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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 March 31, 1996
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 May 1, 1996
--------------------- -----------------
no par 25,019,656 shares
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PRIDE PETROLEUM SERVICES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three months ended March 31, 1996 and 1995. . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Three months ended March 31, 1996 and 1995. . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . 6
Report of Independent Accountants. . . . . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
MARCH 31, DECEMBER 31,
1996 1995
--------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 74,659 $ 9,295
Short-term investments. . . . . . . . . . . . . . 52 2,612
Trade receivables, net of allowance for doubtful
accounts of $511 and $426, respectively. . . . 43,946 43,767
Parts and supplies. . . . . . . . . . . . . . . . 10,545 9,473
Deferred income taxes . . . . . . . . . . . . . . 1,569 1,518
Other current assets. . . . . . . . . . . . . . . 10,196 6,488
--------- ---------
Total current assets. . . . . . . . . . . . 140,967 73,153
--------- ---------
PROPERTY AND EQUIPMENT, AT COST. . . . . . . . . . . 311,173 296,939
ACCUMULATED DEPRECIATION . . . . . . . . . . . . . . (122,908) (118,451)
--------- ---------
Net property and equipment. . . . . . . . . 188,265 178,488
--------- ---------
GOODWILL AND OTHER INTANGIBLES, NET. . . . . . . . . 3,509 3,699
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 7,827 2,265
--------- ---------
$ 340,568 $ 257,605
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . $ 21,759 $ 15,010
Accrued expenses. . . . . . . . . . . . . . . . . 14,774 16,550
Current portion of long-term debt . . . . . . . . 11,858 10,291
--------- ---------
Total current liabilities . . . . . . . . . 48,391 41,851
--------- ---------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . 4,199 4,127
LONG-TERM DEBT, net of current portion . . . . . . . 52,712 61,136
CONVERTIBLE SUBORDINATED DEBENTURES. . . . . . . . . 80,500 --
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 19,621 19,252
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 40,000,000 shares
authorized: 25,073,876 and 24,863,072 shares
issued and 25,019,656 and 24,808,852 shares
outstanding, respectively. . . . . . . . . . . 1 1
Paid-in capital . . . . . . . . . . . . . . . . . 96,877 95,751
Treasury stock, at cost . . . . . . . . . . . . . (191) (191)
Retained earnings . . . . . . . . . . . . . . . . 38,458 35,678
--------- ---------
Total shareholders' equity. . . . . . . . . 135,145 131,239
--------- ---------
$ 340,568 $ 257,605
========= =========
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
MARCH 31,
---------------------
1996 1995
--------- ---------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . $ 66,235 $ 62,512
--------- ---------
COSTS AND EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . 47,946 45,171
Depreciation and amortization . . . . . . . . . . . 4,774 3,578
Selling, general and administrative . . . . . . . . 8,157 8,042
--------- ---------
Total costs and expenses . . . . . . . . . . . . 60,877 56,791
--------- ---------
Earnings from operations. . . . . . . . . . . 5,358 5,721
OTHER INCOME (EXPENSE)
Other income. . . . . . . . . . . . . . . . . . . . 227 10
Interest income . . . . . . . . . . . . . . . . . . 774 125
Interest expense. . . . . . . . . . . . . . . . . . (2,554) (1,247)
--------- ---------
Total other expense, net. . . . . . . . . . . (1,553) (1,112)
--------- ---------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . 3,805 4,609
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . 1,025 1,597
--------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 2,780 $ 3,012
========= =========
NET EARNINGS PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . $ .11 $ .12
Fully diluted . . . . . . . . . . . . . . . . . . . $ .11 $ .12
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . 26,094 24,675
Fully diluted . . . . . . . . . . . . . . . . . . . 31,051 24,979
The accompanying notes are an integral part of
the consolidated financial statements.
