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 December 31, 2000
[ ] 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 SERVICES, 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 February 12, 2001 - 98,275,659
1
KEY ENERGY SERVICES, INC.
INDEX
- ------------------------------------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 2000 (unaudited) and June 30, 2000....................................3
Unaudited Consolidated Statements of
Operations for the Three and Six Months Ended
December 31, 2000 and 1999.........................................................4
Unaudited Consolidated Statements of
Cash Flows for the Three and Six Months Ended
December 31, 2000 and 1999.........................................................5
Consolidated Statements of Comprehensive
Income for the Three and Six Months Ended
December 31, 2000 and 1999.........................................................6
Notes to Consolidated Financial Statements.........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................23
Item 2. Changes in Securities and Use of Proceeds.............................................23
Item 3. Defaults Upon Senior Securities.......................................................23
Item 4. Submission of Matters to a Vote of Security Holders...................................23
Item 5. Other Information.....................................................................23
Item 6. Exhibits and Reports on Form 8-K......................................................23
Signatures..............................................................................................25
2
KEY ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
(THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash.......................................................................................... $ 1,919 $ 109,873
Accounts receivable, net of allowance for doubtful accounts of $3,848 and $3,189, at
December 31, 2000 and June 30, 2000, respectively............................................. 144,813 123,203
Inventories................................................................................... 15,126 10,028
Prepaid income taxes.......................................................................... - 5,588
Prepaid expenses and other current assets..................................................... 5,587 4,897
----------------- -------------
Total current assets............................................................................ 167,445 253,589
----------------- -------------
Property and equipment:
Oilfield service equipment.................................................................... 688,313 668,107
Contract drilling equipment................................................................... 110,994 105,454
Motor vehicles................................................................................ 58,901 55,042
Oil and natural gas properties and other related equipment, successful efforts method......... 44,095 43,855
Furniture and equipment....................................................................... 16,334 11,013
Buildings and land............................................................................ 37,358 36,966
----------------- -------------
955,995 920,437
Accumulated depreciation & depletion............................................................ (190,177) (159,876)
----------------- -------------
Net property and equipment...................................................................... 765,818 760,561
----------------- -------------
Goodwill, net................................................................................. 194,540 198,633
Deferred costs, net........................................................................... 16,395 18,855
Notes receivable - related parties............................................................ 5,100 5,150
Other assets.................................................................................. 9,306 9,477
----------------- -------------
Total assets.................................................................................. $1,158,604 $1,246,265
================= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................................. $ 30,284 $ 35,801
Other accrued liabilities..................................................................... 31,041 26,398
Accrued interest.............................................................................. 13,552 15,994
Current portion of long-term debt............................................................. 7,703 14,655
----------------- -------------
Total current liabilities....................................................................... 82,580 92,848
----------------- -------------
Long-term debt, less current portion............................................................ 535,039 651,945
Deferred revenue................................................................................ 15,373 17,031
Non-current accrued expenses.................................................................... 2,507 1,847
Oil and natural gas collars..................................................................... 1,408 -
Deferred tax liability.......................................................................... 112,121 99,707
Commitments and contingencies................................................................... - -
Stockholders' equity:
Common stock, $.10 par value; 200,000,000 shares authorized, 98,408,047 and 97,209,504 shares
issued, at December 31, 2000 and June 30, 2000, respectively.................................. 9,843 9,723
Additional paid-in capital.................................................................... 421,196 413,962
Treasury stock, at cost; 416,666 shares at December 31, 2000 and June 30, 2000................ (9,682) (9,682)
Accumulated other comprehensive income........................................................ (526) 8
Retained earnings (deficit)................................................................... (11,255) (31,124)
----------------- -------------
Total stockholders' equity...................................................................... 409,576 382,887
----------------- -------------
Total liabilities and stockholders' equity...................................................... $1,158,604 $1,246,265
================= =============
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
KEY ENERGY SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---------------------------------------------------
(thousands, except per share data)
REVENUES:
Well servicing ............................................................. $ 178,650 $ 138,722 $ 345,215 $ 269,539
Contract drilling .......................................................... 24,178 18,212 46,323 34,670
Oil and natural gas production ............................................. 835 2,642 2,925 4,662
Other, net ................................................................. 248 (187) 1,127 410
--------------------------- ----------------------
203,911 159,389 395,590 309,281
--------------------------- ----------------------
COSTS AND EXPENSES:
Well servicing ............................................................. 118,123 98,952 229,809 198,166
Contract drilling .......................................................... 18,360 15,766 35,818 30,037
Oil and natural gas production ............................................. 665 936 1,988 1,936
Depreciation, depletion and amortization ................................... 18,146 18,055 36,457 34,876
General and administrative ................................................. 15,264 14,730 29,631 28,642
Bad debt expense ........................................................... 709 789 903 1,266
Interest ................................................................... 14,581 18,114 30,692 35,502
--------------------------- ----------------------
185,848 167,342 365,298 330,425
--------------------------- ----------------------
Income (loss) before income taxes ............................................. 18,063 (7,953) 30,292 (21,144)
