-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OsJ+SnUw1J9OX5JQIkprCjXGBp+DSw2wp3FglQmvRjyUF/wq13Z1CpE0Q+YMhXG/ FHZB5oe/wtgnHx06TyvvGQ== 0000950129-97-003669.txt : 19970912 0000950129-97-003669.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950129-97-003669 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970625 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19970908 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEY ENERGY GROUP INC CENTRAL INDEX KEY: 0000318996 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 042648081 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22665 FILM NUMBER: 97676960 BUSINESS ADDRESS: STREET 1: TWO TOWER CTR TENTH FLOOR CITY: NEW BRUNSWICK STATE: NJ ZIP: 08816 BUSINESS PHONE: 9155705721 MAIL ADDRESS: STREET 1: P O BOX 10627 CITY: MIDLAND STATE: TX ZIP: 79702 FORMER COMPANY: FORMER CONFORMED NAME: YANKEE COMPANIES INC DATE OF NAME CHANGE: 19891012 FORMER COMPANY: FORMER CONFORMED NAME: YANKEE OIL & GAS INC DATE OF NAME CHANGE: 19841122 8-K/A 1 KEY ENERGY GROUP, INC. (AMENDMENT #1) 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: (Date of earliest event reported): June 25, 1997 KEY ENERGY GROUP, INC. (Exact name of registrant as specified in its charter) Maryland 1-8038 04-2648081 (State of Incorporation) (Commission File Number) (IRS Employer Identification No.) Two Tower Center, Tenth Floor East Brunswick, New Jersey 08816 (Address of Principal Executive Offices) 908/247-4822 (Registrant's telephone number, including area code) (Not Applicable) (Former name or former address, if changed since last report) 2 Item 2. Acquisition or Disposition of Assets. On June 25, 1997, Yale E. Key, Inc., a wholly owned subsidiary of the Key Energy Group, Inc. (the "Company"), acquired all of the issued and outstanding capital stock of Well-Co Oil Service, Inc., a closely held Nevada corporation. The assets owned by Well-Co Oil Service, Inc. consist of equipment and vehicles utilized in working-over and servicing oil and gas wells in West Texas and Eastern New Mexico. The consideration given by the Company for the issued and outstanding capital stock of Well-Co Oil Service, Inc. consists of cash in the amount of $17,575,816.46 and 240,000 shares of Company's common stock which had a trading value as of June 25, 1997 of $16.875 per share. The amount of such consideration was determined by negotiations between the Company and the owners of all of the issued and outstanding capital stock of Well-Co Oil Service, Inc. No material relationship exists between the sellers and the Company or any of its affiliates, any director or officer of the Company or any associate of any such officer or director. The Company intends for the assets of Well-Co Oil Service, Inc. to continue to be used in working-over and servicing oil and gas wells. Item 7. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired. The following financial statements of the Registrant are filed herewith: Report of Independent Accountants dated August 8, 1997 Balance Sheet dated June 25, 1997 Statement of Income for period from July 1, 1996 through June 25, 1997 Statement of Cash Flows for period from July 1, 1996 through June 25, 1997 Statement of Stockholder's Equity for period from July 1, 1996 through June 25, 1997 Notes to Financial Statements (b) Pro Forma Financial Information. The following pro forma financial statements are filed herewith: Key Energy Group, Inc. and Subsidiaries Unaudited Pro Forma Combined Financial Statements Key Energy Group, Inc. and Subsidiaries Unaudited Pro Forma Combined Balance Sheet as of March 31, 1997 Key Energy Group, Inc. and Subsidiaries Unaudited Pro Forma Combined Statement of Operations for Twelve Months Ended June 30, 1996 Key Energy Group, Inc. and Subsidiaries Unaudited Pro Forma Combined Statement of Operations for Nine Months Ended March 31, 1997 Notes to Unaudited Combined Financial Statements dated June 30, 1996 and March 31, 1997 (c) Exhibits. The following exhibits, from which schedules have been omitted and will be furnished to the Commission upon its request, are filed with this report on Form 8-K. 2 3 2.1 Stock Purchase Agreement Among Key Energy Group, Inc. and Mark Duane Massingill and Claudia Lynn Massingill, dated as of June 25, 1997.* 23.1 Consent of Robinson Burditt Martin & Cohen * previously filed. 