===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 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 70058
Harvey, Louisiana (Zip Code)
(Address of principal executive offices)
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 August
4, 2000 was 67,537,234.
===========================================================================
SUPERIOR ENERGY SERVICES, INC.
Quarterly Report on Form 10-Q for
the Quarterly Period Ended June 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 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
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, all historical financial results presented in the
consolidated financial statements included in this Quarterly Report for
periods prior to July 15, 1999 reflect Cardinal's results on a stand-alone
basis. Cardinal's historical operating results were substantially
different than ours for the same periods. The results for the three and
six months ended June 30, 2000 reflect three and six months, respectively,
of operations of Cardinal, Superior and Production Management Companies,
Inc., which we acquired effective November 1, 1999. The results for the
three and six months ended June 30, 1999 reflect three and six months,
respectively, of operations of Cardinal only. Consequently, analyzing
prior period results to determine or estimate our future operating
potential will be difficult.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(in thousands, except share data)
6/30/00 12/31/99
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,480 $ 8,018
Accounts receivable - net 53,398 41,878
Income tax receivable - 224
Deferred tax asset 1,437 1,437
Prepaid insurance and other 5,691 4,565
----------- -----------
Total current assets 77,006 56,122
----------- -----------
Property, plant and equipment - net 164,725 134,723
Goodwill - net 85,754 78,641
Notes receivable 18,598 8,898
Other assets - net 3,801 3,871
----------- -----------
Total assets $ 349,884 $ 282,255
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,226 $ 9,196
Accrued expenses 10,701 15,473
Income tax payable 3,475 -
Current maturities of long-term debt 3,011 2,579
Notes payable - other - 3,669
----------- -----------
Total current liabilities 29,413 30,917
----------- -----------
Deferred income taxes 13,236 12,392
Long-term debt 115,890 117,459
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
67,453,589 at June 30, 2000, 59,810,789
at December 31, 1999 67 60
Additional paid-in capital 313,354 248,934
Accumulated deficit (122,076) (127,507)
----------- -----------
Total stockholders' equity 191,345 121,487
----------- -----------
Total liabilities and stockholders' equity $ 349,884 $ 282,255
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
(unaudited)
Three Months Six Months
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues $ 57,592 $ 16,267 $ 104,866 $ 35,245
-------- -------- --------- --------
Costs and expenses:
Cost of services 33,931 13,429 61,693 23,935
Depreciation and amortization 4,935 2,187 9,672 4,127
General and administrative 9,673 3,671 18,984 7,348
-------- -------- --------- --------
Total costs and expenses 48,539 19,287 90,349 35,410
-------- -------- --------- --------
Income (loss) from operations 9,053 (3,020) 14,517 (165)
Other income (expense):
Interest expense (3,068) (3,508) (5,988) (6,914)
Interest income 641 - 834 -
-------- -------- --------- --------
Income (loss) before income taxes 6,626 (6,528) 9,363 (7,079)
Income taxes 2,783 (2,167) 3,932 (2,265)
-------- -------- --------- --------
Net income (loss) $ 3,843 $ (4,361) $ 5,431 $ (4,814)
======== ======== ========= =========
Basic earnings (loss) per share $ 0.06 $ (0.75) $ 0.09 $ (0.96)
======== ======== ========= =========
Diluted earnings (loss) per share $ 0.06 $ (0.75) $ 0.09 $ (0.96)
======== ======== ========= =========
Weighted average common shares used
in computing earnings (loss) per share:
Basic 64,643 6,728 62,250 6,409
Incremental common shares from
stock options 562 - 154 -
-------- -------- --------- --------
Diluted 65,205 6,728 62,404 6,409
======== ======== ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
(in thousands)
(unaudited)
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,431 $ (4,814)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Deferred income taxes - (102)
Depreciation and amortization 9,672 4,127
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (7,745) 5,906
Other - net 207 561
Accounts payable 1,055 (2,791)
Accrued expenses (4,772) (1,568)
Income taxes 3,699 (2,540)
--------- ----------
Net cash provided by (used in) operating activities 7,547 (1,221)
--------- ----------
