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 March 31, 2001
[ ] 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 May 14, 2001 - 100,891,327
1
KEY ENERGY SERVICES, INC.
INDEX
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2001 (unaudited) and June 30, 2000.......................................3
Unaudited Consolidated Statements of
Operations for the Three and Nine Months Ended
March 31, 2001 and 2000............................................................4
Unaudited Consolidated Statements of
Cash Flows for the Three and Nine Months Ended
March 31, 2001 and 2000............................................................5
Consolidated Statements of Comprehensive
Income for the Three and Nine Months Ended
March 31, 2001 and 2000............................................................6
Notes to Consolidated Financial Statements.........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................22
Item 2. Changes in Securities and Use of Proceeds.............................................22
Item 3. Defaults Upon Senior Securities.......................................................22
Item 4. Submission of Matters to a Vote of Security Holders...................................22
Item 5. Other Information.....................................................................22
Item 6. Exhibits and Reports on Form 8-K......................................................22
Signatures..............................................................................................24
2
KEY ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 JUNE 30, 2000
---------------------- -------------
(UNAUDITED)
(THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash................................................................... $2,295 $109,873
Accounts receivable, net of allowance for doubtful accounts
of $3,979 and $3,189, at March 31, 2001 and June 30, 2000,
respectively........................................................... 162,831 123,203
Inventories............................................................ 17,763 10,028
Prepaid income taxes................................................... - 5,588
Prepaid expenses and other current assets.............................. 7,234 4,897
---------------- ------------------
Total current assets..................................................... 190,123 253,589
---------------- ------------------
Property and equipment:
Oilfield service equipment............................................. 703,373 668,107
Contract drilling equipment............................................ 115,372 105,454
Motor vehicles......................................................... 61,450 55,042
Oil and natural gas properties and other related equipment,
successful efforts method............................................. 44,154 43,855
Furniture and equipment................................................ 21,292 11,013
Buildings and land..................................................... 37,453 36,966
---------------- ------------------
983,094 920,437
Accumulated depreciation & depletion..................................... (206,887) (159,876)
---------------- ------------------
Net property and equipment............................................... 776,207 760,561
---------------- ------------------
Goodwill, net.......................................................... 192,207 198,633
Deferred costs, net.................................................... 18,759 18,855
Notes receivable - related parties..................................... 4,725 5,150
Other assets........................................................... 9,105 9,477
---------------- ------------------
Total assets........................................................... $1,191,126 $1,246,265
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $42,391 $35,801
Other accrued liabilities.............................................. 37,099 26,398
Accrued interest...................................................... 5,889 15,994
Oil and natural gas collars............................................ 1,081 -
Current portion of long-term debt...................................... 6,973 14,655
---------------- ------------------
Total current liabilities................................................ 93,433 92,848
---------------- ------------------
Long-term debt, less current portion..................................... 527,254 651,945
Deferred revenue......................................................... 14,635 17,031
Non-current accrued expenses............................................. 3,201 1,847
Deferred tax liability................................................... 122,951 99,707
Commitments and contingencies............................................ - -
Stockholders' equity:
Common stock, $.10 par value; 200,000,000 shares authorized,
98,808,457 and 97,209,504 shares issued, at March 31, 2001
and June 30, 2000, respectively........................................ 9,881 9,723
Additional paid-in capital............................................. 423,751 413,962
Treasury stock, at cost; 416,666 shares at March 31, 2001
and June 30, 2000...................................................... (9,682) (9,682)
Accumulated other comprehensive income................................. (463) 8
Retained earnings (deficit)............................................ 6,165 (31,124)
---------------- ------------------
Total stockholders' equity............................................... 429,652 382,887
---------------- ------------------
Total liabilities and stockholders' equity............................... $1,191,126 $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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---------------------------------------------------------
(thousands, except per share data)
REVENUES:
Well servicing...................................................... $198,059 $141,306 $543,274 $410,845
Contract drilling................................................... 28,259 14,337 74,582 49,007
Other............................................................... 1,052 2,908 5,104 7,980
--------------------------- ---------------------------
227,370 158,551 622,960 467,832
--------------------------- ---------------------------
COSTS AND EXPENSES:
Well servicing...................................................... 127,516 99,320 357,325 297,486
Contract drilling................................................... 19,730 12,285 55,548 42,322
Depreciation, depletion and amortization............................ 19,703 18,264 56,160 53,140
General and administrative.......................................... 17,552 14,849 47,183 43,491
Bad debt expense.................................................... 329 160 1,232 1,426
Interest............................................................ 13,453 18,636 44,145 54,138
Other costs and expenses............................................ 1,175 767 3,163 2,703
--------------------------- ---------------------------
199,458 164,281 564,756 494,706
--------------------------- ---------------------------
Income (loss) before income taxes...................................... 27,912 (5,730) 58,204 (26,874)
Income tax benefit (expense)........................................... (10,325) 1,580 (22,013) 7,580
--------------------------- ---------------------------
Income (loss) before extraordinary gain (loss)......................... 17,587 (4,150) 36,191 (19,294)
Extraordinary gain (loss) on extinguishment of debt, less applicable
income tax benefit of $98 and income tax expense of $651, for the
three and nine months ended March 31, 2001, respectively............... (167) - 1,098 -
--------------------------- ---------------------------
NET INCOME (LOSS)...................................................... $17,420 $(4,150) $37,289 $(19,294)
=========================== ===========================
EARNINGS (LOSS) PER SHARE :
Basic - before extraordinary gain (loss)............................ $0.18 $(0.05) $0.37 $(0.23)
Extraordinary gain (loss), net of tax............................... - - 0.01 -
--------------------------- ---------------------------
Basic - after extraordinary gain (loss)............................ $0.18 $(0.05) $0.38 $(0.23)
=========================== ===========================
Diluted - before extraordinary gain (loss).......................... $0.17 $(0.05) $0.36 $(0.23)
Extraordinary gain (loss), net of tax............................... - - 0.01 -
--------------------------- ---------------------------
Diluted - after extraordinary gain (loss)........................... $0.17 $(0.05) $0.37 $(0.23)
=========================== ===========================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................................... 98,211 84,633 97,537 83,646
Diluted............................................................. 103,524 84,633 101,969 83,646
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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
--------------------------------------------------------------
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $17,420 $(4,150) $37,289 $(19,294)
ADJUSTMENTS TO RECONCILE INCOME FROM OPERATIONS TO
NET CASH PROVIDED BY (USED IN) OPERATIONS:
Depreciation, depletion and amortization...................... 19,703 18,264 56,160 53,140
Bad debt expense.............................................. 329 160 1,232 1,426
Amortization of deferred debt costs........................... 928 1,273 3,344 3,820
Deferred income taxes......................................... 10,325 (1,580) 22,013 (7,580)
(Gain) loss on sale of fixed assets........................... 50 87 10 283
Other non-cash items.......................................... 438 (214) 2,058 300
Extraordinary (gain) loss, net of tax 167 - (1,098) -
CHANGE IN ASSETS AND LIABILITIES NET OF EFFECTS FROM THE
ACQUISITIONS:
(Increase) decrease in accounts receivable..................... (18,347) 734 (40,860) (23,957)
(Increase) decrease in other current assets.................... (4,284) 3,296 (4,484) (5,110)
Increase (decrease) in accounts payable, accrued interest and
accrued expenses............................................... 11,583 (9,483) 8,267 1,849
Other assets and liabilities................................... (1,627) (1,336) (698) (3,300)
------------------------------- -----------------------------
Net cash provided by (used in) operating activities.............. 36,685 7,051 83,233 1,577
------------------------------- -----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - well servicing............................ (13,492) (6,324) (30,587) (15,769)
Capital expenditures - contract drilling......................... (4,913) (973) (12,087) (4,194)
Capital expenditures - other..................................... (5,123) (942) (11,215) (2,910)
Proceeds from sale of fixed assets............................... 478 383 1,430 2,352
Notes receivable from related parties............................ - - - (2,065)
Acquisitions - well servicing.................................... (270) - (1,970) -
Acquisitions - contract drilling................................. - - (800) -
------------------------------- -----------------------------
Net cash provided by (used in) investing activities.............. (23,320) (7,856) (55,229) (22,586)
------------------------------- -----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and capital lease obligations........ (208,760) (11,703) (336,789) (17,775)
Borrowings under line-of-credit.................................. 24,000 - 28,000 12,000
Equity offering expenses......................................... (132) - (310) -
Proceeds from long-term debt..................................... 175,000 - 175,000 -
