1
EXHIBIT 99.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Weatherford Enterra, Inc.:
We have audited the accompanying consolidated balance sheets of Weatherford
Enterra, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Weatherford Enterra, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 11, 1998
2
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1997 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 42,348 $ 33,029
Receivables, net of allowance of
$22,467 and $16,241 ....................................... 261,449 272,816
Inventories, net of allowance of
$16,671 and $21,261 ....................................... 169,048 163,302
Deferred tax assets ........................................... 11,266 20,090
Prepayments and other ......................................... 20,767 16,197
----------- -----------
Total current assets .............................. 504,878 505,434
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land .......................................................... 16,166 20,041
Buildings and improvements .................................... 93,033 101,114
Rental and service equipment .................................. 1,010,065 1,017,866
Machinery and other equipment ................................. 131,230 115,665
----------- -----------
1,250,494 1,254,686
Less -- Accumulated depreciation .............................. 682,048 693,496
----------- -----------
568,446 561,190
----------- -----------
GOODWILL, net ..................................................... 266,121 290,474
----------- -----------
OTHER ASSETS ...................................................... 38,550 40,625
----------- -----------
$ 1,377,995 $ 1,397,723
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of
long-term debt ............................................ $ 2,823 $ 24,508
Accounts payable .............................................. 63,808 65,713
Accrued compensation and employee
benefits .................................................. 29,752 29,885
Accrued income taxes .......................................... 30,404 17,427
Accrued taxes other than income
taxes ..................................................... 11,602 10,078
Accrued insurance ............................................. 10,329 11,283
Other accrued liabilities ..................................... 43,627 52,465
----------- -----------
Total current liabilities ......................... 192,345 211,359
----------- -----------
LONG-TERM DEBT .................................................... 209,124 291,266
----------- -----------
DEFERRED TAX LIABILITIES .......................................... 27,401 34,728
----------- -----------
OTHER LONG-TERM LIABILITIES ....................................... 14,999 18,762
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par; shares authorized 1,000,000; none
issued .................................................... -- --
Common stock, $.10 par; shares authorized 80,000,000;
issued 52,701,964 and 52,172,796 .......................... 5,270 5,217
Paid-in capital ............................................... 652,378 639,679
Retained earnings ............................................. 313,216 200,316
Cumulative translation adjustment ............................. (23,795) (2,768)
Treasury stock, 322,667 and 28,269
common shares, at cost .................................... (12,943) (836)
----------- -----------
Total stockholders' equity ........................ 934,126 841,608
----------- -----------
$ 1,377,995 $ 1,397,723
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1997 1996 1995
----------- ----------- -----------
REVENUES:
Services and rentals ................ $ 821,397 $ 746,180 $ 612,597
Products ............................ 262,568 248,288 246,310
----------- ----------- -----------
Total revenues .......... 1,083,965 994,468 858,907
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of services and rentals ........ 551,375 537,313 442,902
Cost of products .................... 175,165 177,033 182,444
Selling, general and administrative
expenses ........................ 140,229 140,614 137,959
Research and development ............ 7,782 7,154 4,954
Equity in earnings of
unconsolidated affiliates ....... (2,582) (2,078) (1,477)
Foreign currency loss (gain),
net ............................. 1,782 (49) (74)
Other expense, net .................. 17,132 8,725 3,835
Acquisition-related costs and other
unusual charges ................. -- -- 88,182
----------- ----------- -----------
Total operating costs and
expenses ............ 890,883 868,712 858,725
----------- ----------- -----------
OPERATING INCOME ........................ 193,082 125,756 182
Interest expense ........................ 20,139 22,914 17,217
Interest income ......................... (2,630) (2,005) (2,081)
----------- ----------- -----------
Income (loss) before income taxes ....... 175,573 104,847 (14,954)
Income tax provision (benefit) .......... 62,673 34,774 (4,396)
----------- ----------- -----------
NET INCOME (LOSS) ....................... $ 112,900 $ 70,073 $ (10,558)
=========== =========== ===========
Basic earnings (loss) per common
share ............................... $ 2.15 $ 1.35 $ (0.21)
=========== =========== ===========
Diluted earnings (loss) per common
share ............................... $ 2.14 $ 1.35 $ (0.21)
=========== =========== ===========
Weighted average shares
outstanding ......................... 52,430 51,722 50,681
Diluted average shares outstanding ...... 52,837 52,097 50,681
The accompanying notes are an integral part of these
consolidated financial statements.
