1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of earliest event reported: November 12, 1996
PARKER DRILLING COMPANY
- --------------------------------------------------------------------------------
(Exact name or registrant as specified in its charter)
Delaware 1-7573 73-0618660
- --------------------------------------------------------------------------------
(State of other jurisdiction Commission File Number (IRS Employer
of incorporation) Identification No.)
Eight East Third Street, Tulsa, Oklahoma 74103
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (918) 585-8221
2
The undersigned Registrant hereby amends its Form 8-K filed on
November 25, 1996, to include the audited financial statements of Mallard
Bay Drilling, Inc. and Quail Tools, Inc. and the related pro forma
financial information.
Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits
(a) Historical financial statements of Mallard Bay Drilling,
Inc. and Quail Tools, Inc.
(b) Pro forma financial information
1
3
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 hereunto duly authorized.
PARKER DRILLING COMPANY
By: /s/ Robert L. Parker Jr.
------------------------------------
Robert L. Parker Jr.
President and Chief Executive Officer
Date: January 6, 1997
2
4
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AUDITED COMBINED FINANCIAL STATEMENTS OF THE MALLARD BAY DRILLING
DIVISION OF ENERGY VENTURES, INC.:
Report of Independent Public Accountants......................... 4
Combined Balance Sheets as of December 31, 1995 and 1994......... 5
Combined Statements of Income for the years ended December 31,
1995, 1994 and 1993........................................... 6
Statements of Changes in Equity Investments for the years ended
December 31, 1995, 1994 and 1993.............................. 7
Combined Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993....................................... 8
Notes to Combined Financial Statements........................... 9
UNAUDITED FINANCIAL STATEMENTS OF THE MALLARD BAY DRILLING DIVISION
OF ENERGY VENTURES, INC.:
Combined Balance Sheet as of September 30, 1996.................. 17
Combined Statement of Income for the nine months ended
September 30, 1996 and 1995................................... 18
Combined Statement of Cash Flows for the nine months ended
September 30, 1996 and 1995................................... 19
Notes to Combined Financial Statements........................... 20
AUDITED FINANCIAL STATEMENTS OF QUAIL TOOLS, INC.:
Independent Auditors' Report..................................... 21
Balance Sheets as of December 31, 1995 and 1994.................. 22
Statements of Earnings and Retained Earnings for the years ended
December 31, 1995, 1994 and 1993.............................. 23
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993................................................. 24
Notes to Financial Statements.................................... 25
UNAUDITED FINANCIAL STATEMENTS OF QUAIL TOOLS, INC.
Balance Sheet as of August 31, 1996.............................. 29
Statement of Earnings and Retained Earnings for the eight months
ended August 31, 1996 and 1995................................ 30
Statement of Cash Flows for the eight months ended August 31,
1996 and 1995................................................. 31
Notes to Financial Statements.................................... 32
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.................. 35
3
5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Energy Ventures, Inc.
We have audited the accompanying combined balance sheets of the Mallard Bay
Drilling division ("Mallard Bay Drilling") of Energy Ventures, Inc. (a Delaware
corporation), as defined in Note 1, as of December 31, 1995 and 1994, and the
related combined statements of income, equity investments and cash flows for
each of the three years in the period ended December 31, 1995. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Mallard Bay
Drilling as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 7, 1996
4
6
MALLARD BAY DRILLING
COMBINED BALANCE SHEETS
DECEMBER 31,
----------------------
1995 1994
-------- --------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents........................................... $ 1,632 $ 889
Accounts Receivable, Net of Allowance for Uncollectible Accounts of
$253,000 in 1995 and $13,000 in 1994............................. 26,346 22,922
Materials and Supplies.............................................. 3,206 1,746
Other Current Assets................................................ 4,697 1,803
-------- --------
35,881 27,360
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Drilling Rigs and Other Property.................................... 114,281 91,845
Less: Accumulated Depreciation...................................... 20,640 15,764
-------- --------
93,641 76,081
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE ASSETS OF BUSINESSES
ACQUIRED, NET....................................................... 1,614 1,781
OTHER ASSETS.......................................................... 3,415 3,211
-------- --------
$134,551 $108,433
======== ========
LIABILITIES AND EQUITY INVESTMENT
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt................................ $ 2,403 $ 1,164
Accounts Payable.................................................... 9,448 8,475
Accrued Salaries and Benefits....................................... 2,461 1,200
Rig Purchase Obligation............................................. 2,455 --
Other Accrued Liabilities........................................... 1,813 3,478
-------- --------
18,580 14,317
LONG-TERM DEBT........................................................ 2,665 582
DEFERRED INCOME TAXES, NET............................................ 14,454 14,584
OTHER LIABILITIES..................................................... 1,990 1,673
COMMITMENTS AND CONTINGENCIES
EQUITY INVESTMENT..................................................... 96,862 77,277
-------- --------
$134,551 $108,433
======== ========
The accompanying notes are an integral part of these combined financial
statements.
5
7
MALLARD BAY DRILLING
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
REVENUES.................................................... $79,912 $63,252 $74,379
COSTS AND EXPENSES:
Cost of Sales............................................. 57,063 41,236 55,201
Selling, General and Administrative....................... 8,374 6,185 7,381
------- ------- -------
OPERATING INCOME............................................ 14,475 15,831 11,797
OTHER INCOME (EXPENSE):
Interest Income (Expense), Net............................ (339) (162) 112
Other Income (Expense), Net............................... (107) 266 216
------- ------- -------
INCOME BEFORE INCOME TAXES.................................. 14,029 15,935 12,125
PROVISION FOR INCOME TAXES.................................. 5,320 5,601 4,268
------- ------- -------
NET INCOME.................................................. $ 8,709 $10,334 $ 7,857
======= ======= =======
The accompanying notes are an integral part of these combined financial
statements.
6
8
MALLARD BAY DRILLING
STATEMENTS OF CHANGES IN EQUITY INVESTMENTS
(IN THOUSANDS)
BALANCE AT 12/31/92................................................................ $64,440
NET INCOME......................................................................... 7,857
DECREASE IN EQUITY INVESTMENT...................................................... (3,342)
-------
BALANCE AT 12/31/93................................................................ 68,955
NET INCOME......................................................................... 10,334
DECREASE IN EQUITY INVESTMENT...................................................... (2,012)
-------
BALANCE AT 12/31/94................................................................ 77,277
NET INCOME......................................................................... 8,709
INCREASE IN EQUITY INVESTMENT...................................................... 10,876
-------
BALANCE AT 12/31/95................................................................ $96,862
=======
The accompanying notes are an integral part of these combined financial
statements.
7
9
MALLARD BAY DRILLING
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 8,709 $10,334 $ 7,857
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operations:
Depreciation and Amortization.......................... 8,377 4,871 4,381
Deferred Income Tax Provision (Benefit)................ (129) 1,402 2,790
Insurance Settlement, Net.............................. -- 23,000 --
Gain on Disposal of Assets............................. (1,048) (208) (575)
Provision for Uncollectible Accounts Receivable........ 240 -- 13
Change in Assets and Liabilities, Net of Effects of
Business Acquired:
Accounts Receivable.................................. (4,964) (5,886) (30)
Supplies............................................. (2,655) (606) (1,412)
Prepaid Expenses and Other........................... (2,893) (101) 4,503
Accounts Payable..................................... 973 223 33
Other Current Liabilities............................ 3,348 (3,552) (146)
Other Assets......................................... (2,249) (3,967) (10,452)
Other Liabilities, Net............................... 1,714 (2,637) 24
------- ------- -------
Net Cash Provided by Operations................... 9,423 22,873 6,986
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Assets.............................. 2,100 3,103 15
Acquisition of Business, Net of Cash Acquired............. -- (1,500) --
Capital Expenditures for Property, Plant and Equipment.... (22,898) (11,738) (4,468)
------- ------- -------
Net Cash Used by Investing Activities............. (20,798) (10,135) (4,453)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Term Debt................................... 3,836 2,037 --
Repayments on Term Debt................................... (1,319) (7,982) --
Increase (Decrease) in Equity Investment.................. 9,601 (7,067) (3,342)
------- ------- -------
Net Cash Provided (Used) by Financing
Activities...................................... 12,118 (13,012) (3,342)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 743 (274) (809)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 889 1,163 1,972
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 1,632 $ 889 $ 1,163
======= ======= =======
The accompanying notes are an integral part of these combined financial
statements.
