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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, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-16961
PRIDE PETROLEUM SERVICES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 76-0069030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 City West Boulevard, Suite 400
Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
(713) 789-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practical date.
Outstanding at
Class of Common Stock November 1, 1995
--------------------- -----------------
no par 24,808,852 shares
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PRIDE PETROLEUM SERVICES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1995 and December 31, 1994. . . . . . . . . . . . 3
Consolidated Statement of Operations -
Three months ended September 30, 1995 and 1994. . . . . . . . . 4
Consolidated Statement of Operations -
Nine months ended September 30, 1995 and 1994 . . . . . . . . . 5
Consolidated Statement of Cash Flows -
Nine months ended September 30, 1995 and 1994 . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . 7
Report of Independent Accountants. . . . . . . . . . . . . . . . . 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 20
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Page 2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
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PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31,
1995 1994
--------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 11,139 $ 5,970
Short-term investments. . . . . . . . . . . . . . 2,000 3,001
Trade receivables, net of allowance for doubtful
accounts of $617 and $394, respectively. . . . 45,710 38,334
Parts and supplies. . . . . . . . . . . . . . . . 7,235 4,468
Deferred income taxes . . . . . . . . . . . . . . 2,532 2,388
Other current assets. . . . . . . . . . . . . . . 9,070 6,128
--------- ---------
Total current assets. . . . . . . . . . . . 77,686 60,289
--------- ---------
PROPERTY AND EQUIPMENT, AT COST. . . . . . . . . . . 290,273 246,365
ACCUMULATED DEPRECIATION . . . . . . . . . . . . . . (117,009) (106,466)
--------- ---------
Net property and equipment. . . . . . . . . 173,264 139,899
--------- ---------
GOODWILL AND OTHER INTANGIBLES, NET. . . . . . . . . 3,675 3,580
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 2,193 1,425
--------- ---------
$ 256,818 $ 205,193
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . $ 18,408 $ 14,715
Accrued expenses. . . . . . . . . . . . . . . . . 17,608 15,332
Current portion of long-term debt . . . . . . . . 12,756 3,602
--------- ---------
Total current liabilities . . . . . . . . . 48,772 33,649
--------- ---------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . 5,118 5,327
LONG-TERM DEBT, net of current portion . . . . . . . 58,817 42,096
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 17,565 12,736
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 40,000,000 shares
authorized: 24,849,572 and 24,081,872 shares
issued and 24,795,352 and 24,027,652 shares
outstanding, respectively. . . . . . . . . . . 1 1
Paid-in capital . . . . . . . . . . . . . . . . . 95,190 91,256
Treasury stock, at cost . . . . . . . . . . . . . (191) (191)
Retained earnings . . . . . . . . . . . . . . . . 31,546 20,319
--------- ---------
Total shareholders' equity. . . . . . . . . 126,546 111,385
--------- ---------
$ 256,818 $ 205,193
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 3<PAGE>
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PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- ---------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . $ 67,144 $ 50,974
--------- ---------
COSTS AND EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . 47,828 40,056
Depreciation and amortization . . . . . . . . . . . 4,368 2,761
Selling, general and administrative . . . . . . . . 8,311 6,387
--------- ---------
Total costs and expenses . . . . . . . . . . . . 60,507 49,204
--------- ---------
Earnings from operations. . . . . . . . . . . 6,637 1,770
OTHER INCOME (EXPENSE)
Other income. . . . . . . . . . . . . . . . . . . . 1,612 216
Interest income . . . . . . . . . . . . . . . . . . 185 112
Interest expense. . . . . . . . . . . . . . . . . . (1,782) (46)
--------- ---------
Total other income, net . . . . . . . . . . . 15 282
--------- ---------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . 6,652 2,052
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . 2,019 124
--------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 4,633 $ 1,928
========= =========
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ .18 $ .08
========= =========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING. . . . . . . . 25,708 24,418
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 4
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PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- ---------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . $ 198,512 $ 128,036
--------- ---------
COSTS AND EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . 143,376 99,402