4
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
Cumulative
Common Paid-in Retained Translation Treasury
Stock Capital Earnings Adjustment Stock Total
--------- --------- -------- ----------- --------- ---------
BALANCE, December 31, 1994 .............. $ 5,058 $ 593,744 $ 140,801 $ (4,168) $ (801) $ 734,634
Shares issued under employee benefit
plans ................................ 1 187 -- -- -- 188
Stock grants and options exercised ...... 40 8,300 -- -- (60) 8,280
Currency translation adjustment ......... -- -- -- (1,701) -- (1,701)
Net loss ................................ -- -- (10,558) -- -- (10,558)
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1995 .............. 5,099 602,231 130,243 (5,869) (861) 730,843
Shares issued under employee benefit
plans ................................ 3 1,367 -- -- 419 1,789
Stock grants and options exercised ...... 40 9,636 -- -- (394) 9,282
Issuance of Common Stock in
acquisition .......................... 75 26,445 -- -- -- 26,520
Currency translation adjustment ......... -- -- -- 3,101 -- 3,101
Net income .............................. -- -- 70,073 -- -- 70,073
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1996 .............. 5,217 639,679 200,316 (2,768) (836) 841,608
Shares issued under employee benefit
plans ................................ 1 474 -- -- -- 475
Stock grants and options exercised ...... 52 12,225 -- -- (247) 12,030
Purchase of treasury stock .............. -- -- -- -- (11,860) (11,860)
Currency translation adjustment ......... -- -- -- (21,027) -- (21,027)
Net income .............................. -- -- 112,900 -- -- 112,900
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1997 .............. $ 5,270 $ 652,378 $ 313,216 $ (23,795) $ (12,943) $ 934,126
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
5
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
1997 1996 1995
--------- --------- ---------
NET INCOME (LOSS) .............................. $ 112,900 $ 70,073 $ (10,558)
Income items not requiring
(providing) cash:
Depreciation and amortization .............. 110,810 105,857 95,957
Non-cash portion of
acquisition-related costs and
other unusual charges .................. -- -- 66,196
Deferred income tax provision
(benefit) .............................. 11,548 12,103 (20,781)
Gain on sales of assets, net ............... (16,704) (14,058) (12,503)
Other non-cash items, net .................. (3,079) (1,428) 409
Increase (decrease) in operating
cash flow resulting from:
Receivables, net .................... (37,229) (38,587) 16,277
Inventories, net .................... (39,681) (8,384) (12,603)
Payment of deferred loan costs ...... -- (4,820) (892)
Prepayments and other ............... 4,562 (922) (5,799)
Accounts payable and accrued
liabilities .................... 25,800 15,868 (46,307)
Other long-term liabilities ......... (2,194) (7,024) 9,477
--------- --------- ---------
CASH PROVIDED BY OPERATING
ACTIVITIES ................................. 166,733 128,678 78,873
--------- --------- ---------
Purchases of property, plant and equipment ..... (153,412) (148,656) (110,625)
Proceeds from sales of property,
plant and equipment ........................ 30,431 20,215 31,137
Proceeds from sales of businesses .............. 68,798 40,481 9,493
Acquisitions, net of notes issued and
cash acquired .............................. -- (16,278) (139,226)
Other net cash flows from investing activities . (6,384) (15,388) (9,245)
--------- --------- ---------
CASH USED IN INVESTING ACTIVITIES .............. (60,567) (119,626) (218,466)
--------- --------- ---------
Borrowings under credit facilities ............. 13,190 250,783 411,737
Repayment of borrowings ........................ (115,374) (271,565) (283,346)
Net cash flows from currency hedging
transactions ............................... 5,229 1,133 (2,719)
Purchase of treasury stock ..................... (11,860) -- --
Proceeds from stock option exercises,
sales of stock to employee benefit
plans and other ............................ 12,752 11,046 6,268
--------- --------- ---------
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ....................... (96,063) (8,603) 131,940
--------- --------- ---------
Effect of exchange rate changes on cash ........ (784) (220) 4,347
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 9,319 229 (3,306)
Cash and cash equivalents at
beginning of year .......................... 33,029 32,800 36,106
--------- --------- ---------
Cash and cash equivalents at end of year ....... $ 42,348 $ 33,029 $ 32,800
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ................................... $ 19,588 $ 12,826 $ 14,396
Income taxes ............................... 38,016 14,652 17,741
The accompanying notes are an integral part of these
consolidated financial statements.
6
WEATHERFORD ENTERRA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The accompanying consolidated financial statements
include the accounts of Weatherford Enterra, Inc. and its subsidiaries (the
"Company" or "Weatherford") after elimination of all significant intercompany
accounts and transactions. The Company accounts for its 50% or less-owned
affiliates using the equity method. Weatherford is a diversified international
energy service and manufacturing company that provides a variety of services and
equipment to the exploration, production and transmission sectors of the oil and
gas industry.
Accounting 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 and
the disclosure of contingent assets and liabilities at the balance sheet date
and the reported amounts of revenues and expenses during the reporting period.
While actual results could differ from these estimates, management believes that
the estimates are reasonable.
Cash and cash equivalents. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. The reported value of all financial instruments approximates market
value. Prepayments and other current assets at December 31, 1997 and 1996
included cash of approximately $3,436,000 and $1,656,000, respectively, which
was restricted as a result of exchange controls in certain foreign countries or
cash collateral requirements for performance bonds, letters of credit and
customs bonds.
Inventories. Inventories, net of allowances, are valued at the lower of cost
(first-in, first-out or average) or market and are summarized as follows (in
thousands):
1997 1996
-------- --------
Spare parts and components .... $ 56,686 $ 41,068
Raw materials ................. 29,920 28,734
Work in process ............... 19,904 26,902
Finished goods ................ 62,538 66,598
-------- --------
$169,048 $163,302
======== ========
Work in process and finished goods inventories include the costs of materials,
labor and plant overhead.
Property, plant and equipment. Property, plant and equipment is depreciated on a
straight-line basis over the estimated useful lives of the assets. Estimated
useful lives of assets are as follows:
Buildings and improvements............................... 5-45 years
Rental and service equipment............................. 3-15 years
Machinery and other equipment............................ 3-15 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 accounts and any resulting gain or
loss is included in the consolidated statements of income. The Company evaluates
potential impairment of property, plant and equipment and other long-lived
assets on an ongoing basis as necessary whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Goodwill. Goodwill represents the excess of the aggregate price paid by the
Company in acquisitions accounted for as purchases over the fair market value of
the net assets acquired. Goodwill is amortized on a straight-line basis
generally over a period of 40 years. The Company evaluates potential impairment
of goodwill on an ongoing basis as necessary whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Goodwill amortization expense totaled $7,713,000, $7,044,000 and $5,852,000
during 1997, 1996 and 1995, respectively. Accumulated amortization at December
31, 1997 and 1996 was $22,536,000 and $14,199,000, respectively.
Income taxes. The Company applies the liability method of accounting for income
taxes. Accordingly, deferred tax assets and liabilities are determined based on
the estimated future tax effects of differences between the financial statement
and tax bases of assets and liabilities given the provisions of enacted tax
laws.
7
The Company does not provide federal income taxes on the undistributed earnings
of certain of its foreign subsidiaries because it believes these amounts are
permanently invested outside the United States. The cumulative amount of such
undistributed earnings on which federal taxes have not been provided was
$173,502,000 at December 31, 1997. If these foreign earnings were to be
ultimately remitted, certain foreign withholding taxes would be payable and U.S.
federal income taxes payable at that time would be reduced by foreign tax
credits generated by the repatriation.
