) per share $ 0.08 $ - $ 0.17 $ (0.02)
========= ========= ========== ==========
Diluted earnings (loss) per share $ 0.08 $ - $ 0.16 $ (0.02)
========= ========= ========== ==========
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have been achieved had the Merger,
acquisitions and the sale of the subsidiaries been effected on January 1,
1999.
Most of the Company's acquisitions have involved additional contingent
consideration based upon a multiple of the acquired companies' respective
average EBITDA over a three-year period from the respective dates of
acquisition. In the third quarter of 2000, the Company capitalized
additional consideration of $3.2 million related to one of its 1997
acquisitions, which will be payable in the fourth quarter. Additional
consideration related to two of its 1997 acquisitions in an amount not to
exceed $18.4 million will be determined and payable in the fourth quarter.
The Company expects to fund these payments from borrowings under its
revolving credit facility (see note 9). Additional consideration for the
Company's other acquisitions will not exceed $41.7 million, but will be
materially less than this amount if current performance levels continue for
certain of these companies. Once determined, additional consideration will
be capitalized as additional purchase price.
(5) SEGMENT INFORMATION
The Company's reportable segments are as follows: well services, wireline,
marine, rental tools, environmental, field management and other. Each
segment offers products and services within the oilfield services industry.
The well services segment provides plug and abandonment services, coiled
tubing services, well pumping and stimulation services, data acquisition
services, gas lift services and electric wireline services. The wireline
segment provides mechanical wireline services that perform a variety of
ongoing maintenance and repairs to producing wells, as well as
modifications to enhance the production capacity and life span of the well.
The marine segment operates liftboats for oil and gas production facility
maintenance and construction operations as well as production service
activities. The rental tools segment rents and sells specialized equipment
for use with onshore and offshore oil and gas well drilling, completion,
production and workover activities. The environmental segment provides
offshore oil and gas cleaning services, as well as dockside cleaning of
items including supply boats, cutting boxes, and process equipment. The
field management segment provides contract operations and maintenance
services, interconnect piping services, sandblasting and painting
maintenance services, and transportation and logistics services. The other
segment manufactures and sells drilling instrumentation and oil spill
containment equipment. All the segments operate primarily in the Gulf
Coast Region.
Summarized financial information concerning the Company's segments for the
three and nine months ended September 30, 2000 and 1999 is shown in the
following tables (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Well Rental Field Unallocated Consolidated
Services Wireline Marine Tools Environ. Mgmt. Other Amount Total
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $15,336 $9,141 $10,074 $21,485 $4,351 $9,989 $875 $ - $ 71,251
Cost of services 9,186 5,993 5,384 7,388 3,023 8,912 317 - 40,203
Depreciation and amortization 1,096 566 1,024 3,135 195 250 36 - 6,302
General and administrative 2,641 1,372 914 4,680 870 1,042 323 - 11,842
Operating income (loss) 2,413 1,210 2,752 6,282 263 (215) 199 - 12,904
Interest expense - - - - - - - (3,145) (3,145)
Interest income - - - - - - - 561 561
_______________________________________________________________________________________________
Income (loss) before
income taxes $ 2,413 $1,210 $ 2,752 $ 6,282 $ 263 $ (215) $199 $ (2,584) $ 10,320
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Well Rental Unallocated Consolidated
Services Wireline Marine Tools Environ. Other Amount Total
__________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $9,532 $7,108 $6,663 $9,036 $ 842 $548 $ - $ 33,729
Costs of services 6,121 5,016 4,017 2,868 462 208 - 18,692
Depreciation and amortization 852 562 1,062 1,563 22 38 - 4,099
General and administrative 1,524 1,098 1,095 2,169 426 267 - 6,579
Operating income 1,035 432 489 2,436 (68) 35 - 4,359
Interest expense - - - - - - (3,061) (3,061)
Interest income - - - - - - 140 140
__________________________________________________________________________________
Income (loss) before extraordinary
