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, 1997
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 1-13086
EVI, 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 November 7, 1997
-------------- -------------------------------
Common Stock, par value $1.00 47,103,210
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
September 30, December 31,
1997 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ......................................... $ 16,926 $ 223,966
Accounts Receivable, Net of Allowance for Uncollectible Accounts of
$1,077 and $583, Respectively ................................... 188,204 119,152
Inventories ....................................................... 243,617 157,631
Marketable Securities ............................................. -- 23,841
Other Current Assets .............................................. 36,966 34,091
--------- ---------
485,713 558,681
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION ................................... 277,648 172,724
GOODWILL, NET ........................................................... 193,017 102,474
OTHER ASSETS ............................................................ 34,883 18,964
--------- ---------
$ 991,261 $ 852,843
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit .. $ 32,396 $ 4,451
Current Maturities of Long-Term Debt .............................. 12,166 3,622
Accounts Payable .................................................. 119,302 80,783
Accrued Salaries and Benefits ..................................... 12,416 11,817
Current Tax Liabilities ........................................... 21,524 81,916
Other Accrued Liabilities ......................................... 57,248 50,537
--------- ---------
255,052 233,126
--------- ---------
LONG-TERM DEBT .......................................................... 164,995 126,710
DEFERRED INCOME TAXES ................................................... 38,453 16,920
OTHER LONG-TERM LIABILITIES ............................................. 23,959 22,003
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock $1 Par Value, Authorized 80,000 Shares, Issued 51,852
and 45,930, Respectively ....................................... 51,852 45,930
Capital in Excess of Par Value .................................... 405,492 258,721
Treasury Stock, at Cost ........................................... (152,244) (2,569)
Retained Earnings ................................................. 213,759 158,333
Cumulative Foreign Currency Translation Adjustment ................ (10,057) (8,712)
Unrealized Gain on Marketable Securities .......................... -- 2,381
--------- ---------
508,802 454,084
========= =========
$ 991,261 $ 852,843
========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
(All share amounts adjusted for 1997 stock split)
2
3
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(in thousands, except per share amounts)
REVENUES $ 236,760 $ 134,376 $ 612,868 $ 323,639
----------- ---------- ---------- ---------
COSTS AND EXPENSES:
Cost of Sales ................................... 171,683 105,048 453,001 249,231
Selling, General and Administrative Attributable
to Segments .................................. 23,252 13,045 62,324 36,625
Corporate General and Administrative............. 1,887 1,627 5,396 4,665
--------- --------- --------- ---------
OPERATING INCOME ...................................... 39,938 14,656 92,147 33,118
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Income ................................. 416 138 3,824 229
Interest Expense ................................ (4,914) (4,145) (13,080) (12,265)
Gain on Sale of Marketable Securities ........... -- -- 3,352 --
Other, Net ...................................... 89 (8) 852 9
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ............................ 35,529 10,641 87,095 21,091
PROVISION FOR INCOME TAXES ............................ 12,435 3,724 30,594 7,381
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ..................... 23,094 6,917 56,501 13,710
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAXES .................................... -- 2,842 -- 6,190
EXTRAORDINARY CHARGE, NET OF TAXES .................... -- -- -- (731)
--------- --------- --------- ---------
NET INCOME ............................................ $ 23,094 $ 9,759 $ 56,501 $ 19,169
========= ========= ========= =========
EARNINGS PER SHARE:
Income From Continuing Operations ............... $ 0.50 $ 0.16 $ 1.23 $ 0.35
Income From Discontinued Operations ............. -- 0.07 -- 0.16
Extraordinary Charge ............................ -- -- -- (0.02)
--------- --------- --------- ---------
Net Income ...................................... $ 0.50 $ 0.23 $ 1.23 $ 0.49
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ............ 46,460 43,026 45,961 39,056
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
(All share and per share amounts adjusted for 1997 stock split)
3
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EVI, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months
Ended September 30,
--------------------------
1997 1996
--------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................. $ 56,501 $ 19,169
Adjustments to Reconcile Net Income to Net Cash
Used by Operating Activities:
Depreciation and Amortization ............................ 20,132 11,332
Net Income from Discontinued Operations .................. -- (6,190)
Oil Country Tubular Ltd. Deposit ......................... -- (8,000)
Extraordinary Charge on Prepayment of Debt, Net .......... -- 731
Gain on Sale of Marketable Securities .................... (3,352) --
Deferred Income Tax Provision from Continuing Operations . 14,303 1,487
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired ................................. (121,308) (15,996)
--------- ---------
Net Cash Provided (Used) by Continuing Operations ...... (33,724) 2,533
Net Cash Used by Discontinued Operations ............... -- (4,391)
--------- ---------
Net Cash Used by Operating Activities .................. (33,724) (1,858)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Income Taxes Paid on Gain on Disposal of Discontinued
Operations ............................................... (62,808) --
Proceeds from Sale of Marketable Securities, Net ........... 23,352 --
Acquisitions and Capital Expenditures of Discontinued
Operations .............................................. -- (45,576)
Acquisition of Businesses, Net of Cash Acquired ............ (105,021) (42,656)
Capital Expenditures for Property, Plant and
Equipment ................................................ (45,843) (12,954)
Other, Net ................................................. 131 1,214
--------- ---------
Net Cash Used by Investing Activities .................... (190,189) (99,972)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net .............................. -- 100,893
Termination Costs on Retirement of Debt .................... -- (1,125)
Debt Issuance Costs ........................................ -- (1,602)
Borrowings Under Revolving Lines of Credit, Net ............ 29,472 19,681
Repayments on Term Debt, Net ............................... (13,718) (11,699)
Proceeds from Exercise of Stock Options .................... 3,594 2,675
Acquisitions of Treasury Stock ............................. (2,416) (715)
--------- ---------
Net Cash Provided by Financing Activities ................ 16,932 108,108
--------- ---------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH ......................... (59) (93)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ (207,040) 6,185
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 223,966 2,885
========= =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 16,926 $ 9,070
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid .............................................. $ 15,489 $ 14,733
Income Taxes Paid, Net of Refunds .......................... $ 78,277 $ 4,053
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
5
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The unaudited consolidated condensed financial statements included herein
have been prepared by EVI, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements reflect all adjustments which the Company considers necessary for
the fair presentation of such financial statements for the interim periods
presented. 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 restated audited
consolidated financial statements and notes thereto included in the Company's
Current Report on Form 8-K dated October 20, 1997, as amended, for the year
ended December 31, 1996. The results of operations for the nine month period
ended September 30, 1997 are not necessarily indicative of the results expected
for the full year.
(2) Inventories
Inventories by category are as follows:
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
(IN THOUSANDS)
Raw materials and components.............. $ 138,607 $ 97,613
Work in process........................... 43,782 20,889
Finished goods............................ 61,228 39,129
=========== ===========
$ 243,617 $ 157,631
=========== ===========
Work in process and finished goods inventories include the cost of
material, labor and plant overhead.
(3) Marketable Securities
In April 1997, the Company sold its investment in Parker Drilling Company
("Parker") pursuant to a public offering effected by Parker. As a result, the
Company received net proceeds of approximately $23 million and recognized a
pre-tax gain of approximately $3.4 million.