Depreciation and amortization . . . . . . . . . . . 12,077 6,807
Selling, general and administrative . . . . . . . . 23,620 16,802
--------- ---------
Total costs and expenses . . . . . . . . . . . . 179,073 123,011
--------- ---------
Earnings from operations. . . . . . . . . . . 19,439 5,025
OTHER INCOME (EXPENSE)
Other income (expense). . . . . . . . . . . . . . . 1,640 (320)
Interest income . . . . . . . . . . . . . . . . . . 577 471
Interest expense. . . . . . . . . . . . . . . . . . (4,689) (170)
--------- ---------
Total other expense, net. . . . . . . . . . . (2,472) (19)
--------- ---------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . 16,967 5,006
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . 5,740 1,170
--------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 11,227 $ 3,836
========= =========
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ .44 $ .20
========= =========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING. . . . . . . . 25,280 19,590
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 5
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PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- ---------
OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . . . . . $ 11,227 $ 3,836
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization. . . . . . . . . . 12,077 6,807
Deferred interest. . . . . . . . . . . . . . . . 1,947 --
Gain on sale of assets . . . . . . . . . . . . . (1,597) (398)
Effect of exchange rates . . . . . . . . . . . . 7 393
Deferred tax provision (benefit) . . . . . . . . 1,001 (51)
Changes in assets and liabilities, net of
effects of acquisitions -
Trade receivables . . . . . . . . . . . . . . (5,122) (6,029)
Parts and supplies. . . . . . . . . . . . . . (2,475) (1,040)
Other current assets. . . . . . . . . . . . . (4,759) (1,042)
Accounts payable. . . . . . . . . . . . . . . 2,988 7,949
Accrued expenses and other. . . . . . . . . . 1,141 450
--------- ---------
Net cash provided by operating activities. 16,435 10,875
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities,
including acquisition costs, less cash acquired . (1,999) (22,054)
Pre-funded construction costs . . . . . . . . . . . -- (21,440)
Purchases of property and equipment . . . . . . . . (34,426) (12,375)
Proceeds from short-term investments. . . . . . . . 1,009 1,004
Proceeds from sale of property and equipment. . . . 6,603 724
Other . . . . . . . . . . . . . . . . . . . . . . . (473) (6)
--------- ---------
Net cash used in investing activities. . . (29,286) (54,147)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . 655 32,073
Proceeds from debt borrowings . . . . . . . . . . . 22,682 4,663
Reduction of debt . . . . . . . . . . . . . . . . . (5,410) (420)
Other . . . . . . . . . . . . . . . . . . . . . . . 93 (199)
--------- ---------
Net cash provided by financing activities. 18,020 36,117
--------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . 5,169 (7,155)
CASH AND CASH EQUIVALENTS, beginning of period . . . . 5,970 7,509
--------- ---------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . $ 11,139 $ 354
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
Page 6
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PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read
in conjunction with Pride Petroleum Services, Inc.'s (the "Company's") audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation.
The unaudited consolidated financial information included herein reflects
all adjustments, consisting only of normal recurring adjustments, which are
necessary, in the opinion of management, for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for full years.
2. COMMITMENTS AND CONTINGENCIES
The Company is routinely involved in litigation incidental to its
business, which often involves claims for significant monetary amounts, some of
which would not be covered by insurance. In the opinion of management, none of
the existing litigation will have any material adverse effect on the Company's
financial position or results of operations.
The Company is self-insured with respect to physical damage or loss to its
domestic vehicles, land rigs, and equipment (except for thirteen of its largest
domestic land rigs). Thirteen of the Company's largest domestic land rigs and
all of the Company's international land rigs are insured, with deductibles of
generally $25,000 per occurrence. The Company's offshore platform rigs and
barge rigs are insured with deductibles of $50,000 and $150,000, respectively.
Presently, the Company has insurance deductibles of $250,000 per occurrence for
domestic workers' compensation claims, $100,000 per occurrence for domestic
automobile liability claims, and $250,000 for general liability claims. The
Company further limits its exposure by maintaining an accident and health
insurance policy with respect to its domestic employees with a deductible of
$10,000 per occurrence. Coverages with respect to foreign operations for
workers' compensation and automobile claims are subject to deductibles of
generally $40,000 to $100,000 per occurrence.