Income tax benefit (expense) .................................................. (6,969) 2,260 (11,688) 6,000
--------------------------- ----------------------
Income (loss) before extraordinary gain ....................................... 11,094 (5,693) 18,604 (15,144)
Extraordinary gain on extinguishment of debt, less applicable income
taxes of $41 and $793, for the three and six months ended December 31,
2000, respectively ............................................................ 68 -- 1,265 --
--------------------------- ----------------------
NET INCOME (LOSS) ............................................................. $ 11,162 $ (5,693) $ 19,869 $ (15,144)
=========================== ======================
EARNINGS (LOSS) PER SHARE :
Basic - before extraordinary gain .......................................... $ 0.11 $ (0.07) $ 0.19 $ (0.18)
Extraordinary gain, net of tax ............................................. -- -- 0.01 --
--------------------------- ----------------------
Basic - after extraordinary gain ........................................... $ 0.11 $ (0.07) $ 0.20 $ (0.18)
=========================== ======================
Diluted - before extraordinary gain ........................................ $ 0.11 $ (0.07) $ 0.19 $ (0.18)
Extraordinary gain, net of tax ............................................. -- -- 0.01 --
--------------------------- ----------------------
Diluted - after extraordinary gain ......................................... $ 0.11 $ (0.07) $ 0.20 $ (0.18)
=========================== ======================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ...................................................................... 97,534 82,738 97,207 82,738
Diluted .................................................................... 100,534 82,738 100,381 82,738
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
KEY ENERGY SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---------------------------------------------------
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ 11,162 $ (5,693) $ 19,869 $ (15,144)
ADJUSTMENTS TO RECONCILE INCOME FROM OPERATIONS TO NET CASH
PROVIDED BY (USED IN) OPERATIONS:
Depreciation, depletion and amortization .................................. 18,146 18,055 36,457 34,876
Bad debt expense .......................................................... 709 789 903 1,266
Amortization of deferred debt costs ....................................... 1,008 1,292 2,416 2,547
Deferred income taxes ..................................................... 6,969 (2,260) 11,688 (6,000)
(Gain) loss on sale of fixed assets ....................................... (41) 202 (40) 196
Other non-cash items ...................................................... 159 (402) 1,620 514
Extraordinary gain, net of tax ............................................ (68) -- (1,265) --
CHANGE IN ASSETS AND LIABILITIES NET OF EFFECTS FROM THE
ACQUISITIONS:
(Increase) decrease in accounts receivable .............................. (7,062) (4,014) (22,513) (24,691)
(Increase) decrease in other current assets ............................. (2,548) (5,579) (200) (8,406)
Increase (decrease) in accounts payable,
accrued interest and accrued expenses ................................... 4,870 7,404 (3,316) 11,332
Other assets and liabilities ............................................ 133 (873) 929 (1,964)
--------------------------- ----------------------
Net cash provided by (used in) operating activities ....................... 33,437 8,921 46,548 (5,474)
--------------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - well servicing ..................................... (9,093) (6,245) (17,095) (9,445)
Capital expenditures - contract drilling .................................. (4,041) (2,121) (7,174) (3,221)
Capital expenditures - oil and natural gas production ..................... (112) (64) (234) (141)
Capital expenditures - other .............................................. (3,830) (594) (5,858) (1,827)
Proceeds from sale of fixed assets ........................................ 850 1,842 952 1,969
Notes receivable from related parties ..................................... -- (150) -- (2,065)
Acquisitions - well servicing ............................................. (1,700) -- (1,700) --
Acquisitions - contract drilling .......................................... (800) -- (800) --
--------------------------- ----------------------
Net cash provided by (used in) investing activities ......................... (18,726) (7,332) (31,909) (14,730)
--------------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and capital lease obligations ................. (16,701) (4,758) (128,029) (6,072)
Borrowings under line-of-credit ........................................... -- -- 4,000 12,000
Equity offering expenses .................................................. (15) -- (178) --
Proceeds from warrants and stock options exercised ........................ 1,289 -- 1,622 --
Other ..................................................................... -- -- (8) --
--------------------------- ----------------------
Net cash provided by (used in) financing activities ....................... (15,427) (4,758) (122,593) 5,928
--------------------------- ----------------------
Net increase (decrease) in cash and cash equivalents ...................... (716) (3,169) (107,954) (14,276)
Cash and cash equivalents at beginning of period .......................... 2,635 12,371 109,873 23,478
--------------------------- ----------------------
Cash and cash equivalents at end of period ................................ $ 1,919 $ 9,202 $ 1,919 $ 9,202
=========================== ======================
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
KEY ENERGY SERVICES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
-------------------------------------------------
(thousands)
NET INCOME (LOSS) ........................................................ $ 11,162 $ (5,693) $ 19,869 $(15,144)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Derivative transition adjustment (See Note 7) .......................... -- -- (778) --
Oil and natural gas collar liability adjustment, net of tax
(See Note 7) ........................................................... (52) -- (52) --
Amortization of oil and natural gas collar derivative (See Note
7) ..................................................................... 146 -- 292 --
Foreign currency translation gain, net of tax .......................... -- -- 4 --
------------------------ -----------------------
COMPREHENSIVE INCOME (LOSS), NET OF TAX .................................. $ 11,256 $ (5,693) $ 19,335 $(15,144)
======================== =======================
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
KEY ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Key Energy Services, Inc. (the
"Company") and its wholly-owned subsidiaries as of December 31, 2000 and for the
three and six month periods ended December 31, 2000 and 1999 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, 2000. The results
of operations for the three and six month periods ended December 31, 2000 are
not necessarily indicative of the results of operations for the full fiscal year
ending June 30, 2001.
RECLASSIFICATIONS AND ADJUSTMENTS
Certain reclassifications have been made to the consolidated financial
statements for the three and six month periods ended December 31, 1999 to
conform to the presentation for the three and six month periods ended December
31, 2000.
2. EARNINGS PER SHARE
The Company accounts for earnings per share based upon Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128,
basic earnings per common share are determined by dividing net earnings
applicable to common stock by the weighted average number of common shares
actually outstanding during the period. Diluted earnings per common share is
based on the increased number of shares that would be outstanding assuming
exercise of dilutive stock options and warrants and conversion of dilutive
outstanding convertible securities using the "as if converted" method.