Debt issuance costs.............................................. (4,372) - (4,372) -
Proceeds from forward sale....................................... - 20,000 - 20,000
Proceeds from warrants and stock options exercised............... 1,275 5,907 2,897 5,907
Other............................................................ - - (8) -
------------------------------- -----------------------------
Net cash provided by (used in) financing activities.............. (12,989) 14,204 (135,582) 20,132
------------------------------- -----------------------------
Net increase (decrease) in cash and cash equivalents............. 376 13,399 (107,578) (877)
Cash and cash equivalents at beginning of period ................ 1,919 9,202 109,873 23,478
------------------------------- -----------------------------
Cash and cash equivalents at end of period....................... $2,295 $22,601 $2,295 $22,601
=============================== =============================
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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
--------------- -------------- --------------- --------------
(thousands)
NET INCOME (LOSS)................................................... $17,420 $(4,150) $37,289 $(19,294)
OTHER COMPREHENSIVE INCOME (LOSS):
Derivative transition adjustment (See Note 7)..................... - - (778) -
Oil and natural gas collar liability adjustment, net of tax
(See Note 7)...................................................... (29) - (81) -
Amortization of oil and natural gas collar derivative (See Note
7)................................................................ 153 - 445 -
Foreign currency translation gain, net of tax..................... (61) 26 (57) 26
--------------- -------------- --------------- --------------
COMPREHENSIVE INCOME (LOSS)......................................... $17,483 $(4,124) $36,818 $(19,268)
=============== ============== =============== ==============
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
KEY ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
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 March 31, 2001 and for the
three and nine month periods ended March 31, 2001 and 2000 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 nine month periods ended March 31, 2001 are not
necessarily indicative of the results of operations for the full fiscal year
ending June 30, 2001.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the three and nine-month periods ended March 31, 2000 to conform
to the presentation for the three and nine month periods ended March 31, 2001.
Oil and natural gas production revenues and related expenses have been
reclassified and included with other revenues and other costs and expenses,
respectively, because the Company does not believe this business segment is
material to the Company's consolidated financial statements.
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 NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
-------------- ------------ ------------ --------------
(THOUSANDS, EXCEPT PER (THOUSANDS, EXCEPT
SHARE DATA) PER SHARE DATA)
BASIC EPS COMPUTATION:
NUMERATOR
Income (loss) before extraordinary gain (loss)...... $17,587 $(4,150) $36,191 $(19,294)
Extraordinary gain (loss), net of tax............... (167) - 1,098 -
-------------- ------------ ------------- -------------
Net income (loss)................................... $17,420 $(4,150) $37,289 $(19,294)
============== ============ ============= =============
DENOMINATOR
Weighted average common shares outstanding........... 98,211 84,633 97,537 83,646
-------------- ------------ ------------- -------------
BASIC EPS:
Before extraordinary gain (loss).................... $0.18 $(0.05) $0.37 $(0.23)
Extraordinary gain (loss), net of tax............... - - 0.01 -
-------------- ------------ ------------- -------------
After extraordinary gain (loss)..................... $0.18 $(0.05) $0.38 $(0.23)
============== ============ ============= =============
DILUTED EPS COMPUTATION:
NUMERATOR
Income (loss) before extraordinary gain (loss)....... $17,587 $(4,150) $36,191 $(19,294)
Effect of dilutive convertible securities, tax
effected............................................ - - 8 -
Extraordinary gain (loss), net of tax............... (167) - 1,098 -
-------------- ------------ ------------- -------------
Net income (loss)................................... $17,420 $(4,150) $37,297 $(19,294)
============== ============ ============= =============
DENOMINATOR
Weighted average common shares outstanding........... 98,211 84,633 97,537 83,646
Warrants............................................. 869 - 781 -
Stock options........................................ 4,444 - 3,627 -
7% Convertible Debentures............................ - - 24 -
-------------- ------------ ------------- -------------
103,524 84,633 101,969 83,646
-------------- ------------ ------------- -------------
DILUTED EPS:
Before extraordinary gain (loss)................... $0.17 $(0.05) $0.36 $(0.23)
Extraordinary gain (loss), net of tax............... - - 0.01 -
-------------- ------------ ------------- -------------
After extraordinary gain (loss)..................... $0.17 $(0.05) $0.37 $(0.23)
============== ============ ============= =============
The diluted earnings per share calculation for the three and nine month periods
ended March 31, 2001 excludes the effect of the exercise of 375,000 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 diluted earnings per share calculation for the three and nine month periods
ended March 31, 2000 excludes the effect of 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 loss 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's reportable business segments are well servicing and contract
drilling. Oil & natural gas production operations were previously separately
presented as a reportable business segment and are now included in
corporate/other.
