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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-16961
PRIDE PETROLEUM SERVICES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 76-0069030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 City West Boulevard, Suite 400
Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
(713) 789-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practical date.
Outstanding at
Class of Common Stock August 1, 1995
--------------------- -----------------
no par 24,542,352 shares
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PRIDE PETROLEUM SERVICES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three months ended June 30, 1995 and 1994 . . . . . . . . . . . 4
Consolidated Statement of Operations -
Six months ended June 30, 1995 and 1994 . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows -
Six months ended June 30, 1995 and 1994 . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . 7
Report of Independent Accountants. . . . . . . . . . . . . . . . . 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 19
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
JUNE 30, DECEMBER 31,
1995 1994
--------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . $ 11,269 $ 5,970
Short-term investments. . . . . . . . . . . . . . . 2,000 3,001
Trade receivables, net of allowance for doubtful
accounts of $618 and $394, respectively. . . . . 47,759 38,334
Parts and supplies. . . . . . . . . . . . . . . . . 6,058 4,468
Deferred income taxes . . . . . . . . . . . . . . . 2,532 2,388
Other current assets. . . . . . . . . . . . . . . . 7,003 6,128
--------- ---------
Total current assets. . . . . . . . . . . . . 76,621 60,289
--------- ---------
PROPERTY AND EQUIPMENT, AT COST. . . . . . . . . . . . 280,412 246,365
ACCUMULATED DEPRECIATION . . . . . . . . . . . . . . . (113,039) (106,466)
--------- ---------
Net property and equipment. . . . . . . . . . 167,373 139,899
--------- ---------
GOODWILL AND OTHER INTANGIBLES, NET. . . . . . . . . . 3,813 3,580
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . 2,134 1,425
--------- ---------
$ 249,941 $ 205,193
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . . $ 18,086 $ 14,715
Accrued expenses. . . . . . . . . . . . . . . . . . 16,605 15,332
Current portion of long-term debt . . . . . . . . . 11,593 3,602
--------- ---------
Total current liabilities . . . . . . . . . . 46,284 33,649
--------- ---------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . . 5,288 5,327
LONG-TERM DEBT, net of current portion . . . . . . . . 61,519 42,096
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 16,772 12,736
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 40,000,000 shares
authorized: 24,596,572 and 24,081,872 shares
issued and 24,542,352 and 24,027,652 shares
outstanding, respectively. . . . . . . . . . . . 1 1
Paid-in capital . . . . . . . . . . . . . . . . . . 93,355 91,256
Treasury stock, at cost . . . . . . . . . . . . . . (191) (191)
Retained earnings . . . . . . . . . . . . . . . . . 26,913 20,319
--------- ---------
Total shareholders' equity. . . . . . . . . . 120,078 111,385
--------- ---------
$ 249,941 $ 205,193
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 3
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
---------------------
1995 1994
--------- ---------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . $ 68,856 $ 40,257
--------- ---------
COSTS AND EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . 50,377 30,819
Depreciation and amortization . . . . . . . . . . . 4,131 2,053
Selling, general and administrative . . . . . . . . 7,267 5,394
--------- ---------
Total costs and expenses . . . . . . . . . . . . 61,775 38,266
--------- ---------
Earnings from operations. . . . . . . . . . . 7,081 1,991
OTHER INCOME (EXPENSE)
Other income (expense). . . . . . . . . . . . . . . 18 (453)
Interest income . . . . . . . . . . . . . . . . . . 267 77
Interest expense. . . . . . . . . . . . . . . . . . (1,660) (105)
--------- ---------
Total other expense, net. . . . . . . . . . . (1,375) (481)
--------- ---------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . 5,706 1,510
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . 2,124 531
--------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 3,582 $ 979
========= =========
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ .14 $ .06
========= =========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING. . . . . . . . 25,496 17,537
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 4
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1994
--------- ---------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . $ 131,368 $ 77,062
--------- ---------
COSTS AND EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . 95,548 59,346
Depreciation and amortization . . . . . . . . . . . 7,709 4,046