8
10
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined financial statements reflect the operations of
the Mallard Bay Drilling division ("Mallard" or the "Company") of Energy
Ventures, Inc., a Delaware corporation ("EVI"), and the assets and liabilities
of Mallard that are proposed to be sold to Parker Drilling Company, a Delaware
corporation ("Parker"), pursuant to the Stock Purchase Agreement dated as of
September 14, 1996 (the "SPA"), by and among EVI and Parker.
Under the terms of the SPA, prior to the closing of the sale of Mallard to
Parker, EVI will transfer to Mallard Bay Drilling, Inc., a Louisiana corporation
and wholly owned subsidiary of EVI ("MBD") the assets and liabilities of Mallard
that are proposed to be acquired in the transaction. Pursuant to the SPA, (i)
certain accounts receivable and other non-fixed assets associated with Mallard's
prior operations in Iran and certain other assets of EVI and Mallard are to be
excluded from the sale to Parker and (ii) intercompany liabilities (other than
accounts payable for certain tubulars acquired after September 14, 1996) and
certain other liabilities associated with EVI are to be excluded from the sale.
The Iranian related net assets to be excluded from the sale to Parker are
included in the accompanying combined financial statements. Such net assets at
December 31, 1995, were $4.3 million which primarily consists of a $3.4 million
net receivable.
Basis of Presentation
The accompanying combined financial statements include accounts of Mallard
as described above. These statements are presented as if all of the operations
of Mallard had been included in MBD during the periods presented and, except as
noted herein, include the historical assets, liabilities, revenues and expenses
that are directly related to Mallard's operations. No amounts of general
corporate accounting, tax, legal and other administrative costs have been
allocated to Mallard in that such costs are not considered to be direct costs
relating to the operations of Mallard or variable based on the results of
Mallard. In addition, except for specific indebtedness incurred in connection
with the refurbishment of Rig 71 and capitalized leases, all intercompany
borrowings and indebtedness under the credit facilities of EVI and its
subsidiaries to which MBD was a party or guarantor have been excluded or
classified as equity contributions and no portion of such debt or related
interest expense has been allocated to Mallard in Mallard's historical financial
statements. As of the closing of the sale of Mallard to Parker, Mallard will be
released from all such indebtedness.
Nature of Operations
The Company is an international supplier of contract drilling services. The
Company's rig fleet consists primarily of barge rigs used by major and large
independent oil and gas companies for the exploration and development of natural
gas primarily in the U.S. Gulf Coast area. The Company also conducts barge rig
operations in Nigeria, platform rig operations in Peru and land rig operations
in Argentina.
Revenue Recognition
The Company primarily recognizes revenue and expenses from operations on
the basis of the number of days worked at the contractual day rate.
Rig Equipment and Other Properties
Property, plant and equipment is carried at cost. Due to differences
between the international and U.S. rig contracting markets, depreciation on U.S.
rigs is prorated using the straight-line method primarily over 20 years while
international drilling rigs and related equipment is provided using the
units-of-production method. Under the units-of-production method, depreciation
is based on the utilization of the drilling rigs with a minimum provision when
the rigs are idle.
9
11
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Mallard capitalizes renewals and improvements that significantly enhance
the value or extend the useful life of an asset. Expenditures for normal
maintenance and repairs are charged to expense as incurred. Normal retirements
of offshore drilling equipment are reflected in accumulated depreciation
accounts; gains or losses arising from unusual retirements are reflected in
operations, and asset cost and related accumulated depreciation are removed from
the accounts.
Intangible Assets and Amortization
The excess of cost over the fair value of net tangible assets of businesses
acquired is being amortized on a straight-line basis over the lesser of expected
useful lives or 40 years. The mobilization costs of moving a drilling rig from
one geographic location to another, other than unreimbursed mobilization costs
incurred in connection with specific profitable contracts, are deferred and
amortized over the term of such contracts. These costs are considered other
intangible assets and are included in Other Assets in the accompanying combined
financial statements. Amortization expense for goodwill and other intangible
assets was $1,474,000, $271,000 and $1,131,000 for 1995, 1994 and 1993,
respectively. Accumulated amortization of goodwill at December 31, 1995 and 1994
was $281,000 and $233,000, respectively.
Foreign Currency Translation
Foreign operations of Mallard use the U.S. dollar as their functional
currency. The Company's Nigerian operations are in a "highly inflationary"
economy and therefore must use the U.S. dollar as the functional currency.
Accordingly, the gains and losses resulting from currency translation to the
U.S. dollar are reflected in income for the period and are immaterial to the
periods presented. Currency transaction gains and losses are also reflected in
income for the period.
Income Taxes
Effective January 1, 1993, the Company through its parent, EVI, adopted
Statement of Financial Accounting Standard No. 109 ("SFAS No. 109"). The
adoption of SFAS No. 109 did not have a material effect on the Company's
combined financial position or results of operations. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. EVI filed consolidated federal tax returns for the
years through December 31, 1995 and separate state tax returns for the Company
and each of its subsidiaries. Income taxes included in the accompanying combined
financial statements have been provided using the separate return method as if
the Company were a separate taxpayer.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Planned Accounting Changes
As of January 1, 1996, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was adopted by
the Company. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets and how to measure such impairment. The adoption
of SFAS No. 121 did not have a significant effect on the Company's combined
financial position or results of operations.
10
12
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the Combined Statements of Cash Flows, Mallard considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
Cash paid by the Company during the years ended December 31, 1995, 1994,
and 1993 for interest and income taxes (net of refunds) was as follows:
1995 1994 1993
------ ---- ----
(IN THOUSANDS)
Interest paid..................................... $ 65 $ 83 $ 20
Income taxes paid, net of refunds................. $1,559 $337 $912
NOTE 3. ACQUISITION
On February 9, 1994, the Company, through EVI, purchased all of the
outstanding stock of AWI Drilling & Workover, Inc. ("AWI"), for a purchase price
of $1.5 million cash, $5.0 million in notes payable and 433,333 shares of EVI's
Common Stock, $1.00 par value. The assets of AWI consist primarily of 12 barge
drilling rigs, eight of which were under charter to the Company at the time of
acquisition. Charter fees incurred by the Company were approximately $2.5
million in 1993.
The AWI acquisition discussed above was accounted for using the purchase
method of accounting, and the results of operations are included in the Combined
Statements of Income from the date of acquisition. Pro forma information has not
been presented for this acquisition as the historical results of the Company
reflect the revenues of these rigs for the period of time the rigs were under
charter (prior to January 1, 1994) and also reflect a charter fee (which
approximates depreciation expense) for that same period.
NOTE 4. LONG-TERM DEBT
Mallard's long-term debt at December 31, 1995 and 1994 consisted of the
following:
1995 1994
------ ------
(IN THOUSANDS)
Promissory notes payable secured by the Company's rig in
Nigeria, bearing interest ranging from 9.0% to 10.23%... $4,500 $1,746
Capitalized lease obligations under various leases with
various installment amounts............................. 568 --
------ ------
5,068 1,746
Less: current maturities of long-term debt................ 2,403 1,164
------ ------
$2,665 $ 582
====== ======
The following is a summary of scheduled debt maturities by year (in
thousands):
1996................................................................ $2,403
1997................................................................ 2,165
1998................................................................ 500
1999................................................................ --
2000................................................................ --
Thereafter.......................................................... --
------
$5,068
======
11
13
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. RETIREMENT PLANS
Mallard through EVI adopted retirement plans which qualify under Section
401(k) of the Internal Revenue Code. The plans generally provide for 40%
matching contributions by EVI, up to a maximum liability of 1.2% of each
participating employee's annual compensation. Additional discretionary matching
contributions may also be made under the plan.
EVI provides the Executive Deferred Compensation Stock Ownership Plan (the
"EDC Plan") to certain key employees of Mallard. Under the EDC Plan, a portion
of the compensation for certain key employees of Mallard, including officers and
employee directors, can be deferred for payment after retirement or termination
of employment.