(4) Acquisitions
On August 25, 1997, the Company completed its acquisition of XL Systems,
Inc. ("XL") in a transaction accounted for as a pooling of interests. XL
designs, manufactures and markets high performance connectors for marine
applications such as conductors, risers and offshore structural components. In
connection with the acquisition, the Company issued 906,686 shares of the
Company's common stock (the "Common Stock") in exchange for all of the equity
interests of XL. As the effect of this business combination is not significant,
prior period financial statements were not restated.
On August 8, 1997, the Company completed its acquisition of McAllister
Petroleum Services, Ltd. ("McAllister"), a Calgary, Alberta based manufacturer
and marketer of inflatable packers and electronic temperature/pressure
instrumentation for approximately $25 million.
On May 1, 1997, the Company acquired GulfMark International, Inc.
("GulfMark") pursuant to a merger in which approximately 4.4 million shares of
the Company's Common Stock were issued to the stockholders of GulfMark. Prior
to the merger, GulfMark effected a spin-off to its stockholders of its marine
transportation services business. The retained assets of GulfMark that were
acquired by the Company in this transaction consisted of approximately 4.4
million shares of the Company's Common Stock, an erosion control company and
certain other miscellaneous assets.
5
6
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(4) Acquisitions - (Continued)
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA"), a
manufacturer of premium couplings and premium accessories, for total
consideration, including assumed debt, of approximately $64 million.
On March 14, 1997, the Company acquired the assets of Griffin Legrand
("Griffin") for total cash consideration of approximately $21 million. Griffin,
based in Calgary, Canada, designs, manufactures and markets progressing cavity
pumps and conventional pumping units.
On February 13, 1997, the Company acquired Anbert Cilindros S.A.I.C.
("Anbert"), an Argentina based sucker rod pump business, for total
consideration of approximately $8 million.
The Company has also effected various other 1997 acquisitions for the
nine months ended September 30, 1997 and subsequent to September 30, 1997, for
a total consideration of approximately $9.1 million and $4.6 million,
respectively.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA") for approximately 1,000,000 shares of Common Stock, $14.35 million
in cash, a $650,000 note and assumed debt of approximately $15 million.
The acquisitions discussed above, with the exception of XL, were
accounted for using the purchase method of accounting, and their results of
operations are included in the Consolidated Condensed Statements of Income from
their respective dates of acquisition. The allocations of the purchase price to
the fair market values of the net assets acquired in the 1997 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.
(5) Discontinued Operations
On November 11, 1996, the Company completed the sale of its contract
drilling segment which was comprised of the Mallard contract drilling division
("Mallard Division") to Parker.
The results of operations for the Mallard Division are reflected in the
accompanying Consolidated Condensed Statements of Income as "Discontinued
Operations, Net of Taxes" and the Company's consolidated condensed financial
statements for prior periods have been restated. Condensed results of the
Mallard Division discontinued operations were as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
(IN THOUSANDS)
Revenues................................................ $ 26,256 $ 66,921
------------------- ---------------
Income before income taxes.............................. 4,372 9,524
Provision for income taxes.............................. 1,530 3,334
=================== ===============
Net income.............................................. $ 2,842 $ 6,190
=================== ===============
(6) Plant Closures
The Company substantially completed the closing of its Bastrop, Texas tool
joint manufacturing facility in the second quarter of 1997. In the fourth
quarter of 1996, the Company had accrued $1.5 million for exit costs to be
incurred in 1997. As of June 30, 1997, the Company had incurred substantially
all charges related to the closing of this facility.
6
7
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(6) Plant Closures - (Continued)
The Company substantially completed the closing of its Arlington, Texas
packer manufacturing facility in the second quarter of 1997. In the fourth
quarter of 1996, the Company had accrued $0.5 million for exit costs to be
incurred in 1997. As of June 30, 1997, the Company had incurred substantially
all charges related to the closing of this facility.
(7) 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 13.
See Note 11 for discussion of subsequent events.
(8) Stockholders' Investment
Stock Split and Name Change
At the Company's annual shareholders meeting on May 6, 1997, the
shareholders approved a two-for-one stock split of the Company's Common Stock,
$1.00 par value, through a stock dividend and related amendment to the
Company's Restated Certificate of Incorporation that increased the number of
authorized shares of the Company's Common Stock from 40 million shares to 80
million shares. The record date for the two-for-one stock split was May 12,
1997. As a result of the stock split, all stock and per share data contained
herein have been restated to reflect the effect of the two-for-one stock split.
The shareholders of the Company approved the proposed amendment to the
Company's Restated Certificate of Incorporation to change the name of the
Company from "Energy Ventures, Inc." to "EVI, Inc."
GulfMark Acquisition
The Company acquired 4.4 million shares of the Company's Common Stock
as a result of the May 1997 acquisition of GulfMark (see Note 4). The fair
market value of these shares as of the date of acquisition is included in the
accompanying Consolidated Condensed Balance Sheet as "Treasury Stock, at Cost".
(9) Change in Accounting Standards
In 1996 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128 ("SFAS No. 128"), Earnings
per Share ("EPS"), which replaces primary earnings per share with basic
earnings per share and requires dual presentation of basic and diluted earnings
per share. The Company will adopt SFAS No. 128 in the fourth quarter of fiscal
1997. Pro forma basic and diluted net income per share is set forth below:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- --------------
Pro forma basic EPS............... $ 0.50 $ 0.23 $ 1.23 $ 0.49
Pro forma diluted EPS............. $ 0.49 $ 0.22 $ 1.20 $ 0.48
7
8
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(10) Reclassifications and Restatements
Certain reclassifications of prior period balances have been made to
conform such amounts to corresponding September 30, 1997 classifications. The
consolidated condensed financial statements have been restated to reflect the
sale of the Company's Mallard Division on November 11, 1996.
(11) Subsequent Events
Acquisitions
On October 9, 1997, the Company entered into an agreement to acquire
Trico Industries, Inc. ("Trico") from PACCAR Inc for cash consideration of $105
million, subject to adjustments for changes in the net assets from August 31,
1997, to the date of closing. Trico also owns a 30% interest in BMW Monarch
(Lloydminster) Ltd. ("BMW Monarch"). The Company's acquisition of Trico is
subject to various conditions, including the receipt of all necessary
governmental consents and approvals and the expiration of all applicable
waiting periods, and is expected to be funded with a portion of the net
proceeds from the 5% Convertible Subordinated Preferred Equivalent Debentures
(the "Debentures").
On October 9, 1997, the Company entered into an agreement to acquire
all of the outstanding shares of BMW Monarch not owned by Trico and all of the
outstanding shares of BMW Pump, Inc. ("BMW Pump") for an aggregate cash
consideration of Canadian $130 million, subject to adjustments for changes in
the net assets of BMW Pump and BMW Monarch from March 31, 1997, to the date of
closing The acquisitions of BMW Monarch and BMW Pump are subject to various
conditions, including the closing of the Company's acquisition of Trico and the
receipt of all necessary governmental consents and approvals and the expiration
of all applicable waiting periods. The acquisitions of BMW Monarch and BMW Pump
are expected to be funded with a portion of the net proceeds from the
Debentures.
