UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to ________
Commission file number 1-8038
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, 20th Floor, East Brunswick, NJ 08816
Address of Principal executive offices) (ZIP Code)
Registrant's telephone number including area code: (732) 247-4822
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
Common Shares outstanding at November 11, 1998 - 18,293,060
Key Energy Group, Inc. and Subsidiaries
INDEX
PART I. Financial Information
Item 1. Unaudited Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 26
Key Energy Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
September 30, June 30,
1998 1998
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $39,917 $25,265
Accounts receivable, net of allowance for doubtful accounts
($6,370 and $2,843 at September 30 and June 30, 1998, respectively) 102,894 82,406
Inventories 14,021 13,315
Deferred tax asset 1,203 1,203
Prepaid income taxes 456 537
Prepaid expenses and other current assets 5,135 4,831
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 163,626 127,557
- ---------------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Oilfield service equipment 641,699 400,731
Oil and gas well drilling equipment 62,579 61,629
Motor vehicles 49,975 19,748
Oil and gas properties and other related equipment, successful efforts 42,638
method 44,101
Furniture and equipment 5,753 5,333
Buildings and land 31,722 17,458
- ---------------------------------------------------------------------------------------------------------------------------
835,829 547,537
Accumulated depreciation and depletion (58,036) (48,385)
- ---------------------------------------------------------------------------------------------------------------------------
Net Property and Equipment 777,793 499,152
- ---------------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization ($4,051 and $2,264 at
September 30 and June 30, 1998, respectively) 228,810 44,936
Other assets 35,819 26,995
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $1,206,048 $698,640
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $27,573 $20,124
Other accrued liabilities 56,214 22,239
Accrued interest 2,896 3,818
Current portion of long-term debt 3,048 1,848
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 89,731 48,029
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 825,747 397,931
Non-current accrued expenses 4,337 4,812
Deferred tax liability 131,814 92,940
Stockholders' equity:
Common stock, $.10 par value; 100,000,000 shares authorized,
18,684,479 shares issued at September 30 and June 30, 1998, respectively 1,868 1,868
Additional paid-in capital 119,303 119,303
Treasury stock, at cost; 416,666 shares at September 30 and
June 30, 1998 (9,682) (9,682)
Unrealized gain on available-for-sale securities - 2,346
Retained earnings 42,930 41,093
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 154,419 154,928
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,206,048 $698,640
===========================================================================================================================
See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
Key Energy Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended
September 30,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Oilfield services $105,799 $69,498
Oil and gas well drilling 7,610 2,823
Oil and gas 1,770 1,852
Other, net 408 1,226
- ---------------------------------------------------------------------------------------------------------------------------------
115,587 75,399
- ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Oilfield services 73,698 48,239
Oil and gas well drilling 7,327 2,263
Oil and gas 759 803
Depreciation, depletion and amortization 10,703 4,812
General and administrative 11,438 7,678
Interest 8,505 5,086
- ---------------------------------------------------------------------------------------------------------------------------------
112,430 68,881
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,157 6,518
Income tax expense 1,320 2,407
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $1,837 $4,111
=================================================================================================================================
EARNINGS PER SHARE :
Basic $0.10 $0.29
Diluted $0.10 $0.23
=================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 18,268 14,126
Diluted 18,976 19,764
=================================================================================================================================
See the accompanying notes which are an integral part of these unaudited consolidated financial statements.
Key Energy Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
September 30,
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,837 $4,111
Adjustments to reconcile income from operations to
net cash provided by operations:
Depreciation, depletion and amortization 10,703 4,812
Amortization of deferred debt costs 767 335
Deferred income taxes 1,320 2,407
Gain on sale of assets 47 -
Other non-cash items 202 1,313
Change in assets and liabilities net of effects
from the acquisitions:
(Increase) decrease in accounts receivable 4,477 (6,224)
(Increase) decrease in other current assets 537 1,400
Increase (decrease) in accounts payable and accrued expenses (4,291) (972)
Increase (decrease) in accrued interest (922) (1,829)
Other assets and liabilities (2,269) (1,293)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,408 4,060
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Oilfield service operations (6,587) (6,694)
Capital expenditures - Oil and gas well drilling operations (1,019) (339)
Capital expenditures - Oil and gas operations (1,608) (2,058)
Proceeds from sale of fixed assets 91 -
Cash received in acquisitions 27,008 2,903
Acquisitions - Oilfield service operations (272,292) (107,630)
Acquisitions - Oil and gas well drilling - (14,610)
Acquisitions - Minority interest - (3,426)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (254,407) (131,854)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (1,713) (318)
Repayment of long-term debt - (197,000)
Borrowings under line-of-credit 278,000 134,000
Proceeds from warrants exercised - 4,123
Proceeds from long-term commercial paper - 194,500
Proceeds paid for debt issuance costs (19,636) -
Proceeds from other long-term debt - 61
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 256,651 135,366
- -----------------------------------------------------------------------------------------------------------------------
Net increase in cash 14,652 7,572
Cash at beginning of period 25,265 41,704
- -----------------------------------------------------------------------------------------------------------------------
Cash at end of period $39,917 $49,276
=======================================================================================================================
See the accompanying notes which are an integral part of these unaudited consolidated financial
statements.
Key Energy Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)
Three Months Ended
September 30,
1998 1997
---------------------- ---------------------
Net Income $ 1,837 $ 4,111
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale securities 1,200 -
---------------------- ---------------------
Comprehensive income, net of tax $ 3,037 $ 4,111
====================== =====================
See the accompanying notes which are an integral part of these unaudited consolidated financial
statements.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 1998 and 1997
1. BASIS OF PRESENTATION
The consolidated financial statements of Key Energy Group, Inc. (the "Company"
or "Key") and its wholly-owned subsidiaries for the three months ended September
30, 1998 and 1997 are unaudited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in this Form 10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission.
However, in the opinion of management, these interim financial statements
include all the necessary adjustments to fairly present the results of the
interim periods presented. These unaudited interim consolidated financial
statements should be read in conjunction with the audited financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998. The results of operations for the three months ended September
30, 1998 are not necessarily indicative of the results of operations for the
full fiscal year ending June 30, 1999.
