1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 0-7265
ENERGY VENTURES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 04-2515019
- -------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027-3415
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 297-8400
- --------------------------------------------------------------------------------
(Registrant's telephone number, include area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Outstanding at October 28, 1996
-------------- -------------------------------
Common Stock, par value $1.00 22,804,716
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(In thousands)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . $ 11,555 $ 4,517
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $1,118 at September 30, 1996 and $615
at December 31, 1995 . . . . . . . . . . . . . . . . . 122,182 102,763
Inventories . . . . . . . . . . . . . . . . . . . . 150,423 117,936
Materials and Supplies . . . . . . . . . . . . . . . . . . . 12,825 10,042
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . 16,542 14,316
--------- ---------
313,527 249,574
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION . . . . . . . . . . . . . 287,704 192,702
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE
ASSETS OF BUSINESSES ACQUIRED, NET . . . . . . . . . . . 72,168 37,398
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 22,070 11,386
--------- ---------
$ 695,469 $ 491,060
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines
of Credit . . . . . . . . . . . . . . . . . . . . $ 24,258 $ 4,826
Current Maturities of Long-Term Debt . . . . . . . . . . . . 4,596 5,894
Accounts Payable . . . . . . . . . . . . . . . . . . . . 73,997 53,703
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . 60,131 32,693
--------- ---------
162,982 97,116
--------- ---------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . 126,472 126,849
DEFERRED INCOME TAXES, NET . . . . . . . . . . . . . . . . . 28,476 32,926
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . 4,859 6,103
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock . . . . . . . . . . . . . . . . . . . . 22,940 18,522
Capital in Excess of Par Value . . . . . . . . . . . . . . . 281,317 157,953
Retained Earnings . . . . . . . . . . . . . . . . . . . . 79,336 60,167
Cumulative Foreign Currency Translation Adjustment (8,537) (6,915)
Treasury Stock, at Cost . . . . . . . . . . . . . . . . . . . (2,376) (1,661)
--------- ---------
372,680 228,066
--------- ---------
$ 695,469 $ 491,060
========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
3
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(In thousands, except per share amounts)
REVENUES . . . . . . . . . . . . . . . . . . . . . . $ 160,632 $ 93,797 $ 390,560 $ 246,204
--------- --------- --------- ----------
COSTS AND EXPENSES:
Cost of Sales . . . . . . . . . . . . . . . . . 123,729 69,541 297,672 182,347
Selling, General and Administrative Attributable
to Segments . . . . . . . . . . . . . . . . 16,207 13,804 45,393 37,260
Corporate General and Administrative . . . . . . 1,627 1,257 4,665 3,861
--------- --------- --------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . 19,069 9,195 42,830 22,736
--------- --------- --------- ----------
OTHER INCOME (EXPENSE):
Interest Expense . . . . . . . . . . . . . . . . (4,271) (4,722) (12,653) (12,883)
Other, Net . . . . . . . . . . . . . . . . . . . 215 212 438 205
--------- --------- --------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE . . . . . . . . . . . . 15,013 4,685 30,615 10,058
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . 5,254 1,129 10,715 3,118
--------- --------- --------- ----------
INCOME BEFORE EXTRAORDINARY CHARGE . . . . . . . . . 9,759 3,556 19,900 6,940
EXTRAORDINARY CHARGE, NET OF TAXES . . . . . . . . . -- -- (731) --
--------- --------- --------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 9,759 $ 3,556 $ 19,169 $ 6,940
========= ========= ========= ==========
EARNINGS PER SHARE:
Income Before Extraordinary Charge . . . . . . . $ 0.45 $ 0.24 $ 1.02 $ 0.51
Extraordinary Charge . . . . . . . . . . . . . . -- -- (0.04) --
--------- --------- --------- ----------
Net Income Per Share . . . . . . . . . . . . . . $ 0.45 $ 0.24 $ 0.98 $ 0.51
========= ========= ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING . . . . . . . . . 21,513 15,099 19,528 13,490
========= ========= ========= ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
4
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1996 1995
------- ------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,169 $ 6,940
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operations:
Depreciation and Amortization . . . . . . . . . . . . . . 20,410 14,363
Oil Country Tubular Ltd. Deposit . . . . . . . . . . . . (8,000) --
Deferred Income Tax Provision . . . . . . . . . . . . . . 1,318 638
Extraordinary Charge, Net . . . . . . . . . . . . . . . . 731 --
(Gain) Loss on Sale of Assets . . . . . . . . . . . . . . (333) 27
Provision for Uncollectible Accounts Receivable . . . . . 658 300
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired . . . . . . . . . . . . . . . . (33,299) (43,480)
--------- ---------
Net Cash Provided (Used) by Operating Activities . . . . . . 654 (21,212)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired . . . . . . . . (67,155) (8,263)
Capital Expenditures for Property, Plant and Equipment . . . . (34,029) (17,559)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,604 917
--------- ---------
Net Cash Used by Investing Activities . . . . . . . . . . . (99,580) (24,905)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net . . . . . . . . . . . . . . . . . 100,893 63,618
Line of Credit Termination Costs . . . . . . . . . . . . . . . (1,125) --
Line of Credit Issuance Costs . . . . . . . . . . . . . . . . . (1,602) --
Borrowings (Repayments) Under Revolving Lines of Credit, Net . 19,432 (12,272)
Borrowings (Repayments) on Term Debt, Net . . . . . . . . . . . (13,501) 780
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,960 78
--------- ---------
Net Cash Provided by Financing Activities . . . . . . . . . 106,057 52,204
--------- ---------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH . . . . . . . . . . . . . . (93) 142
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 7,038 6,229
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . 4,517 3,144
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . $ 11,555 $ 9,373
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, Net of Amounts Capitalized . . . . . . . . . . . $ 15,431 $ 15,355
Income Taxes Paid, Net of Refunds . . . . . . . . . . . . . . . $ 4,816 $ 1,660
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
5
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The unaudited consolidated condensed financial statements included herein
have been prepared by Energy Ventures, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. Although the
Company believes that the disclosures in these financial statements are
adequate to make the interim information presented not misleading, certain
information relating to the Company's organization and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted in this Form 10-Q
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. The results of operations for the three and nine months
ended September 30, 1996 are not necessarily indicative of the results expected
for the full year.
(2) Inventories
Inventories by category are as follows:
September 30, December 31,
1996 1995
------------- ------------
(in thousands)
Raw materials and components $ 83,996 $ 61,578
Work in process 25,329 17,167
Finished goods 41,098 39,191
--------- ----------
$ 150,423 $ 117,936
========= ==========
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
(3) Acquisitions
The Company acquired Superior Tube Limited ("Superior"), an Alberta,
Canada based premium tubular manufacturer, for total cash consideration of
approximately $16 million on September 4, 1996.
