UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 30, 1996
PRIDE PETROLEUM SERVICES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 0-16961 76-0069030
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1500 City West Blvd., Suite 400
Houston, Texas 77042
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (713) 789-1400
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 30, 1996, Pride Petroleum Services, Inc. (the "Company")
acquired all of the outstanding capital stock of Quitral-Co S.A.I.C.
("Quitral-Co") from Perez Companc S.A., Astra C.A.P.S.A. and other
shareholders for aggregate consideration of $140,000,000, which was negotiated
at arms' length. The sellers had no material relationship with the buyer.
Quitral-Co operates 23 drilling and 57 workover rigs in Argentina and 7
drilling and 23 workover rigs in Venezuela. For its last fiscal year (ended June
30, 1995)and the nine-month period ended March 31, 1996, Quitral-Co generated
revenues of approximately $175,000,000 and $150,000,000, respectively, on the
basis of Argentine generally accepted accounting principles based on an
effective exchange rate of one U.S. dollar to one Argentine peso. The Company
expects to continue to operate the assets of Quitral-Co in Argentina and
Venezuela.
The purchase price for the Quitral-Co acquisition consisted of $110,000,000
in cash and a note payable to the sellers for $30,000,000. Of the cash portion
of the purchase price, $70,000,000 was funded from the Company's working capital
and $40,000,000 from the net proceeds from two new financing arrangements
entered into with three lending institutions. The lending institutions involved
in such financing arrangements are The CIT Group/Equipment Financing, Inc.,
Frost National Bank and Heller Financial, Inc.
The Stock Purchase Agreement dated April 30, 1996, between the selling
shareholders and the Company is included as an exhibit hereto. The foregoing
discussion is qualified in its entirety by reference to such exhibit.
In connection with the Quitral-Co acquisition, the Company has acknowledged
that compensation is payable to one of its directors, Jorge Estrada M., for his
role in initiating negotiations with the sellers. The nature and amount of such
compensation has not been finally determined. The Company and Mr. Estrada have
also agreed to amend Mr. Estrada's existing compensation agreement. Under the
existing agreement, Mr. Estrada received monthly compensation of $10,000,
medical insurance, and certain other benefits. Such compensation will continue
through December 31, 1996. Under the new arrangement, for the identification of
most acquisition candidates subsequent to Quitral-Co, Mr. Estrada will be
compensated with a fee varying with the size of the transaction, starting at
3.5% and declining to 0.75% for transactions greater than $50 million. In
certain instances, Mr. Estrada will be compensated for business development
activities on a case-by-case basis as negotiated between Mr. Estrada and the
Company.
1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements are included as part of this current
report:
(a) Quitral-Co S.A.I.C. and Subsidiary
Annual Financial Statements
Report of Independent
Public Accountants ................................... 3
Consolidated Balance Sheets
as of June 30, 1995 and
1994 ................................................. 4
Consolidated Statements of
Income for the Years Ended
June 30, 1995, 1994 and
1993 ................................................. 5
Consolidated Statements of
Changes in Shareholders'
Equity for the Years Ended
June 30, 1995, 1994 and
1993 ................................................. 6
Consolidated Statements of
Cash Flows for the Years
Ended June 30, 1995, 1994
and 1993 ............................................. 7
Notes to the Consolidated
Financial Statements ................................. 8
Interim Financial Statements
(unaudited)
Consolidated Balance Sheets
as of December 31, 1995 and
1994 ................................................. 29
Consolidated Statements of
Income for the Six Months
Ended December 31, 1995 and
1994 ................................................. 30
Consolidated Statements of
Changes in Shareholders'
Equity for the Six Months
Ended December 31, 1995 and
1994 ................................................. 31
Consolidated Statements of
Cash Flows for the Six
Months Ended December 31,
1995 and 1994 ........................................ 32
Notes to Unaudited Interim
Consolidated Financial
Statements ........................................... 33
(b) Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Balance Sheet
as of March 31, 1996.................................. 39
Unaudited Pro Forma Statement of
Operations for the Three
Months Ended March 31, 1996........................... 40
Unaudited Pro Forma Statement of
Operations for the Year
Ended December 31, 1995............................... 41
Notes to Unaudited Pro Forma
Financial Statements.................................. 42
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
QUITRAL-CO S.A.I.C.
We have audited the accompanying consolidated balance sheets of QUITRAL-CO
S.A.I.C. (an Argentine Corporation) and its subsidiary as of June 30, 1995 and
1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended June 30, 1995, 1994 and
1993, all expressed in thousands of constant Argentine pesos as of June 30, 1995
(Note 2). These financial statements are the responsibility of Quitral-Co's
management. Our responsibility is to express an opinion on those financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Argentina, which are in substantial agreement with those in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of QUITRAL-CO
S.A.I.C. and its subsidiary as of June 30, 1995 and 1994 and the consolidated
results of its operations and its cash flows for the years ended June 30, 1995,
1994 and 1993, in conformity with generally accepted accounting principles
applicable to consolidated financial statements in Argentina, applied on a
consistent basis after giving retroactive effect to the change, with which we
concur, in valuation of property, plant and equipment in an affiliate company
carried at equity method as discussed in Note 4.a).
Accounting practices used by Quitral-Co in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles used in Argentina for consolidated financial statements, but do not
conform with generally accepted accounting principles in the United States of
America. A description of the significant differences and the approximate effect
of those differences on the reconciliation of shareholders' equity and net
income as of and for the years ended June 30, 1995 and 1994, respectively, are
set forth in Note 12 to the consolidated financial statements.
PISTRELLI, DIAZ Y ASOCIADOS
C.P.C.E.C.F. VOL. 1-F8
ENRIQUE C. GROTZ
Partner
Certified Public Accountant UBA
C.P.C.E.C.F. Vol. 136-F149
Buenos Aires, Argentina
May 20, 1996
3
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 AND 1994
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)
1995 1994
---------- ----------
CURRENT ASSETS
Cash.................................. 2,346 1,326
Investments (Note 5.a)................ 1,566 272
Trade receivables (Note 5.b).......... 35,452 27,060
Other receivables (Note 5.c).......... 6,137 3,525
Parts and supplies (Note 5.d)......... 14,623 12,847
Discontinued operations (Note 7)...... 2,522 2,362
---------- ----------
Total current assets............... 62,646 47,392
---------- ----------
NONCURRENT ASSETS
Other receivables (Note 5.c).......... 678 325
Parts and supplies (Note 5.d)......... 5,392 7,122
Investments (Note 5.a)................ 230 6,532
Property and equipment (Note 11.a).... 68,371 56,474
Discontinued operations (Note 7)...... 43,873 47,152
---------- ----------
Total noncurrent assets............ 118,544 117,605
---------- ----------
Total assets....................... 181,190 164,997
========== ==========
CURRENT LIABILITIES
Accounts payable (Note 5.e)........... 13,893 10,673
Loans (Note 5.f)...................... 19,269 18,482
Payroll and social security taxes..... 4,846 4,112
Taxes payable......................... 4,649 3,059
Other liabilities (Note 5.g).......... 1,640 1,859
Discontinued operations (Note 7)...... 1,320 1,280
---------- ----------
Total current liabilities.......... 45,617 39,465
---------- ----------
NONCURRENT LIABILITIES
Loans (Note 5.f)...................... 7,363 2,541
Other liabilities (Note 5.g).......... 3,778 3,792
Reserves (Note 11.b).................. 2,318 1,837
---------- ----------
Total noncurrent liabilities....... 13,459 8,170
---------- ----------
Total liabilities.................. 59,076 47,635
MINORITY INTEREST IN SUBSIDIARY......... 475 2,186
SHAREHOLDERS' EQUITY (per corresponding
statement)............................ 121,639 115,176
---------- ----------
Total liabilities and shareholders'
equity............................ 181,190 164,997
========== ==========
The accompanying notes are an integral part of these financial statements.
4
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)
1995 1994 1993
----------- ----------- ----------
NET SALES............................ 175,313 143,178 106,763
COST OF SALES (Note 11.c)............ (158,767) (126,516) (89,387)
----------- ----------- ----------
Gross income.................... 16,546 16,662 17,376
OPERATING EXPENSES (Note 11.e)....... (11,624) (7,875) (6,146)
OTHER (EXPENSES) INCOME, net (Note
5.h)................................. (620) (800) (1,985)
FINANCIAL INCOME (EXPENSE) AND
HOLDING GAINS (LOSSES), net (Note
5.i)............................... (3,709) (271) (112)
----------- ----------- ----------
Income from continuing
operations before income tax
and minority interest......... 593 7,716 9,133
INCOME TAX........................... (4,044) (2,528) (1,164)
----------- ----------- ----------
(Loss) Income from continuing
operations.................... (3,451) 5,188 7,969
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (Note 7), plus tax
carryforward of 349, 639 and 193,
respectively....................... 12,385 (108) (1,197)
MINORITY INTEREST IN SUBSIDIARY...... 1,770 224 --
----------- ----------- ----------
Net income...................... 10,704 5,304 6,772
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
5
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)
<TABLE>
<CAPTION>
STOCK
----------------------------------- APPRAISAL
ADJUSTMENT ADDITIONAL REVALUATION UNAPPROPRIATED
CAPITAL TO CAPITAL PAID IN RESERVE-EQUITY LEGAL RETAINED
STOCK STOCK CAPITAL INVESTMENTS RESERVE EARNINGS
------- ---------- ---------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1992......... 12,138 8,586 28,638 9,537 1,142 48,781
Reversal of Petroqumica Cuyo's
appraisal revaluation reserve (Note
4a)................................ -- -- -- (9,537) -- --
------- ---------- ---------- ------- -------- -------
Modified balances as of beginning of
year............................... 12,138 8,586 28,638 -- 1,142 48,781
Appropriation to Legal reserve....... -- -- -- -- 334 (334)
Capital increase..................... 914 88 -- -- -- --
Additional paid in capital........... -- -- 6,496 -- -- --
Other................................ -- -- -- -- -- (99)
Net income........................... -- -- -- -- -- 6,772
------- ---------- ---------- ------- -------- -------
Balances as of June 30, 1993......... 13,052 8,674 35,134 -- 1,476 55,120
Appropriation to Legal reserve....... -- -- -- -- 341 (341)
Cash dividends (Ps. 0.25 per
share)............................. -- -- -- -- -- (3,262)
Other................................ -- -- -- -- -- (322)
Net income........................... -- -- -- -- -- 5,304
------- ---------- ---------- ------- -------- -------
Balances as of June 30, 1994......... 13,052 8,674 35,134 -- 1,817 56,499
Appropriation to Legal reserve....... -- -- -- -- 260 (260)
Cash dividends (Ps. 0.32 per
share)............................. -- -- -- -- -- (4,241)
Net income........................... -- -- -- -- -- 10,704
------- ---------- ---------- ------- -------- -------
Balances June 30, 1995............... 13,052 8,674 35,134 -- 2,077 62,702
======= ========== ========== ======= ======== =======
</TABLE>
TOTAL
SHAREHOLDERS'
EQUITY
--------------
Balances as of June 30, 1992......... 108,822
Reversal of Petroqumica Cuyo's
appraisal revaluation reserve (Note
4a)................................ (9,537)
--------------
Modified balances as of beginning of
year............................... 99,285
Appropriation to Legal reserve....... --
Capital increase..................... 1,002
Additional paid in capital........... 6,496
Other................................ (99)
Net income........................... 6,772
--------------
Balances as of June 30, 1993......... 113,456
Appropriation to Legal reserve....... --
Cash dividends (Ps. 0.25 per
share)............................. (3,262)
Other................................ (322)
Net income........................... 5,304
--------------
Balances as of June 30, 1994......... 115,176
Appropriation to Legal reserve....... --
Cash dividends (Ps. 0.32 per
share)............................. (4,241)
Net income........................... 10,704
--------------
Balances June 30, 1995............... 121,639
==============
The accompanying notes are an integral part of these financial statements.
