-----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, Vx+meaXaEof5OFq7O2FkGI+XfM3+4tT1tqWGoV/JZW2p7DcxlzEX3IpGfLWbwuqZ +AKsAjNPtQbK7/9NTLlSWA== 0000950129-03-004246.txt : 20030814 0000950129-03-004246.hdr.sgml : 20030814 20030814142836 ACCESSION NUMBER: 0000950129-03-004246 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: W-H ENERGY SERVICES INC CENTRAL INDEX KEY: 0001051034 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 760281502 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31346 FILM NUMBER: 03846307 BUSINESS ADDRESS: STREET 1: 10370 RICHMOND SUITE 990 CITY: HOUSTON STATE: TX ZIP: 77042 BUSINESS PHONE: 7139749071 MAIL ADDRESS: STREET 1: 10370 RICHMOND SUITE 990 CITY: HOUSTON STATE: TX ZIP: 77042 FORMER COMPANY: FORMER CONFORMED NAME: W-H HOLDINGS INC DATE OF NAME CHANGE: 19971208 10-Q 1 h08378e10vq.txt W-H ENERGY SERVICES, INC.- JUNE 30, 2003 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-31346 W-H ENERGY SERVICES, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0281502 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)
10370 RICHMOND AVENUE SUITE 990 HOUSTON, TEXAS 77042 (Address of principal executive offices and zip code) (713) 974-9071 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Act") during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] As of August 5, 2003 there were outstanding 27,269,233 shares of common stock, par value $0.0001 per share, of the registrant. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- W-H ENERGY SERVICES, INC. INDEX
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements........................................ 1 Consolidated Balance Sheets -- June 30, 2003 (unaudited) and December 31, 2002........................................... 1 Consolidated Statements of Operations and Comprehensive Income (unaudited) -- Three and six months ended June 30, 2003 and 2002............................................... 2 Consolidated Statements of Cash Flows (unaudited) -- Six months ended June 30, 2003 and 2002......................... 3 Notes to Consolidated Financial Statements (unaudited)...... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................................ 15 Item 4. Controls and Procedures..................................... 15 PART II OTHER INFORMATION Item 1. Legal Proceedings........................................... 16 Item 2. Changes in Securities and Use of Proceeds................... 16 Item 4. Submission of Matters to a Vote of Security Holders......... 16 Item 5. Other Information........................................... 16 Item 6. Exhibits and Reports on Form 8-K............................ 16 Signatures........................................................... 18
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS W-H ENERGY SERVICES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2003 2002 ----------- ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents................................. $ 7,532 $ 9,386 Accounts receivable, net of allowance of $5,919 and $6,375, respectively................................... 84,628 75,793 Inventories............................................... 40,783 39,206 Deferred income taxes..................................... 6,784 6,809 Prepaid expenses and other................................ 2,798 2,515 -------- -------- Total current assets................................... 142,525 133,709 Property and equipment, net................................. 203,034 193,272 Goodwill and other intangibles, net......................... 101,806 102,533 Other assets, net........................................... 8,887 9,048 -------- -------- Total assets........................................... $456,252 $438,562 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 18,133 $ 22,896 Accrued liabilities....................................... 23,537 20,808 Current maturities of long-term debt...................... 16,350 14,300 Notes payable............................................. -- 1,795 -------- -------- Total current liabilities.............................. 58,020 59,799 Long-term debt, net of current maturities................... 134,508 133,005 Deferred income taxes....................................... 28,820 24,229 -------- -------- Total liabilities...................................... 221,348 217,033 -------- -------- Commitments and Contingencies Shareholders' Equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding................ -- -- Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,159,064 and 27,015,847 shares issued and outstanding, respectively.............................. 3 3 Additional paid-in capital................................ 209,381 208,646 Deferred compensation..................................... (185) (387) Other comprehensive income................................ 4,231 3,421 Retained earnings......................................... 21,474 9,846 -------- -------- Total shareholders' equity............................. 234,904 221,529 -------- -------- Total liabilities and shareholders' equity............. $456,252 $438,562 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 1 W-H ENERGY SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- ------------------------- 2003 2002 2003 2002 ------------ ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) Revenues................................. $ 96,789 $ 73,258 $ 191,479 $ 149,611 Costs and expenses: Cost of revenues....................... 54,727 40,403 106,901 81,544 Selling, general and administrative.... 17,996 14,724 37,232 30,483 Research and development............... 3,015 2,458 5,568 4,468 Depreciation and amortization.......... 9,709 7,560 19,115 14,638 ----------- ----------- ----------- ----------- Total costs and expenses............ 85,447 65,145 168,816 131,133 ----------- ----------- ----------- ----------- Operating income.................... 11,342 8,113 22,663 18,478 Other (income) expense: Interest expense, net.................. 1,972 1,491 3,759 2,915 Other (income) expense, net............ 5 111 (3) 170 ----------- ----------- ----------- ----------- Income before income taxes.......... 9,365 6,511 18,907 15,393 Provision for income taxes............. 3,605 2,506 7,279 5,926 ----------- ----------- ----------- ----------- Net income.......................... $ 5,760 $ 4,005 $ 11,628 $ 9,467 =========== =========== =========== =========== Comprehensive income: Net income............................. $ 5,760 $ 4,005 $ 11,628 $ 9,467 Unrealized gain on marketable securities, net of income realization......................... -- (81) -- (218) Foreign currency translation adjustment.......................... 1,571 3,672 810 2,895 ----------- ----------- ----------- ----------- Comprehensive income................... $ 7,331 $ 7,596 $ 12,438 $ 12,144 =========== =========== =========== =========== Earnings per share: Basic.................................. $ 0.21 $ 0.15 $ 0.43 $ 0.36 Diluted................................ $ 0.21 $ 0.15 $ 0.42 $ 0.34 Number of shares used in calculation of earnings per share: Basic.................................. 27,139,096 26,056,431 27,090,912 25,943,871 Diluted................................ 28,084,087 27,619,932 27,970,195 27,461,778
The accompanying notes are an integral part of these consolidated financial statements. 2 W-H ENERGY SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------- 2003 2002 -------- -------- (UNAUDITED) Cash Flows from Operating Activities: Net income................................................ $ 11,628 $ 9,467 Adjustments to reconcile net income to cash provided by operating activities -- Depreciation and amortization.......................... 19,115 14,638 Gain on the sale of assets............................. (4,095) (3,136) Deferred tax provision................................. 4,616 3,906 Amortization of deferred compensation.................. 202 202 Amortization of deferred financing costs............... 470 410 Tax benefit from employee stock option plan............ 312 947 Changes in operating assets and liabilities, excluding effects of acquisitions -- (Increase) decrease in accounts receivable, net...... (9,298) 9,465 Increase in inventories.............................. (1,968) (5,739) Increase in prepaid expenses and other............... (300) (1,385) Increase in other assets, net........................ (129) (6) Decrease in accounts payable and accrued liabilities......................................... (1,429) (8,935) -------- -------- Net cash provided by operating activities......... 19,124 19,834 -------- -------- Cash Flows from Investing Activities: Acquisition of business, net of cash acquired............. -- (6,095) Additions to property and equipment....................... (31,172) (33,185) Proceeds from the sale of marketable securities........... -- 12,772 Proceeds from sale of property and equipment.............. 