In July 1995, one of the Company's domestic land rigs was destroyed in an
explosion and fire. The damaged rig was covered by insurance and the Company has
received net insurance proceeds of $1,094,000. The Company recognized a gain
from the insurance recovery of $1,049,000 which is included in other income in
the accompanying unaudited consolidated statements of operations.
Page 7
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PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company accrues expenses and liabilities for its estimated share of
insured claims. As of September 30, 1995 and December 31, 1994, the Company had
accrued approximately $9,846,000 and $11,111,000, respectively, for claims
liabilities, of which $5,626,000 and $6,047,000, respectively, were included in
current liabilities and $4,220,000 and $5,064,000, respectively, were reflected
as other long-term liabilities in the accompanying unaudited consolidated
balance sheet. As of September 30, 1995, the Company had letters of credit
outstanding totaling $11,048,000. These letters of credit guarantee principally
the Company's funding of its share of insured claims.
3. LONG-TERM DEBT
Long-term debt at September 30, 1995 and December 31, 1994 consists of the
following:
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------- --------
(in thousands)
Limited-recourse secured term loans. . . . $ 43,117 $ 33,311
Secured term loans . . . . . . . . . . . . 12,590 8,860
Notes payable. . . . . . . . . . . . . . . 7,025 200
Acquisition note payable . . . . . . . . . 5,368 --
Revolving line of credit . . . . . . . . . 2,773 3,325
Bank overdraft facility. . . . . . . . . . 700 2
-------- --------
71,573 45,698
Less: current portion. . . . . . . . . . . 12,756 3,602
-------- --------
$ 58,817 $ 42,096
======== ========
The balance of the limited-recourse secured term loans at September 30,
1995 includes $9,172,000 of construction advances and $2,020,000 of accrued
interest which was added to the principal amount of the loans during the first
nine months of 1995. Approximately $73,000 of such accrued interest was
capitalized as part of the cost of the related assets during the first nine
months of 1995. Pursuant to the terms of the loan agreements, interest, which
accrues at a rate of 9.61% per annum, was added to the principal amount of the
loans until the first scheduled payment in July 1995, and is being paid from the
proceeds of the related charter contracts in 109 equal monthly installments of
principal and interest. In addition, a portion of contract proceeds are being
held in trust to assure that timely payment of future debt service obligations
is made. At September 30, 1995, $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 for the benefit of the
lenders, and is not presently available for use by the Company.
Borrowings pursuant to the secured term loans were increased by $5,170,000
during the first nine months of 1995 to finance certain additions to property
and equipment.
Page 8
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PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Notes payable include five notes payable to lending institutions totaling
an aggregate $6,720,000 which are collateralized by selected property and
equipment, financed insurance premiums in the amount of $255,000, and a note
payable in the amount of $50,000 issued to the sellers of certain assets
acquired by the Company during the first quarter of 1995.
In March 1995, the Company entered into a note payable to two individuals
in the amount of $5,964,000 as partial consideration for a business acquisition.
The note bears interest at the rate of 8.5% per annum and is repayable in
quarterly installments through March 2000. The acquisition note is
collateralized by certain of the property and equipment of the acquired
business.
The Company had domestic revolving bank lines of credit of $23,000,000 as
of September 30, 1995, and letters of credit totaling $11,048,000 outstanding
against these facilities. Additionally, $2,773,000 of borrowings were
outstanding thereunder. Cash and cash equivalents and a portion of accounts
receivable have been pledged as security pursuant to these credit facilities.
4. LEASES
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 September 30, 1995, the Company has
received proceeds of $5,500,000 pursuant to this facility. The Company has
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 $587,000 realized on the transaction has been deferred
and will be amortized as a reduction of lease expense over the maximum lease
term of five years.
5. NET EARNINGS PER SHARE
Net earnings per share has been computed based on the weighted average
number of common shares outstanding during the applicable period. Common share
equivalents have been included in periods in which their effect is dilutive.