6
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)
1995 1994 1993
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... 10,704 5,304 6,772
Adjustments to reconcile net income
to cash provided by operating
activities:
Minority interest in profits.... (1,770) (224) --
Depreciation of property and
equipment..................... 10,504 8,175 8,694
Gain (loss) on sale of property
and equipment................. (226) (310) (584)
Increase (decrease) in
allowances/reserves........... 481 (101) 316
Increase in allowance for obsolescence of parts and
supplies.. 1,730 -- 1,417
Discontinued operations......... 2,369 5,335 3,783
Income on the sale of
discontinued operations of
joint venture interests....... (5,743) -- --
Income from discontinued
operations of equity
investments................... (9,679) (419) 2,207
Changes in assets and liabilities:
Trade receivables............... (4,655) (8,186) 1,668
Other receivables............... (2,965) (261) 676
Parts and supplies.............. (8,063) (8,833) (6,723)
Accounts payable................ 5,614 2,666 (2,804)
Payroll and social security
taxes......................... 734 1,291 (505)
Taxes payable................... 1,077 1,361 (512)
Other liabilities............... 1,070 4,038 (1,626)
Discontinued operations......... 3,321 (5,798) (1,059)
Other........................... 261 759 (690)
---------- ---------- ----------
Cash flows provided by
operating activities..... 4,764 4,797 11,030
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related companies...... 1,670 -- --
Short term investments.......... 135 124 149
Acquisition of property and
equipment..................... (18,791) (13,746) (1,350)
Sales of property and
equipment..................... 510 624 1,170
Sale of temporary investments... 492 -- --
Proceeds from sale of
discontinued operations....... 16,170 -- --
Discontinued operations......... (2,744) (5,147) --
---------- ---------- ----------
Cash flows used in
investing activities..... (2,558) (18,145) (31)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term loans, net........... (461) 18,947 (9,168)
Long-term loans................. 4,822 2,541 --
Dividends....................... (4,242) (7,196) (1,753)
---------- ---------- ----------
Cash flows provided by
(used in) financing
activities............... 119 14,292 (10,921)
---------- ---------- ----------
Net increase in cash and cash
equivalents................... 2,325 944 78
Cash and cash equivalents at the
beginning of year............. 1,587 643 565
---------- ---------- ----------
Cash and cash equivalents at the
end of year................... 3,912 1,587 643
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
7
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995, 1994 AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)
1. MAIN COMPANY BUSINESS AND REORGANIZATION
Quitral-Co S.A.I.C. ("Quitral-Co") was formed in Argentina in 1960.
Quitral-Co and its subsidiary Perforaciones Quitral-Co de Venezuela S.A.
("Quitral-Co de Venezuela" or the "Subsidiary") provide oil and gas well
drilling, completion, repair, and workover services, which are predominantly
rendered in Argentina and Venezuela. Each of these countries forms an activity
center and provides services in their respective countries with their own
machinery, materials warehouses, and administrative facilities. Quitral-Co is
headquartered in Buenos Aires.
Pursuing its strategic aim of concentrating business in the area of oil
field services, during the year ended June 30, 1995, Quitral-Co sold its working
interests in oil producing joint ventures in Argentina. Additionally, in
September 1995, Quitral-Co de Venezuela divested its 10% interest in the
Oritupano-Leona oil producing area (see Note 7). The assets, liabilities and
results related to the interests in those joint ventures, are presented as
discontinued operations for all the years presented.
Events subsequent to the year ended June 30, 1995:
-- During September 1995, Quitral-Co acquired the remaining 30% of the
capital stock of Quitral-Co de Venezuela, thus becoming the sole
owner of the aforementioned Company's shares (see Note 7).
-- At the General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all of its equity
interests in Petroqumica Cuyo S.A.I.C., Packingplast S.A., and
Jojoba S.A. as a dividend distribution in kind at their book value.
The assets, liabilities and results related to these investments are
presented as discontinued operations for all the years presented
(see Note 7). In addition, at this General Shareholders' Meeting,
the shareholders approved distribution of 32,600 in cash dividends.
-- On April 29, 1996, Pride Petroleum Services, Inc. ("Pride"), a US
based company, extended a non-current loan of 32,600 to Quitral-Co
to increase its working capital. On April 30, 1996, Pride acquired
100% of Quitral-Co's shares, thus gaining control of Quitral-Co.
-- In April 1996, far-reaching changes were made to Venezuela's
economic policy. The exchange market was freed causing the Bolivar
to be devalued by about 80%.
-- In addition, on May 2, 1996, by decision of the shareholders at the
General Shareholders' Meeting held on that date, a new Board of
Directors was elected. The new management is undertaking an analysis
of Quitral-Co's organizational structure to define and implement
short-term strategies and actions intended to position the business
for future success. This analysis may include several dismissals for
estimated termination costs of approximately 3,000.
Quitral-Co is organized under the laws of Argentina and its operations are
conducted in Argentina and Venezuela through its subsidiary; it is therefore
subject to certain investment considerations not typically associated with
investments in equity securities of United States companies. These factors
mainly include: dependence on oil and gas industry conditions, the Argentine and
Venezuelan economy and corporate governance in Argentina and the regulatory
environment Quitral-Co operates within. Quitral-Co is subject also to various
environmental and labor laws and regulations that are different from those which
would apply to a company in the United States of America. For further
information, see "Risk Factors" in the Prospectus contained in the registration
statement of Pride Petroleum Services, Inc. filed on June 4, 1996 which
information is incorporated herein.
8
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BASIS OF PRESENTATION
The consolidated financial statements of Quitral-Co have been prepared in
accordance with generally accepted accounting principles in Argentina
("Argentine GAAP"), and regulations of the Inspeccion General de
Justicia -- "IGJ" (governmental regulatory agency for nonpublic companies),
which differ in certain respects from generally accepted accounting principles
in the United States of America (U.S. GAAP). A description of the significant
differences between Argentine and U.S. GAAP, and the approximate effect of
differences on Quitral-Co's consolidated net income and shareholders' equity are
set forth in Note 12 to the consolidated financial statements.
PURPOSE OF THE FINANCIAL STATEMENTS
These consolidated financial statements have been prepared with the
purposes of being included in the Form S-3 to be filed by Pride with the
Securities and Exchange Commission of the United States of America (the
"SEC"). The consolidated financial statements also include certain
reclassifications and additional disclosures necessary to conform more closely
with the form and content required by the SEC.
RESTATEMENT OF FINANCIAL STATEMENTS IN CONSTANT ARGENTINE PESOS
In accordance with the method of restatement established in Technical
Resolution No. 6 of the Argentine Federation of Professional Councils in
Economic Sciences (FACPCE) and current legislation, the financial statements of
Quitral-Co were stated in constant Argentine pesos as of the end of each year.
In addition, all amounts have been restated in constant Argentine pesos as of
June 30, 1995. This restatement does not change the valuation of the assets and
liabilities in the financial statements, except for the adjustment required to
state the reported amounts in constant pesos as of June 30, 1995. In accordance
with these requirements, translation factors derived from the general level
wholesale price index issued by the National Institute of Statistics and Census
have been used to arrive at the constant Argentine pesos financial statements.
The conversion factors used to restate the financial statements in constant
Argentine pesos were 1.0, 1.081, and 1.0836 as of June 30, 1995, 1994, and 1993,
respectively.
Resolution No. 8/95 of IGJ dated September 12, 1995, requires companies to
discontinue, beginning September 1, 1995, the restatement of financial
statements for the effect of inflation. On March 29, 1996, the FACPCE approved
Resolution No. 140/96 which determined an annual variation of up to 8% in the
index provided by Resolution No. 6 allowing as an alternative criterion, the
historical currency as reporting currency for preparing financial statements.
ARGENTINE LEGAL REQUIREMENTS
In accordance with Argentine GAAP and current Argentine legislation, the
presentation of the parent company's individual financial statements is
required. Consolidated financial statements need only be included as
supplementary information. For the purpose of this filing, individual financial
statements have been omitted since they are not required for SEC reporting
purposes.
Additionally, certain disclosures related to formal legal requirements for
reporting in Argentina have been omitted for purposes of these financial
statements since they are not required for SEC reporting purposes.
TRANSLATION OF FOREIGN OPERATIONS
The financial statements of Quitral-Co de Venezuela have been translated
into constant Argentine pesos, using that currency as the functional currency.
Thus, monetary assets and liabilities were translated at the exchange rate
prevailing as of year-end, while nonmonetary items were translated at historical
exchange rates and subsequently restated in constant Argentine pesos. Income
statement
9
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts were converted at the average exchange rate for each month and restated
as indicated above, except for depreciation and other consumption of nonmonetary
assets, which were valued in terms of the converted amounts of those assets.
Translation gains or losses related to the effect of devaluation or revaluation
of monetary assets and liabilities were charged or credited to income under
Financial income (expense) and holding gains (losses).
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the rules and regulations established by Technical
Resolution No. 4 of the FACPCE, Quitral-Co (the controlling company) has made a
line by line consolidation of its balance sheets as of June 30, 1995 and 1994,
and the related statements of income and cash flows for the years then ended
with the financial statements of Quitral-Co de Venezuela from the date it was
purchased in December 1993.
The table below presents the ownership and voting interest in Quitral-Co de
Venezuela:
<TABLE>
<CAPTION>
% OWNERSHIP AND
VOTING INTEREST
------------------
AS OF AS OF
COMPANY 6/30/95 6/30/94 YEAR END REGISTERED OFFICE
- ---------------------------------------- ------- ------- ------------ ----------------------
<S> <C> <C> <C>
Quitral-Co de Venezuela................. 70% 70% December 31 Caracas FD, Venezuela
</TABLE>
In order to comply with Argentine GAAP and properly apply the consolidation
method, the Subsidiary prepared special financial statements as of June 30, 1995
and 1994. The financial statements of the Subsidiary have been prepared to
conform the accounting policies to those applied by Quitral-Co in preparing its
financial statements. All significant intercompany transactions and balances
have been eliminated in consolidation. The participation of minority
shareholders in the Subsidiary has been presented in the consolidated statements
under minority interest.
USE OF ESTIMATES
The preparation of financial statements in conformity with Argentine GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Subsequent resolution of
some matters could differ from those estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, Quitral-Co considers all highly
liquid investments with original maturity of three months or less as cash
equivalents.
The table below presents the amount of interest and taxes paid for the
years ended June 30, 1995, 1994 and 1993:
1995 1994 1993
--------- --------- ---------
Interest paid........................ 969 577 483
Income taxes paid.................... 4,840 1,565 910
10
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the consolidated statements of cash flows for the years ended June 30,
1995, 1994 and 1993, cash and cash equivalents are comprised of:
1995 1994 1993
--------- --------- ---------
Cash................................. 2,346 1,326 87
Foreign currency certificates of
deposit............................ 13 116 77
Government securities................ 6 -- --
Financial investment with
subsidiaries and affiliates........ 1,547 145 479
--------- --------- ---------
3,912 1,587 643
========= ========= =========
VALUATION CRITERIA
The main valuation criteria used by Quitral-Co for the preparation of the
consolidated financial statements are as follows:
a) CASH, RECEIVABLES AND PAYABLES:
-- In local currency: at nominal value including, if applicable, interest
accrued through each year-end according to the specific clauses of the
transaction.
-- In foreign currency: converted at the exchange rates in effect at each
year-end for the settlement of these transactions including, if
applicable, interest accrued through each year-end according to the
specific clauses of the transaction. Any exchange differences have been
charged or credited to income of each year. The respective detail is
set forth in Note 11.d).
b) SHORT-TERM INVESTMENTS:
-- Foreign-currency deposit certificates: at the rate of exchange
prevailing on each year-end plus any interest accrued as of then.