3 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: July 9, 1997 KEY ENERGY GROUP, INC. By: /s/ FRANCIS D. JOHN -------------------------------- Francis D. John, President 4 5 WELL-CO OIL SERVICE, INC. FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT ACCOUNTANTS FOR THE PERIOD FROM JULY 1, 1996 THROUGH JUNE 25, 1997 | Robinson | Burdette | Martin | &Cowan,L.L.P. certified public accountants 6 WELL-CO OIL SERVICE, INC. FINANCIAL STATEMENTS June 25, 1997 TABLE OF CONTENTS Page ---- Report of Independent Accountants 1 Financial Statements: Balance Sheet 2 Statement of Income 3 Statement of Cash Flow 4 Statement of Stockholder's Equity 5 Notes to Financial Statements 6 7 | Robinson | certified public accountants | Burdette | | Martin | | &Cowan,L.L.P. | REPORT OF INDEPENDENT ACCOUNTANTS Stockholder Well-Co Oil Service, Inc. We have audited the accompanying balance sheet of Well-Co Oil Service, Inc. as of June 25, 1997, and the related statements of income, stockholder's equity and cash flows for the period from July 1, 1996 through June 25, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Well-Co Oil Service, Inc. as of June 25, 1997, and the results of its operations and its cash flows for the period from July 1, 1996 through June 25, 1997 in conformity with generally accepted accounting principles. Robinson Burdette Martin & Cowan, L. L. P. Lubbock, Texas August 8, 1997 -1- 8 WELL-CO OIL SERVICE, INC. BALANCE SHEET June 25, 1997 ASSETS - ------ Current assets: Cash and cash equivalents $ 1,101,284 Short term investments 163,491 Accounts receivable: Trade billed 2,948,211 Trade unbilled 405,360 Employees 33,106 Amounts due from former stockholders 43,328 Inventories 136,333 Prepaid expenses and other current assets 57,282 Deferred income taxes 174,111 ------------------ Total current assets 5,062,506 Property and equipment, net 3,626,341 Other assets 309,553 ------------------ Total assets $ 8,998,400 ================== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 388,634 Other accrued liabilities 1,265,786 Current portion of long-term debt 133,124 Current portion of capitalized lease obligations 361,651 ------------------ Total current liabilities 2,149,195 Long-term debt, less current portion 253,987 Capitalized lease obligations, less current portion 212,134 Deferred income taxes 346,701 ------------------ 2,962,017 ------------------ Commitments and contingencies (Notes 4, 8, and 11) -- Stockholder's equity: Common stock, no par value; 10,000 shares authorized, 10,000 shares issued and outstanding 38,392 Additional paid-in capital 2,144,036 Retained earnings 3,853,955 ------------------ Total stockholder's equity 6,036,383 ------------------ Total liabilities and stockholder's equity $ 8,998,400 ================== The accompanying notes are an integral part of these financial statements. -2- 9 WELL-CO OIL SERVICE, INC. STATEMENT OF INCOME Period from July 1, 1996 through June 25, 1997 Revenues: Oilfield services $23,006,573 Other, net 101,655 Interest 104,039 ----------- 23,212,267 ----------- Costs and expenses: Oilfield services 17,936,720 Depreciation and amortization 1,197,369 General and administrative 1,521,705 Interest 341,723 ----------- 20,997,517 ----------- Income before income taxes 2,214,750 Income tax expense 888,698 ----------- Net income $ 1,326,052 =========== Earnings per common share (primary and fully diluted) $ 132.61 =========== Weighted average number of common shares outstanding 10,000 =========== The accompanying notes are an integral part of these financial statements. -3- 10 WELL-CO OIL SERVICE, INC. STATEMENT OF CASH FLOWS Period from July 1, 1996 through June 25, 1997 Cash flows from operating activities: Net income $ 1,326,052 Adjustments to reconcile income from operations to net cash provided by operations: Gains on short-term investments (28,536) Depreciation and amortization 1,197,369 Deferred income taxes 199,690 Change in current assets and liabilities: Increase in accounts receivable (884,317) Increase in prepaid expenses and other current assets (233,417) Decrease in accounts payable (546,200) Decrease in accrued liabilities (7,532) Net cash provided by operating activities 1,023,109 ----------- Cash flows from investing activities: Proceeds from sale of short-term investments 3,471,495 Purchase of short-term investments (2,009,123) Advances to former stockholders (644,528) Repayments of amounts advanced to former stockholders 743,526 Purchases of property and equipment (1,112,663) Other 52,468 Net cash provided by investing activities (501,175) ----------- Cash flows from financing activities: Capital lease payments (305,500) Principal payments on long-term debt (108,632) Principal payments on notes payable to former stockholders and affiliates (1,463,456) Proceeds from notes payable to former stockholders and affiliates 485,000 ----------- Net cash used in financing activities (1,392,588) ----------- Net increase in cash and cash equivalents 131,696 Cash, beginning of period 969,588 ----------- Cash, end of period $ 1,101,284 =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 359,634 Income taxes 900,440 Non-cash investing and financing activities: Assets acquired through financing by notes payable 400,000 Assets acquired through financing by capital lease 405,473 Notes payable contributed back to the Company in the form of capital contributions 2,144,036
