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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended December 31, 2000
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 Numbers: 001-15843
333-48279
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
(Exact name of registrants as specified in their charters)
DELAWARE 13-3989167
TEXAS 74-1282680
(States or other jurisdictions of (I.R.S. Employer
incorporation of organization) Identification Nos.)
4440 BRITTMOORE ROAD
HOUSTON, TEXAS 77041-8004
(Address of principal executive (Zip Code)
offices)
(713) 335-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
UNIVERSAL COMPRESSION, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q
WITH THE REDUCED DISCLOSURE FORMAT.
As of February 12, 2000, there were 28,456,245 shares of Universal Compression
Holdings, Inc.'s common stock, $0.01 par value, outstanding and 4,910 shares of
Universal Compression, Inc.'s common stock, $10.00 par value, outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL COMPRESSION HOLDINGS, INC.
(IN THOUSANDS, EXCEPT SHARE DATA)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
2000 2000
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 7,442 $ 1,403
Accounts receivable, net 30,931 14,615
Current portion of notes receivable 3,190 1,535
Inventories 20,523 8,727
Current deferred tax asset 227 227
Other 1,451 1,571
--------- ---------
Total current assets 63,764 28,078
Property, plant and equipment
Rental equipment 366,182 349,198
Other 28,085 19,617
Accumulated depreciation (50,610) (38,466)
--------- ---------
Net property, plant and equipment 343,657 330,349
Goodwill, net of accumulated amortization 130,464 99,250
Notes receivable 5,048 1,117
Other non-current assets, net 8,190 7,570
Non-current deferred tax asset 7,509 3,578
--------- ---------
Total assets $ 558,632 $ 469,942
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 20,371 $ 10,911
Accrued liabilities 13,180 6,869
Current portion of long-term debt and capital lease obligation 3,097 4,206
--------- ---------
Total current liabilities 36,648 21,986
Capital lease obligations 4,870 10,243
Long-term debt 204,184 363,036
Non-current deferred tax liability 2,806 --
Other liabilities 44,731 --
--------- ---------
Total liabilities 293,239 395,265
Commitments and Contingencies (see note 10) Stockholders' equity:
Series A preferred stock, $.01 par value, 50,000,000 and 5,000,000 shares
authorized, 0 and 1,320,128 shares issued, 0 and 1,318,896 shares
outstanding
at December 31, 2000 and March 31, 2000, respectively -- 13
Common stock, $.01 par value, 200,000,000 and 994,000 shares
authorized, 14,736,397 and 330,032 shares issued, 14,723,155
and 329,724 shares outstanding at December 31, 2000 and
March 31, 2000, respectively 147 3
Class A non-voting common stock, $.01 par value,
0 and 6,000 shares authorized, 0 and 4,120 shares issued, 0 and 3,210
shares outstanding at December 31,
2000 and March 31, 2000, respectively -- --
Treasury stock, 13,242 and 2,450 shares at cost at
December 31, 2000 and March 31, 2000, respectively (135) (123)
Additional paid-in capital 279,339 82,697
Retained deficit (13,958) (7,913)
--------- ---------
Total stockholders' equity 265,393 74,677
--------- ---------
Total liabilities and stockholders' equity $ 558,632 $ 469,942
========= =========
See accompanying notes to unaudited consolidated financial statements.
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UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Rentals $ 36,172 $ 25,311 $ 91,127 $ 72,174
Sales 23,800 8,349 42,201 30,223
Other 42 69 299 128
--------- --------- --------- ---------
Total revenues 60,014 33,729 133,627 102,525
Costs and expenses:
Rentals, exclusive of depreciation and amortization 12,259 9,049 31,132 26,153
Cost of sales, exclusive of depreciation and amortization 21,332 6,900 36,360 25,650
Depreciation and amortization 7,726 7,001 21,903 18,679
Selling, general and administrative 4,747 4,004 11,971 12,658
Operating lease 3,539 -- 6,223 --
Interest expense 5,372 8,832 18,597 25,278
Non-recurring charges -- -- 7,059 --
--------- --------- --------- ---------
Total costs and expenses 54,975 35,786 133,245 108,418
--------- --------- --------- ---------
Income (loss) before income taxes and extraordinary items 5,039 (2,057) 382 (5,893)
Income taxes (benefit) 1,909 (781) 163 (1,801)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) before extraordinary items $ 3,130 $ (1,276) $ 219 $ (4,092)
========= ========= ========= =========
Extraordinary loss, net of $3,759
income tax benefit -- -- (6,264) --
--------- --------- --------- ---------
Net income (loss) $ 3,130 $ (1,276) $ (6,045) $ (4,092)
========= ========= ========= =========
Weighted average common and common equivalent shares outstanding:
Basic 14,666 -- 12,342 --
--------- --------- --------- ---------
Diluted 15,052 -- 12,714 --
--------- --------- --------- ---------
Earnings per share - basic:
Income before extraordinary items $ 0.21 $ -- $ 0.02 $ --
Extraordinary loss -- -- (0.51) --
--------- --------- --------- ---------
Net income (loss) $ 0.21 $- $ (0.49) $ --
========= ========= ========= =========
Earnings per share - diluted:
Income before extraordinary items $ 0.21 $ -- $ 0.02 $ --
Extraordinary loss -- -- (0.49) --
--------- --------- --------- ---------
Net income (loss) $ 0.21 $ -- $ (0.47) $ --
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
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UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
Cash flows from operating activities:
Net loss $ (6,045) $ (4,092)
Adjustments to reconcile net loss to cash
provided by operating activities, net of effect of acquisitions:
Depreciation and amortization 21,903 18,679
Gain on asset sales (102) (83)
Amortization of debt issuance costs 1,136 872
Accretion of discount notes 14,362 15,035
Deferred income taxes (1,125) --
Change in operating assets and liabilities, net
(Increase) decrease in receivables (21,902) 6,965
Increase in inventories (11,796) (3)
Increase in accounts payable 9,460 426
Increase (decrease) in accrued expenses 4,170 (2,902)
Other 3,684 (1,781)
--------- ---------
Net cash provided by operating activities 13,745 33,116
Cash flows from investing activities:
Additions to property, plant and equipment, net (47,425) (42,505)
Capital leaseback of vehicles (1,276) (4,354)
Acquisitions (125,361) --
Proceeds from sale of fixed assets 154,611 --
--------- ---------
Net cash used in investing activities (19,451) (46,859)
Cash flows from financing activities:
Principal repayments of long-term debt (107,368) (376)
Net repayment under revolving line of credit (72,000) (400)
Net proceeds (repayment) on sale-leaseback of vehicles (442) 3,491
Net proceeds (repayment) of financing lease (10,580) 10,754
Common stock issuance 196,773 --
Debt issuance costs (5,320) --
Treasury stock (12) (26)
Debt assumed in acquisitions 10,694 --
--------- ---------
Net cash provided by financing activities 11,745 13,443
Net increase (decrease) in cash and cash equivalents 6,039 (300)
Cash and cash equivalents at beginning of period 1,403 2,927
--------- ---------
--------- ---------
Cash and cash equivalents at end of period $ 7,442 $ 2,627
========= =========
See accompanying notes to unaudited consolidated financial statements.
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UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION
Universal Compression Holdings, Inc. (the "Company") was formed on December 12,
1997 for the purpose of acquiring Tidewater Compression Service, Inc. ("TCS")
from Tidewater Inc. ("Tidewater"). Upon completion of the acquisition on
February 20, 1998 (the "Tidewater Acquisition"), TCS became the Company's
wholly-owned subsidiary and changed its name to Universal Compression, Inc.
("Universal"). Through this subsidiary, the Company's gas compression service
operations date back to 1954. The Company is a holding company which conducts
its operations through its wholly-owned subsidiary, Universal. Accordingly, the
Company is dependent upon the distribution of earnings from Universal, whether
in the form of dividends, advances or payments on account of intercompany
obligations, to service its debt obligations. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements presented in the Company's Annual Report on Form 10-K for the year
ended March 31, 2000. That report contains a more comprehensive summary of the
Company's major accounting policies. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all appropriate
adjustments, all of which are normally recurring adjustments unless otherwise
noted, considered necessary to present fairly the financial position of the
Company and its consolidated subsidiaries and the results of operations and cash
flows for the respective periods. Operating results for the three and nine-month
periods ended December 31, 2000 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 2001.
The Company is a leading provider of natural gas compressor rental, sales,
operations, maintenance and fabrication services to the natural gas industry,
with one of the largest gas compressor fleets in the United States, and has a
growing presence in key international markets. As of December 31, 2000, the
Company had a broad base of over 750 customers and maintained a fleet of over
3,400 compression rental units. In addition, as of such date, the Company owned
approximately 841,000 horsepower and serviced under contract approximately
186,000 horsepower. The Company operates in every significant natural gas
producing region in the United States through its 38 compression sales and
service locations. As a complement to its rental operations, the Company designs
and fabricates compression units for its own fleet as well as for its global
customer base.
During the quarter ended June 30, 2000, the Company completed an initial public
offering of 7,275,000 shares of its common stock (which includes 275,000 shares
of common stock issued pursuant to an over-allotment option granted to the
underwriters), which provided the Company with net proceeds (after deducting
underwriting discounts and commissions) of approximately $149.2 million.
Concurrently with the initial public offering, the Company implemented a
recapitalization pursuant to which all existing classes of the Company's stock
were converted into common stock. Also concurrently with the initial public
offering, the Company entered into a $50 million revolving credit facility and
$200 million operating lease facility. The proceeds of the offering and the
$62.6 million in initial proceeds from the new operating lease facility were
used to repay $192.7 million of indebtedness, and the remaining proceeds were
used for working capital and to pay expenses associated with the offering and
concurrent financing transactions.
The Company completed the merger of Gas Compression Services, Inc. ("GCSI") into
Universal on September 15, 2000. In the merger, the GCSI shareholders received
approximately $12 million in cash, 1,400,726 shares of the Company's common
stock and the Company assumed or refinanced approximately $63 million of
indebtedness of GCSI. The Company also completed its acquisition of Weatherford
Global Compression Services, L.P. and certain related entities on February 9,
2001. See Note 11.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of shares
outstanding for the period. Diluted earnings per share is computed using the
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock. Included in
diluted shares for the three and nine-month periods ended December 31, 2000 are
common stock equivalents relating to options of 386,000 and 372,000,
respectively. Common stock equivalents are calculated using the treasury stock
method. Earnings per share information is not presented for the three and
nine-month periods ended December 31, 1999 as such information would not be
meaningful because the Company was beneficially owned by a single stockholder
under the terms of voting agreements during such periods.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to conform to
the current year classification.
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GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis primarily over 40 years.
Accumulated amortization was $7.5 million and $5.2 million at December 31, 2000
and March 31, 2000, respectively. At the balance sheet date, the Company
evaluated the recoverability of goodwill based on expectations of undiscounted
cash flows from operations and determined that no impairment had occurred.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." In June 2000, the FASB
issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four
areas causing difficulties in implementation. The amendment included expanding
the normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities, and redefining interest
rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as (1) hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (3) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. We
will adopt SFAS 133 and the corresponding amendments under SFAS138 on April 1,
2001. We are currently determining the impact of SFAS 133 on our consolidated
results of operations and financial position. This statement should have no
impact on consolidated cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
On June 26, 2000, the SEC issued an amendment to SAB 101, effectively delaying
its implementation until the fourth quarter of fiscal years beginning after
December 15, 1999. After reviewing SAB 101 and its amendment, management
believes that its revenue recognition policy is appropriate and that any
possible effects of SAB 101 and its amendment will be immaterial to the
Company's results of operations.