5% Convertible Subordinated Preferred Equivalent Debentures
In November 1997, the Company completed a private placement of $402.5
million principal amount of Debentures. The Debentures bear interest at an
annual rate of 5% and are convertible at a price of $80 per share of Common
Stock, $1.00 par value, of the Company beginning 90 days after the last
issuance thereof. The Debentures are redeemable by the Company at any time on
or after November 4, 2000 at redemption prices described therein, and are
subordinated in right of payment of principal and interest to the prior payment
in full of certain existing and future senior indebtedness of the Company. The
Company also has the right to defer payments of interest on the Debentures by
extending the quarterly interest payment period on the Debentures for up to 20
consecutive quarters at anytime when the Company is not in default in the
payment of interest.
Tender Offer for Senior Notes
The Company currently expects to commence an offer to acquire the
Senior Notes during the fourth quarter of 1997. The Company also intends to
seek an amendment to the Indenture relating to the Senior Notes to eliminate
substantially all the material non-payment covenants in the Indenture. The
acquisition of the Senior Notes and amendment to the Indenture are expected to
result in a one-time charge during the fourth quarter of approximately $9.8
million, net of taxes, for the early extinguishment of debt.
(12) Pro Forma Consolidated Financial Information
The following presents the consolidated financial information for the
Company on a pro forma basis as if the August 1996 TCA acquisition, the July
1996 equity offering of 6.9 million shares of Common Stock, the May 1, 1997
acquisition of GulfMark and the November 1997 issuance and sale of the
Debentures had occurred on January 1, 1996. All other 1996 and 1997
acquisitions are not material individually nor in the aggregate for each
applicable year, therefore, pro forma information is not presented.
8
9
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(12) Pro Forma Consolidated Financial Information - (Continued)
The pro forma information does not give effect to the proposed acquisition of
Trico, BMW Monarch, and BMW Pump. The pro forma information set forth below is
not necessarily indicative of the results that actually would have been
achieved had such transactions been consummated as of January 1, 1996, or that
may be achieved in the future.
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ----------------------------
1997 1996 1997 1996
-------------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues.................................... $ 237,760 $ 136,950 $ 613,934 $ 356,120
Net income from continuing operations....... $ 19,759 $ 3,985 $ 45,808 $ 5,924
Net income.................................. $ 19,759 $ 6,827 $ 45,808 $ 11,383
Earnings per common share from continuing
operations ................................. $ 0.43 $ 0.09 $ 1.00 $ 0.13
9
10
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements
The $120 million Senior Notes which are described in Note 7 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, 1997 and December 31, 1996, and the related
Condensed Consolidating Statements of Income for the three and nine month
periods ended September 30, 1997 and 1996, and the Condensed Consolidating
Statements of Cash Flows for the nine month periods ended September 30, 1997
and 1996 have been provided. The Condensed Consolidating Financial Statements
herein are followed by notes which are an integral part of these statements.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................ $ 7,208 $ 3,158 $ 6,560 $ -- $ 16,926
Other Current Assets..................... 12,014 286,582 170,191 -- 468,787
------------ ------------ ----------- ------------ ------------
19,222 289,740 176,751 -- 485,713
------------ ------------ ----------- ------------ ------------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION........................... 310 143,102 134,236 -- 277,648
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET..................... 644,373 (237,503) (113,424) (293,446) --
OTHER ASSETS................................ 4,665 96,458 126,777 -- 227,900
============ ============ =========== ============ ============
$ 668,570 $ 291,797 $ 324,340 $ (293,446) $ 991,261
============ ============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings.................... $ 15,000 $ -- $ 17,396 $ -- $ 32,396
Current Maturities of Long-Term Debt..... -- 1,888 10,278 -- 12,166
Accounts Payable and Other Accrued
Liabilities............................ 18,777 115,147 76,566 -- 210,490
------------ ------------ ----------- ------------ ------------
33,777 117,035 104,240 -- 255,052
------------ ------------ ----------- ------------ ------------
LONG-TERM DEBT.............................. 120,000 3,661 41,334 -- 164,995
DEFERRED INCOME TAXES AND OTHER............. 5,991 29,494 26,927 -- 62,412
STOCKHOLDERS' INVESTMENT.................... 508,802 141,607 151,839 (293,446) 508,802
============ ============ =========== ============ ============
$ 668,570 $ 291,797 $ 324,340 $ (293,446) $ 991,261
============ ============ =========== ============ ============
10
11
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................ $ 221,275 $ 1,625 $ 1,066 $ -- $ 223,966
Other Current Assets..................... 40,694 233,862 60,159 -- 334,715
------------- ------------- ------------- ------------- -------------
261,969 235,487 61,225 -- 558,681
------------- ------------- ------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION........................... 144 124,804 47,776 -- 172,724
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET..................... 412,287 (241,456) (87,064) (83,767) --
OTHER ASSETS................................ 5,850 84,322 31,266 -- 121,438
============= ============= ============= ============= =============
$ 680,250 $ 203,157 $ 53,203 $ (83,767) $ 852,843
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings.................... $ -- $ -- $ 4,451 $ -- $ 4,451
Current Maturities of Long-Term Debt..... -- 1,883 1,739 -- 3,622
Accounts Payable and Other Accrued
Liabilities............................ 89,692 107,712 27,649 -- 225,053
------------- ------------- ------------- ------------- -------------
89,692 109,595 33,839 -- 233,126
------------- ------------- ------------- ------------- -------------
LONG-TERM DEBT.............................. 120,000 3,895 2,815 -- 126,710
DEFERRED INCOME TAXES AND OTHER............. 16,474 18,707 3,742 -- 38,923
STOCKHOLDERS' INVESTMENT.................... 454,084 70,960 12,807 (83,767) 454,084
------------- ------------- ------------- ------------- -------------
$ 680,250 $ 203,157 $ 53,203 $ (83,767) $ 852,843
============= ============= ============= ============= =============
11
12
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
REVENUES.................................... $ -- $ 133,918 $ 102,842 $ -- $ 236,760
COSTS AND EXPENSES.......................... 1,887 109,848 85,087 -- 196,822
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS)..................... (1,887) 24,070 17,755 -- 39,938
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest Expense......................... 875 (2,137) (3,652) -- (4,914)
Equity in Subsidiaries, Net of Taxes..... 22,864 -- -- (22,864) --
Other, Net............................... 580 9 (84) -- 505
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES.................. 22,432 21,942 14,019 (22,864) 35,529
PROVISION FOR INCOME TAXES.................. (662) 8,153 4,944 -- 12,435
------------- ------------- ------------- ------------- -------------
NET INCOME.................................. $ 23,094 $ 13,789 $ 9,075 $ (22,864) $ 23,094
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
REVENUES.................................... $ -- $ 95,445 $ 38,931 $ -- $ 134,376
COSTS AND EXPENSES.......................... 1,627 85,974 32,119 -- 119,720
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS)..................... (1,627) 9,471 6,812 -- 14,656
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest Expense......................... (3,813) (399) 67 -- (4,145)
Equity in Subsidiaries, Net of Taxes..... 11,301 -- -- (11,301) --
Other, Net............................... 191 (3) (58) -- 130
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES.................. 6,052 9,069 6,821 (11,301) 10,641
PROVISION (BENEFIT) FOR INCOME TAXES........ (3,707) 5,514 1,917 -- 3,724
------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS........... 9,759 3,555 4,904 (11,301) 6,917
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAXES................. -- 2,858 (16) -- 2,842
------------- ------------- ------------- ------------- -------------