The accompanying notes are an integral part of these financial statements. -4- 11 WELL-CO OIL SERVICE, INC. STATEMENT OF STOCKHOLDER'S EQUITY Period from July 1, 1996 through June 25, 1997
Common stock -------------------------------------- Number of Additional shares Amount paid-in Retained outstanding at par capital earnings Total ---------------- ---------------- ---------------- ---------------- ---------------- Balance at July 1, 1996 10,000 $ 38,392 $ -- $ 2,527,903 $ 2,566,295 Capital contributions -- -- 2,144,036 -- 2,144,036 Net income -- -- -- 1,326,052 1,326,052 ---------------- ---------------- ---------------- ---------------- ---------------- Balance at June 25, 1997 10,000 $ 38,392 $ 2,144,036 $ 3,853,955 $ 6,036,383 ================ ================ ================ ================ ================
The accompanying notes are an integral part of these financial statements. -5- 12 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company - Prior to December 28, 1993, Well-Co Oil Service, Inc. ("Old Well-Co") and Lyn- Mar Properties, Inc. ("Lyn-Mar") were separate corporations under common control as one family controlled the stock ownership and management of both companies. On December 28, 1993, Lyn- Mar was merged into Old Well-Co in a tax-free merger and on December 30, 1993, Old Well-Co was merged into a newly created Nevada corporation with the same name, Well-Co Oil Service, Inc. (the "Company"). The merger of Old Well-Co into the Company was effected by exchanging 5,000 shares of the Company's no par value common stock for the outstanding shares of Old Well-Co in a tax-free exchange. The Company operates 83 well service and workover rigs with corporate headquarters in Brownfield, Texas and other offices and yard facilities in Levelland, Lamesa, Denver City, and Andrews, Texas. Although the range and extent of services provided varies, as part of its well service business, the Company generally provides a full range of maintenance and workover rig services. These services include the completion of newly drilled wells, the recompletion of existing wells and the plugging and abandonment of wells at the end of their useful lives. Other services include fishing tools and services, hydro-static tubing testing, reverse circulation and related services, roustabout services, and electric wireline services. On June 25, 1997, Key Energy Group, Inc. ("Key") acquired all of the issued and outstanding common stock of the Company. Key operates in Texas, Oklahoma, Michigan, the Appalachian Basin and Argentina. A significant part of Key's operations are similar to that of the Company's. Basis of presentation - The preparation of these 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand and highly-liquid investments with original maturities of three months or less. Revenues and receivables - The various oilfield services offered by the Company are provided on an hourly basis at predetermined fees per hour including the rental of equipment for use by others. Revenue is recognized daily as services are provided or equipment is rented regardless of when billed to the customer. Inventories - Inventories, which consist primarily of oilwell service parts and supplies, are held for use in the operations of the Company and are valued at the lower of cost (first-in first-out method) or market. (Continued) -6- 13 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and equipment - The Company provides for depreciation and amortization of property and equipment, which includes the amortization of assets recorded under capital leases, using the straight-line method over the following estimated useful lives of the assets: Description Years - ------------------------------------------------------ ------------- Oilfield service equipment 3-7 Motor vehicles 3 Furniture and equipment 5 Buildings and improvements 15-35 Upon disposition or retirement of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss thereon, if any, is included in the results of operations. Environmental - The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Income taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance for deferred tax assets is recognized when it is "more likely than not" that the benefit of deferred tax assets will not be realized. Earnings per share - Earnings per share of common stock is calculated by dividing net income by the weighted average number of common shares for the period. (Continued) -7- 14 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 2. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of June 25, 1997: Oilfield service equipment $10,952,668 Motor vehicles 4,889,731 Furniture and equipment 195,156 Buildings and land 762,443 ----------- 16,799,998 Accumulated depreciation and amortization 13,173,657 ----------- $ 3,626,341 =========== 3 OTHER ASSETS Other assets consisted of the following as of June 25, 1997: Deposit on worker's compensation insurance policy (a) $ 300,000 Other 9,553 ----------- $ 309,553 =========== (a) Restricted as to use 4. COMMITMENTS AND CONTINGENCIES Various suits and claims arising in the ordinary course of business are pending against the Company. Management does not believe that the disposition of any of these items will result in a material adverse impact to the consolidated financial position of the Company. As of June 25, 1997, the Company had no reserve for potential suits or claims. The Company has been informed by the Texas Natural Resource Conservation Commission that it may be a potentially responsible party regarding clean up of a site no longer owned by the Company. In the opinion of management, the ultimate outcome will not result in a material adverse effect on the financial position of the Company at June 25, 1997. (Continued) -8- 15 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 4. COMMITMENTS AND CONTINGENCIES (Continued) The Company's operations are subject to inherent risks, including blowouts, fire and explosions which could result in personal injury or death, suspended drilling operations, damage to, or destruction of equipment, damage to producing formations and pollution or other environmental hazards. As a protection against these hazards, the Company maintains general liability insurance coverage of $1,000,000 per occurrence with $2,000,000 of aggregate and excess liability and umbrella coverage up to $5,000,000 per occurrence with a $5,000,000 aggregate. The Company believes it is adequately insured for public liability and property damage to others with respect to its operations. However, such insurance may not be sufficient to protect the Company against liability for all consequences of well disasters, extensive fire damage or damage to the environment. The Company also carries insurance to cover physical damage to, or loss of, its equipment; however, it does not carry insurance against loss of earnings resulting from such damage or loss. 5. LONG-TERM DEBT Long-term debt consisted of the following as of June 25, 1997: Note payable to an unaffiliated corporation dated December 30, 1996 in the original amount of $400,000. The note bears interest at 8% and is payable in 36 monthly installments of $12,535 including interest beginning April 30, 1997. The note is collateralized by various vehicles, well service rigs, trailers and equipment that has a net book value of $855,460 as of June 25, 1997. $ 370,199 Other notes payable 16,912 ------------------ 387,111 Less current maturities (133,124) ------------------ $ 253,987 ================== Scheduled maturities of long-term debt subsequent to June 25, 1997, are as follows: Year ended June 30, 1998 $ 133,124 1999 144,846 2000 109,141 ------------------ $ 387,111 ================== (Continued) -9- 16 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 6. OTHER ACCRUED LIABILITIES Other accrued liabilities consisted of the following as of June 25, 1997: Accrued payroll and taxes $ 376,877 Workers compensation claims liabilities 479,552 Other 380,204 ---------- Total $1,236,633 ========== 7. INCOME TAXES The provision for income taxes for the period from July 1, 1996 through June 25, 1997 consists of the following: Federal: Current $599,074 Deferred 183,648 782,722 State: Current 89,934 Deferred 16,042 105,976 $888,698 ======== The effective income tax rate varies from the Federal statutory rate as follows: Statutory tax rate 34.0% State income taxes (franchise tax) 4.8 Meals and entertainment disallowance 4.0 Other (4.0) 38.8% ==== There are $44,571 and $61,776 of accrued Federal and state income taxes, respectively, in other accrued liabilities at June 25, 1997. (Continued) -10- 17 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 7. INCOME TAXES (Continued) The tax effect of significant temporary differences representing deferred tax assets and liabilities and changes therein are as follows:
July 1, 1996 Net change June 25, 1997 ------------------ ---------------- ------------------- Deferred tax assets: Workers compensation claims liabilities $ 206,522 $ (29,232) $ 177,290 Accrued vacation liabilities 37,097 (9,852) 27,245 Allowance for doubtful accounts 26,353 (26,353) -- Self insured health care claims liabilities 5,837 11,725 17,562 Amounts due affiliates 35,394 (35,394) -- Short term investments 22,794 (22,794) -- ------------------ ---------------- ------------------- Deferred tax assets 333,997 (111,900) 222,097 ------------------ ---------------- ------------------- Deferred tax liabilities: Property and equipment (146,035) (85,235) (231,270) Inventories (47,322) (664) (47,986) Workers compensation premium deposit (110,910) -- (110,910) Capital leases (2,630) (1,891) (4,521) ------------------ ---------------- ------------------- Deferred tax liabilities (306,897) (87,790) (394,687) Net deferred tax assets (liabilities) $ 27,100 $ (199,690) $ (172,590) ================== ================ ===================
8. LEASING ARRANGEMENTS Among other leases, the Company leases certain automotive equipment under non-cancelable leases which expire at various dates through 2000. The term of the leases generally runs from 36 to 60 months with varying payment dates throughout each month. In addition, each lease includes an option to purchase the equipment and an excess mileage charge as defined in the leases. Capitalized assets included in property and equipment as of June 25, 1997 are as follows: Motor vehicles $ 1,029,028 Accumulated amortization 439,895 ------------------ $ 589,133 ================== (Continued) -11- 18 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 8. LEASING ARRANGEMENTS (Continued) As of June 25, 1997, the future minimum lease payments under non-cancelable operating leases together with the present value of the net minimum lease payments are as follows: Lease Year ended June 30, payments - ---------------------------------------------------- ------------------ 1998 $ 387,714 1999 193,836 2000 25,716 ------------------ Total minimum lease payments 607,266 Less amounts representing interest 33,481 ------------------ Present value of minimum lease obligations 573,785 Less current portion 361,651 ------------------ Long-term capital lease obligations $ 212,134 ================== 9. EMPLOYEE BENEFIT PLANS The Company maintains a profit sharing plan for its employees. The Plan is a defined contribution plan covering all full-time employees of the Company who have one year of service and are age twenty-one or older. Contributions are made to the Plan as determined by the Company's Board of Directors. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. During the period from July 1, 1996 through June 25, 1997, the Company made contributions to the Plan totaling $25,000. 10. TRANSACTIONS WITH RELATED PARTIES During the period, the Company rented certain equipment from a partnership ("LMB Farms") comprised of former stockholders of the Company. During the period from July 1, 1996 through June 25, 1997, the Company incurred $182,981 in rental expense for the equipment. As part of the final definitive agreement of sale of the Company on June 25, 1997, on June 9, 1997 certain real property with recorded cost of $189,011 was transferred to a company owned by former stockholders and employees. This property had no remaining book value as it had been, prior to July 1, 1996, fully impaired due to possible environmental issues surrounding the property. Accordingly, there was no gain or loss recognized as a result of this transaction. The property is the location for the Company's Levelland facility. The Company allows employees to receive advances on payroll. At June 25, 1997, the amount due from employees relative to these advances was approximately $33,000. (Continued) -12- 19 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 10. TRANSACTIONS WITH RELATED PARTIES (Continued) During the period from July 1, 1996 to June 25, 1997, the Company provided the use of well servicing rigs to a company owned by former stockholders and officers without charge. Management has estimated the