6,829 4,848 -------- -------- Net cash used in investing activities............. (24,343) (21,660) -------- -------- Cash Flows from Financing Activities: Proceeds from the issuance of debt........................ 48,263 1,953 Payments on debt.......................................... (46,476) (5,727) Proceeds from the exercise of stock options and stock purchase warrants...................................... 423 655 -------- -------- Net cash provided by (used in) financing activities....................................... 2,210 (3,119) -------- -------- Effect of exchange rate changes on cash..................... 1,155 2,028 Net decrease in Cash and Cash Equivalents................... (1,854) (2,917) Cash and Cash Equivalents, beginning of period.............. 9,386 19,978 -------- -------- Cash and Cash Equivalents, end of period.................... $ 7,532 $ 17,061 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 W-H ENERGY SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS ORGANIZATION DESCRIPTION OF COMPANY W-H Energy Services, Inc., a Texas corporation, and its subsidiaries (collectively, W-H) is a diversified oilfield service company that provides products and services used primarily for the drilling, completion and production of oil and natural gas wells. W-H has the following three reportable segments: (i) drilling related products and services, (ii) completion and workover related products and services and (iii) maintenance and safety related products and services. For a description of these segments, see Note 5. BASIS OF PRESENTATION The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Rule 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in W-H's Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. ACCOUNTING POLICIES AND PROCEDURES The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," ("SFAS No. 150") in May 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003. The provisions of SFAS No. 150, which the Company adopted on June 1, 2003, did not have a material impact on the Company's consolidated financial statements. The FASB issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," ("SFAS No. 149") in April 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for existing contracts and new contracts entered into after June 30, 2003. The provisions of SFAS No. 149 are not expected to have a material impact on the Company's consolidated financial statements. Effective January 1, 2003, W-H adopted FASB Statement No. 143, "Accounting for Asset Retirement Obligations." This statement requires that legal obligations associated with the retirement of long-lived assets be recorded at fair value when incurred. The adoption of this statement did not have a material impact on W-H's consolidated financial position as of June 30, 2003, or its results of operations or cash flows for the three and six months then ended. W-H adopted FASB Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FASB Interpretation 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken 4 W-H ENERGY SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in issuing the guarantee. This interpretation applies to guarantees issued or modified after December 31, 2002 and has had no impact on our consolidated results of operations or consolidated balance sheets. Other than as described above, W-H has not added to or changed its accounting policies since December 31, 2002. For a description of these policies, refer to Note 2 of the Consolidated Financial Statements in W-H's Annual Report on Form 10-K for the year ended December 31, 2002. 2. EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed considering the dilutive effect of stock options and warrants. For the three months ended June 30, 2003 and 2002, additional shares of 944,991 and 1,563,501, respectively, resulting from the assumed exercise of outstanding options and warrants, were added to the denominator because the inclusion of such shares would be dilutive. For the six months ended June 30, 2003 and 2002, additional shares of 879,283 and 1,517,907, respectively, resulting from the assumed exercise of outstanding options and warrants, were added to the denominator because the inclusion of such shares would be dilutive. For the three months ended June 30, 2003 and 2002, additional shares of 972,337 and 115,425, respectively, were excluded from the computation of earnings per common share, because the inclusion of such shares would be anti-dilutive. For the six months ended June 30, 2003 and 2002, additional shares of 1,390,837 and 902,825, respectively, were excluded from the computation of earnings per common share, because the inclusion of such shares would be anti-dilutive. 3. DEBT CREDIT FACILITY In the first quarter of 2003, W-H obtained an additional revolving loan commitment of $10.0 million and a supplemental Term B loan of $5.0 million under its existing credit facility. As so amended, the credit facility consists of Term A and Term B loan facilities in the amounts of $40.0 million and $85.0 million, respectively, of which $28.0 million and $83.0 million, respectively, were outstanding at June 30, 2003. Additionally, the credit facility has a $55.0 million revolving loan facility of which $35.4 million was outstanding at June 30, 2003. The Term A loan facility matures on October 16, 2005 and requires payments escalating from zero in the first year to $14.0 million in the fifth year. The Term B loan facility matures on April 16, 2007 and requires principal payments of $0.85 million in each of the first six years with the outstanding balance being due on the maturity date. The revolving loan facility matures on October 16, 2005. At W-H's option, amounts borrowed under the credit facility bear interest at either a variable rate equal to the reserve-adjusted LIBOR or an alternate base rate, plus in each case, an applicable margin. The applicable margin ranges from 1.75% to 3.00% in the case of a LIBOR based loan under the revolving loan facility or the Term A loan facility and is 3.25% in the case of a LIBOR based loan under the Term B loan facility. For alternate base rate loans, the applicable margin ranges from 0.75% to 2.00% under the revolving loan facility and the Term A loan facility and is 2.25% under the Term B loan facility. The foregoing margins are subject to adjustment based on a debt service coverage ratio and a leverage ratio. The credit facility, among other things, contains covenants that require that W-H maintain certain financial ratios and limits the amount of capital expenditures that may be made, the amount of debt that may be incurred outside of the credit facility, the amount of future investments and its ability to pay dividends. At June 30, 2003, W-H was in compliance with these restrictive covenants. The credit facility is secured by a lien on all of W-H's property and assets, a pledge of all of the capital stock of W-H's material domestic subsidiaries and a pledge of not greater than 65% of the capital stock of each of W-H's foreign subsidiaries. In addition, the credit facility is guaranteed by all of W-H's material domestic subsidiaries. 5 W-H ENERGY SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONVERTIBLE SUBORDINATED NOTES In connection with its acquisition of Coil Tubing Services, L.L.C. ("CTS") in May 2001, W-H issued $4.5 million in convertible subordinated notes (the "Notes") to eight individuals (the "Sellers") as partial consideration for the acquisition. The Notes bear interest at 9% per annum, payment of which is due quarterly. The principal and accrued interest matures on December 31, 2003. The Sellers may convert the Notes into shares of W-H common stock within 30 days of maturity at a rate of 0.0331 shares of common stock for each $1.00 of principal, subject to adjustment based upon various factors. W-H may redeem the Notes at its discretion at any time prior to maturity with no prepayment penalty. However, the Sellers would have the option to exercise the conversion feature prior to redemption. W-H has no present intention to exercise the redemption feature. PROMISSORY NOTES In connection with its acquisition of U.S. Clay, L.P. in April 2002, W-H issued a total of $1.8 million in promissory notes to the sellers as partial consideration for the acquisition. The notes were paid in full on April 25, 2003. 4. STOCK OPTIONS A summary of W-H's stock options as of June 30, 2003 and December 31, 2002 is as follows:
WEIGHTED AVERAGE NUMBER EXERCISE PRICE OF OPTIONS PER SHARE ---------- ---------------- Outstanding December 31, 2002............................. 3,256,824 $12.21 Granted................................................... 385,000 18.52 Exercised/exchanged....................................... (64,206) 6.58 Expired/canceled.......................................... (13,150) 17.21 --------- Outstanding June 30, 2003................................. 3,564,468 12.98 --------- Exercisable at June 30, 2003.............................. 2,010,416 $ 7.77 ---------