Cash flows from investing activities:
Payments for purchases of property and equipment (31,200) (2,320)
Acquisitions of businesses, net of cash acquired (8,958) -
Increase in notes receivable (9,700) -
--------- ----------
Net cash used in investing activities (49,858) (2,320)
--------- ----------
Cash flows from financing activities:
Net payments on notes payable (3,713) 1,387
Proceeds from long-term debt 4,100 -
Principal payments on long-term debt (14,042) (3,235)
Proceeds from issuance of stock 63,263 5,000
Proceeds from exercise of stock options 1,165 -
--------- ----------
Net cash provided by financing activities 50,773 3,152
--------- ----------
Net increase (decrease) in cash and cash equivalents 8,462 (389)
Cash and cash equivalents at beginning of period 8,018 421
--------- ----------
Cash and cash equivalents at end of period $ 16,480 $ 32
========= ==========
See accompanying notes to consolidated financial statements
</TABLE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 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 effected 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 six months ended June 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 six 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, the Company effected an approximate 364 to 1 stock
issuance as a result of the Merger. 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 on arriving at the income available to common stockholders was
$707,000 and $1,330,000 for the three and six months ended June 30, 1999,
respectively.
(4) BUSINESS COMBINATIONS
On June 21, 2000, the Company acquired H.B. Rentals, L.C. and its
subsidiary Eagle Rentals, Inc. ("HB") for $7.0 million in cash
consideration. Additional consideration, if any, will be based upon HB's
average eighteen-month and three-year period EBITDA (earnings before
interest, income taxes, depreciation and amortization expense) less certain
adjustments. The total additional consideration, if any, will not exceed
$5.2 million. The acquisition was accounted for as a purchase, and HB's
assets and liabilities have been valued at their estimated fair market
value. The purchase price allocated to net assets was approximately $1.2
million, and the excess purchase price over the fair value of the net
assets of HB of approximately $5.8 million was allocated to goodwill. The
results of operations of HB have been included from June 21, 2000.
Effective November 1, 1999, the Company acquired Production Management
Companies, Inc. ("PMI") for aggregate consideration consisting of $3.0
million in cash, and 610,000 shares of the Company's common stock at an
approximate trading price of $5.66. Additional consideration, if any,
will be based upon a multiple of four times PMI's EBITDA less certain
adjustments. The acquisition was accounted for as a purchase, and PMI's
assets and liabilities have been valued at their estimated fair market
value. The purchase price allocated to net assets was $3.5 million, and
the excess purchase price of $3.0 million over the fair value of net
assets was recorded as goodwill. The results of operations of PMI 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
purchase price allocated to net assets was $53.7 million. The revaluation
reflected excess purchase price of $55.3 million over the fair value of net
assets, which was recorded as goodwill. The results of operations of
Superior 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 six months
ended June 30, 2000 and 1999 presents a summary of the consolidated results
of operations as if the Merger, the acquisitions and the sale of the
subsidiaries 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues $ 60,531 $ 48,259 $ 111,663 $ 98,586
======== ======== ========= ========
Net income (loss) $ 3,684 $ (2,148) $ 4,888 $ (869)
======== ======== ========= ========
Basic earnings (loss) per share $ 0.06 $ (0.04) $ 0.08 $ (0.01)
======== ======== ========= ========
Diluted earnings (loss) per share $ 0.06 $ (0.04) $ 0.08 $ (0.01)
======== ======== ========= ========
</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 Superior'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 no event will the maximum aggregate consideration exceed
$54.6 million for all acquisitions inclusive of the HB and PMI
acquisitions. If performance continues at current levels for certain
acquired companies, the additional consideration actually paid will be
materially less than the maximum consideration. The additional
consideration is not currently reflected in the respective companies'
purchase price. The additional consideration, if any, will be capitalized
as additional purchase price.
