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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8153
ENTERRA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2154837
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
organization)
13100 NORTHWEST FREEWAY, SIXTH FLOOR
HOUSTON, TEXAS
77040
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(Address of principal executive offices)
(713) 462-7300
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(Registrant's telephone number, including area code)
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
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As of August 10, 1995, 27,815,450 common shares were outstanding.
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ENTERRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
JUNE 30, DECEMBER 31,
1995 1994
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ASSETS
------
Current assets:
Cash and cash equivalents $ 7,305 $ 13,782
Accounts receivable, less allowance of $4,411 and $3,630 126,699 128,458
Inventories 101,387 98,810
Deferred tax and other current assets 23,065 19,408
---------- ----------
Total current assets 258,456 260,458
Property, plant and equipment 543,355 546,041
Less accumulated depreciation 308,343 298,898
---------- ----------
Property, plant and equipment, net 235,012 247,143
Deferred charges and other assets 6,159 5,979
Goodwill, net 178,265 186,427
---------- ----------
$ 677,892 $ 700,007
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,142 $ 1,551
Accounts payable 32,724 36,951
Other current liabilities 57,502 60,117
---------- ----------
Total current liabilities 91,368 98,619
Long-term debt 128,643 123,045
Deferred income taxes 12,198 23,369
Other liabilities 470 495
Minority interest 1,756 2,045
Commitments and contingencies
Stockholders' equity:
Common stock - $1.00 par value, 27,774,950 shares
issued and outstanding 27,775 27,748
Additional paid-in capital 288,946 288,514
Cumulative translation adjustment (8,529) (6,181)
Retained earnings 135,265 142,353
---------- ----------
Total stockholders' equity 443,457 452,434
---------- ----------
$ 677,892 $ 700,007
========== ==========
See accompanying notes to consolidated financial statements.
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ENTERRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
REVENUES
Rentals $ 58,974 $ 35,112 $ 116,017 $ 70,081
Sales 53,247 8,443 113,588 22,047
---------- ---------- ---------- ----------
112,221 43,555 229,605 92,128
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of rentals 29,949 17,096 57,143 33,175
Cost of sales 40,979 6,705 84,331 16,158
Selling, general and administrative 24,129 12,766 49,017 25,602
Depreciation and amortization 12,377 6,259 24,242 12,162
Unusual charges 28,281 -- 28,281 --
---------- ---------- ---------- ----------
135,715 42,826 243,014 87,097
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (23,494) 729 (13,409) 5,031
Other income (expense)
Interest income 237 300 390 594
Interest and debt expense (2,357) (58) (4,647) (106)
Other 325 517 871 473
---------- ---------- ---------- ----------
(1,795) 759 (3,386) 961
Income (loss) before income taxes and minority
interests (25,289) 1,488 (16,795) 5,992
Income tax provision (benefit) (12,634) 555 (9,396) 1,950
---------- ---------- ---------- ----------
Income (loss) before minority interests (12,655) 933 (7,399) 4,042
Minority interests in (income) loss of subsidiaries 284 68 311 66
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (12,371) $ 1,001 $ (7,088) $ 4,108
========== ========== ========== ==========
Weighted average common shares outstanding 27,761 16,435 27,755 16,432
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE $ (0.45) $ 0.06 $ (0.26) $ 0.25
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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ENTERRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED JUNE 30,
-----------------------------
1995 1994
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,088) $ 4,108
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 24,242 12,162
Unusual charges, net of payments 27,145 --
Provision for losses on accounts receivable 1,076 608
Gain on sale of property, plant and equipment (3,460) (2,759)
Change in assets and liabilities, net of acquisitions:
Accounts receivable 683 (7,813)
Inventories (5,342) (7,634)
Deferred taxes and other current assets (3,450) (1,373)
Deferred charges and other assets (498) (1,000)
Accounts payable and other current liabilities (11,996) 5,440
Deferred income taxes (11,171) (487)
Other liabilities (25) (512)
Other (256) 286
---------- ----------
Net cash provided by operating activities 9,860 1,026
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (27,615) (17,540)
Proceeds from sale of property, plant and equipment 6,179 4,745
---------- ----------
Net cash used in investing activities (21,436) (12,795)
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ 178,296 $ --
Payments of long-term debt (173,107) --
Stock options exercised 459 167
---------- ----------
Net cash provided by financing activities 5,648 167
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Effect of exchange rate changes on cash and cash equivalents (549) (389)
---------- ----------
Net change in cash and cash equivalents (6,477) (11,991)
Cash and cash equivalents, beginning of period 13,782 48,229
---------- ----------
Cash and cash equivalents, end of period $ 7,305 $ 36,238
========== ==========
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ENTERRA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by Enterra
Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and in accordance with
generally accepted accounting principles. In the opinion of management, the
information furnished reflects all adjustments, all of which are of a normal
recurring nature, necessary for a fair presentation of the results of the
interim periods. It is recommended that these statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1994. No significant accounting changes have occurred during the
six months ended June 30, 1995, except that, effective June 30, 1995, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." Certain reclassifications have been made to conform to the
1995 presentation.