The fair value of each option was estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used for the historical option grants: risk-free interest rates of between 3.5%-7.0%; dividend rates of zero; average expected lives of between 6.7 and 8.6 years and expected volatilities of 57.7%-65.9%. The 3,564,468 options outstanding as of June 30, 2003 have a remaining contractual life of between 4.2 and 8.5 years. The Black-Scholes option valuation model and other existing models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of and are highly sensitive to subjective assumptions, including the expected stock price volatility. W-H's stock options have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimate. 6 W-H ENERGY SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Had compensation expense for the stock options granted to employees and directors been determined using the fair value method, net income and diluted net income per share for the three and six months ended June 30, 2003 and 2002, respectively would have been reduced to the following pro forma amounts:
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ----------------------------- JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- ------------- ------------- Net income -- As reported...................... $5,760 $4,005 $11,628 $9,467 Pro forma........................ 5,097 3,002 10,302 7,461 Diluted net income per share -- As reported...................... $ 0.21 $ 0.15 $ 0.42 $ 0.34 Pro forma........................ 0.18 0.11 0.37 0.27
5. SEGMENTS Management has elected to organize segments based on differences in each segment's customers and the products and services offered without aggregating operating segments. All segments that meet a threshold of 10% of revenues, reported profit or loss, or combined assets are defined as significant segments. Based on these requirements, management has identified three reportable segments: drilling related products and services, completion and workover related products and services and maintenance and safety related products and services. DRILLING RELATED PRODUCTS AND SERVICES The drilling related products and services segment provides products and services used by oil and natural gas companies, drilling contractors and other oilfield service companies for the drilling of oil and natural gas wells. These products and services are used primarily throughout North America, Brazil and in selected areas of the Eastern Hemisphere. This segment consists of the following business lines: (i) LWD; (ii) MWD; (iii) directional drilling; (iv) downhole drilling motors; (v) rental tools (including drill pipe); and (vi) drilling fluids. COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES The completion and workover related products and services segment provides products and services primarily to customers onshore in the Gulf Coast region and offshore in the Gulf of Mexico. These products and services include: (i) cased-hole wireline logging, perforating and associated rental equipment; (ii) polymers and specialty chemicals; (iii) rental tools (including tubing); and (iv) coiled tubing. MAINTENANCE AND SAFETY RELATED PRODUCTS AND SERVICES The maintenance and safety related products and services segment provides products and services primarily for refinery and petrochemical plant applications and major and independent oil and natural gas companies in the Gulf Coast region. These products and services include: (i) waste management and (ii) safety equipment and services. SUMMARY INFORMATION W-H recognizes revenues, cost of revenues, selling, general and administrative expense, research and development expense and depreciation and amortization expense by segment. Interest expense and other 7 W-H ENERGY SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) income (expense) are not monitored by segment. Summarized information for W-H's reportable segments is contained in the following tables (in thousands): As of and for the three months ended June 30, 2003 (unaudited):
MAINTENANCE DRILLING COMPLETION AND SAFETY OTHER TOTAL -------- ---------- ----------- ------- -------- Revenues....................... $ 55,190 $ 33,827 $ 7,772 $ -- $ 96,789 Operating income............... 5,160 8,038 375 (2,231) 11,342 Depreciation and amortization................. 5,636 3,004 1,001 68 9,709 Total assets................... 248,706 168,665 30,613 8,268 456,252 Capital expenditures........... 10,678 5,696 483 16 16,873
As of and for the three months ended June 30, 2002 (unaudited):
MAINTENANCE DRILLING COMPLETION AND SAFETY OTHER TOTAL -------- ---------- ----------- ------- -------- Revenues....................... $ 47,000 $ 19,212 $ 7,046 $ -- $ 73,258 Operating income............... 5,739 3,447 709 (1,782) 8,113 Depreciation and amortization................. 4,680 1,957 863 60 7,560 Total assets................... 229,661 116,248 29,237 17,247 392,393 Capital expenditures........... 10,533 5,756 1,534 66 17,889
As of and for the six months ended June 30, 2003 (unaudited):
MAINTENANCE DRILLING COMPLETION AND SAFETY OTHER TOTAL -------- ---------- ----------- ------- -------- Revenues....................... $111,223 $ 64,961 $15,295 $ -- $191,479 Operating income............... 12,155 14,924 21 (4,437) 22,663 Depreciation and amortization................. 11,040 5,956 1,983 136 19,115 Total assets................... 248,706 168,665 30,613 8,268 456,252 Capital expenditures........... 18,808 10,808 1,440 116 31,172
As of and for the six months ended June 30, 2002 (unaudited):
MAINTENANCE DRILLING COMPLETION AND SAFETY OTHER TOTAL -------- ---------- ----------- ------- -------- Revenues....................... $ 98,804 $ 36,544 $14,263 $ -- $149,611 Operating income............... 13,954 6,746 1,138 (3,360) 18,478 Depreciation and amortization................. 9,206 3,663 1,653 116 14,638 Total assets................... 229,661 116,248 29,237 17,247 392,393 Capital expenditures........... 19,153 10,294 3,608 130 33,185
8 W-H ENERGY SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) W-H operates in the United States, the North Sea and other geographic regions. The following is summary information by geographic region (in thousands) (unaudited): REVENUES
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------- ------------------- 2003 2002 2003 2002 --------- --------- -------- -------- United States................................ $85,118 $59,060 $165,814 $120,709 North Sea.................................... 6,723 7,540 14,853 16,704 Other........................................ 4,948 6,658 10,812 12,198 ------- ------- -------- -------- Total...................................... $96,789 $73,258 $191,479 $149,611 ======= ======= ======== ========
OPERATING INCOME
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------- ------------------ 2003 2002 2003 2002 --------- -------- ------- ------- United States................................ $11,002 $4,695 $20,163 $11,130 North Sea.................................... (324) 1,258 639 4,008 Other........................................ 664 2,160 1,861 3,340 ------- ------ ------- ------- Total...................................... $11,342 $8,113 $22,663 $18,478 ======= ====== ======= =======
LONG-LIVED ASSETS
JUNE 30, DECEMBER 31, 2003 2002 -------- ------------ United States............................................... $288,769 $277,827 North Sea................................................... 19,128 20,988 Other....................................................... 5,830 6,038 -------- -------- Total..................................................... $313,727 $304,853 ======== ========
