KEY ENERGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995, June 30, 1994 and June 30, 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Key Energy Group, Inc. ("Key") was organized in April 1977, and commenced
operations in July 1978. Results of operations for the seven months ended June
30, 1993 and the five months ended November 30, 1992 include Key's oil field
service operations conducted by Key's wholly-owned subsidiary, Yale E. Key, Inc.
("Yale E. Key"). Results of operations for the twelve months ended June 30, 1995
and 1994 include Key, Yale E. Key's oil and gas exploration and production
wholly-owned subsidiary, Odessa Exploration Incorporated ("OEI"), and Key's oil
and gas well drilling operations conducted by Key's wholly-owned subsidiary, Key
Energy Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint Hurt Drilling"). Clint
Hurt Drilling was acquired in March of 1995 (see Note 2).
Basis of Presentation
Key's consolidated financial statements include the accounts of Key and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. The accounting policies presented below have been
followed in preparing the accompanying financial statements. Subsequent to the
adoption of "fresh-start reporting" (see Note 3), Key will continue to utilize
the same policies. However, due to the material nature of the "fresh-start
reporting" adjustments, the financial statements issued prior to November 30,
1992 will not be comparable to those issued subsequent to November 30, 1992.
Key's ownership of less than 50% owned entities are accounted for by the cost or
equity methods, depending on Key's ownership percentage.
Cash, Restricted Cash and Marketable Securities
Key holds significant cash in certain financial institutions. Restricted cash,
$410,000 and $456,000 at June 30, 1995 and 1994, respectively, consists of
monies held in Key's cash lock-box. The cash lock-box is a requirement under the
line of credit with CIT (see Note 5). Restricted marketable securities, $267,000
and $251,000 at June 30, 1995 and 1994, respectively, consist primarily of an
investment in a mutual fund which invests, mostly, in short-term intermediate
government securities which are recorded at market value. The mutual fund
investment is held in escrow for a letter-of-credit (issued in the amount of
approximately $244,000) for workers' compensation insurance.