In the fourth quarter of 2000, additional consideration related to three of
our 1997 acquisitions will be determined. In no event will this amount
exceed $21.4 million. We expect to use the $22 million portion of the
credit facility, which was designed to fund these payments, to the extent
that we do not pay them from working capital.
(5) SEGMENT INFORMATION
The Company's reportable segments, subsequent to the Merger and recent
acquisitions, 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 six months ended June 30, 2000 and 1999 is shown in the following
tables (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 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 $ 12,629 $ 7,870 $ 7,792 $ 15,370 $ 4,536 $ 8,733 $ 662 $ - $ 57,592
Cost of services 8,089 5,662 4,494 4,972 2,654 7,703 357 - 33,931
Depreciation and amortization 777 533 906 2,226 222 235 36 - 4,935
General and administrative 2,035 1,318 691 3,443 906 970 310 - 9,673
Operating income (loss) 1,728 357 1,701 4,729 754 (175) (41) - 9,053
Interest expense - - - - - - - (3,068) (3,068)
Interest income - - - - - - - 641 641
-----------------------------------------------------------------------------------------------
Income (loss) before
income taxes $ 1,728 $ 357 $ 1,701 $ 4,729 $ 754 $ (175) $ (41) $(2,427) $ 6,626
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
Well Unallocated Consolidated
Services Wireline Marine Amount Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,882 $ 6,287 $ 5,098 $ - $ 16,267
Cost of services 4,223 5,065 4,141 - 13,429
Depreciation and amortization 434 893 860 - 2,187
General and administrative 1,110 1,333 1,228 - 3,671
Operating loss (885) (1,004) (1,131) - (3,020)
Interest expense - - - (3,508) (3,508)
------------------------------------------------------------
Loss before income taxes $ (885) $ (1,004) $ (1,131) $ (3,508) $ (6,528)
============================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
Well Rental Field Unallocated Consolidated
Services Wireline Marine Tools Enviro Mgmt. Other Amount Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 22,303 $ 15,491 $ 13,047 $ 28,803 $ 8,141 $ 14,816 $ 2,265 $ - $ 104,866
Cost of services 14,418 10,790 8,035 9,048 4,834 13,364 1,204 - 61,693
Depreciation and amortization 1,576 1,085 1,717 4,325 439 460 70 - 9,672
General and administrative 3,970 2,659 1,554 6,440 1,815 1,883 663 - 18,984
Operating income (loss) 2,339 957 1,741 8,990 1,053 (891) 328 - 14,517
Interest expense - - - - - - - (5,988) (5,988)
Interest income - - - - - - - 834 834
--------------------------------------------------------------------------------------------------
Income (loss) before
income taxes $ 2,339 $ 957 $ 1,741 $ 8,990 $ 1,053 $ (891) $ 328 $ (5,154) $ 9,363
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
Well Unallocated Consolidated
Services Wireline Marine Amount Total
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 10,503 $ 13,820 $ 10,922 $ - $ 35,245
Cost of services 7,156 9,305 7,474 - 23,935
Depreciation and amortization 923 1,391 1,813 - 4,127
General and administrative 2,262 2,878 2,208 - 7,348
Operating income (loss) 162 246 (573) - (165)
Interest expense - - - (6,914) (6,914)
-------------------------------------------------------
Income (loss) before income taxes $ 162 $ 246 $ (573) $ (6,914) $ (7,079)
=======================================================
</TABLE
</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>
June 30, 2000 $ 48,514 $ 30,985 $ 65,593 $ 163,104 $ 19,763 $ 15,527 $ 3,898 $ 2,500 $ 349,884
================================================================================================
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, including 950,000 shares sold pursuant to the underwriter's
over-allotment option. The offering generated net proceeds to the Company
of approximately $63.3 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. 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. The Company has not yet
assessed the financial impact of adopting this statement.
(9) SUBSEQUENT EVENT
On July 26, 2000, the Company acquired substantially all of the assets of
AMBAR, Inc.'s Production Services Division for $9.5 million in cash. The
Production Services Division provides coiled tubing, pumping, stimulation,
nitrogen, pipeline remediation and related services to restore lost
production from oil and gas wells in the Gulf of Mexico. This acquisition
expands the Company's existing coiled tubing and pumping and stimulation
services within its well services segment.