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The following discussion and analysis may contain forward-looking statements. The words "believe," "expect," "plan," "intend," "estimate," "project," "will," "could," "may," and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from the results discussed in the forward-looking statements as a result of important risk factors including, but not limited to, the current and expected future prices of crude oil and natural gas, capital expenditures by customers, activity levels in the oil and natural gas exploration and production industry, the development and implementation of new technologies, weather conditions in offshore markets, risks associated with the occurrence of personal injuries, loss of life, damage or destruction of property, equipment or the environment and suspension of operations, our ability to attract and retain skilled workers, the loss of key members of management, competition in our industry, compliance with and developments in environmental and other governmental regulations, the loss of the use of certain technologies, the concentration of customers in the energy industry, our ability to successfully integrate future acquisitions, political and economic risks, an impairment of goodwill and restrictions on our ability to raise additional funds. For additional discussion of these risks, please see the discussion set forth under the heading "Factors That May Affect Future Results and Accuracy of Forward Looking Statements" contained in our most recent Annual Report filed on Form 10-K with the Securities and Exchange Commission. OVERVIEW OF THE MARKETS FOR OUR PRODUCTS AND SERVICES We are a diversified oilfield service company that provides drilling related products and services, completion and workover related products and services and maintenance and safety related products and services. Our customers include major and independent oil and natural gas companies, other oilfield service companies and refining and petrochemical companies. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of other factors. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity as well as the entire health of the oil and natural gas industry. Demand for our drilling related products and services is directly affected by the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies. Demand for our completion and workover related products and services depends more on oil and natural gas production activity, which is less immediately affected by changes in oil and natural gas prices. Demand for our maintenance and safety related products and services is affected by the rate of plant overhauls and maintenance turnarounds as well as the overall health of the refining and petrochemical industries and, to a lesser extent, by the level of oil and gas exploration, development and production activity. DRILLING RELATED PRODUCTS AND SERVICES Revenues from our drilling related products and services segment constituted approximately 58% of our first six months 2003 consolidated revenues. Approximately 23% of our drilling segment revenues were generated in various international locations which include Canada, Brazil, Europe, North Africa and the Middle East. However, the most significant portion of our drilling segment revenues is generated in the United States, including the Gulf of Mexico. In July 2001, exploration and development activity levels in the United States peaked and began to decline primarily as a result of lower natural gas prices. This decline continued through April 2002, at which point the United States drilling rig count levels reached a low of 738 which was comprised of 110 offshore rigs and 638 land rigs. As commodity prices for natural gas have climbed and remained relatively strong, rig count levels have shown recovery through the first half of 2003, but remained well below the average activity level of 2001. This increase, however, is concentrated on land. According to statistics published by Baker Hughes, the average number of rotary rigs operating in the United States for 2001, 2002 and the six months ended June 30, 2003 was 1,156, 830 and 963, respectively. Of these figures, 10 land rigs comprised 1,003, 717 and 854, respectively and offshore rigs comprised 153, 113 and 109, respectively, for the same periods. The modest recovery in exploration and development activity levels in the United States has impacted our revenues and earnings generated in this market. Although the overall rig count in the United States has increased, the offshore rig count, where we experience our highest operating margins, has not seen a meaningful recovery. We believe that the overall outlook for natural gas exploration and development activity remains positive as natural gas production continues to decline. On a longer-term basis, this shortfall will tend to reduce the industry's ability to maintain adequate supplies of natural gas in storage and should keep upward pressure on natural gas prices. However, the extent and timing of a recovery in drilling activity, especially in the offshore market, remains difficult to predict. Outside of the United States, the North Sea remains our largest drilling segment market, particularly for LWD, MWD and directional drilling services. However, due to the enactment of a United Kingdom tax law imposing a 10% supplementary tax on oil and natural gas profits derived from certain North Sea properties, many of our customers have reduced drilling activity in this region. In July 2002, the North Sea rotary rig count reached a low of 42. According to statistics published by Baker Hughes, the number of rotary rigs operating in the North Sea declined from an average of 67 in January 2002 to an average of 50 in June 2003. We do not expect any marked increase in activity levels in the North Sea in the near term. COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES This sector is our second largest business segment and provided approximately 34% of our first six months 2003 consolidated revenues. Revenues provided by the completion and workover segment are almost exclusively derived from the United States and the Gulf of Mexico. Although activity levels in the completion and workover of existing oil and natural gas wells are linked to commodity prices, our completion segment is less commodity price sensitive than our drilling segment. As a result, our completion and workover segment has and continues to provide stability during prolonged downturns in drilling activity. We have increased our revenue capacity in this segment through capital spending which, when combined with our acquisitions, has strengthened and further diversified our completion and workover segment. MAINTENANCE AND SAFETY RELATED PRODUCTS AND SERVICES Our maintenance and safety segment provided approximately 8% of our first six months 2003 consolidated revenues and is focused entirely in and along the Gulf Coast region of the United States. Although somewhat seasonal in nature, with higher activity levels in the early and late portions of the year, this segment is primarily dependent upon the maintenance activity levels of refineries and petrochemical plants and, to a lesser extent, on the level of exploration, development and production activity. RESULTS OF OPERATIONS The following information should be read in conjunction with our Consolidated Financial Statements and the accompanying notes presented elsewhere in this Form 10-Q. THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2002 Revenues. Revenues increased by $23.5 million, or approximately 32.1%, to $96.8 million for the three months ended June 30, 2003 from $73.3 million for the three months ended June 30, 2002. This increase was attributable to higher demand for products and services in each of our operating segments, as well as the revenue contributions of Boyd's Bit Service, Inc. ("Boyd's"), which was acquired in August 2002, and E.M. Hobbs, Inc. ("E.M. Hobbs"), which was acquired in November 2002. Revenues from our drilling related products and services increased by $8.2 million, or approximately 17.4%, to $55.2 million for the three months ended June 30, 2003 from $47.0 million for the three months ended June 30, 2002. This increase was primarily attributable to the increase in activity levels in the United States. 11 Revenues from our completion and workover related products and services increased by $14.6 million, or approximately 76.0%, to $33.8 million for the three months ended June 30, 2003 from $19.2 million for the three months ended June 30, 2002. This increase was the result of increases in capacity, increases in activity levels, high utilization of our coiled tubing and cased-hole wireline fleet, and increased demand for our completion fluids, as well as the impact of the acquisitions that we consummated after the second quarter of 2002 (Boyd's and E.M. Hobbs). Revenues from our maintenance and safety related products and services increased by $0.7 million, or approximately 9.9%, to $7.8 million for the three months ended June 30, 2003 from $7.1 million for the three months ended June 30, 2002, due primarily to increased sales of our safety products and turnaround related services. Cost of Revenues. Cost of revenues increased by $14.3 million, or approximately 35.4%, to $54.7 million for the three months ended June 30, 2003 from $40.4 million for the three months ended June 30, 2002. As a percentage of revenues, cost of revenues increased to 56.5% for the three months ended June 30, 2003 from 55.1% for the three months ended June 30, 2002. The increase in cost of revenues as a percentage of revenues was due to the continued effects of softness in pricing, increased insurance costs and our revenue mix, particularly increases in our