Accounting Changes
Effective July 1, 1998 the Company made certain changes in the estimated useful
lives of its workover rigs, increasing the lives from 17 years to 25 years. This
change increased first quarter fiscal year 1999 net income by $499,000 ($.03 per
share-basic). Had this change been made effective July 1, 1997, the effect on
the first quarter fiscal year 1998 would have been to increase net income by
$306,000 ($.02 per share-basic). This change was made to better reflect how the
assets are expected to be used over time and to better provide matching of
revenues and expenses and to better reflect the industry standard in regards to
estimated useful lives of workover rigs.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130") Reporting Comprehensive Income, at the beginning of fiscal year 1999. SFAS
130 establishes standards for reporting and presentation of comprehensive income
and its components. SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. In accordance with the provisions of SFAS 130, the
Company has presented the components of comprehensive income in its Unaudited
Consolidated Statements of Comprehensive Income.
Reclassifications and Adjustments
Certain reclassifications have been made to the fiscal year 1998 results to
conform to the fiscal year 1999 presentations.
Amounts reported for the first quarter of fiscal 1998 differ from the amounts
previously reported on the Company's Quarterly Report on Form 10-Q, for the
quarter ended September 30, 1997, due to non-cash adjustments associated with
the conversion of the Company's 7% debentures converted in the first quarter of
fiscal year 1998. See footnote 4 for further discussion on conversion of the 7%
debentures.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income
per common share:
Three Months Ended
September 30,
(in thousands)
1998 1997
Diluted EPS Computation:
Numerator-
Net Income $ 1,837 $ 4,111
Effect of Dilutive Securities,
Tax Effected:
Interest on Convertible Debt* - 427
-------------------------
$ 1,837 $ 4,538
-------------------------
Denominator-
Weighted Average Common
Shares Outstanding 18,268 14,126
Warrants 39 86
Stock Options ** 669 1,453
7% Convertible Subordinated
Debentures * - 4,102
5% Convertible Subordinated Notes * - -
-------------------------
18,976 19,764
-------------------------
Diluted EPS $ 0.10 $ 0.23
* Net income effect and share effect related to the 7% Convertible Subordinated
Debentures are omitted as they produce anti-dilution during the three months
ended September 30, 1998. The 5% Convertible Subordinated Notes are omitted as
they produce anti-dilution during the three months ended September 30, 1998 and
1997.
** Reflects an additional grant of employee and director stock options effective
as of September 3, 1998, including some stock options to be issued upon
cancellation of previously issued options.
3. BUSINESS AND PROPERTY ACQUISITIONS
The Company
The Company conducts its oil and gas well service operations through
wholly-owned subsidiaries in all major onshore oil and gas producing regions of
the continental United States and in Argentina. The Company conducts contract
drilling operations through wholly-owned subsidiaries in several oil and gas
producing regions of the continental United States and in Argentina and Canada.
The Company also owns and produces oil an natural gas in the Permian Basin and
the Texas Panhandle.
As of November 11, 1998, the Company owned a fleet of approximately 1,424 well
service rigs, 1,121 oilfield trucks, and 74 drilling rigs, including 21 service
rigs, 28 trucks and six drilling rigs in Argentina and three drilling rigs in
Canada.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
Acquisitions Completed During the Three Months Ended September 30, 1998
The following acquisitions were completed during the three months ended
September 30, 1998. Except as otherwise noted, the results of operations from
these acquisitions are included in the Company's results of operations for the
applicable three months ended September 30, 1998 (effective as of the date of
completion of the acquisition unless otherwise noted). Each of the acquisitions
was accounted for using the purchase method of accounting. The purchase prices
specified below are based on cash paid and do not include any post-closing
adjustments, if any, paid or to be paid based upon a re-calculation of the
working capital of acquired companies as of the closing dates.
Colorado Well Service Inc.
On July 15, 1998, the Company completed the acquisition of the assets of
Colorado Well Service, Inc. ("Colorado") for approximately $6.5 million in cash.
These assets included seventeen well service rigs and one drilling rig in Utah
and Colorado.
TransTexas Oilfield Service Assets
On August 19, 1998, the Company completed the acquisition of certain oilfield
service assets of TransTexas Gas Corporation ("TransTexas") for approximately
$20.5 million in cash. The TransTexas assets are based in Laredo, Texas and
included nine well service rigs, approximately 80 oilfield trucks, 173 frac and
other tanks, and various pieces of equipment, parts and supplies.
Flint Well Servicing Assets
On September 16, 1998, the Company completed the acquisition of substantially
all of the well servicing assets of Flint Engineering & Construction Co., a
subsidiary of Flint Industries, Inc. ("Flint") for approximately $11.9 million
in cash. These assets included 55 well service rigs and 25 oilfield trucks in
Texas, Oklahoma, Kansas, Montana and Utah.
Iceberg S.A.
On September 24, 1998, the Company completed the acquisition of the assets of
Iceberg, S.A. ("Iceberg") for approximately $4.3 million in cash. The Iceberg
assets included four well service rigs in Comodoro Rivadavia, Argentina.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
HSI Group
On September 24, 1998, the Company completed the acquisition of substantially
all of the operating assets of Hellums Services II, Inc., Superior Completion
Services, Inc., South Texas Disposal, Inc. and Elsik II, Inc. ("HSI Group") for
$47.9 million in cash. These assets included approximately 80 oilfield trucks
and eight well service rigs in South Texas.
Dawson Production Services, Inc.
On September 15, 1998, Midland Acquisition Corp. ("Midland"), a New Jersey
corporation and a wholly-owned subsidiary of the Company, completed its cash
tender offer (the "Tender Offer") for all outstanding shares of common stock,
par value $0.01 per share (the "Dawson Shares"), including the associated common
stock purchase rights, of Dawson Production Services, Inc. ("Dawson") at a price
of $17.50 per share. Midland accepted for payment 10,021,601 Dawson Shares for a
total purchase price of approximately $175.4 million. The acceptance of tendered
Dawson Shares, together with Dawson Shares previously owned by Midland and the
Company prior to the commencement of the Tender Offer resulted in Midland and
the Company acquiring approximately 97.0% of the outstanding Dawson Shares. The
purchase price for Dawson Shares pursuant to the Tender Offer was determined
pursuant to arms-length negotiations between the parties and was based on a
variety of factors, including, without limitation, the anticipated earnings and
cash flows of Dawson.