On August 22, 1996, the Company acquired two barge drilling rigs
located in Nigeria for $24.5 million cash and a $7.5 million drill pipe credit.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA") for approximately 500,000 shares of Common Stock, $14.35 million
cash, a $650,000 note due January 1997 and assumed debt of approximately $15
million. TCA manufactures premium casing, which expands the range of the
Company's premium tubular products line to add a broader line of premium
casing.
On May 3, 1996, the Company acquired ENERPRO International, Inc.
("ENERPRO"), a manufacturer of premium threads and thread connections, for
312,714 shares of Common Stock and the assumption of approximately $3.1 million
in indebtedness. The operations of ENERPRO are being combined with the premium
thread operations of the Company's tubular division.
In April 1996, the Company acquired Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment, for
approximately $3.1 million.
On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares of
Common Stock.
The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Condensed Statements of Income from the respective dates of
acquisition.
5
6
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
The allocations of the purchase price to the fair market values of the net
assets acquired in the 1996 acquisitions are based on preliminary estimates of
the fair market value and may be revised when additional information concerning
asset and liability valuations is obtained. The results of operations related
to the acquisitions of Superior, two barge drilling rigs in Nigeria, Production
Specialties and ENERPRO are not material to the Company's consolidated
financial position or results of operations; therefore, pro forma information
is not presented.
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the TCA and Prideco
acquisitions had occurred on January 1, 1995. The pro forma information set
forth below is not necessarily indicative of the results that actually would
have been achieved had the transactions been consummated as of January 1, 1995,
or that may be achieved in the future.
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 418,820 $ 311,199
Income before extraordinary charge . . . . . . . . . . $ 21,848 $ 8,800
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 21,117 $ 8,800
Earnings per share from continuing operations . . . . $ 1.10 $ 0.57
Net Income per common share . . . . . . . . . . . . . $ 1.06 $ 0.57
(4) Short-Term Borrowings and Lines of Credit
On June 26, 1996, the Company entered into a new $120 million working
capital facility, of which $90 million is designated as a borrowing base
revolving line of credit and up to $30 million is available for working capital
borrowings through December 31, 1996. Borrowings under the revolving line of
credit are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. The
revolving line of credit extends through June 30, 1999, and borrowings under
the $30 million portion of the facility are amortized over a three year period
beginning June 30, 1997. Borrowings under the facility bear interest at a
variable rate based on a LIBOR option and base rate option dependent on certain
ratios and are secured by the Company's domestic accounts receivables,
inventory and stock of various of the Company's domestic and foreign
subsidiaries. The interest rate payable under this facility at September 30,
1996, was 6.95%. The facility contains customary affirmative and negative
covenants relating to working capital, earnings and net worth. The facility
also imposes limitations on the Company's and its subsidiaries' use of funds
for future acquisitions and capital expenditures, the incurrence of additional
debt and other operational matters and certain expenditures, as well as
prohibitions on the declaration and payment of dividends by the Company. At
September 30, 1996, the Company was limited under this facility in the amount
of dividends, distributions and other restricted payments that could be made by
it to $132 million. The Company's new facility replaces the Company's prior
U.S. working capital line of credit, which had higher borrowing costs and more
restrictive operational covenants. In the second quarter of 1996, the Company
incurred an extraordinary charge of $731,000, net of taxes of $394,000,
relating to the termination of its prior working capital facility.
(5) Long-Term Debt
On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25%
Senior Notes due 2004 with semi-annual interest payments in March and
September. Both issues of Senior Notes were issued pursuant to the terms of an
Indenture dated March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
See Note 9.
6
7
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(6) Public Stock Offering
In August 1996, the Company completed a public offering of 3,450,000
shares of its Common Stock ("Public Offering"). The net proceeds of this
offering were approximately $101 million.
(7) Subsequent Events
On October 21, 1996, the Company entered into an agreement to acquire
Arrow Completion Systems ("Arrow") for total cash consideration of
approximately $21.5 million. Upon completion of the acquisition, the
operations of Arrow will be integrated into the production equipment division.
The acquisition of Arrow is subject to various conditions, including the
receipt of all required regulatory approvals and expiration of all waiting
periods. The transaction is expected to close prior to December 31, 1996.
On October 11, 1996, the Company entered into a $3.9 million
settlement plus accrued interest of $2.5 million with the United States
Internal Revenue Service (the "IRS") relating to the August 1994 letter
received by the Company from the IRS whereby such letter proposed to increase
the gain recognized by the Company upon the dissolution in October 1990 of a
joint venture ("COLEVE") with Columbia Gas Development Corporation
("Columbia"). The IRS had proposed to seek payment of a tax liability of
approximately $14.1 million plus accrued interest thereon, and included $3.4
million of taxes relating to the proposed disallowance of certain interest
deductions taken by the Company with respect to COLEVE that was the subject of
a similar letter received by the Company in the fourth quarter of 1993. The
tax liability with respect to these matters has been previously provided for as
a deferred tax liability in the Company's financial statements. This
settlement is currently expected to result in the Company recognizing an
approximate $4 million tax benefit in the fourth quarter due to the elimination
of certain previously accrued deferred taxes that will no longer be required to
be paid as a result of the settlement.
On October 1, 1996, the Company acquired the stock of Irmaos Geremia
LTDA. ("Geremia"), a Porto Alegre, Brazil based designer, manufacturer and
marketer of progressive cavity pumps, for approximately $24 million in cash and
assumed debt. Geremia will be integrated into the Company's artificial lift
and completion tool business.
On September 14, 1996, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Parker Drilling Company, a
Delaware corporation ("Parker"), providing for the sale of the Company's
Mallard Bay rig contracting division ("Mallard") to Parker in exchange for a
total consideration of $338 million, consisting of $313 million in cash and $25
million in shares of Parker's Series D Convertible Preferred Stock. The
purchase price is subject to adjustment for certain changes in working capital
and other assets. The Company is also obligated under the Stock Purchase
Agreement to transfer certain assets to Mallard and to release, assume or
satisfy certain liabilities with respect to Mallard.
The proposed disposition of Mallard will permit the Company to focus
its resources and efforts on the continued growth of its tubular products and
oilfield equipment manufacturing operations. The Company intends to use the
net after tax proceeds from the Mallard sale to make acquisitions aimed at
taking advantage of the consolidation and growth in these markets. The closing
of the sale of Mallard is subject to certain conditions, including the
completion of necessary financing by Parker, and the receipt of all required
regulatory approvals. Although there can be no assurance that the Mallard sale
will be closed, the Company currently anticipates that the sale will be
consummated in mid-November 1996.