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.
9
WELL CONTRACT CORPORATE
SERVICING DRILLING /OTHER TOTAL
--------- -------- ------ -----
THREE MONTHS ENDED MARCH 31, 2001
Operating revenues...................................... $198,059 $28,259 $1,052 $227,370
Operating profit ....................................... 70,543 8,529 (123) 78,949
Depreciation, depletion and amortization................ 16,496 2,009 1,198 19,703
Interest expense........................................ 393 - 13,060 13,453
Net income (loss) before extraordinary gain (loss)*..... 29,084 3,014 (14,511) 17,587
Identifiable assets..................................... 648,019 93,926 256,974 998,919
Capital expenditures (excluding acquisitions)........... 13,492 4,913 5,123 23,528
THREE MONTHS ENDED MARCH 31, 2000
Operating revenues...................................... $141,306 $14,337 $2,908 $158,551
Operating profit........................................ 41,986 2,052 2,141 46,179
Depreciation, depletion and amortization................ 14,701 2,735 828 18,264
Interest expense........................................ 969 - 17,667 18,636
Net income (loss) before extraordinary gain (loss)*..... 15,970 (2,253) (17,867) (4,150)
Identifiable assets..................................... 735,368 109,983 102,559 947,910
Capital expenditures (excluding acquisitions)........... 6,324 973 942 8,239
*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 March 31, 2001 and 2000 were $12.1 million and $8.2 million, respectively.
Operating profits for the Company's foreign operations for the three months
ended March 31, 2001 and 2000 were $3.1 million and $1.3 million, respectively.
The Company had $70.8 million and $60.9 million of identifiable assets as of
March 31, 2001 and 2000, respectively, related to foreign operations.
WELL CONTRACT CORPORATE
SERVICING DRILLING /OTHER TOTAL
--------- -------- ------ -----
NINE MONTHS ENDED MARCH 31, 2001
Operating revenues...................................... $543,274 $74,582 $5,104 $622,960
Operating profit ....................................... 185,949 19,034 1,941 206,924
Depreciation, depletion and amortization................ 47,446 5,705 3,009 56,160
Interest expense........................................ 1,496 - 42,649 44,145
Net income (loss) before extraordinary gain (loss)*..... 75,583 4,876 (44,268) 36,191
Identifiable assets..................................... 648,019 93,926 256,974 998,919
Capital expenditures (excluding acquisitions)........... 30,587 12,087 11,215 53,889
NINE MONTHS ENDED MARCH 31, 2000
Operating revenues...................................... $410,845 $49,007 $7,980 $467,832
Operating profit........................................ 113,359 6,685 5,277 125,321
Depreciation, depletion and amortization................ 44,273 6,323 2,544 53,140
Interest expense........................................ 2,390 - 51,748 54,138
Net income (loss) before extraordinary gain (loss)*..... 37,930 (4,167) (53,057) (19,294)
Identifiable assets..................................... 735,368 109,983 102,559 947,910
Capital expenditures (excluding acquisitions)........... 15,769 4,194 2,910 22,873
*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.
10
Operating revenues for the Company's foreign operations for the nine months
ended March 31, 2001 and 2000 were $35.6 million and $23.8 million,
respectively. Operating profits for the Company's foreign operations for the
nine months ended March 31, 2001 and 2000 were $8.4 million and $4.6 million,
respectively. The Company had $70.8 million and $60.9 million of identifiable
assets as of March 31, 2001 and 2000, respectively, related to foreign
operations.
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 period whereby the Company will pay if the specified
price is above the cap
11
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.
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 $423,000 was recognized in earnings during the
nine months ended March 31, 2001. It is estimated that $355,000 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 March 31, 2001, the Company recorded a
decrease in the derivative liability of $327,000, of which $8,000 represented
ineffectiveness and was debited 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:
o fluctuations in world-wide prices and demand for oil and
natural gas;
o fluctuations in the level of oil and natural gas exploration
and development activities;
o fluctuations in the demand for well servicing, contract
drilling and ancillary oilfield services;
12
o the existence of competitors, technological changes and
developments in the industry;
o the existence of operating risks inherent in well servicing,
contract drilling and ancillary oilfield services; and
o 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 MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000
The Company's revenue for the third quarter of fiscal 2001 totaled $227,370,000,
representing an increase of $68,819,000, or 43.4 %, 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 third quarter of fiscal
2001 totaled $17,420,000, or $0.18 per basic share, versus a net loss of
$4,150,000, or $0.05 per basic share, for the prior year period.
