=========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
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 September 30, 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 November 1, 1996
--------------------- -----------------
no par 28,510,156 shares
================================================================================
PRIDE PETROLEUM SERVICES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1996 and December 31, 1995. . . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three months ended September 30, 1996 and 1995. . . . . . . . . . 4
Consolidated Statement of Operations -
Nine months ended September 30, 1996 and 1995 . . . . . . . . . . 5
Consolidated Statement of Cash Flows -
Nine months ended September 30, 1996 and 1995 . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . 7
Report of Independent Accountants. . . . . . . . . . . . . . . . . . 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------- ---------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 26,515 $ 9,295
Short-term investments. . . . . . . . . . . . . . 401 2,612
Trade receivables, net of allowance for doubtful
accounts of $528 and $426, respectively . . . . 87,268 43,767
Parts and supplies. . . . . . . . . . . . . . . . 24,065 9,473
Deferred income taxes . . . . . . . . . . . . . . 2,480 1,518
Other current assets. . . . . . . . . . . . . . . 15,390 6,488
--------- ---------
Total current assets . . . . . . . . . . . . . 156,119 73,153
--------- ---------
PROPERTY AND EQUIPMENT, at cost. . . . . . . . . . . 496,735 296,939
ACCUMULATED DEPRECIATION . . . . . . . . . . . . . . (134,976) (118,451)
--------- ---------
Net property and equipment . . . . . . . . . . 361,759 178,488
--------- ---------
GOODWILL AND OTHER INTANGIBLES, net. . . . . . . . . 3,254 3,699
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 8,472 2,265
--------- ---------
$ 529,604 $ 257,605
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . $ 32,513 $ 15,010
Accrued expenses. . . . . . . . . . . . . . . . . 31,204 16,550
Current portion of long-term debt . . . . . . . . 32,671 10,291
--------- ---------
Total current liabilities. . . . . . . . . . . 96,388 41,851
--------- ---------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . 13,313 4,127
LONG-TERM DEBT, net of current portion . . . . . . . 97,947 61,136
CONVERTIBLE SUBORDINATED DEBENTURES. . . . . . . . . 80,500 --
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 48,787 19,252
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 40,000,000 shares
authorized; 28,564,376 and 24,863,072 shares
issued and 28,510,156 and 24,808,852 shares
outstanding, respectively . . . . . . . . . . . 1 1
Paid-in capital . . . . . . . . . . . . . . . . . 142,727 95,751
Treasury stock, at cost . . . . . . . . . . . . . (191) (191)
Retained earnings . . . . . . . . . . . . . . . . 50,132 35,678
--------- ---------
Total shareholders' equity . . . . . . . . . . 192,669 131,239
--------- ---------
$ 529,604 $ 257,605
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
--------- ---------
REVENUES. . . . . . . . . . . . . . . . . . . . . . . $ 115,369 $ 67,144
--------- ---------
COSTS AND EXPENSES
Operating costs. . . . . . . . . . . . . . . . . . 80,936 47,828
Depreciation and amortization. . . . . . . . . . . 8,168 4,368
Selling, general and administrative. . . . . . . . 14,294 8,311
--------- ---------
Total costs and expenses. . . . . . . . . . . . 103,398 60,507
--------- ---------
Earnings from operations . . . . . . . . . . 11,971 6,637
OTHER INCOME (EXPENSE)
Other income (expense) . . . . . . . . . . . . . . (221) 1,612
Interest income. . . . . . . . . . . . . . . . . . 647 185
Interest expense . . . . . . . . . . . . . . . . . (3,178) (1,782)
--------- ---------
Total other income (expense), net . . . . . . . (2,752) 15
--------- ---------
EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . 9,219 6,652
INCOME TAX PROVISION. . . . . . . . . . . . . . . . . 2,340 2,019
--------- ---------
NET EARNINGS. . . . . . . . . . . . . . . . . . . . . $ 6,879 $ 4,633
========= =========
NET EARNINGS PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . $ .23 $ .18
Fully diluted . . . . . . . . . . . . . . . . . $ .22 $ .18
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . 29,850 25,708
Fully diluted . . . . . . . . . . . . . . . . . 36,429 25,890
The accompanying notes are an integral part of
the consolidated financial statements.
