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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): MARCH 10, 1997
PRIDE PETROLEUM SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 0-16963 76-0069030
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
1500 CITY WEST BLVD., SUITE 400
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713/789-1400
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 10, 1997, Pride Petroleum Services, Inc. (the "Company")
acquired the capital stock of the operating subsidiaries of Forasol-Foramer N.V.
("Forasol-Foramer") for aggregate consideration of approximately $113.2
million in cash and 11.1 million shares of the Company's common stock, which was
negotiated at arms' length. The sellers had no material relationship with the
buyer. Pursuant to the Purchase Agreement (the "Purchase Agreement") dated as
of December 16, 1996 by and among the Company, Forasol-Foramer and certain
controlling shareholders of Forasol-Foramer, the shareholders of Forasol-Foramer
received 0.66 shares of the Company's common stock and $6.80 in cash for each
Forasol-Foramer common share held by them. Of the cash portion of the purchase
price, $87.5 million was funded out of working capital, including the net
proceeds from the sale of the Company's domestic well servicing operations in
February 1997, and $25.7 million was funded out of borrowings under a Credit
Agreement dated as of March 6, 1997 among the Company, each of the banks that
are or may be a party thereto, First National Bank of Commerce, as arranger and
syndication agent, and Wells Fargo Bank (Texas), National Association, as
administrative and documentation agent. Borrowings under the Credit Agreement
mature in March 2002 and bear interest at a variable rate, currently 7.44%,
based on either the prime rate or LIBOR.
Forasol-Foramer's operating subsidiaries provide onshore and offshore
drilling, workover and related services in more than 15 countries, operating a
diverse fleet of two semisubmersible rigs, three jackup rigs, seven
tender-assisted rigs, four barge rigs and 29 land-based rigs. The Company
intends to continue to conduct the business of the operating subsidiaries of
Forasol-Foramer in the manner previously conducted.
References to the Purchase Agreement set forth herein do not purport to be
complete and are qualified in their entirety by the provisions of the Purchase
Agreement, which is incorporated herein by reference to the exhibit referred to
below under Item 7(c).
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
Forasol-Foramer N.V.
Annual Financial Statements
Report of Independent
Auditors (Ernst & Young
Audit)..................... 3
Report of Independent
Accountants (Price
Waterhouse)................ 4
Consolidated Balance Sheets
as of December 31, 1996 and
1995....................... 5
Consolidated Statements of
Operations for the Years
Ended December 31, 1996,
1995 and 1994........... 6
Consolidated Statements of
Cash Flows for the Years
Ended December 31, 1996,
1995 and 1994........... 7
Consolidated Statements of
Stockholders' Equity for
the Years Ended December
31, 1996, 1995 and 1994.... 8
Notes to the Consolidated
Financial Statements....... 9
Quitral-Co S.A.I.C. and Subsidiary
Annual Financial Statements
Report of Independent
Public Accountants......... 28
Consolidated Balance Sheets
as of June 30, 1995 and
1994....................... 29
Consolidated Statements of
Income for the Years Ended
June 30, 1995, 1994 and
1993....................... 30
Consolidated Statements of
Changes in Shareholders'
Equity for the Years Ended
June 30, 1995, 1994 and
1993....................... 31
Consolidated Statements of
Cash Flows for the Years
Ended June 30, 1995,
1994 and 1993........... 32
Notes to Consolidated
Financial Statements....... 33
Interim Financial Statements
(unaudited)
Consolidated Balance Sheets
as of March 31, 1996 and
1995....................... 55
Consolidated Statements of
Income for the Nine Months
Ended March 31, 1996 and
1995....................... 56
Consolidated Statements of
Changes in Shareholders'
Equity for the Nine Months
Ended March 31, 1996 and
1995....................... 57
Consolidated Statements of
Cash Flows for the Nine
Months Ended March 31, 1996
and 1995................... 58
Notes to the Unaudited
Interim Consolidated
Financial Statements....... 59
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Financial
Statements..................... 65
Unaudited Pro Forma Balance
Sheet as of December 31,
1996........................... 66
Unaudited Pro Forma Statement of
Operations for the Year Ended
December 31, 1996.............. 67
Notes to Unaudited Pro Forma
Financial Statements........... 68
(c) EXHIBITS
2.1 -- Purchase Agreement, dated as of December 16, 1996,
by and among Pride Petroleum Services,
Inc., Forasol-Foramer N.V. and certain shareholders
of Forasol- Foramer N.V. (incorporated
by reference to Appendix A of the Company's Proxy
Statement/Prospectus dated January 31,
1997 (File No. 0-16963)).
23.1 -- Consent of Ernst & Young Audit
23.2 -- Consent of Price Waterhouse
23.3 -- Consent of Pistrelli, Diaz y Associados
2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Forasol-Foramer N.V.
We have audited the accompanying consolidated balance sheet of Forasol-Foramer
N.V. as of December 31, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Forasol-Foramer N.V. for the years ended
December 31, 1995 and 1994 were audited by other auditors whose report dated May
8, 1996 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
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 statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Forasol-Foramer N.V. at December 31, 1996, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
Paris, March 24, 1997
Ernst & Young Audit
/s/ Francois Villard
Represented by
Francois Villard
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Forasol-Foramer N.V.
We have audited the accompanying consolidated balance sheet of
Forasol-Foramer N.V. and subsidiaries (the "Company") as of December 31, 1995,
and the related consolidated statements of income, of cash flows and of changes
in stockholders' equity for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
National Drilling and Services Corp. LLC ("NDSC"), an investment which is
reflected in the accompanying financial statements using the equity method of
accounting (see Note 4). The investment in NDSC represents 1.2% of consolidated
assets at December 31, 1995. The equity in its net income represents 6% and 20%
of the consolidated net income (loss) for the periods ended December 31, 1995
and 1994, respectively. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for NDSC, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. 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,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Forasol-Foramer N.V., as of
December 31, 1995, and the results of operations and their cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
accounting principles generally accepted in the United States.
Paris, France
May 8, 1996
Price Waterhouse
4
<PAGE>
FORASOL-FORAMER N.V.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
DECEMBER 31,
----------------------
NOTES 1996 1995
----- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 16,646 $ 17,335
Trade accounts receivable, net of
allowance for doubtful accounts of
$2,032 and $1,453 at December 31,
1996 and 1995, respectively........ 51,799 40,100
Prepaid expenses and other current
assets............................. 12,487 21,022
Deferred income taxes................ 10 1,221 2,467
---------- ----------
Total current
assets................. 82,153 80,924
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Investments in and advances to equity
affiliates......................... 4 9,406 9,480
Other long-term investments and
receivables........................ 5 5,271 6,518
Deferred income taxes................ 10 7,346 5,761
---------- ----------
Total investments and
other assets...... 22,023 21,759
---------- ----------
PLANT AND EQUIPMENT, NET............. 6 237,148 230,372
---------- ----------
Total assets.......... $ 341,324 $ 333,055
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable............... $ 26,954 $ 32,397
Short-term borrowings................ 8 14,335 20,840
Current portion of long-term debt.... 9 11,773 18,202
Current portion of long-term lease
obligations........................ 7 4,850 8,138
Deferred income taxes................ 10 -- 647
Other current liabilities............ 11 33,069 26,919
---------- ----------
Total current
liabilities....... 90,981 107,143
---------- ----------
LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt....................... 9 22,115 40,258
Long-term lease obligations.......... 7 30,663 44,538
Deferred income...................... 1,866 204
Provision for major repairs.......... 4,562 3,565
Deferred income taxes................ 10 3,014 4,852
Other long-term liabilities.......... 3,679 6,184
---------- ----------
Total long-term debt
and other
liabilities....... 65,899 99,601
---------- ----------
Commitments and Contingencies........ 17
MINORITY INTEREST.................... 2,368 3,306
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, par value NLG .01,
50,000,000 shares authorized;
16,650,290 and 10,010,000 shares
outstanding at December 31, 1996
and 1995, respectively............. 94 55
Additional paid-in capital........... 140,688 70,685
Retained earning..................... 41,435 52,415
Foreign currency translation
adjustment......................... (141) (150)
---------- ----------
Total stockholders'
equity............ 182,076 123,005
---------- ----------
Total liabilities and
stockholders'
equity............ $ 341,324 $ 333,055
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
FORASOL-FORAMER N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
NET OPERATING REVENUES............... $ 199,261 $ 171,335 $ 148,348
Equity in net income of affiliates... 210 165 (44)
------------ ------------ ------------
TOTAL REVENUES....................... 199,471 171,500 148,304
Cost of operations................... (161,897) (127,491) (104,398)
Depreciation and amortization........ (23,945) (20,264) (20,292)
Selling, general and administrative
expenses........................... (18,490) (17,660) (16,216)
------------ ------------ ------------
OPERATING INCOME (LOSS).............. (4,861) 6,085 7,398
Gain on disposals of equipment....... 2,348 57 673
Interest and other financial
income............................. 2,310 555 1,111
Interest and other financial
expense............................ (10,048) (9,338) (8,416)
Net foreign exchange gain (loss)..... (416) (166) 3,690
Other income (expense), net.......... (784) 491 (404)
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES.......... (11,451) (2,316) 4,052
Minority interest.................... 825 (1,288) (536)
Income taxes......................... (354) (409) (2,580)
------------ ------------ ------------
NET INCOME (LOSS).................... $ (10,980) $ (4,013) $ 936
============ ============ ============
NET INCOME (LOSS) PER SHARE.......... $ (0.77) $ (0.40) $ 0.10
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING........................ 14,201 10,010 9,466
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
FORASOL-FORAMER N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (10,980) $ (4,013) $ 936
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.................... 23,945 20,264 20,292
Provision for major repairs..... 997 40 9
Gain on disposals of plant and
equipment..................... (2,348) (57) (673)
Undistributed earnings in
affiliates.................... 68 42 127
Deferred income taxes........... (2,825) (1,928) (862)
Minority interest in
undistributed earnings of