7
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------------------------- ------------------------
(THOUSANDS, EXCEPT PER (THOUSANDS, EXCEPT
SHARE DATA) PER SHARE DATA)
BASIC EPS COMPUTATION:
NUMERATOR
Income (loss) before extraordinary gain ................................ $ 11,094 $ (5,693) $ 18,604 $ (15,144)
Extraordinary gain, net of tax ......................................... 68 - 1,265 -
-------------------------- ------------------------
Net income (loss) ...................................................... $ 11,162 $ (5,693) $ 19,869 $ (15,144)
========================== ========================
DENOMINATOR
Weighted average common shares outstanding .............................. 97,534 82,738 97,207 82,738
-------------------------- ------------------------
BASIC EPS:
Before extraordinary gain .............................................. $ 0.11 $ (0.07) $ 0.19 $ (0.18)
Extraordinary gain, net of tax ......................................... - - 0.01 -
-------------------------- ------------------------
After extraordinary gain ............................................... $ 0.11 $ (0.07) $ 0.20 $ (0.18)
========================== ========================
DILUTED EPS COMPUTATION:
NUMERATOR
Income (loss) before extraordinary gain ................................. $ 11,094 $ (5,693) $ 18,604 $ (15,144)
Effect of dilutive convertible securities, tax
effected ............................................................... 4 - 26 -
Extraordinary gain, net of tax ......................................... 68 - 1,265 -
-------------------------- ------------------------
Net income (loss) ...................................................... $ 11,166 $ (5,693) $ 19,895 $ (15,144)
========================== ========================
DENOMINATOR
Weighted average common shares outstanding: ............................. 97,534 82,738 97,207 82,738
Warrants ................................................................ 80 - 91 -
Stock options ........................................................... 2,882 - 3,003 -
7% Convertible Debentures ............................................... - - 35 -
-------------------------- ------------------------
100,496 82,738 100,336 82,738
========================== ========================
DILUTED EPS:
Before extraordinary gain .............................................. $ 0.11 $ (0.07) $ 0.19 $ (0.18)
Extraordinary gain, net of tax ......................................... - - 0.01 -
-------------------------- ------------------------
After extraordinary gain ............................................... $ 0.11 $ (0.07) $ 0.20 $ (0.18)
========================== ========================
The earnings per share calculation for the three and six month periods ended
December 31, 2000 excludes the exercise of 1,175,000 stock options and the
conversion of the Company's 5% Convertible Subordinated Notes because the
effects of such instruments on earnings per share would be anti-dilutive.
The earnings per share calculation for the three and six month periods ended
December 31, 1999 excludes the conversion all of the Company's convertible debt
and the exercise of all of the Company's outstanding warrants and stock options
because the effects of such instruments on earnings per share would be
anti-dilutive.
8
3. STOCKHOLDERS' EQUITY
EQUITY OFFERING
On June 30, 2000, the Company closed the public offering of 11,000,000 shares
of common stock at $9.625 per share, or approximately $106 million (the "Equity
Offering"). Net proceeds from the Equity Offering of approximately $101 million
were used to repay a portion of the Company's Senior Credit Facility and to
retire other long-term debt.
4. 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, results of operations or cash flows of the Company.
5. INDUSTRY SEGMENT INFORMATION
The Company operates in three business segments: well servicing, contract
drilling and oil and natural gas production.
WELL SERVICING: The Company's operations provide well servicing (ongoing
maintenance of existing oil and natural gas wells), workover (major repairs or
modifications necessary to optimize the level of production from existing oil
and natural gas wells) and production services (fluid hauling and fluid storage
tank rental).
CONTRACT DRILLING: The Company provides contract drilling services for major
and independent oil companies onshore the continental United States, Argentina
and Ontario, Canada.
OIL AND NATURAL GAS PRODUCTION: The Company produces crude oil and natural gas,
in the Permian Basin and Panhandle areas of West Texas.
WELL CONTRACT OIL AND NATURAL CORPORATE/
SERVICING DRILLING GAS PRODUCTION OTHER TOTAL
--------- -------- --------------- --------- -----
THREE MONTHS ENDED DECEMBER 31, 2000
Operating revenues...................................... $178,650 $24,178 $ 835 $ 248 $203,911
Operating profit ....................................... 60,527 5,818 170 248 66,763
Depreciation, depletion and amortization................ 15,261 1,890 579 416 18,146
Interest expense........................................ 446 - - 14,135 14,581
Net income (loss) before extraordinary gain*............ 24,720 1,208 (503) (14,331) 11,094
Identifiable assets..................................... 639,979 91,066 34,773 198,246 964,064
Capital expenditures (excluding acquisitions)........... 9,093 4,041 112 3,830 17,076
THREE MONTHS ENDED DECEMBER 31, 1999
Operating revenues...................................... $138,722 $18,212 $ 2,642 $ (187) $159,389
9
Operating profit........................................ 39,770 2,446 1,706 (187) 43,735
Depreciation, depletion and amortization................ 15,290 1,806 602 357 18,055
Interest expense........................................ 762 - - 17,352 18,114
Net income (loss) *..................................... 13,679 (1,192) 500 (18,680) (5,693)
Identifiable assets..................................... 753,514 107,767 39,803 44,176 945,260
Capital expenditures (excluding acquisitions)........... 6,245 2,121 64 594 9,024
*Net income (loss) for the contract drilling segment
includes a portion of well servicing general and
administrative expenses allocated on a percentage of
revenue basis.
Operating revenues for the Company's foreign operations for the three months
ended December 31, 2000 and 1999 were $11.9 million and $8.9 million,
respectively. Operating profits for the Company's foreign operations for the
three months ended December 31, 2000 and 1999 were $2.7 million and $2.0
million, respectively. The Company had $67.4 million and $62.2 million of
identifiable assets as of December 31, 2000 and 1999, respectively, related to
foreign operations.