NOTE 6. INCOME TAXES
The domestic and international components of income before income taxes
consisted of the following:
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Domestic.................................... $10,705 $10,580 $ 7,753
International............................... 3,324 5,355 4,372
------- ------- -------
$14,029 $15,935 $12,125
======= ======= =======
The Company's provision for income taxes for the three years ended December
31, 1995, consisted of:
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
Current
U.S. Federal............................... $4,310 $3,465 $ 560
International.............................. 773 454 909
State...................................... 366 280 9
------ ------ ------
5,449 4,199 1,478
------ ------ ------
Deferred
U.S. Federal............................... (129) 1,402 2,790
------ ------ ------
$5,320 $5,601 $4,268
====== ====== ======
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income before income taxes for
the three years ended December 31, 1995, in the accompanying Combined Statements
of Income is analyzed below:
1995 1994 1993
---- ---- ----
Statutory federal income tax rate............ 35.0% 35.0% 35.0%
Effect of state income tax, net.............. 1.7 1.2 .1
Effect of non-deductible expenses............ .2 .2 .1
Utilization of net operating loss
carryforward............................... (1.4) (1.2) --
Effect of non-creditable foreign tax, net.... .9 -- --
Other........................................ 1.5 -- --
---- ---- ----
- - -
37.9% 35.2% 35.2%
===== ===== =====
12
14
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred income tax provisions for income before income taxes for the
three years ended December 31, 1995, primarily consisted of:
1995 1994 1993
----- ------- ------
(IN THOUSANDS)
Excess of tax over financial deduction related
to depreciation.............................. $ 253 $ 683 $ 840
Excess of financial over tax deductions for
reserves..................................... (149) (50) (200)
Benefit provided for losses of foreign
subsidiaries not included in consolidated
return....................................... (220) (121) (430)
Alternative minimum tax........................ -- 689 (560)
Book accruals (reversals) not currently
deductible................................... (14) 17 58
Utilization (addition) of net operating loss
carryforward................................. 202 (1,342) 2,694
Foreign taxes, net............................. (352) 149 170
Change in valuation allowance, net............. (202) 1,342 --
Other, net..................................... 353 35 218
----- ------- ------
$(129) $ 1,402 $2,790
===== ======= ======
The components of the net deferred tax liability at December 31, 1995 and
December 31, 1994, were as follows:
DECEMBER DECEMBER
31, 31,
1995 1994
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.................... $ 1,140 $ 1,342
Book accruals/other................................. 1,084 835
Foreign taxes....................................... 663 310
Valuation allowance................................. (1,140) (1,342)
-------- --------
Total deferred tax asset.................... 1,747 1,145
-------- --------
Deferred tax liabilities:
Depreciation........................................ (14,453) (14,236)
Nonbenefited losses (unrepatriated earnings) of
foreign subsidiaries, net........................ (42) (262)
State............................................... (647) (652)
Other............................................... (1,059) (579)
-------- --------
Total deferred tax liability................ (16,201) (15,729)
-------- --------
Net deferred tax liability............................ $(14,454) $(14,584)
======== ========
EVI filed consolidated federal tax returns for the years through December
31, 1995 and separate state tax returns for the Company and each of its
subsidiaries. It is the parent's policy not to allocate income tax expense to
its subsidiaries. The accompanying financial statements have been prepared in
accordance with the separate return method of SFAS No. 109, whereby the
allocation of tax expense is based on what the Company's current and deferred
tax expense would have been had the Company filed a federal income tax return
outside its consolidated group. The Company has reflected an asset for taxes
relating to unrepatriated income from foreign subsidiaries. The Company has a
valuation allowance to reflect the estimated amount of deferred tax assets for
which realization is uncertain. The net change in the valuation allowance for
the year
13
15
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1995 was a decrease of $202,000. The net change principally
relates to a reduction in the valuation allowance required for certain deferred
tax assets which realization became certain in 1995.
NOTE 7. DISPUTES, LITIGATION AND CONTINGENCIES
Litigation and Other Disputes
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation would not have a material adverse effect on the
Company s combined financial position or combined results of operations.
Insurance
The Company is partially self-insured for employee health insurance claims
and for workers' compensation for certain of its employees. Although the Company
believes that adequate reserves have been provided for expected liabilities
arising from its self-insured obligations, it is reasonably possible that
management's estimates of these liabilities will change over the near term as
circumstances develop.
NOTE 8. INSURANCE SETTLEMENT
On September 30, 1994, EVI settled all of its claims with its insurance
carriers with respect to the termination of its workover drilling contract with
the National Iranian Oil Company ("NIOC"). Under the terms of the settlement
with EVI's insurance carriers, EVI received a net cash payment of $23 million
for reimbursement of certain operating costs incurred and amounts to be received
in accordance with the terms of the workover drilling contract. EVI also
retained all rights to any funds collected or recovered by EVI from NIOC and to
the rigs and equipment deployed in Iran. The rigs and the related equipment were
moved out of Iran by December 31, 1994.
In 1994, the Company adjusted the carrying value of the receivables, rigs
and equipment, and established reserves for demobilization, refurbishment and
contract settlement costs, all of which totaled approximately $18 million. The
insurance settlement which increased operating income by $4.8 million was
reduced by operating losses of $2.6 million relating to the Iranian operations
for 1994.
NOTE 9. COMMITMENTS
Mallard is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $1,549,000, $928,000 and
$941,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
Future minimum rental commitments under these operating leases are as
follows (in thousands):
1996.................................................................. $610
1997.................................................................. 260
1998.................................................................. 54
1999.................................................................. --
2000.................................................................. --
----
Thereafter............................................................ $924
====
During 1995, Mallard acquired two rigs in exchange for drillpipe provided
by EVI. This obligation was completed in early 1996.
14
16
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. RELATED PARTY TRANSACTIONS
Certain non-fixed assets, including receivables and performance bonds,
relating to the operations in Iran that are to be excluded from the sale under
the SPA have been reflected in the accompanying combined financial statements.
Such net assets at December 31, 1995, were $4.3 million which primarily consists
of a $3.4 million net receivable.
EVI and its subsidiaries provide drillpipe and other related products to
Mallard at prices charged to non-affiliate customers of EVI. Drillpipe and other
related products sold to Mallard by EVI was $2,285,000, $518,000 and $563,000 in
1995, 1994 and 1993, respectively.
NOTE 11. SUBSEQUENT EVENT
On September 14, 1996, EVI entered into an agreement with Parker to sell
the contract drilling services business operated principally through Mallard to
Parker for a total consideration of $338 million consisting of $313 million cash
and shares of convertible preferred stock having a value of $25 million.
Consummation of this sale is subject to various conditions, including the
receipt of all regulatory approvals and the consummation of financing by Parker
sufficient to fund the acquisition.
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.
NOTE 12. GEOGRAPHIC INFORMATION
Major Customers and Credit Risk
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign operations also
present various risks, including risks of war, civil disturbances and
governmental activities that may limit or disrupt markets, restrict the movement
of funds or result in the deprivation of contract rights or the taking of
property without fair consideration. Most of the Company's foreign contracts,
however, are with large international companies.
Mallard's customer base consists of independent and major oil companies.
For 1995, Texaco, Inc. ("Texaco"), Petro-Tech Peruana S.A. and Chevron Nigeria
Limited accounted for 25%, 13% and 11%, respectively, of Mallard's revenues. For
1994, Texaco and Oryx Energy Company accounted for 15% and 11%, respectively, of
Mallard's revenues. For 1993, Texaco and NIOC accounted for 19% and 11% of
Mallard's revenues.