Selling, general and administrative . . . . . . . . 15,309 10,415
--------- ---------
Total costs and expenses . . . . . . . . . . . . 118,566 73,807
--------- ---------
Earnings from operations. . . . . . . . . . . 12,802 3,255
OTHER INCOME (EXPENSE)
Other income (expense). . . . . . . . . . . . . . . 28 (536)
Interest income . . . . . . . . . . . . . . . . . . 392 359
Interest expense. . . . . . . . . . . . . . . . . . (2,907) (124)
--------- ---------
Total other expense, net. . . . . . . . . . . (2,487) ( 301)
--------- ---------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . 10,315 2,954
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . 3,721 1,046
--------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 6,594 $ 1,908
========= =========
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ .26 $ .11
========= =========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING. . . . . . . . 25,082 17,135
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 5
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1994
--------- ---------
OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . . . . . $ 6,594 $ 1,908
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities -
Depreciation and amortization. . . . . . . . . . 7,709 4,046
Deferred interest. . . . . . . . . . . . . . . . 1,947 --
Gain on sale of assets . . . . . . . . . . . . . (171) (342)
Effect of exchange rates . . . . . . . . . . . . 6 588
Deferred tax provision (benefit) . . . . . . . . 904 (167)
Changes in assets and liabilities, net of
effects of acquisitions -
Trade receivables . . . . . . . . . . . . . . (7,171) (3,269)
Parts and supplies. . . . . . . . . . . . . . (1,289) (667)
Other current assets. . . . . . . . . . . . . (2,692) (1,266)
Accounts payable. . . . . . . . . . . . . . . 2,667 (394)
Accrued expenses and other. . . . . . . . . . 355 (453)
--------- ---------
Net cash provided (used) by
operating activities. . . . . . . . . . 8,859 (16)
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities,
including acquisition costs, less cash acquired . (1,662) (22,054)
Purchases of property and equipment . . . . . . . . (22,058) (9,611)
Proceeds from short-term investments. . . . . . . . 1,009 1,004
Proceeds from sale of property and equipment. . . . 263 598
Other . . . . . . . . . . . . . . . . . . . . . . . (447) 4
--------- ---------
Net cash used in investing activities. . . (22,895) (30,059)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . 444 32,073
Proceeds from debt borrowings . . . . . . . . . . . 23,133 3,854
Reduction of debt . . . . . . . . . . . . . . . . . (4,322) (100)
Other . . . . . . . . . . . . . . . . . . . . . . . 80 --
--------- ---------
Net cash provided by financing activities. 19,335 35,827
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . 5,299 5,752
CASH AND CASH EQUIVALENTS, beginning of period . . . . 5,970 7,509
--------- ---------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . $ 11,269 $ 13,261
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 6
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read
in conjunction with Pride Petroleum Services, Inc.'s (the "Company's") audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation.
The unaudited consolidated financial information included herein reflects
all adjustments, consisting only of normal recurring adjustments, which are
necessary, in the opinion of management, for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for full years.
2. COMMITMENTS AND CONTINGENCIES
The Company is routinely involved in litigation incidental to its
business, which often involves claims for significant monetary amounts, some of
which would not be covered by insurance. In the opinion of management, none of
the existing litigation will have any material adverse effect on the Company's
financial position or results of operations.
The Company is self-insured with respect to physical damage or loss to its
domestic vehicles, land rigs, and equipment (except for thirteen of its largest
domestic land rigs). Thirteen of the Company's largest domestic land rigs and
all of the Company's international land rigs are insured, with deductibles of
generally $25,000 per occurrence. The Company's offshore platform rigs and
barge rigs are insured with deductibles of $50,000 and $150,000, respectively.
Presently, the Company has insurance deductibles of $250,000 per occurrence for
domestic workers' compensation claims, $100,000 per occurrence for domestic
automobile liability claims, and $250,000 for general liability claims. The
Company further limits its exposure by maintaining an accident and health
insurance policy with respect to its domestic employees with a deductible of
$10,000 per occurrence. Coverages with respect to foreign operations for
workers' compensation and automobile claims are subject to deductibles of
$40,000 to $100,000 per occurrence.