OPERATING REVENUES
WELL SERVICING. Revenues from well servicing activities for the quarter ended
March 31, 2001 increased $56,753,000, or 40.1%, to $198,059,000 from
$141,306,000 for the three months ended March 31, 2000. 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 quarter
ended March 31, 2001 increased $13,922,000 or 97.1%, to $28,259,000 from
$14,337,000 for the three months ended March 31, 2000. The increase in revenues
was primarily due to improved equipment utilization and higher rig rates.
OPERATING EXPENSES
WELL SERVICING. Expenses related to well servicing activities for the quarter
ended March 31, 2001 increased $28,196,000 or 28.4%, to $127,516,000 from
$99,320,000 for the three months
13
ended March 31, 2000. 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 64.3% for the three months ended March 31, 2001 from 70.3%
for the three months ended March 31, 2000.
CONTRACT DRILLING. Expenses related to contract drilling activities for the
quarter ended March 31, 2001 increased $7,445,000, or 60.6%, to $19,730,000 from
$12,285,000 for the three months ended March 31, 2000. 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 69.8% for the three months ended
March 31, 2001 from 85.7% for the three months ended March 31, 2000.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense for the quarter
ended March 31, 2001 increased $1,439,000, or 7.9%, to $19,703,000 from
$18,264,000 for the three months ended March 31, 2000. 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 March
31, 2001 increased $2,703,000, or 18.2%, to $17,552,000 from $14,849,000 for the
three months ended March 31, 2000. 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 7.7% for the three months ended March 31, 2001 from 9.4% for the
three months ended March 31, 2000.
INTEREST EXPENSE
The Company's interest expense for the quarter ended March 31, 2001 decreased
$5,183,000, or 27.8%, to $13,453,000, from $18,636,000 for the three months
ended March 31, 2000. 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 and, to a lesser extent, lower interest rates. Included in
the interest expense was the amortization of debt issuance costs of $928,000 and
$1,273,000 for the three months ended March 31, 2001 and 2000, respectively.
BAD DEBT EXPENSE
The Company's bad debt expense for the quarter ended March 31, 2001 increased
$169,000, or 105.6%, to $329,000 from $160,000 for the three months ended March
31, 2000. The increase was largely due to growth in the Company's accounts
receivable in the preceding twelve months.
14
EXTRAORDINARY GAIN (LOSS)
During the three months ended March 31, 2001, the Company repurchased
$20,000,000 of its long-term debt at a discount and expensed related debt
issuance costs which resulted in an after-tax extraordinary loss of $167,000.
INCOME TAXES
The Company's income tax expense for the quarter ended March 31, 2001 increased
$11,905,000 to an expense of $10,325,000 from a benefit of $1,580,000 for the
three months ended March 31, 2000. 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 March 31, 2001 and 2000 was 38% 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.
NINE MONTHS ENDED MARCH 31, 2001 VERSUS NINE MONTHS ENDED MARCH 31, 2000
The Company's revenue for the first nine months of fiscal 2001 totaled
$622,960,000 representing an increase of $155,128,000, or 33.2%, 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 nine
months of fiscal 2001 totaled $37,289,000, or $0.37 per basic share, versus a
net loss of $19,294,000, or $0.23 per basic share, for the prior year period.
OPERATING REVENUES
WELL SERVICING. Revenues from well servicing activities for the nine months
ended March 31, 2001 increased $132,429,000, or 32.2%, to $543,274,000 from
$410,845,000 for the nine months ended March 31, 2000. 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 nine
months ended March 31, 2001 increased $25,575,000, or 52.2%, to $74,582,000 from
$49,007,000 for the nine months ended March 31, 2000. The increase in revenues
was primarily due to improved equipment utilization and higher rig rates.
OPERATING EXPENSES
WELL SERVICING. Expenses related to well servicing activities for the nine
months ended March 31, 2001 increased $59,839,000, or 20.1%, to $357,325,000
from $297,486,000 for the nine months ended March 31, 2000. The increase was
primarily due to a higher level of activity,
15
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 65.8% for the nine months ended March 31, 2001 from 72.4% for the
nine months ended March 31, 2000.