Page 4
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
--------- ---------
OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . . . . . $ 2,780 $ 3,012
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities -
Depreciation and amortization. . . . . . . . . . 4,774 3,578
Deferred interest. . . . . . . . . . . . . . . . -- 894
Gain on sale of assets . . . . . . . . . . . . . (109) (55)
Effect of exchange rates . . . . . . . . . . . . 43 6
Deferred tax provision . . . . . . . . . . . . . 319 303
Changes in assets and liabilities, net of
effects of acquisitions -
Trade receivables . . . . . . . . . . . . . . (179) (5,023)
Parts and supplies. . . . . . . . . . . . . . (1,072) (679)
Other current assets. . . . . . . . . . . . . (3,415) (3,852)
Accounts payable. . . . . . . . . . . . . . . 6,707 (1,815)
Accrued expenses and other. . . . . . . . . . (4,545) 154
--------- ---------
Net cash provided (used) by
operating activities . . . . . . . . . . 5,303 (3,477)
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities,
including acquisition costs, less cash acquired . -- (1,662)
Purchases of property and equipment . . . . . . . . (14,732) (11,841)
Proceeds from sales of short-term investments . . . 2,560 1,000
Proceeds from sales of property and equipment . . . 371 124
Other . . . . . . . . . . . . . . . . . . . . . . . (34) 69
--------- ---------
Net cash used in investing activities. . . (11,835) (12,310)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . 1,126 --
Proceeds from issuance of convertible
subordinated debentures. . . . . . . . . . . . . 77,585 --
Proceeds from debt borrowings . . . . . . . . . . . 3,965 15,023
Reduction of debt . . . . . . . . . . . . . . . . . (10,821) (1,829)
Other . . . . . . . . . . . . . . . . . . . . . . . 41 113
--------- ---------
Net cash provided by financing activities. 71,896 13,307
--------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . 65,364 (2,480)
CASH AND CASH EQUIVALENTS, beginning of period . . . . 9,295 5,970
--------- ---------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . $ 74,659 $ 3,490
========= =========
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, 1995. 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 (except for thirteen of its largest domestic land
rigs), and other equipment. 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. Nineteen of the Company's 23
offshore platform rigs and all of its 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
$100,000 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 generally $40,000 to $100,000 per occurrence.
As of March 31, 1996 and December 31, 1995, the Company had accrued
approximately $6,296,000 and $7,249,000, respectively, for estimated claims
liabilities, of which $3,510,000 and $3,940,000, respectively, was included in
current liabilities and $2,786,000 and $3,309,000, respectively, was included in
other long-term liabilities in the accompanying unaudited consolidated balance
sheet. As of March 31, 1996, the Company had letters of credit outstanding
totaling $8,540,000. These letters of credit guarantee principally the funding
of the Company's share of insured claims.
3. DEBT
LONG-TERM DEBT
Long-term debt at March 31, 1996 and December 31, 1995 consists of the
following:
MARCH 31, DECEMBER 31,
1996 1995
-------- --------
(in thousands)
Limited-recourse collateralized term loans . . . $ 41,504 $ 42,320
Secured term loans . . . . . . . . . . . . . . . 7,660 8,200
Secured revolver . . . . . . . . . . . . . . . . 850 8,850
Notes payable. . . . . . . . . . . . . . . . . . 8,088 6,225
Acquisition note payable . . . . . . . . . . . . 4,772 5,070
Revolving line of credit . . . . . . . . . . . . 1,696 762
-------- --------
64,570 71,427
Less: current portion. . . . . . . . . . . . . . 11,858 10,291
-------- --------
$ 52,712 $ 61,136
======== ========
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 term loans are
collateralized by the barge rigs and related charter contracts. The loans are
being repaid from the proceeds of the related charter contracts in equal monthly
installments of principal and interest through July 2004. In addition, a
portion of contract proceeds is being held in trust to assure that timely
payment of future debt service obligations is made. At March 31, 1996,
$2,435,000 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 as security for the lenders, and are not presently available for
use by the Company.
A portion of the proceeds from the public sale of convertible
subordinated debentures was used to retire $10,000,000 of debt during the first
quarter of 1996, including $8,000,000 under the secured revolver and $2,000,000
of other debt.
CONVERTIBLE SUBORDINATED DEBENTURES
In January 1996, the Company completed the public sale of $80,500,000
principal amount of 6 1/4% convertible subordinated debentures. The debentures,
which are due February 15, 2006, are convertible into common stock of the
Company at a price of $12.25 per share. The debentures are redeemable at the
option of the Company, in whole or in part, at any time on or after March 1,
1999, at an initial redemption price of 103.125% of the principal amount and
declining to 100% of the principal amount by February 15, 2002. Interest is
payable semi-annually on February 15 and August 15 of each year, commencing
August 15, 1996.