The Company accrues for its estimated share of insured claims. As of June
30, 1995 and December 31, 1994, the Company had accrued approximately
$11,044,000 and $11,111,000, respectively for claims liabilities, of which
$6,138,000 and $6,047,000, respectively was included in current liabilities and
$4,906,000 and $5,064,000, respectively, was reflected as other long-term
liabilities in the accompanying unaudited consolidated balance sheet. As of
June 30, 1995, the Company had letters of credit outstanding totaling
$10,714,000. These letters of credit guarantee principally the funding of the
Company's share of insured claims.
Page 7
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. LONG-TERM DEBT
Long-term debt at June 30, 1995 and December 31, 1994 consists of the
following:
JUNE 30, DECEMBER 31,
1995 1994
-------- --------
(in thousands)
Limited-recourse secured term loans . . . . . $ 44,503 $ 33,311
Secured term loans. . . . . . . . . . . . . . 13,130 8,860
Notes payable . . . . . . . . . . . . . . . . 7,930 200
Acquisition note payable. . . . . . . . . . . 5,666 --
Revolving line of credit. . . . . . . . . . . 1,283 3,325
Bank overdraft facility . . . . . . . . . . . 600 2
-------- --------
73,112 45,698
Less: current portion . . . . . . . . . . . . 11,593 3,602
-------- --------
$ 61,519 $ 42,096
======== ========
The balance of the limited-recourse secured term loans at June 30, 1995
includes $9,172,000 of construction advances and $2,020,000 of accrued interest
which was added to the principal amount of the loans during the first six months
of 1995. Approximately $73,000 of such accrued interest was capitalized as part
of the cost of the related assets during the first six months of 1995. Pursuant
to the terms of the loan agreements, interest, which accrues at a rate of 9.61%
per annum, was added to the principal amount of the loans until the first
scheduled payment in July 1995, and will be payable from the proceeds of the
related charter contracts in 109 equal monthly installments of principal and
interest. In addition, a portion of contract proceeds are to be held in trust
to assure that timely payment of future debt service obligations is made. At
June 30, 1995, $3,044,000 of such contract proceeds, which amount is included in
cash and cash equivalents on the accompanying unaudited consolidated balance
sheet, are being held in trust for the benefit of the lenders, and is not
presently available for use by the Company.
Borrowings pursuant to the secured term loans were increased by $4,270,000
during the first six months of 1995 to finance certain additions to property and
equipment.
Notes payable include five notes payable to lending institutions totaling
an aggregate $7,247,000 which are collateralized by selected property and
equipment, financed insurance premiums in the amount of $633,000, and a note
payable in the amount of $50,000 issued to the sellers of certain assets
acquired by the Company during the first quarter of 1995.
In March 1995, the Company entered into a note payable to two individuals
in the amount of $5,964,000 as partial consideration for a business acquisition.
The note bears interest at the rate of 8.5% per annum and is repayable in
quarterly installments through March 2000. The acquisition note is
collateralized by certain of the property and equipment of the acquired
business.
Page 8
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company had domestic bank lines of credit of $23,000,000 as of June
30, 1995, and letters of credit totaling $10,714,000 outstanding against these
facilities. Additionally, $1,283,000 of borrowings were outstanding thereunder.
Cash and cash equivalents and a portion of accounts receivable have been pledged
as security pursuant to these credit facilities.
4. NET EARNINGS PER SHARE
Net earnings per share has been computed based on the weighted average
number of common shares outstanding during the applicable period. Common share
equivalents have been included in periods in which their effect is dilutive.
Common share equivalents include the number of shares issuable upon the exercise
of stock options and warrants, less the number of shares that could have been
repurchased with the exercise proceeds, using the treasury stock method. Fully
diluted net earnings per share have not been presented as the results are not
materially different.
5. ACQUISITIONS
COMPLETED ACQUISITIONS
In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert Enterprises, Inc. ("X-Pert") for aggregate consideration of
approximately $10,000,000, consisting of $3,000,000 cash, a note payable to the
selling shareholders in the amount of $5,964,000, and 200,000 shares of the
Company's common stock.