North American directional drilling revenues, a market which we entered in late 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $3.3 million, or approximately 22.4%, to $18.0 million for the three months ended June 30, 2003 from $14.7 million for the three months ended June 30, 2002. The increase was primarily attributable to the addition of Boyd's and E.M. Hobbs, which were acquired after the second quarter of 2002, increased personnel costs related to expansion efforts within our coiled tubing and directional drilling business lines, as well as increased corporate costs. As a percentage of revenues, selling, general and administrative expenses decreased to 18.6% for the three months ended June 30, 2003 from 20.1% for the three months ended June 30, 2002. Research and Development Expenses. Research and development expenses increased by $0.5 million, or approximately 20.0%, to $3.0 million for the three months ended June 30, 2003 from $2.5 million for the three months ended June 30, 2002. This increase was the result of increased research and development spending on our PathFinder Energy Services, Inc. ("PathFinder") technologies. Depreciation and Amortization. Depreciation and amortization increased by $2.1 million, or approximately 27.6%, to $9.7 million for the three months ended June 30, 2003 from $7.6 million for the three months ended June 30, 2002. This increase was the result of depreciation associated with our continued capital expenditures, as well as additional depreciation and amortization due to our acquisitions. Interest and Other Expense. Interest and other expense for the three months ended June 30, 2003 was $2.0 million, an increase of $0.4 million, or approximately 25.0%, from $1.6 million for the three months ended June 30, 2002. This increase was primarily due to an overall increase in outstanding debt. Net Income. Net income for the three months ended June 30, 2003 was $5.8 million, an increase of $1.8 million, or approximately 45.0%, from the $4.0 million reported for the three months ended June 30, 2002. SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2002 Revenues. Revenues increased by $41.9 million, or approximately 28.0%, to $191.5 million for the six months ended June 30, 2003 from $149.6 million for the six months ended June 30, 2002. This increase was attributable to higher demand for products and services, in each of our operating segments, as well as the revenue contributions of Boyd's, which was acquired in August 2002, and E.M. Hobbs, which was acquired in November 2002. Revenues from our drilling related products and services increased by $12.4 million, or approximately 12.6%, to $111.2 million for the six months ended June 30, 2003 from $98.8 million for the six months ended June 30, 2002. This increase was primarily attributable to the increase in activity levels in the United States. 12 Revenues from our completion and workover related products and services increased by $28.5 million, or approximately 78.1%, to $65.0 million for the six months ended June 30, 2003 from $36.5 million for the six months ended June 30, 2002. This increase was the result of increases in capacity, increases in activity levels, higher utilization of our coiled tubing and cased-hole wireline fleet, and increased demand for our completion fluids, as well as the impact of the acquisitions that we consummated after the second quarter of 2002 (Boyd's and E.M. Hobbs). Revenues from our maintenance and safety related products and services increased by $1.0 million, or approximately 7.0%, to $15.3 million for the six months ended June 30, 2003 from $14.3 million for the six months ended June 30, 2002, due primarily to increased sales of our safety products and turnaround related services. Cost of Revenues. Cost of revenues increased by $25.4 million, or approximately 31.2%, to $106.9 million for the six months ended June 30, 2003 from $81.5 million for the six months ended June 30, 2002. As a percentage of revenues, cost of revenues increased to 55.8% for the six months ended June 30, 2003 from 54.5% for the six months ended June 30, 2002. The increase in cost of revenues as a percentage of revenues was due to the continued effects of softness in pricing, increased insurance costs and our revenue mix, particularly increases in our North American directional drilling revenues, a market which we entered in late 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $6.7 million, or approximately 22.0%, to $37.2 million for the six months ended June 30, 2003 from $30.5 million for the six months ended June 30, 2002. The increase was primarily attributable to the addition of Boyd's and E.M. Hobbs, which were acquired after the second quarter of 2002, increased personnel costs related to expansion efforts within our coiled tubing and directional drilling business lines, as well as increased corporate costs. As a percentage of revenues, selling, general and administrative expenses decreased to 19.4% for the six months ended June 30, 2003 from 20.4% for the six months ended June 30, 2002. Research and Development Expenses. Research and development expenses increased by $1.1 million, or approximately 24.4%, to $5.6 million for the six months ended June 30, 2003 from $4.5 million for the six months ended June 30, 2002. This increase was the result of increased research and development spending on our PathFinder technologies. Depreciation and Amortization. Depreciation and amortization increased by $4.5 million, or approximately 30.8%, to $19.1 million for the six months ended June 30, 2003 from $14.6 million for the six months ended June 30, 2002. This increase was the result of depreciation associated with our continued capital expenditures, as well as additional depreciation and amortization due to our acquisitions. Interest and Other Expense. Interest and other expense for the six months ended June 30, 2003 was $3.8 million, an increase of $0.7 million, or approximately 22.6%, from $3.1 million for the six months ended June 30, 2002. This increase was primarily due to an overall increase in outstanding debt. Net Income. Net income for the six months ended June 30, 2003 was $11.6 million, an increase of $2.1 million, or approximately 22.1%, from the $9.5 million reported for the six months ended June 30, 2002. LIQUIDITY AND CAPITAL RESOURCES Our primary uses for cash are working capital, capital expenditures, acquisitions, and principal and interest payments on indebtedness To the extent our cash requirements for working capital, capital expenditures, acquisitions and principal and interest payments on indebtedness exceed cash flow from operations, we must fund our cash requirements primarily through debt and equity financing activities. Working capital was $84.5 million as of June 30, 2003 and $73.9 million as of December 31, 2002. Net cash provided by operating activities was $19.1 million and $19.8 million for the six months ended June 30, 2003 and 2002, respectively. The increase in working capital and decrease in cash flow from operating activities are principally attributable to higher operating levels resulting in more accounts receivable at June 30, 2003. 13 Net cash used in investing activities was $24.3 million and $21.7 million for the six months ended June 30, 2003 and 2002, respectively. Net cash used in investing activities was principally the result of capital expenditures, offset by lost-in-hole proceeds. Net cash provided by financing activities was $2.2 million for the six months ended June 30, 2003. Net cash used in financing activities was $3.1 million for the six months ended June 30, 2002. Changes in financing activities were primarily the result of borrowings and repayments under our credit facility. With the exception of operating leases on real property and automobiles, we have no off-balance sheet debt or other off-balance sheet financing arrangements. We have not entered into any derivative or other financial instruments for trading or speculative purposes. In the first quarter of 2003, we obtained an additional revolving loan commitment of $10.0 million and a supplemental Term B loan of $5.0 million under our existing credit facility. As so amended, our credit facility includes the following features: - a $40.0 million Term A loan facility that amortizes over five years, matures on October 16, 2005 and requires that we make annual principal repayments ranging from zero in the first year to $14.0 million in the fifth year; - an $85.0 million Term B loan facility that amortizes over six and one-half years, matures on April 16, 2007 and requires that we make annual principal repayments of $0.85 in each of the first six years with the outstanding balance due on the maturity date; and - a $55.0 million revolving loan facility that may be borrowed, prepaid and reborrowed from time to