NET INCOME.................................. $ 9,759 $ 6,413 $ 4,888 $ (11,301) $ 9,759
============= ============= ============= ============= =============
12
13
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
REVENUES.................................... $ -- $ 374,574 $ 238,294 $ -- $ 612,868
COSTS AND EXPENSES.......................... 5,396 319,038 196,287 -- 520,721
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS)..................... (5,396) 55,536 42,007 -- 92,147
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest Expense......................... (2,065) (2,392) (8,623) -- (13,080)
Equity in Subsidiaries, Net of Taxes..... 55,405 -- -- (55,405) --
Other, Net............................... 8,305 135 (412) -- 8,028
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES.................. 56,249 53,279 32,972 (55,405) 87,095
PROVISION FOR INCOME TAXES.................. (252) 19,318 11,528 -- 30,594
------------- ------------- ------------- ------------- -------------
NET INCOME.................................. $ 56,501 $ 33,961 $ 21,444 $ (55,405) $ 56,501
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
REVENUES.................................... $ -- $ 240,401 $ 83,238 $ -- $ 323,639
COSTS AND EXPENSES.......................... 4,665 220,075 65,781 -- 290,521
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS)..................... (4,665) 20,326 17,457 -- 33,118
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest Expense......................... (2,382) (10,130) 247 -- (12,265)
Equity in Subsidiaries, Net of Taxes..... 21,215 -- -- (21,215) --
Other, Net............................... 198 101 (61) -- 238
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES.................. 14,366 10,297 17,643 (21,215) 21,091
PROVISION (BENEFIT) FOR INCOME TAXES........ (4,897) 6,536 5,742 -- 7,381
------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS........... 19,263 3,761 11,901 (21,215) 13,710
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF TAXES................................ -- 6,243 (53) -- 6,190
EXTRAORDINARY CHARGE, NET OF TAXES.......... (94) (637) -- -- (731)
------------- ------------- ------------- ------------- -------------
NET INCOME.................................. $ 19,169 $ 9,367 $ 11,848 $ (21,215) $ 19,169
============= ============= ============= ============= =============
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14
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income............................... $ 56,501 $ 33,961 $ 21,444 $ (55,405) $ 56,501
Equity in Earnings of Subsidiaries....... (55,405) -- -- 55,405 --
Other, Net............................... (26,237) (31,261) (32,727) -- (90,225)
------------- ------------- ------------- ------------- -------------
Net Cash Provided (Used) by Operating
Activities........................... (25,141) 2,700 (11,283) -- (33,724)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Income Taxes Paid on Disposal of
Discontinued Operations.............. (62,808) -- -- -- (62,808)
Proceeds from Sale of Marketable
Securities........................... 23,352 -- -- -- 23,352
Acquisition of Businesses, Net of Cash
Acquired............................... -- (3,783) (101,238) -- (105,021)
Capital Expenditures for Property, Plant
and Equipment.......................... (230) (23,635) (21,978) -- (45,843)
Other, Net............................... (94) 89 136 -- 131
------------- ------------- ------------- ------------- -------------
Net Cash Used by Investing Activities.. (39,780) (27,329) (123,080) -- (190,189)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings Under Revolving Lines of
Credit, Net............................ 15,000 -- 14,472 -- 29,472
Repayments on Term Debt, Net............. -- (4,876) (8,842) -- (13,718)
(Increase) Decrease in Amounts Due to and
From Subsidiaries, Net................. (165,324) 31,038 134,286 -- --
Other, Net............................... 1,178 -- -- -- 1,178
------------- ------------- ------------- ------------- -------------
Net Cash Provided (Used) by Financing
Activities........................... (149,146) 26,162 139,916 -- 16,932
------------- ------------- ------------- ------------- -------------
Effect of Translation Adjustment on Cash.... -- -- (59) -- (59)
------------- ------------- ------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents.............................. (214,067) 1,533 5,494 -- (207,040)
Cash and Cash Equivalents at Beginning of
Period................................... 221,275 1,625 1,066 -- 223,966
------------- ------------- ------------- ------------- -------------
Cash and Cash Equivalents at End of Period. $ 7,208 $ 3,158 $ 6,560 $ -- $ 16,926
============= ============= ============= ============= =============
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15
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT 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 $ 9,367 $ 11,848 $ (21,215) $ 19,169
Net (Income) Loss from Discontinued
Operations............................. -- (6,243) 53 (6,190)
Equity in Earnings of Subsidiaries....... (21,215) -- -- 21,215 --
Other, Net............................... (9,054) 35,077 (36,469) -- (10,446)
------------- ------------- ------------- ------------- ------------
Net Cash Provided (Used) by Continuing
Operations........................... (11,100) 38,201 (24,568) -- 2,533
Net Cash Used by Discontinued
Operations........................... -- (4,082) (309) -- (4,391)
------------- ------------- ------------- ------------- -------------
Net Cash Provided (Used) by Operating
Activities........................... (11,100) 34,119 (24,877) -- (1,858)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital Expenditures of Discontinued
Operations............................. -- (45,575) (1) -- (45,576)
Acquisition of Businesses, Net of Cash
Acquired............................... -- (22,593) (20,063) -- (42,656)
Capital Expenditures for Property, Plant
and Equipment.......................... (61) (2,389) (10,504) -- (12,954)
Other, Net............................... -- 487 727 -- 1,214
------------- ------------- ------------- ------------- -------------
Net Cash Used by Investing Activities.. (61) (70,070) (29,841) -- (99,972)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock................. 100,893 -- -- -- 100,893
Borrowings (Repayments) Under Revolving
Lines of Credit, Net................... 20,000 (546) 227 -- 19,681
Repayments on Term Debt, Net............. -- (11,429) (270) -- (11,699)
(Increase) Decrease in Amounts Due to and
From Subsidiaries, Net................. (104,191) 49,545 54,646 -- --
Other, Net............................... -- (1,125) 358 -- (767)
------------- ------------- ------------- ------------- -------------
Net Cash Provided by Financing Activities 16,702 36,445 54,961 -- 108,108
------------- ------------- ------------- ------------- -------------
Effect of Translation Adjustment on Cash.... -- -- (93) -- (93)
------------- ------------- ------------- ------------- -------------
Net Increase in Cash and Cash Equivalents... 5,541 494 150 -- 6,185
Cash and Cash Equivalents at Beginning of
Period................................... 532 1,492 861 -- 2,885
------------- ------------- ------------- ------------- -------------
Cash and Cash Equivalents at End of Period.. $ 6,073 $ 1,986 $ 1,011 $ -- $ 9,070
============= ============= ============= ============= =============
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16
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(13) Condensed Consolidating Financial Statements - (Continued)
SIGNIFICANT ACCOUNTING POLICIES
Reclassifications and Restatements
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding September 30, 1997 classifications. The
Condensed Consolidating Financial Statements have been restated to reflect the
sale of the Company's Mallard Division on November 11, 1996.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
Other
Notes 1 through 12 should be read in conjunction with the Condensed
Consolidating Financial Statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
EVI, Inc. (the "Company") is an international manufacturer and supplier of
engineered oilfield tools and equipment. The Company's products are used both
for the drilling and production phases of oil and natural gas wells. The
Company has achieved significant growth in recent years through a consistent
strategy of synergistic acquisitions and internal development. The Company's
acquisitions have focused on consolidation and vertical integration,
development of complete product lines and technology. The Company's internal
growth has focused on technology, product development, manufacturing
efficiencies and productivity enhancements.