Common share equivalents include the number of shares issuable upon the exercise
of stock options and warrants, less the number of shares that could have been
repurchased with the exercise proceeds, using the treasury stock method. Fully
diluted net earnings per share have not been presented as the results are not
materially different.
6. ACQUISITIONS
In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert Enterprises, Inc. ("X-Pert") for aggregate consideration of
approximately $10,000,000, consisting of $3,000,000 cash, a note payable to the
selling shareholders in the amount of $5,964,000, and 200,000 shares of the
Company's common stock.
Page 9
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PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The assets acquired and liabilities assumed in the X-Pert acquisition were
as follows:
ASSETS (LIABILITIES)
--------------------
(in thousands)
Cash and cash equivalents. . . . . . . . . . $ 1,719
Trade receivables. . . . . . . . . . . . . . 2,254
Other current assets . . . . . . . . . . . . 80
Property and equipment . . . . . . . . . . . 10,000
Other assets . . . . . . . . . . . . . . . . 725
Accounts payable . . . . . . . . . . . . . . (648)
Accrued expenses . . . . . . . . . . . . . . (761)
Long-term debt . . . . . . . . . . . . . . . (569)
Deferred income taxes. . . . . . . . . . . . (2,800)
--------
$ 10,000
========
Unaudited pro forma results of operations assuming the acquisition of X-
Pert had occurred on January 1, 1994, are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- ---------
(in thousands, except
per share data)
Revenues $ 200,505 $ 138,845
Net Earnings $ 11,356 $ 4,477
Earnings per share $ .45 $ .23
The pro forma results of operations presented above do not purport to be
indicative of the results of operations of the Company that might have occurred
nor are they indicative of future results.
Also in March 1995, the Company acquired substantially all of the assets
used in the fluids hauling business of McNeel Company, Inc. for total
consideration of $400,000, consisting of $350,000 cash and a note payable to the
sellers in the amount of $50,000.
Each of the acquisitions discussed above was recorded using the purchase
method of accounting. The operating results of each acquisition have been
included in the Company's consolidated results of operations from the date of
acquisition.
7. ISSUANCES OF COMMON STOCK
During the nine months ended September 30, 1995, 242,500 shares of the
Company's common stock were issued pursuant to the exercise of employee stock
options. The Company received proceeds of $655,000 in connection with the
exercise of such employee stock options.
Page 10
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PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In April 1995, the Company issued 87,000 shares of common stock pursuant
to the contractual earnout provisions of an acquisition agreement to an
individual who became a director of the Company in connection with such
acquisition. The value of such shares, estimated to be $435,000 has been
allocated to the acquired assets and will be amortized over the remaining useful
lives of such assets. In June 1995, the Company entered into an agreement with
the director, pursuant to which it issued 203,000 additional shares of common
stock in exchange for the director's remaining contingent right to receive up to
73,000 common shares and the exercise of warrants to acquire an additional
500,000 shares of common stock on a net value basis. The value of the
additional shares issued, estimated to be $1,624,000, was also allocated to the
acquired assets.
Also in April 1995, the Company issued 35,200 shares of common stock,
having an estimated aggregate value of $220,000, as consideration for the
purchase of support assets.
Page 11
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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, 1995, the related consolidated
statement of operations for the three-month and nine-month periods ended
September 30, 1995 and 1994, and the related consolidated statement of cash
flows for the nine-month periods ended September 30, 1995 and 1994. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated February 20, 1995, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 1994 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
COOPERS & LYBRAND L.L.P.
Houston, Texas
November 3, 1995
Page 12
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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, 1995 and for the three and nine month
periods ended September 30, 1995 and 1994 included elsewhere herein, and with
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Increases and decreases in domestic well servicing activity historically
have had a significant correlation with changes in oil and natural gas prices.
International well servicing activity is also affected by fluctuations in oil
and natural gas prices, but historically to a lesser extent than domestic
activity. International well servicing contracts are typically for terms of one
year or more, while domestic contracts are typically entered into for one or
multiple wells. Accordingly, international well servicing activities are not as
sensitive to changes in oil and gas prices as domestic operations.