-- Government securities: at market value current as of each year-end.
-- Financial investments with related companies: at nominal value
including, if applicable, interest accrued through each year-end
according to the specific clauses of the transaction.
c) PARTS AND SUPPLIES:
-- Materials and spares: with high turnover at replacement cost;
slow-moving and minor items at latest purchase price restated in
constant pesos at each year-end.
-- Materials in transit: at the specific cost of each import shipment plus
expenses accrued as of each year-end; amounts were translated from
foreign currency at exchange rates prevailing on those dates for
settlement of the relevant transaction.
Inventories include, when applicable, an allowance for reduction of their
value to their estimated recoverable value.
d) NONCURRENT INVESTMENTS:
-- Financial investments with related companies: at nominal value
including, if applicable, interest accrued through each year-end
according to the specific clauses of the transaction.
e) PROPERTY AND EQUIPMENT:
Property and equipment are carried at acquisition cost restated in constant
Argentine pesos as of each year-end less related accumulated depreciation. Major
renewals and improvements are capitalized and depreciated over the respective
asset's useful life. Maintenance and repair costs are charged to expense as
incurred. When assets are sold or retired, the remaining costs and related
accumulated
11
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation are removed from the accounts and any resulting gain or loss is
included in income. Depreciation of property and equipment is calculated by the
straight line method based upon expected useful lives of each class of assets
(see Note 11.a).
The book value of property and equipment, considered as a whole, does not
exceed its recoverable value.
f) DISCONTINUED OPERATIONS:
Parts and supplies and property and equipment related to discontinued
operations of joint venture interests (see Note 7) were valued at acquisition
cost restated in constant Argentine pesos as of each year-end, less related
accumulated depreciation which does not exceed its realizable value, and
discontinued operations of noncurrent investments were valued at equity method
as of each year-end. Liabilities have been recorded to meet the obligations
arising from discontinued operations.
g) INCOME TAX:
Quitral-Co and its subsidiary calculate income tax on a separate-company
basis at the current rate of 30% in Argentina and 34% in Venezuela,
respectively, without taking in consideration the effect of any temporary
differences between book and taxable income.
As of June 30, 1995, Quitral-Co de Venezuela has an accumulated net
operating loss carryforward of about 7,568, which calculated at the current tax
rate represents a contingent asset of about 2,573, which may be used to offset
future income taxes in that subsidiary.
h) ALLOWANCES AND RESERVES:
-- Deducted from assets:
o Allowance for obsolescence: assessed on the basis of an individual
analysis of items considered technically obsolete.
-- Included in liabilities:
o Reserves for contingencies: established to provide for
contingencies that might involve Quitral-Co in losses whose final
outcome depends on one or more future events. Contingent
liabilities are evaluated by management and Quitral-Co's legal
counsel based on available facts.
The contingencies include outstanding lawsuits or claims for possible
damage to third parties arising from Quitral-Co's business, as well as
third-party claims stemming from issues of interpreting current legislation.
The activity in the allowance and reserve accounts is presented in Note
11.b).
i) SHAREHOLDERS' EQUITY ACCOUNTS:
The shareholders' equity accounts are restated in year-end constant
Argentine pesos, with the exception of the "Capital stock" account, which has
been maintained at its original value. The adjustment resulting from restatement
thereof in year-end constant Argentine pesos is included in the "Adjustment to
capital stock" account.
j) INCOME STATEMENT ACCOUNTS:
All accounts have been restated in constant Argentine pesos as of each
year-end by applying the respective conversion factors for the month of accrual
to the historical amounts, with the exception of charges for nonmonetary assets
consumed, which were determined based on the inflation-adjusted amount of the
assets involved.
12
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
-- The caption "Financial income (expense) and holding gains (losses)"
includes:
o Nominal financial income and expense generated on assets and
liabilities, restated in constant Argentine pesos.
o The effects of general inflation on monetary assets and
liabilities, not included in the preceding paragraph.
o Holding gains or losses resulting from the revaluation
of inventories carried at current value.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT
RISK
Quitral-Co has not used financial instruments to manage its exposure to
fluctuations in foreign currencies or interest rates, and accordingly, has not
entered into transactions that would create off-balance sheet risk associated
with such instruments.
Quitral-Co's cash equivalents and current investments are deposit
certificates and securities placed with financial and commercial institutions.
This investment policy limits Quitral-Co's exposure to concentration of credit
risk. Quitral-Co's customer base consists primarily of major integrated and
international oil companies as well as smaller independent oil and gas
producers. Management believes the credit quality of its customers is generally
high. Revenues from YPF S.A. and Perez Companc S.A. represent 28.3% and 24.6%
for the year ended June 30, 1995; 18.6% and 28.9% for the year ended June 30,
1994 and 21.0% and 39.9% for the year ended June 30, 1993, respectively.
4. CHANGES IN FINANCIAL STATEMENT PRESENTATION
a) Reversal of Petroqumica Cuyo's appraisal revaluation reserve
Quitral-Co adjusted its equity investment in Petroquimica Cuyo
(presented as a discontinued operation) eliminating the property, plant
and equipment appraisal revaluation carried out by this affiliate and
the appraisal revaluation reserve included in net worth. This change in
accounting principle was applied retroactively to these financial
statements for the years ended June 30, 1995, 1994 and 1993 and had no
effect in the consolidated statements of income.
b) Presentation of the statements of cash flows
Beginning with the financial statements for the interim period ended
September 30, 1994, Quitral-Co prepares its statements of cash flows in
accordance with the indirect method, starting with the year's net
income and adding to or subtracting from it, as applicable, those items
comprised in its determination that did not affect the operating cash
flows, and disclosing separately any changes in assets and liabilities,
as well as the cash provided by or used in investing and financing
activities.
c) Assets and liabilities of discontinued operations
For the purpose of these financial statements, assets and liabilities
from the operations conducted in Al Norte de la Dorsal, Aguada
Villanueva, Piedras Coloradas, Cacheuta, Canadon Amarillo and
Altiplanicie del Payun oil fields, as well as those from the indirect
interest held by Quitral-Co in the Oritupano-Leona oil area, and the
equity investments in Petroquimica Cuyo S.A., Packingplast S.A. and
Jojoba S.A. as of June 30, 1995 and 1994 and the results of operations
and cash flows for the years ended June 30, 1995, 1994 and 1993, are
shown in the account "Discontinued operations" (see Note 7).
For the purpose of these financial statements and in accordance with
Argentine GAAP, the balances as of June 30, 1994 and 1993, which are presented
for comparative purposes, have been prepared after giving effect to the changes
described above.
13
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, certain reclassifications were made to the amounts presented
as of June 30, 1994 and 1993 to conform their presentation to the
classifications made as of June 30, 1995.
5. BREAKDOWN OF SIGNIFICANT ACCOUNTS
The significant balance sheet and income statement accounts are detailed as
follows:
1995 1994
--------- ---------
a) INVESTMENTS:
SHORT-TERM:
Foreign currency certificates of
deposit............................ 13 116
Government securities.............. 6 11
Financial investment with related
companies (Note 10)................ 1,547 145
--------- ---------
1,566 272
========= =========
NONCURRENT:
Financial investment with related
companies (Note 10)................ 230 6,107
Other.............................. -- 425
--------- ---------
230 6,532
========= =========
b) TRADE RECEIVABLES:
Trade accounts receivables......... 26,407 18,388
Related companies (Note 10)........ 9,032 8,672
Notes receivable................... 13 --
--------- ---------
35,452 27,060
========= =========
c) OTHER RECEIVABLES:
CURRENT:
Tax credits........................ 1,017 801
Prepaid expenses................... 424 60
Advances to vendors................ 2,823 570
Advances to personnel.............. 927 960
Insurance claims................... 32 323
Other.............................. 914 811
--------- ---------
6,137 3,525
========= =========
NONCURRENT:
Guarantee deposits................. 314 8
Other.............................. 364 317
--------- ---------
678 325
--------- ---------
--------- ---------
d) PARTS AND SUPPLIES:
CURRENT:
Materials and spares............... 13,289 12,058
Materials in transit............... 1,883 1,338
Allowance for obsolescence of
materials and spares (Note
11.b)........................... (549) (549)
--------- ---------
14,623 12,847
--------- ---------
--------- ---------
NONCURRENT:
Materials and spares............... 7,122 7,122
Allowance for obsolescence of
materials and spares (Note
11.b)........................... (1,730) --
--------- ---------
5,392 7,122
--------- ---------
--------- ---------
14
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 1994
--------- ---------
e) ACCOUNTS PAYABLE:
Vendors............................ 13,336 10,117
Related companies (Note 10)........ 557 556
--------- ---------
13,893 10,673
========= =========
f) LOANS:
CURRENT:
Foreign currency loans:
Related companies (Note 10)........ 7,000 --
Bank loans:
-- Lloyds Bank.................... -- 1,620
-- Supervielle Societe Generale... -- 2,160
-- Frances........................ -- 1,485
-- J. P. Morgan................... -- 2,160
-- Credit Lyonnais Argentina
S.A............................. -- 1,074
-- Provincial S.A.I.C.A.
(Venezuela)..................... 3,206 6,328
-- Mercantil C.A.S.A.C.A.
(Venezuela)..................... 2,054 --
-- Citibank (Venezuela)........... 2,936 --
-- Bank of Boston (Venezuela)
(Note 6)........................ 1,928 3,352
-- Other.......................... 1,641 303
--------- ---------
18,765 18,482
Local currency loans:
Overdrafts......................... 504 --
--------- ---------
19,269 18,482
========= =========
NONCURRENT:
Foreign currency loans:
Banks (Note 6)..................... 7,363(1) 2,541
========= =========
- ------------
(1) Includes a 4,543 loan of Quitral-Co de Venezuela at a cost of LIBOR plus
1.80% per annum and payable in 10 semi-annual installments and a 2,820 loan
of Quitral-Co (Note 6).
1995 1994
--------- ---------
g) OTHER LIABILITIES:
CURRENT:
International Finance
Corporation..................... 1,133 --
Directors' fees payable............ 47 50
Other.............................. 460 1,809
--------- ---------
1,640 1,859
========= =========
NONCURRENT:
International Finance
Corporation..................... 1,688 3,039
Other.............................. 2,090(2) 753(2)
--------- ---------
3,778 3,792
========= =========
- ------------
(2) Non-interest bearing liabilities arising under the Collective Labor
Agreement with the Oil Industry Workers Union and employment legislation in
force in Venezuela.
15
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 1994 1993
--------- --------- ---------
h) OTHER (EXPENSES) INCOME, NET:
Gain on sale of property and
equipment -- net................... 226 310 584
Tax and social security
amnesties.......................... (416) -- --
Other non-operating losses......... (600) (491) (187)
Other -- net....................... 170 (619) (2,382)
--------- --------- ---------
(620) (800) (1,985)
========= ========= =========
i) FINANCIAL INCOME (EXPENSE) AND
HOLDING GAINS
(LOSSES) -- NET:
Exchange rate differences.......... (306) 14 150
Interest........................... (4,046) 61 (383)
Income (loss) on exposure to
inflation, and gains
(losses) on holding and
translation of financial
statements...................... 1,065 (42) 294
Other financial expenses, net...... (422) (304) (173)
--------- --------- ---------
(3,709) (271) (112)
========= ========= =========
6. LOANS
Quitral-Co has provided a guarantee on a credit line negotiated by
Quitral-Co de Venezuela with The First National Bank of Boston, to be used for
the purchase and importation of equipment manufactured in the United States. The
facility extended to Quitral-Co de Venezuela is for US$6.5 million, at a cost of
LIBOR plus 1.80% per annum. The entire loan had been drawn as of June 30, 1995.