The Company's principal products consist of drill pipe and other drilling
tools, premium connectors and associated high grade tubulars, marine
connectors, packers and completion tools and artificial lift systems. The
Company's growth strategy has resulted in the Company becoming the largest
manufacturer of drill pipe, drill collars and heavyweight drill pipe in the
world, the largest provider of premium tubular connectors in North America and
one of the largest providers of artificial lift equipment in the world.
In November 1997, the Company completed a private placement of $402.5
million principal amount of 5% Convertible Subordinated Preferred Equivalent
Debentures (the "Debentures"). The Debentures bear interest at an annual rate
of 5% and are convertible at a price of $80 per share of Common Stock, $1.00
par value ("Common Stock"), of the Company beginning 90 days after the last
issuance thereof. The Debentures are redeemable by the Company at any time on
or after November 4, 2000 at redemption prices described therein, and are
subordinated in right of payment of principal and interest to the prior payment
in full of certain existing and future senior indebtedness of the Company. The
Company also has the right to defer payments of interest on the Debentures by
extending the quarterly interest payment period on the Debentures for up to 20
consecutive quarters at anytime when the Company is not in default in the
payment of interest.
During 1997, the Company completed a number of strategic acquisitions
directed at an expansion of the Company's drilling products segment and
production equipment segment. These acquisitions included (i) Anbert Cilindros
S.A.I.C. ("Anbert"), an Argentine manufacturer of sucker rod pumps, in February
1997, (ii) Griffin Legrand ("Griffin"), a Canadian manufacturer of progressing
cavity pumps and conventional pump jacks, in March 1997, (iii) TA Industries,
Inc. ("TA"), a manufacturer of premium couplings and casing, in April 1997, (iv)
XL Holding, Inc. ("XL"), a manufacturer of high performance connectors for
marine applications such as conductors, risers and offshore structural
components, in August 1997, (v) McAllister Petroleum Services Ltd.
("McAllister"), a Canadian manufacturer of inflatable packers and electronic
temperature and pressure instruments, in August 1997, and (vi) various other
small acquisitions intended to expand the Company's manufacturing capabilities,
geographic scope and breadth of product lines. The acquisition of XL has been
accounted for as a pooling of interests. The other acquisitions were accounted
for using the purchase method of accounting.
On October 9, 1997, the Company entered into agreements to acquire Trico
Industries, Inc., a U.S. manufacturer and distributor of subsurface
reciprocating pumps, sucker rods, accessories and hydraulic lift systems
("Trico"), BMW Pump, Inc., a Canadian manufacturer of progressing cavity pumps
("BMW Pump"), and BMW Monarch (Lloydminster) Ltd., a Canadian distributor of
progressing cavity pumps and other oilfield equipment ("BMW Monarch") for a
total aggregate cash consideration of approximately $200 million plus assumed
debt of approximately $10 million. The acquisitions of Trico, BMW Pump and BMW
Monarch are intended to further expand the range of artificial lift products
and technology offered by the Company's production equipment segment, expand
the Company's manufacturing capabilities of progressing cavity pumps and
establish a broader distribution base in Canada. The acquisitions of Trico, BMW
Pump and BMW Monarch are subject to various conditions, including the receipt
of all necessary governmental approvals, including in the case of Trico, the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The BMW acquisition is also contingent upon the
acquisition by the Company of Trico. The Company intends to fund the
acquisition costs of Trico, BMW Pump and BMW Monarch with a portion of the net
proceeds from the recent private placement of $402.5 million principal amount
of the Debentures. The Company currently anticipates the closing of the
acquisitions of Trico, BMW Pump and BMW Monarch by year end. However, there can
be no assurance that the transactions will close or as to the timing thereof.
The demand for the Company's drilling products is particularly affected by
the price of natural gas and the level of oil and natural gas drilling
activity, while the demand for the Company's production equipment is directly
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dependent on oil production activity. Exploration and production activity is
affected by worldwide economic conditions, supply and demand for oil and
natural gas, seasonal trends and the political stability of oil producing
countries.
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.
The Company currently expects that 1997 and 1998 results will continue to
benefit from strong tubular products sales and favorable operating results from
the 1996 and 1997 acquisitions. Results, however, will be dependent on market
conditions and demand for drill pipe and other tubular products. Accordingly,
there can be no assurance as to future results or profitability.
At the Company's annual shareholders meeting on May 6, 1997, the
shareholders approved a two-for-one stock split of the Company's Common Stock
effected through a stock dividend and a related amendment to the Company's
Restated Certificate of Incorporation that increased the number of authorized
shares of the Company's Common Stock from 40 million shares to 80 million
shares. The record date for the two-for-one stock split was May 12, 1997. As a
result of the stock split, all stock and per share data contained herein have
been restated to reflect the effect of the two-for-one stock split. The
shareholders of the Company approved the proposed amendment to the Company's
Restated Certificate of Incorporation to change the name of the Company from
"Energy Ventures, Inc." to "EVI, Inc."
RESULTS OF OPERATIONS
General
Income from continuing operations for the third quarter of 1997 was $23.1
million, or $0.50 per share, on revenues of $236.8 million compared to income
from continuing operations for the third quarter of 1996 of $6.9 million, or
$0.16 per share, on revenues of $134.4 million. Income from continuing
operations for the nine months ended September 30, 1997, was $56.5 million, or
$1.23 per share, on revenues of $612.9 million compared to income from
continuing operations for the nine months ended September 30, 1996, of $13.7
million, or $0.35 per share, on revenues of $323.6 million. The increases in
revenues and income from continuing operations reflect the continuing strength
in the Company's markets and the effect of recent acquisitions. Results for the
nine months ended September 30, 1997, also include a one-time pre-tax gain of
$3.4 million from the second quarter sale of the Parker Drilling Company
("Parker") common stock received in the Company's November 1996 disposition of
its contract drilling division to Parker.