loss and income taxes $1,035 $ 432 $ 489 $2,436 $ (68) $ 35 $ (2,921) $ 1,438
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
Well Rental Field Unallocated Consolidated
Services Wireline Marine Tools Environ. Mgmt. Other Amount Total
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 37,639 $ 24,632 $ 23,121 $ 50,288 $ 12,492 $ 24,805 $ 3,140 $ - $ 176,117
Cost of services 23,604 16,783 13,419 16,436 7,857 22,276 1.521 - 101,896
Depreciation and amortization 2,672 1,651 2,741 7,460 634 710 106 - 15,974
General and administrative 6,611 4,031 2,468 11,120 2,685 2,925 986 - 30,826
Operating income (loss) 4,752 2,167 4,493 15,272 1,316 (1,106) 527 - 27,421
Interest expense - - - - - - - (9,133) (9,133)
Interest income - - - - - - - 1,395 1,395
_______________________________________________________________________________________________
Income (loss) before
income taxes $ 4,752 $ 2,167 $ 4,493 $ 15,272 $ 1,316 $ (1,106) $ 527 $ (7,738) $ 19,683
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Well Rental Unallocated Consolidated
Services Wireline Marine Tools Environ. Other Amount Total
__________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $20,035 $20,928 $17,585 $9,036 $ 842 $548 $ - $ 68,974
Costs of services 13,277 14,321 11,491 2,868 462 208 - 42,627
Depreciation and amortization 1,775 1,953 2,875 1,563 22 38 - 8,226
General and administrative 3,786 3,976 3,303 2,169 426 267 - 13,927
Operating income 1,197 678 (84) 2,436 (68) 35 - 4,194
Interest expense - - - - - - (9,975) (9,975)
Interest income - - - - - - 140 140
___________________________________________________________________________________
Income (loss) before extraordinary
loss and income taxes $ 1,197 $ 678 $ (84) $2,436 $ (68) $ 35 $ (9,835) $ (5,641)
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
Unallo- Consoli-
Well Rental Field cated dated
Services Wireline Marine Tools Environ. Mgmt. Other Amount Total
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
September 30,
2000 $59,363 $32,774 $67,314 $170,527 $19,300 $14,976 $3,672 $2,423 $370,349
=============================================================================================
December 31,
1999 $39,878 $30,961 $48,655 $134,287 $ 8,525 $12,768 $4,533 $2,648 $282,255
=============================================================================================
</TABLE>
(6) EQUITY
On May 5, 2000, the Company completed the sale of 7.3 million shares of
common stock that generated net proceeds to the Company of approximately
$63.2 million.
(7) COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in litigation arising out of
operations in the normal course of business. In management's opinion, the
Company is not involved in any litigation, the outcome of which would have
a material effect on the financial position, results of operations or
liquidity of the Company.
(8) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
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 No. 133, as amended, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. FAS No. 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
earnings 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.
The Company will adopt FAS 133 effective January 1, 2001. The Company
expects its interest rate swaps will qualify for cash flow hedge accounting
treatment under FAS 133, whereby changes in fair value will be recognized
in other comprehensive income (a component of stockholders' equity) until
settled, when the resulting gains and losses will be recorded in earnings.
Any hedge ineffectiveness will be charged currently to earnings; however,
the Company believes that this will be immaterial. The effect on the
Company's earnings and other comprehensive income as the result of the
adoption of FAS 133 will vary from period to period and will be dependent
upon prevailing interest rates. The Company does not expect FAS 133 to
have a material impact on the consolidated financial statements as a result
of other contractual arrangements that it is subject to.
(9) SUBSEQUENT EVENTS
On October 17, 2000, the Company entered into a $170 million term loan and
revolving credit facility to refinance the Company's existing credit
facility and provide additional working capital. The new credit facility
provides a $110 million term loan and $60 million revolving credit
facility. The term loan requires quarterly principal installments
commencing December 31, 2000 in the amount of $2.5 million a quarter for
the first year and then increasing up to an aggregate of $10 million a
quarter for the last year until the facility matures on October 31, 2005.