15
17
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Operations
Summarized financial information for the three years ended December 31,
1995, by geographic area is as follows:
WESTERN HEMISPHERE EASTERN HEMISPHERE
------------------- -------------------
UNITED MIDDLE
STATES OTHER EAST NIGERIA TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS)
1995
Operating revenues from
unaffiliated customers..... $55,283 $15,864 $ -- $ 8,765 $ 79,912
Operating income (loss)....... 10,786 1,432 (182) 2,439 14,475
Identifiable assets........... 75,074 36,207 4,617 18,653 134,551
1994
Operating revenues from
unaffiliated customers..... $52,766 $ 5,034 $ 1,523 $ 3,929 $ 63,252
Operating income.............. 10,357 2,022 2,531 921 15,831
Identifiable assets........... 67,514 7,636 13,109 20,174 108,433
1993
Operating revenues from
unaffiliated customers..... $55,890 $ 5,959 $ 7,967 $ 4,563 $ 74,379
Operating income.............. 7,763 2,797 612 625 11,797
Identifiable assets........... 43,268 4,707 28,451 9,959 86,385
16
18
MALLARD BAY DRILLING
COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents....................................................... $ 1,547
Accounts Receivable, Net of Allowance for Uncollectible Accounts of $512........ 23,491
Materials and Supplies.......................................................... 4,664
Other Current Assets............................................................ 12,013
--------
41,715
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Drilling Rigs and Other Property................................................ 167,802
Less: Accumulated Depreciation.................................................. 27,333
--------
140,469
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE ASSETS OF BUSINESSES ACQUIRED,
NET............................................................................. 1,578
OTHER ASSETS...................................................................... 2,154
--------
$185,916
========
LIABILITIES AND EQUITY INVESTMENT
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt............................................ $ 2,266
Accounts Payable................................................................ 9,961
Accrued Salaries and Benefits................................................... 1,932
Other Accrued Liabilities....................................................... 7,395
--------
21,554
LONG-TERM DEBT.................................................................... 1,000
DEFERRED INCOME TAXES, NET........................................................ 14,134
OTHER LIABILITIES................................................................. 415
COMMITMENTS AND CONTINGENCIES
EQUITY INVESTMENT................................................................. 148,813
--------
$185,916
========
See accompanying notes to financial statements.
17
19
MALLARD BAY DRILLING
COMBINED STATEMENT OF INCOME
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
REVENUES................................................................. $66,921 $59,540
COSTS AND EXPENSES
Cost of Sales.......................................................... 48,441 42,279
Selling, General and Administrative.................................... 8,768 5,448
------- -------
57,209 47,727
OPERATING INCOME......................................................... 9,712 11,813
OTHER INCOME (EXPENSE)
Interest Expense, Net.................................................. (296) (152)
Other, Net............................................................. 108 (311)
------- -------
(188) (463)
INCOME BEFORE INCOME TAXES............................................... 9,524 11,350
PROVISION FOR INCOME TAXES............................................... 3,799 4,247
------- -------
NET INCOME............................................................... $ 5,725 $ 7,103
======= =======
See accompanying notes to financial statements.
18
20
MALLARD BAY DRILLING
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................................... $ 5,725 $ 7,103
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by
Operations:
Depreciation and Amortization..................................... 9,079 5,623
Deferred Income Tax Benefit....................................... (320) (104)
Gain (Loss) on Disposal of Assets................................. (143) 345
Provision for Uncollectible Accounts Receivable................... 270 130
Change in Assets and Liabilities, Net of Effects of Business
Acquired:
Accounts Receivable............................................. 2,585 (4,938)
Supplies........................................................ (958) (544)
Prepaid Expenses and Other...................................... (7,317) (2,343)
Accounts Payable................................................ 513 (13)
Other Current Liabilities....................................... (6,124) 1,395
Other Assets.................................................... (754) (1,894)
Other Liabilities, Net.......................................... (1,576) (761)
------- -------
Net Cash Provided by Operations.............................. 980 3,999
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Assets......................................... 395 92
Capital Expenditures for Property, Plant and Equipment............... (21,415) (10,598)
------- -------
Net Cash Used by Investing Activities........................ (21,020) (10,506)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments (Borrowings) on Term Debt, Net............................ (1,802) 3,118
Increase in Equity Investment........................................ 21,757 4,227
------- -------
Net Cash Provided by Financing Activities.................... 19,955 7,345
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (85) 838
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 1,632 889
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 1,547 $ 1,727
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid........................................................ $ 403 $ 164
Income Taxes Paid, Net of Refunds.................................... $ 763 $ 828
See accompanying notes to financial statements.
19
21
MALLARD BAY DRILLING
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited combined financial statements reflect the
operations of the Mallard Bay Drilling division ("Mallard" or the "Company") of
Energy Ventures, Inc., a Delaware corporation ("EVI"), and the assets and
liabilities of Mallard that are proposed to be sold to Parker Drilling Company,
a Delaware corporation ("Parker"), pursuant to the Stock Purchase Agreement
dated as of September 14, 1996 (the "SPA"), by and among EVI and Parker.
Although the Company believes that the disclosures in these combined 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 accordance with generally accepted
accounting principles has been condensed or omitted. These combined financial
statements should be read in conjunction with the audited combined financial
statements and notes thereto for the year ended December 31, 1995. The results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results expected for the full year.
NOTE 2. RELATED PARTY TRANSACTIONS
EVI and its subsidiaries provide drillpipe and other related products to
Mallard at prices charged to non-affiliated customers of EVI. Drillpipe and
other related products sold to Mallard by EVI was $4.2 million and $2.1 million
for the nine months ended September 30, 1996 and 1995, respectively. Certain
accounts receivable and other non-fixed assets related to prior operations in
Iran which are being retained by EVI have not been included in the accompanying
unaudited combined financial statements.
NOTE 3. SUBSEQUENT EVENT
On September 14, 1996, EVI entered into an agreement with Parker to sell
the contract drilling services business operated principally through Mallard to
Parker for a total consideration of $338 million consisting of $313 million cash
and shares of convertible preferred stock having a value of $25 million.
Consummation of this sale is subject to various conditions, including the
receipt of all regulatory approvals and the consummation of financing by Parker
sufficient to fund the acquisition.
On August 22, 1996, the Company acquired two barge drilling rigs located in
Nigeria for $24.5 million cash and a $7.5 drillpipe credit.
20
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Quail Tools, Inc.:
We have audited the accompanying balance sheets of Quail Tools, Inc. as of
December 31, 1995 and 1994 and the related statements of earnings and retained
earnings and cash flows for each of the years in the three-year period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quail Tools, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in note 2 to the financial statements, in 1994 the Company
adopted the method of accounting for certain investments in debt and equity
securities prescribed by Statement of Financial Accounting Standards No. 115.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
September 27, 1996
21
23
QUAIL TOOLS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 2,050,783 $ 510,059
Short-term investments (note 2)................................. 1,427,040 1,861,184
Receivables:
Trade........................................................ 2,539,840 1,874,992
Shareholder.................................................. -- 575,073
Prepaid expenses and other assets............................... 239,055 138,662
----------- -----------
Total current assets.................................... 6,256,718 4,959,970
----------- -----------
Property and equipment, at cost:
Land............................................................ 985,000 985,000
Oilfield rental equipment....................................... 18,076,672 16,176,254
Buildings and improvements...................................... 1,699,260 1,724,830
Furniture, fixtures and other equipment......................... 1,045,469 1,003,424
Autos and trucks................................................ 676,257 790,351
----------- -----------
22,482,658 20,679,859
Less accumulated depreciation................................... 14,524,251 13,301,544
----------- -----------
Net property and equipment.............................. 7,958,407 7,378,315
----------- -----------
Long-term investments (note 2).................................. 3,920,463 4,082,373
----------- -----------
$18,135,588 16,420,658
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 436,075 $ 1,195,238
Deferred revenue................................................ 104,000 --
Other current liabilities (note 4).............................. 187,066 156,532
----------- -----------
Total current liabilities............................... 727,141 1,351,770
----------- -----------
Shareholders' equity:
Common stock, no par value, 100,000 shares authorized, 6,628
shares issued and outstanding................................ 13,250 13,250
Additional paid-in capital...................................... 8,750 8,750
Unrealized gains on marketable equity securities (note 2)....... 304,977 141,630
Retained earnings............................................... 17,081,470 14,905,258
----------- -----------
Total shareholders' equity.............................. 17,408,447 15,068,888
Commitments and contingencies (notes 4, 5 and 6)..................