Environmental expenditures. Environmental expenditures that relate to ongoing
business activities are expensed or capitalized, in accordance with the
Company's capitalization policy. Expenditures that relate to the remediation of
an existing condition caused by past operations, and which do not contribute to
current or future revenues, are expensed. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the costs
can be reasonably estimated. Estimates are based on currently available facts
and technology, presently enacted laws and regulations and the Company's prior
experience in remediation of contaminated sites. Liabilities included $5,203,000
and $10,263,000 of accrued environmental expenditures at December 31, 1997 and
1996, respectively.
Foreign currency translation. The functional currency for most of the Company's
international operations is the applicable local currency. The translation of
the foreign currencies into U.S. dollars is performed for balance sheet accounts
using exchange rates in effect at the balance sheet date and for income
statement accounts using a weighted average exchange rate for the period. The
gains or losses resulting from such translation are included as a separate
component of stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in the consolidated statements of income.
Foreign exchange enters into foreign exchange contracts only as a hedge against
certain existing economic exposures, and not for speculative or trading
purposes. These contracts reduce exposure to currency movements affecting
existing assets and liabilities denominated in foreign currencies, such
exposure resulting primarily from trade receivables and payables and
intercompany loans. The future value of these contracts and the related
currency positions are subject to offsetting market risk resulting from foreign
currency exchange rate volatility. The counterparties to the Company's foreign
exchange contracts are creditworthy multinational commercial banks. Management
believes that the risk of counterparty nonperformance is immaterial. At
December 31, 1997 and 1996, the Company had contracts maturing within the next
60 days to sell $36,802,000 and $50,942,000, respectively, in Norwegian kroner,
U.K. pounds sterling, Canadian dollars and Dutch guilders. Had such respective
contracts matured on December 31, 1997 and 1996, the Company's required cash
outlay would have been minimal.
Revenue recognition. Revenues are generally recognized when services and rentals
are provided and when products and equipment are shipped. Proceeds from
customers for the cost of oilfield rental equipment that is damaged or lost
downhole are reflected as revenues.
Earnings (loss) per common share. In the fourth quarter of 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." Accordingly, the Company's reported per share results for prior
periods have been restated. Basic earnings (loss) per common share is computed
by dividing net income (loss) by the weighted average number of shares of Common
Stock outstanding during the period. Diluted earnings per common share for 1997
and 1996 also assume the exercise of employee stock options under the treasury
stock method. Stock options are not included in the 1995 computation because to
do so would have been anti-dilutive.
A reconciliation of the numerators and denominators of the basic and diluted
earnings per common share computations follows (in thousands except per share
amounts):
Per Share
Net Income Shares Amount
---------- ------ ----------
1997:
Basic earnings per common
share .......................... $ 112,900 52,430 $ 2.15
=========
Employee stock options ......... -- 407
--------- ------
Diluted earnings per common
share .......................... $ 112,900 52,837 $ 2.14
========= ====== =========
1996:
Basic earnings per common
share .......................... $ 70,073 51,722 $ 1.35
=========
Employee stock options ......... -- 375
--------- ------
Diluted earnings per common
share .......................... $ 70,073 52,097 $ 1.35
========= ====== =========
1995:
Basic and diluted loss per
common share ................... $ (10,558) 50,681 $ (0.21)
========= ====== =========
8
Concentration of credit risk. The Company grants credit to its customers, which
are primarily in the oil and gas industry. Credit risk with respect to trade
accounts receivable is generally diversified due to the large number of entities
comprising the Company's customer base and their dispersion across many
different countries. The Company performs periodic credit evaluations of its
customers and generally does not require collateral. The Company monitors its
exposure for credit losses and maintains an allowance for anticipated losses
(see Note 10).
Stock-based compensation. SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has elected to continue to account for stock-based compensation using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's Common Stock at the date of grant over the option exercise
price (see Note 5).
New accounting pronouncements. In June 1997, the Financial Accounting Standards
Board (the "FASB") issued SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and financial statement display of
comprehensive income. SFAS No. 130 is effective January 1, 1998. Had SFAS No.
130 been adopted in 1997, the year-to-date change in cumulative translation
adjustment would have been added to net income to calculate comprehensive
income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which requires segment information to be
reported on a basis consistent with that used internally for evaluating resource
allocation and segment performance. The Company will adopt SFAS No. 131 in 1998
and is currently evaluating its method of reporting segment information.
In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits", which standardizes disclosure requirements
for pensions and other postretirement benefits. The Company is required to adopt
SFAS No. 132 in 1998. Had the Company adopted SFAS No. 132 at December 31, 1997,
it would have had no impact on the consolidated financial statements.
Reclassifications. Certain reclassifications were made to previously reported
amounts in the consolidated financial statements and notes to make them
consistent with the current presentation.
(2) ACQUISITIONS, MERGERS AND DIVESTITURES
Results of operations for business combinations accounted for as purchases are
included in the accompanying consolidated financial statements since the date of
acquisition. With respect to business combinations accounted for as poolings of
interests, the consolidated financial statements have been restated for all
periods presented as if the companies had been combined since inception.
Nodeco. On May 23, 1996, the Company acquired the business and assets of Nodeco
AS, a Norwegian company, and its wholly-owned subsidiary, Aarbakke AS
(collectively, "Nodeco"), in a transaction accounted for as a purchase. Nodeco
designs, manufactures, sells and rents oil and gas well completion products
primarily consisting of liner hanger equipment and related services, as well as
pump packers. The Company paid cash of $14,393,000 net of cash acquired, issued
750,000 shares of its Common Stock and assumed all liabilities of Nodeco,
totaling $12,109,000.
Energy Industries. On December 15, 1995, the Company acquired substantially all
of the assets of the natural gas compression business of Energy Industries, Inc.
and Zapata Energy Industries, L.P. (collectively, "Energy Industries") in a
transaction accounted for as a purchase. Energy Industries was engaged in the
business of fabricating, selling, installing, renting and servicing natural gas
compressor units used in the oil and gas industry. The Company paid
approximately $130,000,000 in cash and assumed certain liabilities totaling
approximately $12,485,000.