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
--------- ---------
REVENUES. . . . . . . . . . . . . . . . . . . . . . . $ 283,593 $ 198,512
--------- ---------
COSTS AND EXPENSES
Operating costs. . . . . . . . . . . . . . . . . . 202,796 143,376
Depreciation and amortization. . . . . . . . . . . 19,987 12,077
Selling, general and administrative. . . . . . . . 34,120 23,620
--------- ---------
Total costs and expenses. . . . . . . . . . . . 256,903 179,073
--------- ---------
Earnings from operations . . . . . . . . . . 26,690 19,439
OTHER INCOME (EXPENSE)
Other income . . . . . . . . . . . . . . . . . . . 475 1,640
Interest income. . . . . . . . . . . . . . . . . . 2,044 577
Interest expense . . . . . . . . . . . . . . . . . (9,856) (4,689)
--------- ---------
Total other expense, net. . . . . . . . . . . . (7,337) (2,472)
--------- ---------
EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . 19,353 16,967
INCOME TAX PROVISION. . . . . . . . . . . . . . . . . 4,899 5,740
--------- ---------
NET EARNINGS. . . . . . . . . . . . . . . . . . . . . $ 14,454 $ 11,227
========= =========
NET EARNINGS PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . $ .52 $ .44
Fully diluted . . . . . . . . . . . . . . . . . $ .50 $ .44
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . 27,539 25,280
Fully diluted . . . . . . . . . . . . . . . . . 33,518 25,720
The accompanying notes are an integral part of
the consolidated financial statements.
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
--------- ---------
OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . . . . . $ 14,454 $ 11,227
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization . . . . . . . . . 19,987 12,077
Deferred interest . . . . . . . . . . . . . . . -- 1,947
Gain on sale of assets. . . . . . . . . . . . . (412) (1,597)
Effect of exchange rates. . . . . . . . . . . . 126 7
Deferred tax provision. . . . . . . . . . . . . 3,223 1,001
Changes in assets and liabilities, net of
effects of acquisitions -
Trade receivables . . . . . . . . . . . . . (8,311) (5,122)
Parts and supplies. . . . . . . . . . . . . (1,056) (2,475)
Other current assets. . . . . . . . . . . . (4,797) (4,759)
Accounts payable. . . . . . . . . . . . . . (2,322) 2,988
Accrued expenses and other. . . . . . . . . (1,449) 1,141
--------- ---------
Net cash provided by
operating activities. . . . . . . . . . 19,443 16,435
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities,
including acquisition costs, less cash acquired . (106,286) (1,999)
Purchases of property and equipment . . . . . . . . (47,177) (34,426)
Proceeds from sales of property and equipment . . . 7,021 6,603
Proceeds from sales of short-term investments . . . 5,619 1,009
Purchases of short-term investments . . . . . . . . (557) --
Other . . . . . . . . . . . . . . . . . . . . . . . (80) (473)
--------- ---------
Net cash used in investing activities . . (141,460) (29,286)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . 46,976 655
Proceeds from issuance of convertible
subordinated debentures . . . . . . . . . . . . . 77,585 --
Proceeds from debt borrowings . . . . . . . . . . . 62,962 22,682
Reduction of debt . . . . . . . . . . . . . . . . . (47,706) (5,410)
Other . . . . . . . . . . . . . . . . . . . . . . . (580) 93
--------- ---------
Net cash provided by financing activities 139,237 18,020
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . 17,220 5,169
CASH AND CASH EQUIVALENTS, beginning of period. . . . 9,295 5,970
--------- ---------
CASH AND CASH EQUIVALENTS, end of period. . . . . . . $ 26,515 $ 11,139
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
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 September 30, 1996 and December 31, 1995, the Company had accrued
approximately $6,761,000 and $7,249,000, respectively, for estimated claims
liabilities, of which $4,349,000 and $3,940,000, respectively, was included in
current liabilities and $2,412,000 and $3,309,000, respectively, was included in
other long-term liabilities in the accompanying unaudited consolidated balance
sheet. As of September 30, 1996, the Company had letters of credit outstanding
totaling $8,652,000. These letters of credit principally guarantee the funding
of the Company's share of insured claims.
3. ACQUISITIONS
In April 1996, the Company acquired all of the outstanding capital stock
of Quitral-Co S.A.I.C. ("Quitral-Co") for an aggregate purchase price of
$140,000,000, consisting of $110,000,000 in cash and a $30,000,000 installment
note payable to the selling shareholders.