Net income for the third quarter of 1997 was $23.1 million, or $0.50 per
share, compared to $9.8 million, or $0.23 per share, for the third quarter of
1996. Included in net income for the third quarter of 1996 is $2.8 million, or
$0.07 per share, from discontinued operations relating to the Company's Mallard
contract drilling division that was sold in November 1996. Net income for the
nine months ended September 30, 1997 was $56.5 million, or $1.23 per share,
compared to $19.2 million, or $0.49 per share, for the nine months ended
September 30, 1996 which included $6.2 million, or $0.16 per share, relating to
the Company's discontinued operations of the Mallard division and an
extraordinary charge, net of taxes, of $731,000, or $0.02 per share for debt
termination costs.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Drilling Products Segment
The Company's drilling products segment reported revenues and operating
income of $169.5 million and $34.6 million, respectively, for the three months
ended September 30, 1997, up from $99.5 million and $13.9 million,
respectively, for the three months ended September 30, 1996. These improvements
were primarily due to increased demand for drill pipe and other drilling tools,
continued strength in premium tubular activity and the Company's third quarter
acquisition of XL, a manufacturer of marine connectors. The continued increase
in demand for drill pipe reflected higher domestic and international drilling
activity, in particular offshore drilling. Premium tubular revenues increased
to approximately $80 million during the third quarter of 1997 up from
approximately $52
18
19
million for the third quarter of 1996. The increase in premium tubular revenues
reflects continued strong demand in the Gulf of Mexico and the April 1997
acquisition of TA. The Company also benefited from increased pricing on the
Company's products and reduced costs associated with the expansion of the
Company's Mexico tool joint facility.
Production Equipment Segment
The Company's production equipment segment reported revenues and operating
income of $67.2 million and $7.2 million, respectively, for the three months
ended September 30, 1997, up from $34.8 million and $2.4 million, respectively,
for the three months ended September 30, 1996. These improvements are due
primarily to the Company's acquisitions of Arrow Completion Systems ("Arrow")
in 1996 and Anbert, Griffin and McAllister in 1997. The increase in operating
income reflects the benefits of these acquisitions as well as improvements in
the segment's domestic cost structure. In addition, the Company continues to
benefit from strong growth in the Canadian and South American markets, in
particular for the Company's Corod and progressing cavity pump product lines.
Selling, General and Administrative
Selling, general and administrative expenses increased approximately 71%
to approximately $25.1 million in the third quarter of 1997 from approximately
$14.7 million in the third quarter of 1996. The increase in 1997 was primarily
attributable to the Company's significant internal growth and the 1997 and 1996
acquisitions. Selling, general and administrative expenses as a percent of
revenues, however, declined from 10.9% to 10.6%
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Drilling Products Segment
Revenues and operating income for the drilling products segment were
$439.4 million and $82.0 million, respectively, for the nine months ended
September 30, 1997, up from $229.0 million and $31.7 million, respectively, for
the nine months ended September 30, 1996. The increased revenues were
attributable to a combination of increased demand and volume of drill pipe and
premium tubular products and higher sales prices of drill pipe and premium
tubulars. Results for the nine months of 1997 benefited from reduced costs
associated with the expansion of the Company's Mexico facility. The increase in
sales of premium tubular products was primarily attributable to improved market
conditions in deep offshore exploration and production activity, and the
operating results of the Company's 1996 and 1997 acquisitions.
The Company substantially completed the closing of its Bastrop, Texas tool
joint manufacturing facility in the second quarter of 1997. In the fourth
quarter of 1996, the Company had accrued $1.5 million for exit costs to be
incurred in 1997. As of June 30, 1997, the Company had incurred substantially
all charges related to the closing of this facility.
Production Equipment Segment
Revenues and operating income for the production equipment segment were
$173.5 million and $15.6 million, respectively, for the nine months ended
September 30, 1997, up from $94.7 million and $6.1 million, respectively, for
the nine months ended September 30, 1996. The increase in sales and operating
income for the nine months ended September 30, 1997 were primarily attributable
to 1996 and 1997 acquisitions and increased sales of the Company's Corod and
progressing cavity pump product lines.
The Company substantially completed the closing of its Arlington, Texas
packer manufacturing facility in the second quarter of 1997. In the fourth
quarter of 1996, the Company had accrued $0.5 million for exit costs to be
incurred in 1997. As of June 30, 1997, the Company had incurred substantially
all charges related to the closing of this facility.
19
20
Selling, General and Administrative
Selling, general and administrative expenses increased approximately 64%
to approximately $67.7 million in the nine months ended September 30, 1997 from
approximately $41.3 million in 1996. The increase in 1997 was primarily
attributable to the Company's internal growth and the 1997 and 1996
acquisitions. Selling, general and administrative expenses as a percent of
revenues, however, declined from 12.8% to 11%.
LIQUIDITY AND CAPITAL RESOURCES
In November 1997, the Company completed a private placement of $402.5
million principal amount of the Debentures. The net proceeds to the Company
after the expenses from the sale were approximately $390.6 million. The
Debentures bear interest at an annual rate of 5% and are convertible at a price
of $80 per share of Common Stock of the Company beginning 90 days after the
last issuance thereof. The Debentures are redeemable by the Company at any time
on or after November 4, 2000 at redemption prices described therein, and are
subordinated in right of payment of principal and interest to the prior payment
in full of certain existing and future senior indebtedness of the Company.
At September 30, 1997, the Company had cash and cash equivalents of
approximately $16.9 million compared to $224.0 million at December 31, 1996.
The reduction in cash and cash equivalents since December 31, 1996, was
primarily attributable to the payment by the Company of taxes on the 1996 sale
of its Mallard contract drilling division and the reinvestment by the Company
of the net proceeds from the sale of acquired businesses and assets, including
additional working capital associated with such businesses and increased
business activity.
In April 1997, the Company sold its investment in Parker common stock
pursuant to a public offering effected by Parker. The net proceeds received by
the Company were approximately $23 million.
The Company currently has working capital facilities providing for up to
$152.6 million in borrowings. At September 30, 1997, the Company had
outstanding $32.4 million in borrowings under these facilities compared to $2.9
million at December 31, 1996. In addition, the Company had outstanding
approximately $5.4 million and $10.1 million in letters of credit at September
30, 1997, and December 31, 1996, respectively. In November 1997, the Company
repaid all of its outstanding borrowings under its U.S. working capital
facilities with a portion of the net proceeds from the issuance and sale of the
Debentures. The Company also obtained a release of all collateral pledged under
its U.S. working capital facility and is in the process of renegotiating the
terms thereof in light of the growth in the Company's businesses and changes to
the Company's capital structure. The Company's Canadian facility is subject to
borrowing base requirements relating to accounts receivable and inventory
securing the borrowings. Borrowings under the Company's working capital
facilities bear interest at variable rates and contain customary affirmative
and negative covenants relating to working capital, earnings and net worth.
These facilities also impose 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 limitations on the declaration and payment of cash dividends by the
Company.
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. The Indenture also limits, based on a specific formula, the
ability of the Company and certain of its subsidiaries to pay dividends and
make other distributions. The Company currently expects to commence an offer to
acquire the Senior Notes during the fourth quarter of 1997. The Company also
intends to seek an amendment to the Indenture relating to the Senior Notes to
eliminate substantially all the material non-payment covenants in the
Indenture. The acquisition of the Senior Notes and amendment to the Indenture
are expected to result in a one-time charge during the fourth quarter of
approximately $9.8 million, net of taxes, for the early extinguishment of debt.
