<PAGE>
Utilization of compressor packages increased from 1993 to 1994 in response to
generally strengthening natural gas markets, a return of producer confidence
and greater emphasis being placed on the rental operations. Changes in rental
rates are primarily caused by the changes in the mix between smaller and higher
horsepower natural gas compressor packages in the fleet. Growth in the fleet
has resulted from the acquisitions of additional compressors and the
construction of new compressor packages each year, net of retirements and sales
of older equipment from the rental fleet.
Natural Gas Compressor Package Sales. In addition to operating a fleet of
natural gas compressor packages for rental purposes, Energy Industries designs,
fabricates and sells natural gas compressor packages designed to customer
specifications. Energy Industries sells compressor packages to natural gas
producers, gatherers and transmission companies which expect the long life of
their associated reserves or pipeline to justify the capital cost of acquiring,
rather than renting, a natural gas compressor package. Most of Energy
Industries' natural gas compressor package sales are for larger, high-
horsepower packages.
Because of the relatively high capital costs associated with these units,
Energy Industries provides a capital lease financing option to its customers.
Under the terms of a typical capital lease, a purchaser will lease the natural
gas compressor package from Energy Industries for a period of between three and
four years at monthly lease rates. At the termination of the lease, the lessee
has the option to purchase the natural gas compressor package for a nominal
amount or return the natural gas compressor package to Energy Industries.
The following table compares Energy Industries' natural gas compressor
package sales and cost of sales for the twelve months ended September 30, 1993
and 1994 and the nine months ended June 30, 1995. Because the Company acquired
Energy Industries in November 1993, the Company's consolidated financial
results for its fiscal year ended September 30, 1994 include only eleven months
of Energy Industries' operations. For comparative purposes, however, the fiscal
1994 sales and cost of sales presented in the following table are for the
twelve months ended September 30, 1994 and include Energy Industries' sales and
cost of sales information for an additional month when Energy Industries was
not owned by the Company. The Company did not own Energy Industries prior to
November 1993.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
NINE MONTHS SEPTEMBER 30,
ENDED --------------------
JUNE 30, 1995 1994 1993
------------- --------- ---------
(IN THOUSANDS, EXCEPT % AMOUNTS)
<S> <C> <C> <C>
Compressor package sales.............. $21,879 $ 29,842 $ 22,020
Cost of sales......................... 18,149 24,596 16,867
------- --------- ---------
Gross margin.......................... $ 3,730 $ 5,246 $ 5,153
======= ========= =========
Gross margin/percentage............... 17.0% 17.6% 23.4%
======= ========= =========
</TABLE>
Parts and Service. Energy Industries provides on-site maintenance services to
its rental and sales customers and to users of other natural gas compressor
packages. Maintenance services provided by Energy Industries includes regular
monitoring of compressor package operations and performance of a standardized,
routine maintenance program for equipment in the field. Energy Industries sells
compressor parts and engines in connection with maintenance service operations.
Each branch location and each field technician maintains a small inventory of
commonly used natural gas compressor package parts to support routine repairs
to natural gas compressor packages covered under maintenance contracts.
Natural Gas Compression Markets. Energy Industries conducts the majority of
its operations in established natural gas producing regions of the United
States, located in Texas, Louisiana, Arkansas, Oklahoma, New Mexico and
offshore in the Gulf of Mexico. Its customers include natural gas companies and
pipelines which are involved in the production, processing and transmission of
natural gas.
A substantial majority of the demand for natural gas compression (on a
horsepower basis) is met through the use of natural gas compressor packages
owned by the companies that use them. Energy Industries
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