CONTRACT DRILLING. Expenses related to contract drilling activities for the nine
months ended March 31, 2001 increased $13,226,000, or 31.2%, to $55,548,000 from
$42,322,000 for the nine months ended March 31, 2000. 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 74.5% for the nine months ended March 31, 2001
from 86.4% for the nine months ended March 31, 2000.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense for the nine
months ended March 31, 2001 increased $3,020,000, or 5.7%, to $56,160,000 from
$53,140,000 for the nine months ended March 31, 2000. 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 nine months ended
March 31, 2001 increased $3,692,000, or 8.5%, to $47,183,000 from $43,491,000
for the nine months ended March 31, 2000. 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 7.6% for the nine months ended March 31,
2001 from 9.3% for the nine months ended March 31, 2000.
INTEREST EXPENSE
The Company's interest expense for the nine months ended March 31, 2001
decreased $9,993,000, or 18.5%, to $44,145,000, from $54,138,000 for the nine
months ended March 31, 2000. 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 and, to a lesser extent, lower interest rates.
Included in the interest expense was the amortization of debt issuance costs of
$3,344,000 and $3,820,000 for the nine months ended March 31, 2001 and 2000,
respectively.
BAD DEBT EXPENSE
The Company's bad debt expense for the nine months ended March 31, 2001
decreased $194,000, or 13.6%, to $1,232,000 from $1,426,000 for the nine months
ended March 31, 2000. The decrease was largely due to an improvement in market
conditions for its customers.
16
EXTRAORDINARY GAIN (LOSS)
During the nine months ended March 31, 2001, the Company repurchased $33,996,000
of its long-term debt at a discount, and expensed the related debt issuance
costs which resulted in an after-tax extraordinary gain of $1,098,000.
INCOME TAXES
The Company's income tax expense for the nine months ended March 31, 2001
increased $29,593,000 to an expense of $22,013,000 from a benefit of $7,580,000
for the nine months ended March 31, 2000. The increase in income tax expense is
due to the increase in pretax income. The Company's effective tax rate for the
nine months ended March 31, 2001 and 2000 was 38% 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 its
current and future operations.
As of March 31, 2001, the Company had working capital (excluding the current
portion of long-term debt) of approximately $103,663,000 which includes cash and
cash equivalents of approximately $2,295,000 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 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 nine month period ended March 31, 2001.
Working capital at March 31, 2001, 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
17
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 March 31, 2001, 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 $125,000,000 revolving loan facility. 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 March 31, 2001, approximately $20,500,000 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 Senior 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.
8 3/8% SENIOR NOTES
On March 6, 2001, the Company completed a private placement of $175,000,000 of 8
3/8% Senior Notes due 2008 (the "8 3/8% Senior Notes"). The cash proceeds from
the private placement, net of fees and expenses, were used to repay all of the
remaining balance of the Tranche B term loan under the Senior Credit Facility,
and a portion of the revolving loan facility under the Senior Credit Facility.
The 8 3/8% Senior Notes are subordinate to the Company's senior indebtedness
which includes borrowings under the Senior Credit Facility and the Dawson 9 3/8%
Senior Notes.
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 Production Services, Inc. ("Dawson"). The 14%
Senior Subordinated Notes are subordinate to the Company's senior indebtedness
which includes borrowings under the Senior Credit Facility, the Dawson 9 3/8%
Senior Notes and the 8 3/8 % Senior Notes. The Unit Warrants have separated from
the 14% Senior Subordinated Notes and became exercisable
18
on January 25, 2000. At March 31, 2001, $150,000,000 principal amount of the 14%
Senior Subordinated Notes remained outstanding. As of March 31, 2001, 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
March 31, 2001, the Company repurchased (and canceled) $20,000,000 principal
amount of the 5% Convertible Subordinated Notes, leaving $172,614,000 principal
amount of the 5% Convertible Subordinated Notes outstanding at March 31, 2001.
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 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.