----------- -----------
$18,135,588 $16,420,658
========== ==========
See accompanying notes to financial statements.
22
24
QUAIL TOOLS, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------- ----------- -----------
Equipment rental.................................... $13,883,340 $10,838,234 $10,456,262
----------- ---------- ----------
Expenses:
Cost of rentals................................... 1,347,671 1,137,143 1,724,895
Selling, general and administrative expenses...... 3,341,646 3,355,739 3,350,417
Depreciation...................................... 2,188,627 1,768,719 1,644,403
----------- ---------- ----------
6,877,944 6,261,601 6,719,715
----------- ---------- ----------
Operating income.......................... 7,005,396 4,576,633 3,736,547
----------- ---------- ----------
Other income:
Gain on sales of property and equipment........... 457,934 387,047 64,905
Amortization of bond discount..................... 148,745 139,242 130,349
Interest.......................................... 86,851 304,916 276,954
Dividends......................................... 44,085 42,085 40,976
Gain on sale of investments....................... 40,514 226,487 51,298
Other............................................. 61,042 7,915 3,954
----------- ---------- ----------
839,171 1,107,692 568,436
----------- ---------- ----------
Net earnings.............................. 7,844,567 5,684,325 4,304,983
Retained earnings at beginning of year.............. 14,905,258 15,919,011 14,705,143
Distributions paid to shareholders.................. (5,668,355) (6,698,078) (3,091,115)
----------- ---------- ----------
Retained earnings at end of year.................... $17,081,470 $14,905,258 $15,919,011
=========== ========== ==========
See accompanying notes to financial statements.
23
25
QUAIL TOOLS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------- ----------- -----------
Cash flows from operating activities:
Net earnings...................................... $ 7,844,567 $ 5,684,325 $ 4,304,983
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation................................... 2,188,627 1,768,719 1,644,403
Amortization of bond discount.................. (148,745) (139,242) (130,349)
Increase in deferred revenue................... 104,000 -- --
Gain on sale of investments.................... (40,514) (226,487) (51,298)
Gain on sale of property and equipment......... (457,934) (387,047) (64,905)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables..... (664,848) 597,481 (1,009,234)
(Increase) decrease in prepaid expenses and
other assets.............................. (100,393) 18,074 402,186
(Decrease) increase in accounts payable...... (759,163) 577,730 (99,598)
Increase in other current liabilities........ 30,534 156,532 --
----------- ----------- -----------
Net cash provided by operating activities.... 7,996,131 8,050,085 4,996,188
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of investments............. 700,000 175,000 480,000
Proceeds from the sale of investments............. 248,660 1,163,582 262,655
Purchase of investments........................... -- -- (363,773)
Proceeds from the sale of property and
equipment...................................... 849,064 523,319 311,425
Purchase of property and equipment................ (3,159,849) (2,458,478) (2,414,539)
----------- ----------- -----------
Net cash used in investing activities........ (1,362,125) (596,577) (1,724,232)
----------- ----------- -----------
Cash flows from financing activities:
Change in shareholder receivables................. 575,073 (575,073) 34,142
Distributions paid to shareholders................ (5,668,355) (6,698,078) (3,091,115)
----------- ----------- -----------
Net cash used in financing activities........ (5,093,282) (7,273,151) (3,056,973)
----------- ----------- -----------
Net increase in cash and cash equivalents.... 1,540,724 180,357 214,983
Cash and cash equivalents at beginning of year...... 510,059 329,702 114,719
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 2,050,783 $ 510,059 $ 329,702
========== ========== ==========
Supplemental disclosures of cash flow information --
unrealized gain on marketable equity securities... $ 163,346 $ 141,630 $ --
========== ========== ==========
See accompanying notes to financial statements.
24
26
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business
Quail Tools, Inc. (the Company) was incorporated on February 9, 1978 in New
Iberia, Louisiana. The Company's principal business is to rent oil field tools
and pipe primarily to major oil companies operating in the Gulf of Mexico, and
is, therefore, directly affected by economic conditions of the oil and gas
industry.
(b) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(c) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method based upon estimated
useful lives as follows:
DESCRIPTION ESTIMATED USEFUL LIVES
------------------------------------------------------------------ ----------------------
Oilfield rental equipment......................................... 7 years
Buildings and improvements........................................ 15-31 years
Furniture, fixtures and other equipment........................... 5-7 years
Autos and trucks.................................................. 5 years
Expenditures for major additions and improvements are capitalized while
minor replacements, maintenance and repairs are charged to expense as incurred.
When property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the related amounts, and any resulting gain or
loss is included in the statements of earnings.
(d) Investments
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, (Statement 115). Under Statement 115, marketable
equity securities are classified in one of three categories: trading, available-
for-sale, or held-to-maturity. Trading securities are those bought and held
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold the security until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale. Trading and
available-for-sale securities are to be recorded at market value, while
held-to-maturity securities are to be recorded at amortized cost. Market value
is determined by the most recently traded price of the security at the balance
sheet date. Net realized gains and losses are determined on the specific
identification cost method.
Statement 115 is effective for all fiscal years beginning after December
15, 1993 and has been adopted by the Company on a prospective basis as of
January 1, 1994.
(e) Income Taxes
The Company with the consent of its shareholders, elected under applicable
provisions of the Internal Revenue Code not to be taxed as a corporation but to
have earnings taxed to the individual shareholders. Therefore, no provision for
federal and state income taxes has been made in the accompanying financial
25
27
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
statements for the Company. Annual distributions are based on earnings of the
Company and are made to facilitate payment of shareholders' personal tax
liabilities.
(f) Revenue Recognition
Revenues are recognized when rentals are provided. Deferred revenue
consists of amounts received from customers in advance of rentals.
(g) Cash and Cash Equivalents
For purposes of the statement of cash flows, short-term, highly-liquid
investments are considered cash equivalents.
(2) INVESTMENTS
As discussed in note 1, the Company adopted Statement 115 as of January 1,
1994.
Marketable equity securities classified as current assets at December 31,
1995 and 1994, include the following:
1995
---------------------------------------------
AMORTIZED UNREALIZED AMORTIZED COST/
COST GAINS MARKET VALUE
---------- ---------- ---------------
Available-for-sale --
marketable equity securities................ $ 811,407 $ 304,977 $ 1,116,384
Held-to-maturity -- tax exempt municipal
bonds....................................... 310,656 -- 310,656
---------- ---------- ---------------
$1,122,063 $ 304,977 $ 1,427,040
========= ======== ===========
1994
---------------------------------------------
AMORTIZED UNREALIZED AMORTIZED COST/
COST GAINS MARKET VALUE
---------- ---------- ---------------
Available-for-sale -- marketable equity
securities.................................. $1,019,554 $ 141,630 $ 1,161,184
Held-to-maturity:
Tax exempt municipal bonds.................. 625,000 -- 625,000
Certificate of deposit...................... 75,000 -- 75,000
---------- ---------- ---------------
$1,719,554 $ 141,630 $ 1,861,184
========= ======== ===========
26
28
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Marketable equity securities classified as noncurrent assets at December
31, 1995 and 1994, include the following:
1995
---------------------------------------------
AMORTIZED UNREALIZED AMORTIZED COST/
COST GAINS MARKET VALUE
---------- ---------- ---------------
Held-to-maturity:
U.S. Government Securities.................. $ 824,534 -- $ 824,534
Tax exempt municipal bonds.................. 3,095,929 -- 3,095,929
---------- ---------- ---------------
$3,920,463 -- $ 3,920,463
========= ======== ===========
1994
---------------------------------------------
AMORTIZED UNREALIZED AMORTIZED COST/
COST GAINS MARKET VALUE
---------- ---------- ---------------
Held-to maturity:
U.S. Government Securities.................. $ 792,769 -- $ 792,769
Tax exempt municipal bonds.................. 3,289,604 -- 3,289,604
---------- ---------- ---------------
$4,082,373 -- $ 4,082,373
========= ======== ===========
The contractual maturities of held-to-maturity securities at December 31,
1995, are as follows:
AMORTIZED FAIR
COST VALUE
---------- ----------
Due within one year......................................... $ 310,656 $ 296,051
Due after one year through five years....................... 1,691,926 1,843,783
Due after five years through ten years...................... 1,520,342 1,929,392
Due after ten years......................................... 708,195 803,245
---------- ----------
$4,231,119 $4,872,471
========= =========
Differences between cost and market value of available-for-sale equity
securities were credited to a separate component of shareholders' equity called
"unrealized gains on marketable equity securities" in the amount of $163,347 and
$141,630 for the years ended December 31, 1995 and 1994, respectively.