The assets acquired and liabilities assumed in the X-Pert acquisition were
as follows:
ASSETS (LIABILITIES)
--------------------
(in thousands)
Cash and cash equivalents. . . . . . . . . . $ 1,719
Trade receivables. . . . . . . . . . . . . . 2,254
Other current assets . . . . . . . . . . . . 80
Property and equipment . . . . . . . . . . . 10,000
Other assets . . . . . . . . . . . . . . . . 725
Accounts payable . . . . . . . . . . . . . . (648)
Accrued expenses . . . . . . . . . . . . . . (761)
Long-term debt . . . . . . . . . . . . . . . (569)
Deferred income taxes. . . . . . . . . . . . (2,800)
--------
$ 10,000
--------
Page 9
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unaudited pro forma results of operations assuming the acquisition of X-
Pert had occurred on January 1, 1994, are as follows:
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1994
--------- ---------
(in thousands, except
per share data)
Revenues $ 133,361 $ 84,044
Net Earnings $ 6,723 $ 2,319
Earnings per share $ .27 $ .13
The pro forma results of operations presented above do not purport to be
indicative of the results of operations of the Company that might have occurred
nor are they indicative of future results.
Also in March 1995, the Company acquired substantially all of the assets
used in the fluids hauling business of McNeel Company, Inc. for total
consideration of $400,000, consisting of $350,000 cash and a note payable to the
sellers in the amount of $50,000.
Each of the acquisitions discussed above was recorded using the purchase
method of accounting. The operating results of each acquisition have been
included in the Company's consolidated results of operations from the date of
acquisition.
TERMINATED ACQUISITIONS
In March 1995, the Company entered into a letter of intent to acquire
Horizon Directional Systems, Inc. ("Horizon"), a Houston, Texas based horizontal
and directional drilling company. In April 1995, the Company was notified that
litigation had been filed against Horizon. The letter of intent to acquire
Horizon has expired and the Company does not currently intend to pursue the
acquisition of Horizon.
In April 1995, the Company entered into a letter of intent to acquire
substantially all of the assets of Reeled Tubing, Inc. ("Reeled Tubing") of
Harvey, Louisiana. The Company was not able to develop terms of a mutually
acceptable transaction, thereby resulting in the termination of the acquisition
efforts with respect to Reeled Tubing.
6. ISSUANCES OF COMMON STOCK
During the second quarter of 1995, 192,500 shares of the Company's common
stock were issued pursuant to the exercise of employee stock options. The
Company received proceeds of $444,000 in connection with the exercise of such
employee stock options.
In April 1995, the Company issued 87,000 shares of common stock pursuant
to the contractual earnout provisions of an acquisition agreement to an
individual who became a director of the Company in connection with such
acquisition. The value of such shares, estimated to be $435,000 has been
Page 10
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
allocated to the acquired assets and will be amortized over the remaining useful
lives of such assets. In June 1995, the Company entered into an agreement with
the director, pursuant to which it agreed to issue 203,000 additional shares of
common stock in exchange for the director's remaining contingent right to
receive up to 73,000 common shares and the exercise of warrants to acquire an
additional 500,000 shares of common stock on a net value basis. The value of
the shares to be issued, estimated to be $1,040,000, will also be allocated to
the acquired assets.
Also in April 1995, the Company issued 35,200 shares of common stock,
having an estimated aggregate value of $220,000, as consideration for the
purchase of support assets.
Page 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Pride Petroleum Services, Inc.:
We have reviewed the accompanying consolidated balance sheet of Pride
Petroleum Services, Inc. as of June 30, 1995, the related consolidated statement
of operations for the three-month and six-month periods ended June 30, 1995 and
1994, and the related consolidated statement of cash flows for the six-month
periods ended June 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated February 20, 1995, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 1994 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 4, 1995
Page 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the unaudited consolidated financial statements of Pride Petroleum Services,
Inc. (the "Company") as of June 30, 1995 and for the three and six month periods
ended June 30, 1995 and 1994 included elsewhere herein, and with the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
Increases and decreases in domestic well servicing activity historically
have had a significant correlation with changes in oil and natural gas prices.