2. PROPOSED MERGER
On June 23, 1995, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") providing for the business combination of Enterra and
Weatherford International Incorporated (the "Merger"). Pursuant to the Merger
Agreement, each share of Enterra common stock will be exchanged for 1.69 shares
of Weatherford common stock (0.845 of a share after giving effect to a
contemporaneous one-for-two reverse stock split of Weatherford common stock).
The transaction will be accounted for as a pooling of interests. The Merger,
which is subject to the approval of Weatherford and Enterra stockholders, is
expected to close in early October.
3. PROPOSED ACQUISITION
On June 30, 1995, the Company announced that Enterra and Zapata Corporation
entered into an agreement whereby Enterra will purchase from Zapata the assets
of its Energy Industries compression division for $130 million in cash. Energy
Industries is involved in the design, manufacture, packaging and rental of
compressors. The transaction is subject to the execution of a definitive
assets purchase agreement and certain regulatory approvals.
4. UNUSUAL CHARGES
During the second quarter of 1995, as a result of implementing SFAS No. 121 and
a review of its operating strategies and the carrying values of its assets, the
Company recognized unusual charges of $28.3 million of which approximately
$26.0 million is noncash. The charge includes $10.0 million related to the
writedown to expected net realizable values of certain oilfield equipment
businesses that will be disposed and $12.4 million of writedowns related to
rental tools, properties and certain inventories that are excess or obsolete.
The businesses to be sold generated $1.7 million in operating income during the
first half of 1995 and the Company anticipates proceeds of approximately $35
million from their sale.
Also included in the unusual charges are costs pursuant to formal restructuring
plans of $4.6 million related to the closure and associated write-off of assets
of certain pipeline businesses and $1.3 million to close certain oilfield
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service administrative and operating locations, each of which was implemented
or formally announced during the second quarter. The restructuring resulted in
personnel reductions of approximately 40 persons in the pipeline segment and
approximately 80 persons in the oilfield segment. The pipeline operations that
were closed lost approximately $1.0 million in the first half of 1995. The
oilfield restructurings are expected to save over $3 million annually.
5. INVENTORIES
Inventories consisted of:
JUNE 30, DECEMBER 31,
1995 1994
---------- -----------
Raw materials $ 29,380 $ 32,960
Work in progress 15,795 14,394
Finished goods and purchased parts 43,607 38,997
Supplies 12,605 12,459
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$ 101,387 $ 98,810
========== ==========
6. INCOME TAXES
The increase in the effective tax rate to 56% at June 30, 1995 from 34% at
December 31, 1994 is primarily due to variances in the countries of origin of
the Company's taxable income, as well as the effect of nondeductible goodwill
amortization from the acquisition of Total Energy Services Company and other
nondeductible expenses relative to the Company's lower taxable income that
results from the unusual charges. In addition, the Company is taxed on local
gross revenues by some foreign countries in which it does business, regardless
of taxable income.
7. SETTLEMENT OF CONTINGENCIES
On August 10, 1995, the Company and Kuwait Oil Company (KOC) entered into a
settlement agreement whereby KOC will pay $14.25 million in cash within 30 days
in full settlement of the parties' dispute related to work performed in Kuwait
during 1992 and 1993, resulting in no material gain or loss to the Company.