Enterra. On October 5, 1995, the Company completed a merger with Enterra
Corporation ("Enterra"), a worldwide provider of specialized services and
products to the oil and gas industry through its oilfield, pipeline and gas
compression services businesses. The Company issued approximately 23,668,000
shares of Common Stock in exchange for all the outstanding shares of Enterra
common stock. The merger was accounted for as a pooling of interests. In
connection with the Enterra merger, the Company recorded acquisition-related
costs totaling $59,900,000 (see Note 8).
Other acquisitions. During 1996 and 1995, the Company acquired several
businesses in addition to those mentioned above in transactions accounted for as
purchases. The impact of these acquisitions on reported results of operations,
on a pro forma basis, was not material to the Company's consolidated results of
operations.
9
Divestitures. During 1997, 1996 and 1995, the Company sold certain non-core
businesses which did not fit into the long-term strategy of the Company. Such
businesses included CRC-Evans Pipeline International, Inc., Arrow Completion
Systems, Inc., Total Engineering Services Team, Inc. and several others (see
Note 9). Cash proceeds from these transactions totaled $68,798,000, $40,481,000
and $9,493,000 in 1997, 1996 and 1995, respectively, and were primarily used to
repay bank debt.
(3) DEBT
Debt consisted of the following (in thousands):
1997 1996
-------- --------
7 1/4% Notes ......................... $200,000 $200,000
Bank term loan ....................... -- 95,950
Foreign bank debt, denominated in
foreign currencies ............... 8,152 11,231
Other indebtedness ................... 3,795 8,593
-------- --------
211,947 315,774
Less -- Amounts due within one
year ............................. 2,823 24,508
-------- --------
$209,124 $291,266
======== ========
The Company has outstanding $200,000,000 of 7 1/4% notes due May 15, 2006 (the
"7 1/4% Notes"). Interest on the 7 1/4% Notes is payable semi-annually on May 15
and November 15 of each year.
On October 24, 1997, the Company amended its primary bank credit facility,
extending its $200,000,000 revolving credit facility (the "Revolving Credit
Facility") through October 24, 2002, reducing interest rates and fees and
improving other terms and conditions. The balance outstanding under the bank
term loan was repaid earlier in 1997. Amounts outstanding under the Revolving
Credit Facility accrue interest at a variable rate, ranging from 0.25% to 0.625%
above a specified Eurodollar rate, depending on the credit ratings assigned to
the 7 1/4% Notes. A commitment fee ranging from 0.09% to 0.20% per annum,
depending on the credit ratings assigned to the 7 1/4% Notes, is payable
quarterly on the unused portion of the Revolving Credit Facility. The Company is
required under the Revolving Credit Facility to maintain certain financial
ratios, including a maximum debt-to-capitalization ratio of 50%.
Maturities of the Company's debt at December 31, 1997 were as follows (in
thousands):
1998.......................................................... $2,823
1999.......................................................... 6,525
2000.......................................................... 579
2001.......................................................... 647
2002.......................................................... 682
Thereafter.................................................... 200,691
--------
$211,947
========
At December 31, 1997, the Company had $200,000,000 available to borrow under the
Revolving Credit Facility. The Company also has various credit facilities
available only for stand-by letters of credit and bid and performance bonds,
pursuant to which funds are available to the Company to secure performance
obligations and certain retrospective premium adjustments under insurance
policies. The Company had a total of $13,019,000 of letters of credit and bid
and performance bonds outstanding at December 31, 1997.
(4) INCOME TAXES
The components of income (loss) before income taxes were as follows (in
thousands):
1997 1996 1995
--------- --------- ---------
Foreign .......... $ 60,722 $ 52,529 $ 23,853
United States .... 114,851 52,318 (38,807)
--------- --------- ---------
$ 175,573 $ 104,847 $ (14,954)
========= ========= =========
10
The income tax provision (benefit) was comprised of the following (in
thousands):
1997 1996 1995
-------- -------- --------
Current:
Foreign .......................... $ 26,812 $ 18,729 $ 15,439
U.S. federal and state income
taxes ......................... 24,313 3,942 946
-------- -------- --------
Total current ............ 51,125 22,671 16,385
-------- -------- --------
Deferred:
Foreign .......................... 2,562 478 3,038
U.S. federal ..................... 8,986 11,625 (23,819)
-------- -------- --------
Total deferred ........... 11,548 12,103 (20,781)
-------- -------- --------
$ 62,673 $ 34,774 $ (4,396)
======== ======== ========
The consolidated provision (benefit) for income taxes differs from the provision
(benefit) computed at the statutory U.S. federal income tax rate of 35% for the
following reasons (in thousands):
1997 1996 1995
-------- -------- --------
Tax provision (benefit) at U.S. ..........