The Tender Offer was made pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of August 11, 1998, by and among Midland, the
Company and Dawson. On September 18, 1998, pursuant to the terms of the Merger
Agreement, Midland was merged with and into Dawson (the "First Merger") under
the laws of the States of New Jersey and Texas and all Dawson Shares not owned
by Midland were cancelled and retired and converted into the right to receive
$17.50 in cash. On September 21, 1998, Dawson was merged with and into the
Company (the "Second Merger") pursuant to the laws of the States of Maryland and
Texas.
The total consideration paid for the Dawson Shares pursuant to the Tender Offer
and the First Merger was approximately $181.7 million.
At the time of the closing, Dawson owned approximately 527 well service rigs,
200 oilfield trucks, and 21 production testing units in South Texas and the Gulf
Coast, East Texas and Louisiana, the Permian Basin of West Texas and New Mexico,
the Anadarko Basin of Texas and Oklahoma, California, and in the inland waters
of the Gulf of Mexico.
Pro Forma Results of Operations - (unaudited)
The following unaudited pro forma results of operations have been prepared as
though Dawson had been acquired on July 1, 1997 with adjustments to record
specifically identifiable decreases in direct costs and general and
administrative expenses related to the termination of individual employees.
These adjustments only reflect efficiencies gained through September 30, 1998
and do not necessarily reflect all efficiences expected to be achieved in
accordance with managements future plans.
Three Months Ended
September 30,
(Thousands, except per share data) 1998 1997
- ------------------------------------------------------------------------------
Revenues $ 159,198 $135,943
Net income 605 2,550
-----------------------
Basic earnings per share $ .03 $ .18
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
4. LONG-TERM DEBT
At September 30, 1998, major components of the Company's long-term debt were as
follows:
(i) PNC Credit Facility
On June 6, 1997, the Company entered into an agreement (the "Initial Credit
Agreement") with PNC Bank, N.A. ("PNC"), as administrative agent, and a
syndication of other lenders pursuant to which the lenders provided a $255
million credit facility, consisting of a $120 million seven-year term loan and a
$135 million five-year revolver. The interest rate on the term loan was LIBOR
plus 2.75 percent. The interest rate on the revolver varied based on LIBOR and
the level of the Company's indebtedness. The Initial Credit Agreement contained
certain restrictive covenants and required the Company to maintain certain
financial ratios. On September 25, 1997, the Company repaid the term loan and a
portion of the then outstanding amounts under the revolver by applying the
proceeds from the initial and second closings of the Company's private placement
of $216 million of 5% Convertible Subordinated Notes (discussed below).
Effective November 6, 1997, the Company entered into an Amended and Restated
Credit Agreement with PNC (the "Amended PNC Credit Agreement"), as
administrative agent and lender, pursuant to which PNC agreed to make revolving
credit loans of up to a maximum loan commitment of $200 million. The maximum
commitment under the Amended PNC Credit Agreement decreased to $175 million on
November 6, 2000 and to $125 million on November 6, 2001. The loan commitment
terminated on November 6, 2002. Borrowings under the credit facility consisted
of (i) Eurodollar Loans with interest currently payable quarterly at LIBOR plus
1.25% subject to adjustment based on certain financial ratios, (ii) Base Rate
Loans with interest payable quarterly at the greater of PNC Prime Rate or the
Federal Funds Effective Rate plus 1/2 %, or (iii) a combination thereof, at the
Company's option. The Amended PNC Credit Agreement contained certain restrictive
covenants and required the Company to maintain certain financial ratios. A
change of control of the Company, as defined in the Amended PNC Credit
Agreement, was an event of default. Borrowings under the Amended PNC Credit
Agreement were secured by substantially all of the assets of the Company and its
domestic subsidiaries.
Effective December 3, 1997, PNC completed the syndication of the Amended PNC
Credit Agreement. In connection therewith, PNC, as administrative agent, a
syndication of lenders and the Company entered into a First Amendment to the
Amended PNC Credit Agreement providing for, among other things, an increase in
the maximum commitment to $250 million from $200 million.
In connection with the acquisition of Dawson, the total consideration paid for
the Dawson Shares pursuant to the Tender Offer and the First Merger was
approximately $181.7 million. The Company's source of funds to pay such amount,
certain outstanding debt of Dawson and the Company and related fees and expenses
was (i) a bridge loan agreement in the amount of $150,000,000, dated as of
September 14, 1998, among the Company, Lehman Brothers Inc., as Arranger, and
Lehman Commercial Paper Inc., as Administrative Agent, and the other lenders
party thereto (the "Bridge Loan Agreement"). and (ii) a $550,000,000 Second
Amended and Restated Credit Agreement, dated as of June 6, 1997, as amended and
restated through September 14, 1998, among the Company, PNC Bank, National
Association, as Administrative Agent, Norwest Bank Texas, N.A., as Collateral
Agent, PNC Capital Markets, Inc., as Arranger, and the other lenders named from
time to time parties thereto (the "Second Amended and Restated Credit
Agreement").
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
At September 30, 1998, $150,000,000 in principal amount under the Bridge Loan
Agreement was outstanding. Interest under the Bridge Loan Agreement is payable
on the 16th day of each month beginning October 16, 1998 and is currently
payable at LIBOR plus 6.5%. In connection with the Bridge Loan Agreement, the
Company entered into a Registration Rights Agreements (the "Registration Rights
Agreements") with Lehman Brothers Inc. and Lehman Commercial Paper Inc. pursuant
to which the Company agreed to file with the Securities and Exchange Commission
(the "Commission") within a certain time period a registration statement with
respect to (i) an offer to exchange borrowings under the Bridge Loan Agreement
for a new issue of debt securities of the Company, and (ii) the resale of
warrants (and the shares of common stock of the Company to be issued upon the
exercise of such warrants) to purchase shares of common stock of the Company
issued to Lehman Brothers Inc. in connection with the Bridge Loan Agreement. The
value of such warrants do not have a recorded value due to the fact that such
warrants are currently held in escrow and will only be released if certain
conditions are met and/or certain events occur and that the basic terms of the
warrants, including the number of shares subject to the warrants and the
exercise price for such shares, will not be determined until the release date,
if such release occurs. Loans outstanding after one year pursuant to the Bridge
Loan Agreement will convert into term loans which may be exchanged by the
holders thereof for exchange notes issued pursuant to an Indenture dated as of
September 14, 1998 (the "Indenture"), between the Company and The Bank of New
York, trustee.