time and matures on October 16, 2005. At our option, amounts borrowed under the credit facility bear interest at either a variable rate equal to the reserve-adjusted LIBOR or an alternate base rate, plus, in each case, an applicable margin. The applicable margin ranges from 1.75% to 3.00% in the case of a LIBOR based loan under the revolving loan facility or the Term A loan facility and is 3.25% in the case of a LIBOR based loan under the Term B loan facility. For alternate base rate loans, the applicable margin ranges from 0.75% to 2.00% under the revolving loan facility and the Term A loan facility and is 2.25% under the Term B loan facility. The foregoing margins are subject to adjustment based on a debt service coverage ratio and a leverage ratio. Our credit facility is secured by a lien on all of our property and assets, a pledge of all of the capital stock of our material domestic subsidiaries and a pledge of not greater than 65% of the capital stock of each of our foreign subsidiaries. In addition, our credit facility is guaranteed by all of our material domestic subsidiaries. The credit facility, among other things, requires that we maintain certain financial ratios and limits the amount of capital expenditures we may make, the amount of debt we may incur outside of the credit facility, the amount of future investments and our ability to pay dividends. At June 30, 2003, we were in compliance with these restrictive covenants. As of June 30, 2003 and December 31, 2002, we had outstanding borrowings under our credit facility of $146.4 million and $142.8 million, respectively, of which $35.4 million and $32.4 million, respectively, were outstanding under the revolving credit facility. In connection with the CTS acquisition in 2001, we issued $4.5 million in convertible subordinated notes (the "Notes") to eight individuals (the "Sellers") as partial consideration for the acquisition. The Notes bear interest at 9% per annum, payment of which is due quarterly. The principal and accrued interest matures on December 31, 2003. The Sellers may convert the Notes into shares of common stock within 30 days of maturity at a rate of 0.0331 shares of common stock for each $1.00 of principal, subject to adjustment based upon various factors. We may redeem the Notes at our discretion at any time prior to maturity with no prepayment penalty. However, the Sellers would have the option to exercise the conversion feature prior to redemption. We have no present intention to exercise the redemption feature. In connection with the U.S. Clay, L.P. acquisition in 2002, we issued a total of $1.8 million in promissory notes to the sellers as partial consideration for the acquisition. The notes were paid in full on April 25, 2003. 14 For the six months ended June 30, 2003, we made capital expenditures of $31.2 million, primarily for rental tool inventory, LWD and MWD tools, wireline equipment and coil tubing units, including expenditures for the replacement of equipment lost in hole. In addition, we incurred $5.6 million in research and development expenses for the six months ended June 30, 2003. Management believes that cash generated from operations, cash on-hand and amounts available under our revolving credit facility will provide sufficient funds for our identified capital projects, debt service and working capital requirements. However, part of our strategy involves the acquisition of companies that have products and services complementary to our existing strategic base of operations. Depending on the size of any future acquisitions, we may require additional debt financing, possibly in excess of the limits of the credit facility, or additional equity financing. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk. Market risk is the potential loss arising from adverse changes in market prices and rates. We have not entered into any derivative or other financial instruments for trading or speculative purposes. Our market risk could arise from changes in interest rates and foreign currency exchange rates. Interest Rate Risk. We are subject to market risk exposure related to changes in interest rates. Assuming our current level of borrowings, a 100 basis point increase in interest rates under these borrowings would have increased our interest expense by approximately $754,000 for the six months ended June 30, 2003. Foreign Currency Exchange Risk. Our earnings and financial position are affected by foreign exchange rate fluctuations. We currently do not hedge against foreign currency translation risks, and we believe that foreign currency exchange risk is not significant to our operations. Stock Price Volatility. Our ability to raise capital at a reasonable cost of capital is, in part, affected by the price of our stock. The market price of our stock may be influenced by many factors including variations in our earnings, variations in oil and natural gas prices, investor perceptions of us and other oilfield service companies and the liquidity of the market for our common stock. ITEM 4. CONTROLS AND PROCEDURES Our principal executive and financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2003. Based upon that evaluation, our principal executive and financial officer concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that our disclosure controls and procedures are effective to ensure that information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. In connection with the evaluation, no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) were identified that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 15 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS One of our subsidiaries, Charles Holston, Inc., has been named as a defendant in a case styled Bryson Adams, et al v. Environmental Purification Advancement Corporation, No. 99-1998, which was filed in Federal District Court for the Middle District of Louisiana. This lawsuit involves several hundred plaintiffs alleging personal injury and property damage associated with oilfield waste disposal practices over a 30-year period at a waste disposal facility located near Bayou Sorrel, west of Plaquemine, Louisiana. The plaintiffs in these cases are seeking unspecified amounts of general, special and exemplary damages. This case is in the early stages of discovery and it is, thus, too early for us to predict a likely outcome or our potential exposure. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On April 24, 2003, the Company issued 3,400 shares of Common Stock to John Samuell, a former employee of the Company, in consideration for Mr. Samuell's execution of a Separation Agreement with the Company. The issuance to Mr. Samuell was not registered under the Securities Act of 1935, as amended, pursuant to the provisions of Section 4(2) thereof. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 2002 annual meeting of the shareholders of the Company was held on May 14, 2003. The purpose of the annual meeting was to elect directors to the Company's Board of Directors and to ratify the appointment of PricewaterhouseCoopers, L.L.P. as the Company's independent accountants for the year ended December 31, 2003. At the annual meeting, each of the Company's then current directors were re-elected and John R. Brock was elected as a new director. The votes cast for each nominee and the votes withheld were as follows:
FOR WITHHELD ---------- -------- Kenneth T. White, Jr. ...................................... 23,053,201 168,081 Jonathan F. Boucher......................................... 23,095,192 126,090 J. Jack Watson.............................................. 23,095,192 126,090 Christopher Mills........................................... 23,095,142 126,140 Robert H. Whilden, Jr. ..................................... 23,073,267 148,015 Milton L. Scott............................................. 23,095,192 126,090 John R. Brock............................................... 23,095,192 126,090
In addition, PricewaterhouseCoopers, L.L.P. was ratified as the Company's independent accountants by a vote of 22,897,353 "For" and 323,529 "Against," with 400 "Abstain" votes. ITEM 5. OTHER INFORMATION Effective August 6, 2003 the Company's common stock began trading on the New York Stock Exchange under the symbol WHQ. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits The documents listed on the Exhibit Index following the signature pages hereto are filed with this Quarterly Report on Form 10-Q, and the contents of such Exhibit Index are hereby incorporated herein by reference. 16 b. Reports on Form 8-K On May 1, 2003, the Company filed a Current Report on Form 8-K pursuant to which the Company furnished its earnings information for the quarter ended March 31, 2003. 17 SIGNATURES 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, thereunto duly authorized.