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, all historical financial information presented in the
consolidated financial statements included in this Quarterly Report for
periods prior to July 15, 1999 reflect Cardinal's results on a stand-alone
basis. Cardinal's historical operating results were substantially
different than ours for the same periods. Our results for the three and six
months ended June 30, 2000 reflect three and six months, respectively, of
operations of Cardinal, Superior and Production Management Companies, Inc.,
which we acquired effective November 1, 1999. The results for the three
and six months ended June 30, 1999 reflect three and six months,
respectively, of operations of Cardinal only. Consequently, analyzing
prior period results to determine or estimate our future operating
potential will be difficult.
OVERVIEW
We provide a broad range of specialized oilfield services and equipment to
oil and gas companies in the Gulf of Mexico and throughout the Gulf Coast
region. These services and equipment include:
* well services including plug and abandonment ("P&A") services,
coiled tubing services, well pumping and stimulation services,
data acquisition services, gas lift services and electric
wireline services,
* mechanical wireline services,
* the rental of liftboats,
* the rental of specialized oilfield equipment,
* environmental cleaning services,
* field management services, and
* the manufacture and sale of drilling instrumentation and oil
spill containment equipment.
Over the past few years, we have significantly expanded the geographic
scope of our operations and the range of production related services that
we provide through both internal growth and strategic acquisitions. In
July 1999, we completed the Cardinal merger, in November 1999, we completed
the Production Management acquisition, and in June 2000, we completed the
acquisition of H.B. Rentals L.C. and its subsidiary Eagle Rentals, Inc.,
thereby making these companies our wholly-owned subsidiaries. These
acquisitions firmly established us as a market leader in providing most
offshore production related services using liftboats as work platforms and
allowed us to expand our scope of operations to include offshore platform
and property management services.
In the second quarter of 2000, our financial performance was favorably
impacted by increased demand for our services as compared to the first
quarter of 2000. In the quarter ended June 30, 2000, revenue increased 22%
to $57.6 million and net income increased 142% to $3.8 million over the
quarter ended March 31, 2000. The primary factors driving our improved
performance include increased day rates and utilization for, as well as
expansion of, our liftboat fleet and increased demand for our well services
segment.
Our marine segment's revenue increased 48% in the second quarter of 2000
over the first 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 $2,850 in the first quarter of 2000 to
approximately $3,340 in the second quarter of 2000. The fleet's average
utilization increased from approximately 67% in the first quarter to
approximatley 78% in the second quarter.
Our well services segment's revenue increased 31% in the second quarter of
2000 as compared to the first quarter of 2000 due primarily to an increase
in revenue from our core business of P&A, temporary P&A and recompletion.
We also experienced greater demand for our production-enhancement services,
such as coiled tubing, pumping and stimulation, electric line and data
acquisition, as our customers are focused on enhancing recovery from
existing shallow water reservoirs.
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 JUNE 30,
2000 AND 1999
Our revenues were $57.6 million for the three months ended June 30, 2000
as compared to $16.3 million for the same period in 1999. Due to the
accounting treatment required for the Cardinal merger, our second quarter
of 2000 operating results reflected three months of operations of
Cardinal, Superior and Production Management, while the second quarter of
1999 operating results reflected only Cardinal's operations on a stand-
alone basis.
Our gross margin was $23.7 million in the second quarter of 2000 compared
to $2.8 million in the second quarter of 1999. The increase is primarily
the result of the Cardinal merger and the Production Management
acquisition, as well as the addition of six liftboats to our fleet in May
2000. In the second quarter of 2000, our rental tools segment contributed
the highest gross margin percentage, while our field management segment
contributed the lowest gross margin percentage. Of all our production
related services, field management is expected to produce the lowest gross
margin percentage since its largest cost of services component is providing
contract labor.