At September 30, 1998, $300,000,000 in principal amount ($150,000,000 classified
as tranche term loan A, "Tranche A Term Loan" and $150,000,000 classified as
tranche term loan B, "Tranche B Term Loan") was outstanding under the Second
Amended and Restated Credit Agreement. In addition, at September 30, 1998, there
was $250,000,000 available in revolving commitments under the Second Amended and
Restated Credit Agreement.
The Tranche A Term Loan requires interest payable monthly at LIBOR plus 2.75%
and matures in sixteen consecutive quarterly installments commencing December
14, 1999. Quarterly installment amounts are equal to the applicable percentage
for a particular quarter multiplied by the outstanding principal amount: 4% for
installments 1 - 4, 6% for installments 5 - 8, 7% for installments 9 - 12 and 8%
for installments 13 - 16. Tranche B Term Loan requires interest payable monthly
at LIBOR plus 3.25% and matures in nineteen consecutive quarterly installments
commencing December 14, 1999. Quarterly installment amounts are equal to the
applicable percentage for a particular quarter multiplied by the outstanding
principal amount: 0.25% for installments 1 - 16, 24% for installments 17 - 18
and 48% for the final 19th installment.
In connection with the Bridge Loan Agreement and the Second Amended and Restated
Credit Agreement referred to above, the Company incurred approximately $19.6
million in various fees and associated financing charges.
In addition, the Company, its subsidiaries and U.S. Trust Company of Texas,
N.A., trustee ("U.S. Trust"), entered into a Supplemental Indenture dated
September 21, 1998 (the "Supplemental Indenture"), pursuant to which the Company
assumed the obligations of Dawson under the Indenture dated February 20, 1997
(the "Dawson Indenture") between Dawson and U.S. Trust. Most of the Company's
subsidiaries guaranteed those obligations and the notes issued pursuant to the
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
Dawson Indenture were equally and ratably secured with the obligations under the
Second Amended and Restated Credit Agreement. At September 30, 1998 there was
$140 million in principal amount of notes outstanding under the Dawson
Indenture. The notes bear interest at 9 3/8% with interest payments due on
February 1 and August 1 of each year. Approximately $5.9 million of interest was
paid by Dawson on August 1, 1998, prior to completion of the Tender Offer. As a
result of the completion of the Tender Offer, the Company is required and has
commenced a cash tender offer to purchase all of the outstanding notes at 101%
all of the aggregate principal amount of the outstanding notes (which
outstanding amount is $140 million), the source of funds for which will be
borrowings under the Second Amended and Restated Credit Agreement.
Additionally, the Company had outstanding letters of credit of $2,612,000 as of
September 30 and June 30, 1998 related to its workers compensation insurance.
The Company is contractually restricted from paying dividends under the terms of
the Bridge Loan Agreement and the Second Amended and Restated Credit Agreement.
(ii) 5% Convertible Subordinated Notes
On September 25, 1997, the Company completed an initial closing of its private
placement of $200 million of 5% Convertible Subordinated Notes due 2004 (the
"Notes"). On October 7, 1997, the Company completed a second closing of its
private placement of an additional $16 million of Notes pursuant to the exercise
of the remaining portion of the over-allotment option granted to the initial
purchasers of Notes. The placements were made as private offerings pursuant to
Rule 144A and Regulation S under the Securities Act of 1933. The Notes are
subordinate to the Company's senior indebtedness, which, as defined in the
indenture under which the Notes were issued, includes the borrowings under the
Second Amended and Restated Credit Agreement. The Notes are convertible, at the
holder's option, into shares of Common Stock at a conversion price of $38.50 per
share, subject to certain adjustments.
The Notes are redeemable, at the Company's option, on or after September 15,
2000, in whole or part, together with accrued and unpaid interest. The initial
redemption price is 102.86% for the year beginning September 15, 2000 and
declines ratably thereafter on an annual basis.
In the event of a change in control of the Company, as defined in the indenture
under which the Notes were issued, each holder of Notes will have the right, at
the holder's option, to require the Company to repurchase all or any part of the
holder's Notes, within 60 days of such event, at a price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest thereon.
Proceeds from the placement of the Notes were used to repay then outstanding
balances under the Company's credit facilities (see above). At September 30,
1998, $216,000,000 principal amount of the Notes remain outstanding. Interest on
the Notes is payable on March 15 and September 15. Interest of approximately
$5.4 million was paid on September 15, 1998.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
(iii) 7% Convertible Subordinated Debentures
In July 1996, the Company completed a $52,000,000 private offering of 7%
Convertible Subordinated Debentures due 2003 (the "Debentures") pursuant to Rule
144A under the Securities Act of 1933, as amended (the "Securities Act"). The
Debentures are subordinate to the Company's senior indebtedness, which as
defined in the indenture pursuant to which the Debentures were issued includes
the borrowings under the Second Amended and Restated Credit Agreement.
The Debentures are convertible, at any time prior to maturity, at the holders'
option, into shares of Common Stock at a conversion price of $9.75 per share,
subject to certain adjustments. In addition, Debenture holders who convert prior
to July 1, 1999 will be entitled to receive a payment, in cash or Common Stock
(at the Company's option), generally equal to 50% of the interest otherwise
payable from the date of conversion through July 1, 1999.