4. ACQUISITIONS
In February 1996, the Company acquired substantially all the assets of a
competitor in Freer, Texas for aggregate consideration of approximately
$1,879,000, consisting of $1,850,000 cash and 4,200 restricted shares of common
stock. The assets acquired included seven workover rigs, hauling and anchor
trucks and other support assets.
5. INCOME TAXES
During the first quarter of 1996, the Company recognized the current tax
benefits from the utilization of approximately $638,000 of foreign net operating
loss carryforwards. The Company had previously provided a valuation allowance
for the tax benefits of such foreign net operating loss carryforwards.
6. NET EARNINGS PER SHARE
Primary 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 has been computed based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period, as if the convertible subordinated debentures
were converted into common stock on the date of sale, after giving retroactive
effect to the elimination of interest expense, net of income tax effect,
applicable to the convertible subordinated debentures.
The following table presents information necessary to calculate fully
diluted net earnings per share:
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
-------- --------
(In thousands, except
per share amounts)
Net earnings . . . . . . . . . . . . . . . . . . . . $ 2,780 $ 3,012
Interest on convertible subordinated debentures. . . 962 --
Income tax effect. . . . . . . . . . . . . . . . . . (346) --
-------- --------
Net earnings applicable to common stock. . . . $ 3,396 $ 3,012
======== ========
Weighted average number of common shares outstanding 24,846 24,210
Additional shares assuming conversion of:
Convertible subordinated debentures . . . . . . . 4,700 --
Stock options and warrants. . . . . . . . . . . . 1,505 769
-------- --------
Weighted average common shares and
common share equivalents outstanding . . . . 31,051 24,979
======== ========
Fully diluted net earnings per share . . . . . $ .11 $ .12
======== ========
7. SEGMENT INFORMATION
The following table sets forth certain consolidated information with
respect to the Company and its subsidiaries by operating segment:
DOMESTIC DOMESTIC INTER-
LAND OFFSHORE NATIONAL TOTAL
-------- -------- -------- --------
(In thousands)
THREE MONTHS ENDED MARCH 31, 1996
Revenues. . . . . . . . . . . . . . . $ 27,861 $ 12,376 $ 25,998 $ 66,235
Earnings from operations. . . . . . . 1,097 1,221 3,040 5,358
Identifiable assets . . . . . . . . . 152,269(1) 58,867 129,432 340,568
Capital expenditures, including
acquisitions. . . . . . . . . . . . 2,817 7,111 4,804 14,732
Depreciation and amortization 1,393 874 2,507 4,774
THREE MONTHS ENDED MARCH 31, 1995
Revenues. . . . . . . . . . . . . . . $ 26,753 $ 13,058 $ 22,701 $ 62,512
Earnings from operations. . . . . . . 1,163 1,873 2,685 5,721
Identifiable assets . . . . . . . . . 79,698 50,938 102,455 233,091
Capital expenditures, including
acquisitions. . . . . . . . . . . . 10,955 4,830 6,523 22,308
Depreciation and amortization . . . . 1,275 645 1,658 3,578
- ---------
(1) Includes $67,585,000 remaining net proceeds from the public sale of
convertible subordinated debentures after repayment of $10,000,000 of
debt.
8. SUBSEQUENT EVENTS
In April 1996, the Company acquired all of the outstanding capital stock
of Quitral-Co S.A.I.C. ("Quitral-Co") from Perez Companc S.A., Astra C.A.P.S.A.
and other shareholders for aggregate consideration of $140,000,000, consisting
of $110,000,000 cash and a note payable to the sellers for $30,000,000.
Quitral-Co operates 23 drilling and 56 workover rigs in Argentina and 7 drilling
and 23 workover rigs in Venezuela. For its fiscal year ended June 30, 1995,
Quitral-Co generated revenues of approximately $180 million. For the nine month
period ended March 31, 1996, Quitral-Co's revenues were approximately $150
million. The acquisition of Quitral-Co will be accounted for as a purchase.
Accordingly, the results of operations of Quitral-Co will be included in the
Company's consolidated results of operations from April 30, 1996, the date of
the acquisition.