Proceeds from sales of securities available-for-sale were $248,660 and
$1,163,582 and gross gains were $40,514 and $226,487 for the years ended
December 31, 1995 and 1994, respectively.
(3) CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places cash and temporary cash investments with high
quality financial institutions and currently invests primarily in money market
accounts.
A majority of the Company's business is conducted with major oil and gas
exploration companies with operations in the Gulf of Mexico. The Company
continually evaluates the financial strength of its customers but does not
require collateral to support trade receivables.
27
29
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Customers which account for 10 percent or more of revenue for the years
ended December 31, 1995, 1994 and 1993 follow:
1995 1994 1993
---- ---- ----
Exxon....................................................... 30% 40% 45%
Texaco...................................................... 23% -- 11%
(4) PROFIT-SHARING PLAN
The Company has a discretionary profit-sharing plan for the benefit of
substantially all employees. During the years ended December 31, 1995, 1994 and
1993, the Company contributed $187,066, $156,532 and $142,928, respectively, to
the plan.
(5) COMMON STOCK AND SHAREHOLDER SUCCESSION
In accordance with an agreement among the shareholders, each shareholder
may sell their stock by first offering it to the Company at a value established
by the Board of Directors. If the Company does not acquire the stock, the
shareholder may then sell it to a third party.
In conjunction with this buy/sell agreement, the shareholders have
implemented arrangements which they believe will ensure continued Company
management and control succession within a framework which should not unduly
burden the Company.
(6) COMMITMENT AND CONTINGENCIES
In conjunction with the Company changing from a Subchapter C Corporation to
a Subchapter S Corporation under the provisions of the Internal Revenue Code in
1992, a built-in gain amount of approximately $5,500,000 was calculated based on
the then determined value of the Company. Any sale of the Company, at a gain,
prior to 2002, would cause this built-in gain amount to be taxed at the
corporate level with any additional gains taxed only at the individual
shareholder level.
(7) SUBSEQUENT EVENT
The shareholders of the Company have entered into discussions with outside
parties as to the sale of their common stock.
28
30
QUAIL TOOLS, INC.
BALANCE SHEET
AUGUST 31, 1996
(UNAUDITED)
ASSETS
AUGUST 31,
1996
------------
Current assets:
Cash and cash equivalents.................................................... $ 286,560
Short-term investments....................................................... 533,271
Trade receivables............................................................ 2,837,426
Prepaid expenses and other assets............................................ 149,419
------------
Total current assets................................................. 3,806,676
------------
Property and equipment, at cost:
Land......................................................................... 985,000
Oilfield rental equipment.................................................... 21,310,453
Buildings and improvements................................................... 1,699,260
Furniture, fixtures, and other equipment..................................... 1,316,966
Autos and trucks............................................................. 676,257
------------
25,987,936
Less accumulated depreciation................................................ (16,324,251)
------------
Net property and equipment........................................... 9,663,685
------------
Long-term investments........................................................ 3,863,213
------------
$ 17,333,574
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 183,111
Other current liabilities.................................................... 168,238
------------
Total current liabilities............................................ 351,349
------------
Shareholders' equity:
Common stock................................................................. 13,250
Additional paid-in capital................................................... 8,750
Unrealized gains on marketable equity securities............................. 1,000
Retained earnings............................................................ 16,959,225
------------
Total shareholders' equity........................................... 16,982,225
------------
$ 17,333,574
============
See accompanying notes to financial statements.
29
31
QUAIL TOOLS, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1995
(UNAUDITED)
EIGHT MONTHS ENDED
AUGUST 31,
-------------------------
1996 1995
---------- ----------
Equipment rental................................................. $11,828,731 $8,282,837
----------- -----------
Expenses:
Cost of rentals................................................ 1,233,437 813,848
Selling, general and administrative expenses................... 2,546,208 2,050,311
Depreciation................................................... 1,800,000 1,200,000
----------- -----------
5,579,645 4,064,159
----------- -----------
Operating Income....................................... 6,249,086 4,218,678
----------- -----------
Other Income:
Gain on sale of property and equipment......................... 243,098 202,969
Amortization of bond discount.................................. 104,041 148,745
Interest....................................................... 111,016 96,273
Dividends...................................................... 5,744 12,811
Gain on sale of investments.................................... 309,456 40,514
Other.......................................................... 59,243 6,747
----------- -----------
832,598 508,059
----------- -----------
Net earnings........................................... 7,081,684 4,726,737
----------- -----------
Retained earnings at beginning of period......................... 17,081,470 14,905,258
Distributions paid to shareholders............................... (7,203,929) (4,668,355)
----------- -----------
Retained earnings at end of period............................... $16,959,225 $14,963,640
=========== ===========
See accompanying notes to financial statements.
30
32
QUAIL TOOLS, INC.
STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1995
(UNAUDITED)
EIGHT MONTHS ENDED
AUGUST 31,
-------------------------
1996 1995
---------- ----------
Cash flow from operating activities:
Net earnings.................................................... $7,081,684 $4,726,737
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation................................................. 1,800,000 1,200,000
Amortization of bond discount................................ (104,041) (148,745)
Gain on sale of property..................................... (243,098) (202,969)
Gain on sale of investments.................................. (309,456) (40,514)
Decrease in deferred revenue................................. (104,000) --
Increase in trade receivables................................ (297,586) (258,299)
Decrease (increase) in prepaid and other assets.............. 89,636 (12,304)
Decrease in accounts payable................................. (252,964) (607,477)
Increase in other liabilities................................ (18,828) (24,025)
---------- ----------
Net cash provided by operating activities............... 7,641,347 4,632,404
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property.................................. 483,098 362,969
Proceeds from maturity of investments........................... -- 435,000
Proceeds from sale of investments............................... 1,060,539 248,660
Purchase of property and equipment.............................. (3,745,278) (1,745,560)
---------- ----------
Net cash used in investing activities................... (2,201,641) (698,931)
---------- ----------
Cash flow from financing activities:
Change in shareholder receivables -- 575,073
Distributions paid to shareholders.............................. (7,203,929) (4,668,355)
---------- ----------
Net cash used in financing activities................... (7,203,929) (4,093,282)
Net decrease in cash.................................... (1,764,223) (159,809)
Cash at beginning of period....................................... 2,050,783 510,059
---------- ----------
Cash at end of period............................................. $ 286,560 $ 350,250
========== ==========
Supplemental disclosure -- net change in unrealized gain
on marketable equity securities.............................. $ 303,977 $ 139,428
========== ==========
See accompanying notes to financial statements.
31
33
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 AND 1995
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business
Quail Tools, Inc. (the Company) was incorporated on February 9, 1978 in New
Iberia, Louisiana. The Company's principal business is to rent oil field tools
and pipe primarily to major oil companies operating in the Gulf of Mexico, and
is, therefore, directly affected by economic conditions of the oil and gas
industry.
(b) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of August 31,
1996, and the results of operations and cash flows for the eight-month period
ended August 31, 1996.
(c) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method based upon estimated
useful lives as follows:
DESCRIPTION ESTIMATED USEFUL LIVES
------------------------------------------------------------------ ----------------------
Oilfield rental equipment......................................... 7 years
Buildings and improvements........................................ 15-31 years
Furniture, fixtures and other equipment........................... 5-7 years
Autos and trucks.................................................. 5 years
Expenditures for major additions and improvements are capitalized while
minor replacements and maintenance and repairs are charged to expense as
incurred. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related amounts, and any resulting
gain or loss is included in the statement of earnings.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS No. 121) "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
sets forth guidelines regarding when to recognize an impairment of long-lived
assets and how to measure such impairment. The adoption of SFAS No. 121 did not
have an effect on the Company's financial position or results of operations.