The Debentures are redeemable, at the option of the Company, on or after July
15, 1999, at a redemption price of 104%, decreasing 1% per year on each
anniversary date thereafter. In the event of a change in control of the Company,
as defined in the indenture under which the Debentures were issued, each holder
of Debentures will have the right, at the holder's option, to require the
Company to repurchase all or any part of the holder's Debentures within 60 days
of such event at a price equal to 100% of the principal amount thereof, together
with accrued and unpaid interest thereon.
As of September 30, 1998, $47,400,000 in principal amount of the Debentures had
been converted into 4,861,538 shares of common stock at the option of the
holders. An additional 165,423 shares of common stock were issued representing
50% of the interest otherwise payable from the date of conversion through July
1, 1999 and an additional 35,408 shares of common stock were issued as an
inducement to convert. The additional 165,423 shares of common stock,
representing 50% of the interest otherwise payable from the date of conversion
through July 1, 1999, are included in equity. The fair value of the additional
35,408 shares of common stock issued as inducement to convert was $710,186 and
is recorded as interest expense in the unaudited consolidated statement of
operations for the three months ended September 30, 1997. In addition, the
proportional amount of unamortized debt issuance costs associated with the
converted Debentures was charged to additional paid-in capital at the time of
conversion.
At September 30, 1998, $4,600,000 principal amount of the Debentures remained
outstanding. Interest on the Debentures is payable on January 1 and July 1 of
each year. Interest of approximately $172,500 was paid on July 1, 1998
(iv) Other Notes Payable
At September 30, 1998, other notes payable consisted primarily of capital leases
for automotive equipment and equipment leases with varying interest rates and
principal and interest payments.
KEY ENERGY GROUP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - Continued
5. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131 - Disclosures about Segments
of an Enterprise and Related Information
Statement of Financial Accounting Standards No. 131 ("SFAS 131") - Disclosures
about Segments of an Enterprise and Related Information, which establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 also establishes standards
for related disclosure about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. SFAS 131 need not be applied to interim financial
statements in the initial year of its application. However, comparative
information for interim periods in the initial year of application is to be
reported in the financial statements for interim periods in the second year of
application. The Company will adopt SFAS 131 for the fiscal year ended June 30,
1999. The Company does not expect SFAS 131 to materially affect the Company's
reporting practices.
6. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of business are pending
against the Company. Management does not believe that the disposition of any of
these items will result in a material adverse impact to the consolidated
financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.
Current and Subsequent Events
During the three months ended September 30, 1998, the Company completed the
acquisition of the following well servicing, trucking, drilling and ancillary
equipment companies and businesses:
Colorado Well Service, Inc.
Oilfield service assets of TransTexas Gas Corporation
Well servicing assets of Flint Engineering & Construcion Co.
Dawson Production Services, Inc.
Iceberg, S.A.
HSI Group
These acquisitions (which are more fully described in Note 3 to the unaudited
consolidated financial statements) involve approximately 620 well service rigs
(including four well service rigs in Argentina), 388 trucks and one drilling
rig. The total purchase price of these acquisitions totaled approximately $288.9
million in cash, excluding any assumed net liabilities.
As of November 11, 1998, the Company owned a fleet of approximately 1,424 well
service rigs, 1,121 oilfield trucks, and 74 drilling rigs, including 21 service
rigs, 28 trucks and six drilling rigs in Argentina and three drilling rigs in
Canada. Management currently believes that the Company's well servicing rig and
oilfield truck fleet are the largest onshore fleets in the world. The Company
operates in all major onshore oil and gas producing regions of the continental
United States and provides a full range of drilling, completion, maintenance,
workover and plugging and abandonment services for the oil and gas industry.
Impact of Lower Crude Oil Prices
As the result of the prolonged lower oil prices, the Company's drilling,
completion and workover activity have been adversely affected. Equipment
utilization for drilling, completion and workover activity has continued to
decline throughout the last three months of fiscal year 1998 and the first three
months of fiscal 1999. The demand for these services, which generate higher
margins, will continue to be adversely affected until oil prices substantially
increase from their current depressed levels.
Growth Strategy
Historically, the domestic well servicing industry has been highly fragmented,
characterized by a large number of smaller companies which have competed
effectively on a local basis in terms of pricing and the quality of services
offered. In recent years, however, many major and independent oil and gas
companies have placed increasing emphasis not only on pricing, but also on the
safety records and quality management systems of, and the breadth of services
offered by, their vendors, including well servicing contractors. This market
environment, which requires significant expenditures by smaller companies to
meet these increasingly rigorous standards, has forced many smaller well
servicing companies to sell their operations to larger competitors. As a result,
the industry has seen high levels of consolidation among the competing
contractors.
Over the past two and one-half years, the Company has been the leading
consolidator of this industry, completing in excess of 50 acquisitions of well
servicing and drilling operations through September 30, 1998. This consolidation
has led to reduced fragmentation in the market and a more predictable demand for
well services for the Company and its competitors. The Company's management
structure is decentralized, which allows for rapid integration of acquisitions
and the retention of strong local identities of many of the acquired businesses.
As a result of the Company's recent growth through acquisition, the Company has
developed a strategy to:
1. Maximize operating efficiences by focusing on reducing costs;
2. Fully integrate acquisitions into the Company's decentralized
organizational structure and thereby attempt to maximize operating margins;
3. Expand business lines and services offered by the Company in existing areas
of operations; and
4. Extend the geographic scope and operating environments for the Company's
operations.
If the current decline in the oil prices persists for a protracted period or a
recovery in such prices remains uncertain, the Company may curtail or halt its
growth strategy until such time as prices reach more favorable ranges.
RESULTS OF OPERATIONS
The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations. It should be read
in conjunction with the unaudited consolidated financial statements and related
notes thereto appearing elsewhere in this report.
QUARTER ENDED SEPTEMBER 30, 1998 VERSUS THE QUARTER ENDED SEPTEMBER 30, 1997
Net Income
For the quarter ended September 30, 1998, the Company reported net income of
$1,837,000 ($.10 per share - basic) as compared to $4,111,000 ($.29 per share -
basic) for the quarter ended September 30, 1997, representing a decrease of
$2,274,000, or 55% (66% decrease in basic earnings per share). The decrease in
net income is primarily attributable to the Company's decrease in service and
drilling rig utilization rates.