International well servicing activity is also affected by fluctuations in oil
and natural gas prices, but historically to a lesser extent than domestic
activity. International well servicing contracts are typically for terms of one
year or more, while domestic contracts are typically entered into for one or
multiple wells. Accordingly, international well servicing activities are not as
sensitive to changes in oil and gas prices as domestic operations.
Since 1991, the Company has actively sought to diversify beyond domestic
land based operations into international and offshore markets. In July 1993,
the Company purchased established well servicing and drilling operations in
Argentina and Venezuela and, in February 1994, acquired four additional rigs in
Argentina. The Company has also deployed 20 rigs from its U.S. fleet to
Argentina and two rigs from its U.S. fleet to Venezuela. Also, during the first
half of 1993, the Company mobilized three rigs to Western Siberia, where
operations commenced in June 1993. The Company is continuing to pursue
opportunities to expand internationally, particularly in situations where it can
deploy underutilized assets from its domestic fleet.
In June 1994, the Company acquired substantially all of the assets of
Offshore Rigs, L.L.P. ("Offshore Rigs") as the Company continued to diversify
its operations beyond domestic land-based markets and became the largest
operator of offshore platform workover rigs in the Gulf of Mexico. The rig
fleet acquired from Offshore Rigs consisted of 22 offshore platform rigs,
representing approximately 45% of the offshore platform workover rigs located in
the Gulf of Mexico.
During 1994, the Company entered into contracts with Lagoven, S.A.
("Lagoven"), a subsidiary of the Venezuelan national oil company, to construct
and operate two drilling/workover barge rigs. Upon completion in late 1994,
both barge rigs were mobilized to Lake Maracaibo where, in January 1995, they
began operations pursuant to ten-year contracts with Lagoven. The Company
estimates that annual revenues of approximately $14,000,000 will be generated
under the contracts.
In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert Enterprises, Inc. ("X-Pert"). X-Pert operates 35 well servicing rigs
in New Mexico and also provides lease maintenance services to oilfield
operators. X-Pert had annual revenues of approximately $15,000,000. The
operating results of the acquired business have been included beginning in March
1995. The Company also acquired an oilfield truck fleet in East Texas during
March 1995 to complement its existing fluids hauling business.
Page 13
Deterioration in economic conditions in Venezuela resulted in significant
devaluation of the country's currency during the first half of 1994. To a large
extent, the Company has been able to insulate its ongoing operations from
currency exchange losses by matching the local currency component of contracts
to the amount of operating costs transacted in local currency. The Company is
continuing its efforts to maximize the dollar component of its Venezuelan
contracts. During the first two quarters of 1994, the devaluation of the
Venezuela bolivar resulted in currency translation losses for the Company.
These losses resulted principally from the translation of the net Venezuelan
monetary assets (that is, essentially accounts receivable in excess of trade
payables) at devaluing exchange rates from month to month.
In the latter part of June 1994, the Venezuelan government imposed
exchange control policies and established an official fixed exchange rate
relative to the U.S. dollar. As a result, should the Venezuelan government
maintain the present rate from month to month, no currency translation losses
should result in those periods. If the official rate is subsequently revised or
a market exchange mechanism is re-implemented so that the bolivar "floats"
relative to the U.S. dollar, the Company could be susceptible to further
currency translation losses with respect to its Venezuelan operations. The
Company intends to continue to monitor developments in this regard and to take
such measures as may be practical to limit its exposure to currency translation
losses in future periods.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial information
of the Company expressed as percentages for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- -------- -------- --------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Domestic land . . . . . . . . . 43.7% 60.3% 43.3% 62.4%
Domestic offshore . . . . . . . 18.5 1.8 19.7 1.0
International . . . . . . . . . 37.8 37.9 37.0 36.6
-------- -------- -------- --------
Total revenues . . . . . . . 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
Earnings from operations:
Domestic land . . . . . . . . . 20.2% 44.0% 20.3% 43.7%
Domestic offshore . . . . . . . 24.9 4.2 28.4 2.6
International . . . . . . . . . 54.9 51.8 51.3 53.7
-------- -------- -------- --------
Total earnings from operations 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS ENDED JUNE 30, 1994.