subsidiaries.................. (843) 1,437 550
Other, net...................... (1,185) 2,567 661
Increase (decrease) from changes
in:
Trade accounts receivable..... (13,099) (7,528) 7,660
Prepaid expenses and other
current assets............. 8,316 7,042 1,602
Trade accounts and notes
payable.................... (5,488) 5,925 (2,028)
Other current liabilities..... 6,104 (11,312) 2,942
Deferred income............... 1,662 (6,611) (2,700)
Other long-term liabilities... (2,504) (650) 1,191
---------- ---------- ----------
Net cash provided by
operating activities.... 1,820 5,218 29,707
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment... (37,139) (30,083) (20,703)
Proceeds from sales of plant and
equipment....................... 11,061 2,962 7,347
Net advances made to affiliates.... -- 301 (520)
Acquisitions of other long-term
investments and additions to
long-term receivables........... (425) (127) (1,135)
Disposals of other long-term
investments and collections of
long-term receivables........... 1,455 777 245
Consideration for HAPSA
acquisition, net of cash
acquired........................ -- (1,116) --
---------- ---------- ----------
Net cash used in investing
activities.............. (25,048) (27,286) (14,766)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net......... (6,507) 8,683 (5,839)
Repayment of long-term debt and
lease obligations............... (47,997) (18,505) (23,049)
Proceeds from long-term debt....... 6,450 25,864 6,635
Issuance of common stock........... 70,042 3,700 --
---------- ---------- ----------
Net cash provided (used) in
financing activities.... 21,988 19,742 (22,253)
---------- ---------- ----------
EFFECTS OF EXCHANGE RATE CHANGES ON
CASH............................... 551 171 148
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (689) (2,155) (7,164)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 17,335 19,490 26,654
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 16,646 $ 17,335 $ 19,490
========== ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid...................... $ 10,726 $ 10,120 $ 7,274
========== ========== ==========
Income tax paid.................... $ 1,975 $ 1,097 $ 1,232
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
FORASOL-FORAMER N.V.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL FOREIGN TOTAL
SHARES COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
ISSUED STOCK CAPITAL EARNINGS TRANSLATION EQUITY
---------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994...................... 9,461,681 $ 52 $ 65,614 $ 55,492 $ (627) $ 120,531
Exercise of stock options............ 548,319 3 5,071 5,074
Net income........................... 936 936
Translation adjustment............... 339 339
---------- ------ ---------- -------- ----------- -------------
December 31, 1994.................... 10,010,000 $ 55 $ 70,685 $ 56,428 $ (288) $ 126,880
Net loss............................. (4,013) (4,013)
Translation adjustment............... 138 138
---------- ------ ---------- -------- ----------- -------------
December 31, 1995.................... 10,010,000 $ 55 $ 70,685 $ 52,415 $ (150) $ 123,005
Issuance of common stock............. 6,640,290 39 70,003 70,042
Net loss............................. (10,980) (10,980)
Translation adjustment............... 9 9
---------- ------ ---------- -------- ----------- -------------
December 31, 1996.................... 16,650,290 $ 94 $ 140,688 $ 41,435 $ (141) $ 182,076
========== ====== ========== ======== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. PRINCIPLES OF CONSOLIDATION
In the period until April 3, 1996, Forasol S.A. and its subsidiaries
("Forasol") and Forinter Ltd. and its subsidiaries ("Forinter") were
beneficially owned equally by Soletanche S.A., a French company
("Soletanche"), and Ackermans & van Haaren, N.V., a Belgian company
("Ackermans"). On September 21, 1995, the two shareholders established
Forasol-Foramer N.V. (the "Company"), a Dutch holding company. On April 3,
1996, the two shareholders exchanged their respective shares in Forasol and
Forinter for an equivalent interest in the Company. For purposes of financial
statement presentation, Forasol and Forinter have been retroactively
consolidated at December 31, 1995 and 1994 and for the period from January 1,
1996 until April 3, 1996 within the financial statements of the Company.
The Company's subsidiaries are primarily engaged in international oil and
gas contract drilling and workover operations for major and independent oil and
gas companies, as well as providing well engineering, integrated drilling
services, turnkey wells and project management to customers on a worldwide
basis.
The financial statements of the Company include the accounts of Forasol,
Forinter and all of their wholly owned and majority owned subsidiaries. The
financial statements have been presented in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP").
Investments in which the Company's ownership interest ranges from 20% to 50% and
where the Company exercises significant influence over operating and financial
policies are accounted for using the equity method. Less than 20% owned
companies are accounted for at cost. Investments in non-corporate joint ventures
in which the Company owns an undivided interest are accounted for by the
proportionate line-by-line consolidation method. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications have
been made to prior year amounts to conform with the current year presentation.
2. ACQUISITIONS
On January 1, 1995, the Company acquired a 36.5% interest in Hispano
Americana de Petroleos ("HAPSA"), an Argentina contract drilling company, for
$1.02 million in cash. Subsequently, on May 1, 1995, the Company acquired an
additional 58.5% of HAPSA's shares in exchange for consideration of $1.3 million
in cash and notes payable and the contribution of the Company's 21% interest in
two Spanish equity investees, Sondeos Petroliferos SA and Bellegarde Investments
SA. This acquisition was recorded using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets purchased and
the liabilities assumed based upon the fair values at the date of acquisition.
The excess of the purchase price over the fair values of the net assets acquired
resulted in $1.09 million of goodwill which was being amortized in 1995 on a
straight-line basis over five years. In 1996, the fair value of unamortized
goodwill was reevaluated and consequently the carrying value was written off to
the income statement.
The net purchase price was allocated as follows (in thousands):
Working capital, other than cash..... $ (6,958)
Plant and equipment.................. 9,219
Other assets......................... 746
Goodwill............................. 1,091
Other liabilities.................... (213)
---------
Purchase price, net of cash
received............................. $ 3,885
=========
9
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. ACQUISITIONS (CONTINUED)
On December 29, 1994, the Company acquired the remaining 50% interest in
Forafels, Inc., which owns and operates the swamp barge BINTANG KALIMANTAN. The
purchase price is contingent upon future utilization of Forafels' primary asset,
the swamp barge, during the five years subsequent to the purchase. The Company's
50% interest in Forafels, Inc. during the year ended December 31, 1994 was
recorded under the equity method (see Note 4).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRANSLATION OF FINANCIAL STATEMENTS
The Company's financial results have been reported in U.S. dollars, as the
Company primarily conducts its multinational operations in U.S. dollars. When
translating local currency based financial statements to U.S. dollars where the
local currency is the functional currency, assets and liabilities are translated
at the year-end rate, while income and expenses are translated using the average
rate for the year. Translation differences are included as a component of
stockholders' equity.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term investments, principally bank
deposits and money market investments, with original maturities of less than
three months when acquired.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company employs a variety of
off-balance sheet financial instruments to manage its exposure to fluctuations
in interest and foreign currency exchange rates, including interest rate swap
agreements, interest rate cap agreements and currency forward exchange
contracts. The Company designates interest rate instruments as hedges of debt
and capital lease obligations, and accrues the differential to be paid or
received under the agreements as interest rates change over the lives of the
contracts. The Company's use of currency forward exchange contracts does not
meet the necessary criteria to apply hedge accounting and, accordingly, such
contracts have been marked to market at December 31, 1996, 1995 and 1994 with
any gains or losses recognized in income.
The Company continually monitors its positions with, and the credit quality
of, the financial institutions which are counterparties to its off-balance sheet
financial instruments and does not anticipate non-performance by the
counterparties.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. The Company provides for
the depreciation of drilling rigs on the modified units of production ("MUOP")
method over a period of 16 to 25 years, depending on the class of drilling rig.
Under the MUOP method, depreciation is computed based upon the utilization of
the drilling rigs. To provide for any deterioration that may occur while rigs
are idle for periods of less than one fiscal year, a minimum depreciation charge
is provided at a reduced rate of 25% of the fully utilized rate. If a drilling
rig is idle for the whole fiscal year, full depreciation is provided in order to
limit the maximum useful life of the asset regardless of utilization.
The Company provides for the depreciation of all other fixed assets on the
straight-line method of depreciation after providing for a salvage value.
Buildings are depreciated based on a 20-year useful life, and furniture,
fixtures and vehicles are depreciated over useful lives between five and ten
years.
10
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated useful lives of property, plant and equipment are as follows:
Rigs and equipment................... 16 to 25 years
Buildings............................ 20 years
Furniture, fixtures and vehicles..... 5 to 10 years
The costs of routine maintenance are expensed as incurred. At periodic
intervals, the Company conducts significant overhauls of rigs and equipment to
perform necessary repairs and replacement. Associated costs are accrued prior to
overhaul in order to match costs against revenues earned during rig utilization.
The Company periodically reviews the carrying value of its rigs and
equipment using available information, such as market surveys and broker
quotations of similar rigs and equipment. The review of the carrying values of
principal equipment is performed on a rig by rig basis, and impairment losses
are recognized by a charge to income when the carrying value exceeds market.
Betterments expected to extend the useful lives of assets are capitalized. The
costs of assets sold, retired or otherwise disposed are removed from the
accounts at the time of disposition with gains or losses reflected in income.
In March 1995, Statement of Financial Accounting Standards 121 ("FAS
121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, was issued. This statement requires that long-lived
assets held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This statement was implemented by the Company in 1996.
Implementation did not have a material impact on the financial position or
results of operations of the Company.