The credit facility bears interest at a LIBOR rate plus margins that depend
on the Company's leverage ratio. As of November 3, 2000, the weighted
average interest rate on the credit facility was 8.65% per annum, and the
amount outstanding under the credit facility was $136.0 million.
Indebtedness under the credit facility is secured by substantially all of
the Company's assets. The credit facility contains customary events of
default and requires that the Company satisfy various financial covenants.
It also limits the Company's ability to make capital expenditures, pay
dividends or make other distributions, make acquisitions, make changes to
its capital structure, create liens or incur additional indebtedness. If
this new credit facility had been in place at September 30, 2000, the
current portion of the Company's long-term debt would have been
approximately $10.1 million.
The refinancing of the Company's prior credit facility will result in an
extraordinary loss of approximately $1.6 million, net of a $1.0 million
income tax benefit, primarily due to the non-cash write-off of unamortized
debt acquisition costs.
On October 18, 2000, the Company acquired International Snubbing Services,
Inc. and its affiliated companies (collectively, "ISS") for $18 million in
cash consideration. Additional consideration, if any, in an amount up to
$12.2 million will be based upon ISS' average annual EBITDA following the
acquisition. ISS is an international provider of well services, including
hydraulic workover, drilling and well control services. ISS has a fleet of
11 hydraulic workover and drilling units and also manufactures and markets
its own hydraulic units and related equipment for its drilling and well
service operations. Headquartered in Arnaudville, Louisiana, ISS is
currently operating in Australia, Europe, Trinidad, Venezuela and the
United States, and has working agreements to operate in the North Sea and
Brunei.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements which involve risks and
uncertainties. All statements other than statements of historical fact
included in this section regarding our financial position and liquidity,
strategic alternatives, future capital needs, business strategies and other
plans and objectives of our management for future operations and
activities, are forward-looking statements. These statements are based on
certain assumptions and analyses made by our management in light of its
experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes are appropriate
under the circumstances. Such forward-looking statements are subject to
uncertainties that could cause our actual results to differ materially from
such statements. Such uncertainties include but are not limited to: the
volatility of the oil and gas industry, including the level of offshore
exploration, production and development activity; risks of our growth
strategy, including the risks of rapid growth and the risks inherent in
acquiring businesses; changes in competitive factors affecting our
operations; operating hazards, including the significant possibility of
accidents resulting in personal injury, property damage or environmental
damage; the effect on our performance of regulatory programs and
environmental matters; seasonality of the offshore industry in the Gulf of
Mexico and our dependence on certain customers. These and other
uncertainties related to our business are described in detail in our Annual
Report on Form 10-K for the year ended December 31, 1999. Although we
believe that the expectations reflected in such forward-looking statements
are reasonable, we can give no assurance that such expectations will prove
to be correct. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We
undertake no obligation to update any of our forward-looking statements for
any reason.
ACQUISITION OF CARDINAL HOLDING CORP.
On July 15, 1999, we acquired Cardinal Holding Corp. through its merger
with one of our wholly-owned subsidiaries. The merger was treated for
accounting purposes as if we were acquired by Cardinal in a purchase
business transaction. The purchase method of accounting required that we
carry forward Cardinal's net assets at their historical book value and
reflect our net assets at their estimated fair value at the date of the
merger. Accordingly, the information presented in this Quarterly Report
for periods prior to July 15, 1999 reflects only Cardinal's historical
financial and operating data. Financial and operating data relating to our
business are included on and after July 15, 1999. Cardinal's historical
operating results were substantially different than ours for the same
periods Consequently, analyzing prior period results to determine or
estimate our future operating potential will be difficult.
OVERVIEW
We are a leading provider of specialized oilfield services and equipment
focused on serving the production-related needs of oil and gas companies
in the Gulf of Mexico. We believe that we are one of the few service
providers in the Gulf of Mexico capable of providing most post wellhead
products and services necessary to maintain and enhance production of
offshore wells. We also provide the plug and abandonment services
necessary at the end of the economic life of the well. We believe our
ability to provide our customers with multiple production-related services
and to coordinate and integrate their delivery allows us to maximize
efficiency, reduce lead time and, provide cost-effective services for our
customers.