(d) Investments
Marketable equity securities are classified in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are those
bought and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at market value, while
held-to-maturity securities are recorded at amortized cost. Market value is
determined by the most recently traded
32
34
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
price of the security at the balance sheet date. Net realized gains and losses
are determined on the specific identification cost method.
(e) Income Taxes
The Company with the consent of its shareholders, elected under applicable
provisions of the Internal Revenue Code not to be taxed as a corporation but to
have earnings taxed to the individual shareholders. Therefore, no provision for
federal and state income taxes has been made in the accompanying financial
statements for the Company. Annual distributions are based on earnings of the
Company and are made to facilitate payment of shareholders' personal tax
liabilities.
(f) Revenue Recognition
Revenues are recognized when rentals are provided. Deferred revenue
consists of amounts received from customers in advance of rentals.
(g) Cash and Cash Equivalents
For purposes of the statement of cash flows, short-term, highly-liquid
investments are considered cash equivalents.
(2) INVESTMENTS
Marketable equity securities classified as current assets at August 31,
1996, include the following:
AMORTIZED UNREALIZED AMORTIZED COST/
COST GAINS MARKET VALUE
--------- ---------- ---------------
Available-for-sale --
marketable equity securities.................... $ 272,242 $1,000 $ 273,242
Held-to-maturity --
tax exempt municipal bonds...................... 260,029 -- 260,029
-------- ----- -------
$ 532,271 $1,000 $ 533,271
======== ===== =======
Marketable equity securities classified as noncurrent assets at August 31,
1996, include the following:
AMORTIZED UNREALIZED AMORTIZED COST/
COST GAINS MARKET VALUE
---------- ---------- ---------------
Held-to-maturity:
U.S. Government Securities.................... $ 929,832 -- $ 929,832
Tax exempt municipal bonds.................... 2,933,381 -- 2,933,381
---------- --- ---------
$3,863,213 -- $ 3,863,213
========== === =========
Differences between cost and market value of available-for-sale equity
securities were credited to a separate component of shareholders' equity called
"unrealized gains on marketable equity securities" in the amount of $1,000 for
the eight months ended August 31, 1996.
Proceeds from sales of securities available-for-sale were $1,060,539 and
$248,660 and gross gains were $309,456 and $40,514 for the eight months ended
August 31, 1996, and 1995, respectively.
33
35
QUAIL TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places cash and temporary cash investments with high
quality financial institutions and currently invests primarily in money market
accounts.
A majority of the Company's business is conducted with major oil and gas
exploration companies with operations in the Gulf of Mexico. The Company
continually evaluates the financial strength of its customers but does not
require collateral to support trade receivables.
Customers which account for 10 percent or more of revenue for the eight
months ended August 31, 1996 and 1995 follow:
1996 1995
--- ---
Exxon........................................... 32% 35%
Texaco.......................................... 29% 19%
(4) COMMON STOCK AND SHAREHOLDER SUCCESSION
In accordance with an agreement among the shareholders, each shareholder
may sell their stock by first offering it to the Company at a value established
by the Board of Directors. If the Company does not acquire the stock, the
shareholder may then sell to a third party.
In conjunction with this buy/sell agreement, the shareholders have
implemented arrangements which they believe will ensure continued Company
management and control succession within a framework which should not unduly
burden the Company.
(5) COMMITMENT AND CONTINGENCIES
In conjunction with the Company changing from a Subchapter C Corporation to
a Subchapter S Corporation under the provisions of the Internal Revenue Code in
1992, a built-in gain amount of approximately $5,500,000 was calculated based on
the then determined value of the Company. Any sale of the Company, at a gain,
prior to 2002, would cause this built-in gain amount to be taxed at the
corporate level with any additional gains taxed only at the individual
shareholder level.
(6) SUBSEQUENT EVENT
The shareholders of the Company have signed an agreement with an outside
party to sell their common stock.
34
36
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial information is
derived from the historical financial statements of Parker, Mallard and Quail
and certain assumptions deemed appropriate by the Company. The Unaudited Pro
Forma Combined Statement of Operations for the year ended August 31, 1996
reflects (i) the Mallard Acquisition, (ii) the Quail Acquisition, (iii) the
acquisition by Mallard of two drilling barges from Noble Drilling Corporation
("Noble") in August 1996, (iv) the issuance of the Notes and the application of
the net proceeds therefrom, (v) borrowings of $100 million in term loans under
the Senior Credit Facility, and (vi) the issuance of $25 million in shares of
convertible preferred stock, and the subsequent conversion of such shares into
3,056,600 shares of Common Stock in December 1996, as if such transactions had
occurred on September 1, 1995. The Unaudited Pro Forma Combined Balance Sheet
as of August 31, 1996 reflects such transactions as if they had occurred on
August 31, 1996. Such unaudited pro forma combined information combines (i) the
audited operating results and balance sheet data for Parker for the twelve
months ended and as of August 31, 1996; (ii) the unaudited operating results
and balance sheet data of Mallard for the twelve months ended and as of
September 30, 1996; and (iii) the unaudited operating results and balance sheet
data of Quail for the twelve months ended and as of August 31, 1996. The
unaudited pro forma combined financial information should be read in
conjunction with the notes thereto and the historical financial statements of
the Parker, Mallard and Quail, including the notes thereto.
The pro forma adjustments to give effect to the various events described
above are based upon currently available information and upon certain
assumptions that management believes are reasonable. The historical operating
results of Mallard included in the Unaudited Pro Forma Combined Financial
Statements do not reflect any allocation of general corporate, accounting, tax,
legal and other administrative costs incurred by its parent corporation. See
Note 1 of the notes to the historical financial statements of Mallard included
elsewhere herein. Management does not believe that it will be required to incur
any significant amount of additional general and administrative expense in
connection with the incorporation of Mallard's operations. The Acquisitions have
been accounted for by the Company under the purchase method of accounting and
the assets and liabilities of Mallard and Quail were recorded at their estimated
fair market values at the date of acquisition. The adjustments included in the
Unaudited Pro Forma Combined Financial Statements reflect the Company's
preliminary determination of these adjustments based upon available information.
There can be no assurance that the actual adjustments will not vary
significantly from the estimated adjustments reflected in the unaudited pro
forma combined financial information.
The unaudited pro forma combined financial information does not purport to
be indicative of the financial position or results of operations that would
actually have occurred if the transactions described had occurred as presented
in such statements or that may be obtained in the future. In addition, future
results may vary significantly from the results reflected in such statements due
to general economic conditions, oil and gas commodity prices, the demand and
prices for contract drilling services and rental tools, increases in the number
of rigs available for service, the Company's ability to successfully integrate
the operations of Mallard and Quail with its current business and several other
factors, many of which are beyond the Company's control.