WELL CONTRACT OIL AND NATURAL CORPORATE/
SERVICING DRILLING GAS PRODUCTION OTHER TOTAL
--------- -------- --------------- --------- -----
SIX MONTHS ENDED DECEMBER 31, 2000
Operating revenues...................................... $345,215 $ 46,323 $ 2,925 $ 1,127 $395,590
Operating profit ....................................... 115,406 10,505 937 1,127 127,975
Depreciation, depletion and amortization................ 30,950 3,696 1,149 662 36,457
Interest expense........................................ 1,103 - - 29,589 30,692
Net income (loss) before extraordinary gain *........... 46,499 1,861 (516) (29,240) 18,604
Identifiable assets..................................... 639,979 91,066 34,773 198,246 964,064
Capital expenditures (excluding acquisitions)........... 17,095 7,174 234 5,858 30,361
SIX MONTHS ENDED DECEMBER 31, 1999
Operating revenues...................................... $269,539 $ 34,670 $ 4,662 $410 $309,281
Operating profit........................................ 71,373 4,633 2,726 410 79,142
Depreciation, depletion and amortization................ 29,572 3,588 1,172 544 34,876
Interest expense........................................ 1,136 - - 34,366 35,502
Net income (loss) *..................................... 21,828 (1,914) 802 (35,860) (15,144)
Identifiable assets..................................... 753,514 107,767 39,803 44,176 945,260
Capital expenditures (excluding acquisitions)........... 9,445 3,221 141 1,827 14,634
*Net income (loss) for the contract drilling segment
includes a portion of well servicing general and
administrative expenses allocated on a percentage of
revenue basis.
Operating revenues for the Company's foreign operations for the six months
ended December 31, 2000 and 1999 were $23.5 million and $16.9 million,
respectively. Operating profits for the Company's foreign operations for the
six months ended December 31, 2000 and 1999 were $5.2 million and $3.5
million, respectively. The Company had $67.4 million and $62.2 million of
identifiable assets as of December 31, 2000 and 1999 respectively, related to
foreign operations.
10
6. VOLUMETRIC PRODUCTION PAYMENT
In March 2000, Key sold a portion of its future oil and natural gas production
from Odessa Exploration Incorporated, its wholly owned subsidiary, for gross
proceeds of $20 million pursuant to an agreement under which the purchaser is
entitled to receive a portion of the production from certain oil and natural
gas properties over the six year period ending February 28, 2006 in amounts
starting at 10,000 barrels of oil per month and declining to 3,500 barrels of
oil per month and starting at 122,100 Mmbtu of natural gas per month and
declining to 58,800 Mmbtu of natural gas per month. The total volume of the
forward sale is approximately 486,000 barrels of oil and 6,135,000 Mmbtu of
natural gas.
7. DERIVATIVE INSTRUMENTS
As of July 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) as amended by SFAS
No. 137 and No. 138 (SFAS 138). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
the recognition of all derivative instruments as assets or liabilities in the
Company's balance sheet and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not
a derivative instrument is designated as a hedge and if so, the type of hedge.
For derivatives designated as cash flow hedges, changes in fair value are
recognized in other comprehensive income until the hedged item is recognized in
earnings.
The Company periodically hedges a portion of its oil and natural gas production
through collar agreements. The purpose of the hedges is to provide a measure of
stability in the volatile environment of oil and natural gas prices and to
manage exposure to commodity price risk under existing sales commitments. The
Company's risk management objective is to lock in a range of pricing for
expected production volumes. This allows the Company to forecast future
earnings within a predictable range. The Company meets this objective by
entering into a collar arrangement which allows for an acceptable cap and floor
price.
The Company does not enter into derivative instruments for any purpose other
than for economic hedging. The Company does not speculate using derivative
instruments. The Company has identified the following derivative instruments:
FREESTANDING DERIVATIVES. On March 30, 2000 the Company entered into a collar
arrangement for a 22 month time period whereby the Company will pay if the
specified price is above the cap index and the counterparty will pay if the
price should fall below the floor index. The combination of the floor and cap
results in a determinable cash flow for those production streams over that time
period.
11
Prior to the adoption of SFAS No. 133, these collars were accounted for as cash
flow type hedges. Accordingly, the transition adjustment resulted in recording
a $778,000 liability for the fair value of the collars to accumulated other
comprehensive income, of which $292,000 was recognized in earnings during the
six months ended December 31, 2000. It is estimated that $421,000 of this
transition adjustment will be recognized in earnings over the next twelve
months. While this arrangement was intended to be an economic hedge, as of July
1, 2000 the Company had not documented the oil and natural gas collars as cash
flow hedges and therefore has included a charge of $565,000 for the increase in
the fair value of the liability as of September 30, 2000 in other income and
expense. As of October 1, 2000, the Company has documented these collars as
cash flow hedges. During the quarter ended December 31, 2000, the Company
recorded an increase in the derivative liability of $78,000, of which $13,000
represented ineffectiveness and was credited to earnings.
EMBEDDED DERIVATIVES. The Company is party to a production payment that meets
the definition of an embedded derivative under SFAS No. 133. As of July 1,
2000, the Company has determined and documented that the production payment is
excluded from the scope of SFAS No. 133 under the normal purchases/sales
exclusion as set forth in SFAS 138.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements in this document that relate to matters that are not historical
facts are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
When used in this document and the documents incorporated by reference, words
such as "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "will," "could," "may," "predict" and similar expressions are
intended to identify forward-looking statements. Further events and actual
results may differ materially from the results set forth in or implied in the
forward-looking statements. Factors that might cause such a difference include:
- fluctuations in world-wide prices and demand for oil and natural gas;
- fluctuations in the level of oil and natural gas exploration and
development activities;
- fluctuations in the demand for well servicing, contract drilling and
ancillary oilfield services;
- the existence of competitors, technological changes and developments
in the industry;
- the existence of operating risks inherent in well servicing, contract
drilling and ancillary oilfield services; and
12
- general economic conditions, the existence of regulatory
uncertainties, the possibility of political instability in any of the
countries in which the Company does business, in addition to the other
matters discussed herein.