REVENUE RECOGNITION
The Company recognizes revenue for drilling contracts based on the number
of days worked at the contractual day rate. Revenues from turnkey contracts are
recognized using the percentage of completion method. Management fees which
arise principally from services provided to affiliated entities are recognized
as earned. Revenues related to mobilization and demobilization of rigs are
recognized during the period of mobilization and demobilization. Advance
billings are deferred and amortized over the duration of the contract.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Certain government
research grants, which are repayable in the event that the related research
project proves to be successful, are recognized in income when the research
project has been determined to be unsuccessful and all other conditions for
their receipt have been met. Grants received for research projects whose outcome
has yet to be determined are included in other long-term liabilities.
RETIREMENT PLANS
French employees participate in pension plans in accordance with French
laws and regulations. Employees of non-French subsidiaries participate in
government based pension plans as prescribed by local laws. Contributions to the
French government with respect to the maintenance of these plans are made
annually based on gross wages and are expensed as incurred. The Company has no
future commitments with respect to any of these plans.
11
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A lump sum payment is made to certain employees of the Company who retire
or are terminated by the Company without cause after such employees complete a
defined number of service years. Such payment is an amount not to exceed 12
months gross wages and is calculated based upon years of service, employment
status and gross wages during the year before retirement. The Company is fully
insured for this liability and has no future commitments with respect to these
payments.
INCOME TAXES
The Company provides for deferred taxes on temporary differences between
financial and tax reporting and employs the liability method under which
deferred taxes are calculated applying legislated tax rates in effect when the
temporary differences are expected to reverse.
CONCENTRATION OF CREDIT RISK
The market for the Company's services and products is the oil and gas
industry, and the Company's customers consist primarily of major integrated
international oil companies and independent oil and gas producers. The Company
performs ongoing credit evaluations of its customers and generally does not
require material collateral. The Company maintains reserves for potential
losses, and such losses have been within management's expectations.
At December 31, 1996 and 1995, the Company had cash deposits at a number of
major French banks and believes that the credit risk related to such
institutions is minimal.
EMPLOYEE STOCK OPTION PLANS
The Company applies Accounting Principles Board No. 25 (APB 25),
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plan. Additional disclosures required under
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation" are included in Note 13.
NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is based on the net income (loss)
divided by the weighted average number of shares outstanding during the period.
For 1995 and 1994 net income (loss) per share was computed retroactively
based on the number of shares issued by the Company to its two existing
shareholders in exchange for their respective interests in Forasol S.A. and
Forinter Ltd. on April 3, 1996. In addition, shares contingently issuable from
the exercise of stock options, using the treasury stock method, are included in
those periods in which they have a dilutive impact. For the three years ended
December 31, 1996, the effects of shares issuable upon exercise of stock options
were immaterial or antidilutive and were therefore excluded from the
calculation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
12
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. INVESTMENTS IN AND ADVANCES TO EQUITY AFFILIATES
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Investments.......................... $ 3,918 $ 3,992
Advances............................. 5,488 5,488
--------- ---------
Investments in and advances to equity
affiliates......................... $ 9,406 $ 9,480
========= =========
During the three years ended December 31, 1996, the Company's significant
equity investees consisted of National Drilling and Services Co. ("NDSC"), Al
Jazirah Forasol Drilling Corporation ("AJFDC"), Forafels, Inc. and Sondeos
Petroliferos SA.
NDSC is a 30% owned joint venture that operates mobile desert rigs in Oman.
NDSC changed its financial year end from March 31 to December 31 in 1994. The
Company has recorded $(2,000), $235,000 and $187,000 for its share of NDSC's
earnings (loss) for each of the three years ending December 31, 1996, 1995 and
1994, respectively, using the equity method.
AJFDC is a joint venture organized to own and operate two land rigs. The
Company owns 49% of AJFDC and is also contracted to manage the two rigs. The
Company provided AJFDC, on a pro rata basis with the other shareholders, a
non-interest bearing advance of $5.5 million to purchase the two drilling rigs.
The advance will be repaid from the future profits of the venture on a pro rata
basis.
A 50% interest in Forafels, Inc., a company which owns and operates the
swamp barge BINTANG KALIMANTAN, was acquired in 1983. On December 29, 1994, the
Company acquired the remaining 50% interest. This investment was accounted for
under the equity method for the year ending December 31, 1994 and, as a result,
$13,000 was recorded to recognize the Company's share of Forafels' earnings
during that year. As of January 1, 1995, Forafels became a consolidated
subsidiary (see Note 3).
Until the Company's disposition as part of the purchase consideration of
HAPSA (see note 2), the Company owned a 21% interest in Sondeos Petroliferos SA,
a Spanish holding Company ("Sonpetrol"). The Company recorded $177,000 for its
share of Sonpetrol's losses for the year ended December 31, 1994 under the
equity method. A $107,000 loss was recorded in 1995 up until the disposition
date.
The summarized financial information below represents an aggregation of the
Company's investments in equity affiliates:
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Earnings data:
Revenue......................... $ 13,922 $ 13,477 $ 17,255
Operating income................ 109 588 9,415
Net income...................... 515 555 (292)
Company's equity in net
earnings................ 210 165 (44)
13
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. INVESTMENTS IN AND ADVANCES TO EQUITY AFFILIATES (CONTINUED)
DECEMBER 31,
---------------------
1996 1995
--------- ----------
(IN THOUSANDS)
Balance sheet data:
Current assets.................. $ 11,486 $ 11,821
Noncurrent assets............... 23,380 33,980
Current liabilities............. (4,834) (9,297)
Noncurrent liabilities.......... (17,304) (15,238)
--------- ----------
Net assets...................... $ 12,728 $ 21,266
========= ==========
Company's equity in net
assets.................. $ 3,918 $ 3,992
========= ==========
The Company's share of undistributed earnings of investments in equity
affiliates included in consolidated retained earnings was $2.5 million, $2.4
million and $4.2 million at December 31, 1996, 1995 and 1994, respectively.
Dividends from equity affiliates were $279,000, $207,000 and $83,000 in 1996,
1995 and 1994, respectively.
5. OTHER LONG-TERM INVESTMENTS AND RECEIVABLES
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Investments recorded at cost, net of
valuation allowance................ $ 3,344 $ 3,336
Receivables from affiliated entities
and related parties................ 2,862 4,391
Deposits............................. 865 1,875
Other................................ 922 911
--------- ---------
$ 7,993 $ 10,513
Less: Valuation allowance............ (2,722) (3,995)
--------- ---------
Total other long-term investments and
receivables........................ $ 5,271 $ 6,518
========= =========
Investments recorded at cost represent primarily investments in entities
involved in the oil and gas drilling sector. Included in these investments at
December 31, 1996 and 1995, is the $2.8 million cost of the Company's 12.5%
interest in a group of entities which operate a self-erecting tender barge under
capital lease, the AL BARAKA I. Quoted market values for these investments are
not readily available and, accordingly, the Company has evaluated the carrying
value of each investment based upon the financial position and future prospects
of each investee.
The Company believes that the recorded value of receivables from affiliated
entities and related parties, net of any valuation allowance, approximates fair
market value at December 31, 1996.
6. PLANT AND EQUIPMENT
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
Rigs and equipment................... $ 426,220 $ 438,246
Buildings, furniture, fixtures and
vehicles........................... 3,984 3,226
------------ ------------
430,204 441,472
Less: accumulated depreciation....... (193,056) (211,100)
------------ ------------
Plant and equipment, net............. $ 237,148 $ 230,372
============ ============
14
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. PLANT AND EQUIPMENT (CONTINUED)
At December 31, 1996 and 1995, rigs and equipment with a carrying value of
$17.3 million and $50.8 million were held in non-operating status pending
redeployment. Rigs with a cost of $24 million are being depreciated over the
term of a five-year drilling contract which includes a bargain purchase option
in favor of the customer arising in May 1997. Depreciation charged in relation
to these rigs is $4.8 million in both 1996 and 1995. Assets with a book value of
$114 million and $165 million as of December 31, 1996 and 1995, respectively,
are pledged as security under the Company's debt agreements and leases.
The Company capitalizes interest applicable to the construction of
significant additions to plant and equipment. In 1996, total interest incurred
was $10,700,000 of which $652,000 was capitalized. No interest was capitalized
in 1995 or 1994.
7. LEASES
Included in property, plant and equipment in the accompanying consolidated
balance sheets are the following rigs and equipment under capital leases:
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Rigs and equipment at cost........... $ 108,629 $ 150,830
Accumulated depreciation............. (53,123) (70,315)
---------- ----------
Assets under capital leases, net..... $ 55,506 $ 80,515
========== ==========
In October 1995, the Company exercised options to purchase five tender
barges and five land rigs which were under capital lease for a total amount of
$19.9 million. The terminated lease contracts had remaining unexpired terms
ranging up to four years and their payments were based upon interest rates
ranging from 6.0% to 9.0% after considering interest rate swap agreements.
Simultaneously, the Company entered into a new seven year sale leaseback
contract for three of these tender barges with a financing company. The new sale
leaseback agreement results in a capital lease obligation of $40 million payable
in semi-annual installments. Interest is calculated at a stated rate of
six-month LIBOR plus 1.25% (6.85% at December 31, 1996) for $35 million of the
obligation and at a fixed rate of 7.67% for the remaining $5 million. In
conjunction with this lease, the Company entered into an interest rate swap
agreement which fixes the payment on this lease at 7.67% on $35 million of the
outstanding obligation over the entire term of the contract. The outstanding
amount of this capital lease obligation at December 31, 1996 was $35.5 million.
The Company also entered other contracts for the lease of land rigs and
various equipment which represented capital lease obligations of $12.6 million
at December 31, 1995. These lease obligations were liquidated by the Company
during 1996.
Under the terms of these lease contracts, the Company is required to comply
with applicable laws and regulations, maintain the rigs and equipment and obtain
a specified level of insurance coverage. The depreciation expense related to
assets under capital leases was $6.1 million, $5.5 million and $8.0 million in
1996, 1995 and 1994, respectively.