The Company also intends to utilize approximately $200 million of the net
proceeds from the sale of the Debentures to fund the acquisition of Trico, BMW
Pump and BMW Monarch.
The Company's current sources of capital are its current cash, including
the cash received on the sale of the Debentures, 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
20
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generated cash from operations are sufficient to finance the projected cash
requirements of its current and future operations. The Company is continually
reviewing acquisitions in its markets. Depending upon the size, nature and
timing of an acquisition, additional debt or equity may be utilized.
ACQUISITIONS
On October 9, 1997, the Company entered into an agreement to acquire Trico
from PACCAR Inc for cash consideration of $105 million, subject to adjustments
for changes in the net assets from August 31, 1997, to the date of closing.
Trico also owns a 30% interest in BMW Monarch. The Company's acquisition of
Trico is subject to various conditions, including the receipt of all necessary
governmental consents and approvals and the expiration of all applicable
waiting periods, and is expected to be funded with a portion of the net
proceeds from the Debentures.
On October 9, 1997, the Company entered into an agreement to acquire all
of the outstanding shares of BMW Monarch not owned by Trico and all of the
outstanding shares of BMW Pump for an aggregate cash consideration of Canadian
$130 million, subject to adjustments for changes in the net assets of BMW Pump
and BMW Monarch from March 31, 1997, to the date of closing The acquisitions of
BMW Monarch and BMW Pump are subject to various conditions, including the
closing of the Company's acquisition of Trico and the receipt of all necessary
governmental consents and approvals and the expiration of all applicable
waiting periods. The acquisitions of BMW Monarch and BMW Pump are expected to
be funded with a portion of the net proceeds from the Debentures.
On August 25, 1997, the Company completed the acquisition of XL for
consideration of $45 million in Common Stock. On August 8, 1997, the Company
completed its acquisition of McAllister for approximately $25 million. On April
14, 1997, the Company acquired TA for a total consideration, including assumed
debt, of approximately $64 million. On March 14, 1997, the Company acquired
Griffin for total cash consideration of approximately $21 million. On February
13, 1997, the Company acquired Anbert for approximately $8 million. The Company
has also effected various other 1997 acquisitions for the nine months ended
September 30, 1997 and subsequent to September 30, 1997, for a total
consideration of approximately $9.1 million and $4.6 million, respectively. The
acquisition of XL was accounted for as a pooling of interests. All other 1997
acquisitions were accounted for using the purchase method of accounting.
On May 1, 1997, the Company acquired GulfMark International, Inc.
("GulfMark") pursuant to a merger in which approximately 4.4 million shares of
Common Stock were issued to the stockholders of GulfMark. Prior to the merger,
GulfMark effected a spin-off to its stockholders of its marine transportation
services business. The retained assets of GulfMark that were acquired by the
Company in the transaction consisted of approximately 4.4 million shares of the
Company's Common Stock, an erosion control company and certain other
miscellaneous assets. Because the number of shares of Common Stock issued in
the GulfMark acquisition approximated the number of shares of Common Stock held
by GulfMark prior to the acquisition, the GulfMark acquisition had no material
effect on the outstanding number of shares of Common Stock or equity of the
Company.
CAPITAL EXPENDITURES AND OTHER
Capital expenditures by the Company during the nine months ended September
30, 1997, totaled approximately $45.8 million and were primarily related to
plant expansions in Canada, equipment upgrades and Corig purchases. Ongoing
routine capital expenditures for the remainder of 1997 are estimated to be
approximately $10 million. Capital expenditures are expected to be funded with
available cash, cash flow from operations and, if desirable, borrowings under
existing lines of credit and other facilities. Following the completion of the
expansion of the Vera Cruz, Mexico tool joint manufacturing facility, the
Company recorded the remaining obligation of $37 million under its lease to
reflect the current terms thereof.
In 1997, the Company began modifying its computer system programming to
process transactions in the year 2000. Anticipated spending for this
modification will be expensed as incurred and is not expected to be material.
CHANGE IN ACCOUNTING STANDARDS
In 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 ("SFAS No. 128"), Earnings Per Share,
which replaces primary earnings per share with basic earnings per share and
requires dual presentation of basic and diluted earnings per share. The Company
intends to adopt SFAS No. 128 in the fourth quarter of 1997. Assuming the
adoption of SFAS No. 128 for the three months ended September 30, 1997, basic
and diluted earnings per share would be $.50 per share and $.49 per share,
respectively. Basic and
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diluted earnings per share for the nine months ended September 30, 1997 would
be $1.23 and $1.20 per share, respectively.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
sales, earnings, margins, production levels and costs, expected savings from
acquisitions, demand for products, 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. Forward-looking statements may be made by management
orally or in writing including, but not limited to, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
section and other sections of the Company's filings with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 and the
Securities Act of 1933.
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 and
manufacturing consolidations and restructurings, changes in the market for the
Company's drilling tools and other products, performance issues with key
suppliers and subcontractors, the ability of the Company to maintain price
increases and market shares, raw material costs changes, collective bargaining
labor disputes, regulatory uncertainties and legal proceedings. Future results
will also be dependent upon the ability of the Company to continue to identify
and complete successful acquisitions at acceptable prices, integrate those
acquisitions with the Company's other operations and penetrate existing and new
markets. Many of these factors are described in greater detail in the Company's
Form 10-K, as amended, for the year ended December 31, 1996, Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, and
Current Reports on Form 8-K dated December 10, 1996, as amended on January 23,
1997, March 17, 1997, April 25, 1997, May 1, 1997, August 25, 1997, October 20,
1997, as amended on October 21, 1997, October 24, 1997, November 5, 1997, and
November 12, 1997.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
At EVI, Inc.'s (the "Company") annual stockholders meeting on May 6, 1997,
the stockholders approved a two-for-one stock split of the Company's common
stock, $1.00 par value (the "Common Stock"), through a stock dividend and a
related amendment to the Company's Restated Certificate of Incorporation that
increased the number of authorized shares of the Company's Common Stock from 40
million shares to 80 million shares. The record date for the two-for-one stock
split was May 12, 1997. As a result of the stock split, all stock and per share
data contained herein has been restated to reflect the effect of the
two-for-one stock split.
On November 3, 1997, pursuant to the provisions of the Placement Agreement
dated October 28, 1997 (the "Placement Agreement"), by and among the Company,
Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Credit Suisse First Boston Corporation, Lehman Brothers Inc.,
Prudential Securities Incorporated and Schroder & Co. Inc. (collectively, the
"Initial Purchasers"), the Company issued and sold to the Initial Purchasers in
a private placement an aggregate principal amount of $402.5 million of the
Company's 5% Convertible Subordinated Preferred Equivalent Debentures due 2027
(the "Debentures"). The Initial Purchasers resold the Debentures to various
qualified institutional investors, accredited investors and foreign investors
in transactions exempt from registration under the Securities Act of 1933 (the
"Securities Act") pursuant to Rule 144A and Regulation S thereunder.