3. BUSINESS COMBINATION
On September 15, 2000, the Company completed the merger of GCSI, a supplier of
natural gas compression equipment and services with fabrication and overhaul
facilities in Michigan and Texas, into Universal for a combination of
approximately $12 million in cash, 1,400,726 shares of the Company's common
stock valued at approximately $39 million and the assumption or refinancing of
approximately $63 million of indebtedness. All of the assumed or refinanced
indebtedness, except for approximately $10 million, were paid off concurrent
with the merger using proceeds received under the Company's operating lease
facility. The acquisition was accounted for under the purchase method of
accounting and resulted in the recognition of approximately $33 million in
goodwill. Results of operations for GCSI are included in the accompanying
consolidated financial statements for the entire three-months ended December 31,
2000 and for 107 days of the nine-months ended December 31, 2000.
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4. INVENTORIES
Inventories consisted of (in thousands):
DECEMBER 31, MARCH 31,
2000 2000
---- ----
Finished goods $11,346 $5,551
Work-in-progress 9,177 3,176
------- ------
Total $20,523 $8,727
======= ======
5. OPERATING LEASE FACILITY
In May 2000, the Company and Universal entered into a $200 million operating
lease facility pursuant to which the Company may sell and lease back certain
compression equipment from a Delaware business trust for a five-year term. The
rental payments under the lease facility include an amount based on LIBOR plus a
variable amount depending on the Company's operating and financial results,
applied to the funded amount of the lease. Under the lease facility, the Company
received an aggregate of approximately $155 million in proceeds from the sale of
compression equipment in May, November and December 2000 and in connection with
the GCSI acquisition, in September 2000. The equipment was sold and leased back
by the Company for a five-year period from May 2000 and deployed by the Company
under its normal operating procedures. The equipment sold had a book value of
approximately $106 million and the equipment sale resulted in a gain of
approximately $49 million that was deferred until the end of the lease.
The Company had residual value guarantees on the equipment under the operating
lease facility of approximately 85% of the funded amount that were due upon
termination of the lease and which could be satisfied by a cash payment or the
exercise of the purchase option. The facility contained certain covenants
restricting the Company's operations, including its ability to enter into
acquisition and sales transactions, incur additional indebtedness, permit
additional liens on its assets and pay dividends. The Company's obligations
under this facility were secured by liens on its compression equipment subject
to the lease and certain related rights. Under the operating lease facility,
Universal was the lessee and the Company guaranteed certain of Universal's
obligations thereunder. The Company has replaced this facility with new
operating lease facilities with similar terms (See Note 11).
6. EXTRAORDINARY LOSSES
During the quarter ended June 30, 2000, the Company incurred extraordinary
losses of $6.3 million, net of income taxes of $3.7 million, related to its debt
restructuring that occurred concurrently with the Company's initial public
offering of its common stock.
7. NON-RECURRING CHARGES
During the quarter ended June 30, 2000, the Company incurred non-recurring
charges of $4.4 million, net of income taxes of $2.7 million, related to the
early termination of a management agreement and a consulting agreement and other
related fees in connection with the Company's initial public offering and
concurrent financing transactions.
8. RELATED PARTY TRANSACTIONS
In connection with the initial public offering in the quarter ended June 30,
2000, the Company terminated its Management Agreement with Castle Harlan, Inc.
and its Finders and Consulting Agreement with Samuel Urcis, a director of the
Company. In exchange for such terminations, the Company paid $3 million in cash
and issued 136,364 shares of its common stock to Castle Harlan, and paid
$150,000 in cash and issued 6,818 shares of common stock to Mr. Urcis.
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9. INDUSTRY SEGMENTS
The Company has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer and the Company's own specifications.
The International Rental and Maintenance segment represents substantially all of
the Company's foreign based operations.
The Company evaluates performance based on profit or loss from operations, which
is defined as income before income taxes less gain on asset sales and interest
income plus interest expense and operating lease expense. Revenue include sales
to unaffiliated customers. Gross margin is defined as total revenue less rental
expenses, cost of sales (exclusive of depreciation and amortization), gain on
asset sales and interest income. The Corporate and Other segment, which
represents primarily part sales and services, corporate activities, and all
other items that could not be allocated to an identifiable segment, principally
serves the oil and gas market, including sales of parts and equipment utilized
in the extraction of natural gas and the services that the Company provides to
customers' natural gas compression units.
The following table presents sales and other financial information by industry
segment for the three months ended December 31, 2000 and 1999 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ----------- -------- ----- -----
December 31, 2000:
Revenues $ 31,747 $ 4,425 $ 17,329 $ 6,513 $ 60,014
Gross margin $ 20,526 $ 3,387 $ 1,705 $ 755 $ 26,373
Operating income $ 10,836 $ 1,354 $ 1,015 $ 695 $ 13,900
December 31, 1999:
Revenues $ 21,416 $ 3,896 $ 4,977 $ 3,440 $ 33,729
Gross margin $ 13,735 $ 2,528 $ 725 $ 713 $ 17,701
Operating income $ 5,385 $ 723 $ 158 $ 430 $ 6,696
The following table presents sales and other financial information by industry
segment for the nine months ended December 31, 2000 and 1999 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ----------- -------- ----- -----
December 31, 2000:
Revenues $ 78,318 $ 12,810 $ 33,308 $ 9,191 $ 133,627
Gross margin $ 50,296 $ 9,700 $ 4,590 $ 1,268 $ 65,854
Operating income $ 24,217 $ 3,952 $ 2,732 $ 1,079 $ 31,980
December 31, 1999:
Revenues $ 61,528 $ 10,647 $ 19,874 $ 10,476 $ 102,525
Gross margin $ 38,569 $ 7,454 $ 2,458 $ 2,089 $ 50,570
Operating income $ 14,711 $ 2,727 $ 622 $ 1,173 $ 19,233
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10. COMMITMENTS AND CONTINGENCIES
In February 1998, in connection with the Tidewater Acquisition, the Company
entered into a Purchase Price Adjustment Agreement with Tidewater. The agreement
provides for potential additional amounts to be paid to Tidewater upon a
liquidity event, as defined in the agreement. If a liquidity event occurs and
Castle Harlan Partners III and its affiliates receive an amount greater than its
accreted investment (defined as its initial investment increased at a compounded
rate of 6.25% each quarter, which equates to approximately 27.4% annually), the
Company must make a payment to Tidewater equal to 10% of the amount, if any,
that Castle Harlan receives in excess of its accreted investment. Any payment
pursuant to this agreement would result in an increase in goodwill in the year
of payment and a corresponding increase in goodwill and amortization expense in
subsequent years. As of December 31, 2000, Castle Harlan's accreted investment
was approximately $28.78 per share, which will continue to grow at a compounded
rate of 6.25% per quarter. As of December 31, 2000, no liquidity event, as
defined in the agreement, that required a payment had occurred.
In the ordinary course of business, the Company is involved in various pending
or threatened legal actions. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the Company's financial position, operating results
or cash flows.
11. SUBSEQUENT EVENTS
On February 9, 2001, the Company completed its acquisition of Weatherford Global
Compression Services and certain related entities ("WGC"), a supplier of natural
gas compression equipment and services and a division of Weatherford
International, Inc. Under the terms of the agreement, a subsidiary of
Weatherford International was merged into Universal in exchange for 13.75
million restricted shares of the Company's common stock, which represents
approximately 48% of the outstanding shares of the combined company. In
connection with the acquisition, Weatherford has agreed, subject to certain
conditions, to limit its voting rights to 33 1/3% of the Company's voting power
for up to two years. In addition, the Company restructured approximately $323
million in debt and operating leases of WGC. The transaction was accounted for
as a purchase. Prior to closing, Weatherford International acquired the interest
of its minority partner in WGC. Also, Weatherford International retained certain
assets and operations related to WGC's Singapore-based operations and
approximately $10 million in accounts receivable.
In connection with the acquisition, on February 9, 2001, the Company raised $427
million under a new operating lease facility funded primarily through an
offering of $350 million 8 7/8% senior secured notes due 2008 by an unaffiliated
entity (the "SSN Operating Lease Facility"). The Company also entered into a new
$125 million secured revolving credit facility and a new $200 million
asset-backed securitization operating lease facility (the "ABS Operating Lease
Facility"). At the closing, the Company funded approximately $80 million under
the ABS Operating Lease Facility and had no amounts outstanding under the new
revolving credit facility. The proceeds from the two new operating lease
facilities were used to restructure existing operating lease obligations and
refinance certain existing indebtedness of the Company (including the previous
operating lease facility described in Note 5) and WGC.
Subsequent to the WGC acquisition and related financing transactions, the
Company had approximately $198 million outstanding under its 9 7/8% Senior
Discount Notes due 2008 and approximately $13 million of other indebtedness. In
addition, the Company funded approximately $427 million under the SSN Operating
Lease Facility and approximately $80 million under the ABS Operating Lease
Facility. The Company has unused commitments of approximately $245 million
(approximately $120 million under the ABS Operating Lease Facility and $125
million under the new revolving credit facility). These facilities contain
restrictions similar to the Company's previous operating lease facility and
revolving credit facility.
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UNIVERSAL COMPRESSION, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
2000 2000
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 7,442 $ 1,403
Accounts receivable, net 30,931 14,615
Current portion of notes receivable 3,190 1,535
Inventories 20,523 8,727
Current deferred tax asset 227 227
Other 1,375 1,519
--------- ---------
Total current assets 63,688 28,026
Property, plant and equipment
Rental equipment 366,182 349,198
Other 28,085 19,617
Accumulated depreciation (50,610) (38,466)
--------- ---------
Net property, plant and equipment 343,657 330,349
Goodwill, net of accumulated amortization 129,684 99,013
Notes receivable 5,048 1,117
Other non-current assets, net 8,190 6,878
Non-current deferred tax asset 3,171 962
--------- ---------
Total assets $ 553,438 $ 466,345
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable, trade $ 20,597 $ 10,911
Accrued liabilities 13,180 6,869
Current portion of long-term debt and capital lease obligation 3,097 4,206
--------- ---------
Total current liabilities 36,874 21,986
Capital lease obligations 4,870 10,243
Long-term debt 204,184 331,383
Payable to parent 155,139 1,288
Non-current deferred tax liability 2,806 --
Other liabilities 44,731 --
--------- ---------
Total liabilities 448,604 364,900
Commitments and Contingencies (see note 10) Stockholder's equity:
Common stock, $10 par value, 5,000 shares authorized and
4,910 shares issued and outstanding 49 49
Additional paid-in capital 111,316 105,131
Retained deficit (6,531) (3,735)
--------- ---------
Total stockholder's equity 104,834 101,445
--------- ---------
Total liabilities and stockholder's equity $ 553,438 $ 466,345
========= =========
See accompanying notes to unaudited consolidated financial statements.