Since 1991, the Company has actively sought to diversify beyond domestic
land based operations into international and offshore markets. In July 1993,
the Company purchased established well servicing and drilling operations in
Argentina and Venezuela and, in February 1994, acquired four additional rigs in
Argentina. The Company has also deployed 20 rigs from its U.S. fleet to
Argentina and four rigs from its U.S. fleet to Venezuela. During the first half
of 1993, the Company mobilized three rigs to Western Siberia, where operations
commenced in September 1993. In October 1995, the Company acquired a six rig
operation in Colombia. The Company is continuing to pursue opportunities to
expand internationally, particularly in situations where it can deploy
underutilized assets from its domestic fleet.
In September 1994, the Company acquired substantially all of the assets of
Offshore Rigs, L.L.P. ("Offshore Rigs") as the Company continued to diversify
its operations beyond domestic land-based markets and became the largest
operator of offshore platform workover rigs in the Gulf of Mexico. The rig
fleet acquired from Offshore Rigs consisted of 22 offshore platform rigs,
representing approximately 45% of the offshore platform workover rigs located in
the Gulf of Mexico. The Company now has 23 offshore platform rigs.
During 1994, the Company entered into contracts with Lagoven, S.A.
("Lagoven"), a subsidiary of the Venezuelan national oil company, to construct
and operate two drilling/workover barge rigs. Upon completion in late 1994,
both barge rigs were mobilized to Lake Maracaibo where, in January 1995, they
began operations pursuant to ten-year contracts with Lagoven. The Company
estimates that annual revenues of approximately $14,000,000 will be generated
under the contracts.
In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert Enterprises, Inc. ("X-Pert"). X-Pert operates 35 well servicing rigs
in New Mexico and also provides lease maintenance services to oilfield
operators. X-Pert had annual revenues of approximately $15,000,000. The
operating results of the acquired business have been included beginning in March
1995. The Company also acquired an oilfield truck fleet in East Texas during
March 1995 to complement its existing fluids hauling business.
Page 13
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Deterioration in economic conditions in Venezuela resulted in significant
devaluation of the country's currency during the first half of 1994. To a large
extent, the Company has been able to insulate its ongoing operations from
currency exchange losses by matching the local currency component of contracts
to the amount of operating costs transacted in local currency. The Company is
continuing its efforts to maximize the dollar component of its Venezuelan
contracts. During the first two quarters of 1994, the devaluation of the
Venezuela bolivar resulted in currency translation losses for the Company.
These losses resulted principally from the translation of the net Venezuelan
monetary assets (that is, essentially accounts receivable in excess of trade
payables) at devaluing exchange rates from month to month.
In the latter part of June 1994, the Venezuelan government imposed
exchange control policies and established an official fixed exchange rate
relative to the U.S. dollar. As a result, should the Venezuelan government
maintain the present rate from month to month, no currency translation losses
should result in those periods. If the official rate is subsequently revised or
a market exchange mechanism is re-implemented so that the bolivar "floats"
relative to the U.S. dollar, the Company could be susceptible to further
currency translation losses with respect to its Venezuelan operations. The
Company intends to continue to monitor developments in this regard and to take
such measures as may be practical to limit its exposure to currency translation
losses in future periods.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial information
of the Company expressed as percentages for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------- -------- -------- --------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Domestic land . . . . . . . . . 43.4% 48.0% 43.3% 56.6%
Domestic offshore . . . . . . . 17.5 20.6 18.9 8.8
International . . . . . . . . . 39.1 31.4 37.8 34.6
-------- -------- -------- --------
Total revenues . . . . . . . 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
Earnings (loss) from operations:
Domestic land . . . . . . . . . 29.8% (3.2)% 23.5% 27.2%
Domestic offshore . . . . . . . 21.7 61.4 26.1 23.3
International . . . . . . . . . 48.5 41.8 50.4 49.5
-------- -------- -------- --------
Total earnings from operations 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994.