The Debentures (i) mature on November 1, 2027, (ii) bear interest at
an annual rate of 5% payable on February 1, May 1, August 1 and November 1 of
each year, commencing February 1, 1998, (iii) are convertible at any time after
90 days following the latest date of original issuance of the Debentures at a
conversion price of $80 per share of Common Stock, (iv) are redeemable by the
Company at any time on or after November 4, 2000 at redemption prices set forth
in the Supplemental Indenture relating to the Debentures, and (v) are
subordinated in right of payment of principal and interest to the prior payment
in full of certain existing and future senior indebtedness of the Company. The
terms of the Debentures are more fully described in the Indenture dated as of
October 15, 1997 (the "Indenture"), between the Company and The Chase Manhattan
Bank, as Trustee, as supplemented by the First Supplemental Indenture dated as
of October 28, 1997 (the "Supplemental Indenture"), which such Indenture and
Supplemental Indenture are hereby incorporated herein by reference.
Pursuant to a Registration Rights Agreement dated November 3, 1997,
between the Company and the Initial Purchasers, the Company has agreed to file
with the Securities and Exchange Commission within 90 days of the latest date
of original issuance of the Debentures, to use its reasonable best efforts to
cause to be declared effective within 180 days following the latest date of
original issuance of the Debentures, a registration statement with respect to
the resale of the Debentures and the underlying Common Stock. The Company will
be required to pay liquidated damages to the holders of the Debentures or the
underlying Common Stock under certain circumstances if the Company is not in
compliance with its registration obligations. The terms and provisions of the
Registration Rights Agreement are more fully described in the Registration
Rights Agreement which is hereby incorporated herein by reference.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Page
2.1 Agreement and Plan of Merger dated as of July 16, 1997 as
amended, by and among XLS Holding, Inc., a Texas corporation,
EVI, Inc., a Delaware corporation, and GPXL, Inc., a Texas
corporation (incorporated by reference to Exhibit 2.1 to Form
8-K, File 1-13086, dated August 25, 1997).
2.2 Stock Purchase Agreement dated as of October 9, 1997, between
EVI, Inc. and PACCAR Inc. (incorporated by reference to
Exhibit 2.1 to Form 8-K, File 1-13086, dated October 20,
1997).
2.3 Stock Purchase Agreement dated as of October 9, 1997, among
certain shareholders of BMW Monarch (Lloydminster) Ltd., the
shareholders of BMW Pump Inc., the shareholder of Makelki
Holdings Ltd., the shareholder of 589979 Alberta Ltd., the
shareholders of 600969 Alberta Ltd., the shareholders of
391862 Alberta Ltd. and EVI, Inc. (incorporated by reference
to Exhibit 2.2 to Form 8-K, File 1-13086, dated October 20,
1997).
4.1 Indenture dated as of October 15, 1997, between EVI,
Inc. and The Chase Manhattan Bank, as Trustee (incorporated
by reference to Exhibit 4.1 to Form 8-K , File 1-13086, dated
November 5, 1997).
4.2 First Supplemental Indenture dated as of October 28, 1997,
between EVI, Inc. and The Chase Manhattan Bank, as Trustee
(including form of Debenture) (incorporated by reference to
Exhibit 4.2 to Form 8-K, File 1-13086, dated November 5,
1997).
4.3 Third Supplemental Indenture by and among EVI, Inc., Ercon,
Inc. and The Chase Manhattan Bank, as trustee, dated
effective as of May 1, 1997 (incorporated by reference to
Exhibit 99.2 to Form 8-K, File 1-13086, dated October 24,
1997).
4.4 Fourth Supplemental Indenture by and among EVI, Inc., XLS
Holding, Inc., XL Systems, Inc. and The Chase Manhattan Bank,
as trustee, dated effective as of August 25, 1997
(incorporated by reference to Exhibit 99.3 to Form 8-K, File
1-13086, dated October 24, 1997).
27.1 Financial Data Schedule.............................................. 27
99.1 Registration Rights Agreement dated November 3, 1997, by and
among EVI, Inc., Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, Credit
Suisse First Boston Corporation, Lehman Brothers Inc.,
Prudential Securities Incorporated and Schroder & Co. Inc.
(incorporated by reference to Exhibit 99.1 to Form 8-K, File
1-13086, dated November 5, 1997).
(b) Reports on Form 8-K:
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(1) Current Report on Form 8-K dated August 25, 1997 reporting
the acquisition of all the capital stock of XLS Holding, Inc.
on August 25, 1997.
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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.
EVI, 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 13, 1997
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INDEX TO EXHIBITS
Exhibit No. Description
- - - - - - - - - - - - - - - ----------- -----------
2.1 Agreement and Plan of Merger dated as of July 16, 1997 as
amended, by and among XLS Holding, Inc., a Texas corporation,
EVI, Inc., a Delaware corporation, and GPXL, Inc., a Texas
corporation (incorporated by reference to Exhibit 2.1 to Form
8-K, File 1-13086, dated August 25, 1997).
2.2 Stock Purchase Agreement dated as of October 9, 1997, between
EVI, Inc. and PACCAR Inc. (incorporated by reference to
Exhibit 2.1 to Form 8-K, File 1-13086, dated October 20,
1997).
2.3 Stock Purchase Agreement dated as of October 9, 1997, among
certain shareholders of BMW Monarch (Lloydminster) Ltd., the
shareholders of BMW Pump Inc., the shareholder of Makelki
Holdings Ltd., the shareholder of 589979 Alberta Ltd., the
shareholders of 600969 Alberta Ltd., the shareholders of
391862 Alberta Ltd. and EVI, Inc. (incorporated by reference
to Exhibit 2.2 to Form 8-K, File 1-13086, dated October 20,
1997).
4.1 Indenture dated as of October 15, 1997, between EVI,
Inc. and The Chase Manhattan Bank, as Trustee (incorporated
by reference to Exhibit 4.1 to Form 8-K , File 1-13086, dated
November 5, 1997).
4.2 First Supplemental Indenture dated as of October 28, 1997,
between EVI, Inc. and the Chase Manhattan Bank, as Trustee
(including form of Debenture) (incorporated by reference to
Exhibit 4.2 to Form 8-K, File 1-13086, dated November 5,
1997).
4.3 Third Supplemental Indenture by and among EVI, Inc., Ercon,
Inc. and The Chase Manhattan Bank, as trustee, dated
effective as of May 1, 1997 (incorporated by reference to
Exhibit 99.2 to Form 8-K, File 1-13086, dated October 24,
1997).
4.4 Fourth Supplemental Indenture by and among EVI, Inc., XLS
Holding, Inc., XL Systems, Inc. and The Chase Manhattan Bank,
as trustee, dated effective as of August 25, 1997
(incorporated by reference to Exhibit 99.3 to Form 8-K, File
1-13086, dated October 24, 1997).
27.1 Financial Data Schedule......................................
99.1 Registration Rights Agreement dated November 3, 1997, by and
among EVI, Inc., Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, Credit
Suisse First Boston Corporation, Lehman Brothers Inc.,
Prudential Securities Incorporated and Schroder & Co. Inc.
(incorporated by reference to Exhibit 99.1 to Form 8-K, File
1-13086, dated November 5, 1997).