15
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. LEASES (CONTINUED)
Capital lease obligations are summarized below:
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Total capital lease obligations...... $ 35,513 $ 52,676
Less current installments............ (4,850) (8,138)
--------- ---------
Long-term obligations under capital
leases............................. $ 30,663 $ 44,538
========= =========
The Company also leases premises under operating leases which expire in the
year 2009. Rental expense for this operating leases amounted to $307,000,
$320,000 and $276,000 in 1996, 1995 and 1994, respectively.
Minimum lease payments under leases expiring subsequent to December 31,
1996 follow:
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
- ------------------------------------- ------- ---------
(IN THOUSANDS)
1997................................. $ 7,519 $ 675
1998................................. 7,520 587
1999................................. 7,519 409
2000................................. 7,520 238
2001................................. 7,519 219
2002 and thereafter.................. 7,520 1,096
------- ---------
Total................. $45,117 $ 3,224
=========
Less interest........................ (9,604)
-------
Minimum lease payments............... $35,513
=======
The new sale leaseback agreement contains certain limitations on the
incurrence of additional indebtedness, including the limitation that
indebtedness may not exceed tangible net worth. The Company will, however, be
permitted to assume, among other things, indebtedness of acquired businesses,
subject to compliance with the other financial covenants contained in the sale
leaseback agreement.
8. SHORT-TERM BORROWINGS
The Company has agreements with several banks for short-term lines of
credit in both U.S. dollars and French francs. These facilities are renewable
annually and bear interest at three-month LIBOR plus 1% (6.5% and 6% at December
31, 1996 and 1995, respectively) for U.S. dollar denominated facilities and
three-month PIBOR plus 1% (4.5% and 6% at December 31, 1996 and 1995,
respectively) for French franc denominated facilities.
16
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. SHORT-TERM BORROWINGS (CONTINUED)
The Company had the following balances outstanding under these short-term
credit facilities:
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Unsecured............................ $ 14,335 $ 10,171
Secured by trade receivables......... -- 10,669
--------- ---------
Total................. $ 14,335 $ 20,840
========= =========
As of December 31, 1996, the Company had $25 million of unused commitments
for unsecured credit lines and $6 million of unused commitments for secured
credit lines.
9. LONG-TERM DEBT
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Bank debt(a)......................... $ 19,170 $ 41,867
Loan obligations to customers(b)..... 9,511 8,692
Other loan obligations(c)............ 5,207 7,901
---------- ----------
Total debt............ $ 33,888 $ 58,460
Less current portion................. (11,773) (18,202)
---------- ----------
Total long-term
debt............... $ 22,115 $ 40,258
========== ==========
(A) BANK DEBT
The Company has entered into borrowing arrangements with various banks for
loans denominated in U.S. dollars and French francs ("FF").
U.S. dollar denominated debt as of December 31, 1996 and 1995 amounted to
$19.2 million and $33.5 million, respectively. On August 1, 1995, the Company
refinanced loan obligations with new bank debt in the amount of $20 million
payable in semi-annual installments beginning February 1996 and continuing
through 2002. The loan bears interest at a stated rate of six month LIBOR plus a
margin ranging from 1.25% to 2.5% (6.85% at December 31, 1996). In conjunction
with this loan, the Company simultaneously entered into an interest rate swap
agreement which fixed the rate of interest on this loan at 7.55% over the term
of the debt agreement. The semisubmersible rig NYMPHEA is pledged as security
for this loan.
In September 1995, the Company entered into a new $10 million credit line.
This facility bore interest at six-month LIBOR plus 1.0% and was originally
repayable in monthly installments of $350,000 through January 1998. The
outstanding balance as of December 31, 1995 was $9.0 million. This loan was
repaid in full in May 1996.
In 1992, the Company entered into an agreement for a loan in the amount of
$14.3 million to finance the purchase and upgrading of two lake barges, RIG 50
and RIG 51. As of 1996 and 1995, $1.4 million and $4.3 million, respectively,
were outstanding under this loan. The loan is repayable in semi-annual
installments through April 1997 and bears interest at six-month LIBOR plus 1.7%
(7.3% and 7.2% at December 31, 1996 and 1995, respectively). Management has
entered into an interest rate swap contract for
17
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. LONG-TERM DEBT (CONTINUED)
the duration of the term of this loan which fixes the interest rate at 8.4%. The
loan is secured by Rigs 50 and 51.
French franc denominated debt translated into U.S. dollar amounts at year
end rates was $0 and $8.2 million (FF 40.3 million) as of December 31, 1996 and
1995, respectively. These borrowings were fully repaid during 1996.
In December 1996, Forasol-Foramer signed a credit facility for $30 million,
secured by its semisubmersible SOUTH SEAS DRILLER, which bears interest at a
rate of six-month LIBOR plus a margin ranging from 1% to 2%, depending on the
dayrate earned by the SOUTH SEAS DRILLER and the amount outstanding under the
facility as it relates to the asset market value of the rig. There is a
commitment fee of 0.25% on the undrawn balance of the facility. The credit
facility was unutilized at December 31, 1996.
(B) LOAN OBLIGATIONS TO CUSTOMERS
The Company has entered into borrowing arrangements denominated in both
U.S. dollars and French francs with certain significant customers. U.S. dollar
loan obligations to customers as of December 31, 1996 and 1995 amounted to $7.1
million and $5.3 million, respectively.
The $7.1 million loan obligation outstanding as of December 31, 1996
consists of two loans in the amounts of $4 million ($0 at December 31, 1995) and
$3.1 million ($4.1 million at December 31, 1995). The loan in the amount of $4
million represents an advance received from a customer in April 1996 to finance
the construction of a new derrick set for the Cormorant. The advance, which was
for an original amount of $6.5 million, bears interest at a fixed annual rate of
7% and is repayable in monthly installments ending in November 1997. The loan in
the amount of $3.1 million is payable in semi-annual installments through 1999,
is secured by the assets of the jack-up rig ILE DU LEVANT and bears interest at
LIBOR. Management has entered into an interest rate swap agreement for the
duration of the term of this loan which fixed the interest rate at 8.625%. An
additional loan outstanding at December 31, 1995, in the amount of $1.2 million,
was repaid during 1996.
French franc denominated loan obligations to customers translated into U.S.
dollar amounts at year end rates as of December 31, 1996 and 1995 were $2.4
million (FF 12.5 million) and $3.4 million (FF 16.5 million), respectively. The
repayment schedules for these loans are variable and are based upon the Company
achieving certain operating performance criteria. The loans bear interest at
variable rates ranging from a minimum of 0% to a maximum of 15% also depending
on certain operating performance criteria. The weighted average rate paid on
these loans for the year ended December 31, 1996 was 7.7%.
(C) OTHER LOAN OBLIGATIONS
In conjunction with the Company's 1995 purchase of a 95% interest in HAPSA,
the Company acquired or incurred $5.4 million of additional long-term debt
obligations. These obligations include a 10% unsecured, fixed rate loan in the
amount of $3.2 million repayable in semi-annual installments beginning January
1996 and continuing through 1999. The remaining $1.5 million indebtedness is
repayable in semi-annual installments through 1998 and accrues interest at a
fixed rate of 8%.
Other than the debt obligations described above, this category includes a
number of individually insignificant items.
18
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. LONG-TERM DEBT (CONTINUED)
Scheduled principal payments subsequent to December 31, 1996 are as
follows:
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
- ------------------------------------- --------------
1997................................. $ 11,773
1998................................. 5,705
1999................................. 4,794
2000................................. 3,965
2001................................. 4,113
2002 and thereafter.................. 3,538
--------------
$ 33,888
==============
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the Company believes that the recorded value of
long-term debt approximates fair market value at December 31, 1996.
10. INCOME TAXES
The Company follows Statement of Financial ACCOUNTING STANDARDS NO. 109
("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the tax provision
is determined under the liability method. Under this method, deferred tax assets
and liabilities are recognized based on differences between the financial
statement and tax bases of assets and liabilities using presently enacted tax
rates. SFAS 109 provides, in part, that a deferred tax asset shall be evaluated
for realization based on a more likely than not criteria using a valuation
allowance.
The Company operates internationally and tax rates are subject to
applicable tax legislation in the countries in which it operates. The tax rates
in many of these countries are based on deemed profit as a percentage of
revenue. The domestic and foreign components of pre-tax (loss) income after
equity in net income of affiliates follow:
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Domestic............................. $ (21,436) $ (21,925) $ (24,456)
Foreign.............................. 9,985 19,609 28,508
---------- ---------- ----------
Total................. $ (11,451) $ (2,316) $ 4,052
========== ========== ==========
19
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. INCOME TAXES (CONTINUED)
A reconciliation of the differences between income taxes computed at the
French statutory rate of 37% for 1996 and 1995 and 33% for 1994 and the
Company's reported provision for income taxes follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Statutory income tax rate............ (37)% (37)% 33%
Non-utilizable tax losses in
Forinter........................... -- 22% 14%
Taxation rebates..................... -- (9)% (4)%
Tax loss benefits.................... (29)% -- --
Foreign taxes in overseas
jurisdictions...................... 69% 45% 21%
--
--- ---
Effective income tax rate............ 3% 21% 64%
=== === ==
The effective tax rate is different from the French statutory rate
primarily due to revenues being earned in foreign tax jurisdictions with
different tax bases and rates and to taxable losses in the group company
Forinter Ltd., an entity based in a tax free jurisdiction, being unavailable for
offset against taxable income. Additionally, in 1996 the Company recognized a
deferred income tax benefit of approximately $3.4 million from the reduction in
a valuation allowance for the tax benefits of net operating loss carryforwards.
The allowance had been recorded in prior years due to uncertainties then
existing regarding the Company's ability to utilize such tax benefits.