Also in April 1996, the Company completed two separate financing
arrangements with lending institutions pursuant to which it borrowed an
aggregate amount of $40,000,000, net of repayment of $5,000,000 of borrowings to
one of the lenders. The loans bear interest initially at a floating rate of
prime plus 1/2% and are repayable in monthly installments of principal and
interest over a period of five to six years. The Company may elect to convert
the interest payable to a fixed rate basis at any time during the term of the
loans. The loans are collateralized by substantially all of the Company's
domestic land-based rig fleet and ancillary equipment. Proceeds from the loans
were used to fund a portion of the cash consideration for the acquisition of
Quitral-Co, discussed above.
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 March 31, 1996, and the related consolidated
statements of operations and cash flows for the three-month periods ended March
31, 1996 and 1995. 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, 1995, 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 26, 1996, 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, 1995 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
May 15, 1996
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 March 31, 1996 and for the three-month periods ended
March 31, 1996 and 1995 included elsewhere herein, and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
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 generally
are not as sensitive to short-term changes in oil and gas prices as domestic
operations.
Since 1993, the Company has entered into a number of transactions that
have significantly expanded the Company's operations, including the following:
* In a series of transactions from mid-1993 through March 1996, the Company
acquired established businesses in Argentina, Venezuela, and Colombia and
deployed 36 rigs from its U.S. land-based fleet to Argentina, Venezuela
and Russia.
* In June 1994, the Company acquired the largest fleet of platform workover
rigs, consisting of 22 units, in the Gulf of Mexico. An additional
platform rig was constructed and added to the fleet in September 1995.
Another platform rig was completed and added in April 1996, replacing a
rig then retired from the fleet.
* In January 1995, the Company commenced operation of two drilling/workover
barge rigs on Lake Maracaibo, Venezuela. The barge rigs were constructed
during 1994 pursuant to ten-year operating contracts entered into with
Lagoven, S.A. ("Lagoven"), a subsidiary of the Venezuelan national oil
company.
* In March 1995, the Company acquired X-Pert Enterprises, Inc. ("X-Pert"),
which operates 35 well servicing rigs in New Mexico.
* In April 1996, the Company acquired Quitral-Co S.A.I.C. ("Quitral-Co")
from Perez Companc S.A., Astra C.A.P.S.A. and other shareholders.
Quitral-Co operates 23 drilling and 56 workover rigs in Argentina and 7
drilling and 23 workover rigs in Venezuela. For its fiscal year ended
June 30, 1995, Quitral-Co generated revenues of approximately $180
million. For the nine month period ended March 31, 1996, Quitral-Co's
consolidated revenues were approximately $150 million. The operating
results of this acquisition will be included in the Company's consolidated
results of operations beginning in the second quarter of 1996.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial information
of the Company by operating segment for the periods indicated:
THREE MONTHS ENDED MARCH 31,
----------------------------------
1996 1995
--------------- ---------------
(In thousands, except percentages)
Revenues:
Domestic land. . . . . . . . . . . . . . $ 27,861 42.0% $ 26,753 42.8%
Domestic offshore. . . . . . . . . . . . 12,376 18.7 13,058 20.9
International. . . . . . . . . . . . . . 25,998 39.3 22,701 36.3
-------- ----- -------- -----
Total revenues. . . . . . . . . . . . $ 66,235 100.0% $ 62,512 100.0%
======== ===== ======== =====
Earnings from operations:
Domestic land. . . . . . . . . . . . . . $ 1,097 20.5% $ 1,163 20.3%
Domestic offshore. . . . . . . . . . . . 1,221 22.8 1,873 32.7
International. . . . . . . . . . . . . . 3,040 56.7 2,685 47.0
-------- ----- -------- -----
Total earnings from operations. . . . $ 5,358 100.0% $ 5,721 100.0%
======== ===== ======== =====
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995.
REVENUES. Revenues for the three months ended March 31, 1996 increased
$3,723,000, or 6%, as compared to the corresponding period in 1995. Of this
increase, $3,297,000 was a result of expansion of the Company's international
operations. Revenues from domestic land operations increased $1,108,000,
primarily as a result of the acquisition of X-Pert in March 1995, partially
offset by temporary softness in the domestic land-based workover rig market.
Revenues attributable to domestic offshore operations decreased $682,000 due
primarily to lower utilization of the Company's offshore platform workover rigs.