The assets acquired and liabilities assumed in the Quitral-Co
acquisition, based on the Company s preliminary purchase price allocation, were
as follows:
ASSETS (LIABILITIES)
--------------------
(in thousands)
Cash and cash equivalents. . . . . . . . . . . . . $ 5,564
Short-term investments . . . . . . . . . . . . . . 2,851
Trade receivables. . . . . . . . . . . . . . . . . 35,189
Parts and supplies . . . . . . . . . . . . . . . . 15,618
Deferred income taxes. . . . . . . . . . . . . . . 1,300
Other current assets . . . . . . . . . . . . . . . 3,814
Property and equipment . . . . . . . . . . . . . . 161,420
Other assets . . . . . . . . . . . . . . . . . . . 2
Accounts payable . . . . . . . . . . . . . . . . . (21,710)
Accrued expenses . . . . . . . . . . . . . . . . . (23,462)
Long-term debt . . . . . . . . . . . . . . . . . . (13,936)
Deferred income taxes. . . . . . . . . . . . . . . (26,650)
---------
$ 140,000
=========
Unaudited pro forma results of operations assuming the acquisition of
Quitral-Co had occurred on January 1, 1995, are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
--------- ---------
(in thousands, except
per share amounts)
Revenues. . . . . . . . . . . . . . . . . . . . . $ 346,803 $ 344,435
Net Earnings. . . . . . . . . . . . . . . . . . . $ 17,167 $ 13,042
Earnings per share -
Primary. . . . . . . . . . . . . . . . . . . . $ .62 $ .52
Fully diluted. . . . . . . . . . . . . . . . . $ .58 $ .48
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.
In February 1996, the Company acquired substantially all of the assets of
another operator 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.
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.
4. DEBT
LONG-TERM DEBT
Long-term debt at September 30, 1996 and December 31, 1995 consists of
the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------- ---------
(in thousands)
Collateralized term loans . . . . . . . . . . $ 41,736 $ 5,696
Limited-recourse collateralized term loans. . 39,812 42,320
Note payable to sellers . . . . . . . . . . . 26,000 --
Eximbank notes payable. . . . . . . . . . . . 9,878 --
Notes payable . . . . . . . . . . . . . . . . 6,047 529
Acquisition note payable. . . . . . . . . . . 4,175 5,070
Secured term loans. . . . . . . . . . . . . . 2,970 8,200
Secured revolver. . . . . . . . . . . . . . . -- 8,850
Revolving line of credit. . . . . . . . . . . -- 762
--------- ---------
130,618 71,427
Less: current portion . . . . . . . . . . . . 32,671 10,291
--------- ---------
$ 97,947 $ 61,136
========= =========
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 collateralized term 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.
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 September 30, 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.
In connection with the acquisition of Quitral-Co in April 1996, the
Company issued a note payable to the sellers for $30,000,000. The note bears
interest at LIBOR plus 2%, payable quarterly, and principal is expected to be
repaid in thirty monthly installments.
Prior to being acquired by the Company, Quitral-Co had entered into two
loan agreements with a lending institution to finance the purchase and import of
goods manufactured in the United States. Loans made pursuant to the loan
agreements bear interest at rates ranging from LIBOR plus 1.40% to LIBOR plus
1.80% per annum, and are repayable in semi-annual installments through October
2000. Borrowings pursuant to these two loan agreements have been guaranteed
against certain political risks in Argentina and Venezuela by the Export-Import
Bank of the United States ("Eximbank").
Notes payable at September 30, 1996 includes financed insurance premiums
and other short-term borrowings assumed in connection with the acquisition of
Quitral-Co.
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.
5. LEASES
In April 1996, the Company increased the amount of its equipment leasing
facility to $10,800,000, and $5,300,000 of proceeds were received by the Company
in connection with the sale and leaseback of a newly-constructed offshore
platform rig. Rentals on the April 1996 transaction are $1,083,000 annually.
6. COMMON STOCK OFFERING
In July 1996, the Company completed the public sale of 3,450,000 shares
of common stock, which resulted in net proceeds to the Company of approximately
$45,641,000. Approximately $20,200,000 of such net proceeds were used to repay
outstanding indebtedness, approximately $12,000,000 was used to finance the
construction of two platform rigs for the Company s offshore fleet and
approximately $7,000,000 is being used to fund various capital projects for
Quitral-Co, including rig upgrades and expansion of its rig transportation
fleet. The balance of the net proceeds is available for general corporate
purposes.
7. INCOME TAXES
During the first nine months of 1996, the Company has recognized the
current tax benefits from the utilization of approximately $5,279,000 of certain
foreign net operating loss carryforwards, including $2,425,000 during the third
quarter of 1996. The Company had previously provided a valuation allowance for
the tax benefits of such foreign net operating loss carryforwards.
8. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands, except per share amounts)
Net earnings. . . . . . . . . . . . $ 6,879 $ 4,633 $ 14,454 $ 11,227
Interest on convertible
subordinated debentures . . . . . 1,331 -- 3,624 --
Income tax effect . . . . . . . . . (479) -- (1,304) --
-------- -------- -------- --------
Net earnings applicable
to common stock. . . . . . . . $ 7,731 $ 4,633 $ 16,774 $ 11,227
======== ======== ======== ========
Weighted average number of
common shares outstanding . . . . 28,438 24,764 26,116 24,465
Additional shares assuming
conversion of:
Convertible subordinated
debentures . . . . . . . . . . 6,571 -- 5,950 --
Stock options and warrants . . . 1,420 1,126 1,452 1,255
-------- -------- -------- --------
Weighted average common shares
and equivalents outstanding. . 36,429 25,890 33,518 25,720
======== ======== ======== ========
Fully diluted net earnings
per share. . . . . . . . . . . $ .22 $ .18 $ .50 $ .44
======== ======== ======== ========
9. 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 SEPTEMBER 30, 1996
Revenues . . . . . . . . . . . . . . . $ 29,345 $ 14,603 $ 71,421 $115,369
Earnings from operations . . . . . . . 2,339 1,764 7,868 11,971
Identifiable assets. . . . . . . . . . 104,221(1) 64,223 361,160 529,604
Capital expenditures,
including acquisitions . . . . . . . 1,139 3,267 18,409 22,815
Depreciation and amortization. . . . . 1,446 932 5,790 8,168
THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenues . . . . . . . . . . . . . . . $ 29,115 $ 11,737 $ 26,292 $ 67,144
Earnings from operations . . . . . . . 1,979 1,440 3,218 6,637
Identifiable assets. . . . . . . . . . 78,514(1) 55,521 122,783 256,818
Capital expenditures,
including acquisitions . . . . . . . 3,487 3,958 7,590 15,035
Depreciation and amortization. . . . . 1,422 864 2,082 4,368
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues . . . . . . . . . . . . . . . $ 87,290 $ 41,677 $154,626 $283,593
Earnings from operations . . . . . . . 4,260 4,891 17,539 26,690
Identifiable assets. . . . . . . . . . 104,221(1) 64,223 361,160 529,604
Capital expenditures,
including acquisitions . . . . . . . 4,975 15,120 189,375 209,470
Depreciation and amortization. . . . . 4,264 2,705 13,018 19,987
NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues . . . . . . . . . . . . . . . $ 85,990 $ 37,564 $ 74,958 $198,512
Earnings from operations . . . . . . . 4,574 5,074 9,791 19,439
Identifiable assets. . . . . . . . . . 78,514(1) 55,521 122,783 256,818
Capital expenditures,
including acquisitions . . . . . . . 15,202 12,852 20,349 48,403
Depreciation and amortization. . . . . 4,155 2,274 5,648 12,077
- ------------
(1) Includes corporate working capital.
10. SUBSEQUENT EVENTS
In October 1996, the Company acquired all of the outstanding capital
stock of Ingeser de Colombia, S.A. ("Ingeser") for aggregate consideration of
$5,500,000, consisting of $4,000,000 cash and a contingent note payable to the
sellers for $1,500,000. Based on the debt assumed and the working capital
position of Ingeser, the transaction was valued at approximately $12,000,000.
Ingeser operates seven drilling rigs and six workover rigs in the Republic of
Colombia. During the twelve month period ended June 30, 1996, Ingeser generated
revenues of approximately $16,000,000. The acquisition of Ingeser will be
accounted for as a purchase. Accordingly, the results of operations of Ingeser
will be included in the Company s consolidated results of operations from
October 30, 1996, the date of the acquisition.
Also in October 1996, the Company entered into a letter agreement
providing for the acquisition of Forasol-Foramer N.V. ("Forasol") for aggregate
consideration of approximately $281,000,000. Pursuant to the agreement, the
Company will issue .66 common shares and $6.80 cash for each share of Forasol.
Based on the debt and working capital of Forasol, the entire transaction value
is estimated to be approximately $320,000,000. Forasol is a significant
drilling contractor which operates marine and land-based equipment, including
semi-submersible, jackup, tender, barge, offshore platform and land-based rigs.
During the twelve month period ended June 30, 1996, Forasol generated revenues
of approximately $178,000,000. Completion of the transaction is subject to
normal conditions, including completion of satisfactory due diligence reviews,
negotiation of definitive purchase agreements and necessary shareholder
approvals. The letter agreement provides for break-up fees of up to
$20,000,000. Management believes that the acquisition will be completed during
the first quarter of 1997.