Under the major restrictive covenants of this loan renegotiated during the
current year, Quitral-Co (guarantor) is required to maintain certain ratios, as
follows: liquidity ratio (total current assets to total current liabilities)
equal to or above 0.85 through June 30, 1995, 1.00 from July 1, 1995 through
June 30, 1996 and 1.15 from July 1, 1996 through June 30, 1999; and a debt to
equity ratio equal to or not less than 1.10, both ratios to be calculated on the
basis of consolidated financial statements. Quitral-Co further agreed not to
collateralize or otherwise encumber its assets existing as of the date of the
loan agreement.
The First National Bank of Boston may declare the entire outstanding
principal plus interest and relevant charges immediately due and payable upon
any event of nonperformance of the above covenants.
On June 30, 1995, Quitral-Co provided a guarantee for a total US$7.5
million to banks in the Republic of Venezuela, to secure performance under
certain credit lines extended to Quitral-Co de Venezuela. About US$6.1 million
of those credit lines had been drawn as of June 30, 1995.
In addition to the guarantee and other security interests described above,
as of June 30, 1995 Quitral-Co de Venezuela had an open letter of credit for the
benefit of Corpoven S.A., for about US$7.4 million. The letter of credit was
opened to secure performance of the Minimum Work Program committed in respect of
its interest in Oritupano-Leona oilfield.
During the year ended June 30, 1995, Quitral-Co executed a US$5 million
loan agreement with the First National Bank of Boston to finance the purchase
and import of goods manufactured in the United States. The loan accrues interest
at LIBOR plus 1.40% per annum and should be repaid in not more than 10
half-yearly installments. The U.S. Eximbank provided political risks insurance
on this loan.
16
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the loan agreement, Quitral-Co agreed to be bound by
similar restrictive covenants and defaults to those described above, in default
whereof all outstanding moneys under the loan can be declared immediately due
and payable.
The first disbursements under the loan, for an approximate US$3.6 million,
had been received as of June 30, 1995, of which 2,820 was classified as
noncurrent.
The maturities of the noncurrent loans as of June 30, 1995 are as follows:
FROM 1 FROM 2 FROM 3 OVER
TO 2 YEARS TO 3 YEARS TO 4 YEARS 5 YEARS TOTAL
----------- ----------- ----------- -------- ---------
Loans....... 2,209 1,718 1,718 1,718 7,363
=========== =========== =========== ======== =========
7. DISCONTINUED OPERATIONS
Pursuing the strategic aim of concentrating business in the area of
oilfield services, in November and December, 1994, Quitral-Co sold its working
interests in oil producing joint ventures.
In November, 1994, Quitral-Co and Perez Companc S.A., owners of a 43.75%
and a 56.25% interest, respectively, in the Al Norte de la Dorsal and Aguada
Villanueva oil fields, executed an agreement to assign to Chauvco Resources
(Argentina) S.A. all of their rights and obligations with respect to oil and gas
production and the possibility to explore other oil and/or gas deposits in those
areas, including in the assignment the capital goods and inventories owned by
the joint ventures in question. The sales price related to Quitral-Co's interest
was approximately US$12.6 million.
Furthermore, in December 1994, Quitral-Co assigned to Perez Companc S.A.
its 5% interests in the Piedras Coloradas and Cacheuta blocks and its 20%
interests in Canadon Amarillo and Altiplanicie del Payun. The sales price was
US$2.8 million, and included the assignment of all of Quitral-Co's rights and
obligations with respect to oil and gas production and the possibility to
explore other oil and/or gas deposits in the areas, further including in the
assignment the equipments and inventories owned by Quitral-Co in the above
areas.
These sales generated a gain, net of income tax of 5,743, and was credited
to income during the year ended June 30, 1995 under "Discontinued operations".
On the other hand, the subsidiary, Quitral-Co de Venezuela has carried out
the following transactions during September 1995, effective January 1, 1995:
a) Quitral-Co de Venezuela sold to Perez Companc S.A. all its
recorded assets and liabilities related to production covering 10% of the
area Oritupano-Leona and settled the US$4.6 million payable to Perez
Companc S.A.
b) Quitral-Co acquired from Perez Companc S.A. the remaining 30% of
the capital stock of Quitral-Co de Venezuela, thus becoming the sole owner
of the aforesaid company's shares.
In the light of the situation described in a) and b) above, all service
income generated from January 1, 1995 was recognized as accruing to Quitral-Co,
while all income generated by the Oritupano-Leona oilfield was excluded.
The transaction described in b) generated an income from discontinued
operations in the quarter ended as of September 30, 1995, of 2,699.
At the Quitral-Co's General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all of its equity interests in
Petroqumica Cuyo S.A.I.C., Packingplast S.A. and Jojoba S.A., these equity
investments and their results as of June 30, 1995, 1994 and 1993, have been
presented retroactively as "Discontinued operations".
17
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Below are the assets and liabilities of the operations discontinued by the
above joint ventures and Quitral-Co's indirect interest in the Oritupano-Leona
area and the equity investments dividended in April, 1996, that were presented
in the financial statements as discontinued operations:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
JOINT EQUITY JOINT EQUITY
VENTURES INVESTMENTS VENTURES INVESTMENTS
-------- ----------- -------- -----------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... 597 3 194 6
Trade receivables.................. 577 -- 627 --
Other receivables.................. 407 323 576 353
Parts and supplies................. 606 9 595 11
-------- ----------- -------- -----------
Total current assets from
discontinued
operations.................... 2,187 335 1,992 370
======== =========== ======== ===========
NONCURRENT ASSETS:
Other receivables.................. 91 -- 1,925 --
Property and equipment............. 3,548 4,067 15,726 3,025
Investments........................ -- 36,167 -- 26,476
-------- ----------- -------- -----------
Total noncurrent assets from
discontinued operations....... 3,639 40,234 17,651 29,501
======== =========== ======== ===========
CURRENT LIABILITIES:
Accounts payable................... 949 12 673 1
Loans.............................. -- 18 -- --
Payroll and social security
taxes.............................. 40 15 55 106
Taxes payable...................... 24 -- 74 --
Other liabilities.................. 262 -- 371 --
-------- ----------- -------- -----------
Total current liabilities from
discontinued operations....... 1,275 45 1,173 107
======== =========== ======== ===========
</TABLE>
The detail of income (losses) on operations and sale of these interests,
for the years ended June 30, 1995, 1994 and 1993 is as follows:
1995 1994 1993
--------- --------- ---------
(Losses) income on discontinued
operations of joint ventures and
Oritupano-Leona oilfield........... (3,037) (527) 1,010
Income on the sale of joint
venture............................ 5,743 -- --
--------- --------- ---------
Income (losses) from discontinued
operations of joint ventures....... 2,706 (527) 1,010
Income (losses) from discontinued
operations of equity investments... 9,679 419 (2,207)
--------- --------- ---------
12,385 (108) (1,197)
========= ========= =========
8. CAPITAL STOCK
As of June 30, 1995, Quitral-Co's issued, subscribed for, paid in, and
registered capital stock was 13,052. Movements in capital stock during the year
are presented in the consolidated statements of changes in shareholders' equity.
18
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RESTRICTION ON UNAPPROPRIATED EARNINGS
The legal reserve of Quitral-Co represents earnings restricted from the
payments of dividends in accordance with Argentine law. The law dictates that
with respect to income in any one year, an amount equal to 5% of the net income
of Quitral-Co after offsetting prior years' losses, must be set aside until the
cumulative legal reserve equals 20% of capital stock.
10. TRANSACTIONS AND BALANCES WITH RELATED COMPANIES
The outstanding balances as of June 30, 1995 and 1994 from transactions
with related companies are as follows:
RELATED COMPANY 1995 1994
- ---------------------------------------- --------- ---------
INVESTMENTS:
SHORT TERM:
Perez Companc S.A..................... 1,412 --
Other................................. 135 145
--------- ---------
1,547 145
========= =========
NONCURRENT:
Perez Companc S.A..................... -- 5,733
Other................................. 230 374
--------- ---------
230 6,107
========= =========
TRADE RECEIVABLES:
Perez Companc S.A..................... 7,027 7,352
Petrolera Perez Companc S.A........... 1,225 1,043
Servicios Especiales San Antonio
S.A................................ 769 235
Other................................. 11 42
--------- ---------
9,032 8,672
========= =========
ACCOUNTS PAYABLE:
CURRENT:
Perez Companc S.A..................... 159 305
Servicios Especiales San Antonio
S.A................................ 160 133
Sade Ingeniera y Construcciones
S.A................................ 238 118
--------- ---------
557 556
========= =========
LOANS:
CURRENT:
Perez Companc S.A..................... 7,000 --
========= =========
19
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant transactions made during the year ended June 30, 1995,
include:
NET INTEREST
RELATED COMPANY NET SALES INCOME PURCHASES
- ------------------------------------- --------- ------------- ---------
Perez Companc S.A.................... 43,201 218 578
Petrolera Perez Companc S.A.......... 4,508 -- --
Servicios Especiales San Antonio
S.A................................ 7,881 -- 1,482
Sade Ingeniera y Construcciones
S.A................................ -- -- 1,388
Other................................ 104 44 --
--------- ------ ---------
55,694 262 3,448
========= ====== =========
The significant transactions made during the year ended June 30, 1994,
include:
NET INTEREST
RELATED COMPANY NET SALES (LOSS) INCOME PURCHASES
- ------------------------------------- --------- ------------- ---------
Perez Companc S.A.................... 41,367 313 325
Maipu Inversora S.A.................. -- (173) --
Petrolera Perez Companc S.A.......... 4,505 -- --
Servicios Especiales San Antonio
S.A................................ 1,819 -- 1,649
Sade Ingeniera y Construcciones
S.A................................ -- -- 1,319
Other................................ 14 28 2
--------- ------ ---------
47,705 168 3,295
========= ====== =========
The significant transactions made during the year ended June 30, 1993,
include:
NET INTEREST
RELATED COMPANY NET SALES (LOSS) INCOME PURCHASES
- ------------------------------------- --------- ------------- ---------
Perez Companc S.A.................... 42,636 (73) 610
Petrolera Perez Companc S.A.......... 7,061 -- --
Servicios Especiales San Antonio
S.A................................ 257 -- 2,524
Sade Ingeniera y Construcciones
S.A................................ -- -- 2,421
Other................................ -- 27 795
--------- ------ ---------
49,954 (46) 6,350
========= ====== =========
20
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER FINANCIAL STATEMENT INFORMATION
The following tables present additional financial statement disclosures
required under Argentine GAAP; this information is not a required part of the
basic financial statements under U.S. GAAP:
a) Property and equipment
b) Allowances and reserves
c) Cost of sales
d) Foreign currency assets and liabilities
e) Expenses incurred
A) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
----------------------------------------------
FOR THE YEAR
COST ----------------------------------
------------------------------------------
AT DECREASE AT INCREASE
BEGINNING AND AT END BEGINNING -----------------------
MAIN ACCOUNTS OF YEAR INCREASE TRANSFERS OF YEAR OF YEAR RATE % AMOUNT DECREASE
- ---------------------------------------- --------- -------- -------- -------- --------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real property........................... 5,317 121 (238 ) 5,200 585 10 and 3 181 --
Furniture and facilities................ 2,311 3,898 (2,582 ) 3,627 1,370 20 and 10 343 (3)
Rigs, tools, and equipment.............. 88,446 17,309 (503 ) 105,252 43,534 10, 33 and 50 8,524 (84)
Transportation equipment................ 8,277 1,415 (779 ) 8,913 5,651 10 and 33 1,129 (449)
Base camps and offices.................. 3,784 189 -- 3,973 1,555 10 327 --
Construction projects in
process............................... 1,016 4,217 (2,784 ) 2,449 -- -- -- --
Advances to vendors..................... 18 1,620 (18 ) 1,620 -- -- -- --
--------- -------- -------- -------- --------- ------- --------
Total 1995.......................... 109,169 28,769 (6,904 ) 131,034 52,695 10,504 (536)
========= ======== ======== ======== ========= ======= ========
Total 1994.......................... 95,027 16,147 (2,005 ) 109,169 45,224 8,175 (704)
========= ======== ======== ======== ========= ======= ========
</TABLE>
1994
--------
AT END NET BOOK NET BOOK
MAIN ACCOUNTS OF YEAR VALUE VALUE
- ---------------------------------------- ------- -------- --------
Real property........................... 766 4,434 4,732
Furniture and facilities................ 1,710 1,917 941
Rigs, tools, and equipment.............. 51,974 53,278 44,912
Transportation equipment................ 6,331 2,582 2,626
Base camps and offices.................. 1,882 2,091 2,229
Construction projects in
process............................... -- 2,449 1,016
Advances to vendors..................... -- 1,620 18
------- -------- --------
Total 1995.......................... 62,663 68,371
======= ========
Total 1994.......................... 52,695 56,474
======= ========
21
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B) ALLOWANCES AND RESERVES
<TABLE>
<CAPTION>
DEDUCTED FROM ASSETS INCLUDED IN LIABILITIES
--------------------- -----------------------
OBSOLESCENCE CONTINGENCIES
--------------------- -----------------------
CURRENT NONCURRENT NONCURRENT
------- ---------- -----------------------
<S> <C> <C>
Balance at beginning of year............ 549 -- 1,837
Net increase............................ -- 1,730 481
------- ---------- -------
Balance as of June 30, 1995............. 549 1,730 2,318
======= ========== =======
Balance as of June 30, 1994............. 549 -- 1,837
======= ========== =======
</TABLE>
C) COST OF SALES
1995 1994 1993
---------- ---------- ----------
Parts and supplies -- balances at
beginning of year..................... 19,969 15,654 13,731
Purchases for the year.................. 42,621 32,659 17,724
Cost as per Note 11.e).................. 131,906 105,362 76,907
Consumption included under property and
equipment............................. (15,744) (6,676) (3,392)
Holding gains (losses)(1)............... 30 (514) 71
Parts and supplies -- balances at end of
year.................................. (20,015) (19,969) (15,654)
---------- ---------- ----------
158,767 126,516 89,387
========== ========== ==========
- ------------
(1) Presented in the income statement under "Financial income (expense) and
holding gains (losses)".