Revenues and net income attributable to Mallard's operations were
$66.9 million and $5.6 million, for the nine months ended 1996 and $59.5
million and $7.0 million for the nine months ended 1995. Upon the consummation
of the Mallard sale, Mallard's results of operations will be reflected as
discontinued operations in the Company's consolidated financial statements.
(8) Reclassifications
Certain reclassifications of prior period balances have been made to
conform such amounts to corresponding September 30, 1996 classifications.
7
8
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements
The $120 million Senior Notes which are described in Note 5 are
unconditionally guaranteed on a joint and several basis by certain subsidiaries
of the Company. Accordingly, the following condensed consolidating balance
sheets as of September 30, 1996 and December 31, 1995, and the related
condensed consolidating statements of income for the three and nine month
periods ended September 30, 1996 and 1995, and cash flows for the nine month
periods ended September 30, 1996 and 1995, have been provided. The condensed
consolidating financial statements herein are followed by notes which are an
integral part of these statements.
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . $ 6,167 $ 4,342 $ 1,046 $ -- $ 11,555
Other Current Assets . . . . . . . 1,488 229,477 71,007 -- 301,972
--------- ---------- ---------- ---------- ---------
7,655 233,819 72,053 -- 313,527
--------- ---------- ---------- ---------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . . 1,052 252,563 34,089 -- 287,704
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . . 492,698 (218,154) (38,735) (235,809) --
OTHER ASSETS . . . . . . . . . . . . 4,957 65,455 23,826 -- 94,238
--------- ---------- ---------- ---------- ---------
$ 506,362 $ 333,683 $ 91,233 $ (235,809) $ 695,469
========= ========== ========== ========== =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . . $ 20,000 $ -- $ 4,258 $ -- $ 24,258
Current Maturities of Long-Term Debt -- 4,005 591 -- 4,596
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . . (1,375) 110,855 24,648 -- 134,128
--------- ---------- ---------- ---------- ---------
18,625 114,860 29,497 -- 162,982
--------- ---------- ---------- ---------- ---------
LONG-TERM DEBT . . . . . . . . . . . 120,000 5,295 1,177 -- 126,472
OTHER LIABILITIES . . . . . . . . . . (4,943) 22,152 16,126 -- 33,335
--------- ---------- ---------- ---------- ---------
STOCKHOLDERS' INVESTMENT . . . . . . 372,680 191,376 44,433 (235,809) 372,680
--------- ---------- ---------- ---------- ---------
$ 506,362 $ 333,683 $ 91,233 $ (235,809) $ 695,469
========= ========== ========== ========== =========
8
9
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . $ 532 $ 2,985 $ 1,000 $ -- $ 4,517
Other Current Assets . . . . . . 1,564 208,342 35,151 -- 245,057
-------- ---------- --------- ------------ ---------
2,096 211,327 36,151 -- 249,574
-------- ---------- --------- ------------ ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . 159 177,945 14,598 -- 192,702
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . 342,844 (169,154) 18,417 (192,107) --
OTHER ASSETS . . . . . . . . . . . 4,969 47,079 (3,264) -- 48,784
-------- ---------- --------- ------------ ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= ============ =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . $ -- $ 795 $ 4,031 $ -- $ 4,826
Current Maturities of Long-Term Debt -- 5,484 410 -- 5,894
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . 4,055 72,451 9,890 -- 86,396
-------- ---------- --------- ------------ ---------
4,055 78,730 14,331 -- 97,116
-------- ---------- --------- ------------ ---------
LONG-TERM DEBT . . . . . . . . . . 120,000 6,262 587 -- 126,849
OTHER LIABILITIES . . . . . . . . . (2,053) 22,394 18,688 -- 39,029
-------- ---------- --------- ------------ ---------
STOCKHOLDERS' INVESTMENT . . . . . 228,066 159,811 32,296 (192,107) 228,066
-------- ---------- --------- ------------ ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= ============ =========
9
10
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
REVENUES . . . . . . . . . . . . . . . $ -- $ 306,290 $ 84,270 $ -- $ 390,560
COSTS AND EXPENSES . . . . . . . . . . 4,665 276,265 66,800 -- 347,730
-------- ---------- ---------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . . (4,665) 30,025 17,470 -- 42,830
-------- ---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest Expense . . . . . . . . . . (2,382) (10,518) 247 -- (12,653)
Equity in Subsidiaries, Net of Taxes 21,121 -- -- (21,121) --
Other, Net . . . . . . . . . . . . . 198 301 (61) -- 438
-------- ---------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES . . . . . . 14,272 19,808 17,656 (21,121) 30,615
PROVISION (BENEFIT) FOR INCOME TAXES . (4,897) 9,804 5,808 -- 10,715
-------- ---------- ---------- ----------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE . . 19,169 10,004 11,848 (21,121) 19,900
EXTRAORDINARY CHARGE, NET OF TAXES . . -- (731) -- -- (731)
-------- ---------- ---------- ----------- ---------
NET INCOME . . . . . . . . . . . . . . $ 19,169 $ 9,273 $ 11,848 $ (21,121) $ 19,169
======== ========== ========== =========== =========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
REVENUES . . . . . . . . . . . . . . . $ -- $ 203,761 $ 42,443 $ -- $ 246,204
COSTS AND EXPENSES . . . . . . . . . . 3,861 184,757 34,850 -- 223,468
-------- ---------- ---------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . . (3,861) 19,004 7,593 -- 22,736
-------- ---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest Expense . . . . . . . . . (6,338) (6,555) 10 -- (12,883)
Equity in Subsidiaries, Net of Taxes 13,936 -- -- (13,936) --
Other, Net . . . . . . . . . . . . 63 476 (334) -- 205
-------- ---------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES . . . . . . 3,800 12,925 7,269 (13,936) 10,058
PROVISION (BENEFIT) FOR INCOME TAXES . (3,140) 3,348 2,910 -- 3,118
-------- ---------- ---------- ----------- ---------
NET INCOME . . . . . . . . . . . . . . $ 6,940 $ 9,577 $ 4,359 $ (13,936) $ 6,940
======== ========== ========== =========== =========
10
11
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
REVENUES . . . . . . . . . . . . . . . $ -- $ 121,203 $ 39,429 $ -- $ 160,632
COSTS AND EXPENSES . . . . . . . . . . 1,627 107,338 32,598 -- 141,563