statutory rate ....................... $ 61,451 $ 36,696 $ (5,234)
Foreign income, taxed at more than
U.S. statutory rate .................. 8,120 715 7,687
Intercompany dividends ................... 1,001 -- 557
Benefit of U.S. NOL carryforwards and
other credits ........................ (7,719) (9,550) (15,299)
Nondeductible goodwill ................... 3,051 1,601 1,601
Nondeductible expenses related to
acquisitions ......................... -- -- 3,307
U.S. alternative minimum taxes and
state income taxes ................... 868 3,942 946
Other .................................... (4,099) 1,370 2,039
-------- -------- --------
$ 62,673 $ 34,774 $ (4,396)
======== ======== ========
On the accompanying consolidated balance sheets, current deferred tax assets and
liabilities are netted within each tax jurisdiction. The components of the net
deferred tax assets (liabilities) shown on the consolidated balance sheets are
as follows (in thousands):
1997 1996
-------- --------
Current deferred tax assets .......... $ 11,470 $ 22,450
Valuation allowance, current ......... (204) (2,360)
Non-current deferred tax assets ...... 15,063 26,806
Valuation allowance, non-current ..... (2,300) (7,864)
-------- --------
Total deferred tax assets .... 24,029 39,032
-------- --------
Current deferred tax liabilities ..... (1,043) (2,867)
Non-current deferred tax
liabilities ...................... (27,401) (34,728)
-------- --------
Total deferred tax
liabilities ............... (28,444) (37,595)
-------- --------
Net deferred tax assets
(liabilities) .................... $ (4,415) $ 1,437
======== ========
11
The change in the valuation allowance in 1997 and 1996 primarily relates to
utilization of U.S. net operating loss ("NOL") and tax credit carryforwards and
management's assessment that future taxable income will be sufficient to enable
the Company to utilize remaining NOL and tax credit carryforwards. The tax
effects of significant temporary differences giving rise to deferred tax assets
(liabilities) are as follows (in thousands):
1997 1996
-------- --------
NOL and tax credit carryforwards ............... $ 12,347 $ 24,990
Depreciation and amortization .................. (24,896) (18,939)
Financial reserves and accruals not
yet deductible ............................. 9,127 19,426
Other differences between financial
and tax bases of assets and liabilities .... 1,511 (13,816)
Valuation allowances ........................... (2,504) (10,224)
-------- --------
$ (4,415) $ 1,437
======== ========
The Company has U.S. NOL carryforwards available to reduce future U.S. taxable
income of $6,973,000 expiring between 1999 and 2009, of which $2,558,000 is
limited pursuant to Section 382 of the U.S. Internal Revenue Code.
(5) COMMON STOCK AND STOCK-BASED COMPENSATION PLANS
Common Stock. In December 1997, the Board of Directors instituted a stock
repurchase program under which the Company is authorized to purchase up to
$100,000,000 of Common Stock from time to time in open market transactions or in
privately negotiated transactions. Pursuant to this program, the Company
purchased 289,200 shares of Common Stock in December 1997 at an average cost of
$41.01 per share. During the two-month period ended February 28, 1998, the
Company purchased 1,040,300 shares of Common Stock at an average cost of $35.98
per share.
Stock option plans. The Company has a number of stock option plans pursuant to
which officers and other key employees may be granted options to purchase shares
of Common Stock at fair market value. Options generally become exercisable in
three annual installments, commencing one year after the date of grant.
Unexercised options expire ten years after the date of grant. In addition, the
Company has a Non-Employee Director Stock Option Plan (the "Director Option
Plan") pursuant to which each non-employee director receives upon initial
election as a director an option to purchase 2,500 shares and, at each annual
meeting thereafter, an additional option to purchase 2,000 shares of Common
Stock, in each case at fair market value. Options granted under the Director
Option Plan become exercisable six months after the date of grant, and
unexercised options expire ten years after the date of grant. Enterra had a
similar plan, pursuant to which directors of Enterra received immediately
exercisable options to purchase shares of Enterra common stock at fair market
value. All outstanding options under the Enterra director plan were exercised
prior to the Enterra merger.
The following table summarizes activity related to stock option plans of the
Company:
Number of Shares
--------------------------
Non-Employee Weighted Average
Employees Directors Exercise Price
--------- ------------ ----------------
Outstanding, December 31, 1994 ........... 978,935 59,150 $16.06
Granted .................................. 953,985 58,075 20.89
Exercised ................................ (220,284) (88,725) 16.02
Terminated ............................... (424,404) -- 17.03
--------- ---------
Outstanding, December 31, 1995 ........... 1,288,232 28,500 18.72
Granted .................................. 325,650 3,000 31.59
Exercised ................................ (238,665) (11,500) 19.09
Terminated ............................... (376,977) -- 21.93
--------- ---------
Outstanding, December 31, 1996 ........... 998,240 20,000 21.79
Granted .................................. 446,250 16,500 30.74
Exercised ................................ (375,697) (3,000) 19.52
Terminated ............................... (50,429) -- 26.02
--------- ---------
Outstanding, December 31, 1997 ........... 1,018,364 33,500 $26.41
========= =========
Shares available for future issuance,
December 31, 1997 ..................... 1,702,782 45,500
========= =========
Exercisable, December 31, 1995 ........... 432,494 21,000 $15.49
Exercisable, December 31, 1996 ........... 398,569 20,000 15.92
Exercisable, December 31, 1997 ........... 322,822 33,500 20.40
12
The following table summarizes information about stock options outstanding at
December 31, 1997:
Options Outstanding Options Exercisable
------------------- -------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- --------- -------- ----------- --------
$6.75 to $15.75 110,185 4.4 years $13.14 108,767 $13.16
17.50 to 19.75 190,924 6.8 years 18.97 148,461 19.10
21.30 to 30.63 353,893 8.0 years 28.99 20,266 23.04
30.75 to 31.56 396,862 8.6 years 31.37 78,828 32.15
--------- -------
$6.75 to $31.56 1,051,864 7.6 years $26.41 356,322 $20.40
========= =======
The weighted average fair values of options granted during 1997, 1996 and 1995
were $12.96, $14.46 and $8.53 per share, respectively. The fair values were
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997, 1996 and 1995, respectively: expected
volatility of 42%, 50% and 52% (38% for options issued by Enterra prior to the
merger), risk free interest rates of 6.07%, 5.13% and 6.85% (7% for options
issued by Enterra prior to the merger), expected lives of four years and zero
dividend yield. If the fair value-based method of accounting under SFAS No. 123
had been applied, the Company's pro forma net income (loss) and diluted earnings
(loss) per share would have been, respectively, $110,765,000 and $2.10 in 1997,
$68,412,000 and $1.31 in 1996 and $(11,926,000) and $(0.23) in 1995. As the
disclosure requirements of SFAS No. 123 are not applicable to options granted
prior to 1995, the pro forma effects for 1997, 1996 and 1995 are not indicative
of the pro forma effects in future years.