In November 1996, the Company acquired three land-based drilling rigs and
other support assets from another operator in Argentina for $8,200,000 cash.
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 September 30, 1996, and the related consolidated
statements of operations for the three-month and nine-month periods ended
September 30, 1996 and 1995, and the related consolidated statement of cash
flows for the nine-month periods ended September 30, 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
November 14, 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 September 30, 1996 and for the three and nine-month
periods ended September 30, 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 and drilling activity
historically have had a significant correlation with changes in oil and natural
gas prices. International well servicing and drilling activity is also affected
by fluctuations in oil and natural gas prices, but historically to a lesser
extent than domestic activity. International rig services contracts are
typically for terms of one year or more, while domestic contracts are typically
entered into for one or multiple wells. Accordingly, international rig services
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:
o In a series of transactions from mid-1993 through September 1996, the
Company acquired established businesses in Argentina, Venezuela and
Colombia and deployed 35 rigs from its U.S. land-based fleet to
Argentina, Venezuela and Russia.
o In June 1994, the Company acquired the largest fleet of platform workover
rigs, consisting of 22 units, in the Gulf of Mexico. Three additional
platform rigs have since been constructed and added to the fleet, one in
September 1995, one in April 1996, and one in October 1996, replacing
three rigs which were retired from the fleet. An additional new platform
rig is presently being built and is expected to be deployed before the
end of 1996.
o 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.
o In March 1995, the Company acquired X-Pert Enterprises, Inc. ("X-Pert"),
which operates 35 well servicing rigs in New Mexico.
o 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 57 workover rigs in Argentina and 7
drilling and 23 workover rigs in Venezuela. For its fiscal year ended
June 30, 1995 and the nine month period ended March 31, 1996, Quitral-
Co's consolidated revenues were approximately $175,000,000 and
$150,000,000, respectively. The acquisition has been accounted for as a
purchase, effective April 30, 1996.
o In October 1996, the Company acquired Ingeser de Colombia, S.A.
("Ingeser"). Ingeser operates seven drilling rigs and six workover rigs
in Colombia. During the twelve month period ended June 30, 1996, Ingeser
generated revenues of approximately $16,000,000. The acquisition has
been accounted for as a purchase, effective October 30, 1996.
o In October 1996, the Company entered into a letter agreement providing
for the acquisition of Forasol-Foramer N.V. ("Forasol"). Forasol is a
significant drilling contractor which operates marine and land-based
equipment, including semi-submersible, jackup, tender, barge and platform
rigs. During the twelve month period ended June 30, 1996, Forasol
generated revenues of approximately $178,000,000. Completion of the
transaction is subject to normal conditions, including completion of
satisfactory due diligence reviews, negotiation of definitive purchase
agreements and necessary shareholder approvals. Management believes that
the acquisition can be completed during the first quarter of 1997.
o In November 1996, the Company acquired three land-based drilling rigs and
support assets from another operator in Argentina.
RESULTS OF OPERATIONS
The following tables set forth selected consolidated financial
information of the Company by operating segment for the periods indicated:
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1996 1995
----------------- -----------------
(in thousands, except percentages)
Revenues:
Domestic land. . . . . . . . . . . . $ 29,345 25.4% $ 29,115 43.4%
Domestic offshore. . . . . . . . . . 14,603 12.7 11,737 17.5
International. . . . . . . . . . . . 71,421 61.9 26,292 39.1
--------- ------ --------- ------
Total revenues. . . . . . . . . . $ 115,369 100.0% $ 67,144 100.0%
========= ====== ========= ======
Earnings from operations:
Domestic land. . . . . . . . . . . . $ 2,339 19.6% $ 1,979 29.8%
Domestic offshore. . . . . . . . . . 1,764 14.7 1,440 21.7
International. . . . . . . . . . . . 7,868 65.7 3,218 48.5
--------- ------ --------- ------
Total earnings from operations. . $ 11,971 100.0% $ 6,637 100.0%
========= ====== ========= ======
NINE MONTHS ENDED SEPTEMBER 30,
----------------- -----------------
1996 1995
----------------- -----------------
(in thousands, except percentages)
Revenues:
Domestic land. . . . . . . . . . . . $ 87,290 30.8% $ 85,990 43.3%
Domestic offshore. . . . . . . . . . 41,677 14.7 37,564 18.9
International. . . . . . . . . . . . 154,626 54.5 74,958 37.8
--------- ------ --------- ------
Total revenues. . . . . . . . . . $283,593 100.0% $ 198,512 100.0%
========= ====== ========= ======
Earnings from operations:
Domestic land. . . . . . . . . . . . $ 4,260 16.0% $ 4,574 23.5%
Domestic offshore. . . . . . . . . . 4,891 18.3 5,074 26.1
International. . . . . . . . . . . . 17,539 65.7 9,791 50.4
--------- ------ --------- ------
Total earnings from operations. . $ 26,690 100.0% $ 19,439 100.0%
========= ====== ========= ======
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995.