Over the past few years, we have significantly expanded our range of
production-related services we provide through both internal growth and
strategic acquisitions. The recent acquisition of International Snubbing
Services, Inc. has expanded our geographic focus to select international
market areas. Our operations are organized into seven segments, including
rental tools, well services, wireline services, marine services, field
management services, environmental services and other services.
In the third quarter of 2000, our financial performance was favorably
impacted by increased demand for our services as compared to the second
quarter of 2000. For the quarter ended September 30, 2000, revenue
increased 24% to $71.3 million and net income increased 56% to $6.0 million
over the quarter ended June 30, 2000. The primary factors driving our
improved performance include increased demand for our rental tools and
increased day rates for our expanded liftboat fleet, as well as our recent
acquisitions.
Our rental tools segment's revenue increased $6.1 million or 40% to $21.5
million in the third quarter of 2000 as compared to the second quarter of
2000. This increase was attributable to our recent acquisitions as well as
internal growth. The internal growth was primarily due to increased demand
for our drilling-related rental equipment.
Our marine segment's revenue increased 29% in the third quarter of 2000
over second quarter of 2000. This increase is attributable to higher
average day rates and utilization as well as the addition of six liftboats
near the end of May. Weighted average day rates for our liftboat fleet
increased from approximately $3,340 in the second quarter of 2000 to
approximately $3,862 in the third quarter of 2000.
Our financial performance is impacted by the broader economic trends
affecting our customers. The demand for our services and equipment is
cyclical due to the nature of the energy industry. Our operating results
are directly tied to industry demand for our services, most of which are
performed in the Gulf of Mexico. While we have focused on providing
production related services where, historically, demand has not been as
volatile as for exploration related services, we expect our operating
results to be highly leveraged to industry activity levels in the Gulf of
Mexico.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE QUARTERS ENDED SEPTEMBER
30, 2000 AND 1999
Our revenues increased 111% to $71.3 million for the three months ended
September 30, 2000 as compared to $33.7 million for the same period in
1999. This increase is the result of an increased demand for our services
as well as the impact of our acquisitions.
Our gross margin percentage fell slightly from 45% in the third quarter of
1999 to 44% in the third quarter of 2000 primarily due to the addition of
the field management segment, which is expected to have a lower gross
margin percentage since its largest cost of services component is providing
contract labor. We experienced an increase in the gross margin percentages
of our core business segments of well services, wireline, and marine due to
increased pricing and utilization of assets in these segments, as well as
improved operating cost efficiency. Our overall gross margin increased to
$31.0 million in the third quarter of 2000 from $15.0 million in the third
quarter of 1999.
Depreciation and amortization increased to $6.3 million in the three months
ended September 30, 2000 from $4.1 million in the same period in 1999.
Most of the increase resulted from our larger asset base as a result of our
acquisitions. Depreciation also increased as a result of our $44.6 million
of capital expenditures in the first nine months of 2000 combined with our
1999 capital expenditures of $9.2 million.
General and administrative expenses increased to $11.8 million in the third
quarter of 2000 from $6.6 million in the same period in 1999. The increase
is primarily the result of our acquisitions. General and administrative
expenses as a percentage of revenue have decreased from 20% for the quarter
ended September 30, 1999 to 17% for the quarter ended September 30, 2000.
In the quarter ended September 30, 2000, we recorded net income of $6.0
million, or $0.09 per diluted share, compared to a net income before
extraordinary loss of $1.0 million, or $0.02 per diluted share, in the same
period in 1999.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2000 AND 1999
Our revenues were $176.1 million for the nine months ended September 30,
2000 as compared to $69.0 million for the same period in 1999. This
increase is a result of an increased demand for our services as well as
the Cardinal merger and the impact of our acquisitions.