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 consolidated financial statements and related notes
appearing elsewhere in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000 VERSUS THREE MONTHS ENDED DECEMBER 31, 1999
The Company's revenue for the second quarter of fiscal 2001 totaled
$203,911,000, representing an increase of $44,522,000, or 27.9%, as compared to
the prior year period. The increase in the current period reflects higher
activity levels and improved rates. The Company's net income for the second
quarter of fiscal 2001 totaled $11,162,000, or $0.11 per share, versus a net
loss of $5,693,000, or $0.07 per share, for the prior year period.
OPERATING REVENUES
WELL SERVICING. Revenues from well servicing activities for the quarter ended
December 31, 2000 increased $39,928,000, or 28.8%, to $178,650,000 from
$138,722,000 for the three months ended December 31, 1999. The increase in
revenues was primarily due to improved equipment utilization and higher rig,
fluid hauling and ancilliary equipment rates.
CONTRACT DRILLING. Revenues from contract drilling activities for the quarter
ended December 31, 2000 increased $5,966,000, or 32.8%, to $24,178,000 from
$18,212,000 for the three months ended December 31, 1999. The increase in
revenues was primarily due to improved equipment utilization and higher rig
rates.
OIL AND NATURAL GAS PRODUCTION. Revenues from oil and natural gas production
activities for the quarter ended December 31, 2000 decreased $1,807,000, or
68.4%, to $835,000 from $2,642,000 for the three months ended December 31,
1999. The decrease in revenues was due to the effect of the volumetric
production payment, price collars and lower production volumes.
OPERATING EXPENSES
WELL SERVICING. Expenses related to well servicing activities for the quarter
ended December 31, 2000 increased $19,171,000, or 19.4%, to $118,123,000 from
$98,952,000 for the three months ended December 31, 1999. The increase was
primarily due to a higher level of activity, increased wages and the cost of
bringing crews and previously idle equipment on line. Well
13
servicing expenses, as a percentage of well servicing revenue, decreased to
66.1% for the three months ended December 31, 2000 from 71.3% for the three
months ended December 31, 1999.
CONTRACT DRILLING. Expenses related to contract drilling activities for the
quarter ended December 31, 2000 increased $2,594,000, or 16.5%, to $18,360,000
from $15,766,000 for the three months ended December 31, 1999. The increase was
primarily due to higher wages and the cost of bringing crews and previously
idle equipment on line and was partially offset by a shift away from turnkey
contracts to footage and day rates. Contract drilling expenses, as a percentage
of contract drilling revenues, decreased to 75.9% for the three months ended
December 31, 2000 from 86.6% for the three months ended December 31, 1999.
OIL AND NATURAL GAS PRODUCTION. Expenses related to oil and natural gas
production activities for the quarter ended December 31, 2000 decreased
$271,000, or 29.0%, to $665,000 from $936,000 for the three months ended
December 31, 1999. The decrease in production costs is primarily due to lower
production volumes.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense for the quarter
ended December 31, 2000 increased $91,000, or 0.5%, to $18,146,000 from
$18,055,000 for the three months ended December 31, 1999. The increase is due
to increased capital expenditures during the past twelve months as the Company
refurbished equipment and increased utilization of its contract drilling
equipment (which it depreciates based on utilization).
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses for the quarter ended
December 31, 2000 increased $534,000, or 3.6%, to $15,264,000 from $14,730,000
for the three months ended December 31, 1999. The increase was due to slightly
higher administrative costs related to growth of the Company's operations.
Despite the increased costs, general and administrative expenses, as a
percentage of revenues, decreased to 7.5% for the three months ended December
31, 2000 from 9.2% for the three months ended December 31, 1999.
INTEREST EXPENSE
The Company's interest expense for the quarter ended December 31, 2000
decreased $3,533,000, or 19.5%, to $14,581,000, from $18,114,000 for the three
months ended December 31, 1999. The decrease was primarily due to a significant
reduction in the Company's long-term debt using proceeds from the Equity
Offering and operating cash flow partially offset by higher interest rates.
Included in the interest expense was the amortization of debt issuance costs of
$1,008,000 and $1,292,000 for the three months ended December 31, 2000 and
1999, respectively.
14
BAD DEBT EXPENSE
The Company's bad debt expense for the quarter ended December 31, 2000
decreased $80,000, or 10.1%, to $709,000 from $789,000 for the three months
ended December 31, 1999. The decrease was largely due to an improvement in
market conditions for its customers.
EXTRAORDINARY GAIN
In connection with the Company's retirement of long-term debt during the
three months ended December 31, 2000 and its recognition of the income and
the accelerated amortization of a portion of unamortized debt issuance costs
associated with such debt retirement, the Company recognized a net after-tax
extraordinary gain of $68,000.
INCOME TAXES
The Company's income tax expense for the quarter ended December 31, 2000
increased $9,229,000 to an expense of $6,969,000 from a benefit of $2,260,000
for the three months ended December 31, 1999. The increase in income tax
expense is due to the increase in pretax income. The Company's effective tax
rate for the three months ended December 31, 2000 and 1999 was 39% and 28%,
respectively. The effective tax rates vary from the statutory rate of 35%
because of the disallowance of certain goodwill amortization, other
non-deductible expenses and state and local taxes. The Company expects to
remit only a minimal amount of federal income taxes for fiscal 2001 because
of the availability of net operating loss carry forwards from fiscal 1999 and
previous years.
SIX MONTHS ENDED DECEMBER 31, 2000 VERSUS SIX MONTHS ENDED DECEMBER 31, 1999
The Company's revenue for the first six months of fiscal 2001 totaled
$395,590,000, representing an increase of $86,309,000, or 27.9%, as compared
to the prior year period. The increase in the current period reflects higher
activity levels and improved rates. The Company's net income for the first
six months of fiscal 2001 totaled $19,869,000, or $0.20 per share, versus a
net loss of $15,144,000, or $0.18 per share, for the prior year period.