Depreciation and amortization increased to $4.9 million in the three months
ended June 30, 2000 from $2.2 million in the same period in 1999. Most of
the increase resulted from the larger asset base following the Cardinal
merger and the Production Management acquisition. Depreciation also
increased as a result of our $31.2 million of capital expenditures in the
first six months of 2000 combined with our 1999 capital expenditures of
$9.2 million.
General and administrative expenses increased to $9.7 million in the second
quarter of 2000 from $3.7 million in the same period in 1999. The increase
is the result of the Cardinal merger and the Production Management
acquisition. General and administrative expenses have decreased from 23%
of revenue for the quarter ended June 30, 1999 to 17% of revenue for the
quarter ended June 30, 2000.
In the quarter ended June 30, 2000, we recorded net income of $3.8 million,
or $0.06 earnings per diluted share, compared to a net loss of $4.4
million, or $0.75 loss per diluted share, in the same period in 1999.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
2000 AND 1999
Our revenues were $104.9 million for the six months ended June 30, 2000 as
compared to $35.2 million for the same period in 1999. Due to the
accounting treatment required for the Cardinal merger, our first six
months of 2000 operating results reflected six months of operations of
Cardinal, Superior and Production Management, while the first six months
of 1999 operating results reflected only Cardinal's operations on a stand-
alone basis.
Our gross margin was $43.2 million in the six months ended June 30, 2000
compared to $11.3 million for the same period in 1999. The increase is
primarily the result of the Cardinal merger and the Production Management
acquisition, as well as the addition of six liftboats to our fleet in May
2000. In the six months ended June 30, 2000, our rental tools segment
contributed the highest gross margin percentage, while our field management
segment contributed the lowest gross margin percentage. Of all our
production related services, field management is expected to produce the
lowest gross margin percentage since its largest cost of services component
is providing contract labor.
Depreciation and amortization increased to $9.7 million in the six months
ended June 30, 2000 from $4.1 million in the same period in 1999. Most of
the increase resulted from the larger asset base following the Cardinal
merger and the Production Management acquisition. Depreciation also
increased as a result of our $31.2 million of capital expenditures in the
first six months of 2000 combined with our 1999 capital expenditures of
$9.2 million.
General and administrative expenses increased to $19.0 million in the
second quarter of 2000 from $7.3 million in the same period in 1999. The
increase is the result of the Cardinal merger and the Production Management
acquisition. General and administrative expenses have decreased from 21%
of revenue for the six months ended June 30, 1999 to 18% of revenue for the
six months ended June 30, 2000.
In the six months ended June 30, 2000, we recorded net income of $5.4
million, or $0.09 earnings per diluted share, compared to a net loss of
$4.8 million, or $0.96 loss 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 $16.5 million at June 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 $7.5 million for the six
months ended June 30, 2000 as compared to cash used of $1.2 million for the
same period in 1999. In the first six months of 2000, we used
approximately $5.6 million of the $6.6 million insurance settlement to
refurbish the damaged vessel. This $5.6 million decreased the net cash
provided by operating activities for the six months ended June 30, 2000.
In addition, increased sales have led to increased accounts receivables
thereby lowering our operating cash flow. The overall increase in net cash
provided by operating activities was due primarily to the merger with
Cardinal and the Production Management acquisition.
On May 5, 2000, we completed the sale of 7.3 million shares of common
stock, including 950,000 shares sold pursuant to the underwriter's over-
allotment option. The offering generated net proceeds of approximately
$63.3 million. The proceeds were used to repay $4.1 million of borrowings
under our $20 million revolving credit facility, purchase six liftboats
from Trico Marine Services, Inc. for $14 million, make a $9.7 million
investment in an oilfield services company, purchase HB Rentals for $14.4
million (including the repayment of its debt of $7.4 million) and on July
26, 2000, purchase AMBAR Inc.'s Production Services Division for $9.5
million. The remaining proceeds of the offering will be used for capital
expenditures and general working capital purposes.