As of December 31, 1996 and 1995, the components of deferred tax assets and
liabilities were as follows:
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Deferred Tax Assets:
Tax loss carryforwards.......... $ 24,203 $ 23,203
Other........................... -- 702
---------- ----------
Total deferred tax
assets............. 24,203 23,905
Valuation allowance............. (13,544) (15,677)
---------- ----------
Net deferred tax
asset.............. $ 10,659 $ 8,228
========== ==========
Deferred Tax Liabilities:
Depreciation.................... $ 5,106 $ 4,852
Capital leases.................. -- 647
---------- ----------
Total deferred tax
liabilities................... $ 5,106 $ 5,499
========== ==========
Net deferred tax asset.......... $ 5,553 $ 2,729
========== ==========
Due to the projected inability to fully utilize tax loss carryforwards
related to the Company's operations against the Company's forecasted future
taxable earnings in various jurisdictions, the Company has recorded a valuation
allowance against such tax loss carryforwards of $13.5 million and $15.7 million
at December 31, 1996 and 1995, respectively.
20
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. INCOME TAXES (CONTINUED)
As of December 31, 1996, unused net tax loss carryforwards were $71.7
million. Of these net tax loss carryforwards, $42.2 million are not subject to
an expiration date. The remaining tax loss carryforwards expire between 1997 and
2009.
The provision for income taxes consists of:
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Current income tax expense:
Domestic........................ $ 107 $ 69 $ 18
Foreign......................... 3,072 1,839 1,715
--------- --------- ---------
3,179 1,908 1,733
--------- --------- ---------
Deferred income tax expense:
Domestic........................ $ (3,451) $ (1,031) $ 370
Foreign......................... 626 (468) 477
--------- --------- ---------
(2,825) (1,499) 847
--------- --------- ---------
Total................. $ 354 $ 409 $ 2,580
========= ========= =========
11. OTHER CURRENT LIABILITIES
Other current liabilities are summarized below:
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Amounts due to personnel................ $ 5,590 $ 3,596
Accrued payroll taxes................... 5,308 3,772
Value Added Tax......................... 4,952 1,464
Accrued income taxes.................... 2,056 4,177
Other accrued liabilities............... 15,163 13,910
--------- ---------
$ 33,069 $ 26,919
========= =========
12. STOCKHOLDERS' EQUITY
At December 31, 1996, the Company's retained earnings includes legal and
other reserves of $24.8 million, which are not distributable to shareholders.
13. STOCK OPTIONS
During 1996, options under the 1996 Long Term Incentive Plan were granted
to the primary officers, managers and employees of the Company to purchase a
total of 312,000 Common Shares at an exercise price of $12 per share and 150,000
Common Shares at an exercise price of $14 per share. Grants were originally to
have become exercisable five years from the date of issuance and to expire at
the end of ten years. All 462,000 options granted, with a weighted exercise
price of $12.65, were outstanding and unexercisable at December 31, 1996.
On March 10, 1997, following the closing of the sale of the Company's
operating subsidiaries to Pride Petroleum Services, Inc. ("Pride") (See Note
19 -- Subsequent Events) all such options were cancelled
21
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
13. STOCK OPTIONS (CONTINUED)
after having been exchanged for the equivalent number of shares of Pride Common
Stock, in the case of 110,000 of the options, or for options to acquire shares
of Pride Common Stock at a rate of 1.1 Pride options for each option in the
Company, with accelerated exercise dates in the case of the remaining 352,000
options.
14. INTEREST RATE RISK MANAGEMENT TRANSACTIONS
The Company uses interest rate swaps and other instruments to manage its
exposure to changes in interest rates and to lower its overall borrowing costs.
The following interest rate contracts were outstanding at December 31,
1996:
o Interest rate swaps that convert specific bank debt and capital lease
obligations from variable rate borrowings to fixed rate borrowings and
are scheduled to mature between July 1997 and October 2002. Under
these contracts, the Company receives interest at six-month LIBOR
(5.6% at December 31, 1996) and paid interest at a weighted average
fixed rate of 6.8% in 1996.
o An interest rate cap that limits the maximum rate of interest on
six-month LIBOR based rates to 6%. At December 31, 1996, this contract
had a notional amount of $2.5 million and a maturity date of October
15, 1997.
The interest rate differential resulting from these contracts increased
interest and other financial expenses by $1.6 million, $737,000 and $1.9 million
for 1996, 1995 and 1994, respectively. The fair market value of these contracts
is estimated to be the same as the cost or gain to the Company to terminate its
interest rate hedging instruments. At December 31, 1996 and 1995, taking into
account the prevailing interest rate environment and creditworthiness of counter
parties, this amount is a loss of $1.6 million and $2.6 million, respectively.
Management believes that no significant concentration of credit risk exists
with respect to the Company's financial instruments. At December 31, 1996 and
1995, neither the Company nor the counterparties were required to collateralize
their respective obligations under these hedging instruments.
The following table summarizes by notional amounts the activity for each
major category of interest rate contract:
INTEREST CAP
RATE SWAPS CONTRACT
---------- --------
(IN THOUSANDS)
Balance at December 31, 1994......... $ 41,799 $ 7,010
Additions/Adjustments........... 55,000 --
Maturities...................... (14,017) (2,930)
---------- --------
Balance at December 31, 1995......... 82,782 4,080
Additions/Adjustments........... -- --
Maturities...................... (19,298) (1,550)
---------- --------
Balance at December 31, 1996......... $ 63,484 $ 2,530
========== ========
After giving effect to the interest rate hedging instruments outstanding, a
1% increase in interest rates would have resulted in a $205,000, $195,000 and
$186,000 increase in financial expenses for 1996, 1995 and 1994, respectively.
22
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
15. FOREIGN CURRENCY FORWARD CONTRACTS
The Company's risk management program attempts to minimize, to the extent
practical, the effects of fluctuations in the foreign exchange markets. The
Company's revenues are primarily U.S. dollar denominated, while the majority of
the Company's administrative expenditures are denominated in French francs. In
addition, the Company has long-term debt denominated in French francs. The table
below summarizes by major currency the contractual amounts of the Company's
forward exchange contracts in U.S. dollars. Foreign currency amounts are
translated at rates current at the reporting date. The "buy" amounts represent
the U.S. dollar equivalent of commitments to purchase foreign currencies, and
the "sell" amounts represent the U.S. dollar equivalent of commitments to sell
foreign currencies.
DECEMBER 31,
------------------------------------------
1996 1995
-------------------- --------------------
BUY SELL BUY SELL
--------- --------- --------- ---------
(IN THOUSANDS)
French franc....................... $ 12,000 -- $ 9,700 $ --
Deutsche mark...................... 4,000 -- -- 915
U.S. dollar........................ -- -- -- 8,500
--------- --------- --------- ---------
$ 16,000 $ -- $ 9,700 $ 9,415
========= ========= ========= =========
In addition to the above, at December 31, 1996, the Company had forward
exchange contracts involving the sale of one foreign currency and the purchase
of another foreign currency with a contractual amount equivalent to
approximately $5 million.
The estimated (cost) to terminate exchange contracts outstanding at
December 31, 1996, 1995 and 1994 was $(241,000), $240,000 and $0, respectively.
Such costs were recorded as a gain (loss) on foreign exchange contracts in the
Consolidated Statements of Operations at December 31, 1996, 1995 and 1994,
respectively. Under terms of the contracts, neither the Company nor the
counterparties were required to collateralize their respective obligations.
The average fair market value of these contracts calculated on a quarterly
basis was:
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
--------- --------- -----
(IN THOUSANDS)
Average during the period (calculated
on a quarterly basis)
Assets.......................... $ 30 $ 130 $ 864
Liabilities..................... 209 22 129
The net gain (loss) arising from these contracts was $(104,000), $144,000
and $2.6 million for each of the three years ending December 31, 1996, 1995 and
1994, respectively.
16. GEOGRAPHICAL INFORMATION
The Company operates only in the contract oil and gas drilling industry
segment.
The following tables present net operating revenues, operating income and
identifiable assets by geographic area.
23
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
16. GEOGRAPHICAL INFORMATION (CONTINUED)
Operating income represents net operating revenues less operating costs and
expenses of the geographic area concerned. Identifiable assets are those used in
the operations of each geographic area. Corporate assets consist primarily of
cash and cash equivalents and deferred tax assets.
<TABLE>
<CAPTION>
MIDDLE REST OF
1996 EAST AFRICA FAR EAST FRANCE EUROPE AMERICAS TOTAL
- ------------------------------------- --------- --------- --------- --------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 3,822 $ 85,006 $ 3,398 $ 3,839 $ 26,508 $76,898 $ 199,471
========= ========= ========= ========= ========= ======== =========
Operating income (loss).............. $ 146 $ 20,492 $ (2,034) $ (22,389) $ 1,668 $(2,744 ) $ (4,861)
========= ========= ========= ========= ========= ======== =========
Identifiable assets.................. $ 20,128 $ 140,410 $ 14,596 $ 11,681 $ 43,789 $85,507 $ 316,111
========= ========= ========= ========= ========= ========
Corporate assets..................... 25,213
---------
Total assets......................... $ 341,324
=========
MIDDLE REST OF
1995 EAST AFRICA FAR EAST FRANCE EUROPE AMERICAS TOTAL
- ------------------------------------- --------- --------- --------- --------- --------- -------- ---------
(IN THOUSANDS)
Revenues............................. $ 12,464 $ 90,060 $ 7,070 $ 3,595 $ 17,971 $40,340 $ 171,500
========= ========= ========= ========= ========= ======== =========
Operating income (loss).............. $ 8,868 $ 16,928 $ 314 $ (21,734) $ 150 $ 1,559 $ 6,085
========= ========= ========= ========= ========= ======== =========
Identifiable assets.................. $ 20,258 $ 140,255 $ 29,077 $ 24,307 $ 40,915 $52,680 $ 307,492
========= ========= ========= ========= ========= ========
Corporate assets..................... 25,563
---------
Total assets......................... $ 333,055
=========
MIDDLE REST OF
1994 EAST AFRICA FAR EAST FRANCE EUROPE AMERICAS TOTAL
- ------------------------------------- --------- --------- --------- --------- --------- -------- ---------
(IN THOUSANDS)
Revenues............................. $ 15,002 $ 87,738 $ 26,141 $ 71 $ 4,238 $15,114 $ 148,304
========= ========= ========= ========= ========= ======== =========
Operating income (loss).............. $ 4,706 $ 16,233 $ 10,431 $ (25,521) $ (266) $ 1,815 $ 7,398
========= ========= ========= ========= ========= ======== =========
Identifiable assets.................. $ 21,160 $ 171,711 $ 26,605 $ 36,009 $ 13,809 $22,487 $ 291,781
========= ========= ========= ========= ========= ========
Corporate assets..................... 25,842
---------
Total assets......................... $ 317,623
=========
</TABLE>
The Company derived 16%, 30% and 36% of its consolidated revenues during
1996, 1995 and 1994, respectively, from Elf Aquitaine Group. In the year ended
December 31, 1996, an additional 15%, 14%, 14% and 10% of consolidated revenues
were derived from Maraven, Chevron, Shell and Total, respectively.
17. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
The Company's business and operations are substantially dependent upon the
conditions of the oil and natural gas industry and, specifically, the
exploration and production expenditures of oil and natural gas companies, which
are largely dependent upon prevailing prices for oil and natural gas. The
Company's rigs are based in countries outside the U.S. While demand for drilling
rigs outside the U.S. has been less volatile, demand remains dependent on
various factors outside the Company's control. The Company cannot predict the
timing or extent of any improvement in the industry or the future level of
demand for the Company's drilling services.
24
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
17. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES (CONTINUED)
INSURANCE COVERAGE
The Company maintains broad insurance coverage, including general and
marine public liability. No insurance is generally carried against loss of
revenues. The Company believes that it is adequately insured in accordance with
industry standards against normal risks of its operations. Notwithstanding such
coverage, the occurrence of a casualty or loss against which the Company is not
fully insured could have a material adverse effect on the Company's financial
position and results of operations.
ENVIRONMENTAL REGULATION
The Company is subject to numerous domestic and foreign governmental
regulations that relate directly or indirectly to its operations. The Company
does not believe that environmental regulations have to date had a material
adverse effect on its results of operations and does not anticipate that any
material expenditures will be required to enable it to comply with existing laws
and regulations.
LEGAL PROCEEDINGS
The Company is a defendant in a number of legal proceedings and has various
unresolved asserted and unasserted claims arising in the ordinary course of
business. The outcome of these lawsuits and claims is not known at this time.
The Company believes that the resulting uninsured liability, if any, will not
have a material adverse effect on its consolidated results of operations or
financial position.
18. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1996, 1995 and 1994, an aggregate of
$471,000, $484,000, and $450,000 respectively, in management fees was paid to
Soletanche S.A. and Ackermans and van Haaren N.V.
Under the terms of joint venture and other agreements, the Company provides
contract labor and other management services to certain of its affiliates. The
table on the following page summarizes revenues regarding affiliates for the
years ended December 31, 1996, 1995 and 1994 and receivables from affiliates as
of December 31, 1996, 1995 and 1994:
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Revenues:
National Drilling and Services
Co. LLC....................... $ 295 $ 171 $ 409
Al Jazirah Forasol Drilling
Corporation................... 860 980 1,588
Foradel, Inc.................... 168 882 10,157
--------- --------- ---------
Total...................... $ 1,323 $ 2,033 $ 12,154
========= ========= =========
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Accounts receivable:
National Drilling and Services
Co. LLC....................... $ 93 $ 21 $ 47
Al Jazirah Forasol Drilling
Corporation................... -- 183 146
Foradel, Inc.................... -- 79 1,769
--------- --------- ---------
Total...................... $ 93 $ 283 $ 1,962
========= ========= =========
25
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
19. SUBSEQUENT EVENTS (UNAUDITED)
At an Extraordinary General Meeting of the Company held in Rotterdam on
March 10, 1997, the Shareholders of the Company approved the transactions
provided for in the Purchase Agreement dated December 16, 1996 between the
Company, certain shareholders of the Company and Pride Petroleum Services, Inc.,
a Louisiana corporation ("Pride"), having its corporate headquarters at 1500
City West Boulevard, Suite 400, Houston, Texas 77042, United States of America,
including the sale and transfer by the Company of all of the shares in the
issued capital of Forasub B.V., having its registered office in Rotterdam, to
Pride.
Forasub B.V., a Dutch closed limited liability company, was a wholly owned
subsidiary of the Company organized on December 30, 1996 into which the Company
transferred substantially all of its assets, including its record and beneficial
ownership in the outstanding capital stock of Forasol S.A., Forinter Limited and
International Drilling Management B.V. and their respective subsidiaries, on
December 31, 1996.
The Shareholders of the Company also approved a proposal to dissolve the
Company as of March 11, 1997, subject to the condition precedent that the
transactions contemplated by the Purchase Agreement should have been effected
prior to that date, to approve the liquidation of the assets and liabilities of
the Company and to appoint its Board of Managing Directors as liquidator, all
this in accordance with Article 29 paragraph 2 of the Articles of Association of
the Comapny, without any payment of a specific remuneration to the liquidators
and the persons assisting the liquidators.
Finally, the Shareholders of the Company approved a proposal, subject to
the condition precedent that the transactions contemplated by the purchase
Agreement should have been completed, to pay a liquidating
26
<PAGE>
FORASOL-FORAMER N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
19. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
distribution to the Shareholders of the Company, for each share in the issued
capital of the Company consisting of:
(a) an amount of $6.80 in cash (less any applicable Dutch withholding
taxes), to be paid out on or about March 14, 1997;
(b) 0.66 share of common stock of Pride, to be transferred on or
about March 14, 1997.
The transaction with Pride was completed on March 10, 1997 subsequent to
the Extraordinary General Meeting, the liquidation of the Company commenced on
March 11, 1997 and the liquidation dividend was paid on March 14, 1997.
The Company arranged for all trading in its shares on the Nasdaq Stock
Exchange to cease as at the close of business on March 10, 1997 and for its
listing to be cancelled as from that date.
On February 25, 1997 the Company signed an agreement to purchase a tender
barge, the "Tenaga", for $6.6 million. The Tenaga is currently being used as a
support vessel and the Company anticipates that it will require an investment of
between $15 million and $22 million, depending upon specific customer
requirements and the intended area of operations, to return it to its original
use as a tender-assisted drilling barge.
27
<PAGE>
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
28
<PAGE>
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.
29
<PAGE>
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.
30
<PAGE>
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.
31
<PAGE>
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.
32
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO 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 4,000.
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 accompanying Prospectus which
information is incorporated herein.
33
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO 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 accounts were converted at the average exchange rate for each month
and restated as indicated above, except for depreciation and other
34
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BASIS OF PRESENTATION (CONTINUED)
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
35
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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
36
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
37
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
-- 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
38
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. CHANGES IN FINANCIAL STATEMENT PRESENTATION (CONTINUED)
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.
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
========= =========
39
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BREAKDOWN OF SIGNIFICANT ACCOUNTS (CONTINUED)
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
========= =========
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).
40
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BREAKDOWN OF SIGNIFICANT ACCOUNTS (CONTINUED)
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.
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.
41
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LOANS (CONTINUED)
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.
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:
<TABLE>
<CAPTION>
FROM 1 FROM 2 FROM 3 OVER
TO 2 YEARS TO 3 YEARS TO 4 YEARS 5 YEARS TOTAL
----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Loans................................ 2,209 1,718 1,718 1,718 7,363
=========== =========== =========== ======== =========
</TABLE>
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".
42
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DISCONTINUED OPERATIONS (CONTINUED)
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".
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
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
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>
43
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DISCONTINUED OPERATIONS (CONTINUED)
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.
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.
44
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 --
========= =========
45
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. TRANSACTIONS AND BALANCES WITH RELATED COMPANIES (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
========= ============= =========
46
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO 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
======= ========
47
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER FINANCIAL STATEMENT INFORMATION (CONTINUED)
B) ALLOWANCES AND RESERVES
DEDUCTED FROM ASSETS INCLUDED IN LIABILITIES
--------------------- -----------------------
OBSOLESCENCE CONTINGENCIES
--------------------- -----------------------
CURRENT NONCURRENT NONCURRENT
------- ---------- -----------------------
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
======= ========== ======
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)".
48
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER FINANCIAL STATEMENT INFORMATION (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)
- ------------------------------------- --------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
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
</TABLE>
- ------------
US$ United States dollars.
BVS Bolvares
(1) Buying and selling exchange rates as of June 30, 1995.
49
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER FINANCIAL STATEMENT INFORMATION (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
50
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
(CONTINUED)
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 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
51
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
(CONTINUED)
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. 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.
52
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
(CONTINUED)
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
Common shares considered for the purpose of calculating income per share
were 13,051,613 shares.
1995
1994
---------------- ----------------
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
--------- ---------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the restatement
for inflation and translation 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
========= =========
53
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
(CONTINUED)
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:
1995 1994
--------------- ---------------
DEFERRED TAX ASSETS
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)
========= =========
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:
1995 1994
---------------- ----------------
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.............. 1,519 333
Others, not individually
significant.................. (219) 37
--------- ---------
bUS$ 3,256 US$ 1,927
========= =========
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.