-------- ---------- ---------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . . (1,627) 13,865 6,831 -- 19,069
-------- ---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest Expense . . . . . . . . . . (3,813) (525) 67 -- (4,271)
Equity in Subsidiaries, Net of Taxes 12,345 -- -- (12,345) --
Other, net . . . . . . . . . . . . . 191 82 (58) -- 215
-------- ---------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES . . . . . . 7,096 13,422 6,840 (12,345) 15,013
PROVISION (BENEFIT) FOR INCOME TAXES . (2,663) 5,995 1,922 -- 5,254
-------- ---------- ---------- ----------- ---------
NET INCOME . . . . . . . . . . . . . . $ 9,759 $ 7,427 $ 4,918 $ (12,345) $ 9,759
======== ========== ========== =========== =========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
REVENUES . . . . . . . . . . . . . . . $ -- $ 77,311 $ 16,486 $ -- $ 93,797
COSTS AND EXPENSES . . . . . . . . . . 1,257 69,994 13,351 -- 84,602
-------- ---------- ---------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . . (1,257) 7,317 3,135 -- 9,195
-------- ---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest Expense . . . . . . . . . (2,107) (2,601) (14) -- (4,722)
Equity in Subsidiaries, Net of Taxes 5,823 -- -- (5,823) --
Other, Net . . . . . . . . . . . . 30 178 4 -- 212
-------- ---------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES . . . . . . 2,489 4,894 3,125 (5,823) 4,685
PROVISION (BENEFIT) FOR INCOME TAXES . (1,067) 1,041 1,155 -- 1,129
-------- ---------- ---------- ----------- ---------
NET INCOME . . . . . . . . . . . . . . $ 3,556 $ 3,853 $ 1,970 $ (5,823) $ 3,556
======== ========== ========== =========== =========
11
12
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . $ 19,169 $ 9,273 $ 11,848 $ (21,121) $ 19,169
Equity in Earnings of Subsidiaries . . . . . . . . (21,121) -- -- 21,121 --
Other Adjustments and Changes . . . . . . . . . . (9,054) 27,016 (36,477) -- (18,515)
-------- ---------- ---------- ----------- ---------
Net Cash Provided (Used) by Operations . . . . . (11,006) 36,289 (24,629) -- 654
-------- ---------- ---------- ----------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired . . . . . . . . . . . . . . . . . . . . -- (47,093) (20,062) -- (67,155)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . . . . . . . . (61) (23,209) (10,759) -- (34,029)
Other, Net . . . . . . . . . . . . . . . . . . . . -- 881 723 -- 1,604
-------- ---------- ---------- ----------- ---------
Net Cash Used by Investing Activities . . . . . . (61) (69,421) (30,098) -- (99,580)
-------- ---------- ---------- ----------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock, Net . . . . . . . . . . 100,893 -- -- -- 100,893
Borrowings (Repayments) Under Revolving
Lines of Credit, Net . . . . . . . . . . . . . . 20,000 (795) 227 -- 19,432
Repayments on Term Debt . . . . . . . . . . . . . -- (13,165) (338) -- (13,503)
(Increase) Decrease in amounts due to and
from Subsidiaries, Net . . . . . . . . . . . . (104,191) 49,640 54,551 --
Other, Net . . . . . . . . . . . . . . . . . . . . -- (1,191) 426 -- (765)
-------- ---------- ---------- ----------- ---------
Net Cash Provided by Financing
Activities . . . . . . . . . . . . . . . . . . 16,702 34,489 54,866 -- 106,057
-------- ---------- ---------- ----------- ---------
Effect of Translation Adjustment on Cash . . . . . . -- -- (93) -- (93)
-------- ---------- ---------- ----------- ---------
Net Increase in Cash and Cash Equivalents . . . . . . 5,635 1,357 46 -- 7,038
Cash and Cash Equivalents at Beginning of
Period . . . . . . . . . . . . . . . . . . . . . . 532 2,985 1,000 -- 4,517
-------- ---------- ---------- ----------- ---------
Cash and Cash Equivalents at End of Period . . . . . $ 6,167 $ 4,342 $ 1,046 $ -- $ 11,555
======== ========== ========== =========== =========
12
13
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss) . . . . . . . . . . . . . . . . . $ 6,940 $ 9,577 $ 4,359 $ (13,936) $ 6,940
Equity in Earnings of Subsidiaries . . . . . . . . . (13,936) -- -- 13,936 --
Other Adjustments and Changes . . . . . . . . . . . . (5,160) (16,521) (6,471) -- (28,152)
-------- ---------- ---------- ----------- ---------
Net Cash Used by Operations . . . . . . . . . . . . (12,156) (6,944) (2,112) -- (21,212)
-------- ---------- ---------- ----------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired . . . . . . . . . . . . . . . . . . . . . . -- (8,263) -- -- (8,263)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . . . . . . . . . . (17) (14,624) (2,918) -- (17,559)
Other, Net . . . . . . . . . . . . . . . . . . . . . -- 797 120 -- 917
-------- ---------- ---------- ----------- ---------
Net Cash Used by Investing Activities . . . . . . . (17) (22,090) (2,798) -- (24,905)
-------- ---------- ---------- ----------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock, Net . . . . . . . . . . . 63,618 -- -- -- 63,618
Borrowings (Repayments) Under Revolving
Lines of Credit, Net . . . . . . . . . . . . . . . -- (13,627) 1,355 -- (12,272)
Borrowings Under Term Debt . . . . . . . . . . . . . -- 3,844 3 -- 3,847
Repayments on Term Debt . . . . . . . . . . . . . . -- (2,225) (842) -- (3,067)
(Increase) Decrease in amounts due to and
from Subsidiaries, Net . . . . . . . . . . . . . . (45,815) 42,254 3,561 -- --
Other, Net . . . . . . . . . . . . . . . . . . . . . 78 -- -- -- 78
-------- ---------- ---------- ----------- ---------
Net Cash Provided by Financing Activities . . . . . 17,881 30,246 4,077 -- 52,204
-------- ---------- ---------- ----------- ---------
Effect of Translation Adjustment on Cash . . . . . . . . -- 45 97 -- 142
-------- ---------- ---------- ----------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . . . . . 5,708 1,257 (736) -- 6,229
Cash and Cash Equivalents at Beginning of
Period . . . . . . . . . . . . . . . . . . . . . . . 166 1,593 1,385 -- 3,144
-------- ---------- ---------- ----------- ---------
Cash and Cash Equivalents at End of Period . . . . . . $ 5,874 $ 2,850 $ 649 $ -- $ 9,373
======== ========== ========== =========== =========
13
14
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(9) Condensed Consolidating Financial Statements - (Continued)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding September 30, 1996 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. OTHER
Notes 1 through 8 should be read in conjunction with the Condensed
Consolidating Financial Statements.