REVENUES. Revenues for the three months ended September 30, 1995
increased $16,170,000, or 32%, as compared to the corresponding period in 1994.
Of this increase, $10,264,000 was a result of expansion of the Company's
international operations, primarily in Venezuela and Argentina. Revenues from
Venezuelan operations increased primarily as a result of the commencement of
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<PAGE>
operations of the Company's two drilling/workover barge rigs in January 1995.
Revenues from domestic land operations increased $4,689,000, primarily as a
result of the acquisition of X-Pert in March 1995 as well as some improvement in
pricing for the Company's services. Revenues attributable to domestic offshore
operations increased $1,217,000, due primarily to improved utilization for the
Company's offshore assets.
OPERATING COSTS. Operating costs for the three months ended September 30,
1995 increased $7,772,000, or 19%, as compared to the corresponding period in
1994. Of this increase, $5,950,000 was a result of expansion of the Company's
international operations, as discussed above, and $1,763,000 was attributable to
domestic land operations, due to the addition of X-Pert. Operating costs
related to domestic offshore operations increased $59,000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended September 30, 1995 increased $1,607,000, or 58%, as compared
to the corresponding period in 1994, primarily as a result of provisions for
recently acquired domestic offshore and international assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended September 30, 1995 increased $1,924,000, or
30%, as compared to the corresponding period in 1994, primarily as a result of
growth in all of the Company's operating segments. As a percentage of revenues,
however, total selling, general and administrative costs declined to 12.4% for
the third quarter of 1995 from 12.5% for the third quarter of 1994, as such
costs have been spread over a larger revenue base.
EARNINGS FROM OPERATIONS. The Company generated earnings from operations
for the three months ended September 30, 1995 of $6,637,000. Of this amount,
$3,218,000 was generated by international operations, $1,440,000 was generated
by domestic offshore operations and $1,979,000 was generated by domestic land
operations. For the corresponding quarter of 1994, international operations
generated earnings from operations of $739,000, domestic offshore operations
generated earnings from operations of $1,088,000 and domestic land operations
generated a loss from operations of $57,000.
OTHER INCOME (EXPENSE). Other income (expense) for the third quarter of
1995 included 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 $185,000
for the three months ended September 30, 1995 from $112,000 for the
corresponding 1994 period due to an increase in cash available for investment.
Interest expense for the three months ended September 30, 1995 increased by
$1,736,000, as a result of borrowings related to the two drilling/workover barge
rigs, acquisitions and other additions to property and equipment.
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the three months ended September 30, 1995 was approximately 30%, as
compared to approximately 6% for the corresponding period in 1994. The Company
has estimated that approximately $600,000 of the insurance gain discussed above
will not be subject to income tax. During the third quarter of 1994, the
Company recognized the current tax benefits from the expected utilization of
approximately $2,255,000 of foreign net operating loss carryforwards which were
obtained in connection with the acquisition of a foreign enterprise. The
Company had recognized a valuation allowance for the tax benefits of such
foreign net operating loss carryforwards at the date the foreign enterprise was
acquired.
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1994.
REVENUES. Revenues for the nine months ended September 30, 1995
increased $70,476,000, or 55%, as compared to the corresponding period in
1994. Of this increase, $26,335,000 was attributable to domestic offshore
operations, which the Company acquired in June 1994, and $30,696,000 was a
result of expansion of the Company's international operations, primarily in
Venezuela and Argentina. Revenues from Venezuelan operations increased
primarily as a result of the commencement of operations of the Company's two
drilling/workover barge rigs. Revenues from domestic land operations
increased $13,445,000, primarily as a result of the acquisition of X-Pert in
March 1995 as well as some improvement in pricing for the Company's services.