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UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ------------- ------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Rentals $ 36,172 $ 25,311 $ 91,127 $ 72,174
Sales 23,800 8,349 42,201 30,223
Other 42 69 299 128
--------- --------- --------- ---------
Total revenues 60,014 33,729 133,627 102,525
Costs and expenses:
Rentals, exclusive of depreciation and 12,259 9,049 31,132 26,153
amortization
Cost of sales, exclusive of depreciation and 21,332 6,900 36,360 25,650
amortization
Depreciation and amortization 7,725 6,999 21,897 18,674
Selling, general and administrative 4,747 4,004 11,971 12,658
Operating lease 3,539 -- 6,223 --
Interest expense 5,372 7,965 17,999 22,750
Non-recurring charges -- -- 7,059 --
--------- --------- --------- ---------
Total costs and expenses 54,974 34,917 132,641 105,885
--------- --------- --------- ---------
Income (loss) before income taxes and extraordinary 5,040 (1,188) 986 (3,360)
items
Income taxes (benefit) 1,909 (450) 389 (838)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) before extraordinary items $ 3,131 $ (738) $ 597 $ (2,522)
========= ========= ========= =========
Extraordinary loss, net of $2,037 income tax -- -- (3,393) --
benefit
--------- --------- --------- ---------
Net income (loss) $ 3,131 $ (738) $ (2,796) $ (2,522)
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
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UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (2,797) $ (2,522)
Adjustments to reconcile net loss to cash
provided from operating activities, net of effect of acquisitions:
Depreciation and amortization 21,898 18,674
Gain on asset sales (102) (83)
Amortization of debt issuance costs 1,121 806
Accretion of discount notes 13,779 12,573
Increase (decrease) in payable to parent 153,851 (48)
Deferred income taxes 597 --
Change in operating assets and liabilities, net
(Increase) decrease in receivables (21,902) 6,965
Increase in inventories (11,796) (3)
Increase in accounts payable 9,460 426
Increase (decrease) in accrued expenses 4,170 (2,902)
Other 3,806 (796)
--------- ---------
Net cash provided by operating activities 172,085 33,090
Cash flows from investing activities:
Additions to property, plant and equipment, net (47,425) (42,505)
Capital leaseback of vehicles (1,276) (4,354)
Acquisitions (125,361) --
Proceeds from sale of fixed assets 154,611 --
--------- ---------
Net cash used in investing activities (19,451) (46,859)
Cash flows from financing activities:
Principal repayments of long-term debt (75,132) (376)
Net repayment under revolving line of credit (72,000) (400)
Net proceeds (repayment) on sale-leaseback of vehicles (442) 3,491
Net proceeds (repayment) of financing lease (10,580) 10,754
Acquisition 6,185 --
Debt issuance costs (5,320) --
Debt assumed in acquisitions 10,694 --
--------- ---------
Net cash provided by (used in) financing activities (146,595) 13,469
Net increase (decrease) in cash and cash equivalents 6,039 (300)
Cash and cash equivalents at beginning of period 1,403 2,927
--------- ---------
--------- ---------
Cash and cash equivalents at end of period $ 7,442 $ 2,627
========= =========
See accompanying notes to unaudited consolidated financial statements.
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13
UNIVERSAL COMPRESSION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION
Universal Compression Holdings, Inc. (the "Company") was formed on December 12,
1997 for the purpose of acquiring TCS, which was formed in 1954, from Tidewater.
Upon completion of the Tidewater Acquisition on February 20, 1998, TCS became
the Company's wholly-owned subsidiary and changed its name to Universal
Compression, Inc. ("Universal"). Universal is a wholly-owned subsidiary of the
Company. These consolidated financial statements should be read in conjunction
with the consolidated financial statements presented in Universal's Annual
Report on Form 10-K for the year ended March 31, 2000. That report contains a
more comprehensive summary of Universal's major accounting policies. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all appropriate adjustments, all of which are normally
recurring adjustments unless otherwise noted, considered necessary to present
fairly the financial position of Universal and its consolidated subsidiaries and
the results of operations and cash flows for the respective periods. Operating
results for the three and nine-month periods ended December 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2001.
Universal is a leading provider of natural gas compressor rental, sales,
operations, maintenance and fabrication services to the natural gas industry,
with one of the largest compressor fleets in the United States, and has a
growing presence in key international markets. As of December 31, 2000,
Universal had a broad base of over 750 customers and maintained a fleet of over
3,400 compression rental units. In addition, as of such date, Universal owned
approximately 841,000 horsepower and serviced under contract approximately
186,000 horsepower. Universal operates in every significant natural gas
producing region in the United States through its 38 compression sales and
service locations. As a complement to its rental operations, Universal designs
and fabricates compression units for its own fleet as well as for its global
customer base.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis primarily over 40 years.
Accumulated amortization was $7.5 million and $5.2 million at December 31, 2000
and March 31, 2000, respectively. At the balance sheet date, the Company
evaluated the recoverability of goodwill based on expectations of undiscounted
cash flows from operations and determined that no impairment had occurred.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." In June 2000, the FASB
issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four
areas causing difficulties in implementation. The amendment included expanding
the normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities, and redefining interest
rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as (1) hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (3) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. We
will adopt SFAS 133 and the corresponding amendments under SFAS138 on April 1,
2001. We are currently determining the impact of SFAS 133 on our consolidated
results of operations and financial position. This statement should have no
impact on consolidated cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
On June 26, 2000, the SEC issued an amendment to SAB 101, effectively delaying
its implementation until the fourth quarter of fiscal years beginning after
December 15, 1999. After careful study of SAB 101 and its amendment, management
believes that its revenue recognition policy is appropriate and that any
possible effects of SAB 101
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and its amendment will be immaterial to Universal's results of operations.
3. BUSINESS COMBINATION
On September 15, 2000, the Company completed the merger of Gas Compression
Services, Inc. ("GCSI"), a supplier of natural gas compression equipment and
services with fabrication and overhaul facilities in Michigan and Texas, into
Universal for a combination of approximately $12 million in cash, 1,400,726
shares of the Company's common stock valued at approximately $39 million and the
assumption or refinancing of approximately $63 million in indebtedness of GCSI.
All of the assumed or refinanced indebtedness, except for approximately $10
million, was paid off concurrent with the merger using proceeds received under
Universal's operating lease facility. The acquisition was accounted for under
the purchase method of accounting and resulted in the recognition of
approximately $33 million in goodwill. Results of operations for GCSI are
included in the accompanying consolidated financial statements for the entire
three-month period ended December 31, 2000 and 107 days from the date of the
merger for the nine-month period ended December 31, 2000.
4. INVENTORIES
Inventories consisted of (in thousands):
DECEMBER 31, MARCH 31,
2000 2000
---- ----
Finished goods $11,346 $5,551
Work-in-progress 9,177 3,176
------- ------
Total $20,523 $8,727
======= ======
5. OPERATING LEASE FACILITY
In May 2000 the Company and Universal entered into a $200 million operating
lease facility pursuant to which Universal may sell and lease back certain
compression equipment from a Delaware business trust for a five-year term. The
rental payments under the lease facility include an amount based on LIBOR plus a
variable amount depending on Universal's operating results, applied to the
funded amount of the lease. Under the lease facility, Universal received an
aggregate of approximately $155 million in proceeds from the sale of compression
equipment in May, November and December 2000 and in connection with the GCSI
acquisition, in September 2000. The equipment was sold and leased back by
Universal for a five-year period and deployed by Universal under its normal
operating procedures. The equipment sold had a book value of approximately $106
million and the equipment sale resulted in a gain of approximately $49 million
that was deferred until the end of the lease.
Universal had residual value guarantees on the equipment under the operating
lease facility of approximately 85% of the funded amount that were due upon
termination of the lease and which could be satisfied by a cash payment or the
exercise of the purchase option. The facility contained certain covenants
restricting Universal's operations, including its ability to enter into
acquisition and sales transactions, incur additional indebtedness, permit
additional liens on its assets and pay dividends. Universal's obligations under
this facility were secured by liens on its compression equipment that was
subject to the lease and certain related rights. Under the operating lease
facility, Universal was the lessee and the Company guaranteed certain of
Universal's obligations thereunder. Universal has replaced this facility with
new operating lease facilities with similar terms (see Note 11).
6. EXTRAORDINARY LOSSES
During the quarter ended June 30, 2000, Universal incurred extraordinary losses
of $3.4 million, net of income taxes of $2.0 million, related to its debt
restructuring that occurred concurrently with the Company's initial public
offering of its common stock.
7. NON-RECURRING CHARGES
During the quarter ended June 30, 2000, Universal incurred non-recurring charges
of $4.4 million, net of income taxes of $2.7 million, related to the early
termination of a management agreement and a consulting agreement and other
related fees in connection with the Company's initial public offering and the
concurrent financing transactions.
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15
8. RELATED PARTY TRANSACTIONS
In connection with the initial public offering in the quarter ended June 30,
2000, Universal terminated its Management Agreement with Castle Harlan, Inc. and
the Finders and Consulting Agreement with Samuel Urcis, a director of the
Company. In exchange for such terminations, the Company paid $3 million in cash
and issued 136,364 shares of the Company's common stock to Castle Harlan, and
paid $150,000 in cash and issued 6,818 shares of common stock to Mr. Urcis.
9. INDUSTRY SEGMENTS
Universal has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer and Universal's own specifications.
The International Rental and Maintenance segment represents substantially all of
Universal's foreign based operations.
Universal evaluates performance based on profit or loss from operations, which
is defined as income before income taxes less gain on asset sales and interest
income plus interest expense and operating lease expense. Revenue include sales
to unaffiliated customers. Gross margin is defined as total revenue less rental
expenses, cost of sales (exclusive of depreciation and amortization), gain on
asset sales and interest income. The Corporate and Other segment, which
represents primarily part sales and services, corporate activities, and all
other items that could not be allocated to an identifiable segment, principally
serves the oil and gas market, including sales of parts and equipment utilized
in the extraction of natural gas and the service that Universal provides to
customers' natural gas compression units.
The following table presents sales and other financial information by industry
segment for the three months ended December 31, 2000 and 1999 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ----------- -------- ----- -----
December 31, 2000:
Revenues $ 31,747 $ 4,425 $ 17,329 $ 6,513 $ 60,014
Gross margin $ 20,526 $ 3,387 $ 1,705 $ 755 $ 26,373
Operating income $ 10,836 $ 1,354 $ 1,015 $ 696 $ 13,901
December 31, 1999:
Revenues $ 21,416 $ 3,896 $ 4,977 $ 3,440 $ 33,729
Gross margin $ 13,735 $ 2,528 $ 725 $ 713 $ 17,701
Operating income $ 5,385 $ 723 $ 158 $ 432 $ 6,698
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16
The following table presents sales and other financial information by industry
segment for the nine months ended December 31, 2000 and 1999 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ----------- -------- ----- -----
December 31, 2000:
Revenues $ 78,318 $ 12,810 $ 33,308 $ 9,191 $ 133,627
Gross margin $ 50,296 $ 9,700 $ 4,590 $ 1,268 $ 65,854
Operating income $ 24,217 $ 3,952 $ 2,732 $ 1,084 $ 31,985
December 31, 1999:
Revenues $ 61,528 $ 10,647 $ 19,874 $ 10,476 $ 102,525
Gross margin $ 38,569 $ 7,454 $ 2,458 $ 2,089 $ 50,570
Operating income $ 14,711 $ 2,727 $ 622 $ 1,178 $ 19,238
10. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, Universal is involved in various pending or
threatened legal actions. In the opinion of management, the amount of ultimate
liability, if any, with respect to these actions will not have a materially
adverse effect on Universal's financial position, operating results or cash
flows.