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15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is an international manufacturer and supplier of oilfield
equipment and contract drilling services. The Company manufactures and markets
drill pipe and premium tubular products and production equipment through its
oilfield equipment segment and provides contract drilling and workover services
through its contract drilling segment. In recent periods, the Company has
benefited from the continuing consolidation in the markets in which it
competes, improved market conditions, in particular for drill pipe and premium
tubulars, and increased revenues from focused acquisitions. These factors have
resulted in the Company achieving record results for the three and nine months
ended September 30, 1996.
Income before extraordinary charge for the third quarter of 1996 was
$9.8 million, or $.45 per share, on revenues of $160.6 million compared to
income before extraordinary charge for the third quarter of 1995 of $3.6
million or $.24 per share, on revenues of $93.8 million. Income before
extraordinary charge for the nine months ended September 30, 1996 was $19.9
million, or $1.02 per share, on revenues of $390.6 million compared to income
before extraordinary charge for the nine months ended September 30, 1995 of
$6.9 million or $.51 per share, on revenues of $246.2 million. The increase in
income before extraordinary charge for the 1996 periods was primarily
attributable to increased sales and margins of drill pipe and other tubular
products. Improved results also reflected the Company's acquisition of Prideco
Inc. in June 1995 and the acquisitions in the tubular products division of
ENERPRO International, Inc. ("ENERPRO") in May 1996, Tubular Corporation of
America ("TCA") in August 1996 and the operating assets of Superior Tube
Limited ("Superior") in September 1996.
During the first three quarters of 1996, the Company completed a
number of strategic acquisitions in both its tubular products division and its
production equipment division. Acquisitions in the tubular products division
were focused on increasing the Company's premium tubular product line and
manufacturing capacity. Acquisitions in the production equipment division were
focused on expanding the Company's manufacturing of progressive cavity pumps
and adding gas lift to the Company's line of artificial lift products. The
Company also completed its manufacturing arrangement in India with Oil Country
Tubular Limited ("OCTL"), which provides the Company with a manufacturing base
for sales of drill pipe, casing and other premium tubulars into the growing
Eastern Hemisphere markets.
On September 14, 1996, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Parker Drilling Company, a
Delaware corporation ("Parker"), providing for the sale of the Company's
Mallard Bay rig contracting division ("Mallard") to Parker in exchange for a
total consideration of $338 million, consisting of $313 million in cash and $25
million in shares of Parker's Series D Convertible Preferred Stock. The
purchase price is subject to adjustment for certain changes in working capital
and other assets. The Company is also obligated under the Stock Purchase
Agreement to transfer certain assets to Mallard and to release, assume or
satisfy certain liabilities with respect to Mallard.
The proposed disposition of Mallard will permit the Company to focus
its resources and efforts on the continued growth of its tubular products and
oilfield equipment manufacturing operations. The Company intends to use the
net after tax proceeds from the Mallard sale to make acquisitions aimed at
taking advantage of the consolidation and growth in these markets. The closing
of the sale of Mallard is subject to certain conditions, including the
completion of necessary financing by Parker, and the receipt of all required
regulatory approvals. Although there can be no assurance that the Mallard sale
will be closed, the Company currently anticipates that the sale will be
consummated in mid-November.
The demand for the Company's tubular products and contract drilling
services are particularly affected by the price of natural gas and the level of
oil and gas exploration activity, while the demand for the Company's artificial
lift equipment is directly dependent on oil production activity. Sales of the
Company's artificial lift products are currently concentrated in North America
and are affected by the level of oil production from older wells in addition to
oil prices. The Company's international contract drilling services are
affected by the level of exploration activity in the countries in which it
provides those services, while its domestic drilling operations are materially
dependent on the level of exploration activity in the U.S. Gulf Coast and
domestic natural gas prices. Exploration and production activity is also
affected by worldwide economic conditions, supply and demand for oil and
natural gas, seasonal trends and the political stability of oil producing
countries.
15
16
The Company's overall domestic rig utilization was up for the third
quarter of 1996. The Company's contract drilling segment experienced higher
domestic demand and utilization for its rigs in the third quarter of 1996 as
compared to the third quarter of 1995. This segment was affected by the high
costs relating to its Argentina operations and lower operating income in Peru
due to the curtailment of operations by the Company's customer in Peru. In
August 1996, the Company completed the acquisition of two barge drilling rigs
for approximately $32 million, consisting of $24.5 million cash and a $7.5
million drill pipe credit which will operate under a three year contract for
each rig with Shell Petroleum Development Company of Nigeria, Ltd. Operations
under such contracts commenced in late August 1996.
The Company currently expects that 1996 results will continue to
benefit from strong tubular sales and from the 1995 Prideco, Inc. acquisition
and the 1996 acquisitions. Results, however, will be dependent on market
conditions, in particular the level of drilling activity in the U.S. Gulf Coast
and demand for drill pipe and other tubular products. Accordingly, there can
be no assurance as to future results or profitability.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Oilfield Equipment Segment
Sales of tubular products in the third quarter of 1996 were $99.5
million compared to $42.9 million in 1995. Operating income associated with
the tubular products division in the third quarter of 1996 was $13.9 million as
compared to $4.9 million in 1995. Third quarter 1996 results reflected an 87%
increase in sales of drill pipe and a 410% increase in sales of premium
tubulars. The increase in drill pipe sales reflected the Company's June 1995
acquisition of Prideco, Inc. and an overall increase in demand for drill pipe.
The increase in demand for drill pipe reflected increased drilling activity,
particularly offshore, and a continuing decline in the supply of used drill
pipe inventory, against which the Company has historically competed. The
increase in sales of premium tubulars reflected the acquisitions of ENERPRO,
TCA and Superior and an increase in demand associated with increased natural
gas and offshore exploration and production activity. The improvement in
operating income reflected the effects of increased sales, lower average costs
and improved pricing. Price improvements, however, were partially offset by
increases in the price of raw materials, particularly "green" tubing, the
primary material used by the Company in the production of its tubular goods.
Revenues in the third quarter of 1996 from sales of drill pipe
manufactured at the OCTL facility in India under the Company's manufacturing
arrangement with OCTL did not materially contribute to the tubular products
division. Sales of products manufactured at this facility on behalf of the
Company began on June 1, 1996, and the Company expects that its sales of
tubular products from this facility will gradually increase through the
remainder of the year as the utilization of this facility increases. The
Company, however, expects some production inefficiencies to occur during the
initial stages of this arrangement.
The Company is currently in the process of implementing various
manufacturing changes at its tubular division in light of recent acquisitions
and to reduce costs and improve efficiencies. These changes include the
closing of the Company's Bastrop, Texas facility and the relocation of various
equipment and personnel to other facilities. The Company currently expects to
incur approximately $4 million in expenses associated with these changes during
the fourth quarter of 1996.