REVENUES. Revenues for the three months ended September 30, 1996
increased $48,225,000, or 72%, as compared to the corresponding period in 1995.
Of this increase, $45,129,000 was a result of expansion of the Company's
international operations, including $42,003,000 due to the acquisition of
Quitral-Co in April 1996. Revenues attributable to domestic offshore operations
increased $2,866,000 due primarily to higher utilization of the Company's
offshore platform rigs. Revenues from domestic land-based operations increased
$230,000, due to marginally better utilization.
OPERATING COSTS. Operating costs for the three months ended September
30, 1996 increased $33,108,000, or 69%, as compared to the corresponding period
in 1995. Most of this increase was a result of expansion of the Company's
international operations, including $29,251,000 due to the acquisition of
Quitral-Co, as discussed above. Operating costs attributable to domestic
offshore operations increased $2,748,000 due primarily to improved utilization,
as discussed above. Operating costs for domestic land operations increased
$58,000, due to marginally better utilization.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended September 30, 1996 increased $3,800,000, or 87%, as compared
to the corresponding period in 1995, primarily as a result of the Quitral-Co
acquisition and additional expansion of the Company's international and domestic
offshore assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended September 30, 1996 increased $5,983,000, or
72%, as compared to the corresponding period in 1995, primarily due to inclusion
of $5,864,000 of such costs for Quitral-Co. As a percentage of revenues, total
selling, general and administrative costs remained at 12.4% for the third
quarter of 1996 when compared to the third quarter of 1995.
EARNINGS FROM OPERATIONS. Earnings from operations for the three months
ended September 30, 1996 increased by $5,334,000, or 80%, as compared to the
corresponding period in 1995. Of this increase, $3,726,000 was attributable to
the Quitral-Co acquisition, $924,000 to other expansion of the Company's
international operations and $324,000 to improved utilization of the Company's
offshore platform rigs. Earnings from domestic land based operations increased
by $360,000, due to improved utilization and reduced general and administrative
costs for this segment of the Company s business.
OTHER INCOME (EXPENSE). Other income (expense) for the third quarter of
1996 included net gains from asset sales, foreign exchange transactions and
other sources. Other income (expense) for the corresponding 1995 period
consisted principally of a gain of $1,049,000 from the insurance recovery
relating to a domestic land rig which was destroyed in an explosion and fire and
other miscellaneous gains of $563,000 from asset sales, insurance recoveries,
foreign exchange transactions and other sources. Interest income increased to
$647,000 for the three months ended September 30, 1996 from $185,000 for the
corresponding 1995 period due to an increase in cash available for investment.
Interest expense for the three months ended September 30, 1996 increased by
$1,396,000 over the corresponding 1995 period, as a result of interest accrued
on the convertible subordinated debentures and borrowings related to the
Quitral-Co acquisition and other additions to property and equipment. During
the three months ended September 30, 1996 and 1995, the Company capitalized
$1,015,000 and $63,000, respectively, of interest expense in connection with
construction projects.
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the three months ended September 30, 1996 was approximately 25%, as
compared to approximately 30% for the corresponding period in 1995. The
decrease is primarily attributable to the recognition in the third quarter of
1996 of current tax benefits from the utilization of approximately $2,425,000 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.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995.
REVENUES. Revenues for the nine months ended September 30, 1996
increased $85,081,000, or 43% as compared to the corresponding period in 1995.
Of this increase, $79,668,000 was a result of expansion of the Company's
international operations, including $72,466,000 due to the acquisition of
Quitral-Co in April 1996. Revenues from domestic land operations increased
$1,300,000, primarily as a result of the inclusion of operating results of X-
Pert (commencing in March 1995) for nine months in the 1996 period as compared
to only seven months in the 1995 period. Revenues attributable to domestic
offshore operations increased $4,113,000, due primarily to higher utilization of
the Company's offshore platform rigs.