22
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D) FOREIGN CURRENCY ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
1994 1995
---------------- -----------------------------------------
BOOK IN
THOUSANDS
OF PESOS
FOREIGN CURRENCY AND EXCHANGE ----------
ACCOUNTS AMOUNT (IN THOUSANDS) RATE(1)
- ------------------------------------- ----------------------------------- --------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash................................. US$ 193 US$ 522 1.00(1) 522
BVS 21,213 BVS 62,390 170(1) 367
Investments.......................... US$ 188 US$ 149 1.00(1) 149
BVS 9,829 BVS 680 170(1) 4
Trade receivables.................... US$ 24,114 US$ 31,063 1.00(1) 31,063
BVS 212,071 BVS 687,650 170(1) 4,045
Other receivables.................... US$ 446 US$ 2,745 1.00(1) 2,745
BVS 175,322 BVS 242,760 170(1) 1,428
----------
40,323
----------
NONCURRENT ASSETS
Investments.......................... US$ 346 US$ 230 1.00(1) 230
Other receivables.................... US$ 223 US$ 271 1.00(1) 271
BVS 87,737 BVS 6,630 170(1) 39
Advances to vendors.................. US$ -- US$ 1,405 1.00(1) 1,405
----------
1,945
----------
42,268
==========
CURRENT LIABILITIES
Accounts payable..................... US$ 1,990 US$ 2,359 1.00(1) 2,359
BVS 340,977 BVS 452,030 170(1) 2,659
Loans................................ US$ 18,113 US$ 12,898 1.00(1) 12,898
BVS 327,302 BVS 965,260 170(1) 5,678
Payroll and social security taxes.... US$ -- US$ 1,327 1.00(1) 1,327
BVS 175,818 BVS 206,040 170(1) 1,212
Taxes payable........................ BVS 92,004 BVS 166,090 170(1) 977
----------
27,110
NONCURRENT LIABILITIES
Loans................................ US$ -- US$ 7,363 1.00(1) 7,363
Other liabilities.................... US$ 2,814 US$ 1,688 1.00(1) 1,688
----------
9,051
----------
36,161
==========
</TABLE>
- ------------
US$ United States dollars.
BVS Bolvares
(1) Buying and selling exchange rates as of June 30, 1995.
23
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E) EXPENSES INCURRED
<TABLE>
<CAPTION>
1995
------------------------------------ 1994 1993
OPERATING COST OF ---------- ---------
DESCRIPTION EXPENSES SERVICES TOTAL TOTAL TOTAL
- ------------------------------------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Payroll.............................. 2,361 34,090 36,451 31,481 25,067
Social security taxes................ 3,031 29,738 32,769 24,729 20,038
Director's compensation.............. 371 -- 371 449 638
Fees and compensation for services... 641 219 860 596 588
Supplies and other services.......... 2,893 46,283 49,176 38,319 22,774
Maintenance and repairs.............. 13 8,723 8,736 4,989 3,514
Taxes, rates and assessments......... 992 170 1,162 960 648
Depreciation of property and
equipment............................ 243 10,261 10,504 8,175 8,694
Insurance............................ 127 881 1,008 933 736
Other operating costs................ 952 907 1,859 1,881 356
Accrual for contingencies............ -- 634 634 725 --
---------- --------- ---------- ---------- ---------
Total for the year ended June 30,
1995................................. 11,624 131,906 143,530
========== ========= ==========
Total for the year ended June 30,
1994................................. 7,875 105,362 113,237
========== ========= ==========
Total for the year ended June 30,
1993................................. 6,146 76,907 83,053
========== ========= =========
</TABLE>
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
FOLLOWED BY QUITRAL-CO AND U.S. GAAP
The accompanying financial statements have been prepared in accordance with
Argentine GAAP which differs in certain respects from U.S. GAAP. The approximate
significant differences on the shareholders' equity and net income as of and for
the years ended June 30, 1995 and 1994, are reflected in the summary provided
below and principally relate to the items discussed in the following paragraphs.
Similar differences would exist for the period ended June 30, 1993, but they
were not quantified as allowed pursuant to SEC rules for foreign businesses
acquired.
As discussed in Note 2, in accordance with Argentine GAAP and current
Argentine legislation, the presentation of parent Company's individual financial
statements is required. Consolidated financial statements need only be included
as supplementary information. For the purposes of this filing, parent financial
statements have been omitted since they are not required for SEC reporting
purposes.
A) RESTATEMENT OF FINANCIAL STATEMENTS FOR GENERAL PRICE-LEVEL CHANGES
As explained in Note 2, Argentine GAAP requires the restatement of all
financial statements to constant Argentine pesos as of the date of the most
recent financial statements presented. This restatement only updates the
financial statements amounts to constant Argentine pesos as of the date of the
most recent financial statements presented and does not change prior period
financial statements in any other way. All nonmonetary assets and income
statement amounts have been restated to reflect changes in the Argentine general
wholesale price index, from the date the assets were acquired or the transaction
took place, to the year-end. The gain (loss) on exposure to inflation included
in income (loss) reflects the effect of Argentine inflation on the monetary
liabilities of Quitral-Co during the year, net of the loss resulting from the
effect of inflation on monetary assets held.
Under U.S. GAAP, account balances and transactions are stated in the units
of currency of the period when the transactions originated. This accounting
model is commonly known as the historical cost basis of accounting.
Shareholders' equity and the net income as of and for the year ended June 30,
1995 and 1994, have been converted into U.S. dollars in accordance with U.S.
GAAP. Argentina had
24
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cumulative inflation of over 100% over a three-year period up to February 1994,
therefore, up to such date amounts were remeasured as if the functional currency
were the U.S. dollar. Thus non-monetary accounts were converted at the exchange
rate when the transaction took place, and since such date, the monetary accounts
were translated at the current exchange rate.
Current exchange rates as of June 30, 1995 and 1994 are approximately Ps 1
= US$1.
Accordingly, the reconciliation to U.S. GAAP of net income and
shareholders' equity shown below reflects as a difference the elimination of the
effect of the general price level restatement and the conversion into U.S.
dollars.
B) INCOME TAXES
As discussed in Note 3.g), under Argentine GAAP income tax expense is
recognized based upon the estimate of the current income taxes payable. When
income and expense recognition for income tax purposes does not occur in the
same period as for financial statements purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.
Under U.S. GAAP, the liability method is used to calculate the income tax
expense. Under this method, deferred taxes are recognized for temporary
differences between the financial and tax basis of assets and liabilities at the
statutory rate. The deferred tax asset generated by the tax loss carryforward of
Quitral-Co de Venezuela has been offset in full by the establishment of a
valuation allowance.
C) VALUATION OF PARTS AND SUPPLIES
As described in Note 3.c), Quitral-Co values its parts and supplies in
stock at replacement cost. Under U.S. GAAP, these inventories should be valued
at the lower of cost or realizable value. As of June 30, 1995 and 1994, there
were no significant differences in the valuation of parts and supplies under
Argentine and U.S. GAAP and thus this effect was not included in the
reconciliation to U.S. GAAP shown below.
D) VACATION ACCRUAL
Under Argentine GAAP, there are no specific requirements governing the
recognition of the accrual for vacations. The acceptable practice in Argentina
is to expense vacations when taken and to accrue only the amount of vacation in
excess of the normal remuneration. Under U.S. GAAP, vacation expense is fully
accrued in the period the employee renders service to earn such vacation.
E) ACCOUNTING FOR POSTRETIREMENT BENEFITS
During May 1991, an employee retirement plan that basically provided for
payments of pension income in addition to statutory retirement was approved.
This additional income is assessed in terms of the payee's age, years of service
to Quitral-Co, and wage upon retirement. Subsequently during 1996, this benefit
was terminated for all Company active workers. The benefit remained in force
only in respect of retired employees.
The plan is financed exclusively by Quitral-Co, which follows the
accounting practice of recording the cost of this benefit as it is paid.
Under Argentine GAAP, there are no strict requirements governing the
recognition of an employer's liability for retirement benefits granted to
employees. Quitral-Co follows the accounting practice of recording the cost of
the benefits under the plan as it is paid. In the U.S., the accounting for these
benefits is governed by Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirements Benefits Other than Pensions" and
the U.S. GAAP reconciliation recognizes the effect of adjusting the recorded
pension cost and liability to retirees to the amounts required under U.S. GAAP.
25
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F) ELIMINATION OF THE INCREASED VALUE OF PROPERTY AND EQUIPMENT
In order to expand and consolidate Quitral-Co's oilfield services business,
in December 1991 Perez Companc S.A. (Quitral-Co's parent company in 1991) made
an in-kind capital contribution of property and equipment at market value. For
the purpose of adapting Quitral-Co's balances to US GAAP, the net book values of
the assets contributed by Perez Companc S.A. have been written down to the cost
recorded in the latter's books, adjusting the related depreciation accordingly.
G) INVESTMENTS DIVIDENDED TO FORMER SHAREHOLDERS
As discussed in Notes 1 and 7 to the consolidated financial statements, at
the General Shareholders' Meeting of April 29, 1996, the shareholders approved
the distribution of all its equity interests in Petroqumica Cuyo S.A.,
Packingplast S.A. and Jojoba S.A. as a dividend distribution in kind at their
book value under Argentine GAAP. Due to this distribution to former
shareholders, and for the purpose of reconciling net income and shareholders'
equity to U.S. GAAP, these investments have been excluded.
H) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO U.S. GAAP
The following is a summary of the approximate significant adjustments to
net income for the years ended June 30, 1995 and 1994, and to shareholders'
equity as of June 30, 1995 and 1994 which would be required if U.S. GAAP had
been applied instead of Argentine GAAP in the accompanying financial statements.
Amounts are stated in thousands, except for per share amounts (see a)
above).
1995 1994
--------------- ----------------
Net income in accordance with
Argentine GAAP..................... Ps. 10,704 Ps. 5,304
Less: income of investments
dividended to former
shareholders....................... (9,679) (419)
--------- ---------
Net income in accordance with
Argentine GAAP excluding income of
investments dividended............. Ps. 1,025 Ps. 4,885
--------- ---------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the
restatement for inflation and
conversion into U.S.
dollars....................... 3,308 (1,228)
Deferred income tax............. US$ 439 US$ (38)
Benefits under employee
retirement plan............... (101) (102)
Effect on depreciation of the
increased value of property
and equipment................. 1,270 1,551
Vacation accrual................ (1,014) (975)
--------- ---------
APPROXIMATE NET INCOME IN ACCORDANCE
WITH U.S. GAAP....................... US$ 4,927 US$ 4,093
---- -----
Approximate net income from
discontinued operations in
accordance with U.S. GAAP.......... (2,607) (633)
Approximate net income from
continuing operations in accordance
with U.S. GAAP..................... 2,320 3,460
========= =========
NET EARNINGS PER SHARE:
Amounts based on accompanying
financial statements.......... Ps. 0.82 Ps. 0.41
Approximate amounts under U.S.
GAAP.......................... US$ 0.38 US$ 0.31
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
Amounts based on accompanying
financial statements.......... Ps. (0.13) Ps. 0.41
Approximate amounts under U.S.
GAAP.......................... US$ 0.18 US$ 0.27
26
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common shares considered for the purpose of calculating income per share
were 13,051,613 shares.
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
<S> <C> <C>
Shareholders' equity in accordance with Argentine GAAP....................... Ps. 121,639 Ps. 115,176
Less: noncurrent investments dividended to the former shareholders.......... (41,246) (30,988)
---------- ----------
Shareholders' equity excluding noncurrent investments dividended............. Ps. 80,393 Ps. 84,188
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the restatement for inflation and translation
<S> <C> <C>
into U.S. dollars..................................................... (6,460) (10,588)
Property and equipment.................................................. US$ (7,101) US$ (8,337)
Deferred income tax..................................................... 353 (86)
Benefits under employee retirement plan................................. (2,518) (2,536)
Vacation accrual........................................................ (2,082) (983)
---------- ----------
APPROXIMATE SHAREHOLDERS' EQUITY IN ACCORDANCE WITH U.S. GAAP................ US$ 62,585 US$ 61,658
========== ==========
</TABLE>
I) OTHER SIGNIFICANT U.S. GAAP DISCLOSURE REQUIREMENTS
1) The following table presents the components of Quitral-Co's deferred
income tax balances as of the end of each year:
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
DEFERRED TAX ASSETS
<S> <C> <C>
Tax loss carryforwards in Quitral-Co de Venezuela................... US$ 2,573 US$ 985
Valuation allowance................................................. (2,573) (985)
Vacation accrual.................................................... 625 295
Benefits under employee retirement plan............................. 714 730
Reserve for contingencies........................................... 186 --
Others, not individually significant................................ 26 --
---------- ----------
US$ 1,551 US$ 1,025
---------- ----------
DEFERRED TAX LIABILITIES
Difference between tax and accounting property and equipment
depreciation...................................................... US$ (900) US$ (997)
Others, not individually significant................................ (298) (114)
---------- ----------
(1,198) (1,111)
---------- ----------
Net deferred tax asset (liability).................................. US$ 353 US$ (86)
========== ==========
</TABLE>
27
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of pre-tax income at the statutory rate, to the income
tax presented in the financial statements for the years ended June 30, 1995,
1994, computed in accordance with U.S. GAAP, is as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
<S> <C> <C>
Approximate pre-tax income in accordance with U.S. GAAP................... US$ 8,183 US$ 6,020
Statutory tax rate........................................................ 30% 30%
--------- ---------
Statutory tax rate applied to pre-tax income.............................. 2,455 1,806
Permanent differences:
Assets tax........................................................... (499) (249)
Book vs. tax basis difference of Quitral-Co's investment in
Quitral-Co de Venezuela............................................ 1,319 333
Others, not individually significant................................. (501) 37
--------- ---------
US$ 2,774 US$ 1,927
========= =========
</TABLE>
2) Disclosures about fair value of financial investments:
U.S. GAAP requires disclosures of the estimated fair value of Quitral-Co's
financial instruments. The carrying amounts of cash, cash equivalents,
marketable securities, current receivables, payables, bank and financial loans
having variable interest rates are considered to approximate their fair market
value.
28
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1995 1994
---------- ----------
CURRENT ASSETS
Cash............................ 2,030 1,196
Investments..................... 134 15,863
Trade receivables............... 32,714 34,924
Other receivables............... 11,080 4,844
Parts and supplies.............. 15,175 12,367
Discontinued operations......... 1,772 2,588
---------- ----------
Total current assets....... 62,905 71,782
---------- ----------
NONCURRENT ASSETS
Other receivables............... 241 543
Parts and supplies.............. 4,842 6,650
Investments..................... 115 242
Property and equipment.......... 76,001 61,143
Discontinued operations......... 31,506 38,386
---------- ----------
Total noncurrent assets.... 112,705 106,964
---------- ----------
Total assets............... 175,610 178,746
========== ==========
CURRENT LIABILITIES
Accounts payable................ 13,207 15,292
Loans........................... 8,376 26,719
Payroll and social security
taxes.......................... 5,555 3,722
Taxes payable................... 5,020 5,418
Other liabilities............... 2,890 576
Discontinued operations......... 28 2,515
---------- ----------
Total current
liabilities.............. 35,076 54,242
---------- ----------
NONCURRENT LIABILITIES
Loans........................... 8,805 3,693
Other liabilities............... 3,519 3,523
Reserves........................ 2,740 1,592
---------- ----------
Total noncurrent
liabilities.............. 15,064 8,808
---------- ----------
Total liabilities.......... 50,140 63,050
---------- ----------
MINORITY INTEREST IN SUBSIDIARIES.... 46 475
SHAREHOLDERS' EQUITY (per
corresponding statement)........... 125,424 115,221
---------- ----------
Total liabilities and
shareholders' equity..... 175,610 178,746
========== ==========
The accompanying notes are an integral part of these financial statements.
29
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1995 1994
---------- ----------
NET SALES............................... 101,240 83,280
COST OF SALES........................... (90,834) (74,806)
---------- ----------
Gross income.......................... 10,406 8,474
OPERATING EXPENSES...................... (5,589) (6,541)
OTHER INCOME (EXPENSES), net............ 3,889 (961)
FINANCIAL INCOME (EXPENSE) AND HOLDING
GAINS
(LOSSES), net......................... 244 (3,209)
---------- ----------
Income (loss) from continuing
operations before income tax and
minority interest.................. 8,950 (2,237)
INCOME TAX.............................. (2,682) (3,906)
---------- ----------
Income (loss) from continuing
operations......................... 6,268 (6,143)
INCOME FROM DISCONTINUED OPERATIONS..... 1,974 8,227
MINORITY INTEREST IN SUBSIDIARIES....... 63 1,746
---------- ----------
Net income for the period............. 8,305 3,830
========== ==========
The accompanying notes are an integral part of these financial statements.
30
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------
STOCK ACCUMULATED EARNINGS
----------------------------------- -------------------------
ADJUSTMENT ADDITIONAL UNAPPROPRIATED 1994
CAPITAL TO CAPITAL PAID IN LEGAL RETAINED --------
STOCK STOCK CAPITAL RESERVE EARNINGS TOTAL TOTAL
------- ---------- ---------- ------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at beginning of year........... 13,052 8,759 35,273 2,085 62,950 122,119 115,753
Appropriations directed by Special
Shareholders' Meeting of September 22,
1995 and October 20, 1994
-- Legal reserve...................... -- -- -- 535 (535) -- --
-- Cash dividends (Ps. 0.38 per
share).............................. -- -- -- -- (5,000) (5,000) (4,362)
Net income for the period............... -- -- -- -- 8,305 8,305 3,830
------- ---------- ---------- ------- ------- -------- --------
Balances as of December 31, 1995........ 13,052 8,759 35,273 2,620 65,720 125,424
======= ========== ========== ======= ======= =========
Balances as of December 31, 1994........ 13,052 8,759 35,273 2,085 56,052 115,221
======= ========== ========== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... 8,305 3,830
Adjustments to reconcile net income
to net cash provided by
operating activities:
Minority share in profits....... (63) (1,746)
Depreciation of property and
equipment...................... 6,572 4,968
Dividends collected............. 8,000 --
Loss on sale of property and
equipment...................... (205) (112)
Increase (decrease) in
allowances..................... 414 (250)
Increase in allowance for
obsolescence of materials and
spares......................... 698 500
Income on financial
investments.................... (5,348) --
Losses from discontinued
operations..................... (1,705) (5,369)
Changes in assets and liabilities:
Trade receivables............... 2,877 (6,347)
Other receivables............... (4,479) (312)
Parts and supplies.............. (5,593) (1,312)
Accounts payable................ 120 6,684
Payroll and social security
taxes.......................... 690 (406)
Taxes payable................... 353 2,347
Other liabilities............... 970 (1,574)
Other........................... (108) --
Discontinued operations......... 132 252
---------- ----------
Cash flows provided by
operating activities..... 11,630 1,153
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related companies...... -- 180
Noncash investments............. 119 (58)
Acquisition of property and
equipment...................... (10,161) (12,936)
Sales of property and
equipment...................... 236 150
Sale of temporary investments... -- 496
Proceeds from sale of
discontinued operations........ (907) 16,219
---------- ----------
Cash flows (used in)
provided by investing
activities............... (10,713) 4,051
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term loans (repaid)
taken.......................... 836 7,627
Long-term loans taken........... 1,364 1,145
Dividends and other payments.... (5,000) (4,362)
---------- ----------
Cash flows (used in)
provided by financing
activities............... (2,800) 4,410
---------- ----------
Net (decrease) increase in cash and
cash equivalents................... (1,883) 9,614
Cash and cash equivalents at
beginning of year.................. 3,927 1,593
---------- ----------
Cash and cash equivalents at end of
period............................. 2,044 11,207
========== ==========
The accompanying notes are an integral part of these financial statements.
32
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in Argentina and the U.S. have been condensed or
omitted, pursuant to such rules and regulations. These unaudited consolidated
financial statements should be read in conjunction with Quitral-Co S.A.I.C.'s
("Quitral-Co") audited consolidated financial statements and notes thereto
included in this registration statement on Form S-3 for the year ended June 30,
1995.
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 Quitral-Co's
financial position, results of operations and cash flows for the interim period
presented. The results of operations for the interim period presented herein are
not necessarily indicative of the results to be expected for full years.
2. EVENTS SUBSEQUENT TO THE PERIOD ENDED DECEMBER 31, 1995:
-- At the General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all of its equity interests
in Petroqumica Cuyo S.A.I.C., Pakingplast S.A., and Jojoba S.A. as a
dividend distribution in kind at their book value. The assets,
liabilities and results related to these investments are presented as
discontinued operations. In addition, at this General Shareholders
Meeting, the shareholders approved distribution of 32,600 in cash
dividends.