Backlog for tubular products at September 30, 1996, including backlog
of approximately $27 million at the OCTL facility, was approximately $150
million compared to $78.4 million at December 31, 1995. The Company currently
expects that all of this backlog will be shipped within the next twelve
months.
Revenues and operating income at the Company's artificial lift and
production equipment division were $34.8 million and $2.4 million,
respectively, for the quarter ended September 30, 1996, compared to $29.3
million and $1.4 million, respectively, for the quarter ended September 30,
1995. Canadian and international sales, including sales in Brazil, for this
division were strong during the third quarter of 1996, increasing by
approximately 67% from 1995 levels. The third quarter 1996 results reflect a
36% increase in progressive cavity pump and Brazilian completion tool sales.
The Company has also benefited from the reduction in manufacturing expenses
from process efficiencies realized at the division's primary facilities. Third
quarter 1996 sales did not include any sales
16
17
from the Company's Highland Pump distribution business, which was sold in the
first quarter of 1996 in connection with the Company's decision to focus the
efforts of this division on manufacturing.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were
$26.3 million and $4.4 million, respectively, for the quarter ended September
30, 1996, as compared to $21.6 million and $4.2 million, respectively, for the
quarter ended September 30, 1995.
The average number of domestic barge rigs working during the third
quarter of 1996 improved by approximately 6% from the third quarter of 1995.
The increase in volume coupled with a modest improvement in domestic day rates
resulted in an increase in domestic revenues from $15.1 million in the third
quarter of 1995 to $16.7 million in the third quarter of 1996.
The contract drilling segment's foreign operations, primarily in
Nigeria, Peru and Argentina, contributed $9.6 million in revenues for the
quarter ended September 30, 1996, compared to $6.5 million in the third quarter
of 1995. The Company's Nigerian operations continued to operate profitably
during the quarter and represented approximately 51% of the international
revenues for this division during the quarter. Operating income from foreign
operations in this segment was $1.1 million for the third quarter of 1996,
which was $64,000 higher than for the third quarter of 1995. The increased
revenues and operating income in Nigeria following the Company's August 1996
acquisition of two additional barge rigs in Nigeria, were offset by the high
costs associated with the Company's Argentina operations and the Company's
Peruvian operations, which had one of two rigs operating during the third
quarter of 1996.
Demand for the Company's domestic contract drilling and workover
services will continue to be materially dependent on levels of exploration and
development in the Gulf of Mexico and coastal and inland waters. The price of
natural gas will also be a material factor affecting that demand.
Assuming the consummation of the Company's proposed disposition of
Mallard to Parker, the Company will cease its contract drilling business and
will concentrate its operations on the businesses in its oilfield equipment
segment.
General
Corporate expenses as a percentage of revenues for the third quarter
of 1996 was 1% as compared to 1.3% for the third quarter of 1995. The decrease
in 1996 was primarily attributable to the growth in revenues from the Company's
tubular products division.
The Company's effective tax rate for the quarter ended September 30,
1996 was approximately 35% as compared to 24% for the quarter ended September
30, 1995. The 1995 rate primarily reflected the impact of the Company's
ability to utilize foreign tax credits.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
For the first nine months of 1996, income before extraordinary charge
was $19.9 million, or $1.02 per share, on revenues of $390.6 million compared
to income before extraordinary charge of $6.9 million, or $.51 per share, on
revenues of $246.2 million for the first nine months of 1995. Operating
income for the first nine months of 1996 was $42.8 million compared to $22.7
million for the first nine months in 1995. The increase in income before
extraordinary charge for the 1996 periods was primarily attributable to
increased sales and margins of drill pipe and other tubular products.
During the second quarter of 1996, the Company replaced its existing
$60 million credit facility with a three year $120 million working capital line
of credit. Borrowing costs under the new facility are currently approximately
2.5% lower than rates under the prior facility. See "Liquidity and Capital
Resources". The termination of the Company's prior facility resulted in the
Company incurring an extraordinary after tax charge of $731,000 or $.04 per
share in the second quarter of 1996.
17
18
Oilfield Equipment Segment
Revenues and operating income for the Company's tubular products in
the first nine months of 1996 were $229 million and $31.7 million,
respectively, compared to $99.2 million and $8.9 million, respectively, for
the first nine months of 1995. The increase in revenues and operating income
was primarily attributable to increased sales and margins for drill pipe and
other tubular products. Revenues and operating income associated with the
Company's artificial lift and production equipment division were $94.7 million
and $6.1 million, respectively, for the nine months ended September 30, 1996,
compared to $87.5 million and $5.8 million, respectively, for the nine months
ended September 30, 1995. The 1996 increase was primarily attributable to the
same factors affecting the increase in the third quarter of 1996.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were
$66.9 million and $9.7 million, respectively, for the nine months ended
September 30, 1996, as compared to $59.5 million and $11.8 million,
respectively, for the nine months ended September 30, 1995. The decline in
operating income primarily resulted from the high costs associated with the
Company's Argentina operations and because the Company's Peruvian operations
had one of two rigs operating during 1996.
General
Corporate expenses as a percentage of revenues was 1.2% for the nine
months ended September 30, 1996 as compared to 1.6% for the nine months ended
September 30, 1995. The decrease in 1996 was principally attributable to the
growth in revenues from the Company's tubular products division.
The Company's effective tax rate for the nine months ended September
30, 1996 was approximately 35% as compared to 31% for the nine months ended
September 30, 1995. The 1995 rate was lower due to the impact in the Company's
ability to utilize foreign tax credits.
CHANGE IN ACCOUNTING
The Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", effective January 1, 1996. SFAS 121
establishes accounting standards for the impairment of long-lived assets and
certain identifiable intangibles related to those assets to be held and used,
and for long-lived assets and certain identifiable intangibles to be disposed
of. The effect of adoption of SFAS 121 had no impact on the Company's
consolidated financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In August 1996, the Company completed a public offering of 3,450,000
shares of its Common Stock. The net proceeds of this offering were
approximately $101 million. The funds from the offering were utilized to fund
the TCA acquisition, the Company's acquisition of two rigs in Nigeria and
general corporate purposes.
The proposed disposition of Mallard is currently expected to result in
the Company receiving approximately $270 million after taxes. The Company
currently intends to apply the net after tax proceeds from the Mallard sale to
make acquisitions aimed at taking advantage of the consolidation and growth in
the oilfield equipment markets.