W-H ENERGY SERVICES, INC. Date: August 14, 2003 By: /s/ JEFFREY L. TEPERA ------------------------------------------------- Jeffrey L. Tepera Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 14, 2003 By: /s/ ERNESTO BAUTISTA, III ------------------------------------------------- Ernesto Bautista, III Vice President and Corporate Controller (Principal Accounting Officer)
18 EXHIBIT INDEX
NUMBER EXHIBIT TITLE - ------ ------------- 11.1 -- Computation of Per Share Earnings 31.1 -- Certification of Chief Executive Officer of W-H Energy Services, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 -- Certification of Chief Financial Officer of W-H Energy Services, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 -- Certification of Chief Executive Officer of W-H Energy Services, Inc. pursuant 18 U.S.C. Section 1350 32.2 -- Certification of Chief Financial Officer of W-H Energy Services, Inc. pursuant 18 U.S.C. Section 1350
EX-11.1 3 h08378exv11w1.txt COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 W-H Energy Services, Inc. Statement Regarding Computation of Earnings Per Share The following reflects the information used in calculating the number of shares in the computation of net income per share for each of the periods set forth in the Consolidated Statements of Operations and Comprehensive Income.
AVERAGE DAYS SHARES INCOME SHARES OUTSTANDING SHARES X DAYS OUTSTANDING INCOME PER SHARE BASIC: Three months ended June 30, 2002 25,917,564 1 25,917,564 25,925,194 1 25,925,194 25,925,606 1 25,925,606 25,928,844 1 25,928,844 25,930,144 1 25,930,144 25,932,344 3 77,797,032 25,935,344 9 233,418,096 25,936,344 1 25,936,344 25,938,094 6 155,628,564 25,938,519 1 25,938,519 25,943,019 1 25,943,019 26,051,884 3 78,155,652 26,060,340 1 26,060,340 26,063,052 2 52,126,104 26,064,427 6 156,386,562 26,065,727 5 130,328,635 26,066,227 3 78,198,681 26,066,977 1 26,066,977 26,114,491 4 104,457,964 26,115,816 8 208,926,528 26,119,941 2 52,239,882 26,121,179 12 313,454,148 26,121,329 5 130,606,645 26,121,929 1 26,121,929 26,142,197 6 156,853,182 26,143,847 6 156,863,082 91 2,371,135,237 /91 26,056,431 4,005,000 0.15 Three months ended June 30, 2003 27,064,466 1 27,064,466 27,120,649 6 162,723,894 27,121,899 17 461,072,283 27,126,536 1 27,126,536 27,127,774 6 162,766,644 27,129,686 1 27,129,686 27,131,481 4 108,525,924 27,131,894 2 54,263,788 27,132,926 1 27,132,926 27,138,927 4 108,555,708 27,139,257 1 27,139,257 27,140,907 6 162,845,442 27,146,407 1 27,146,407 27,146,907 6 162,881,442 27,147,319 1 27,147,319 27,149,319 2 54,298,638 27,150,019 3 81,450,057 27,151,176 1 27,151,176 27,152,826 8 217,222,608 27,157,826 7 190,104,782 27,159,064 12 325,908,768 91 2,469,657,751 /91 27,139,096 5,760,000 0.21 Six months ended June 30, 2002 25,772,626 2 51,545,252 25,775,051 5 128,875,255 25,778,351 2 51,556,702 25,780,851 6 154,685,106 25,809,649 16 412,954,384 25,811,886 5 129,059,430 25,813,536 10 258,135,360 25,814,536 7 180,701,752 25,814,949 3 77,444,847 25,828,354 3 77,485,062 25,832,169 1 25,832,169
25,851,969 4 103,407,876 25,852,969 1 25,852,969 25,855,032 1 25,855,032 25,857,713 4 103,430,852 25,858,163 2 51,716,326 25,887,670 5 129,438,350 25,891,164 1 25,891,164 25,892,814 7 181,249,698 25,917,564 6 155,505,384 25,925,194 1 25,925,194 25,925,606 1 25,925,606 25,928,844 1 25,928,844 25,930,144 1 25,930,144 25,932,344 3 77,797,032 25,935,344 9 233,418,096 25,936,344 1 25,936,344 25,938,094 6 155,628,564 25,938,519 1 25,938,519 25,943,019 1 25,943,019 26,051,884 3 78,155,652 26,060,340 1 26,060,340 26,063,052 2 52,126,104 26,064,427 6 156,386,562 26,065,727 5 130,328,635 26,066,227 3 78,198,681 26,066,977 1 26,066,977 26,114,491 4 104,457,964 26,115,816 8 208,926,528 26,119,941 2 52,239,882 26,121,179 12 313,454,148 26,121,329 5 130,606,645 26,121,929 1 26,121,929 26,142,197 6 156,853,182 26,143,847 6 156,863,082 181 4,695,840,643 /181 25,943,871 9,467,000 0.36 Six months ended June 30, 2003 27,015,847 3 81,047,541 27,020,847 7 189,145,929 27,028,247 3 81,084,741 27,032,647 1 27,032,647 27,035,647 14 378,499,058 27,038,947 3 81,116,841 27,039,788 14 378,557,032 27,041,438 7 189,290,066 27,045,422 5 135,227,110 27,046,522 14 378,651,308 27,048,522 5 135,242,610 27,064,466 15 405,966,990 27,120,649 6 162,723,894 27,121,899 17 461,072,283 27,126,536 1 27,126,536 27,127,774 6 162,766,644 27,129,686 1 27,129,686 27,131,481 4 108,525,924 27,131,894 2 54,263,788 27,132,926 1 27,132,926 27,138,927 4 108,555,708 27,139,257 1 27,139,257 27,140,907 6 162,845,442 27,146,407 1 27,146,407 27,146,907 6 162,881,442 27,147,319 1 27,147,319 27,149,319 2 54,298,638 27,150,019 3 81,450,057 27,151,176 1 27,151,176 27,152,826 8 217,222,608 27,157,826 7 190,104,782 27,159,064 12 325,908,768 181 4,903,455,158 /181 27,090,912 11,628,000 0.43 DILUTED: Three months ended June 30, 2002 27,481,064 1 27,481,064 27,488,694 1 27,488,694 27,489,106 1 27,489,106 27,492,344 1 27,492,344 27,493,644 1 27,493,644 27,495,844 3 82,487,533