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)
19
$800,000 principal amount of the Dawson 9 3/8% Senior Notes. As of March 31,
2001, $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 March 31, 2001, Key had long-term debt outstanding of $534,227,000. Of this
amount $492,728,000 or 92%, bears interest at fixed rates as follows:
(thousands)
Balance at
3/31/01
-----------------
8 3/8% Senior Notes Due 2008.............................. $175,000
5% Convertible Subordinated Notes Due 2004................ 172,614
14% Senior Subordinated Notes Due 2009.................... 144,208
Dawson 9 3/8% Senior Notes Due 2007....................... 306
Other (rates generally ranging from 8.0% to 8.5%)......... 600
-----------------
$492,728
=================
The remaining $41,499,000 of debt outstanding as of March 31, 2001 bears
interest at floating rates which averaged approximately 7.41% at March 31, 2001.
A 10% increase in short-term interest rates on the floating-rate debt
outstanding at March 31, 2001 would equal approximately 74 basis points. Such an
increase in interest rates would increase Key's fiscal 2001 interest expense by
approximately $300,000 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 are based on the U.S. dollar
20
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 March 31, 2001, 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 30% and 23% 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 March 31, 2001:
Monthly Volume
Oil Gas Strike Price
(Bbls) (Mmbtu) Term Per Bbl/Mmbtu Fair Value
----------- ------------ ------------------- ------------------ --------------
At March 31, 2001
Oil Collars........ 5,000 - Mar 2001-Feb 2002 $19.70-$23.70 $(128,916)
Gas Collars........ - 40,000 Mar 2001-Feb 2002 $2.40-$2.91 $(951,908)
(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).
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) The Company sold the following unregistered securities during the
quarter ended March 31, 2001:
(i) SECURITIES SOLD. On March 6, 2001, the Company sold
$175,000,000 of 8 3/8% Senior Notes due 2008 (the
"Notes").
(ii) UNDERWRITERS AND OTHER PURCHASES. The initial
purchasers of the Notes were Lehman Brothers and Bear
Stearns & Co. Inc.
(iii) CONSIDERATION. The aggregate offering price of the
Notes was $175,000,000. Net proceeds to the Company
less fees and expenses (including underwriter fees
and commissions) was approximately $170.5 million.
(iv) EXEMPTION FROM REGISTRATION CLAIMED. The Company
relied on the exemption from Registration under the
Securities Act provided in Rule 144A promulgated
thereunder.
The Indenture pursuant to which the Notes were issued (filed as Exhibit
4.1 to the Company's Form 8-K filed on March 20, 2001) contains certain
financial covenants and prohibitions on the payment of dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.1 Indenture dated March 6, 2001 between the Registrant and The
Chase
22
Manhattan Bank, a New York banking corporation, as Trustee.
(Incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated March 20, 2001, File No.
1-8038)
10.1 Purchase Agreement dated March 1, 2001 amoung the Registrant,
certain of its subsidiaries, Lehman Brothers, Inc., and Bear
Stearns & Co., Inc. (Incorporated by reference to exhibit 1.1
of the Company's Current Report on Form 8-K dated March 20,
2001, File No. 1-8038)
10.2 Registration Rights Agreement dated March 6, 2001 among the
Registrant, certain of its subsidiaries, Lehman Brothers,
Inc., and Bear Stearns & Co., Inc. (Incorporated by reference
to Exhibit 99.2 of the Company's Current Report of Form 8-K
dated March 20, 2001 File No. 1-8038)
10.3 Eighth Amendment to the Second Amended and Restated Credit
Agreement, dated as of June 6, 1997, as amended and restated
through September 14, 1998 and as further amended, among Key
Energy Group, Inc. (now known as Key Energy Services, Inc.),
the several Lenders from time to time parties thereto, PNC
Bank, National Association, as Administrative Agent, Norwest
Bank Texas, N.A., as Collateral Agent and PNC Capital Markets,
Inc., as Arranger. (Incorporated by reference to Exhibit 99.3
of the Company's Current Report on Form 8-K dated March 20,
2001, File No. 1-8038)
(e) The Company filed the following report on Form 8-K during the
quarter ended March 31, 2001:
(i) Current report on Form 8-K dated March 20, 2001 filed to
report the issuance of $175.0 million of its 8 3/8 % Senior
Notes Due 2008
23
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: May 15, 2001 By: /s/ Francis D. John
------------------------------------------
Francis D. John
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: May 15, 2001 By: /s/ Thomas K. Grundman
------------------------------------------
Thomas K. Grundman
CHIEF FINANCIAL OFFICER AND
CHIEF ACCOUNTING OFFICER
24