In addition to the options in the above table, the Company granted options to
purchase 84,500, 45,337 and 34,200 shares of Common Stock in 1995, 1994 and
1991, respectively, to former directors and former employees of acquired
companies and to a former officer of the Company. These options were granted
pursuant to separate agreements and are not covered by an option plan. Exercises
of such options totaled 22,816, 16,483 and 40,334 shares in 1997, 1996 and 1995,
respectively, and 67,600 of such options were outstanding and exercisable at
December 31, 1997 at a weighted average exercise price of $25.75 per share.
Stock appreciation rights plan. The Company has a stock appreciation rights plan
(the "SAR Plan") pursuant to which certain officers and other key employees were
granted stock appreciation units ("SARs"). The SAR Plan was amended in 1992 to
provide that no additional grants would be made. SARs were awarded in connection
with stock options granted under one of the Company's stock option plans and can
be exercised only if the related stock option is exercised. Compensation expense
is recorded based on the increase in the market price of the Company's Common
Stock since the date of grant. At December 31, 1997, there were 15,543 SARs
outstanding, all of which were vested, at an average price of $10.41 per SAR.
During 1997, 1996 and 1995, the Company recognized compensation expense of
$700,000, $225,000 and $121,000, respectively, in connection with SARs.
Stock bonus plan. The Company has a stock bonus, pursuant to which officers and
certain other key employees of the Company may be granted shares of Common
Stock. The market value of shares granted under the Bonus Plan is recorded as
compensation expense on the date of grant. With respect to the Bonus Plan, the
Company granted 2,485 and 21,391 shares in 1997 and 1996, respectively, and
recognized compensation expense of $110,000 and $675,000 during 1997 and 1996,
respectively. The Company granted no shares under the Bonus Plan in 1995. There
were 1,303 shares available for future grants under the Bonus Plan at December
31, 1997.
Restricted stock plans. The Company has a restricted stock plan for certain
officers of the Company (the "Restricted Plan") and a restricted stock plan for
non-employee directors (the "Director Restricted Plan"; collectively, the
"Restricted Stock Plans"), pursuant to which shares of Common Stock may be
granted. Shares granted under the Restricted Stock Plans are subject to certain
restrictions on ownership and transferability when granted. Restrictions
applicable to shares granted under the Restricted Plan lapse in part based on
continued employment and in part based on Company performance. Restrictions
applicable to shares granted under the Director Restricted Plan lapse in three
equal annual installments, commencing one year after the date of grant. The
compensation related to the restricted stock grants is deferred and amortized to
expense on a straight-line basis over the period of time the restrictions are in
place, and the unamortized portion is classified as a reduction of paid-in
capital in the accompanying consolidated balance sheets. The following table
provides a summary of activity related to the Restricted Stock Plans:
13
Number of Shares
---------------------------
Non-Employee
Employees Directors
----------- ------------
Outstanding, December 31, 1994 ........... 53,832 --
Granted (market price: $18.50 per
share) ............................... 29,500 --
Restrictions terminated .................. (47,193) --
----------- -----------
Outstanding, December 31, 1995 ........... 36,139 --
Granted (market price: $31.56 per
share) ............................... 31,000 --
Restrictions terminated .................. (37,735) --
----------- -----------
Outstanding, December 31, 1996 ........... 29,404 --
Granted (average market price: $32.08
per share) ........................... 91,041 10,838
Restrictions terminated .................. (27,030) --
----------- -----------
Outstanding, December 31, 1997 ........... 93,415 10,838
=========== ===========
Shares available for future grants at
December 31, 1997 .................... 38,396 239,162
=========== ===========
Compensation expense:
1997 ............................ $ 1,146,000 $ 120,000
1996 ............................ 418,000 --
1995 ............................ 392,000 --
Deferred compensation at December 31:
1997 ............................ $ 3,095,000 $ 352,000
1996 ............................ 1,445,000 --
Stock purchase plan. The Company has an employee stock purchase plan (the
"ESPP"), pursuant to which eligible employees can purchase shares of Common
Stock through payroll deductions. The Company matches a specified percentage of
the employee contributions made to the ESPP. Company matching contributions to
the ESPP totaled $162,000, $88,000 and $48,000 during 1997, 1996 and 1995,
respectively. There were 51,015 shares available for future purchases under the
ESPP at December 31, 1997.
(6) RETIREMENT AND EMPLOYEE BENEFIT PLANS
The Company has defined benefit and defined contribution pension plans covering
substantially all U.S. employees and certain international employees. Plan
benefits are generally based on years of service and average compensation
levels. The Company's funding policy is to contribute, at a minimum, the annual
amount required under applicable governmental regulations. With respect to
certain international plans, the Company has purchased irrevocable annuity
contracts to settle certain benefit obligations. Plan assets are invested
primarily in equity and fixed income mutual funds.