11. SUBSEQUENT EVENTS
On February 9, 2001, the Company completed its acquisition of Weatherford Global
Compression Services, L.P. and certain related entities ("WGC"), a supplier of
natural gas compression equipment and services and a division of Weatherford
International, Inc. Under the terms of the agreement, a subsidiary of
Weatherford International was merged into Universal in exchange for 13.75
million shares of the Company's common stock, which represents approximately 48%
of the outstanding shares of the combined company. In connection with the
acquisition, Weatherford has agreed, subject to certain conditions, to limit its
voting rights to 33 1/3% of the Company's voting power for up to two years. In
addition, Universal restructured approximately $323 million in debt and
operating leases of WGC. The transaction was accounted for as a purchase. Prior
to closing, Weatherford International acquired the interest of its minority
partner in WGC. Also, Weatherford International retained certain assets and
operations relating to WGC's Singapore-based operations and approximately $10
million in accounts receivable.
In connection with the acquisition, on February 9, 2001, Universal raised $427
million under a new operating lease facility funded primarily through an
offering of $350 million 8 7/8% senior secured notes due 2008 by an unaffiliated
entity (the "SSN Operating Lease Facility"). Universal also entered into a new
$125 million secured revolving credit facility and a new $200 million
asset-backed securitization operating lease facility (the "ABS Operating Lease
Facility"). At the closing, Universal funded approximately $80 million under
the ABS Operating Lease Facility and had no amounts outstanding under the new
revolving credit facility. The proceeds from the two new operating lease
facilities were used to restructure existing operating lease obligations and
refinance certain existing indebtedness of Universal (including the previous
operating lease facility described in Note 5) and WGC.
Subsequent to the WGC acquisition and related financing transactions, Universal
had approximately $198 million outstanding under its 9 7/8% Senior Discount
Notes due 2008 and approximately $13 million of other indebtedness. In addition,
Universal funded approximately $427 million under the SSN Operating Lease
Facility and approximately $80 million under the ABS Operating Lease Facility.
Universal has unused commitments of approximately $245 million (approximately
$120 million under the ABS Operating Lease Facility and $125 million under the
new revolving credit facility).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical facts included in this report are forward-looking
statements. Such forward-looking statements include, without limitation,
statements regarding the anticipated cost savings and synergies, sufficiency of
available cash flows to fund continuing operations, anticipated future revenue
and EBITDA resulting from the acquisition of GCSI and WGC, the expected amount
capital expenditures, capital improvements, the expected amount of capital
expenditures for the fiscal year, successful integration of the Company's
recently completed WGC acquisition and other acquisitions, tax and accounting
treatment of any acquisition, the Company's future financial position, growth
strategy and projected costs, and plans and objectives of management for future
operations. Such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated as of the date of this report. Although management believes the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, no assurance can be given that these expectations will
prove to have been correct. Important factors that could cause actual result to
differ materially from the expectations reflected in the forward-looking
statements include, among other things: (1) competition among the various
providers of contract compression services, (2) conditions in the oil and gas
industry, including the demand for natural gas as well as impacts from the price
of natural gas and oil, (3) failure to consummate acquisitions and integrate
acquired businesses, (4) changes in safety and environmental regulations
pertaining to the production and transportation of natural gas, (5) changes in
economic or political conditions in the markets in which the Company operates,
(6) introduction of competing technologies by other companies, (7) the ability
to retain and grow the customer base, (8) employment workforce factors,
including loss of key employees, and (9) liability claims related to the use of
the products and services. Our future results will depend upon various other
risks and uncertainties, including but not limited to, those detailed in our
filings with the Securities and Exchange Commission. For additional information
regarding risks and uncertainties, see our filings, copies of which are
available to the public. The forward-looking statements included herein are only
made as of the date of this report and the Company undertakes no obligation to
publicly revise or update such forward-looking statements, whether as a result
of new information, future events or otherwise.
The terms "Company," "our" and "we" when used in this report, refer to Universal
Compression Holdings, Inc. and its subsidiaries including Universal Compression,
Inc., as a combined entity, except where it is made clear that such term means
only the parent company, and includes its predecessors, including Tidewater
Compression Service, Inc.
GENERAL
Universal Compression Holdings, Inc. was formed in December 1997 to acquire all
of the outstanding stock of Tidewater Compression. Upon completion of the
acquisition in February 1998, Tidewater Compression became the Company's
wholly-owned operating subsidiary and changed its name to Universal Compression,
Inc. ("Universal"). Through this subsidiary, the Company's gas compression
service operations date back to 1954.
During the quarter ended June 30, 2000, the Company completed an initial public
offering of 7,275,000 shares of its common stock (which includes 275,000 shares
of common stock issued pursuant to an over-allotment option granted to the
underwriters), which provided the Company with net proceeds (after deducting
underwriting discounts and commissions) of approximately $149.2 million.
Concurrently with the initial public offering, the Company implemented a
recapitalization pursuant to which all then existing classes of the Company's
stock were converted into common stock. Also concurrently with the initial
public offering, the Company entered into a $50 million revolving credit
facility and $200 million operating lease facility. The proceeds of the offering
and the $62.6 million in initial proceeds from the operating lease facility were
used to repay $192.7 million of indebtedness, and the remaining proceeds were
used for working capital and to pay expenses associated with the offering and
concurrent financing transactions.
The Company is a leading provider of natural gas compressor rental, sales,
operations, maintenance and fabrication services to the natural gas industry,
with one of the largest gas compressor fleets in the United States, and has a
growing presence in key international markets. As of December 31, 2000, the
Company had a broad base of over 750 customers and maintained a fleet of over
3,400 compression rental units. In addition, as of such date, the Company owned
approximately 841,000 horsepower and serviced under contract approximately
186,000 horsepower. The Company operates in every significant natural gas
producing region in the United States through its 38 compression sales and
service locations. As a complement to its rental operations, the Company designs
and fabricates compression units for its own fleet as well as for its global
customer base.
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18
UNIVERSAL COMPRESSION HOLDINGS, INC.
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
Revenue. The Company's total revenue for the three months ended December 31,
2000 increased $26.3 million, or 78%, to $60.0 million, compared to $33.7
million for the three months ended December 31, 1999. Rental revenue increased
by $10.9 million, or 43%, to $36.2 million during the three months ended
December 31, 2000 from $25.3 million during the three months ended December 31,
1999. Domestic rental revenue increased by $10.3 million, or 48%, to $31.7
million during the three months ended December 31, 2000 from $21.4 million
during the three months ended December 31, 1999. International rental revenue
increased by $0.5 million, or 14%, to $4.4 million during the three months ended
December 31, 2000 from $3.9 million during the three months ended December 31,
1999. The increase in domestic rental revenue primarily resulted from expansion
of the Company's rental fleet through the acquisition of GCSI and core growth.
The increase in international rental revenue primarily resulted from the
expansion of the Company's international rental fleet and continued high
utilization rates. During the quarter ended December 31, 2000, the Company
started its first rental project in Mexico consisting of 10,000 horsepower.
This project contributed approximately $4.7 million in one-time turn key
installation revenue.
Domestic average rented horsepower for the three months ended December 31, 2000
increased by 47% to approximately 676,000 horsepower from approximately 461,000
horsepower for the three months ended December 31, 1999. In addition,
international average rented horsepower for the three months ended December 31,
2000 increased by 20% to approximately 59,000 horsepower from approximately
49,000 horsepower for the three months ended December 31, 1999, primarily
through additional service in South America. The Company's average horsepower
utilization rate for the quarter ended December 31, 2000, was approximately
88.6%, up from 81.6% in the same quarter a year ago. At the end of the quarter,
the Company had approximately 841,000 available horsepower with another 186,000
horsepower operated and maintained for customers. The horsepower utilization
rate at December 31, 2000 was approximately 90.0%. The preceding horsepower and
utilization amounts include GCSI for the entire quarter.
Revenue from fabrication and sales increased to $23.8 million from $8.3 million,
a increase of 185%. The increase in sales revenue, consisting mostly of
equipment fabrication and parts sales, for the third fiscal quarter was due
primarily to the acquisition of GCSI. The backlog of fabrication projects at the
end of the third fiscal quarter was approximately $30.5 million, compared with a
backlog of $11.0 million at the same time a year earlier. From September 30,
2000 to December 31, 2000, backlog increased $3.7 million.
Gross Margin. Gross margin (defined as total revenue less rental expense, cost
of sales (exclusive of depreciation and amortization), gain on asset sales and
interest income) for the three months ended December 31, 2000 increased $8.7
million, or 49%, to $26.4 million from gross margin of $17.7 million for the
three months ended December 31, 1999. The rental gross margin for the three
months ended December 31, 2000 increased $7.7 million, or 47%, to $23.9 million
compared to gross margin of $16.3 million for the three months ended December
31, 1999. Gross margin increased primarily as the result of the rental revenue
growth discussed above and operating cost improvements realized by rental
operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 2000 increased
$0.7 million compared to the three months ended December 31, 1999. Selling,
general and administrative expenses represented 8% of revenue for the three
months ended December 31, 2000 compared to 12% of revenue for the three months
ended December 31, 1999. The percentage decrease is primarily due to the
approximately $4.7 million in one-time turnkey installation revenues associated
with a large rental project in Mexico, the elimination of management fees in
connection with the Company's initial public offering in May 2000, in addition
to synergies achieved in the acquisition of GCSI. These reductions have been
offset partially by increases in certain expenses related to the Company
operating as a publicly traded company.
EBITDA for the three months ended December 31, 2000 increased 49% to $21.7
million from $14.6 million for the three months ended December 31, 1999,
primarily due to increases in horsepower and utilization of the compression
rental fleet, gross margin contribution from fabrication and sales, operating
cost improvements realized by rental operations, and decreased selling, general
and administrative expenses, as discussed above. EBITDA is defined as net income
plus income taxes, interest expense, leasing expense, management fees,
depreciation and amortization, excluding non-recurring items and extraordinary
gains or losses. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered an
alternative to operating income or net income as an indicator of the Company's
operating performance or to net cash provided by operating activities as a
measure of its liquidity. Additionally, the EBITDA computation used herein may
not be comparable to other similarly titled measures of other companies. EBITDA
represents a measure upon which management assesses financial performance, and
certain covenants in the Company's borrowing arrangements will be tied to
similar measures. The Company believes that EBITDA is a standard measure of
financial performance used for valuing companies in the compression industry.
EBITDA is a useful common yardstick as it measures the capacity of companies to
generate cash without reference to how they are capitalized, how they account
for significant non-cash charges for depreciation and amortization associated
with assets used in the business (the majority of which are long-lived assets in
the
18
19
compression industry), or what their tax attributes may be.
Depreciation and Amortization. Depreciation and amortization increased by $0.7
million to $7.7 million during the three months ended December 31, 2000,
compared to $7.0 million during the three months ended December 31, 1999. The
increase resulted primarily from the expansion of the Company's rental fleet
offset partially by the compressor equipment sold and leased back under its
previous operating lease facility.
Operating Lease. The Company incurred leasing expense of $3.5 million during the
three months ended December 31, 2000 resulting from its operating lease facility
entered into in May 2000. The outstanding balance under the operating lease
facility at December 31, 2000 was $154.6 million.
Interest Expense. Interest expense decreased $3.5 million to $5.4 million for
the three months ended December 31, 2000 from $8.8 million for the three months
ended December 31, 1999, primarily as a result of the reduction of debt
resulting from the Company's initial public offering and related debt
restructuring. The decrease in interest expense was offset partially by
increased accretion of Universal's 9 7/8% senior discount notes and the
assumption of debt related to the GCSI acquisition.