Revenues
The Company's total revenues for the quarter ended September 30, 1998 increased
by $40,188,000, or 53%, to $115,587,000 compared to $75,399,000 reported for the
quarter ended September 30, 1997. The increase is primarily attributable to the
Company's acquisitions of oilfield service and drilling rig companies over the
past twelve months, offset by the Company's decrease in service and drilling rig
utilization rates.
Oilfield service revenues for the quarter ended September 30, 1998 increased by
$36,301,000, or 52%, to $105,799,000 compared to $69,498,000 reported for the
quarter ended September 30, 1997. The increase is primarily attributable to the
Company's acquisitions of oilfield service companies over the past twelve
months, offset by the Company's decrease in oilfield service rig utilization
rates.
Drilling revenues for the quarter ended September 30, 1998 increased by
$4,787,000, or 170%, to $7,610,000 compared to $2,823,000 reported for the
quarter ended September 30, 1997. The increase is primarily attributable to the
Company's drilling rig acquisitions over the past twelve months, offset by the
Company's decrease in drilling rig utilization rates.
Costs and Expenses and Operating Margins
The Company's total costs and expenses for the quarter ended September 30, 1998
increased by $43,549,000, or 63%, to $112,430,000 compared to $68,881,000
reported for the quarter ended September 30, 1997. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's acquisitions over the past twelve months.
Oilfield service expenses for the quarter ended September 30, 1998 increased by
$25,459,000, or 53%, to $73,698,000 compared to $48,239,000 reported for the
quarter ended September 30, 1997. Oilfield service margins (revenues less direct
costs and expenses) increased for the quarter ended September 30, 1998 by
$10,842,000, or 51%, to $32,101,000 compared to $21,259,000 for the quarter
ended September 30, 1997. Oilfield service margins as a percentage of oilfield
service revenue for the quarters ended September 30, 1998 and 1997 was 30% and
31%, respectively. In addition, the Company has continued to expand its
services, offering higher margin ancillary services and equipment such as well
fishing tools, blow-out preventers and frac tanks.
The Company's contract drilling costs and expenses for the quarter ended
September 30, 1998 increased by $5,064,000, or 224%, to $7,327,000 compared to
$2,263,000 for the quarter ended September 30, 1997. Oilfield drilling margins
for the Company's drilling operations during the quarter ended September 30,
1998 decreased by $277,000, or 49%, to $283,000 compared to $560,000 for the
quarter ended September 30, 1997. Oilfield drilling margin as a percentage of
oilfield drilling revenue for the quarters ended September 30, 1998 and 1997 was
4% and 20%, respectively. Such decreases are attributable to the decreases in
onshore drilling due to the lower crude oil and natural gas prices.
General and administrative expenses for the quarter ended September 30, 1998
increased by $3,760,000, or 49%, to $11,438,000 compared to $7,678,000 for the
quarter ended September 30, 1997. The increase was primarily attributable to the
Company's recent acquisitions and expanded services. General and administrative
expenses as a percentage of total revenue for the quarters ended September 30,
1997 and 1998 was 10% for each period.
Depreciation, depletion and amortization expense for the quarter ended September
30, 1998 increased by $5,891,000, or 122%, to $10,703,000 compared to $4,812,000
for the quarter ended September 30, 1997. The increase is directly related to
the increase in property and equipment and intangible assets of the Company over
the past twelve months as a result of its acquisitions.
Interest expense for the quarter ended September 30, 1998 increased by
$3,419,000, or 67%, to $8,505,000 compared to $5,086,000 for the quarter ended
September 30, 1997. The increase was primarily the result of increased
indebtedness used to finance the Company's acquisition program.
Income tax expense for the quarter ended September 30, 1998 decreased by
$1,087,000, or 45%, to $1,320,000 compared to $2,407,000 for the quarter ended
September 30, 1997. The effective tax rate for the quarter ended September 30,
1998 as compared to the quarter ended September 30, 1997 has increased due to
amortization of intangible assets (which is generally non-deductible for tax
purposes). The Company does not expect to have to pay the full amount of the
income tax provision because of the availability of accelerated tax
depreciation, drilling tax credits, and tax loss carry-forwards.
Cash Flows
Net cash provided by operating activities for the quarter ended September 30,
1998 increased by $8,348,000 or 206%, to $12,408,000 compared to $4,060,000
provided for the quarter ended September 30, 1997. This increase is primarily
related to the Company's acquisitions over the past twelve months.
Net cash used in investing activities for the quarter ended September 30, 1998
increased by $122,553,000, or 93%, to $254,407,000 compared to $131,854,000 used
for the quarter ended September 30, 1997. This increase is primarily related to
the Company's acquisitions over the past twelve months.
Net cash provided by financing activities for the quarter ended September 30,
1998 increased by $121,285,000 or 90%, to $256,651,000 compared to $135,366,000
provided during the quarter ended September 30, 1997. The increase is primarily
the result of borrowings of long-term debt used to finance the Company's
acquisition program.
LIQUIDITY, CAPITAL COMMITMENTS AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash of $39.9 million compared to $25.3
million at June 30, 1998 and $49.3 million at September 30, 1997. At September
30, 1998, the Company had working capital of $73.9 million compared to $79.5
million at June 30, 1998 and $77.9 million at September 30, 1997.
In addition to its ongoing acquisition program, for fiscal 1999, the Company has
projected approximately $40 million of capital expenditures for improvements of
existing service and drilling rig machinery and equipment, a decrease of $12.1
million over the $52.1 million expended during fiscal 1998. The Company expects
to finance these capital expenditures through internally generated operating
cash flows. Capital expenditures for service and drilling rig improvements for
the three months ended September 30, 1998 and 1997 were $7.6 million and $7.0
million, respectively.
The Company has projected approzimately $2.0 million of capital expenditures for
oil and gas exploration for fiscal 1999 as compared to $7.8 million expended for
fiscal 1998. Financing of these costs is expected to come from operations and
available credit facilities. For the three months ended September 30, 1998 and
1997, the Company expended $1.6 million and $2.1 million, respectively.