-- On April 29, 1996, Pride Petroleum Services, Inc. ("Pride"), a U.S.
based company, extended a non-current loan of 32,600 to Quitral-Co to
increase its working capital. On April 30, 1996, Pride acquired 100% of
Quitral-Co's shares, thus gaining control of Quitral-Co.
-- In April 1996 far-reaching changes were made to Venezuela's economic
policy. The exchange market was freed causing the Bolivar to be
devalued by approximately 80%.
-- In addition, on May 2, 1996, by decision of the shareholders at the
General Shareholders' Meeting held on that date, a new Board of
Directors was elected. The new Management is undertaking an analysis of
Quitral-Co's organizational structure to define and implement short-
term strategies and actions intended to position the business for
future success. This analysis may include several dismissals for
estimated termination costs of approximately 3,000.
3. RESTATEMENT IN CONSTANT MONEY
Technical Resolution No. 6 of the Argentine Federation of Professional
Councils in Economic Sciences (FACPCE) requires financial statements to be
stated in constant pesos as of the respective period-end by applying conversion
factors derived from the general level wholesale price index published by the
National Institute of Statistics and Census.
On August 22, 1995, the Federal Executive Power passed Decree No. 316/95
instructing control agencies not to admit financial statements prepared in
constant pesos. Pursuant to this instruction, the Inspeccion General de Justicia
(governmental regulatory agency for nonpublic companies), required
33
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that application of the method of restatement in constant pesos be discontinued
as of September 1, 1995, while ratifying the restatement reported until such
date. The effects of this new method are:
a) The financial statements as of December 31, 1995, only include the
effect of restatement in constant money for inflation accumulated until
August 31, 1995 at a conversion factor of 1.0.
b) The financial statements as of December 31, 1994, have been
restated for comparative purposes, only until August 31, 1995 at a
conversion factor of 1.04.
On March 29, 1996, the FACPCE approved Resolution No. 140/96 by which an
annual variation up to the 8% in the index established by Technical Resolution
No. 6 authorizes to accept as an alternative method the use of the nominal
currency as unit of measurement for the preparation of the financial statements.
As of December 31, 1995, accumulated inflation from the beginning of the fiscal
year, calculated on the above mentioned index, is 1.1%.
4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY QUITRAL-CO AND U.S. GAAP
The accompanying financial statements have been prepared in accordance with
Argentine GAAP which differs in certain respects from U.S. GAAP. The approximate
significant differences on the shareholders' equity and net income as of and for
the six months ended December 31, 1995, are reflected in the summary provided
below and principally relate to the items discussed in the following paragraphs.
Similar differences would exist for the six months ended December 31, 1994, but
they were not quantified as allowed pursuant to SEC rules for foreign businesses
acquired.
In accordance with Argentine GAAP and current Argentine legislation, the
presentation of parent company's individual financial statements is required.
Consolidated financial statements need only be included as supplementary
information. For the purposes of this filing, parent financial statements have
been omitted since they are not required for SEC reporting purposes.
A) RESTATEMENT OF FINANCIAL STATEMENTS FOR GENERAL PRICE-LEVEL CHANGES
Argentine GAAP requires the restatement of all financial statements to
constant Argentine pesos as of the date of the most recent financial statements
presented. This restatement only updates the financial statements amounts to
constant Argentine pesos as of the date of the most recent financial statements
presented and does not change prior period financial statements in any other
way. All nonmonetary assets and income statement amounts have been restated to
reflect changes in the Argentine general wholesale price index, from the date
the assets were acquired or the transaction took place, to the year-end. The
gain (loss) on exposure to inflation included in income (loss) reflects the
effect of Argentine inflation on the monetary liabilities of Quitral-Co during
the year, net of the loss resulting from the effect of inflation on monetary
assets held until August 31, 1995 (see Note 3).
Under U.S. GAAP, account balances and transactions are stated in the units
of currency of the period when the transactions originated. This accounting
model is commonly known as the historical cost basis of accounting.
Shareholders' equity and the net income as of and for the six months ended
December 31, 1995, have been converted into U.S. dollars in accordance with U.S.
GAAP. Argentina had cumulative inflation of over 100% over a three-year period
up to February 1994, therefore, up to such date amounts were remeasured as if
the functional currency were the U.S. dollar. Thus non-monetary accounts were
converted at the exchange rate when the transaction took place, and since such
date, the monetary accounts were translated at the current exchange rate.
Current exchange rates as of December 31, 1995 are approximately Ps 1 =
US$1.
34
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, the reconciliation to U.S. GAAP of net income and
shareholders' equity shown below reflects as a difference the elimination of the
effect of the general price level restatement and the conversion into U.S.
dollars.
B) INCOME TAXES
Under Argentine GAAP income tax expense is recognized based upon the
estimate of the current income taxes payable. When income and expense
recognition for income tax purposes does not occur in the same period as for
financial statements purposes, the resulting temporary differences are not
considered in the computation of income tax expense for the year.
Under U.S. GAAP, the liability method is used to calculate the income tax
expense. Under this method, deferred taxes are recognized for temporary
differences between the financial and tax basis of assets and liabilities at the
statutory rate. The deferred tax asset generated by the tax loss carryforward of
Quitral-Co de Venezuela has been offset in full by the establishment of a
valuation allowance.
C) VALUATION OF PARTS AND SUPPLIES
Quitral-Co values its parts and supplies in stock at replacement cost.
Under U.S. GAAP, these inventories should be valued at the lower of cost or
realizable value. As of December 31, 1995, there were no significant differences
in the valuation of parts and supplies under Argentine and U.S. GAAP, and thus
this effect was not included in the reconciliation to U.S. GAAP shown below.
D) VACATION ACCRUAL
Under Argentine GAAP, there are no specific requirements governing the
recognition of the accrual for vacations. The acceptable practice in Argentina
is to expense vacations when taken and to accrue only the amount of vacation in
excess of the normal remuneration. Under U.S. GAAP, vacation expense is fully
accrued in the period the employee renders service to earn such vacation.
E) ACCOUNTING FOR POSTRETIREMENT BENEFITS
During May 1991, an employee retirement plan that basically provided for
payments of pension income in addition to statutory retirement was approved.
This additional income is assessed in terms of the payee's age, years of service
to Quitral-Co, and wage upon retirement. Subsequently during 1996, this benefit
was terminated for all Company active workers. The benefit remained in force
only in respect of retired employees.
The plan is financed exclusively by Quitral-Co, which follows the
accounting practice of recording the cost of this benefit as it is paid.
Under Argentine GAAP, there are no strict requirements governing the
recognition of an employer's liability for retirement benefits granted to
employees. Quitral-Co follows the accounting practice of recording the cost of
the benefits under the plan as it is paid. In the U.S., the accounting for these
benefits is governed by Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirements Benefits Other Than Pensions", and
the U.S. GAAP reconciliation recognizes the effect of adjusting the recorded
pension cost and liability to retirees to the amounts required under U.S. GAAP.
F) ELIMINATION OF THE INCREASED VALUE OF PROPERTY AND EQUIPMENT
In order to expand and consolidate Quitral-Co's oilfield services business,
in December 1991, Perez Companc S.A. (Quitral-Co's parent company in 1991) made
an in-kind capital contribution of property and equipment at market value. For
the purpose of adapting Quitral-Co's balances to U.S.
35
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GAAP, the net book values of the assets contributed by Perez Companc S.A. have
been written down to the cost recorded in the latter's books, adjusting the
related depreciation accordingly.
G) INVESTMENTS DIVIDENDED TO FORMER SHAREHOLDERS
As discussed in Notes 1 and 7 to the annual consolidated financial
statements, at the General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all its equity interests in
Petroqumica Cuyo S.A., Packingplast S.A. and Jojoba S.A. as a dividend
distribution in kind at their book value under Argentine GAAP. Due to this
distribution to former shareholders, and for the purpose of reconciling net
income and shareholders' equity to U.S. GAAP, these investments have been
excluded.
(H) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO U.S. GAAP
The following is a summary of the approximate significant adjustments to
net income for the six months ended December 31, 1995, and to shareholders'
equity as of December 31, 1995, which would be required if U.S. GAAP had been
applied instead of Argentine GAAP in the accompanying financial statements.
Amounts are stated in thousands, except for per share amounts (see a)
above).
1995
---------------
Net income in accordance with Argentine
GAAP.................................... Ps. 8,305
Less: income of investments dividended
to former shareholders................ 725
---------
Net income in accordance with Argentine
GAAP excluding income of investments
dividended............................ Ps. 9,030
---------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the restatement for inflation and conversion into U.S.
dollars................................. 1,852
Deferred income tax..................... US$ (62)
Benefits under employee retirement
plan.................................. (51)
Effect on depreciation of the increased
value of property and equipment....... 657
Vacation accrual........................ (768)
---------
APPROXIMATE NET INCOME IN ACCORDANCE
WITH U.S. GAAP........................ US$ 10,658
Approximate net income from discontinued
operations in accordance with U.S.
GAAP.................................. (2,100)
---------
Approximate net income from continuing
operations in accordance with U.S.
GAAP.................................. 8,558
=========
NET EARNINGS PER SHARE:
Amounts based on accompanying financial
statements............................ Ps. 0.64
Approximate amounts under U.S. GAAP..... US$ 0.82
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
Amounts based on accompanying financial
statements............................ Ps. 0.48
Approximate amounts under U.S. GAAP..... US$ 0.66
Common shares considered for the purpose of calculating income per share
were 13,051,613 shares.
36
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995
-----------------
Shareholders' equity in accordance with
Argentine GAAP........................ Ps. 125,424
Less: noncurrent investments dividended
to the former shareholders............ (32,893)
----------
Shareholders' equity excluding
noncurrent investments dividended..... Ps. 92,531
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the
restatement for inflation and
translation into U.S. dollars..... (4,876)
Property and equipment............. US$ (6,342)
Deferred income tax................ 291
Benefits under employee retirement
plan.............................. (2,511)
Vacation accrual................... (2,850)
----------
APPROXIMATE SHAREHOLDERS' EQUITY IN
ACCORDANCE WITH U.S. GAAP............. US$ 76,243(1)
==========
- ------------
(1) Includes US$8,000 in cash dividends, collected during the period from
investments dividended to former shareholders.
I) OTHER SIGNIFICANT U.S. GAAP DISCLOSURE REQUIREMENTS
1) The following table presents the components of Quitral-Co's deferred
income tax balances as of the end of the period:
1995
----------------
DEFERRED TAX ASSETS
Tax loss carryforwards in
Quitral-Co de Venezuela........... US$ 998
Valuation allowance................ (998)
Vacation accrual................... 855
Benefits under employee retirement
plan.............................. 738
---------
1,593
---------
DEFERRED TAX LIABILITIES
Difference between tax and
accounting property and equipment
depreciation...................... (1,302)
---------
Net deferred tax asset............. US$ 291
=========
The reconciliation of pre-tax income at the statutory rate, to the income
tax presented in the financial statements for the six months ended December 31,
1995, computed in accordance with US GAAP, is as follows:
1995
----------------
Approximate pre-tax income in
accordance with US GAAP........... US$ 13,917
Statutory tax rate................. 30%
---------
Statutory tax rate applied to
pre-tax income.................... 4,175
Permanent differences:
Book vs. tax basis difference of
Quitral-Co's investment in
Quitral-Co de Venezuela........... US$ (2,863)
Non deductible depreciation........ 997
Other, not individually
significant....................... 311
---------
US$ 2,620
=========
2) Disclosures about fair value of financial investments:
U.S. GAAP requires disclosures of the estimated fair value of Quitral-Co's
financial instruments. The carrying amounts of cash, cash equivalents,
marketable securities, current receivables, payables, bank and financial loans
having variable interest rates are considered to approximate their fair market
value.