27,498,844 9 247,489,600 27,499,844 1 27,499,844 27,501,594 6 165,009,566 27,502,019 1 27,502,019 27,506,519 1 27,506,519 27,615,384 3 82,846,153 27,623,840 1 27,623,840 27,626,552 2 55,253,105 27,627,927 6 165,767,564 27,629,227 5 138,146,137 27,629,727 3 82,889,182 27,630,477 1 27,630,477 27,677,991 4 110,711,966 27,679,316 8 221,434,531 27,683,441 2 55,366,883 27,684,679 12 332,216,153 27,684,829 5 138,424,147 27,685,429 1 27,685,429 27,705,697 6 166,234,184 27,707,347 6 166,244,084 91 2,513,413,775 /91 27,619,932 4,005,000 0.15 Three Months ended June 30, 2003 28,009,457 1 28,009,457 28,065,640 6 168,393,840 28,066,890 17 477,137,130 28,071,527 1 28,071,527 28,072,765 6 168,436,590 28,074,677 1 28,074,677 28,076,472 4 112,305,888 28,076,885 2 56,153,770 28,077,917 1 28,077,917 28,083,918 4 112,335,672 28,084,248 1 28,084,248 28,085,898 6 168,515,388 28,091,398 1 28,091,398 28,091,898 6 168,551,388 28,092,310 1 28,092,310 28,094,310 2 56,188,620 28,095,010 3 84,285,030 28,096,167 1 28,096,167 28,097,817 8 224,782,536 28,102,817 7 196,719,719 28,104,055 12 337,248,660 91 2,555,651,932 /91 28,084,087 5,760,000 0.21 Six months ended June 30, 2002 27,290,533 2 54,581,066 27,292,958 5 136,464,790 27,296,258 2 54,592,516 27,298,758 6 163,792,548 27,327,556 16 437,240,896 27,329,793 5 136,648,965 27,331,443 10 273,314,430 27,332,443 7 191,327,101 27,332,856 3 81,998,568 27,346,261 3 82,038,783 27,350,076 1 27,350,076 27,369,876 4 109,479,504 27,370,876 1 27,370,876 27,372,939 1 27,372,939 27,375,620 4 109,502,480 27,376,070 2 54,752,140 27,405,577 5 137,027,885 27,409,071 1 27,409,071 27,410,721 7 191,875,047 27,435,471 6 164,612,826 27,443,101 1 27,443,101 27,443,513 1 27,443,513 27,446,751 1 27,446,751 27,448,051 1 27,448,051 27,450,251 3 82,350,753 27,453,251 9 247,079,259 27,454,251 1 27,454,251 27,456,001 6 164,736,006 27,456,426 1 27,456,426 27,460,926 1 27,460,926 27,569,791 3 82,709,373 27,578,247 1 27,578,247 27,580,959 2 55,161,918
27,582,334 6 165,494,004 27,583,634 5 137,918,170 27,584,134 3 82,752,402 27,584,884 1 27,584,884 27,632,398 4 110,529,592 27,633,723 8 221,069,784 27,637,848 2 55,275,696 27,639,086 12 331,669,032 27,639,236 5 138,196,180 27,639,836 1 27,639,836 27,660,104 6 165,960,624 27,661,754 6 165,970,524 181 4,970,581,817 /181 27,461,778 9,467,000 0.34 Six Months ended June 30, 2003 27,895,130 3 83,685,390 27,900,130 7 195,300,910 27,907,530 3 83,722,590 27,911,930 1 27,911,930 27,914,930 14 390,809,020 27,918,230 3 83,754,690 27,919,071 14 390,866,994 27,920,721 7 195,445,047 27,924,705 5 139,623,525 27,925,805 14 390,961,270 27,927,805 5 139,639,025 27,943,749 15 419,156,235 27,999,932 6 167,999,592 28,001,182 17 476,020,094 28,005,819 1 28,005,819 28,007,057 6 168,042,342 28,008,969 1 28,008,969 28,010,764 4 112,043,056 28,011,177 2 56,022,354 28,012,209 1 28,012,209 28,018,210 4 112,072,840 28,018,540 1 28,018,540 28,020,190 6 168,121,140 28,025,690 1 28,025,690 28,026,190 6 168,157,140 28,026,602 1 28,026,602 28,028,602 2 56,057,204 28,029,302 3 84,087,906 28,030,459 1 28,030,459 28,032,109 8 224,256,872 28,037,109 7 196,259,763 28,038,347 12 336,460,164 181 5,062,605,381 /181 27,970,195 11,628,000 0.42
EX-31.1 4 h08378exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kenneth T. White, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of W-H Energy Services, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(c)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ KENNETH T. WHITE, JR. - -------------------------------------------- Name: Kenneth T. White, Jr. Title: President and Chief Executive Officer EX-31.2 5 h08378exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeffrey L. Tepera, certify that: 1. I have reviewed this quarterly report on Form 10-Q of W-H Energy Services, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(c)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ JEFFREY L. TEPERA - ----------------------------------------------------- Name: Jeffrey L. Tepera Title: Vice President and Chief Financial Officer EX-32.1 6 h08378exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER W-H ENERGY SERVICES, INC. PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying report on Form 10-Q for the period ended June 30, 2003 and filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth T. White, Jr., the Chief Executive Officer of W-H Energy Services, Inc. (the "Company"), hereby certify, to my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company in respect of those items required to be described or presented in such Report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934. /s/ Kenneth T. White, Jr. ------------------------------- Name: Kenneth T. White, Jr. Date: August 14, 2003 This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. EX-32.2 7 h08378exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER W-H ENERGY SERVICES, INC. PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying report on Form 10-Q for the period ended June 30, 2003 and filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey L. Tepera, the Chief Financial Officer of W-H Energy Services, Inc. (the "Company"), hereby certify, to my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company in respect of those items required to be described or presented in such Report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934. /s/ Jeffrey L. Tepera ----------------------------------- Name: Jeffrey L. Tepera Date: August 14, 2003 This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. -----END PRIVACY-ENHANCED MESSAGE-----