OPERATING COSTS. Operating costs for the nine months ended September 30,
1996 increased $59,420,000, or 41%, as compared to the corresponding period in
1995. Of this increase, $53,962,000 was a result of expansion of the Company s
international operations and $1,365,000 was attributable to domestic land
operations, principally due to the inclusion of the operating results of X-Pert
for the full period. Operating costs related to domestic offshore operations
increased $4,093,000, due to higher utilization, as discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
nine months ended September 30, 1996 increased $7,910,000, or 65%, as compared
to the corresponding period of 1995, primarily as a result of the Quitral-Co
acquisition and additional expansion of the Company s international and domestic
offshore assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the nine months ended September 30, 1996 increased $10,500,000, or
44%, as compared to the corresponding period in 1995, primarily due to the
inclusion of $8,713,000 of such costs for Quitral-Co. As a percentage of
revenues, total selling, general and administrative costs were 12.0% for the
first nine months of 1996 as compared to 11.9% for the first nine months of
1995. During the period, the Company incurred certain non-recurring expenses in
connection with consolidation of acquired operations with its existing
operations in Argentina and Venezuela.
EARNINGS FROM OPERATIONS. Earnings from operations for the nine months
ended September 30, 1996 increased by $7,251,000, or 37%, as compared to the
corresponding period in 1995. Of this increase, $6,849,000 was attributable to
the Quitral-Co acquisition and $899,000 was attributable to other international
expansion. These increases were partially offset by a decrease in income from
domestic offshore operations of $183,000 due to moderately lower utilization for
the Company s offshore platform rigs during the first quarter of 1996. Earnings
from domestic land-based operations decreased by $314,000 due primarily to
start-up costs incurred during the latter part of the second quarter of 1996.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1996 included net gains from asset sales, foreign exchange
transactions and other sources. Other income (expense) for the corresponding
1995 period consisted principally of a gain of $1,049,000 from the insurance
recovery relating to a domestic land rig which was destroyed in an explosion and
fire and other miscellaneous gains of $591,000 from asset sales, insurance
recoveries, foreign exchange transactions and other sources. Interest income
increased to $2,044,000 for the nine months ended September 30, 1996 from
$577,000 for the corresponding 1995 period due to an increase in cash available
for investment. Interest expense for the nine months ended September 30, 1996
increased by $5,167,000 over the corresponding 1995 period, as a result of
interest accrued on the convertible subordinated debentures and borrowings
related to the Quitral-Co acquisition and other additions to property and
equipment. During the nine months ended September 30, 1996 and 1995, the
Company capitalized $1,152,000 and $188,000, respectively, of interest expense
in connection with construction projects.
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the nine months ended September 30, 1996 was approximately 25%, as
compared to approximately 34% for the corresponding period in 1995. The
decrease is primarily attributable to the recognition in the first nine months
of 1996 of current tax benefits from the utilization of approximately $5,279,000
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 $59,731,000 and $31,302,000 at
September 30, 1996 and December 31, 1995, respectively. The Company's current
ratio was 1.6 to 1.0 at September 30, 1996 and 1.7 to 1.0 at December 31, 1995.
In July 1996, the Company completed the public sale of 3,450,000 shares of
common stock, which resulted in net proceeds to the Company of approximately
$45,641,000. Approximately $20,200,000 of such net proceeds were used to repay
outstanding indebtedness, approximately $12,000,000 was used to finance the
construction of two platform rigs for the Company's offshore fleet and
approximately $7,000,000 is being used to fund various capital projects for
Quitral-Co, including rig upgrades and expansion of its rig transportation
fleet. The balance of the net proceeds is available for general corporate
purposes. 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.
In October 1996, the Company entered into a letter agreement providing
for the acquisition of Forasol for aggregate consideration of approximately
$281,000,000. Pursuant to the agreement, the Company will issue .66 shares of
common stock and $6.80 cash for each share of Forasol. Based on the debt and
working capital of Forasol, the entire transaction value is estimated to be
approximately $320,000,000. The letter agreement provides for break-up fees of
up to $20,000,000. The Company expects to fund the cash portion of the
transaction, approximately $113,000,000, from new medium to long-term debt. The
Company is currently evaluating both private and public financing alternatives.
The Company is active in reviewing possible expansion and acquisition
opportunities relating to all of its business segments. 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. From time
to time, the Company has one or more bids outstanding for contracts that could
require significant capital expenditures and mobilization costs. The Company
expects to fund acquisitions and project opportunities primarily through a
combination of working capital, cash flow from operations and full or limited
recourse debt or equity financing.