54
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996 AND 1995
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1996 1995
--------- ---------
CURRENT ASSETS
Cash............................ 1,582 1,190
Investments..................... 6,076 3,863
Trade receivables............... 33,257 35,521
Other receivables............... 6,512 5,862
Parts and supplies.............. 14,928 14,131
Discontinued operations......... 1,789 2,628
--------- ---------
Total current assets....... 64,144 63,195
--------- ---------
NONCURRENT ASSETS
Other receivables............... 289 756
Parts and supplies.............. 4,462 6,403
Investments..................... -- 237
Property and equipment.......... 79,022 66,111
Discontinued operations......... 31,696 40,693
--------- ---------
Total noncurrent assets.... 115,469 114,200
--------- ---------
Total assets............... 179,613 177,395
========= =========
CURRENT LIABILITIES
Accounts payable................ 15,121 14,320
Loans........................... 7,548 23,143
Payroll and social security
taxes.......................... 5,329 4,446
Taxes payable................... 5,112 4,812
Other liabilities............... 2,658 1,810
Discontinued operations......... 58 1,233
--------- ---------
Total current
liabilities............. 35,826 49,764
--------- ---------
NONCURRENT LIABILITIES
Loans........................... 8,683 3,664
Other liabilities............... 3,956 3,675
Reserves........................ 2,741 2,377
--------- ---------
Total noncurrent
liabilities............. 15,380 9,716
--------- ---------
Total liabilities.......... 51,206 59,480
--------- ---------
MINORITY INTEREST IN SUBSIDIARIES.... 46 475
SHAREHOLDERS' EQUITY (per
corresponding statement)........... 128,361 117,440
--------- ---------
Total liabilities and
shareholders' equity.... 179,613 177,395
========= =========
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1996 1995
---------- ----------
NET SALES............................... 148,650 127,072
COST OF SALES........................... (132,125) (115,582)
---------- ----------
Gross income.......................... 16,525 11,490
OPERATING EXPENSES, net................. (8,569) (9,167)
OTHER INCOME, net....................... 4,437 69
FINANCIAL INCOME AND HOLDING GAINS
(LOSSES), net......................... 417 (4,031)
---------- ----------
Income (loss) from continuing
operations before income tax and
minority interest.................. 12,810 (1,639)
INCOME TAX.............................. (3,927) (3,795)
---------- ----------
Income (loss) from continuing
operations......................... 8,883 (5,434)
INCOME FROM DISCONTINUED OPERATIONS
(plus tax carryforward of 349 in
1995)................................. 2,296 9,731
MINORITY INTEREST IN SUBSIDIARIES....... 63 1,746
---------- ----------
Net income for the period............. 11,242 6,043
========== ==========
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(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 62,950 122,119 115,759
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............... -- -- -- -- 11,242 11,242 6,043
------- ---------- ---------- ------- -------------- ------- -------
Balances as of March 31, 1996........... 13,052 8,759 35,273 2,620 68,657 128,361
======= ========== ========== ======= ============== =======
Balances as of March 31, 1995........... 13,052 8,759 35,273 2,085 58,271 117,440
======= ========== ========== ======= ============== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... 11,242 6,043
Adjustments to reconcile net income
to net cash provided by
operating activities:
Minority interest in profits.... (63) (1,746)
Depreciation of property and
equipment...................... 10,258 7,599
Dividends collected............. 8,000 --
Loss on sale of property and
equipment...................... (189) (99)
Increase in allowances.......... 786 533
Increase in allowance for
obsolescence of materials and
spares......................... (6,811) --
Income on financial
investments.................... 770 747
Income from discontinued
operations..................... 347 4,094
Income on the sale of discontinued
operations of joint venture
interests..................... (2,699) (5,766)
Income from discontinued
operations of equity
investments.................... 403 (9,519)
Changes in assets and liabilities:
Trade receivables............... 1,777 (5,728)
Other receivables............... (806) (2,753)
Parts and supplies.............. (7,804) (4,544)
Accounts payable................ (870) 6,064
Payroll and social security
taxes.......................... 488 317
Taxes payable................... 444 2,833
Other liabilities............... 1,439 1,353
Discontinued operations......... 1,776 3,698
--------- ---------
Cash flows provided by
operating activities.... 18,488 3,126
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related companies...... -- 1,677
Noncash investments............. 231 59
Acquisition of property and
equipment...................... (12,587) (15,331)
Sales of property and
equipment...................... 325 383
Sale of temporary investments... -- 480
Discontinued operations......... (335) (2,245)
Proceeds from sale of
discontinued operations........ -- 16,245
--------- ---------
Cash flows (used in)
provided by investing
activities.............. (12,366) 1,268
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term loans, net........... 1,450 2,305
Long-term loans................. 1,159 1,124
Dividends....................... (5,000) (4,362)
--------- ---------
Cash flows used in
financing activities.... (2,391) (933)
--------- ---------
Net (decrease) increase in cash and
cash equivalents................... 3,731 3,461
Cash and cash equivalents at
beginning of year.................. 3,927 1,593
--------- ---------
Cash and cash equivalents at end of
period............................. 7,658 5,054
========= =========
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1995
(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 MARCH 31, 1996:
-- 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 4,000.
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 that
59
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RESTATEMENT IN CONSTANT MONEY (CONTINUED)
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 March 31, 1996, 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 March 31, 1995, have been restated
for comparative purposes, only until August 31, 1995 at a conversion factor
of 1.034.
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 March 31, 1996, accumulated inflation from the beginning of the fiscal
year, calculated on the above mentioned index, is 1.8%.
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 nine months ended March 31, 1996, are reflected in the summary provided
below and principally relate to the items discussed in the following paragraphs.
Similar differences would exist for the nine months ended March 31, 1995, 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 nine months ended
March 31, 1996, 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 March 31, 1996 are approximately Ps 1 = US$1.
60
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY QUITRAL-CO AND U.S. GAAP (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 March 31, 1996 , 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. GAAP, the net book
61
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY QUITRAL-CO AND U.S. GAAP (CONTINUED)
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 nine months ended March 31, 1996, and to shareholders' equity
as of March 31, 1996, 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).
1996
---------------
Net income in accordance with Argentine
GAAP.................................... Ps. 11,242
Less: losses of investments dividended
to former shareholders................ 404
---------
Net income in accordance with Argentine
GAAP excluding income of investments
dividended............................ Ps. 11,646
---------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the restatement
for inflation and conversion into
U.S. dollars.......................... 2,557
Deferred income tax..................... US$ (199)
Benefits under employee retirement
plan.................................. (75)
Effect on depreciation of the increased
value of property and equipment....... 990
Vacation accrual........................ (1,102)
---------
APPROXIMATE NET INCOME IN ACCORDANCE
WITH U.S. GAAP........................ US$ 13,817
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.................................. US$ 11,717
=========
62
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY QUITRAL-CO AND U.S. GAAP (CONTINUED)
1996
---------------
NET EARNINGS PER SHARE:
Amounts based on accompanying financial
statements............................ Ps. 0.86
Approximate amounts under U.S. GAAP..... US$ 1.06
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
Amounts based on accompanying financial
statements............................ Ps. 0.68
Approximate amounts under U.S. GAAP..... US$ 0.90
Common shares considered for the purpose of calculating income per share
were 13,051,613 shares.
1996
----------------
Shareholders' equity in accordance with
Argentine GAAP........................ Ps. 128,361
Less: noncurrent investments dividended
to the former shareholders............ (33,381)
---------
Shareholders' equity excluding
noncurrent investments dividended..... Ps. 94,980
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the
restatement for inflation and
translation into U.S. dollars..... (5,339)
Property and equipment............. US$ (6,111)
Deferred income tax................ 154
Benefits under employee retirement
plan.............................. (2,436)
Vacation accrual................... (1,846)
---------
APPROXIMATE SHAREHOLDERS' EQUITY IN
ACCORDANCE WITH U.S. GAAP............. US$ 79,402(1)
=========
- ------------
(1) Includes US$8,000 in cash dividends, collected during the period from
investments dividended to former shareholders.
i) OTHER SIGNIFICANT U.S. GAAP DISCLOSURE REQUIREMENTS
1) The following table presents the components of Quitral-Co's deferred
income tax balances as of the end of the period:
1996
----------------
DEFERRED TAX ASSETS
Tax loss carryforwards in
Quitral-Co de Venezuela........... US$ 998
Valuation allowance................ (998)
Vacation accrual................... 589
Benefits under employee retirement
plan.............................. 708
---------
1,297
---------
DEFERRED TAX LIABILITIES
Difference between tax and
accounting property and equipment
depreciation...................... (1,072)
Reserve for contingencies.......... (71)
---------
(1,143)
Net deferred tax asset............. US$ 154
=========
63
<PAGE>
QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY QUITRAL-CO AND U.S. GAAP (CONTINUED)
The reconciliation of pre-tax income at the statutory rate, to the income
tax presented in the financial statements for the nine months ended March 31,
1996, computed in accordance with U.S. GAAP, is as follows:
1996
----------------
Approximate pre-tax income in
accordance with U.S. GAAP......... US$ 17,943
Statutory tax rate................. 30%
---------
Statutory tax rate applied to
pre-tax income.................... 5,383
Permanent differences:
Book vs. tax basis difference of
Quitral-Co's investment in
Quitral-Co de Venezuela........... US$ (2,488)
Non deductible expenses............ 1,010
Other, not individually
significant....................... 221
---------
US$ 4,126
=========
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.
64
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements as of and for the
year ended December 31, 1996 illustrate the effect of (i) the acquisition of
Quitral-Co S.A.I.C. ("Quitral-Co") in April 1996 and the related financing
transactions, (ii) the divesture of the Company's domestic land-based well
servicing operations in February 1997, (iii) the acquisition of the operating
subsidiaries of Forasol-Foramer N.V. (collectively, "Forasol") in March 1997
and the related financing transactions and (iv) the conversion in the first
quarter of 1997 of $28.0 million aggregate principal amount of the Company's
convertible subordinated debentures into 2.3 million shares of the Company's
common stock. The unaudited pro forma balance sheet has been prepared assuming
that such transactions were completed as of December 31, 1996. The unaudited pro
forma statement of operations has been prepared assuming that such transactions
were completed as of January 1, 1996.