Net Income. The Company had net income of $3.1 million for the three months
ended December 31, 2000 compared to a net loss of $1.3 million for the three
months ended December 31, 1999, primarily as a result of an increase in gross
margins and interest expense decreasing from $8.8 million to $5.4 million,
offset partially by increased depreciation and amortization related to the
continued expansion of the Company's assets, leasing expense of $3.5 million
resulting from the operating lease facility and an increase of the income tax
provision to $1.9 million from an income tax benefit of $0.8 million.
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1999
Revenue. The Company's total revenue for the nine months ended December 31, 2000
increased $31.1 million, or 30%, to $133.6 million compared to $102.5 million
for the nine months ended December 31, 1999. Rental revenue increased by $19.0
million, or 26%, to $91.1 million during the nine months ended December 31, 2000
from $72.2 million during the nine months ended December 31, 1999. Domestic
rental revenue increased by $16.8 million, or 27%, to $78.3 million during the
nine months ended December 31, 2000 from $61.5 million during the nine months
ended December 31, 1999. International rental revenue increased by $2.2 million,
or 20%, to $12.8 million during the nine months ended December 31, 2000 from
$10.6 million during the nine months ended December 31, 1999. The increase in
domestic rental revenue primarily resulted from expansion of the Company's
rental fleet through the acquisition of GCSI. The increase in international
rental revenue primarily resulted from the expansion of the Company's
international rental fleet and continued high utilization rates.
Domestic average rented horsepower for the nine months ended December 31, 2000
increased by 33% to approximately 575,000 horsepower from approximately 434,000
horsepower for the nine months ended December 31, 1999. In addition,
international average rented horsepower for the nine months ended December 31,
2000 increased by 25% to approximately 55,000 horsepower from approximately
44,000 horsepower for the nine months ended December 31, 1999, primarily through
additional service in South America. The Company's average horsepower
utilization rate for the nine months ended December 31, 2000, was approximately
86.6%, up from 79.8% in the same period a year ago. At the end of the quarter,
the Company had approximately 841,000 available horsepower with another 186,000
horsepower operated and maintained for customers. The horsepower utilization
rate at December 31, 2000 was approximately 90.0%. The preceding horsepower and
utilization amounts include GCSI for the 107 days from the date of the merger.
Revenue from fabrication and sales increased to $42.2 million for the nine
months ended December 31, 2000 from $30.2 million for the same period a year
ago, an increase of 40%. The increase in sales revenue, consisting mostly of
equipment fabrication and parts sales was due primarily to the acquisition of
GCSI, partially offset by the impact in the prior-year period of an equipment
purchase option exercised by a rental customer and the sale of a small air
compression distributorship. The backlog of fabrication projects at the end of
the third fiscal quarter was approximately $30.5 million, compared with a
backlog of $11.0 million at the same time a year earlier. From September 30,
2000 to December 31, 2000, backlog increased $3.7 million.
Gross Margin. Gross margin (defined as total revenue less rental expense, cost
of sales (exclusive of depreciation and amortization), gain on asset sales and
interest income) for the nine months ended December 31, 2000 increased $15.1
million, or 30%, to $65.9 million from gross margin of $50.7 million for the
nine months ended December 31, 1999. The rental gross margin for the nine months
ended December 31, 2000 increased $14.0 million, or 30%, to $60.0 million
compared to gross margin of $46.0 million for the nine months ended December 31,
1999. Gross margin increased primarily as the result of the rental revenue
growth discussed above
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and operating cost improvements realized by rental operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended December 31, 2000 decreased
$0.7 million compared to the nine months ended December 31, 1999. Selling,
general and administrative expenses represented 9% of revenue for the nine
months ended December 31, 2000 compared to 12% of revenue for the nine months
ended December 31, 1999. The decrease is primarily due to the elimination of
management fees in connection with the Company's initial public offering in May
2000, in addition to synergies achieved in the acquisition of GCSI. These
reductions have been offset partially by increases in certain expenses related
to the Company operating as a publicly traded company.
EBITDA for the nine months ended December 31, 2000 increased 34% to $54.2
million from $40.5 million for the nine months ended December 31, 1999,
primarily due to increases in horsepower and utilization of the compression
rental fleet in addition to operating cost improvements realized by rental
operations and decreased selling, general and administrative expenses, as
discussed above. EBITDA is defined as net income plus income taxes, interest
expense, leasing expense, management fees, depreciation and amortization,
excluding non-recurring items and extraordinary gains and losses. EBITDA is not
a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to operating income or
net income as an indicator of the Company's operating performance or to net cash
provided by operating activities as a measure of its liquidity. Additionally,
the EBITDA computation used herein may not be comparable to other similarly
titled measures of other companies. EBITDA represents a measure upon which
management assesses financial performance, and certain covenants in the
Company's borrowing arrangements will be tied to similar measures. The Company
believes that EBITDA is a standard measure of financial performance used for
valuing companies in the compression industry. EBITDA is a useful common
yardstick as it measures the capacity of companies to generate cash without
reference to how they are capitalized, how they account for significant non-cash
charges for depreciation and amortization associated with assets used in the
business (the majority of which are long-lived assets in the compression
industry), or what their tax attributes may be.
Non-recurring Charges. During the quarter ended June 30, 2000, the Company
incurred non-recurring charges of $4.4 million, net of income taxes of $2.7
million, related to the early termination of a management agreement and a
consulting agreement and other related fees in connection with the Company's
initial public offering and concurrent financing transactions.
Depreciation and Amortization. Depreciation and amortization increased by $3.2
million to $21.9 million during the nine months ended December 31, 2000,
compared to $18.7 million during the nine months ended December 31, 1999. The
increase resulted primarily from the expansion of the Company's rental fleet
offset partially by the compressor equipment sold and leased back under its
operating lease facility.
Operating Lease. The Company incurred leasing expense of $6.2 million during the
nine months ended December 31, 2000 resulting from the operating lease facility
entered into in May 2000. The outstanding balance under the operating lease
facility at December 31, 2000 was $154.6 million.
Interest Expense. Interest expense decreased $6.7 million to $18.6 million for
the nine months ended December 31, 2000 from $25.3 million for the nine months
ended December 31, 1999, primarily as a result of the reduction of debt
resulting from the Company's initial public offering and related debt
restructuring. The decrease in interest expense was offset partially by
increased accretion of Universal's 9 7/8% senior discount notes and the
assumption of debt related to the GCSI acquisition.
Extraordinary Losses. During the quarter ended June 30, 2000, the Company
incurred extraordinary losses of $6.3 million, net of income taxes of $3.7
million, related to its debt restructuring.
Net Loss. The Company had a net loss of $6.0 million for the nine months ended
December 31, 2000 compared to a net loss of $4.1 million for the nine months
ended December 31, 1999, primarily as a result of extraordinary losses of $6.3
million, net of income taxes, non-recurring charges of $4.4 million, net of
income taxes, increased depreciation and amortization related to the continued
expansion of the Company's assets, leasing expense of $6.2 million resulting
from the operating lease facility and an increase of the income tax provision to
$0.2 million from an income tax benefit of $1.8 million. The increase in the net
loss was partially offset by increased gross margins, decreased selling, general
and administrative expenses and decreased interest expense. Excluding the effect
of the non-recurring and extraordinary after-tax charges, the Company had net
income of $4.7 million for the nine months ended December 31, 2000.
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LIQUIDITY AND CAPITAL RESOURCES
In May 2000, concurrently with the Company's initial public offering, the
Company and Universal entered into a $200 million, five-year operating lease
facility (the "2000 Operating Lease Facility") arranged by Deutsche Bank
Securities Inc. The transaction involved a sale and leaseback of compression
equipment to a trust formed by Deutsche Bank AG (the "Trust"). Under the 2000
Operating Lease Facility, certain of the Company's compression equipment was
sold to the Trust for approximately $155 million and leased back by the Company
for a five-year period.
In May 2000, the Company repaid and terminated its term loan and revolving
credit facility and entered into a $50.0 million secured revolving credit
facility which had a five-year term. The revolver was secured by a lien on all
of the Company's personal property that was not subject to the 2000 Operating
Lease Facility. This revolver and the 2000 Operating Lease Facility were repaid
and terminated in February 2001 in connection with the WGC acquisition, as
described below.
The Company's cash and cash equivalents balance at December 31, 2000 was $7.4
million compared to $1.4 million at March 31, 2000. For the nine months ended
December 31, 2000, the Company generated cash flow from operations of $13.7
million, used $19.5 million of cash for investing activities and provided
another $11.7 million of cash in financing activities.
During the nine months ended December 31, 2000, the Company received $154.6
million from the sale of compression equipment under the 2000 Operating Lease
Facility and received $149.2 million from the initial public offering of its
common stock. The Company used cash for an $11.8 million increase to inventory
in order to meet increased customer demand, increased accounts receivable partly
attributable to new projects in Mexico which were billed late in December 2000,
$48.7 million for capital expenditures, $125.4 million for acquisitions and to
make net principal payments of $189.9 million on its then outstanding
indebtedness, which included termination of the Company's term loan and credit
facility, redemption of all of its 11 3/8% Senior Discount Notes and retirement
of a finance lease arrangement.
The Company expects to expend approximately $75 million on capital projects
during fiscal 2001, excluding acquisitions and projects related to the WGC
acquisition. The Company has spent approximately $48.7 million during the nine
months ended December 31, 2000. The Company continues to emphasize its
investment in larger horsepower compression rental units and, to a lesser
extent, the acquisition leaseback of customer owned equipment. The Company's
other principal uses of cash will be to meet interest and lease payments as well
as support changes in its working capital.
In April 2000, the Company acquired all of the outstanding stock of Spectrum
Rotary Compression Inc. from Energy Spectrum Partners LP in exchange for 287,723
shares of the Company's common stock. Spectrum added approximately 10,700
horsepower to the Company's fleet and provided an increased presence in the
screw compressor market.
On September 15, 2000, the Company completed the merger of Gas Compression
Services, Inc. ("GCSI"), a supplier of natural gas compression equipment and
services with fabrication and overhaul facilities in Michigan and Texas, into
Universal for a combination of approximately $12 million in cash, 1,400,726
shares of the Company's common stock, the assumption or refinancing of
approximately $63 million of indebtedness. All of the assumed or refinanced
indebtedness of GCSI, except for approximately $10 million, was paid off
concurrently with the GCSI merger using proceeds received under the 2000
Operating Lease Facility. The acquisition was accounted for under the purchase
method of accounting and resulted in the recognition of approximately $33
million in goodwill. The GCSI acquisition added approximately 138,000 aggregate
horsepower to the Company's fleet and provides it with an increased customer
base, additional market segments and additional fabrication capabilities. Under
current operating conditions, the Company expects to add $35 million to $38
million in revenue per year and approximately $15 million in EBITDA per year as
a result of the GCSI acquisition.
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On February 9, 2001, the Company completed its acquisition of Weatherford Global
Compression Services, L.P. and certain related entities ("WGC"), a supplier of
natural gas compression equipment and services and a division of Weatherford
International, Inc. Under the terms of the agreement, a subsidiary of
Weatherford International was merged into Universal in exchange for 13.75
million restricted shares of the Company's common stock, which represents
approximately 48% of the outstanding shares of the combined company, and the
restructuring of approximately $323 million in debt and operating leases of WGC.