8. STATEMENTS OF CASH FLOWS
The following information is provided to supplement the Statements of Cash
Flows:
SIX MONTHS ENDED JUNE 30,
-----------------------------
1995 1994
---------- ----------
Cash paid during the period for:
Interest $ 4,288 $ 106
Income taxes 5,400 2,229
Noncash increase in paid-in capital from exercise of stock options 12 31
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Enterra Corporation provides specialized services and products to the oil and
gas industry through its oilfield services and equipment business, consisting
principally of equipment rentals and well control assistance, fishing services
and product sales, and its pipeline services and equipment business and
compression services and equipment business. Oilfield rental equipment
provided by the Company is used in deep well exploratory and development
drilling, generally below 7,500 feet, and in completion, production and
workover activities. Well control assistance consists of providing personnel
and equipment needed to control critical wells. Fishing services consist of
locating and removing obstructions created by objects broken off, stuck or
dropped into the well. The Company manufactures and sells oil and gas well
production and completion equipment and surface and downhole drilling equipment
and tools. Specialized pipeline equipment designed, manufactured, serviced and
sold or rented by the Company is used in the construction and rehabilitation of
pipelines. Compression equipment designed, manufactured, serviced and sold or
rented by the Company is used in the production and transportation of natural
gas.
On June 23, 1995, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") providing for the business combination of Enterra and
Weatherford International Incorporated (the "Merger"). Pursuant to the Merger
Agreement, each share of Enterra common stock will be exchanged for 1.69 shares
of Weatherford common stock (0.845 of a share after giving effect to a
contemporaneous one-for-two reverse stock split of Weatherford common stock).
The transaction will be accounted for as a pooling of interests. The Merger,
which is subject to the approval of Weatherford and Enterra stockholders, is
expected to close in early October.
On August 12, 1994, the Company expanded its business by acquiring Total Energy
Services Company ("TOTAL"), a privately owned company that designs,
manufactures, sells and rents compression and oilfield equipment.
RESULTS OF OPERATIONS
The Company's oilfield services and equipment business revenues are directly
related to the levels of oil and gas drilling (particularly deep well
drilling), completion and workover activity in the United States, Canada, the
Middle East, Latin America, Southeast Asia and the North Sea, which in turn are
affected by the current and anticipated price of oil and gas. While a majority
of the Company's current revenues come from the relatively stable production
and workover sector of the industry, an increase in exploration for gas would
have a significant impact on revenues since such work typically involves
drilling at increased depths and often requires increased rentals of equipment
owned by the Company. In addition, any significant change in the level of oil
and gas production within the industry could impact product sales.
While the pipeline services and equipment business also is affected by the
price of oil and gas, the impact is recognized over longer periods due to the
extended lead times inherent in large pipeline projects. In addition, this
segment is also affected by other factors, including the need for pipelines to
transport oil and gas to areas of high demand, the age and condition of
existing pipelines, political and economic influences, environmental factors
and governmental regulation.
The Company's compression services and equipment business revenues are
influenced by natural gas production and consumption, construction of gathering
and storage systems, the age and operating pressures of natural gas wells and
the price of natural gas, principally in the United States and Canada.
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None of the Company's segments have experienced significant warranty or product
liability claims. Any warranty accruals necessary for specialized equipment
sales are generally insignificant.
During the second quarter of 1995, as a result of a review of its operating
strategies and the carrying values of its assets, the Company recognized
unusual charges of $28.3 million of which approximately $26.0 million is
noncash. The charge includes $10.0 million related to the writedown to
expected net realizable values of certain oilfield equipment businesses that
will be disposed and $12.4 million of writedowns related to rental tools,
properties and certain inventories that are excess or obsolete. The businesses
to be sold generated $1.7 million in operating income during the first half of
1995 and the Company anticipates proceeds of approximately $35 million from
their sale.
Also included in the unusual charges are costs pursuant to formal restructuring
plans of $4.6 million related to the closure and associated write-off of assets
of certain pipeline businesses and $1.3 million to close certain oilfield
service administrative and operating locations, each of which was implemented
or formally announced during the second quarter. The restructuring resulted in
personnel reductions of approximately 40 persons in the pipeline segment and
approximately 80 persons in the oilfield segment. The pipeline operations that
were closed lost approximately $1.0 million in the first half of 1995. The
oilfield restructurings are expected to save over $3 million annually.