REVENUES. Revenues for the three months ended June 30, 1995 increased
$28,599,000, or 71%, as compared to the corresponding period in 1994. Of this
increase, $12,060,000 was attributable to domestic offshore operations, which
the Company acquired in June 1994, and $10,712,000 was a result of expansion of
the Company's international operations, primarily in Venezuela and Argentina.
Revenues from Venezuelan operations increased primarily as a result of the
Page 14
commencement of operations of the Company's two drilling/workover barge rigs.
Revenues from domestic land operations increased $5,827,000, primarily as a
result of the acquisition of X-Pert in March 1995 as well as some improvement in
pricing for the Company's services.
OPERATING COSTS. Operating costs for the three months ended June 30, 1995
increased $19,558,000, or 63%, as compared to the corresponding period in 1994.
Of this increase, $8,354,000 was attributable to the Company's recently acquired
domestic offshore operations, and $6,780,000 was a result of expansion of the
Company's international operations, as discussed above. Operating costs related
to domestic land operations increased $4,424,000, corresponding to the addition
of Xpert.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended June 30, 1995 increased $2,078,000, or 101%, as compared to
the corresponding period in 1994, primarily as a result of provisions for
recently acquired domestic offshore and international assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended June 30, 1995 increased $1,873,000, or 35%,
as compared to the corresponding period in 1994, primarily as a result of the
inclusion of such costs for acquired domestic offshore, land and international
operations. As a percentage of revenues, however, total selling, general and
administrative costs declined to 11% for the second quarter of 1995 from 13% for
the second quarter of 1994, as such costs have been spread over a larger revenue
base.
EARNINGS FROM OPERATIONS. The Company generated earnings from operations
for the three months ended June 30, 1995 of $7,081,000. Of this amount,
$3,888,000 was generated by international operations, $1,761,000 was generated
by domestic offshore operations and $1,432,000 was generated by domestic land
operations. For the corresponding quarter of 1994, international operations
generated earnings from operations of $1,031,000, domestic land operations
generated earnings from operations of $876,000 and domestic offshore operations
generated earnings from operations of $84,000 (including only nine days of
operating results for offshore operations during the 1994 period immediately
following their acquisition).
OTHER INCOME (EXPENSE). Other income (expense) for the second quarter of
1995 included no gains or losses related to foreign currency translation and
transactions versus $482,000 of losses for the corresponding 1994 quarter.
Interest income increased to $267,000 for the three months ended June 30, 1995
from $77,000 for the corresponding 1994 period due to an increase in cash
available for investment. Interest expense for the three months ended June 30,
1995 increased by $1,555,000, as a result of borrowings related to the two
drilling/workover barge rigs, acquisitions and other additions to property and
equipment.
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the three months ended June 30, 1995, increased to approximately 37%
from approximately 35% for the corresponding period in 1994, primarily as a
result of changes in the Company's overall earnings mix.
Page 15
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994.
REVENUES. Revenues for the six months ended June 30, 1995 increased
$54,306,000, or 70%, as compared to the corresponding period in 1994. Of this
increase, $25,118,000 was attributable to domestic offshore operations, which
the Company acquired in June 1994, and $20,432,000 was a result of expansion of
the Company's international operations, primarily in Venezuela and Argentina.
Revenues from Venezuelan operations increased primarily as a result of the
commencement of operations of the Company's two drilling/workover barge rigs.
Revenues from domestic land operations increased $8,756,000, primarily as a
result of the acquisition of X-Pert in March 1995 as well as some improvement in
pricing for the Company's services.
OPERATING COSTS. Operating costs for the six months ended June 30, 1995
increased $36,202,000, or 61%, as compared to the corresponding period in 1994.
Of this increase, $17,628,000 was attributable to the Company's recently
acquired domestic offshore operations, and $12,344,000 was a result of expansion
of the Company's international operations, as discussed above. Operating costs
related to domestic land operations increased $6,230,000, corresponding to the
addition of Xpert.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the six
months ended June 30, 1995 increased $3,663,000, or 91%, as compared to the
corresponding period in 1994, primarily as a result of provisions for recently
acquired domestic offshore and international assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the six months ended June 30, 1995 increased $4,894,000, or 47%, as
compared to the corresponding period in 1994, primarily as a result of the
inclusion of such costs for acquired domestic offshore, land and international
operations. As a percentage of revenues, however, total selling, general and
administrative costs declined to 12% for the first six months of 1995 from 14%
for the first six months of 1994, as such costs have been spread over a larger
revenue base.