Our gross margin percentage increased from 38% for the nine months ended
September 30, 1999 to 42% for the same period of 2000 primarily due to the
Cardinal merger and the impact of our acquisitions. We experienced an
increase in the gross margin percentages of our core business segments of
well services and marine due to increased pricing and utilization of
assets in these segments, as well as improved operating cost efficiency.
Our overall gross margin increased to $74.2 million in the nine months
ended September 30, 2000 from $26.3 million in the same period of 1999.
Depreciation and amortization increased to $16.0 million in the nine months
ended September 30, 2000 from $8.2 million in the same period in 1999.
Most of the increase resulted from our larger asset base as a result of the
Cardinal merger and our acquisitions. Depreciation also increased as a
result of our $44.6 million of capital expenditures in the first nine
months of 2000 combined with our 1999 capital expenditures of $9.2 million.
General and administrative expenses increased to $30.8 million in the third
quarter of 2000 from $13.9 million in the same period in 1999. The
increase is primarily the result of the Cardinal merger and our
acquisitions. General and administrative expenses as a percentage of
revenue have decreased from 20% for the nine months ended September 30,
1999 to 18% for the nine months ended September 30, 2000.
In the nine months ended September 30, 2000, we recorded net income of
$11.4 million, or $0.18 per diluted share, compared to a net loss before
extraordinary loss of $3.8 million, or a loss of $0.24 per diluted share,
in the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are for working capital, acquisitions, capital
expenditures and debt service. Our primary sources of liquidity are cash
flows from operations and borrowings under our revolving credit facility.
We had cash and cash equivalents of $1.2 million at September 30, 2000
compared to $8.0 million at December 31, 1999. Included in the $8.0
million balance at December 31, 1999 was a $6.6 million insurance
settlement, which was received in late December 1999, for the damages
associated with one of our two hundred foot vessels.
Net cash provided by operating activities was $16.5 million for the nine
months ended September 30, 2000 as compared to $1.8 million for the same
period in 1999. The overall increase in net cash provided by operating
activities was due to the merger with Cardinal and our acquisitions, as
well as our improved operating performance.
On May 5, 2000, we completed the sale of 7.3 million shares of common stock
that generated net proceeds of approximately $63.2 million. The proceeds
were used to repay $4.1 million of debt, purchase six liftboats for $14
million, make a $10 million investment in an oilfield services company, and
make three acquisitions for $27.2 million, including the repayment of their
debt. The remaining proceeds of the offering were used for capital
expenditures and general working capital purposes.
On October 17, 2000, we entered into a $170 million term loan and revolving
credit facility to refinance our existing credit facility and provide
additional working capital. The new credit facility provides a $110
million term loan and $60 million revolving credit facility. The term loan
requires quarterly principal installments commencing December 31, 2000 in
the amount of $2.5 million a quarter for the first year and then increasing
up to an aggregate of $10 million a quarter for the last year until the
facility matures on October 31, 2005. The credit facility bears interest
at a LIBOR rate plus margins that depend on our leverage ratio. As of
November 3, 2000, the weighted average interest rate on the credit facility
was 8.65% per annum, and the amount outstanding under the credit facility
was $136.0 million. Indebtedness under the credit facility is secured by
substantially all of our assets. The credit facility contains customary
events of default and requires that we satisfy various financial covenants.
It also limits our ability to make capital expenditures, pay dividends or
make other distributions, make acquisitions, make changes to our capital
structure, create liens or incur additional indebtedness. The refinancing
of our prior credit facility will result in an extraordinary loss
of approximately $1.6 million, net of a $1.0 million income tax benefit,
primarily due to the non-cash write-off of unamortized debt acquisition
costs.
On October 18, 2000, we acquired International Snubbing Services, Inc. and
its affiliated companies (collectively, "ISS") for $18 million in cash
consideration. Additional consideration, if any, in an amount up to $12.2
million will be based upon ISS' average annual EBITDA following the
acquisition. ISS is an international provider of well services, including
hydraulic workover, drilling and well control services. ISS has a fleet of
11 hydraulic workover and drilling units and also manufactures and markets
its own hydraulic units and related equipment for its drilling and well
service operations. Headquartered in Arnaudville, Louisiana, ISS is
currently operating in Australia, Europe, Trinidad, Venezuela and the
United States, and has working agreements to operate in the North Sea and
Brunei.