Operations
Operating results by business segment are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
REVENUES
Oilfield services and equipment $ 70,971 $ 32,676 $ 141,401 $ 66,105
Pipeline services and equipment 17,007 10,879 34,814 26,023
Compression services and equipment 24,243 -- 53,390 --
---------- ---------- ---------- ----------
$ 112,221 $ 43,555 $ 229,605 $ 92,128
========== ========== ========== ==========
OPERATING INCOME (LOSS) BEFORE UNUSUAL CHARGES
Oilfield services and equipment $ 3,160 $ 3,480 $ 7,500 $ 7,975
Pipeline services and equipment 1,308 (1,658) 4,913 (829)
Compression services and equipment 1,839 -- 5,406 --
Corporate (1,520) (1,093) (2,947) (2,115)
---------- ---------- ---------- ----------
$ 4,787 $ 729 $ 14,872 $ 5,031
========== ========== ========== ==========
OPERATING INCOME (LOSS)
Oilfield services and equipment $ (20,559) $ 3,480 $ (16,219) $ 7,975
Pipeline services and equipment (3,254) (1,658) 351 (829)
Compression services and equipment 1,839 -- 5,406 --
Corporate (1,520) (1,093) (2,947) (2,115)
---------- ---------- ---------- ----------
$ (23,494) $ 729 $ (13,409) $ 5,031
========== ========== ========== ==========
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Oilfield Services and Equipment Segment. Revenues of the oilfield services and
equipment segment are generated by the following principal services and
products (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
OILFIELD SERVICES AND EQUIPMENT REVENUES
Equipment rental and well control assistance $ 26,904 $ 19,442 $ 52,667 $ 39,683
Fishing services 12,048 10,634 23,035 19,804
Product sales 32,019 2,600 65,699 6,618
---------- ---------- ---------- ----------
$ 70,971 $ 32,676 $ 141,401 $ 66,105
========== ========== ========== ==========
Oilfield services and equipment revenues increased $38.3 million (117%) in the
second quarter of 1995 as compared to 1994. North American rental and fishing
operations increased by $2.1 million (11%) due to acquisitions and a broadened
offering of services. International rental and fishing revenues increased by
$.7 million (6%) primarily due to increased activity in Latin America offset by
lower activity in the Former Soviet Union and Southeast Asia. The increase in
product sales of $29.4 million between the two quarters is primarily due to the
acquisition of TOTAL.
Operating income decreased $24.0 million in the second quarter of 1995 as
compared to the prior year. This decline is primarily due to unusual charges
of $23.7 million in the quarter. Exclusive of the unusual charges, operating
income decreased $0.3 million in the second quarter of 1995 as compared to the
same quarter of the prior year and decreased as a percentage of revenues from
11% to 4%. This decline is primarily due to the lower margin revenues
generated by product sales from the companies acquired in the TOTAL merger
combined with lower profitability from the Company's international
subsidiaries.
For the six month period, revenues were up $75.3 million in 1995 as compared to
1994. The addition of the TOTAL companies accounted for $55.4 million (74%) of
the increase while North American and Latin American rental and service revenue
increases made up the balance. Other international operations experienced a
small decline in revenues from 1994 to 1995. Operating income decreased $24.2
million, of which $23.7 million was due to the unusual charges taken in 1995.
Exclusive of the unusual charges, operating income decreased $0.5 million and
margins decreased from 12% to 5%. The lower margins result from substantial
increases in 1995 of low margin product revenues from the acquisition of the
TOTAL companies combined with decreases in activity from Kazahkstan and
Southeast Asia. Increases in depreciation and amortization expense of $4.4
million further depressed operating income.
Pipeline Services and Equipment Segment. Revenues of the pipeline services
and equipment segment are generated from rentals and sales of equipment as
follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
PIPELINE SERVICES AND EQUIPMENT REVENUES
Rentals $ 11,084 $ 6,682 $ 22,327 $ 13,957
Sales 5,923 4,197 12,487 12,066
---------- ---------- ---------- ----------
$ 17,007 $ 10,879 $ 34,814 $ 26,023
========== ========== ========== ==========
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Pipeline services and equipment revenues increased $6.1 million (56%) in the
second quarter of 1995 as compared to 1994, due to a $1.3 million increase in
sales of equipment and service income from the Company's rehabilitation
business combined with a $1.0 million increase in equipment sales revenues in
the pipeline equipment division, $1.5 million increase in rental revenues in
the automatic welding division and a $2.3 million increase in service revenues
in the Company's pipeline coating business.
The pipeline services and equipment segment is volume sensitive due to the
fixed nature of many costs associated with operating specialized manufacturing
facilities and a worldwide sales effort. Operating results in the pipeline
services and equipment segment can vary significantly from period to period due
to the timing of large pipeline projects. Operating income decreased $1.6
million in the second quarter of 1995 as compared to the prior year due
primarily to a $4.6 million unusual charge in the pipeline segment. Operating
income, exclusive of the unusual charges, as a percentage of revenues increased
to 8% in 1995 from a negative 15% in 1994 due to an increase in higher margin
rental revenues in the second quarter of 1995 along with a $1.0 million loss
recognized on the Allseas project in the second quarter of 1994.