35
37
PARKER DRILLING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AUGUST 31, 1996
(DOLLARS IN THOUSANDS)
AS OF
-----------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31,
1996 1996 1996
---------- ------------- ----------
PARKER MALLARD QUAIL ADJUSTMENTS(1) PRO FORMA
---------- ------------- ---------- -------------- ---------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 61,738 $ 1,547 $ 287 $ 385,845(a) $ 67,630
(381,500)(b)
(287)(b)
Other short-term investments......................... 16,247 -- 533 (533)(b) 16,247
Accounts and notes receivable........................ 33,675 23,491 2,838 (1,500)(b) 58,804
Rig materials and supplies........................... 10,735 4,664 -- (1,500)(b) 13,899
Other current assets................................. 3,653 12,013 149 15,815
-------- -------- ------- --------- --------
Total current assets........................... 126,048 41,715 3,807 525 142,095
Property, plant and equipment:
Drilling equipment................................... 423,023 164,183 -- 65,667(b,c) 652,873
Rental equipment..................................... -- -- 21,311 (2,324)(b,c) 18,987
Buildings, land and improvements..................... 14,871 1,455 2,684 19,010
Other................................................ 19,153 2,164 1,993 23,310
Construction in progress............................. 18,844 -- -- 18,844
-------- -------- ------- --------- --------
475,891 167,802 25,988 63,343 733,024
Less accumulated depreciation, depletion and
amortization....................................... 351,714 37,333 16,324 (43,657)(c) 351,714
-------- -------- ------- --------- --------
Net property, plant and equipment.................... 124,177 140,469 9,664 107,000 381,310
Intangibles resulting from business acquisitions....... -- 1,578 -- 137,847(b) 137,847
(1,578)(b)
Other noncurrent assets................................ 25,734 2,154 3,863 11,800(a) 38,318
(5,233)(b)
-------- -------- ------- --------- --------
Total assets................................... $275,959 $ 185,916 $ 17,334 $ 250,361 $729,570
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 584 $ 2,266 $ -- $ 10,000(a) $ 12,850
Accounts payable..................................... 9,415 9,961 183 19,539
Accrued liabilities.................................. 6,911 9,327 169 7,645(b) 24,252
Accrued income taxes................................. 6,217 -- -- 6,217
-------- -------- ------- --------- --------
Total current liabilities...................... 23,127 21,554 352 17,645 62,678
Long-term debt......................................... 2,794 1,000 -- 387,645(a) 391,939
Deferred income taxes.................................. -- 14,134 -- (14,134)(b) 391,439
Other long-term liabilities............................ 5,990 415 -- 6,405
Stockholders' equity:
Common stock......................................... 10,888 -- 13 496 (b) 11,397
Capital in excess of par value....................... 254,955 123,125 9 (98,643)(b) 279,446
Retained earnings (accumulated deficit).............. (20,338) 25,688 16,959 (42,647)(b) (20,338)
Other................................................ (1,457) -- 1 (1)(b) (1,457)
-------- -------- ------- --------- --------
Total stockholders' equity..................... 244,048 148,813 16,982 (140,795) 269,048
-------- -------- ------- --------- --------
Total liabilities and stockholders' equity..... $275,959 $ 185,916 $ 17,334 $ 250,361 $729,570
======== ======== ======= ========= ========
36
38
PARKER DRILLING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE VALUES)
12 MONTHS ENDED
---------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31,
1996 1996 1996
---------- ------------- ----------
PARKER MALLARD QUAIL ADJUSTMENTS(1) PRO FORMA
---------- ------------- ---------- -------------- ---------
Revenues:
Drilling contracts............................... $ 145,160 $87,293 $ -- $ 15,648(d) $ 248,101
Rental........................................... -- -- 17,429 17,429
Other............................................ 11,492 -- -- 11,492
---------- ------- ------- -------- ----------
Total revenues........................... 156,652 87,293 17,429 15,648 277,022
Operating expenses:
Drilling......................................... 100,942 51,392 -- 8,414(d) 172,289
(153)(e)
11,694(g)
Rental........................................... -- -- 1,767 3,838(g) 5,605
Other............................................ 11,824 -- -- 11,824
Depreciation, depletion and amortization......... 23,061 11,833 2,789 3,703(c) 45,933
4,547(f)
General and administrative....................... 19,428 11,694 3,838 (15,532)(g) 19,428
---------- ------- ------- -------- ----------
Total operating expenses................. 155,255 74,919 8,394 16,511 255,079
Operating income................................... 1,397 12,374 9,035 (863) 21,943
Other income (expense):
Interest expense................................. (135) (483) -- (37,000)(h) (39,179)
(1,561)(j)
Interest income.................................. 1,642 -- 165 (165)(i) 1,642
Other............................................ 5,663 312 999 (420)(i) 6,554
---------- ------- ------- -------- ----------
Total other income (expense)............. 7,170 (171) 1,164 (39,146) (30,983)
Income (loss) before income taxes.................. 8,567 12,203 10,199 (40,009) (9,040)
---------- ------- ------- -------- ----------
Income tax expense (benefit)....................... 4,514 4,899 -- (3,318)(k) 6,877
782(d)
---------- ------- ------- -------- ----------
Net income (loss).................................. $ 4,053 $ 7,304 $ 10,199 $(37,473) $ (15,917)
========== ======= ======= ======== ==========
Earnings (loss) per share, primary and fully
diluted.......................................... $ 0.07 (0.26)
========== ==========
Weighted average shares outstanding (fully
diluted)......................................... 57,466,183 60,522,783
========== ==========
Ratio of earnings to fixed charges................. n/a(l)
37
39
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 PRO FORMA ADJUSTMENTS
(a) To record $100 million of term debt under the Senior Credit Facility,
with payments due semi-annually beginning May 1997, $297.6 million of Senior
Notes due 2006, net of $2.4 million of original issue discount, and debt
issuance costs of $11.8 million.
(b) To record the estimated purchase price allocation to the assets and
liabilities purchased from Mallard and Quail. Details of the purchase price
allocation are as follows (in thousands):
MALLARD QUAIL TOTAL
-------- ------- --------
PURCHASE PRICE
Cash................................................ $313,000 $65,000 $378,000
Common Stock(1)..................................... 25,000 -- 25,000
Fees and expenses................................... 2,500 1,000 3,500
-------- ------- --------
Total..................................... $340,500 $66,000 $406,500
======== ======= ========
PURCHASE PRICE ALLOCATION
Increase in property and equipment.................. 93,000 14,000 107,000
Adjust certain assets and liabilities:
Accounts receivable............................... (1,500) -- (1,500)
Inventory......................................... (1,500) -- (1,500)
Other noncurrent assets........................... (1,370) -- (1,370)
Accrued liabilities............................... (7,645) -- (7,645)
Eliminate stockholders' equity...................... 148,813 16,982 165,795
Eliminate assets/liabilities that are not a part of
the Acquisitions:
Cash and cash equivalents......................... -- (287) (287)
Other short-term investments...................... -- (533) (533)
Other noncurrent assets -- marketable
securities..................................... -- (3,863) (3,863)
Intangible assets................................. (1,578) -- (1,578)
Deferred income taxes............................. 14,134 -- 14,134
Cost in excess of net assets acquired............... 98,146 39,701 137,847
-------- ------- --------
$340,500 $66,000 $406,500
======== ======= ========
____________
(1) In December 1996, the Convertible Preferred Stock was converted
into 3,056,000 shares of Common Stock, par value $0.16 2/3 per
share.
(c) To adjust depreciation expense on assets acquired using the allocated
purchase price and to eliminate historical accumulated depreciation
(Mallard -- $27.3 million, Quail -- $16.3 million) on these assets. Depreciation
was calculated over 17 1/2 years for drilling rigs and seven years for tool
rental equipment using 5% salvage on both.
(d) To record the estimated historical results of operations for two barge
rigs acquired by Mallard from Noble on August 21, 1996. The two rigs are working
under a long-term contract in Nigeria at dayrates of $26,215 and $22,000,
respectively. Estimated historical results of operations were derived from the
contractual dayrates on the two rigs, estimated operating costs based on a
similar Mallard barge rig operating in Nigeria and the related Nigerian taxes.
(e) Eliminates expenses associated with Iranian operations not purchased.
(f) Amortization of excess cost over fair value of net assets acquired
over 30 years.
(g) Reclassify the general and administrative expense of Mallard and Quail
to drilling expense and rental expense, respectively.
38
40
(h) To record interest expense related to $100 million term debt under the
Senior Credit Facility, assuming a rate of 7.75%, and $300 million of principal
amount of Senior Notes at a rate of 9.75%.
(i) Eliminate interest and investment income on Quail cash and investments
not acquired.
(j) Amortization of original issue discount and debt issuance costs over
the ten-year term of the Notes and the six-year term of the term loan portion of
the Senior Credit Facility.
(k) Eliminate U.S. federal income taxes allocated to Mallard by its former
parent as a result of the Company's significant net operating loss ("NOL")
carryforwards for U.S. federal income tax purposes. Also as a result of the
Company's NOL carryforwards no U.S. federal income taxes have been added for
Quail, which prior to the Quail Acquisition was an S corporation for U.S.
federal income tax purposes.
(l) For the purposes of these calculations, earnings consist of income
(loss) before income taxes plus interest expense, and fixed charges consist of
interest expense. For the 12 months ended August 31, 1996 (historical), the
Company's Pro Forma earnings were inadequate to cover fixed charges by
$9.0 million.
39