The transaction was accounted for as a purchase. Prior to closing, Weatherford
International acquired the interest of its minority partner in WGC. Also,
Weatherford International retained certain assets and operations related to
WGC's Singapore-based operations and approximately $10 million in accounts
receivable.
In addition, on February 9, 2001, the Company raised $427 million under a new
operating lease facility funded primarily through the offering of $350 million
of 8 7/8% senior secured notes due 2008 by an unaffiliated entity (the "SSN
Operating Lease Facility"). The Company also entered into a new $125 million
secured revolving credit facility and a new $200 million asset-backed
securitization operating lease facility (the "ABS Operating Lease Facility"). At
the closing, the Company funded approximately $80 million under the ABS
Operating Lease Facility and had no amounts outstanding under the new revolving
credit facility. The proceeds from the two new operating lease facilities were
used to restructure existing operating lease obligations, including the 2000
Operating Lease Facility, and refinance certain existing indebtedness of the
Company and WGC. These new facilities, like the Company's previous facilities,
contain restrictions on the Company's operations, including its ability to,
among other things, incur additional indebtedness, engage in acquisitions and
pay dividends. The deferred gain from the 2000 Operating Lease Facility was
transferred to the SSN Operating Lease Facility and will be deferred until the
end of the new operating lease facilities.
As of December 31 2000, the Company had $191.4 million aggregate principal
amount outstanding under its 9 7/8% senior discount notes. On January 2, 2001,
Universal commenced an offer to repurchase all of these 9 7/8% senior discount
notes, and solicited the consent of the holders of the notes to amend the
indenture governing the notes to eliminate substantially all the restrictive
covenants. The tender offer was conditioned upon Universal's receipt of the
consent of requisite holders to approve the proposed amendments to the
indenture. The consent solicitation due date was January 24, 2001. The requisite
consents with respect to the 9 7/8% senior discount notes were not received
prior to the deadline. As a result, Universal terminated the tender offer
without purchasing any of the 9 7/8% senior discount notes. Pursuant to the
indenture governing the 9 7/8% senior discount notes, the holders of the notes
have the right to require Universal to repurchase the notes as a result of the
consummation of the WGC acquisition at a price equal to 101% of the accreted
value, plus accrued and unpaid interest to date. The Company expects to finance
any such repurchase of the 9 7/8% senior discount notes through its new
revolving credit facility or the ABS Operating Lease Facility.
Subsequent to the WGC acquisition and related financing transactions, the
Company had approximately $198 million outstanding under its 9 7/8% senior
discount notes due 2008 and approximately $13 million of other indebtedness. In
addition, the Company had funded approximately $427 million under the SSN
Operating Lease Facility and approximately $80 million under the ABS Operating
Lease Facility. The Company has unused commitments of approximately $245 million
(approximately $120 million under the ABS Operating Lease Facility and $125
million under the revolving credit facility).
The Company expects to realize approximately $20 million of annual savings from
the acquisition of WGC by the end of fiscal 2002 through consolidation and
streamlining operations. The key drivers for the savings are the overlap of
various domestic operations, as well as duplicate selling, general and
administrative activities. The Company estimates that it will eliminate 17 field
services and offices, as well as 250-300 personnel positions as a result of the
WGC acquisition. The Company may not realize these cost savings as quickly or as
fully as it expects, if at all.
Based upon the levels of activity at the time of the WGC acquisition, the
combined company is expected to generate approximately $460 million to $485
million in annual revenue and the corresponding EBITDA, including the full
amount of the estimated $20 million of annual cost savings, is expected to be
approximately $165 million to $185 million. The Company anticipates that the
capital expenditures of the combined company during fiscal 2002 will be
approximately $170 million to $220 million, including approximately $25 million
of maintenance capital expenditures.
The Company expects to achieve additional savings in purchasing activities and
inventory management, as well as other components of working capital, that are
not reflected in the $20 million cost savings. The Company expects these
additional cost savings, which will impact operating and selling, general and
administrative expenses, to be fully realized by the end of fiscal 2002.
The Company believes that funds generated from operations, together with its
existing cash and the net proceeds from its new operating leases described
herein and its other new financing arrangements, will be sufficient to finance
its current operations, planned capital expenditures, pending acquisition and
internal growth for fiscal year 2001. If the Company was to make a significant
acquisition for cash, it may be necessary for it to obtain additional debt or
equity financing.
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UNIVERSAL COMPRESSION, INC.
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
Revenue. Universal Compression Inc.'s ("Universal") total revenue for the three
months ended December 31, 2000 increased $26.3 million, or 78%, to $60.0 million
compared to $33.7 million for the three months ended December 31, 1999. Rental
revenue increased by $10.9 million, or 43%, to $36.2 million during the three
months ended December 31, 2000 from $25.3 million during the three months ended
December 31, 1999. Domestic rental revenue increased by $10.3 million, or 48%,
to $31.7 million during the three months ended December 31, 2000 from $21.4
million during the three months ended December 31, 1999. International rental
revenue increased by $0.5 million, or 14%, to $4.4 million during the three
months ended December 31, 2000 from $3.9 million during the three months ended
December 31, 1999. The increase in domestic rental revenue primarily resulted
from expansion of the Company's rental fleet through the acquisition of GCSI and
core growth. The increase in international rental revenue primarily resulted
from the expansion of Universal's international rental fleet and continued high
utilization rates. During the quarter ended December 31, 2000, the Company
started its first rental project in Mexico consisting of 10,000 horsepower.
This project contributed approximately $4.7 million in one-time turn key
installation revenue.
Domestic average rented horsepower for the three months ended December 31, 2000
increased by 47% to approximately 676,000 horsepower from approximately 461,000
horsepower for the three months ended December 31, 1999. In addition,
international average rented horsepower for the three months ended December 31,
2000 increased by 20% to approximately 59,000 horsepower from approximately
49,000 horsepower for the three months ended December 31, 1999, primarily
through additional service in South America. The Company's average horsepower
utilization rate for the quarter ended December 31, 2000, was approximately
88.6%, up from 81.6% in the same quarter a year ago. At the end of the quarter,
the Company had approximately 841,000 available horsepower with another 186,000
horsepower operated and maintained for customers. The horsepower utilization
rate at December 31, 2000 was approximately 90.0%. The preceding horsepower and
utilization amounts include GCSI for the entire quarter.
Revenue from fabrication and sales increased to $23.8 million from $8.3 million,
an increase of 185%. The increase in sales revenue, consisting mostly of
equipment fabrication and parts sales, for the third fiscal quarter was due
primarily to the acquisition of GCSI, offset by a slightly lower level of
fabrication activity and the sale of a small air compression distributorship.
The backlog of fabrication projects at the end of the third fiscal quarter was
approximately $30.5 million, compared with a backlog of $11.0 million at the
same time a year earlier. From September 30, 2000 to December 31, 2000, backlog
increased $3.7 million.
Gross Margin. Gross margin (defined as total revenue less rental expense, cost
of sales (exclusive of depreciation and amortization), gain on asset sales and
interest income) for the three months ended December 31, 2000 increased $8.7
million, or 49%, to $26.4 million from gross margin of $17.7 million for the
three months ended December 31, 1999. The rental gross margin for the three
months ended December 31, 2000 increased $7.7 million, or 47%, to $23.9 million
compared to gross margin of $16.3 million for the three months ended December
31, 1999. Gross margin increased primarily as the result of the rental revenue
growth discussed above and operating cost improvements realized by rental
operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 2000 increased
$0.7 million compared to the three months ended December 31, 1999. Selling,
general and administrative expenses represented 8% of revenue for the three
months ended December 31, 2000 compared to 12% of revenue for the three months
ended December 31, 1999. The percentage decrease is primarily due to the
elimination of management fees in connection with the Company's initial public
offering in May 2000, in addition to synergies achieved in the acquisition of
GCSI. These reductions have been offset partially by increases in certain
expenses related to the Company operating as a publicly traded company.
EBITDA for the three months ended December 31, 2000 increased 49% to $21.7
million from $14.6 million for the three months ended December 31, 1999,
primarily due to increases in horsepower and utilization of the compression
rental fleet, in addition to operating cost improvements realized by rental
operations and decreased selling, general and administrative expenses, as
discussed above. EBITDA is defined as net income plus income taxes, interest
expense, leasing expense, management fees, depreciation and amortization,
excluding non-recurring items and extraordinary gains or losses. EBITDA is not a
measure of financial performance under generally accepted accounting principles
and should not be considered an alternative to operating income or net income as
an indicator of Universal's operating performance or to net cash provided by
operating activities as a measure of its liquidity. Additionally, the EBITDA
computation used herein may not be comparable to other similarly titled measures
of other companies. EBITDA represents a measure upon which management assesses
financial performance, and certain covenants in Universal's borrowing
arrangements will be tied to similar measures. Universal believes that EBITDA is
a standard measure of financial performance used for valuing companies in the
compression industry. EBITDA is a useful common yardstick as it measures the
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capacity of companies to generate cash without reference to how they are
capitalized, how they account for significant non-cash charges for depreciation
and amortization associated with assets used in the business (the majority of
which are long-lived assets in the compression industry), or what their tax
attributes may be.
Depreciation and Amortization. Depreciation and amortization increased by $0.7
million to $7.7 million during the three months ended December 31, 2000 compared
to $7.0 million during the three months ended December 31, 1999. The increase
resulted primarily from the expansion of Universal's rental fleet offset
partially by the compression equipment sold and leased back under its 2000
Operating Lease Facility.
Operating Lease. Universal incurred leasing expense of $3.5 million during the
three months ended December 31, 2000 resulting from the 2000 Operating Lease
Facility entered into in May 2000. The outstanding balance under the
2000 Operating Lease Facility at December 31, 2000 was $154.6 million.
Interest Expense. Interest expense decreased $2.6 million to $5.4 million for
the three months ended December 31, 2000 from $8.0 million for the three months
ended December 31, 1999, primarily as the result of the reduction of debt
resulting from the Company's initial public offering and related debt
restructuring. The decrease in interest expense was offset partially by
increased accretion of Universal's 9 7/8% senior discount notes and the
assumption of debt related to the GCSI acquisition.
Net Income. Universal had net income of $3.1 million for the three months ended
December 31, 2000 compared to a net loss of $0.7 million for the three months
ended December 31, 1999, primarily as a result of an increase in gross margins
and interest expense decreasing from $8.0 million to $5.4 million, offset
partially by increased depreciation and amortization related to the continued
expansion of the Company's assets, leasing expense of $3.5 million resulting
from the 2000 Operating Lease Facility and an increase of the income tax
provision to $1.9 million from an income tax benefit of $0.5 million.
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1999
Revenue. Universal's total revenue for the nine months ended December 31, 2000
increased $31.1 million, or 30%, to $133.6 million compared to $102.5 million
for the nine months ended December 31, 1999. Rental revenue increased by $19.0
million, or 26%, to $91.1 million during the nine months ended December 31, 2000
from $72.2 million during the nine months ended December 31, 1999. Domestic
rental revenue increased by $16.8 million, or 27%, to $78.3 million during the
nine months ended December 31, 2000 from $61.5 million during the nine months
ended December 31, 1999. International rental revenue increased by $2.2 million,
or 20%, to $12.8 million during the nine months ended December 31, 2000 from
$10.6 million during the nine months ended December 31, 1999. The increase in
domestic rental revenue primarily resulted from expansion of the Company's
rental fleet through the acquisition of GCSI and core growth. The increase in
international rental revenue primarily resulted from the expansion of the
Company's international rental fleet and continued high utilization rates.