For the six months, revenues increased $8.8 million (34%) due to a $7.4 million
increase in the autoweld division's international sales and rentals, a $1.7
million increase in the rehabilitation business, and a $1.7 million increase in
service revenues by the Company's pipeline coating business offset slightly by
a $2.0 million decrease in the pipeline equipment division equipment sales
export revenues. Operating income increased $1.2 million ($5.7 million
exclusive of the unusual charge), due to a large increase in high margin
international and Canadian rentals, a decrease in lower margin export equipment
sales as compared to 1994, significant increases in sales of equipment by the
rehabilitation group and increases in coating service revenues from a large
international pipeline construction project. In addition, in 1994 the Allseas
project recognized a $1.0 million loss.
Compression Services and Equipment. Revenues of the compression services and
equipment segment are generated from rentals and sales of equipment as follows
(in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1995 1995
------------------ -----------------
COMPRESSION SERVICES AND EQUIPMENT REVENUES
Rentals $ 8,938 $ 17,988
Sales 15,305 35,402
---------- ----------
$ 24,243 $ 53,390
========== ==========
The compression services and equipment segment was acquired in connection with
the acquisition of TOTAL on August 12, 1994. Revenues of $24.2 million for the
second quarter 1995 consisted of compressor equipment rental revenue of $8.9
million and compressor system sales revenue of $15.3 million. The compression
segment's Canadian operations provided $12.0 million of these revenues.
Revenues for the six months were $53.4 million and consisted of compressor
rental revenue of $18.0 million and compressor system sales revenue of $35.4
million. The compression segment's Canadian operations provided $28.6 million
of these revenues.
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Interest Income and Expense
Interest income decreased and interest expense increased in 1995 as compared to
1994 primarily due to the acquisition of TOTAL which resulted in the
expenditure of excess cash balances and the incurrence of debt.
Income Taxes
Income tax benefit as a percentage of net loss before taxes and minority
interest was 56% during the six months ended June 30, 1995 and the income tax
expense as a percentage of net income before income taxes and minority interest
was 33% during the same period in 1994. The increase in the effective tax rate
primarily is due to variances in the countries of origin of the Company's
taxable income and nondeductible goodwill amortization arising from the
acquisition of TOTAL. In addition, the Company is taxed on local gross
revenues by some foreign countries in which it does business, regardless of
taxable income.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had cash and cash equivalents of $7.3 million,
down $6.5 million from year end. Cash provided by operating activities was
$9.9 million during the six months ended June 30, 1995 as compared to $1.0
million in 1994. Depreciation and amortization expense increased $12.1 million
during the six months ended June 30, 1995 as compared to 1994 as a result of
capital expenditures and the acquisition of TOTAL. Inventories increased by
$2.6 million during the six months ended June 30, 1995 primarily due to
purchases of materials to manufacture oilfield and compression equipment.
Accounts payable and other current liabilities decreased $6.8 million in 1995
due to seasonally lower levels of activity as compared to the fourth quarter of
1994.
On August 10, 1995, the Company and Kuwait Oil Company (KOC) entered into a
settlement agreement whereby KOC will pay $14.25 million cash within 30 days in
full settlement of the outstanding accounts receivable and the parties' dispute
related to work performed in Kuwait during 1992 and 1993, resulting in no
material gain or loss to the Company.
The Company continues to replenish and increase its inventory of rental
equipment utilized in the oilfield services and equipment segment and develop
and manufacture new equipment and systems to improve or expand the pipeline and
compression businesses. Capital expenditures were $27.6 million in the six
months ended June 30, 1995 as compared to $17.5 million in 1994. During the
six months ended June 30, 1995, $15.7 million or 57% of the capital
expenditures were made in the oilfield services and equipment segment,
primarily directed towards the expansion of North American rental and fishing
operations and international expansion in Latin America. Capital expenditures
of $3.2 million in the pipeline services equipment segment were primarily
directed towards the addition of rental equipment. Capital expenditures in the
compression services and equipment segment consisted of $7.0 million, primarily
for the expansion of the domestic compressor rental fleet. Almost all of the
$17.5 million spent on capital expenditures during the six months ended June
30, 1994 went to the oilfield services and equipment segment, primarily for
fishing tools and drill pipe. Sources for the equipment purchased, assembled
or manufactured by the Company are readily available and long-term capital
commitments are not required.