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 were used to repay outstanding indebtedness. The remainder
of such net proceeds were used to fund a portion of the purchase price for
Quitral-Co and various other capital projects. The Company purchased Quitral-Co
for aggregate consideration of $140,000,000, consisting of $110,000,000 in cash
and a note payable to the sellers for $30,000,000. The note bears interest at
LIBOR plus 2%, payable quarterly, and is expected to be repaid in thirty monthly
installments. 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.
Borrowings under these arrangements, which are collateralized by substantially
all of the Company s domestic land rigs and ancillary equipment, bear interest
initially at the prime rate plus 1/2% and are repayable in monthly installments
of principal and interest over a five-to-six-year period. The Company may elect
to convert the borrowings to a fixed rate of interest at any time during the
term.
In October 1996, the Company acquired all of the outstanding capital
stock of Ingeser for aggregate consideration of $5,500,000, consisting of
$4,000,000 cash and a contingent note payable to the sellers for $1,500,000.
Based on the debt assumed and the working capital position of Ingeser, the
transaction was valued at approximately $12,000,000. In November 1996, the
Company acquired three land-based drilling rigs and other support assets from a
competitor in Argentina for $8,200,000 cash.
As of September 30, 1996, the Company had domestic bank commitments
providing for guidance lines of credit of $18,000,000, against which letters of
credit of $8,652,000 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 September 30,
1996, the Company had accrued approximately $6,761,000 of claims liabilities, of
which $4,349,000 was included in current liabilities and $2,412,000 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 loans are collateralized by
the barge rigs and related charter contracts. At September 30, 1996, the
outstanding balance of these loans was $39,812,000. 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 September 30, 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 operation, upgrading and expansion of its offshore
platform rig fleet, the Company has established credit facilities with a lending
institution in the aggregate amount of $30,000,000. As of September 30, 1996,
$2,970,000 of secured term loans were outstanding pursuant to this facility.
During the nine months ended September 30, 1996, the Company spent
approximately $15,100,000 on additions to its offshore assets, including: (i)
construction of two new state-of-the-art diesel electric platform rigs, (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 is currently constructing an additional platform rig for
an estimated cost of $6,000,000. Capital expenditures for offshore assets for
the nine months ended September 30, 1995 were approximately $12,800,000.
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. During 1995, the Company received proceeds of
$5,500,000 pursuant to this facility relating to the construction of a new
platform rig. 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 were received by the Company in connection with the sale
and leaseback of a second newly-constructed offshore platform rig. Rentals on
the second transaction are $1,083,000 annually.
International rig refurbishment and deployment costs for the nine months
ended September 30, 1996 and 1995 were approximately $16,400,000 and
$13,700,000, respectively. Capital expenditures related to the completion of
the two drilling/workover barge rigs in the first nine months of 1995 were
approximately $3,800,000. Other international capital expenditures, excluding
acquisition expenditures, for the nine months ended September 30, 1996 and 1995
were approximately $14,600,000 and $2,900,000, respectively. Capital
expenditures related to domestic land-based operations for the nine months ended
September 30, 1996 and 1995 were approximately $5,000,000 and $15,200,000,
respectively, including acquisition expenditures of approximately $1,800,000 and
$10,800,000, respectively.
CURRENCY FLUCTUATIONS
Deterioration in economic conditions in Venezuela resulted in significant
devaluation of the country's currency during the first half of 1994, which
resulted in currency translation losses for the Company. These losses resulted
principally from the translation of the net Venezuelan monetary assets
(primarily, 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 exchange control
restrictions and effectively allowed the bolivar to "float" relative to the
U.S. dollar. As a result, the exchange rate for Venezuelan bolivars has
declined to approximately 450-500 bolivars per U.S. dollar. The April 1996
devaluation did not have any material impact on the Company's consolidated
results of operations. To a large extent, the Company avoided currency
translation losses from these recent devaluations of the bolivar by limiting the
bolivar component of its Venezuelan contracts. However, 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 that are not historical facts are forward-
looking statements. The words "expect," "project," "estimate," "predict" and
similar expressions are also intended to identify forward-looking statements.
Such statements involve risks, uncertainties and assumptions, including but not
limited to, industry conditions, prices of crude oil and natural gas, foreign
exchange and currency fluctuations and other factors discussed herein and in the
Company's other filings with the Securities and Exchange Commission. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
ACCOUNTING MATTERS
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO.
- -----------
15 - Awareness Letter of Independent Accountants
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1996.
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
and Assistant Secretary
Date: November 14, 1996