labor and other costs associated with those services to be approximately $32,000. During the period from July 1, 1996 to June 25, 1997, the Company purchased certain well servicing equipment from a company owned by former stockholders and officers of the Company at a cost of $100,000. On June 24, 1997, certain amounts owed by the Company to former stockholders and officers of the Company was contributed to the Company by the Company's then current stockholders in the form of a capital contribution. The amount of the contribution was approximately $2,144,000. During the period from July 1, 1996 to June 25, 1997, the Company borrowed $485,000 from former stockholders and officers. During that same period, amounts in the approximate total of $1,463,500 plus interest of approximately $357,000 were paid by the Company to this same group. At June 25, 1997, the Company had paid all amounts owed to these individuals in full. During the period from July 1, 1996 to June 25, 1997, the Company had interest bearing and non-interest bearing advances to certain former stockholders. The average amount due from those stockholders during the period was approximately $438,000. The balance at June 25, 1997 was approximately $43,000. 11. CONCENTRATIONS OF CREDIT RISK The Company has a concentration of customers in the oil and gas industry. Substantially all of the Company's customers are major integrated oil companies, major independent producers of oil and gas and smaller independent producers. This may affect the Company's overall exposure to credit risk either positively or negatively, in as much as its customers are effected by economic conditions in the oil and gas industry, which has historically been cyclical. However, accounts receivable are well diversified among many customers and a significant portion of the receivables are from major oil companies, which management believes minimizes potential credit risk. Historically, credit losses have been insignificant. Receivables are generally not collateralized, although the Company may generally secure a receivable at any time by filing a mechanic's and materialmans' lien on the well serviced. Two customers each accounted for approximately 19% and 18% of the Company's total revenues for the period from July 1, 1996 through June 25, 1997. Although the loss of these customers is not anticipated, such a loss would have a severe near term effect on the Company's business. (Continued) -13- 20 WELL-CO OIL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 11. CONCENTRATIONS OF CREDIT RISK (Continued) Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of demand deposits and certificates of deposits. Management believes that its funds are deposited with high quality financial institutions. The Company has $1,101,284 in demand deposits in a single institution and a certificate of deposit of $163,491 in another financial institution. Both are limited to $100,000 each in FDIC deposit insurance coverage. -14- 21 KEY ENERGY GROUP, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The unaudited Pro Forma Combined Financial Statements of Key Energy Group, Inc. ("Key" or "The Company") have been prepared to give effect to the acquisition of the assets of Well-Co Oil Service, Inc. ("Well-Co") in June 1997. The Unaudited pro Forma Combined Financial Statements of The Company are not necessarily indicative of the financial results for the periods presented had the acquisition of Well-Co taken place on July 1, 1995. In addition, future results may vary significantly from the results reflected on the accompanying Unaudited Pro Forma Combined Financial Statements because of, among other factors, changes in products and service prices, future oil and gas production declines and future acquisitions. This information should be read in conjunction with the consolidated financial statements of Key (and related notes) and the financial statements of Well-Co. 22 Key Energy Group, Inc. and Subsidiaries UNAUDITED PRO FORMA COMBINED BALANCE SHEET as of March 31, 1997 (in thousands)