OPERATING COSTS. Operating costs for the nine months ended September
30, 1995 increased $43,974,000, or 44%, as compared to the corresponding
period in 1994. Of this increase, $17,687,000 was attributable to the
Company's recently acquired domestic offshore operations, and $18,294,000 was
a result of expansion of the Company's international operations, as discussed
above. Operating costs related to domestic land operations increased
$7,993,000, corresponding to the addition of X-Pert.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
nine months ended September 30, 1995 increased $5,270,000, or 77%, as compared
to the corresponding period in 1994, primarily as a result of provisions for
recently acquired domestic offshore and international assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the nine months ended September 30, 1995 increased
$6,818,000, or 41%, as compared to the corresponding period in 1994, primarily
as a result of the inclusion of such costs for acquired domestic offshore,
land and international operations. As a percentage of revenues, however,
total selling, general and administrative costs declined to 12% for the first
nine months of 1995 from 13% for the first nine months of 1994, as such costs
have been spread over a larger revenue base.
EARNINGS FROM OPERATIONS. The Company generated earnings from
operations for the nine months ended September 30, 1995 of $19,439,000. Of
this amount, $9,791,000 was generated by international operations, $5,074,000
was generated by domestic offshore operations and $4,574,000 was generated by
domestic land operations. For the corresponding nine month period of 1994,
international operations generated earnings from operations of $2,486,000,
domestic offshore operations generated earnings from operations of $1,172,000
and domestic land operations generated earnings from operations of $1,367,000.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1995 included 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. Other income
(expense) for the corresponding 1994 period consisted principally of net foreign
currency translation losses of $363,000 resulting from the devaluation of the
Venezuela bolivar. Interest income increased to $577,000 for the nine months
ended September 30, 1995 from $471,000 for the corresponding 1994 period, due to
an increase in excess cash available for investment. Interest expense for the
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<PAGE>
nine months ended September 30, 1995 increased by $4,519,000, as a result of
borrowings related to the two drilling/workover barge rigs, acquisitions and
other additions to property and equipment.
INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the nine months ended September 30, 1995, increased to approximately
34% from approximately 23% for the corresponding period in 1994. The Company
has estimated that approximately $600,000 of the insurance gain discussed
above will not be subject to income tax. During the third quarter of 1994,
the Company recognized the current tax benefits from the expected utilization
of approximately $2,255,000 of foreign net operating loss carryforwards which
were obtained in connection with the acquisition of a foreign enterprise. The
Company had recognized a valuation allowance for the tax benefits of such
foreign net operating loss carryforwards at the date the foreign enterprise
was acquired.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $28,914,000 and $26,640,000 at
September 30, 1995 and December 31, 1994, respectively. The Company's current
ratio was 1.6 to 1.0 at September 30, 1995 and 1.8 to 1.0 at December 31, 1994.
The Company expects to meet its operational and normal ongoing capital
expenditure requirements from internally generated cash flows and from
existing bank credit lines.
As of September 30, 1995, the Company had domestic revolving bank lines
of credit of $23,000,000, against which letters of credit totaling $11,048,000
and borrowings of $2,773,000 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, 1995, the Company had accrued approximately $9,846,000 of claims
liabilities, of which $5,626,000 was included in current liabilities and
$4,220,000 was reflected as other long-term liabilities in the accompanying
unaudited consolidated balance sheet. The Company has estimated the amount
and timing of payment of these liabilities based on actuarial studies provided
by the insurance carriers and past experience. Due to the nature of the
Company's business and the structure of its insurance program, the occurrence
of a significant event against which the Company is not fully insured, or of a
number of lesser events against which the Company is insured, but subject to
substantial deductibles, could significantly impact the operating results of
the Company for a given period.
During 1994, the Company entered into long-term financing arrangements
with two Japanese trading companies in connection with the construction and
operation of two drilling/workover barge rigs. The aggregate amount of the
collateralized term loans was initially $42,000,000. As of September 30, 1995,
$2,503,000 of accrued interest has been added to the principal amount of the
loans. Pursuant to the terms of the loan agreements, interest, which accrues at
a rate of 9.61% per annum, was added to the principal amount of the loans until
the first scheduled payment in July 1995, and is being paid from the proceeds of
the related charter contracts in 109 equal monthly installments of principal and
interest. 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, 1995, $2,435,000 of such contract proceeds are being held in trust
for the benefit of the lenders, and is not presently available for use by the
Company. The terms of the financing agreement limit the lenders' recourse
essentially to the barge rigs and contract proceeds and the assets of the
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<PAGE>
Company's Venezuelan subsidiary. The Company also provided the lenders a
limited guaranty with respect to certain political risks. The Company has
obtained political risks insurance policies from the Overseas Private
Investment Corporation ("OPIC"), a U.S. government entity, to protect against
political risks that could result in potential payments under the terms of the
Company's guaranty. At September 30, 1995, the outstanding balance of these
loans was $43,117,000.