37
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma balance sheet as of March 31, 1996 and the
unaudited pro forma statements of operations for the three months ended March
31, 1996 and the year ended December 31, 1995 give effect to the acquisition of
Quitral-Co by the Company and the related financing transactions, as described
in Note 1 to the Unaudited Pro Forma Financial Statements.
The historical balance sheet and results of operations for the Company have
been derived from the Company's consolidated financial statements included
elsewhere in this Prospectus. The historical balance sheet and results of
operations for Quitral-Co have been derived from Quitral-Co's consolidated
financial statements. The unaudited pro forma balance sheet has been prepared
assuming that the acquisition of Quitral-Co by the Company and the related
financing transactions were consummated as of March 31, 1996. The unaudited pro
forma statements of operations have been prepared assuming the acquisition of
Quitral-Co by the Company and the related financing transactions were
consummated as of January 1, 1995.
The unaudited pro forma financial statements and the pro forma adjustments
have been prepared on the basis of U.S. generally accepted accounting principles
and are based upon available information and certain assumptions and estimates
described in the notes to the unaudited pro forma financial statements that
management of the Company believes are reasonable. The pro forma financial
statements do not purport to represent what the Company's financial position or
results of operations actually would have been had the acquisition of Quitral-Co
and the related financing transactions in fact occurred on the dates indicated
or to project the Company's financial position or results of operations for any
future date or period. Furthermore, the unaudited pro forma financial statements
do not reflect changes which may occur as the result of post-combination
activities and other matters.
The unaudited pro forma financial statements and the notes thereto should
be read in conjunction with the historical financial statements of the Company,
including the notes thereto and the historical financial statements of
Quitral-Co, including the notes thereto, all of which are included elsewhere in
this Prospectus.
38
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PRIDE QUITRAL-CO ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....... $ 74,659 $ 1,581 $ 40,000 (A) $ 6,240
(110,000 )(B)
Short-term investments.......... 52 5,960 6,012
Trade receivables, net.......... 43,946 33,257 77,203
Parts and supplies.............. 10,545 14,621 (4,500 )(B) 20,666
Deferred income taxes........... 1,569 1,372 2,941
Other current assets............ 10,196 8,173 18,369
----------- ----------- ---------
Total current assets....... 140,967 64,964 131,431
----------- ----------- ---------
PROPERTY AND EQUIPMENT, NET.......... 188,265 66,965 96,098 (B) 351,328
GOODWILL AND OTHER INTANGIBLES,
NET................................ 3,509 -- 3,509
OTHER ASSETS......................... 7,827 4,441 12,268
----------- ----------- ---------
$ 340,568 $ 136,370 $ 498,536
=========== =========== =========
CURRENT LIABILITIES
Accounts payable................ $ 21,759 $ 15,166 $ 36,925
Accrued expenses................ 14,774 14,946 $ 5,500 (B) 35,220
Current portion of long-term
debt.......................... 11,858 11,338 6,300 (A) 41,496
12,000 (B)
----------- ----------- ---------
Total current
liabilities.............. 48,391 41,450 113,641
----------- ----------- ---------
OTHER LONG-TERM LIABILITIES.......... 4,199 9,454 13,653
LONG-TERM DEBT, NET OF CURRENT
PORTION............................ 52,712 4,846 33,700 (A) 109,258
18,000 (B)
CONVERTIBLE SUBORDINATED
DEBENTURES........................... 80,500 -- 80,500
DEFERRED INCOME TAXES................ 19,621 1,218 25,500 (B) 46,339
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock.................... 1 36,747 (36,747 )(B) 1
Paid-in capital................. 96,877 24,953 (24,953 )(B) 96,877
Treasury stock, at cost......... (191) -- (191)
Retained earnings............... 38,458 17,702 (17,702 )(B) 38,458
----------- ----------- ---------
Total shareholders'
equity................... 135,145 79,402 135,145
----------- ----------- ---------
$ 340,568 $ 136,370 $ 498,536
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
39
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
PRIDE QUITRAL-CO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C>
REVENUES............................. $ 66,235 $ 47,410 $ 113,645
---------- ---------- ----------
COSTS AND EXPENSES
Operating costs................. 47,946 37,001 84,947
Depreciation and amortization... 4,774 2,847 $ 400(C) 8,021
General and administrative...... 8,157 2,871 (500)(D) 10,528
---------- ---------- ----------
Total costs and expenses... 60,877 42,719 103,496
---------- ---------- ----------
EARNINGS FROM OPERATIONS............. 5,358 4,691 10,149
OTHER INCOME (EXPENSE)
Other income (expense).......... 227 (389) (162 )
Interest income................. 774 242 1,016
Interest expense................ (2,554) (294) (375)(E) (4,661 )
(1,438)(F)
---------- ---------- ----------
Total other expense, net... (1,553) (441) (3,807 )
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 3,805 4,250 6,342
INCOME TAX PROVISION................. 1,025 1,091 (589)(G) 1,527
---------- ---------- ----------
NET EARNINGS $ 2,780 $ 3,159 $ 4,815
========== ========== ==========
NET EARNINGS PER SHARE
Primary......................... $ 0.11 $ 0.18
========== ==========
Fully Diluted................... $ 0.11 $ 0.17
========== ==========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS OUTSTANDING
Primary......................... 26,094 26,094
========== ==========
Fully Diluted................... 31,051 1,871(I) 32,922
========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
40
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PRIDE QUITRAL-CO ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------
<S> <C> <C> <C>
REVENUES................................ $ 263,599 $ 194,564 $ 458,163
----------- ---------- ---------
COSTS AND EXPENSES
Operating costs.................... 188,252 157,985 346,237
Depreciation and amortization...... 16,657 9,807 $ 1,600(C) 28,064
General and administrative......... 32,418 8,645 (2,000)(D) 39,063
----------- ---------- ---------
Total costs and expenses...... 237,327 176,437 413,364
----------- ---------- ---------
EARNINGS FROM OPERATIONS................ 26,272 18,127 44,799
OTHER INCOME (EXPENSE)
Other income (expense)............. 1,687 (23) 1,664
Interest income.................... 740 502 1,242
Interest expense................... (6,276) (5,945) (4,450)(E) (22,421)
(5,750)(F)
----------- ---------- ----------- ---------
Total other expense, net...... (3,849) (5,466) (19,515)
----------- ---------- ---------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE
INCOME TAXES.......................... 22,423 12,661 25,284
INCOME TAX PROVISION.................... 7,064 3,867 (3,425)(G) 7,506
----------- ---------- ---------
EARNINGS FROM CONTINUING OPERATIONS..... 15,359 8,794 17,778
EARNINGS FROM DISCONTINUED OPERATIONS... -- 2,100 (2,100)(H) --
----------- ---------- ---------
NET EARNINGS............................ $ 15,359 $ 10,894 $ 17,778
=========== ========== =========
NET EARNINGS PER SHARE
Primary............................ $ 0.60 $ 0.70
=========== =========
Fully Diluted...................... $ 0.60 $ 0.65
=========== =========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS OUTSTANDING
Primary............................ 25,465 25,465
=========== =========
Fully Diluted...................... 25,840 6,571(I) 32,411
=========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.
41
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
In April 1996, the Company acquired all of the outstanding capital stock of
Quitral-Co from Perez Companc S.A., Astra C.A.P.S.A. and other shareholders for
aggregate consideration of $140,000,000, consisting of $110,000,000 in cash and
a note payable to the sellers for $30,000,000. The note payable bears interest
at a variable rate of LIBOR plus 2% payable quarterly. Payments of principal are
expected to be made in 30 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-based rig
fleet and ancillary equipment, bear interest at a variable rate of prime plus
1/2% and are repayable in monthly installments of principal and interest over a
five to six year period.
In January 1996, the Company completed the public sale of $80,500,000
principal amount of 6 1/4% 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 various capital projects,
including the acquisition of Quitral-Co.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma balance sheet has been prepared
assuming the
acquisition of Quitral-Co by the Company and the related financing transactions
were consummated as of March 31, 1996. The unaudited pro forma statements of
operations have been prepared assuming the acquisition of Quitral-Co by the
Company and the related financing transactions were consummated as of January 1,
1995.
Net earnings per share have been computed based on the weighted average
number of common shares and common share equivalents outstanding during the
applicable period, assuming that the sale by the Company of its 6 1/4%
Convertible Subordinated Debentures due 2006 was completed on January 1, 1995.
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.
3. PRO FORMA ADJUSTMENTS
The unaudited pro forma financial statements reflect the following pro
forma adjustments related to the acquisition of Quitral-Co by the Company and
the related financing transactions:
(A) Receipt of aggregate net proceeds of $40,000,000 from two new
financing arrangements.
(B) Acquisition of Quitral-Co by the Company for $110,000,000 cash and a
note payable to the sellers for $30,000,000. Adjustments to reflect the
acquisition include elimination of the equity accounts of Quitral-Co and
allocation of the purchase price to property and equipment, based on the fair
market value of such property and equipment. Also, as part of the acquisition,
the Company estimates that it will make the following accruals: (i) $25,500,000
of deferred income taxes; (ii) $4,500,000 to adjust the recorded amount of parts
and supplies to estimated realizable value based upon the Company's maintenance
and stocking practices; (iii) $4,000,000 for dismissal benefits due to
Quitral-Co employees to be terminated; and (iv) $1,500,000 for other
transaction-related expenses.
(C) Estimated increase in depreciation and amortization expense resulting
from allocation of the purchase cost to the assets acquired and application of
the Company's depreciation policies to such assets.
(D) Estimated reduction in general and administrative expenses resulting
from combination of duplicate administrative functions, reduction in personnel
and other administrative efficiencies.
42
(E) Estimated increase in interest expense due to issuance and sale of
$80,500,000 principal amount of 6 1/4% Convertible Subordinated Debentures, less
estimated decrease in interest expense on $10,000,000 of debt retired with a
portion of the net proceeds from such debentures.
(F) Estimated increase in interest expense resulting from $40,000,000 of
net borrowings pursuant to two new financing arrangements entered into in
connection with the acquisition of Quitral-Co by the Company and addition of a
$30,000,000 note payable to the sellers.
(G) Estimated income tax effects of the pro forma adjustments included
herein, based on an estimated combined effective U.S. federal and state income
tax rate of 36% and an estimated effective Argentine income tax rate of 30%.
(H) Elimination of earnings from discontinued operations of Quitral-Co
which were not acquired by the Company.
(I) Estimated increase in weighted average common shares and equivalents
outstanding for fully diluted earnings per share calculation purposes, due to
issuance and sale of $80,500,000 principal amount of the Company's 6 1/4%
Convertible Subordinated Debentures, which are convertible at a price of $12.25
per share.
43
(c) Exhibits.
The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
2 Stock Purchase Agreement, dated April 30, 1996, between
Pride Petroleum Services, Inc. and Perez Companc S.A.,
Astra C.A.P.S.A., et al.*
23.1 Consent of Pistrelli, Diaz y Asociados.
------------
* Previously Filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRIDE PETROLEUM SERVICES, INC.
By: /s/ PAUL A. BRAGG
Paul A. Bragg
Vice President and Chief
Financial Officer
EXHIBIT 23.1
LETTER OF CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated balance sheets of Quitral-Co S.A.I.C. and its
subsidiary as of June 30, 1995 and 1994, and the related consolidated statements
of income, changes in shareholders' equity and cash flows for the years ended
June 30, 1995, 1994 and 1993, included herein and to all references to our firm
included in or made a part of this Current Report on Form 8-K/A by Pride
Petroleum Services, Inc.
PISTRELLI, DIAZ Y ASOCIADOS
ENRIQUE C. GROTZ
Partner
Buenos Aires, Argentina
June 3, 1996