OPERATING COSTS. Operating costs for the three months ended March 31,
1996 increased $2,775,000 or 6%, as compared to the corresponding period in
1995. Of this increase, $2,135,000 was a result of expansion of the Company's
international operations and $1,024,000 was attributable to domestic land
operations, due to the addition of X-Pert. Operating costs related to domestic
offshore operations decreased $384,000, due to lower utilization, as discussed
above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended March 31, 1996 increased $1,196,000, or 33%, as compared to
the corresponding period in 1995, primarily as a result of expansion of the
Company's international and domestic offshore asset base.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended March 31, 1996 increased $115,000, or 1%, as
compared to the corresponding period in 1995. As a percentage of revenues,
however, total selling, general and administrative costs declined to 12% for the
first quarter of 1996 from 13% for the first quarter of 1995 as such costs have
been spread over a larger revenue base.
EARNINGS FROM OPERATIONS. Earnings from operations for the three months
ended March 31, 1996 decreased by $363,000, or 6%, as compared to the
corresponding period in 1995. The decrease in earnings from operations was
primarily attributable to moderately lower than expected utilization for the
Company's offshore platform workover rigs as well as temporary softness in the
domestic land-based workover rig market.
OTHER INCOME (EXPENSE). Other income (expense) for the first quarter of
1996 included gains from asset sales, foreign exchange transactions and other
sources. Interest income increased to $774,000 for the three months ended March
31, 1996 from $125,000 for the corresponding 1995 period due to an increase in
cash available for investment as the Company completed the public sale of
$80,500,000 principal amount of convertible subordinated debentures in January
1996, which resulted in net proceeds to the Company of approximately
$77,585,000. Interest expense for the three months ended March 31, 1996
increased by $1,307,000 over the corresponding 1995 period, as a result of
interest on the convertible subordinated debentures and borrowings related to
acquisitions and other additions to property and equipment.
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the three months ended March 31, 1996 was approximately 27%, as
compared to approximately 35% for the corresponding period in 1995. The
decrease is primarily attributable to the recognition in the first quarter of
1996 of current tax benefits from the utilization of approximately $638,000 of
foreign net operating loss carryforwards. The Company had previously provided a
valuation allowance for the tax benefits of such foreign net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $92,576,000 and $31,302,000 at
March 31, 1996 and December 31, 1995, respectively. The Company's current ratio
was 2.9 to 1.0 at March 31, 1996 and 1.7 to 1.0 at December 31, 1995. In
January 1996, the Company completed the public sale of $80,500,000 principal
amount of convertible subordinated debentures, which resulted in net proceeds to
the Company of approximately $77,585,000. Approximately $10,000,000 of such net
proceeds has been used to repay outstanding indebtedness. The remainder of such
net proceeds were used to fund various capital projects, including the
acquisition of Quitral-Co. The Company purchased Quitral-Co for aggregate
consideration of $140,000,000, consisting of $110,000,000 cash and a note
payable to the sellers for $30,000,000. Of the cash portion of the purchase
price, $70,000,000 was funded from the Company's working capital and $40,000,000
from the net proceeds from two new long-term financing arrangements with three
lending institutions. On a pro forma basis, after giving effect to the Quitral-
Co acquisition and the related financing arrangements, the Company had working
captial of $21,719,000 and its current ratio was 1.2 to 1.0 at March 31, 1996.
Management believes that the Company's available funds, including cash generated
from operations and existing bank credit lines, will be sufficient to fund its
normal ongoing capital expenditure, working capital and debt service
requirements.
The Company is active in reviewing possible expansion and acquisition
opportunities relating to all of its business segments. 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 definitive agreements 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.
As of March 31, 1996, the Company had domestic bank commitments providing
for guidance lines of credit of $18,000,000, against which letters of credit of
$8,540,000 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 March 31, 1996, the Company had
accrued approximately $6,296,000 of claims liabilities, of which $3,510,000 was
included in current liabilities and $2,786,000 was included in other long-term
liabilities in the 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 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 financing agreement provides
that the loans are to collateralized by the barge rigs and related charter
contracts. At March 31, 1996, the outstanding balance of these loans was
$41,504,000. The loans are being repaid from the proceeds of the related
charter contracts in equal monthly installments of principal and interest
through July 2004. In addition, a portion of the contract proceeds is being
held in trust to assure the timely payment of future debt service obligations.
At March 31, 1996, $2,435,000 of such contract proceeds are being held in trust
as security for the lenders, and are not presently available for use by the
Company.
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, increase
the aggregate borrowing availability to $30,000,000. As of March 31, 1996,
$7,660,000 of secured term loans, $850,000 of secured revolving loans and
$1,696,000 of working capital line of credit borrowings were outstanding
pursuant to this facility.