On August 12, 1994, Enterra completed the acquisition of all the outstanding
common shares of TOTAL in exchange for 11.3 million common shares of Enterra
valued at $18.90 per share. Minority interests in two of TOTAL's subsidiaries
were acquired for approximately $23 million in cash, and the termination of
option and employment obligations and the costs of the transaction resulted in
further cash expenditures of approximately $15 million. At closing, TOTAL had
outstanding long-term indebtedness of approximately $75 million.
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On June 30, 1995, the Company announced that Enterra and Zapata Corporation
entered into an agreement whereby Enterra will purchase from Zapata the assets
of its Energy Industries compression division for $130 million in cash. Energy
Industries is involved in the design, manufacture, packaging and rental of
compressors. The transaction is subject to the execution of a definitive
assets purchase agreement and certain regulatory approvals.
On July 17, 1995, the Company increased its revolving line of credit from $140
million to $175 million in order to provide additional availability for
acquisitions and future operating needs. The amended and restated agreement
provides the option of borrowing up to $35 million in Canadian funds for use of
the Company's Canadian subsidiaries. The term of the credit agreement is
through March 1998. Borrowings bear interest at the prime rate or, at the
Company's election, at .75% over a specified Eurodollar rate. The credit
agreement contains a number of covenants, including limitations on the amount
of dividends paid and repurchases of common stock, the amount and type of
permitted indebtedness and investments, the pledge or disposition of assets and
requirements that the Company meet certain financial tests. Borrowings under
the revolving line of credit at June 30, 1995 were $122 million.
The Company currently believes that its cash flow from operations, working
capital and borrowing capabilities will be sufficient to fund its projected
capital expenditures, working capital needs and debt service requirements.
Additional borrowings will be required to complete the acquisition of Energy
Industries and, based upon discussions with its banks and other potential
lenders, the Company expects such borrowings will be available.
Enterra is affected by fluctuations in foreign currency exchange rates.
Although most of Enterra's foreign operations revenues are denominated in the
local currency, the effects of foreign currency fluctuations are mitigated as
local expenses of foreign entities are generally in the same currency. The
reported operating results of foreign operations are affected by changes in the
exchange rates of foreign currencies against the U.S. dollar. The significance
of the effect on the operating results of Enterra will depend on the magnitude
of the rate change and the level of operations in the local currency. Enterra
recorded net foreign currency transaction gains of $0.7 million during the six
months ended June 30, 1995. Enterra did not incur any material foreign
currency transaction gains or losses during the six months ended June 30, 1994.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 28, 1995, a class action complaint was filed against Enterra and
members of its Board of Directors in the Delaware Court of Chancery in New
Castle County. The complaint alleges breach of fiduciary duty and other
matters and seeks damages in an unspecified amount and injunctive relief to
prevent the consummation of the Merger. On July 17, 1995, an answer to the
complaint was filed by the defendants denying the material allegations.
On August 10, 1995, the Company and Kuwait Oil Company (KOC) entered into a
settlement agreement whereby KOC will pay $14.25 million cash within 30 days in
full settlement of the outstanding accounts receivable and the parties' dispute
related to work performed in Kuwait during 1992 and 1993, resulting in no
significant gain or loss to the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 11, 1995. Stockholders
elected three directors nominated by the board of directors for terms expiring
in 1998 by the following votes:
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FOR WITHHELD
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Thomas J. Edelman 25,195,080 234,915
D. Dale Wood 25,193,586 236,409
R. Rudolph Reinfrank 25,194,467 235,528
Under applicable Delaware law, votes cast could not be recorded against or as
an abstention for the election of directors, nor could a broker non-vote be
recorded as such shares were not considered to be present at the meeting and
entitled to vote. As directors are elected by a plurality of the votes cast, a
withheld vote had no effect. There were no nominees to office other than the
directors elected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Second Amended and Restated Credit Agreement, dated as of
July 17, 1995 between Enterra Corporation and certain
subsidiaries, on the one hand, and certain financial
institutions
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 23, 1995, in
respect of the signing of a definitive agreement providing for the
business combination of the Company and Weatherford International
Incorporated. The combination will be effected pursuant to an
Agreement and Plan of Merger, dated as of June 23, 1995, providing for
the merger of the Company with and into Weatherford.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date August 13, 1995 /s/ Steven W. Krablin
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Steven W. Krablin
Principal Financial and Accounting
Officer and Duly Authorized Signatory
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