Pension expense related to the Company's defined contribution pension plans
totaled $2,806,000, $3,200,000 and $4,489,000 in 1997, 1996 and 1995,
respectively. Pension expense related to the Company's defined benefit pension
plans included the following components (in thousands):
1997 1996 1995
------- ------- -------
Service cost -- benefits earned
during the period .................... $ 961 $ 1,248 $ 692
Interest cost on projected benefit
obligation ........................... 386 427 365
Actual return on plan assets ........... (391) (466) (354)
Net amortization and deferral .......... 48 213 115
------- ------- -------
$ 1,004 $ 1,422 $ 818
======= ======= =======
14
The following table sets forth the funded status of the Company's defined
benefit pension plans and the assumptions used in computing such information (in
thousands, except percentages):
U.S. Plans Non-U.S. Plans
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
Actuarial present value of benefit obligations:
Vested benefit obligation .......................... $ 1,356 $ 1,257 $ 3,053 $ 2,933
======= ======= ======= =======
Accumulated benefit obligation ..................... $ 1,599 $ 1,902 $ 3,531 $ 3,388
======= ======= ======= =======
Projected benefit obligation ....................... $ 1,599 $ 2,026 $ 4,261 $ 4,192
Plan assets at fair value .......................... 1,487 1,383 2,553 2,194
------- ------- ------- -------
Projected benefit obligation in
excess of plan assets ........................... (112) (643) (1,708) (1,998)
Unrecognized prior service cost .................... (620) (637) 124 158
Unrecognized net (gain) loss ....................... 457 592 (758) (775)
Unrecognized transition obligation ................. -- -- 81 125
------- ------- ------- -------
Unfunded accrued pension cost ...................... (275) (688) (2,261) (2,490)
Adjustment for minimum liability ................... -- (9) -- --
------- ------- ------- -------
Pension liability .................................. $ (275) $ (697) $(2,261) $(2,490)
======= ======= ======= =======
Assumed discount rates ............................. 7.25% 7.25% 6.0-8.0% 6.5-8.0%
Assumed rates of increase in
compensation levels ............................. 4.0% 4.0% 3.7-5.0% 3.7-5.0%
Assumed expected long-term rate of return
on plan assets .................................. 8.0% 8.0% 8.0% 8.0%
(7) COMMITMENTS AND CONTINGENCIES
Aggregate minimum rental commitments under noncancelable operating leases with
lease terms in excess of one year as of December 31, 1997 were as follows (in
thousands):
1998..................................................... $10,535
1999..................................................... 11,449
2000..................................................... 6,596
2001..................................................... 5,235
2002 4,709
Thereafter............................................... 32,311
-------
$70,835
=======
The Company incurred total rental expense under operating leases of $20,902,000,
$21,197,000 and $18,499,000 in 1997, 1996 and 1995, respectively.
The Company is involved in certain claims and lawsuits arising in the normal
course of business. In the opinion of management, the likelihood that uninsured
losses, if any, resulting from the ultimate resolution of these matters will
have a material adverse effect on the financial position, results of operations
or liquidity of the Company is remote.
(8) Acquisition-related costs and other unusual charges
During the second quarter of 1995, management of Enterra made certain strategic
decisions which resulted in $28,282,000 of unusual charges. Such charges
included a $10,041,000 writedown to fair value, based on management's estimation
of net sales price, related to three businesses to be sold. The remaining second
quarter unusual charges of $18,241,000 consisted primarily of asset writedowns
related to certain excess facilities, equipment and inventories, as well as
estimated costs in connection with the closure of certain pipeline businesses
and the consolidation of certain oilfield service administrative and operating
facilities. This restructuring resulted in reductions of approximately 120
employees.
During the fourth quarter of 1995, the Company recorded expenses of $59,900,000
related to the merger with Enterra and the financial impact of management
decisions related to the future operations of the combined company. The
acquisition-related costs primarily consisted of transaction costs, severance
and termination agreements with former officers and employees, facility closure
costs primarily
15
to consolidate the oilfield service operations and administrative functions
(reducing approximately 600 employees), and the reduction in recorded value of
certain assets that had diminished future value in the operations of the
combined company.
A summary of the 1995 acquisition-related costs and other unusual charges
follows (in thousands):
Enterra merger transaction-related
costs.................................................. $18,800
Severance and termination costs.......................... 12,488
Facility closure and consolidation
costs.................................................. 20,943
Writedowns of assets to be sold.......................... 12,281
Other asset writedowns................................... 21,972
Other.................................................... 1,698
-------
$88,182
=======
(9) SEGMENT INFORMATION
The Company is a diversified international energy service and manufacturing
company that provides a variety of services and equipment to the exploration,
production and transmission sectors of the oil and gas industry. The Company
operates in three industry segments -- oilfield services, oilfield products and
gas compression. During 1996 and 1995, management of the Company made strategic
decisions to dispose of certain non-core businesses, which are presented
separately and described as "Other Businesses" (see Note 2).
Revenues by industry segment and geographic area include both revenues from
unaffiliated customers and intersegment revenues from related companies. The
price at which intercompany sales are made is generally based on the selling
price to unaffiliated customers less a discount or the direct product cost plus
a mark-up. Indirect expenses have been allocated to industry segments in
proportion to outside revenues.
Export sales from the United States to unaffiliated customers in other
geographic areas were as follows (in thousands):
1997 1996 1995
------- ------- -------
Europe/Commonwealth of Independent
States ................................ $15,839 $27,523 $10,904
Canada ................................ 10,754 11,334 14,729
Africa ................................ 9,162 26,079 17,792
Middle East ........................... 10,106 7,494 3,843
Asia-Pacific .......................... 9,535 12,364 11,242
Latin America ......................... 9,293 7,247 5,552
Other ................................. 11 2,714 1,403
------- ------- -------
$64,700 $94,755 $65,465
======= ======= =======
16