Domestic average rented horsepower for the nine months ended December 31, 2000
increased by 33% to approximately 575,000 horsepower from approximately 434,000
horsepower for the nine months ended December 31, 1999. In addition,
international average rented horsepower for the nine months ended December 31,
2000 increased by 25% to approximately 55,000 horsepower from approximately
44,000 horsepower for the nine months ended December 31, 1999, primarily through
additional service in South America. The Company's average horsepower
utilization rate for the nine months ended December 31, 2000, was approximately
86.6%, up from 79.8% in the same period a year ago. At the end of the quarter,
the Company had approximately 841,000 available horsepower with another 186,000
horsepower operated and maintained for customers. The horsepower utilization
rate at December 31, 2000 was approximately 90.0%. The preceding horsepower and
utilization amounts include GCSI for the 107 days from the date of the merger
through December 31, 2000.
Revenue from fabrication and sales increased to $42.2 million for the nine
months ended December 31, 2000 from $30.2 million for the same period a year
ago, an increase of 40%. The increase in sales revenue, consisting mostly of
equipment fabrication and parts sales was due primarily to the acquisition of
GCSI offset by the impact in the prior year period of an equipment purchase
option exercised by a rental customer and the sale of a small air compression
distributorship. The backlog of fabrication projects at the end of the third
fiscal quarter was approximately $30.5 million, compared with a backlog of $11.0
million at the same time a year earlier. From September 30, 2000 to December 31,
2000, backlog increased $3.7 million.
Gross Margin. Gross margin (defined as total revenue less rental expense, cost
of sales (exclusive of depreciation and amortization), gain on asset sales and
interest income) for the nine months ended December 31, 2000 increased $15.1
million, or 30%, to $65.9
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million from gross margin of $50.6 million for the nine months ended December
31, 1999. The rental gross margin for the nine months ended December 31, 2000
increased $14.0 million, or 30%, to $60.0 million compared to gross margin of
$46.0 million for the nine months ended December 31, 1999. Gross margin
increased primarily as the result of the rental revenue growth discussed above
and operating cost improvements realized by rental operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended December 31, 2000 decreased
$0.7 million compared to the nine months ended December 31, 1999. Selling,
general and administrative expenses represented 9% of revenue for the nine
months ended December 31, 2000 compared to 12% of revenue for the nine months
ended December 31, 1999. The decrease is primarily due to the elimination of
management fees in connection with the Company's initial public offering in May
2000, in addition to synergies achieved in the acquisition of GCSI. These
reductions have been offset partially by increases in certain expenses related
to the Company operating as a publicly traded company.
EBITDA for the nine months ended December 31, 2000 increased 34% to $54.2
million from $40.5 million for the nine months ended December 31, 1999,
primarily due to increases in horsepower and utilization of the compression
rental fleet in addition to operating cost improvements realized by rental
operations and decreased selling, general and administrative expenses, as
discussed above. EBITDA is defined as net income plus income taxes, interest
expense, leasing expense, management fees, depreciation and amortization,
excluding non-recurring items and extraordinary gains or losses. EBITDA is not a
measure of financial performance under generally accepted accounting principles
and should not be considered an alternative to operating income or net income as
an indicator of Universal's operating performance or to net cash provided by
operating activities as a measure of its liquidity. Additionally, the EBITDA
computation used herein may not be comparable to other similarly titled measures
of other companies. EBITDA represents a measure upon which management assesses
financial performance, and certain covenants in Universal's borrowing
arrangements will be tied to similar measures. Universal believes that EBITDA is
a standard measure of financial performance used for valuing companies in the
compression industry. EBITDA is a useful common yardstick as it measures the
capacity of companies to generate cash without reference to how they are
capitalized, how they account for significant non-cash charges for depreciation
and amortization associated with assets used in the business (the majority of
which are long-lived assets in the compression industry), or what their tax
attributes may be.
Non-recurring Charges. During the quarter ended June 30, 2000, Universal
incurred non-recurring charges of $4.4 million, net of income taxes of $2.7
million, related to the early termination of a management agreement and a
consulting agreement and other related fees in connection with the Company's
initial public offering and the concurrent financing transactions.
Depreciation and Amortization. Depreciation and amortization increased by $3.2
million to $21.9 million during the nine months ended December 31, 2000 compared
to $18.7 million during the nine months ended December 31, 1999. The increase
resulted primarily from the expansion of Universal's rental fleet offset
partially by the compression equipment sold and leased back under the 2000
Operating Lease Facility.
Operating Lease. Universal incurred leasing expense of $6.2 million during the
nine months ended December 31, 2000 resulting from the 2000 Operating Lease
Facility entered into in May 2000. The outstanding balance under the 2000
Operating Lease Facility at December 31, 2000 was $154.6 million.
Interest Expense. Interest expense decreased $4.8 million to $18.0 million for
the nine months ended December 31, 2000 from $22.8 million for the nine months
ended December 31, 1999, primarily as the result of the reduction of debt
resulting from the Company's initial public offering and related debt
restructuring. The decrease in interest expense was offset partially by
increased accretion of discount notes and the assumption of debt related to the
GCSI acquisition.
Extraordinary Losses. During the quarter ended June 30, 2000, Universal incurred
extraordinary losses of $3.4 million, net of income taxes of $2.0 million,
related to its debt restructuring.
Net Loss. Universal had a net loss of $2.8 million for the nine months ended
December 31, 2000 compared to a net loss of $2.5 million for the nine months
ended December 31, 1999, primarily as a result of extraordinary losses of $3.4
million, net of income taxes, non-recurring charges of $4.4 million, net of
income taxes, increased depreciation and amortization related to the continued
expansion of Universal's assets, leasing expense of $6.2 million resulting from
the 2000 Operating Lease Facility and an increase of the income tax provision to
$0.4 million from an income tax benefit of $.8 million. The increase in the net
loss was partially offset by increased gross margins, decreased selling, general
and administrative expenses and decreased interest expense. Excluding the effect
of the non-recurring and extraordinary after-tax charges, Universal had net
income of $5.0 million for the nine months ended December 31, 2000.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company was exposed to some market risk due to the floating interest rate
under its revolving credit facility and 2000 Operating Lease Facility. The
revolving credit facility and 2000 Operating Lease Facility had interest and
lease payments based on a floating rate (a base rate or LIBOR, at the Company's
option, in the case of the revolving credit facility, and LIBOR, in the case of
the 2000 Operating Lease Facility) plus a variable amount based on operating
results. As of December 31, 2000, the revolving credit facility and the 2000
Operating Lease Facility had outstanding principal balances of $3.0 and $154.6
million, respectively. The LIBOR rate at December 31, 2000 was 6.565%. A 1.0%
increase in interest rates would result in a $1.6 million annual increase in
interest and operating lease expense. Subsequent to the WGC acquisition and
related financing transactions, the Company has approximately $157.0 million of
variable rate indebtedness. Consequently, a 1% increase in interest rates would
result in a $1.6 million annual increase in interest and operating lease
expense. In order to minimize any significant foreign currency credit risk, the
Company generally contractually requires that payment by customers be made in
U.S. dollars. If payment is not made in U.S. dollars, the Company generally
utilizes the exchange rate into U.S. dollars on the payment date or balances
payments in local currency against local expenses.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In connection with the WGC acquisition and pursuant to the terms of the Merger
Agreement, the size of the Company's Board of Directors has been increased from
eight to eleven members as a result of the right of WEUS Holding, Inc. ("WEUS"),
Weatherford's affiliate, to designate three additional Board members. Effective
upon consummation of the Merger, the Company has appointed the following WEUS
designees:
Bernard J. Duroc-Danner will serve as a Class C director, with his term
of office expiring at the 2003 annual meeting of shareholders. Mr.
Duroc-Danner joined Weatherford International Inc. in May 1987 to
initiate the start-up of Weatherford's oilfield service and equipment
business through EVI, Inc. He was elected EVI's President in January
1990 and Chief Executive Officer in May 1990. In connection with the
merger of EVI, Inc. with Weatherford Enterra Inc. on May 27, 1998, Mr.
Duroc-Danner was elected as Weatherford International Inc.'s Chairman
of the Board, President and Chief Executive Officer. Mr. Duroc-Danner
holds a Ph.D. in economics from Wharton (University of Pennsylvania).
In prior years, Mr. Duroc-Danner held positions at Arthur D. Little and
Mobil Oil Corporation. Mr. Duroc-Danner is a director of Parker
Drilling Company (an oil and gas drilling company) and Cal-Dive
International, Inc. (a company engaged in subsea services in the Gulf
of Mexico). Mr. Duroc-Danner is also a director of Grant Prideco, Inc.
(a provider of drill pipe and other drill stem products). Grant Prideco
was a wholly owned subsidiary of Weatherford until April 14, 2000, when
Weatherford distributed all of the outstanding shares of Grant Prideco
to its stockholders.
Curtis W. Huff has been appointed to serve as a Class B director, with
his term of office expiring at the 2002 annual meeting of shareholders.
Mr. Huff was elected President, Chief Executive Officer and Director of
Grant Prideco, Inc. on February 5, 2001. Previously, he served as
Executive Vice President and Chief Financial Officer of Weatherford
International Inc. since January 2000 and served as its General Counsel
and Secretary since May 1998. Prior to that time, Mr. Huff was a
partner with the law firm of Fulbright & Jaworski L.L.P., Weatherford's
counsel, and held that position for more than five years. Mr. Huff is a
director of UTI Energy Inc. (an oil and gas drilling company).
Uriel E. Dutton will serve as a Class A director, with his term of
office expiring at the 2001 annual meeting of the Company's
shareholders. Mr. Dutton has been a partner with the law firm of
Fulbright & Jaworski L.L.P. for more than the past five years where his
practice focuses on real estate and oil and gas matters.
These nominees will stand for election to the Board at the Company's next
succeeding annual meeting of shareholders following the expiration of their
respective term of office. As long as WEUS and its affiliates own at least 20%
of the Company's outstanding
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common stock, WEUS has the right to designate three Board members. If the WEUS's
ownership interest falls below 20%, WEUS may designate only two directors, and
if WEUS's ownership falls below 10%, WEUS will no longer be entitled to
designate directors to serve on the Company's Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following documents have been included as Exhibits to this report:
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated October 23, 2000,
by and among Weatherford International, Inc., WEUS
Holding, Inc., Enterra Compression Company, Universal
Compression Holdings, Inc. and Universal Compression,
Inc. (Incorporated by reference to Exhibit 10.1 to
Universal Compression Holdings, Inc.'s Current Report
on Form 8-K filed with the Securities and Exchange
Commission on October 28, 2000.)
4.1* Voting Agreement, dated as of February 9, 2001, among
Weatherford International, Inc., WEUS Holding, Inc.
and Universal Compression Holdings, Inc.
4.2* Registration Rights Agreement with respect to the
8-7/8% Senior Secured Notes, dated as of February 9,
2001, among BRL Universal Equipment 2001 A, L.P.,
BRL Universal Equipment Corp., Universal Compression
Holdings, Inc., Universal Compression, Inc., Deutsche
Banc Alex. Brown Inc., First Union Securities, Inc.,
Goldman Sachs & Co., Banc One Capital Markets, Inc.
and Scotia Capital (USA), Inc.