At September 30, 1996, the Company had cash and cash equivalents of
approximately $11.6 million compared to approximately $4.5 million at December
31, 1995. At September 30, 1996, the Company's working capital was
approximately $151 million compared to approximately $152 million at December
31, 1995. At September 30, 1996, the Company's debt to total capitalization
ratio was approximately 29%.
At September 30, 1996 and December 31, 1995, the Company had in place
various working capital lines of credit secured by the inventory and
receivables of the Company's subsidiaries. At September 30, 1996 and December
31, 1995, approximately $24.3 million and $4.8 million, respectively, had been
borrowed under its revolving lines of credit and approximately $8.4 million and
$5.1 million, respectively, had been used to support outstanding letters of
credit. At September 30, 1996 and December 31, 1995, $92.9 million and $55.6
million,
18
19
respectively, was available for additional borrowing under these credit
facilities. The average interest rate under these facilities was 10.22% for
fiscal 1995 and 9.0% for the first nine months of 1996.
On June 26, 1996, the Company entered into a new $120 million working
capital facility, of which $90 million is designated as a borrowing base
revolving line of credit and up to $30 million is available for working capital
borrowings through December 31, 1996. Borrowings under the revolving line of
credit are subject to certain borrowing base requirements relating to the
Company's accounts receivable and inventory securing the borrowings. The
revolving line of credit extends through June 30, 1999, and borrowings under
the $30 million portion of the facility are amortized over a three year period
beginning June 30, 1997. Borrowings under the facility bear interest at a
variable rate based on a LIBOR option and base rate option dependent on certain
ratios and are secured by the Company's domestic accounts receivables,
inventory and stock of various of the Company's domestic and foreign
subsidiaries. The interest rate payable under this facility at September 30,
1996, was 6.95%. The facility contains customary affirmative and negative
covenants relating to working capital, earnings and net worth. The facility
also imposes limitations on the Company's and its subsidiaries' use of funds
for future acquisitions and capital expenditures, the incurrence of additional
debt and other operational matters and certain expenditures, as well as
prohibitions on the declaration and payment of dividends by the Company. At
September 30, 1996, the Company was limited under this facility in the amount
of dividends, distributions and other restricted payments that could be made by
it to $132 million. The Company's new facility replaces the Company's prior
U.S. working capital line of credit, which had higher borrowing costs and more
restrictive operational covenants. In the second quarter of 1996, the Company
incurred an extraordinary charge of $731,000 net of taxes of $394,000 relating
to the termination of its prior working capital facility.
The Company currently has outstanding $120 million of 10 1/4 Senior
Notes due 2004 (the "Senior Notes") with semi-annual interest payments in March
and September. The Senior Notes were issued pursuant to the terms of an
Indenture dated March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
The Indenture relating to the Senior Notes contains various customary
affirmative and negative covenants that, among other things, limit the ability
of the Company and certain of its subsidiaries to: (i) incur certain additional
indebtedness unless the Company's Consolidated Fixed Charge Coverage Ratio (as
defined in the Indenture) is at least 2.0 to 1.0, (ii) make dividends,
distributions and certain other restricted payments, (iii) create certain
liens, (iv) engage in certain transactions with its affiliates, (v) engage in
sale and leaseback transactions, (vi) make certain asset dispositions and (vii)
merge or consolidate with, or transfer all or substantially all of its assets
to another person. The Indenture also limits the ability of the Company and
certain of its subsidiaries to pay dividends and make other distributions. At
September 30, 1996, the Company was limited under the Indenture in the amount
of dividends, distributions and other restricted payments that could be made by
it to approximately $276 million.
On October 11, 1996, the Company entered into a $3.9 million
settlement plus accrued interest of $2.5 million with the United States
Internal Revenue Service (the "IRS") relating to the August 1994 letter
received by the Company from the IRS whereby such letter proposed to increase
the gain recognized by the Company upon the dissolution in October 1990 of a
joint venture ("COLEVE") with Columbia Gas Development Corporation
("Columbia"). The IRS had proposed to seek payment of a tax liability of
approximately $14.1 million plus accrued interest thereon, and included $3.4
million of taxes relating to the proposed disallowance of certain interest
deductions taken by the Company with respect to COLEVE that was the subject of
a similar letter received by the Company in the fourth quarter of 1993. The
tax liability with respect to these matters has been previously provided for as
a deferred tax liability in the Company's financial statements. This
settlement is currently expected to result in the Company recognizing an
approximate $4 million tax benefit in the fourth quarter due to the elimination
of certain previously accrued deferred taxes that will no longer be required to
be paid as a result of the settlement.
CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS
In January 1996, the Company entered into a long-term manufacturing
and sales agreement with OCTL pursuant to which OCTL will manufacture drill
pipe and premium tubulars for the Company on an exclusive basis at OCTL's plant
in India. The OCTL arrangement is being used by the Company to pursue a
strategic expansion of its sales and operations in the Eastern Hemisphere. As
of September 30, 1996, the Company has provided working capital of
approximately $9 million plus an $8 million deposit made by the Company to OCTL
in the first quarter of 1996. The Company currently expects an additional
investment of approximately $4 million.
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In February 1996, the Company completed the sale of its United States
retail store distribution system for approximately $7.5 million. The Company
received $3 million in cash, a $4 million vendor credit with Continental Emsco
for future equipment needs of the Company and a $0.5 million note receivable.
The consideration received in the sale approximated the net book value of the
assets sold, resulting in no material gain or loss.
In April 1996, the Company acquired Production Specialties, Inc.
("Production Specialties"), a manufacturer of gas lift equipment, for
approximately $3.1 million.
On May 3, 1996, the Company acquired ENERPRO, a manufacturer of
premium threads and thread connections, for 312,714 shares of Common Stock and
the assumption of approximately $3.1 million in indebtedness. The operations
of ENERPRO are being combined with the premium thread operations of the
Company's tubular division.
On August 5, 1996, the Company acquired TCA for approximately 500,000
shares of Common Stock, $14.35 million in cash, a $650,000 note due January
1997 and assumed debt of approximately $15 million. TCA manufactures premium
casing which expands the range of the Company's premium tubular products line
to add a broader line of premium casing.
On August 22, 1996, the Company acquired two barge drilling rigs
located in Nigeria for $24.5 million cash and a $7.5 million drill pipe credit.
These rigs are expected to be sold to Parker as part of the proposed Mallard
sale.
The Company acquired Superior, an Alberta, Canada based premium
tubular manufacturer, for total cash consideration of approximately $16 million
on September 4, 1996.
On October 1, 1996, the Company acquired the stock of Irmaos Geremia
LTDA. ("Geremia"), a Porto Alegre, Brazil based designer, manufacturer and
marketer of progressive cavity pumps, for approximately $24 million in cash and
assumed debt. Geremia will be integrated into the Company's artificial lift
and completion tool business.