During the nine months ended September 30, 2000, we made capital
expenditures of $44.6 million, which included the purchase of six liftboats
for $14 million and the purchase of a new 200 foot class liftboat for $5.8
million, of which $1.0 million will be payable in 2001. Approximately
$16.0 million was used to further expand our rental tool equipment.
Other capital expenditures included capital improvements to our liftboats,
improvements to our operational facilities and the purchase of a new coiled
tubing unit. We currently believe that we will make additional capital
expenditures, excluding acquisitions and targeted asset purchases, of
approximately $12 to $15 million during the fourth quarter 2000 primarily
to further expand our rental tool inventory and make improvements to our
operational facilities. We believe that our current working capital, cash
generated from our operations and availability under our revolving credit
facility will provide sufficient funds for our identified capital projects.
In the third quarter of 2000, we capitalized additional consideration of
$3.2 million related to one of our 1997 acquisitions, which will be payable
in the fourth quarter. Additional consideration related to two of our 1997
acquisitions in an amount not to exceed $18.4 million will be determined
and payable in the fourth quarter. We expect to fund these payments from
borrowings under our revolving credit facility.
We intend to continue implementing our growth strategy of increasing our
scope of services through both internal growth and strategic acquisitions.
Depending on the size of any future acquisitions, we may require
additional equity or debt financing in excess of our current working
capital and amounts available under our revolving credit facility.
NEW ACCOUNTING PRONOUNCEMENT
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 No. 133, as amended, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. FAS No. 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
earnings 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.
We will adopt FAS 133 effective January 1, 2001. We expect our interest
rate swaps will qualify for cash flow hedge accounting treatment under FAS
133, whereby changes in fair value will be recognized in other
comprehensive income (a component of stockholders' equity) until settled,
when the resulting gains and losses will be recorded in earnings. Any
hedge ineffectiveness will be charged currently to earnings; however, we
believe that this will be immaterial. The effect on our earnings and other
comprehensive income as the result of the adoption of FAS 133 will vary
from period to period and will be dependent upon prevailing interest rates.
We do not expect FAS 133 to have a material impact on our consolidated
financial statements as a result of other contractual arrangements that we
are subject to.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our market risks since the year
ended December 31, 1999. For more information, please read the
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2000, pursuant to stock options, we issued 25,000 shares of
common stock for $3.60 per share in reliance upon Sections 4(2) and 4(6)
under the Securities Act of 1933. Proceeds were used to provide additional
working capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Form 10-Q:
3.1 Certificate of Incorporation of the Company (incorporated herein
by reference to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1996).
3.2 Certificate of Amendment to the Company's Certificate of
Incorporation (incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
3.3 Amended and Restated Bylaws (incorporated herein by reference
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.1 Credit Agreement dated as of October 17, 2000 among the Company,
Bank One, Louisiana, National Association, as agent, and the
other lenders specified therein.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. The following report on Form 8-K was filed during
the quarter ended September 30, 2000:
On July 5, 2000, the Company filed a Current Report on Form 8-K
reporting, under Item 7, financial statements and pro forma financial
information regarding the acquisition of HB Rentals, L.C.
On August 3, 2000, the Company filed a current Report on Form 8-K
reporting, under item 5, the results for the second quarter ended June
30, 2000 and the acquisition of AMBAR, Inc's Production Services
Division.
On September 12, 2000, the Company filed a current Report on Form 8-K
reporting, under item 5, the acquisition of Drilling Logistics, Inc. and
the letter of intent to acquire International Snubbing Services, Inc.
SIGNATURE
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: NOVEMBER 13, 2000 BY: /S/ ROBERT S. TAYLOR
----------------- ------------------------------------
Robert S. Taylor
Chief Financial Officer
Principal Financial and Accounting Officer)