OPERATING REVENUES
WELL SERVICING. Revenues from well servicing activities for the six months
ended December 31, 2000 increased $75,676,000, or 28.1%, to $345,215,000 from
$269,539,000 for the six months ended December 31, 1999. The increase in
revenues was primarily due to improved equipment utilization and higher rig,
fluid hauling and ancillary equipment rates.
CONTRACT DRILLING. Revenues from contract drilling activities for the six
months ended December 31, 2000 increased $11,653,000, or 33.6%, to
$46,323,000 from $34,670,000 for the six months ended December 31, 1999. The
increase in revenues was primarily due to improved equipment utilization and
higher rig rates.
15
OIL AND NATURAL GAS PRODUCTION. Revenues from oil and natural gas production
activities for the six months ended December 31, 2000 decreased $1,737,000,
or 37.3%, to $2,925,000 from $4,662,000 for the six months ended December 31,
1999. The decrease in revenues was due to the effect of the volumetric
production payment, price collars and lower production volumes.
OPERATING EXPENSES
WELL SERVICING. Expenses related to well servicing activities for the six
months ended December 31, 2000 increased $31,643,000, or 16.0%, to
$229,809,000 from $198,166,000 for the six months ended December 31, 1999.
The increase was primarily due to a higher level of activity, increased wages
and the cost of bringing crews and previously idle equipment on line. Well
servicing expenses, as a percentage of well servicing revenue, decreased to
66.6% for the six months ended December 31, 2000 from 73.5% for the six
months ended December 31, 1999.
CONTRACT DRILLING. Expenses related to contract drilling activities for the
six months ended December 31, 2000 increased $5,781,000, or 19.2%, to
$35,818,000 from $30,037,000 for the six months ended December 31, 1999. The
increase was primarily due to higher wages and the cost of bringing crews and
previously idle equipment on line and was partially offset by a shift away
from turnkey contracts to footage and day rates. Contract drilling expenses,
as a percentage of contract drilling revenues, decreased to 77.3% for the six
months ended December 31, 2000 from 86.6% for the six months ended December
31, 1999.
OIL AND NATURAL GAS PRODUCTION. Expenses related to oil and natural gas
production activities for the six months ended December 31, 2000 increased
$52,000, or 2.7%, to $1,988,000 from $1,936,000 for the six months ended
December 31, 1999. The decrease in production costs is primarily due to lower
production volumes.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense for the six
months ended December 31, 2000 increased $1,581,000, or 4.5%, to $36,457,000
from $34,876,000 for the six months ended December 31, 1999. The increase is
due to increased capital expenditures during the past twelve months as the
Company refurbished equipment and increased utilization of its contract
drilling equipment (which it depreciates based on utilization).
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses for the six months ended
December 31, 2000 increased $989,000, or 3.5%, to $29,631,000 from
$28,642,000 for the six months ended December 31, 1999. The increase was due
to slightly higher administrative costs related to growth of the Company's
operations. Despite the increased costs, general and administrative expenses,
as a percentage of revenues, decreased to 7.5% for the six months ended
December 31, 2000 from 9.3% for the six months ended December 31, 1999.
16
INTEREST EXPENSE
The Company's interest expense for the six months ended December 31, 2000
decreased $4,810,000, or 13.5%, to $30,692,000, from $35,502,000 for the six
months ended December 31, 1999. The decrease was primarily due to a
significant reduction in the Company's long-term debt using proceeds from the
Equity Offering and operating cash flow, partially offset by higher interest
rates. Included in the interest expense was the amortization of debt issuance
costs of $2,416,000 and $2,547,000 for the six months ended December 31, 2000
and 1999, respectively.
BAD DEBT EXPENSE
The Company's bad debt expense for the six months ended December 31, 2000
decreased $363,000, or 28.7%, to $903,000 from $1,266,000 for the six months
ended December 31, 1999. The decrease was largely due to an improvement in
market conditions for its customers.
EXTRAORDINARY GAIN
In connection with the Company's retirement of long-term debt during the six
months ended December 31, 2000 and its recognition of the income and the
accelerated amortization of a portion of unamortized debt issuance costs
associated with such debt retirement, the Company recognized a net after-tax
extraordinary gain of $1,265,000.
INCOME TAXES
The Company's income tax expense for the six months ended December 31, 2000
increased $17,688,000 to an expense of $11,688,000 from a benefit of
$6,000,000 for the six months ended December 31, 1999. The increase in income
tax expense is due to the increase in pretax income. The Company's effective
tax rate for the six months ended December 31, 2000 and 1999 was 39% and 28%,
respectively. The effective tax rates vary from the statutory rate of 35%
because of the disallowance of certain goodwill amortization, other
non-deductible expenses and state and local taxes. The Company expects to
remit only a minimal amount of federal income taxes for fiscal 2001 because
of the availability of net operating loss carry forwards from fiscal 1999 and
previous years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, acquisitions, capital
expenditures and working capital requirements from cash flow from operations,
bank borrowings and the issuance of equity and long-term debt. The Company
believes that the current reserves of cash and cash equivalents, access to
our existing credit lines, access to capital markets and internally generated
cash flow from operations are sufficient to finance the cash requirements of
our current and future operations.
As of December 31, 2000, the Company had working capital (excluding the
current portion of long-term debt) of approximately $92,568,000 which
includes cash and cash equivalents of approximately $1,919,000 as compared to
working capital (excluding the current portion of long-term debt) of
approximately $175,396,000, which includes and cash and cash equivalents of
17
approximately $109,873,000 as of June 30, 2000. The decrease in working
capital is primarily due to the use of cash to repay long-term debt during
the six month period ended December 31, 2000. Working capital at December 31,
2000, excluding the change in cash, actually increased from June 30, 2000 due
to continuing improvement in operating results and timing differences related
to cash receipts and disbursements.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 2001 are expected to equal or exceed fiscal
2000 levels. Expenditures will be directed toward selectively refurbishing
our assets as business conditions warrant. The Company will continue to
evaluate opportunities to acquire or divest assets or businesses to enhance
the Company's primary operations. Such capital expenditures, acquisitions and
divestitures are at the discretion of the Company and will depend on
management's view of market conditions as well as other factors.