During the three months ended March 31, 1996, the Company spent
approximately $7,111,000 on offshore assets, including: (i) construction of a
new state-of-the-art diesel electric platform rig, (ii) major rig refurbishments
and (iii) auxiliary equipment such as top-drive drilling systems and larger
capacity pumps and generators, and improved living quarters. The Company plans
to continue the program to upgrade its offshore platform rig fleet throughout
1996. Presently, the Company is constructing two additional new platform rigs
for an estimated aggregate cost of $11,500,000. Capital expenditures for
offshore assets for the three months ended March 31, 1995 were $4,830,000.
In September 1995, the Company entered into an agreement with a financial
institution for the sale and leaseback of up to $10,000,000 of equipment to be
used in the Company's business. As of March 31, 1996, the Company had received
proceeds of $5,500,000 pursuant to this facility. The Company has annual
purchase and lease renewal options at projected future fair market values under
the agreement. The lease has been classified as an operating lease for
financial statement purposes. Rentals on the initial transaction are $1,167,000
annually. The net book value of the equipment has been removed from the balance
sheet and the excess of $483,000 realized on the transaction has been deferred
and is being amortized as a reduction of the lease expense over the maximum
lease term of five years. In April 1996, the amount of the facility was
increased to $10,800,000 and $5,300,000 of proceeds was received by the Company
in connection with the sale and leaseback of a second newly-constructed offshore
platform rig.
International rig refurbishment and deployment costs for the three months
ended March 31, 1996 and 1995 were approximately $3,503,000 and $2,898,000,
respectively. Capital expenditures related to the completion of the two
drilling/workover barge rigs in the first quarter of 1995 were $2,543,000.
Other international capital expenditures for the three months ended March 31,
1996 and 1995 were $1,301,000 and $1,082,000, respectively. Capital
expenditures, including acquisitions, related to domestic land-based operations
for the three months ended March 31, 1996 and 1995 were approximately
$2,817,000 and $10,955,000, respectively.
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 adoption of SFAS No.121 did not have any material effect on
the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). SFAS No. 123, which is effective for fiscal years beginning after
December 15, 1995, encourages but does not require companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. The Company
has decided not to adopt this new fair value based method of accounting for its
stock-based incentive plans.
CURRENCY FLUCTUATIONS
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 of 170
Venezuelan bolivars per U.S. dollar. This official rate was maintained for the
remainder of 1994 and during the first three quarters of 1995. Accordingly, no
currency translation losses resulted in those periods. In December 1995, the
Venezuelan government devalued its currency by revising the official exchange
rate to 290 Venezuelan bolivars per U.S. dollar. The December 1995 devaluation
did not result in the recognition of any material currency translation gain or
loss by the Company in its consolidated financial statements.
In April 1996, the Venezuelan government removed certain exchange control
restrictions and effectively allowed the bolivar to "float" relative to the
U.S. dollar. As a result, the exchange rate for Venezuela bolivars has declined
to approximately 475-500 bolivars per U.S. dollar. The Company does not expect
this recent devaluation to have any material impact on its consolidated results
of operations. If the market rate of exchange for Venezuelan bolivars continues
to decline relative to the U.S. dollar, the Company could be susceptible to
future 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.
FORWARD-LOOKING INFORMATION
The statements included herein regarding future financial performance and
results and the other statements which are not historical facts are forward-
looking statements that involve risks and uncertainties, including but not
limited to, industry conditions, prices of crude oil and natural gas, foreign
exchange and currency fluctions and other factors discussed herein and in the
Company's other Securities and Exchange Commission filings.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO.
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15 - Awareness Letter of Independent Accountants
(b) Reports on Form 8-K
In a Current Report on Form 8-K dated March 18, 1996, the Company
announced that it had entered into a letter of intent with Perez Company S.A.,
Astra C.A.P.S.A. and other shareholders for the acquisition of Quitral-Co
S.A.I.C.
In a Current Report on Form 8-K dated May 15, 1996, the Company reported
that the acquisition of Quitral-Co S.A.I.C. has been completed.
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 and Chief
Financial Officer
By: EARL W. MCNIEL
-----------------------------------
(Earl W. McNiel)
Chief Accounting Officer
Date: May 15, 1996