The Company's primary capital resources are net cash provided by operations and
proceeds from certain long-term debt facilities.
Year 2000 Issue
The Company is currently implementing a new integrated management information
system along with updated hardware that will replace most of the systems
currently utilized. The implementation of the new management information system,
which is Year 2000 compliant, began in July 1998 and is scheduled to be
substantially completed by June 1999. The Company has not yet developed a plan
to formally communicate with its significant suppliers and customers to
determine if those parties have appropriate plans to remedy year 2000 issues
when their systems interface with the Company's systems or may otherwise impact
the operations of the Company. The Company does not anticipate that this will
have a material impact on operations. However, there can be no assurance that
the systems of other companies on which the Company's processes rely will be
timely converted, or that failure to successfully convert by another company, or
conversion that is incompatible with the Company's systems, would not have an
impact on the Company's operations. A potential source of risk includes, but is
not limited to, the inability of principal suppliers and major customers to be
year 2000 compliant, which could result in delays in product deliveries from
such suppliers and collection of accounts receivables. The Company currently
does not have a contingency plan in place to cover any unforeseen problems
encountered that relate to the year 2000, but intends to produce one before the
end of the fiscal year.
The cost of the new management information system, (a large part of which
management expects will be capitalized) is not expected to have a material
impact on the Company's business, operations or results thereof, financial
condition, liquidity or capital resources. Although the Company is not aware of
any material operational issues or costs associated with preparing its internal
systems for the year 2000, there can be no assurance that there will not be a
delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the year 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities:
During the three months ended September 30, 1998, the Company effected the
following sales of unregistered securities:
Effective September 14, 1998, in connection with the Bridge Loan Agreement, the
Company issued to Lehman Brothers, Inc. warrants to purchase a number of shares
of Common Stock at a per share exercise price to be determined on the date, if
any, such warrants are released from escrow, such release to occur if certain
conditions are met and/or certain events occur. The issuance of the warrants was
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, as a sale of securities not invovling any public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of the Form 10-Q
Number Description
10(a)Asset Purchase Agreement among Key Four Corners, Inc., Colorado Well
Service, Inc. and Keith Poole effective July 10, 1998.
10(b)Asset Purchase Agreement among Key Energy Services - South Texas, Inc. and
TransTexas Gas Corporation effective August 17, 1998.
10(c)Asset Purchase Agreement among Key Energy Group, Inc., Flint Engineering &
Construction Co. and Flint Industries, Inc. effective September 9, 1998.
10(d)Asset Purchase Agreement among Dawson Production Partners, L.P., Dawson
Production Services, Inc., and Hellums Services II, Inc., Superior
Completion Services, Inc., South Texas Disposal, Inc., Elsik II, Inc.,
Roger D. Hellums, Charles C. Forbes, Jr., Robert W. Randle, Jr., Ronald D.
Brieden, John E. Crisp, Charles Talley, and James J. Acker effective August
14, 1998.
10(e)Commitment Letter between Key Energy Group, Inc. and PNC Bank, N.A., dated
as of August 17, 1998 (filed as Exhibit (b)(1) to Schedule 14D-1 and
Schedule 13D filed by Midland Acquisition Corp. and the Company on August
12, 1998, File No. 005-47031, and incorporated herein by reference).
10(f)Engagement Letter between Key Energy Group, Inc. and Bear, Stearns & Co,
Inc., dated as of May 8, 1998. (filed as Exhibit (b)(2) to Schedule 14D-1
and Schedule 13D filed by Midland Acquisition Corp. and the Company on
August 12, 1998, File No. 005-47031, and incorporated herein by reference).
10(g)Engagement Letter between Key Energy Group, Inc. and Dain Rauscher
Wessels, dated as of July 2, 1998. (filed as Exhibit (b)(3) to Schedule
14D-1 and Schedule 13D filed by Midland Acquisition Corp. and the Company
on August 12, 1998, File No. 005-47031, and incorporated herein by
reference).
10(h)Confidentiality Agreement, dated as of August 8, 1998 by and among Key
Energy Group, Inc., Midland Acquisition Corp. and Dawson Production
Services, Inc. (filed as Exhibit (c)(2) to Schedule 14D-1 and Schedule 13D
filed by Midland Acquisition Corp. and the Company on August 12, 1998, File
No. 005-47031, and incorporated herein by reference).
10(i)Agreement and Plan of Merger, dated as of August 11, 1998, by and among
Key Energy Group, Inc., Midland Acquisition Corp. and Dawson Production
Services, Inc. (filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated
herein by reference).
10(j)$150,000,000 Bridge Loan Agreement, dated as of September 14, 1998 among
Key Energy Group, Inc., Lehman Brothers Inc., Lehman Commercial Paper Inc.,
and certain lenders and guarantors. (filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated September 28, 1998, File No. 001-08038,
and incorporated herein by reference).
10(k)Indenture for the Key Energy Group, Inc. Exchange Notes due 2008, dated as
of September 14, 1998 (filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K dated September 28, 1998, File No. 001-08038, and
incorporated herein by reference).
10(l)Warrant Agreement among Key Energy Group, Inc. and The Bank of New York as
Trustee, dated as of September 14, 1998. (filed as Exhibit 99.3 to the
Company's Current Report on Form 8-K dated September 28, 1998, File No.
001-08038, and incorporated herein by reference).
10(m)Debt Registration Rights Agreement, among Key Energy Group, Inc., Lehman
Commercial Paper Inc. and the guarantors set forth therein, dated as of
September 14, 1998 (filed as Exhibit 99.4 to the Company's Current Report
on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated
herein by reference).
10(n)Equity Registration Rights Agreement, between Key Energy Group, Inc. and
Lehman Brothers Inc., dates as of September 14 1998 (filed as Exhibit 99.5
to the Company's Current Report on Form 8-K dated September 28, 1998, File
No. 001-08038, and incorporated herein by reference).
10(o)Escrow Agreement among Key Energy Group, Inc., Lehman Brothers Inc.,
Lehman Commercial Paper Inc. and The Bank of New York, dated as of
September 14, 1998 (filed as Exhibit 99.6 to the Company's Current Report
on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated
herein by reference).