EARNINGS FROM OPERATIONS. The Company generated earnings from operations
for the six months ended June 30, 1995 of $12,802,000. Of this amount,
$6,573,000 was generated by international operations, $3,634,000 was generated
by domestic offshore operations and $2,595,000 was generated by domestic land
operations. For the corresponding six month period of 1994, international
operations generated earnings from operations of $1,747,000, domestic land
operations generated earnings from operations of $1,424,000 and domestic
offshore operations generated earnings from operations of $84,000 (including
only nine days of operating results for offshore operations during the 1994
period immediately following their acquisition).
OTHER INCOME (EXPENSE). Other income (expense) for the six months ended
June 30, 1995 included $6,000 of losses related to foreign currency translation
and transactions versus $588,000 of losses for the corresponding 1994 period.
Interest income increased to $392,000 for the six months ended June 30, 1995
from $359,000 for the corresponding 1994 period, due to an increase in excess
cash available for investment. Interest expense for the six months ended June
30, 1995 increased by $2,783,000, as a result of borrowings related to the two
drilling/workover barge rigs, acquisitions and other additions to property and
equipment.
Page 16
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the six months ended June 30, 1995, increased to approximately 36% from
approximately 35% for the corresponding period in 1994, primarily as a result of
changes in the Company's overall earnings mix.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $30,337,000 and $26,640,000 at June
30, 1995 and December 31, 1994, respectively. The Company's current ratio was
1.7 to 1.0 at June 30, 1995 and 1.8 to 1.0 at December 31, 1994. The Company
expects to meet its operational and normal ongoing capital expenditure
requirements from internally generated cash flows and from existing bank credit
lines.
As of June 30, 1995, the Company had domestic bank lines of credit of
$23,000,000, against which letters of credit totaling $10,714,000 and borrowings
of $1,283,000 were outstanding. Substantially all of these letters of credit
have been issued in favor of the Company's insurance carriers to guarantee
payment of the Company's share of insured claims. As of June 30, 1995, the
Company had accrued approximately $11,044,000 of claims liabilities, of which
$6,138,000 was included in current liabilities and $4,906,000 was reflected as
other long-term liabilities in the accompanying unaudited consolidated balance
sheet. The Company has estimated the amount and timing of payment of these
liabilities based on actuarial studies provided by the insurance carriers and
past experience. Due to the nature of the Company's business and the structure
of its insurance program, the occurrence of a significant event against which
the Company is not fully insured, or of a number of lesser events against which
the Company is insured, but subject to substantial deductibles, could
significantly impact the operating results of the Company for a given period.
During 1994, the Company entered into long-term financing arrangements
with two Japanese trading companies in connection with the construction and
operation of two drilling/workover barge rigs. The aggregate amount of the
collateralized term loans was initially $42,000,000. As of June 30, 1995,
$2,503,000 of accrued interest has been added to the principal amount of the
loans. Pursuant to the terms of the loan agreements, interest, which accrues at
a rate of 9.61% per annum, was added to the principal amount of the loans until
the first scheduled payment in July 1995, and will be payable from the proceeds
of the related charter contracts in 109 equal monthly installments of principal
and interest. In addition, a portion of contract proceeds are to be held in
trust to assure that timely payment of future debt service obligations is made.
At June 30, 1995, $3,044,000 of such contract proceeds are being held in trust
for the benefit of the lenders, and is not presently available for use by the
Company. The terms of the financing agreement limit the lenders' recourse
essentially to the barge rigs and contract proceeds and the assets of the
Company's Venezuelan subsidiary. The Company also provided the lenders a
limited guaranty with respect to certain political risks. The Company has
obtained political risks insurance policies from the Overseas Private Investment
Corporation ("OPIC"), a U.S. government entity, to protect against political
risks that could result in potential payments under the terms of the Company's
guaranty. At June 30, 1995, the Company had borrowed $44,503,000 pursuant to
this financing arrangement.