Information with respect to industry and geographic segments follows (in
thousands):
Corporate
Oilfield Oilfield Gas Other and
Services Products Compression Businesses Eliminations Consolidated
-------- -------- ----------- ---------- ------------ ------------
1997:
Outside revenues .................. $ 645,906 $ 182,311 $ 178,896 $ 76,852 $ -- $1,083,965
Intersegment revenues ............. -- 27,895 -- -- (27,895) --
Operating income (loss) ........... 152,668 39,129 13,723 440 (12,878) 193,082
Identifiable assets ............... 664,655 203,342 441,758 -- 68,240 1,377,995
Depreciation and amortization ..... 75,582 8,265 21,666 1,541 3,756 110,810
Capital expenditures .............. 104,518 10,603 35,705 940 1,646 153,412
1996:
Outside revenues .................. $ 520,195 $ 149,713 $ 154,503 $ 170,057 $ -- $ 994,468
Intersegment revenues ............. -- 31,020 -- -- (31,020) --
Operating income (loss) ........... 93,644 23,388 7,833 8,849 (7,958) 125,756
Identifiable assets ............... 646,915 187,002 414,969 97,646 51,191 1,397,723
Depreciation and amortization ..... 70,552 6,264 23,554 4,787 700 105,857
Capital expenditures .............. 99,570 10,569 30,392 8,125 -- 148,656
1995:
Outside revenues .................. $ 470,085 $ 115,399 $ 94,386 $ 179,037 $ -- $ 858,907
Intersegment revenues ............. -- 20,537 -- 49 (20,586) --
Acquisition-related costs and other
unusual charges ............... 31,715 15,745 -- 11,711 29,011 88,182
Operating income (loss) ........... 41,849 (13,253) 7,788 2,010 (38,212) 182
Identifiable assets ............... 556,125 120,777 396,465 121,177 64,316 1,258,860
Depreciation and amortization ..... 65,217 5,519 14,421 9,070 1,730 95,957
Capital expenditures .............. 83,849 2,731 16,246 7,657 142 110,625
17
United Other and
States Canada Europe Africa International Eliminations
------ ------ ------ ------ ------------- ------------
1997:
Outside revenues ................ $601,522 $104,983 $147,809 $ 70,037 $159,614 $ --
Intersegment revenues ........... 26,827 -- 19,917 5,601 1,901 (54,246)
Operating income (loss) ......... 132,958 17,346 32,424 14,658 8,574 (12,878)
Identifiable assets ............. 762,592 82,120 187,202 63,677 214,164 68,240
Capital expenditures ............ 84,829 12,381 17,286 10,919 26,351 1,646
1996:
Outside revenues ................ $579,024 $ 78,497 $145,126 $ 72,457 $119,364 $ --
Intersegment revenues ........... 27,966 566 9,848 5,452 1,860 (45,692)
Operating income (loss) ......... 72,042 12,557 19,470 15,028 14,617 (7,958)
Identifiable assets ............. 828,930 69,391 201,137 67,856 179,218 51,191
Capital expenditures ............ 85,729 12,105 15,955 9,437 25,430 --
1995:
Outside revenues ................ $471,672 $106,491 $110,065 $ 57,450 $113,229 $ --
Intersegment revenues ........... 10,091 167 6,049 -- 1,638 (17,945)
Acquisition-related costs
and other unusual charges .... 43,276 2,850 4,302 624 8,119 29,011
Operating income (loss) ......... 5,745 11,382 3,088 13,912 4,267 (38,212)
Identifiable assets ............. 790,625 73,368 141,673 40,299 148,579 64,316
Capital expenditures ............ 59,474 9,953 9,605 5,655 25,796 142
18
Consolidated
------------
1997:
Outside revenues ................. $1,083,965
Intersegment revenues ............ --
Operating income (loss) .......... 193,082
Identifiable assets .............. 1,377,995
Capital expenditures ............. 153,412
1996:
Outside revenues ................. $ 994,468
Intersegment revenues ............ --
Operating income (loss) .......... 125,756
Identifiable assets .............. 1,397,723
Capital expenditures ............. 148,656
1995:
Outside revenues ................. $ 858,907
Intersegment revenues ............ --
Acquisition-related costs
and other unusual charges .... 88,182
Operating income (loss) .......... 182
Identifiable assets .............. 1,258,860
Capital expenditures ............. 110,625
(10) VALUATION ALLOWANCES
Activity in the Company's allowance for doubtful accounts, deducted from
receivables in the consolidated balance sheets, was as follows (in thousands):
1997 1996 1995
-------- -------- --------
Balance at beginning of year ................ $ 16,241 $ 15,942 $ 11,240
Additions charged to costs and
expenses ................................ 12,858 4,122 6,499
Deductions for uncollectible receivables
written off ............................. (6,441) (4,842) (1,878)
Translation and other, net .................. (191) 1,019 81
-------- -------- --------
Balance at end of year ...................... $ 22,467 $ 16,241 $ 15,942
======== ======== ========
Activity in the Company's allowance for obsolete or slow-moving inventories,
deducted from inventories in the consolidated balance sheets, was as follows (in
thousands):
1997 1996 1995
-------- -------- --------
Balance at beginning of year .......... $ 21,261 $ 23,760 $ 16,470
Additions charged to costs and
expenses .......................... 2,987 897 10,683
Deductions for inventories written
off ............................... (7,041) (3,632) (3,520)
Translation and other, net ............ (536) 236 127
-------- -------- --------
Balance at end of year ................ $ 16,671 $ 21,261 $ 23,760
======== ======== ========
19
(11) Unaudited quarterly financial data (in thousands except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1997:
Revenues ...................... $ 267,113 $ 266,835 $ 274,382 $ 275,635 $1,083,965
Gross profit .................. 85,542 87,821 91,094 92,968 357,425
Operating income .............. 40,882 46,020 50,954 55,226 193,082
Income before income taxes .... 35,449 41,185 46,929 52,010 175,573
Net income .................... 22,952 26,795 30,434 32,719 112,900
Basic earnings per share ...... $ 0.44 $ 0.51 $ 0.57 $ 0.63 $ 2.15
Diluted earnings per share .... 0.44 0.51 0.57 0.62 2.14
1996:
Revenues ...................... $ 218,841 $ 233,782 $ 259,070 $ 282,775 $ 994,468
Gross profit .................. 60,319 62,727 76,545 80,531 280,122
Operating income .............. 23,784 26,936 35,864 39,172 125,756
Income before income taxes .... 19,281 21,892 30,153 33,521 104,847
Net income .................... 13,477 14,898 19,828 21,870 70,073
Basic earnings per share ...... $ 0.26 $ 0.29 $ 0.38 $ 0.42 $ 1.35
Diluted earnings per share .... 0.26 0.29 0.38 0.42 1.35
(12) SUBSEQUENT EVENT (UNAUDITED)
On March 4, 1998, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") providing for the merger of the Company into EVI, Inc.
("EVI"). Pursuant to the terms of the Merger Agreement, Weatherford stockholders
will receive 0.95 of a share of EVI common stock for each share of Weatherford
Common Stock. The transaction, which is expected to be accounted for as a
pooling of interests and to result in no immediate federal income tax
recognition for the Company's stockholders, is subject to the approval of the
stockholders of each of EVI and Weatherford as well as customary regulatory
approvals and other conditions to closing. The transaction is currently expected
to close in late spring or early summer of 1998. There can be no assurance that
this merger will be consummated.