We have a term loan and revolving credit facility that was implemented in
July 1999 to provide a $110 million term loan to refinance our long-term
debt after the Cardinal merger, provide a $20 million revolving credit
facility and $22 million that we can use to pay additional contingent
consideration from our prior acquisitions. We amended the credit facility
in November 1999 to increase the term loan by $10 million to refinance
Production Management's existing indebtedness and to pay the cash portion
of the acquisition price. Under the credit facility, the term loan
requires quarterly principal installments that commenced December 31, 1999
in the amount of $519,000 and then increasing up to an aggregate of
approximately $1.6 million a quarter until 2006 when $92 million will be
due and payable. The credit facility bears interest at a LIBOR rate plus
margins that depend on our leverage ratio. As of August 4, 2000, the
amount outstanding under the term loan was $118.4 million, and there were
no borrowings outstanding under the revolving credit facility. As of
August 4, 2000, the weighted average interest rate on the credit facility
was 10.0%. Indebtedness under the credit facility is secured by
substantially all of our assets, including the pledge of the stock of our
subsidiaries. The credit facility contains customary events of default and
requires that we maintain debt coverage and leverage ratios. 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.
In the six months ended June 30, 2000, we made capital expenditures of
$31.2 million, which included the purchase of six liftboats from Trico
Marine Services, Inc. for $14 million. Approximately $12.6 million was
used to further expand our rental tool equipment, and other capital
expenditures included capital improvements to our liftboats 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 $11 to $13 million in 2000 primarily to
further expand our marine vessel and rental tool inventory. 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 fourth quarter of 2000, additional consideration related to three of
our 1997 acquisitions will be determined. In no event will this amount
exceed $21.4 million. We expect to use the $22 million portion of the
credit facility, which was designed to fund these payments, to the extent
that we do not pay them from working capital.
We intend to continue implementing our acquisition strategy to increase our
scope of services. 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. 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. We have not yet assessed
the financial impact of adopting this Statement.
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 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
(a) The annual meeting of the stockholders of the Company was held on May
18, 2000 (the "Annual Meeting").
(b) At the Annual Meeting, the stockholders of the Company elected Terence
E. Hall, Justin L. Sullivan, Richard A. Bachmann, William E. Macaulay,
Ben A. Guill, and Robert E. Rose to serve as directors until the next
annual meeting of stockholders.
(c) The voting tabulation for the election of the six directors is as
follows:
DIRECTOR FOR WITHHELD
--------------------------------------------------
Terence E. Hall 45,133,989 169,874
Justin L. Sullivan 45,133,989 169,874
Richard A. Bachmann 45,133,989 169,874
William E. Macaulay 45,132,189 171,674
Ben A. Guill 45,132,189 171,674
Robert E. Rose 43,879,179 1,424,684
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).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
during the quarter ended June 30, 2000:
On April 4, 2000, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, the filing of its Form 10-K for the
fiscal year ended December 31, 1999.
On April 20, 2000, the Company filed a Current Report on Form 8-K
reporting, under Item 7, financial statements and pro forma financial
information regarding Cardinal Holding Corp. and Production Management
Companies, Inc.
On May 3, 2000, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, the Underwriting Agreement with Johnson
Rice & Company L.L.C. for the sale of 6,350,000 shares of its common
stock.
On May 5, 2000, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, the results for the first quarter 2000.
On May 8, 2000, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, that it sold 7,300,000 shares at $9 per
share, including 950,000 shares sold pursuant to the underwriter's over
allotment option.
On May 15, 2000, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, the purchase of six liftboats from
Trico Marine Services, Inc.
On June 22, 2000, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, the acquisition of HB Rentals, L.C.,
and its subsidiary Eagle Rentals Co., Inc.
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., and its
subsidiary Eagle Rentals Co., Inc.
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: AUGUST 11, 2000 BY: /S/ TERENCE E. HALL
------------------ -----------------------
Terence E. Hall
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
Date: AUGUST 11, 2000 BY: /S/ ROBERT S. TAYLOR
------------------ -----------------------
Robert S. Taylor
Chief Financial Officer
(Principal Financial and Accounting
Officer)