In connection with the acquisition and planned upgrading and expansion of
its acquired offshore platform rig fleet in 1994, the Company established credit
facilities with a lending institution in the aggregate amount of $14,400,000.
In February 1995, this credit facility was amended to, among other things,
Page 17
increase the aggregate borrowing availability to $30,000,000. As of June 30,
1995, $13,130,000 was outstanding pursuant to this facility. The Company plans
to continue a program to upgrade its offshore platform rig fleet throughout
1995. During the six months ended June 30, 1995, the Company spent
approximately $9,000,000 toward offshore assets, including: (i) construction of
a new "flagship" state-of-the-art diesel electric platform rig, (ii) major rig
refurbishments and(iii) auxilliary equipment such as top-drive drilling systems,
larger capacity pumps and generators, and improved living quarters.
The Company spent approximately $3,800,000 during the six months ended
June 30, 1995 to complete construction of the two new drilling/workover barge
rigs. Rig refurbishment and international deployment costs for the six months
ended June 30, 1995 and 1994 were approximately $8,000,000 and $4,100,000
respectively.
In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert for consideration of approximately $10,000,000, consisting of
$3,000,000 cash, a note payable to the selling shareholders in the amount of
approximately $6,000,000 and 200,000 shares of the Company's common stock. X-
Pert had working capital and other monetary assets in excess of liabilities of
approximately $3,000,000.
Capital expenditures related to other domestic operations for the six
months ended June 30, 1995 and 1994 were approximately $1,200,000 and
$2,700,000, respectively.
The Company expects to continue to review opportunities to pursue its
international and offshore equipment and technology expansion. From time to
time, the Company has one or more bids outstanding for contracts that could
require significant capital expenditures and mobilization costs. While the
Company has no other definitive plans to acquire additional equipment, suitable
opportunities may arise in the future. The timing, size or success of any
acquisition effort and the associated potential capital commitments are
unpredictable. The Company expects to fund project opportunities and
acquisitions primarily through a combination of working capital, cash flow from
operations and full or limited recourse debt or equity financing.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles to be
held and used by the entity, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company does not expect that the adoption of SFAS No. 121
will have any material effect on its financial position or results of
operations.
Page 18
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held in Houston,
Texas on May 16, 1995, for the purpose of voting on the proposals described
below. Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitation.
Shareholders approved an amendment to the Company's Long-Term Incentive
Plan to (i) increase the number of shares available for stock options and other
awards from 9% to 13% of outstanding shares and (ii) make certain changes to
conform with Section 162(m) of the Internal Revenue Code by the following vote:
Shares voted "For" 15,559,960
Shares voted "Against" 2,541,491
Shares "Abstaining" 904,892
Shares not voted 5,221,309
Shareholders ratified the selection of Coopers & Lybrand L.L.P. as the
Company's independent accountants for 1995 by the following vote:
Shares voted "For" 18,972,998
Shares voted "Against" 42,915
Shares "Abstaining" 243,447
Shares not voted 4,968,292
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -------------
10.1 - Agreement dated as of June 13, 1995 between Pride Petroleum
Services, Inc. and Financial Overseas Management, S.A.
15 - Awareness Letter of Independent Accountants
(b) Reports on Form 8-K
During the second quarter of 1995, the Company filed Amendment No. 1 on
Form 8-K/A to its Current Report dated March 22, 1995, relating to the
acquisition of X-Pert. Included in the Form 8-K/A were audited financial
statements of X-Pert and pro forma financial statements for the Company.
Page 19
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.
PRIDE PETROLEUM SERVICES, INC.
By: RAY H. TOLSON
-----------------------------------
(Ray H. Tolson)
President, Chief Executive Officer
and Chairman of the Board
By: PAUL A. BRAGG
-----------------------------------
(Paul A. Bragg)
Vice President, Chief Financial
Officer and Treasurer
By: EARL W. MCNIEL
-----------------------------------
(Earl W. McNiel)
Chief Accounting Officer
Date: August 4, 1995
Page 20