LONG-TERM DEBT
SENIOR CREDIT FACILITY
As of December 31, 2000, the Company had a senior credit facility (the
"Senior Credit Facility") with a syndicate of banks led by PNC Bank, N.A.
which consisted of a $150,000,000 revolving loan facility and $131,414,769 in
Tranche B term loans. In addition, up to $20,000,000 of letters of credit can
be issued under the Senior Credit Facility, but any outstanding letters of
credit reduce the borrowing availability under the revolving loan facility.
As of December 31, 2000, approximately $53,500,000 was drawn under the
revolving loan facility and approximately $13,995,000 of letters of credit
related to workman's compensation insurance were outstanding.
The revolving loan bears interest based upon, at the Company's option, the
prime rate plus a variable margin of 0.75% to 2.00% or a Eurodollar rate plus
a variable margin of 2.25% to 3.50%. The Tranche B loans bear interest based
upon, at the Company's option, the prime rate plus 2.50% or a Eurodollar rate
plus 4.00%. The Credit Facility has customary affirmative and negative
covenants including a maximum debt to capitalization ratio, a minimum
interest coverage ratio, a maximum senior leverage ratio, a minimum net worth
and minimum EBITDA ratio as well as restrictions on capital expenditures,
acquisitions and dispositions.
14% SENIOR SUBORDINATED NOTES
On January 22, 1999, the Company completed the private placement of 150,000
units (the "Units") consisting of $150,000,000 of 14% Senior Subordinated
Notes due 2009 (the "14% Senior Subordinated Notes") and 150,000 warrants to
purchase (as subsequently adjusted) 2,173,433 shares of the Company's common
stock at an exercise price of $4.88125 per share (the "Unit Warrants"). The
cash proceeds from the private placement, net of fees and expenses, were used
to repay substantially all of the remaining $148,600,000 principal (plus
accrued interest) owed under the Company's bridge loan facility arranged in
connection with the acquisition of Dawson. The 14% Senior Subordinated Notes
are subordinate to the Company's
18
senior indebtedness which includes borrowings under the Senior Credit
Facility and the Dawson 9 3/8% Senior Notes. The Unit Warrants have separated
from the 14% Senior Subordinated Notes and became exercisable on January 25,
2000. At December 31, 2000, $150,000,000 principal amount of the 14% Senior
Subordinated Notes remained outstanding. As of December 31, 2000, 55,750 Unit
Warrants had been exercised leaving 94,250 Unit Warrants outstanding.
5% CONVERTIBLE SUBORDINATED NOTES
On September 25, 1997, the Company completed an initial closing of its
private placement of $200,000,000 of 5% Convertible Subordinated Notes due
2004 (the "5% Convertible Subordinated Notes"). On October 7, 1997, the
Company completed a second closing of its private placement of an additional
$16,000,000 of the 5% Convertible Subordinated Notes pursuant to the exercise
of the remaining portion of an over-allotment option. The 5% Convertible
Subordinated Notes are subordinate to the Company's senior indebtedness which
includes borrowings under the Senior Credit Facility, the 14% Senior
Subordinated Notes and the Dawson 9 3/8% Senior Notes. The 5% Convertible
Subordinated Notes are convertible, at the holder's option, into shares of
the Company's common stock at a conversion price of $38.50 per share, subject
to certain adjustments. During the quarter ended December 31, 2000, the
Company repurchased (and canceled) $3,000,000 principal amount of the 5%
Convertible Subordinated Notes, leaving $192,614,000 principal amount of the
5% Convertible Subordinated Notes outstanding at December 31, 2000.
7% CONVERTIBLE SUBORDINATED DEBENTURES
In July 1996, the Company completed a $52,000,000 private placement of 7%
Convertible Subordinated Debentures due 2003 (the "7% Convertible
Subordinated Debentures"). The 7% Convertible Subordinated Debentures were
subordinate to the Company's senior indebtedness which includes borrowings
under the Senior Credit Facility, the 14% Senior Subordinated Notes and the
Dawson 9 3/8% Senior Notes. The Debentures were convertible, at any time
prior to maturity, at the holders' option, into shares of the Company's
common stock at a conversion price of $9.75 per share, subject to certain
adjustments. In addition, holders who converted prior to July 1, 1999 were
entitled to receive a payment, in cash or the Company's 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. During the quarter ended
September 30, 2000, $985,000 principal amount of the 7% Convertible
Subordinated Debentures were surrendered for conversion by the holders
thereof and 101,025 shares of common stock were issued on September 1, 2000.
On September 1, 2000 the remaining $15,000 principal amount of the
outstanding 7% Convertible Subordinated Debentures was redeemed at 103% of
the principal amount plus accrued interest, leaving none outstanding as of
September 30, 2000.
19
DAWSON 9 3/8% SENIOR NOTES
In February 1997, Dawson issued $140,000,000 9 3/8% Senior Notes due 2007
(the "Dawson 9 3/8% Senior Notes"). As a result of the Dawson acquisition,
the Company assumed Dawson's obligations under the Dawson 9 3/8% Senior Notes
which were equally and ratably secured with the obligations under the Senior
Credit Facility. As a result of mandatory tender offer made in connection
with the Dawson acquisition, only $1,406,000 principal amount of the Dawson
9 3/8% Senior Notes remained outstanding at March 31, 2000. During the quarter
ended June 30, 2000, the Company purchased (and canceled) $300,000 of the
Dawson 9 3/8% Senior Notes. During the quarter ended September 30, 2000, the
Company repurchased (and canceled) $800,000 principal amount of the Dawson
9 3/8% Senior Notes. As of December 31, 2000 $306,000 principal amount of the
Dawson 9 3/8% Senior Notes remained outstanding.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements". See "Special Note Regarding Forward-Looking
Statements" for additional factors relating to such statements.