The Pro Forma Pro Forma Company Well-Co Entries Combined ASSETS: Current Assets: Cash $11,528 $1,101 $12,629 Short term investments -- 163 163 Restricted cash 3,568 -- 3,568 Accounts receivable, net 32,073 3,431 (90) (a) 35,414 Inventories 2,004 136 2,140 Prepaid expenses and other 2,220 232 (174) (a) 2,278 current assets ----------------- -------------- ---------------- Total Current Assets 51,393 5,063 56,192 ----------------- -------------- ---------------- Property and Equipment: Oilfield service equipment 118,287 10,953 13,709 (b) 142,549 Oil and gas well drilling equipment 5,945 -- 5,945 Motor vehicles 1,510 4,890 (3,752) (b) 2,648 Oil and gas properties and related 20,525 -- 20,525 equipment, successful efforts method Furniture and equipment 974 195 (180) (b) 989 Buildings and land 7,558 761 (300) (b) 8,019 ----------------- -------------- ---------------- 154,799 16,799 160,675 Accumulated depreciation & depletion (16,120) (13,174) 13,174 (b) (16,120) Net Property and Equipment 138,679 3,625 180,675 Other Assets 14,471 310 (10) (a) 14,771 Total Assets $204,543 $8,998 $235,518 ================= ============== ================
2 23 Key Energy Group, Inc. and Subsidiaries UNAUDITED PRO FORMA COMBINED BALANCE SHEET as of March 31, 1997 (in thousands)
The Pro Forma Pro Forma Company Well-Co Entries Combined LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $13,802 $389 $14,191 Other accrued liabilities 12,480 1,266 225 (b) 13,971 Accrued interest 1,292 -- 1,292 Accrued income taxes 118 -- 118 Deferred tax liability 310 -- 310 Current portion of long-term debt 1,430 495 1,925 ----------------- -------------- ---------------- ---------------- Total Current Liabilities 29,432 2,150 31,807 ----------------- -------------- ---------------- ---------------- Long-term debt 91,102 466 17,576 (c) 109,144 Deferred income taxes 15,117 346 6,162 (b) 21,625 Non-current accrued expenses 4,832 -- 4,832 Minority interest 1,249 -- 1,249 Commitments and contingencies -- -- -- ----------------- -------------- ---------------- ---------------- Total Stockholders' Equity: Common stock 1,173 38 (14) (b) 1,197 Additional paid-in capital 47,856 2,144 1,882 (b) 51,882 Retained earnings 13,782 3,854 (3,854) (b) 13,782 ----------------- -------------- ---------------- ---------------- Total Stockholders' Equity 62,811 6,036 66,861 ----------------- -------------- ---------------- ---------------- Total Liabilities and Stockholders' Equity $204,543 $8,998 $235,518 ================= ============== ================ ================
See accompanying notes to unaudited pro form combined financial statements. 3 24 Key Energy Group, Inc. and Subsidiaries UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS Twelve Months Ended June 30, 1996
The Pro Forma Pro Forma Company Well-Co Entries Combined REVENUES: Oilfield service $55,933 $19,631 $75,564 Oil and gas 4,175 -- 4,175 Oil and gas welling drilling 6,188 -- 6,188 Other, net 182 (495) 440 (d) 127 ----------------- -------------- ---------------- 66,478 19,136 86,054 ----------------- -------------- ---------------- COSTS AND EXPENSES Oilfield services 40,737 15,771 (1,267) (d) 55,241 Oil and gas 1,350 -- 1,350 Oil and gas well drilling 5,030 -- 5,030 Depreciation, depletion and 4,701 794 1,483 (e) 6,978 amortization General and administrative 6,608 1,148 (200) (d) 7,556 Interest 2,477 385 1,327 (f) 4,189 ----------------- -------------- ---------------- 60,903 18,098 80,344 ----------------- -------------- ---------------- Income before income taxes and 5,575 1,038 5,710 minority interest Income tax expenses 1,888 386 (340) (g) 1,934 Minority interest in net income 101 -- 101 ----------------- -------------- ---------------- NET INCOME $3,586 $652 $3,675 ----------------- -------------- ---------------- EARNINGS PER SHARE: Income before income taxes and $0.70 $0.70 minority interest Net income (loss) $0.45 $0.45 WEIGHTED AVERAGE SHARES 7,941 240 8,181 OUTSTANDING:
See accompanying notes to unaudited pro form combined financial statements. 4 25 Key Energy Group, Inc. and Subsidiaries UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS Nine Months Ended March 31, 1997
The Pro Forma Pro Forma Company Well-Co Entries Combined REVENUES: Oilfield service $97,327 $17,255 $114,582 Oil and gas 5,863 -- 5,863 Oil and gas well drilling 7,097 -- 7,097 Other, net 422 154 576 ----------------- -------------- ---------------- 110,709 17,409 128,118 ----------------- -------------- ---------------- COSTS AND EXPENSES Oilfield services 69,268 13,453 (950) (d) 81,771 Oil and gas 2,185 -- 2,185 Oil and gas well drilling 5,905 -- 5,905 Depreciation, depletion and 7,687 898 1,112 (e) 9,697 amortization General and administrative 12,176 1,142 (150) (d) 13,168 Interest 4,507 257 995 (f) 5,759 ----------------- -------------- ---------------- 101,728 15,750 118,485 ----------------- -------------- ---------------- Income before income taxes and 8,981 1,659 9,633 minority interest Income tax expense 3,020 667 (448) (g) 3,239 Minority interest in net income (1) -- (1) ----------------- -------------- ---------------- NET INCOME $5,962 $992 $6,395 ================= ============== ================ EARNINGS PER SHARE: Income before income taxes and $0.76 $0.80 minority interest Net income $0.51 $0.53 ================= ============== ================ WEIGHTED AVERAGE SHARES 11,737 240 11,977 OUTSTANDING: ================= ============== ================