10(p)$550,000,000 Second Amended and Restated Credit Agreement, among Key
Energy Group, Inc., PNC Bank, National Association, Norwest Bank Texas,
N.A., PNC Capital Markets, Inc. and the several lenders from time to time
parties thereto, dated as of June 6, 1997, as amended and restated through
September 14, 1998 (filed as Exhibit 99.7 to the Company's Current Report
on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated
herein by reference).
10(q)Amended and Restated Master Guarantee and Collateral Agreement made by Key
Energy Group, Inc. and certain of its subsidiaries in favor of Norwest Bank
Texas, N.A., dated as of June 6, 1998, as amended and restated through
September 14, 1998 (filed as Exhibit 99.8 to the Company's Current Report
on Form 8-K dated September 28, 1998, File No. 001-08038, and incorporated
herein by reference).
10(r)Intercreditor and Collateral Agency Agreement, dated as of September 14,
1998 (filed as Exhibit 99.9 to the Company's Current Report on Form 8-K
dated September 28, 1998, File No. 001-08038, and incorporated herein by
reference).
10(s)Indenture dated February 20, 1997 between Dawson Production Services, Inc.
and U.S. Trust Company of Texas, N.A. (filed as Exhibit 99.10 to the
Company's Current Report on Form 8-K dated September 28, 1998, File No.
001-08038, and incorporated herein by reference).
10(t)Supplemental Indenture dated September 21, 1998, among Key Energy Group,
Inc., its Subsidiaries and U.S. Trust Company of Texas, N.A. (filed as
Exhibit 99.11 to the Company's Current Report on Form 8-K dated September
28, 1998, File No. 001-08038, and incorporated herein by reference).
10(u)Form of Indemnification Agreement and provisions regarding indemnification
of directors and officers from the Company's Articles of Incorporation and
Bylaws (filed as Exhibit 3 to the Schedule 14D-9 filed by Dawson Production
Services, Inc. on August 17, 1998, and incorporated herein by reference).
10(v)Employment Agreement effective as of April 1, 1996 between the Company and
Michael E. Little (filed as Exhibit 4 to the Schedule 14D-9 filed by Dawson
Production Services, Inc. on August 17, 1998, File No. 005-47031, and
incorporated herein by reference).
10(w)Amendment No. 1 to Employment Agreement between the Company and Michael E.
Little (filed as Exhibit 5 to the Schedule 14D-9 filed by Dawson Production
Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated
herein by reference).
10(x)Amendment No. 2 to Employment Agreement between the Company and Michael E.
Little (filed as Exhibit 6 to the Schedule 14D-9 filed by Dawson Production
Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated
herein by reference).
10(y)Employment Agreement effective as of April 1, 1996 between the Company and
Joseph Eustace (filed as Exhibit 7 to the Schedule 14D-9 filed by Dawson
Production Services, Inc. on August 17, 1998, File No. 005-47031, and
incorporated herein by reference).
10(z)Amendment No. 1 to Employment Agreement between the Company and Joseph
Eustace (filed as Exhibit 8 to the Schedule 14D-9 filed by Dawson
Production Services, Inc. on August 17, 1998, File No. 005-47031, and
incorporated herein by reference).
10(aa) Employment Agreement effective as of July 1, 1998 between the Company
and Jim Byerlotzer (filed as Exhibit 9 to the Schedule 14D-9 filed by
Dawson Production Services, Inc. on August 17, 1998, File No. 005-47031,
and incorporated herein by reference).
10(bb) Amendment No. 1 to Employment Agreement between the Company and Jim
Byerlotzer (filed as Exhibit 10 to the Schedule 14D-9 filed by Dawson
Production Services, Inc. on August 17, 1998, File No. 005-47031, and
incorporated herein by reference).
10(cc) Employment Agreement effective April 1, 1996 between the Company and P.
Mark Stark (filed as Exhibit 11 to the Schedule 14D-9 filed by Dawson
Production Services, Inc. on August 17, 1998, File No. 005-47031, and
incorporated herein by reference).
10(dd) Amendment No. 1 to Employment Agreement between the Company and P. Mark
Stark (filed as Exhibit 12 to the Schedule 14D-9 filed by Dawson Production
Services, Inc. on August 17, 1998, File No. 005-47031, and incorporated
herein by reference).
10(ee) Employee Severance Pay Plan of Dawson Production Services, Inc. (filed as
Exhibit 13 to the Schedule 14D-9 filed by Dawson Production Services, Inc.
on August 17, 1998, File No. 005-47031, and incorporated herein by
reference).
10(ff) Consulting Agreement Term Sheet dated August 11, 1998 between the Company
and Midland Acquisition Corp. and Michael E. Little (filed as Exhibit 14 to
the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17,
1998, File No. 005-47031, and incorporated herein by reference).
10(gg) Consulting Agreement Term Sheet dated August 11, 1998 between the Company
and Midland Acquisition Corp. and James J. Byerlotzer (filed as Exhibit 15
to the Schedule 14D-9 filed by Dawson Production Services, Inc. on August
17, 1998, File No. 005-47031, and incorporated herein by reference).
10(hh) Consulting Agreement Term Sheet dated August 11, 1998 between the Company
and Midland Acquisition Corp. and Joseph E. Eustace (filed as Exhibit 16 to
the Schedule 14D-9 filed by Dawson Production Services, Inc. on August 17,
1998, File No. 005-47031, and incorporated herein by reference).
27(a) Statement - Financial Data Schedule
(b) The following report on Form 8-K was filed during the quarter ended
September 30, 1998:
The Company's Current Report on Form 8-K was filed on September 28, 1998 to
report the Company's acquisition of Dawson Production Services, 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.
KEY ENERGY GROUP, INC.
(Registrant)
By /s/ Francis D. John
Dated: November 16, 1998 President and Chief Executive Officer
By /s/ Stephen E. McGregor
Dated: November 16, 1998 Executive Vice President, Chief Financial
Officer and Treasurer
By /s/ Danny R. Evatt
Dated: November 16, 1998 Vice President Financial Operations and
Principal Accounting Officer