On October 21, 1996, the Company entered into an agreement to acquire
Arrow Completion Systems ("Arrow") for total cash consideration of
approximately $21.5 million. Upon completion of the acquisition, the
operations of Arrow will be integrated into the production equipment division.
The acquisition of Arrow is subject to various conditions, including the
receipt of all required regulatory approvals and expiration of all waiting
periods. The transaction is expected to close prior to December 31, 1996.
In July 1996, the Company entered into an agreement with Chevron for
the deployment of one of the Company's rigs in the United States (Rig No. 60)
to Nigeria to operate for Chevron under a three year contract. The cost to
prepare and enhance this rig for international operations is expected to be
approximately $9 million. As of September 30, 1996, the Company had incurred
approximately $3.2 million for such rig enhancement. This rig is expected to
be sold to Parker as part of the Mallard sale.
Capital expenditures by the Company during the nine months ended
September 30, 1996, totaled approximately $34 million. During the nine months
ended September 30, 1996, capital expenditures included approximately $11.1
million for refurbishment of three domestic barge rigs, upgrading of Rig No.
60, upgrading of a platform rig and the acquisition of rig moving equipment for
Argentina. The Company incurred capital expenditures of approximately $6
million relating to plant expansions. Ongoing routine capital expenditures for
the fourth quarter of 1996 are estimated to be approximately $5.0 million.
Capital expenditures are expected to be funded with available cash, cash flow
from operations and borrowings under lines of credit and other facilities.
The allocations of the purchase price to the fair market values of the
net assets acquired in the 1996 acquisitions are based on preliminary estimates
of the fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.
The Company's current sources of capital are cash generated from
operations and borrowings under its working capital lines of credit. The
Company believes that current reserves of cash and short-term investments,
access to existing credit lines and internally generated cash from operations
are sufficient to finance the projected cash requirements of its current and
future operations.
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The Company is continually evaluating new acquisitions with a focus on
proprietary technology and under-utilized fixed assets to enhance operations.
Future acquisitions may be funded through cash flow from operations, borrowings
under existing lines of credit and other facilities, and equity issuances if
desirable.
OTHER MATTERS
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) and that involve risk and uncertainty. These forward-
looking statements may include, but are not limited to, future sales, earnings,
margins, production levels and costs, product deliveries, market trends in the
oil and gas industry and the oilfield service sector thereof, research and
development, environmental and other expenditures, currency fluctuations and
various business trends. Projections have also been made as to the net
proceeds and effects of the proposed Mallard sale. Forward-looking statements
may be made by management orally or in writing including, but not limited to,
the Management's Discussion and Analysis and Financial Condition Results of
Operation section and other sections of the Company's filings with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934.
Actual results and trends in the future may differ materially depending
on a variety of factors including, but not limited to, changes in the price of
oil and gas, changes in the domestic and international rig count, global trade
policies, domestic and international drilling activities, world-wide political
stability and economic growth, including currency fluctuations, government
export and import policies, technological advances involving the Company's
products, the Company's successful execution of internal operating plans,
performance issues with key suppliers and subcontractors, collective bargaining
labor disputes, regulatory uncertainties and legal proceedings. The results
from the Mallard sale are also subject to various assumptions, including the
adjustments that will be required in connection with the sale, the Company's
U.S. and foreign tax treaties applicable to the sale, the final structure for
the transfer of certain assets required to be transferred to Mallard in
connection with the sale and other matters.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Page
----
2.1 Agreement and Plan of Merger dated as of June 21, 1996,
between Energy Ventures, Inc., TCA Acquisition, Inc. and
Tubular Corporation of America (incorporated by reference
to Exhibit 2.1 to Form 8-K, File 0-7265, filed June 24,
1996).
2.2 Asset Purchase Agreement dated as of June 21, 1996, by
and between Energy Ventures, Inc. and Mallard Bay Drilling,
Inc. and Noble Drilling (West Africa) Inc. and Noble
Drilling Corporation (incorporated by reference to Exhibit
2.3 to Form 8-K, File 0-7265, filed June 24, 1996).
2.3 Stock Purchase Agreement dated as of September 14, 1996,
by and among Parker Drilling Company and Energy Ventures,
Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K,
File 0-7265, filed October 3, 1996).
10.1 Form of Stockholder Agreement and Representation Letter
dated June 21, 1996, between Energy Ventures, Inc. and the
stockholders of Tubular Corporation of America (incorporated
by reference to Exhibit 2.2 to Form 8-K, File 0-7265, filed
June 24, 1996).
10.2 1992 Employee Stock Option Plan, as amended (incorporated
by reference to Exhibit No. 4.7 to the Registration
Statement on Form S-8; Registration No. 333-13531).
27.1 Financial Data Schedule..................................... 24
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K dated July 18, 1996, reporting the
Company's announced earnings for the quarter ended September 30,
1996.
(2) Current Report on Form 8-K dated August 5, 1996, reporting the
closing of the acquisition by the Company of all of the
outstanding capital stock of TCA and containing the financial
statements of TCA and the pro forma financial information for
the TCA acquisition.
(3) Current Report on Form 8-K dated August 21, 1996, reporting the
closing of the acquisition by the Company of two drilling rigs
from Noble Drilling Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY VENTURES, INC.
By: /s/ JAMES G. KILEY
------------------------------------------
James G. Kiley
Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ FRANCES R. POWELL
------------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: November , 1996
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger dated as of June 21, 1996,
between Energy Ventures, Inc., TCA Acquisition, Inc. and
Tubular Corporation of America (incorporated by reference
to Exhibit 2.1 to Form 8-K, File 0-7265, filed June 24,
1996).
2.2 Asset Purchase Agreement dated as of June 21, 1996, by
and between Energy Ventures, Inc. and Mallard Bay Drilling,
Inc. and Noble Drilling (West Africa) Inc. and Noble
Drilling Corporation (incorporated by reference to Exhibit
2.3 to Form 8-K, File 0-7265, filed June 24, 1996).
2.3 Stock Purchase Agreement dated as of September 14, 1996,
by and among Parker Drilling Company and Energy Ventures,
Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K,
File 0-7265, filed October 3, 1996).
10.1 Form of Stockholder Agreement and Representation Letter
dated June 21, 1996, between Energy Ventures, Inc. and the
stockholders of Tubular Corporation of America (incorporated
by reference to Exhibit 2.2 to Form 8-K, File 0-7265, filed
June 24, 1996).
10.2 1992 Employee Stock Option Plan, as amended (incorporated
by reference to Exhibit No. 4.7 to the Registration
Statement on Form S-8 (Registration No. 333-13531).
27.1 Financial Data Schedule