4.3* Registration Rights Agreement, dated as of February
9, 2001, between WEUS Holding, Inc. and Universal
Compression Holdings, Inc.
10.1* Transitional Services Agreement, dated as of February
9, 2001, between Weatherford International, Inc. and
Weatherford Global Compression Services, L.P.
10.2* Form of Equipment Lease Agreement with respect to the
senior secured notes operating lease facility, dated
as of February 9, 2001, between BRL Universal
Equipment 2001 A, L.P., as Lessor, and Universal
Compression, Inc., as Lessee.
10.3* Form of Participation Agreement, dated as of February
9, 2001, among Universal Compression, Inc., as
Lessee, Universal Compression Holdings, Inc., as
Guarantor, BRL Universal Compression Equipment 2001
A, L.P., as Lessor, Bankers Trust Company and the
other financial institutions listed on the signature
pages as Tranche B Lenders, The Bank of New York, not
in its individual capacity but as Indenture Trustee,
Paying Agent, Transfer Agent and Registrar for the
Tranche A Noteholders, BRL Universal Equipment
Management, Inc., as Lessor General Partner, Bankers
Trust Company, as Administrative Agent and Collateral
Agent for Tranche B Lenders and Indenture Trustee on
behalf of the Tranche A Noteholders, Deutsche Banc
Alex. Brown Inc., as Arranger, The Bank of Nova
Scotia, as Syndicate Agent for Tranche B Lenders,
Bank One, N.A., as Documentation Agent for Tranche B
Lenders, and First Union National Bank, as Managing
Agent.
10.4* Indenture with respect to the 8-7/8 % Senior Secured
Notes due 2008, dated as of February 9, 2001, among
BRL Universal Equipment 2001 A, L. P. and BRL
Universal Equipment Corp., as Issuers, and The Bank
of New York, as Indenture Trustee.
10.5* Form of Tranche B Loan Agreement, dated as of
February 9, 2001, among BRL Universal Equipment 2001
A, L.P., as Borrower, Bankers Trust Company, as
Administrative Agent and Collateral Agent, and The
Tranche B Lenders Party Hereto, as Tranche B Lenders.
10.6* Form of Master Lease Agreement, with respect to the
ABS operating lease facility, dated as of February 9,
2001, between BRL Universal Compression Funding I,
L.P., as Head Lessor and UCO Compression LLC, as Head
Lessee.
10.7* Senior Secured Revolving Credit Agreement, dated as
of February 9, 2001, among Universal Compression,
Inc., as Borrower, First Union National Bank, as
Administrative Agent, Bank One, N.A., as Syndication
Agent, and the lenders signatory hereto.
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10.8* Guaranty and Collateral Agreement made by Universal
Compression Holdings, Inc. and Universal
Compression, Inc. and in favor of First Union
National Bank, as Administrative Agent, dated as of
February 9, 2001.
10.9* Security Agreement (Pledge and Assignment), dated as
of February 9, 2001, between Universal Compression
International, Inc. and First Union National Bank, as
Administrative Agent.
10.10* Form of Indenture, dated as of February 9, 2001,
between BRL Universal Compression Funding I, L.P.,
Issuer, and Wells Fargo Bank Minnesota, National
Association, Indenture Trustee.
10.11* Form of Series 2001-1 Supplement, dated as of
February 9, 2001, to Indenture dated as of
February 9, 2001, between BRL Universal Compression
Funding I, L.P., Issuer, and Wells Fargo Bank
Minnesota, National Association, Indenture Trustee.
10.12* Engagement and Indemnity Letter, dated February 9,
2001, among Universal Compression, Inc., Universal
Compression Holdings, Inc., Deutsche Banc Alex. Brown
Inc., First Union Securities, Inc., Goldman Sachs &
Co., Banc One Capital Markets, Inc., Scotia
Capital (USA), Inc., BRL Universal Equipment 2001 A,
L.P., and BRL Universal Equipment Corp.
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* Filed herewith
(b) Reports on Form 8-K.
Three reports were filed on Form 8-K during the third quarter of fiscal 2001:
- The Company and Universal filed a Current Report on Form 8-K on October
26, 2000 to report under Item 5 the issuance of a press release on
October 24, 2000 announcing the execution of an Agreement and Plan of
Merger dated October 23, 2000, which contemplates the acquisition of
the gas compression business of Weatherford International, Inc. through
the merger of Weatherford's subsidiary with and into Universal in
exchange for 13.75 million shares of the Company's common stock, or
approximately 48% of the outstanding shares of the combined company,
and the assumption of approximately $323 million of related Weatherford
debt.
- The Company and Universal filed a Current Report on Form 8-K on
November 9, 2000 to report under Item 5 the issuance of a press release
on November 7, 2000 announcing earnings for the second quarter of
fiscal 2001, and a public conference call on November 7, 2000 to
discuss the second quarter earnings and other corporate matters.
- The Company and Universal filed a Current Report on Form 8-K on
December 1, 2000 to report under Item 5 the filing of its preliminary
proxy statement with the Securities and Exchange Commission and to file
certain pro forma financial information.
In addition, the Company and Universal filed a Current Report on Form 8-K on
January 3, 2000 to report under Item 5 the filing of a definitive proxy
statement with the Securities and Exchange Commission on January 2, 2001 seeking
approval by its shareholders of (i) the issuance of 13,750,000 shares of the
Company's common stock, to WEUS Holding, Inc. pursuant to the Agreement and Plan
of Merger dated as of October 23, 2000, and (ii) approval of and amendment to
the Company's Incentive Stock Option Plan that would increase the number of
shares available for issuance under the plan by 1,100,000 shares to a total of
3,012,421 shares. Both proposals were approved at a special meeting of
shareholders on Friday, February 9, 2001.
In addition, the Company and Universal filed a Current Report on Form 8-K on
January 29, 2001 to report under Item 5 the issuance of a press release on
January 17, 2001 announcing earnings for the third quarter of fiscal 2001, and a
public conference call on January 17, 2001 to discuss the third quarter earnings
and other corporate matters.
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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.
UNIVERSAL COMPRESSION HOLDINGS, INC.
Date: February 14, 2001 By /s/ RICHARD W. FITZGERALD
---------------------------------------
Richard W. FitzGerald,
Chief Financial Officer and
Senior Vice President
UNIVERSAL COMPRESSION, INC.
By /s/ RICHARD W. FITZGERALD
----------------------------------------
Richard W. FitzGerald,
Chief Financial Officer and
Senior Vice President
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INDEX TO EXHIBITS
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated October 23, 2000,
by and among Weatherford International, Inc., WEUS
Holding, Inc., Enterra Compression Company, Universal
Compression Holdings, Inc. and Universal Compression,
Inc. (Incorporated by reference to Exhibit 10.1 to
Universal Compression Holdings, Inc.'s Current Report
on Form 8-K filed with the Securities and Exchange
Commission on October 28, 2000.)
4.1* Voting Agreement, dated as of February 9, 2001, among
Weatherford International, Inc., WEUS Holding, Inc.
and Universal Compression Holdings, Inc.
4.2* Registration Rights Agreement with respect to the
8-7/8% Senior Secured Notes, dated as of February 9,
2001, among BRL Universal Equipment 2001 A, L.P.,
BRL Universal Equipment Corp., Universal Compression
Holdings, Inc., Universal Compression, Inc., Deutsche
Banc Alex. Brown Inc., First Union Securities, Inc.,
Goldman Sachs & Co., Banc One Capital Markets, Inc.
and Scotia Capital (USA), Inc.
4.3* Registration Rights Agreement, dated as of February
9, 2001, between WEUS Holding, Inc. and Universal
Compression Holdings, Inc.
10.1* Transitional Services Agreement, dated as of February
9, 2001, between Weatherford International, Inc. and
Weatherford Global Compression Services, L.P.
10.2* Form of Equipment Lease Agreement with respect to the
senior secured notes operating lease facility, dated
as of February 9, 2001, between BRL Universal
Equipment 2001 A, L.P., as Lessor, and Universal
Compression, Inc., as Lessee.
10.3* Form of Participation Agreement, dated as of February
9, 2001, among Universal Compression, Inc., as
Lessee, Universal Compression Holdings, Inc., as
Guarantor, BRL Universal Compression Equipment 2001
A, L.P., as Lessor, Bankers Trust Company and the
other financial institutions listed on the signature
pages as Tranche B Lenders, The Bank of New York, not
in its individual capacity but as Indenture Trustee,
Paying Agent, Transfer Agent and Registrar for the
Tranche A Noteholders, BRL Universal Equipment
Management, Inc., as Lessor General Partner, Bankers
Trust Company, as Administrative Agent and Collateral
Agent for Tranche B Lenders and Indenture Trustee on
behalf of the Tranche A Noteholders, Deutsche Banc
Alex. Brown Inc., as Arranger, The Bank of Nova
Scotia, as Syndicate Agent for Tranche B Lenders,
Bank One, N.A., as Documentation Agent for Tranche B
Lenders, and First Union National Bank, as Managing
Agent.
10.4* Indenture with respect to the 8-7/8 % Senior Secured
Notes due 2008, dated as of February 9, 2001, among
BRL Universal Equipment 2001 A, L. P. and BRL
Universal Equipment Corp., as Issuers, and The Bank
of New York, as Indenture Trustee.
10.5* Form of Tranche B Loan Agreement, dated as of
February 9, 2001, among BRL Universal Equipment 2001
A, L.P., as Borrower, Bankers Trust Company, as
Administrative Agent and Collateral Agent, and The
Tranche B Lenders Party Hereto, as Tranche B Lenders.
10.6* Form of Master Lease Agreement, with respect to the
ABS operating lease facility, dated as of February 9,
2001, between BRL Universal Compression Funding I,
L.P., as Head Lessor and UCO Compression LLC, as Head
Lessee.
10.7* Senior Secured Revolving Credit Agreement, dated as
of February 9, 2001, among Universal Compression,
Inc., as Borrower, First Union National Bank, as
Administrative Agent, Bank One, N.A., as Syndication
Agent, and the lenders signatory hereto.
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10.8* Guaranty and Collateral Agreement made by Universal
Compression Holdings, Inc. and Universal Compression,
Inc. and in favor of First Union National Bank, as
Administrative Agent, dated as of February 9, 2001.
10.9* Security Agreement (Pledge and Assignment), dated as
of February 9, 2001, between Universal Compression
International, Inc. and First Union National Bank, as
Administrative Agent.
10.10* Form of Indenture, dated as of February 9, 2001,
between BRL Universal Compression Funding I, L.P.,
Issuer, and Wells Fargo Bank Minnesota, National
Association, Indenture Trustee.
10.11* Form of Series 2001-1 Supplement, dated as of
February 9, 2001, to Indenture dated as of February
9, 2001, between BRL Universal Compression Funding I,
L.P., Issuer, and Wells Fargo Bank Minnesota,
National Association, Indenture Trustee.
10.12* Engagement and Indemnity Letter, dated February 9,
2001, among Universal Compression, Inc., Universal
Compression Holdings, Inc., Deutsche Banc Alex. Brown
Inc., First Union Securities, Inc., Goldman Sachs &
Co., Banc One Capital Markets, Inc., Scotia
Capital (USA), Inc., BRL Universal Equipment 2001 A,
L.P., and BRL Universal Equipment Corp.
----------
* Filed herewith