See accompanying notes to unaudited pro form combined financial statements. 5 26 Key Energy Group, Inc. NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS JUNE 30, 1996 AND MARCH 31, 1997 1. BASIS OF PRESENTATION The accompanying unaudited pro forma combined financial information of Key Energy Group, Inc. ("Key" or "The Company") is presented to reflect the acquisition of Well-Co Oil Service, Inc. ("Well-Co") in June 1997. The unaudited pro forma combined balance sheet is presented as if the acquisition of Well-Co occurred at the balance sheet date. The unaudited pro forma combined statements of operations are presented as if the acquisition had occurred on July 1, 1995. The Company - Represents the consolidated balance sheet of Key Energy Group, Inc. as of March 31, 1997 and the consolidated statements of Key Energy Group, Inc. for the year ended June 30, 1996 and the nine months ended March 31, 1997. Well-Co Oil Service, Inc. - Represents the balance sheet of Well-Co Oil Service, Inc. as of June 25, 1997, the statement of operations of Well-Co Oil Service, Inc. for the year ended June 30, 1996 (which was derived by certain calculations involving the statements of operations of Well-Co Oil Service, Inc. for the years ended December 31, 1996 and December 31, 1995) and the statement of operations of Well-Co Oil Service, Inc. for the nine months ended March 31, 1997 (which was derived by certain calculations involving the statement of operations of Well-Co Oil Service, Inc. for the period from July 1, 1996 through June 25, 1997. 2. PRO FORMA ENTRIES (a) To adjust the bad debt reserve, other current assets and other assets for items either not included in the acquisition or to increase reserves. (b) To record the acquisition of Well-Co using the purchase method of accounting. The allocation of the purchase price to the acquired assets and liabilities of Well-Co is preliminary, and therefore, subject to change. (c) To adjust the debt of the Company as a result of the cash consideration portion of the purchase price of Well-Co. (d) To record the estimated savings in operating costs and general and administrative expenses due to the acquisition. The estimated savings is solely a result of changes circumstances brought about by the consummation of the acquisition, principally the elimination of duplicate 6 27 administrative positions, duplicate office locations and lower property and casualty insurance costs. (e) To adjust depreciation, depletion and amortization for the Well-Co assets. (f) To adjust interest expense for the increased debt due to the acquisition of Well-Co. (g) To adjust income tax expense for each tax jurisdiction. 3. INCOME TAXES Key Energy Group, Inc. accounts for income taxes pursuant to the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes ("Statement 109"). Deferred income taxes have been provided on all significant differences between the book and tax basis of the assets liabilities of the acquisition. In accordance with Statement 109, the Company prepares separate tax calculations for each tax jurisdiction in which Key is subject to income taxes. 4. INCOME FROM OPERATIONS PER SHARE Income per share is calculated based on the weighted average number of shares and share equivalents, if more than 3% dilutive, outstanding during the period. Fully diluted income per share is not presented since the effect would be anti-dilutive. Pro Forma income per share has been calculated taking into account the issuance of shares of the Company's Common Stock in the acquisition as if such shares were issued on July 1, 1995. 7 28 EXHIBIT INDEX 2.1 Stock Purchase Agreement Among Key Energy Group, Inc. and Mark Duane Massingill and Claudia Lynn Massingill, dated as of June 25, 1997.* 23.1 Consent of Robinson Burditt Martin & Cohen * previously filed. EX-23.1 2 CONSENT OF ROBINSON BURDITT MARTIN & COHEN 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this current report on Form 8-K/A of our report dated August 8, 1997, on our audit of the financial statements of Well-Co Oil Service, Inc. Robinson Burdette Martin & Cowan, L.L.P. Lubbock, Texas September 8, 1997 -----END PRIVACY-ENHANCED MESSAGE-----