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 September 30, 1995, $12,590,000 was outstanding pursuant to this
facility. The Company plans to continue a program to upgrade its offshore
platform rig fleet throughout 1995. During the nine months ended September
30, 1995, the Company spent approximately $12,800,000 toward offshore assets,
including: (i) construction of a new "flagship" state-of-the-art diesel
electric platform rig, (ii) major rig refurbishments and (iii) auxiliary
equipment such as top-drive drilling systems, larger capacity pumps and
generators, and improved living quarters.
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 September 30, 1995, the
Company has received proceeds of $5,500,000 pursuant to this facility. The
Company has 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 $587,000 realized on the transaction
has been deferred and will be amortized as a reduction of lease expense over
the maximum lease term of five years.
The Company spent approximately $3,800,000 during the nine months ended
September 30, 1995 to complete construction of the two new drilling/workover
barge rigs deployed in Venezuela. Rig refurbishment and international
deployment costs for the nine months ended September 30, 1995 and 1994 were
approximately $14,600,000 and $6,200,000, respectively.
In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert for consideration of approximately $10,000,000, consisting of
$3,000,000 cash, a note payable to the selling shareholders in the amount of
approximately $6,000,000 and 200,000 shares of the Company's common stock.
X-Pert had working capital and other monetary assets in excess of liabilities
of approximately $3,000,000.
Capital expenditures related to other domestic operations for the nine
months ended September 30, 1995 and 1994 were approximately $3,200,000 and
$3,000,000, respectively.
The Company expects to continue to review opportunities to pursue its
international and offshore equipment and technology expansion. From time to
time, the Company has one or more bids outstanding for contracts that could
require significant capital expenditures and mobilization costs. While the
Company has no other definitive plans to acquire additional equipment, suitable
opportunities may arise in the future. The timing, size or success of any
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<PAGE>
acquisition effort and the associated potential capital commitments are
unpredictable. The Company expects to fund project opportunities and
acquisitions primarily through a combination of working capital, cash flow
from operations and full or limited recourse debt or equity financing.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.121").
SFAS No.121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles to
be held and used by the entity, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company does not expect that the adoption of SFAS No.121
will have any material effect on its financial position or results of
operations.
Page 19
<PAGE>
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, 1995.
Page 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIDE PETROLEUM SERVICES, INC.
By: RAY H. TOLSON
-----------------------------------
(Ray H. Tolson)
President, Chief Executive Officer
and Chairman of the Board
By: PAUL A. BRAGG
-----------------------------------
(Paul A. Bragg)
Vice President, Chief Financial
Officer and Treasurer
By: EARL W. MCNIEL
-----------------------------------
(Earl W. McNiel)
Chief Accounting Officer
Date: November 10, 1995
Page 21
<PAGE>
<PAGE>
EXHIBIT 15
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Pride Petroleum Services, Inc.
Registration Statements on Form S-8
We are aware that our report dated November 3, 1995 on our review of
interim consolidated financial information of Pride Petroleum Services, Inc.
for the periods ended September 30, 1995 and 1994 and included in this Form
10-Q is incorporated by reference in the Company's registration statements on
Form S-8 filed with the Securities and Exchange Commission on February 6, 1989
and December 30, 1991. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration
statements prepared or certified by us within the meanings of Sections 7 and
11 of that Act.
COOPERS & LYBRAND L.L.P.
Houston, Texas
November 3, 1995
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
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<RECEIVABLES> 46,327
<ALLOWANCES> 617
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