The primary objective of the following information is to provide
forward-looking quantitative and qualitative information about the Company's
potential exposure to market risk. The term "market risk" refers to the risk
of loss arising from adverse changes in foreign currency exchange, interest
rates and oil and natural gas prices. The disclosures are not meant to be
precise indicators of expected future losses, but rather indicators of
reasonably possible losses. This forward-looking information provides
indicators of how the Company views and manages its ongoing market risk
exposures.
INTEREST RATE RISK
At December 31, 2000, Key had long-term debt outstanding of $542,742,000. Of
this amount $338,117,000 or 62%, bears interest at fixed rates as follows:
(thousands)
Balance at
12/31/00
------------
5% Convertible Subordinated Notes Due 2004............... $192,614
14% Senior Subordinated Notes Due 2009................... 144,022
Dawson 9 3/8% Senior Notes Due 2007...................... 306
Other (rates generally ranging from 8.0% to 8.5%)........ 1,175
------------
$338,117
============
The remaining $204,625,000 of debt outstanding as of December 31, 2000 bears
interest at floating rates which averaged approximately 10.16% at December 31,
2000. A 10% increase in short-term interest rates on the floating-rate debt
outstanding at December 31, 2000 would equal approximately 102 basis points.
Such an increase in interest rates would increase Key's fiscal
20
2001 interest expense by approximately $2.1 million assuming borrowed amounts
remain outstanding.
The above sensitivity analysis for interest rate risk excludes accounts
receivable, accounts payable and accrued liabilities because of the short-term
maturity of such instruments.
FOREIGN CURRENCY RISK
Key's net assets, net earnings and cash flows from its Argentina subsidiaries
are currently not exposed to foreign currency risk, as Argentina's currency is
tied to the U.S. dollar. Key's net assets, net earnings and cash flows from its
Canadian subsidiary is based on the U.S. dollar equivalent of such amounts
measured in Canadian dollars. Assets and liabilities of the Canadian operations
are translated to U.S. dollars using the applicable exchange rate as of the end
of a reporting period. Revenues, expenses and cash flow are translated using the
average exchange rate during the reporting period.
A 10% change in the Canadian-to-U.S. Dollar exchange rate would not be material
to the net assets, net earnings or cash flows of Key.
COMMODITY PRICE RISK
Key's major market risk exposure for its oil and natural gas production
operations is in the pricing applicable to its oil and natural gas sales.
Realized pricing is primarily driven by the prevailing worldwide price for crude
oil and spot market for natural gas. Pricing for oil and natural gas production
has been volatile and unpredictable for several years.
Key periodically enters into financial hedging activities with respect to a
portion of its projected oil and natural gas production through commodity option
or collar contracts. Key pays a premium for its option contracts. These
financial hedging activities are intended to support oil and natural gas prices
at targeted levels and to manage Key's exposure to oil and natural gas price
fluctuations. Realized gains or losses from the settlement of these financial
hedging instruments are recognized in oil and natural gas sales when the
associated production occurs. The gains and losses realized as a result of these
hedging activities are substantially offset in the cash market when the hedged
commodity is delivered.
As of December 31, 2000, Key had oil and natural gas price collars in place
which represented 5,000 barrels of oil production per month and approximately
40,000 Mmbtu of natural gas production per month. The total fiscal 2001 hedged
oil and natural gas volumes represent 28% and 22% respectively, of expected
calendar year total production.
The following table sets forth the future volumes hedged by year and the
weighted-average strike price of the option contracts at December 31, 2000:
21
Monthly Volume
Oil Gas Strike Price
(Bbls) (Mmbtu) Term Per Bbl/Mmbtu Fair Value
-------- ------- ----------------- ------------- -----------
At December 31, 2000
Oil Collars......... 4,000 - Jan 2001-Feb 2001 $22.20-$26.50 -
5,000 - Mar 2001-Feb 2002 $19.70-$23.70 (21,346)
Gas Collars......... - 30,000 Jan 2001-Feb 2001 $2.60-$3.19 (380,976)
- 40,000 Mar 2001-Feb 2002 $2.40-$2.91 (1,006,133)
(The strike prices for oil are based on the NYMEX spot price for West Texas
Intermediate; the strike prices for natural gas are based on the Inside
FERC-West Texas Waha spot price).
22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 8, 2000, a meeting of the holders of Common Stock was
held to elect the Company's Board of Directors. Only the holders of record as of
the close of business on October 23, 2000 (the "Record Date") were entitled to
notice of and to vote at the meeting and at any adjournment thereof. On the
Record Date, the outstanding number of shares entitled to vote consisted of
97,030,360 shares of the Company's common stock. The stockholders took the
following action at the meeting:
Elected the following seven Directors, with the votes indicated
opposite each director's name:
For Against
---------- ---------
Francis D. John 91,337,162 1,401,091
Kevin P. Collins 89,639,410 3,098,843
William D. Fertig 91,335,665 1,399,388
William Manly 91,337,450 1,400,803
W. Phillip Marcum 89,697,220 3,041,003
David J. Breazzano 91,338,615 1,399,638
Morton Wolkowitz 91,335,665 1,402,588
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
23
(e) No reports on Form 8-K were filed during the quarter ended
December 31, 2000.
24
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 SERVICES, INC.
Dated: February 14, 2001 By: /s/ FRANCIS D. JOHN
--------------------------------
Francis D. John
President and Chief Executive Officer
Dated: February 14, 2001 By: /s/ THOMAS K. GRUNDMAN
--------------------------------
Thomas K. Grundman
Chief Financial Officer and
Chief Accounting Officer
25