The historical results of operations for the Company have been derived from
the Company's consolidated financial statements, the historical results of
operations for Quitral-Co have been derived from Quitral-Co's consolidated
financial statements as adjusted for generally accepted accounting principles in
the United States ("U.S. GAAP") and have been translated into U.S. dollars in
accordance with U.S. GAAP, and the historical results of operations for Forasol
have been derived from Forasol's historical consolidated financial statements.
The Company's consolidated financial statements are included in previous filings
made by the Company under the Securities Exchange Act of 1934, as amended;
Quitral-Co's and Forasol's consolidated financial statements are included
herein.
The pro forma adjustments and the resulting unaudited pro forma financial
statements are based upon available information and certain assumptions and
estimates described in the Notes to Unaudited Pro Forma Financial Statements. A
final determination of required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values, has not yet been made. Accordingly, the
purchase accounting adjustments reflected in the pro forma information are
preliminary and have been made solely for purposes of developing such
information. The Company's management believes, however, that the pro forma
adjustments and the underlying assumptions and estimates reasonably present the
significant effects of the transactions reflected thereby and that any
subsequent changes in the underlying assumptions and estimates (other than
changes after closing of the relevant transactions to reflect cost savings
primarily resulting from the reduction of personnel) will not materially affect
the pro forma financial statements presented herein. 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 acquisitions of
Quitral-Co and Forasol and the related financing transactions, the sale of the
Company's U.S. land-based well servicing operations and the conversion of $28.0
million principal amount of the Company's convertible subordinated debentures
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 that 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, the historical financial statements of Forasol,
including the notes thereto, and the historical financial statements of
Quitral-Co, including the notes thereto.
The pro forma financial information presented herein reflects substantial
dilution of earnings per share as a result of including the 1996 operating
results of Forasol. The Company believes, however, that such information is not
indicative of the operating performance expected to be achieved by the Company
in 1997 and future years.
65
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIDE FORASOL PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........ $ 10,310 $ 16,646 $ 83,750(O) $ 8,919
25,150(H)
(123,200)(I)
(3,737)(R)
Short-term investments........... 460 -- 460
Trade receivables, net........... 99,531 51,799 151,330
Parts and supplies............... 27,642 -- (3,000)(O) 24,642
Deferred income taxes............ 1,778 1,221 2,999
Other current assets............. 16,686 12,487 29,173
---------- ---------- --------
Total current assets..... 156,407 82,153 217,523
---------- ---------- --------
PROPERTY AND EQUIPMENT, NET.......... 375,249 237,148 (42,850)(O) 703,571
134,024(I)
OTHER ASSETS
Investments in and advances to
affiliates..................... -- 9,406 9,406
Deferred income taxes............ -- 7,346 7,346
Goodwill and other intangibles,
net............................ 3,134 -- 3,134
Other............................ 7,272 5,271 550(H) 13,093
---------- ---------- --------
Total other assets....... 10,406 22,023 32,979
---------- ---------- --------
$542,062 $341,324 $954,073
========== ========== ========
CURRENT LIABILITIES
Accounts payable................. $ 32,488 $ 26,954 $ 59,442
Accrued expenses................. 25,215 33,069 58,284
Current portion of long-term
debt........................... 35,982 26,108 $ (2,700)(H) 58,190
(1,200)(O)
Current portion of long-term
lease obligations.............. -- 4,850 4,850
---------- ---------- --------
Total current
liabilities............ 93,685 90,981 180,766
---------- ---------- --------
OTHER LONG-TERM LIABILITIES.......... 12,134 10,107 22,241
LONG-TERM DEBT, NET OF CURRENT
PORTION............................ 106,508 22,115 28,400(H) 154,323
(2,700)(O)
LONG-TERM LEASE OBLIGATIONS, NET OF
CURRENT PORTION.................... -- 30,663 30,663
CONVERTIBLE SUBORDINATED
DEBENTURES......................... 80,500 -- (28,000)(R) 52,500
DEFERRED INCOME TAXES................ 47,438 3,014 (12,000)(O) 58,952
20,500(I)
MINORITY INTEREST.................... -- 2,368 2,368
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock..................... 1 94 (94)(I) 1
Paid-in capital.................. 143,581 140,688 (140,688)(I) 343,981
172,400(I)
28,000(R)
Treasury stock, at cost.......... (191) -- (191)
Retained earnings................ 58,406 41,435 53,800(O) 108,469
(41,435)(I)
(3,737)(R)
Cumulative translation
adjustment..................... -- (141) 141(I) --
---------- ---------- --------
Total shareholders'
equity................. 201,797 182,076 452,260
---------- ---------- --------
$542,062 $341,324 $954,073
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
66
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIDE FORASOL PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES............................. $407,174 $199,471 $ 63,210(A) $552,713
---------- ---------- --------
(117,142)(P)
COSTS AND EXPENSES
Operating costs.................. 292,599 161,897 49,341(A) 414,882
(88,955)(P)
Depreciation and amortization.... 29,065 23,945 3,797(A) 54,220
80(B)
2,800(J)
(5,467)(P)
Selling, general and
administrative................. 45,368 18,490 3,831(A) 54,048
(13,641)(P)
---------- ---------- --------
Total costs and
expenses............... 367,032 204,332 523,150
---------- ---------- --------
EARNINGS (LOSS) FROM OPERATIONS...... 40,142 (4,861) 29,563
OTHER INCOME (EXPENSE)
Other income (expense)........... 1,902 1,148 (519)(A) 2,227
(304)(P)
Interest income.................. 2,410 2,310 322(A) 4,167
(875)(C)
Interest expense................. (13,635) (10,048) (394)(A) (24,802)
(450)(D)
(1,920)(E)
(2,010)(K)
1,425(L)
380(P)
1,850(S)
---------- ---------- --------
Total other expense,
net.................... (9,323) (6,590) (18,408)
---------- ---------- --------
EARNINGS (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES.......... 30,819 (11,451) 11,155
MINORITY INTEREST.................... -- (825) (825)
---------- ---------- --------
EARNINGS (LOSS) BEFORE INCOME
TAXES.............................. 30,819 (10,626) 11,980
INCOME TAX PROVISION................. 8,091 354 360(F) 4,356
(1,700)(M)
(3,415)(Q)
666(T)
---------- ---------- --------
NET EARNINGS (LOSS).................. $ 22,728 $(10,980) $ 7,624
========== ========== ========
NET EARNINGS PER SHARE
Primary.......................... $ .81 $ .18
========== ========
Fully diluted.................... $ .75
==========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS OUTSTANDING
Primary.......................... 28,198 11,099(N) 41,582
========== ========
2,285(U)
Fully diluted.................... 34,719 465(G) 46,283
========== ========
11,099(N)
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND
In April 1996, the Company acquired all of the outstanding capital stock of
Quitral-Co for aggregate consideration of $140.0 million, consisting of $110.0
million in cash and a note payable to the sellers for $30.0 million. The note
payable bears interest at a variable rate of LIBOR plus 2% per annum payable
quarterly. Payments of principal are being made in 30 monthly installments. Of
the cash portion of the purchase price, $70.0 million was funded from the
Company's working capital and $40.0 million from the net proceeds from two
long-term financing arrangements with three lending institutions. Borrowings
under these arrangements, which are collateralized by substantially all of the
Company's domestic offshore platform rig fleet and ancillary equipment, bear
interest at annual rates ranging from 7.95% to 8.50% and are repayable in
monthly installments of principal and interest over a period of five to six
years.
In January 1996, the Company completed the public sale of $80.5 million
principal amount of its convertible subordinated debentures, which resulted in
net proceeds to the Company of approximately $77.6 million. Such net proceeds
were used to fund various capital projects, including the acquisition of
Quitral-Co. During the first quarter of 1997, $28.0 million principal amount of
the convertible subordinated debentures were converted into 2.3 million shares
of Common Stock.
In February 1997, the Company sold substantially all of the assets used in
its U.S. land-based well servicing operations for $135.7 million in cash. After
federal and state income taxes of approximately $44.3 million, repayment of
approximately $3.9 million of indebtedness collateralized by certain of the
assets sold and prepayment of approximately $3.7 million of lease payments on
transferred assets subject to operating leases, the net proceeds to the Company
were approximately $83.8 million.
In March 1997, the Company completed the acquisition of Forasol for $113.2
million in cash and 11.1 million shares of Common Stock with a value of $172.4
million. Of the cash portion of the purchase price, $87.5 million was funded out
of working capital, including the net proceeds from the sale of the Company's
U.S. land-based well servicing operations, and $25.7 million was funded out of
net borrowings under the Company's $100 million secured credit facility (the
"Credit Facility"), which mature in March 2002 and bear interest at a variable
rate, currently 7.44%, based on either the prime rate or LIBOR.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma balance sheet has been prepared
assuming that the acquisition of Quitral-Co and Forasol and the related
financing transactions, the sale of the Company's U.S. land-based well servicing
operations and the conversion of $28.0 million principal amount of the Company's
convertible subordinated debentures were consummated as of December 31, 1996.
The accompanying unaudited pro forma statement of operations has been prepared
assuming that such transactions were consummated as of January 1, 1996.
Net earnings per share have been computed based on the weighted average
number of common shares and common share equivalents outstanding on a pro forma
basis during the year ended December 31, 1996. Common share equivalents include
the number of shares issuable upon the exercise of stock options and warrants,
less the number of shares that could have been repurchased with the exercise
proceeds, using the treasury stock method. Fully diluted net earnings per share
have not been presented on a pro forma basis as the calculation is
anti-dilutive.
3. MANAGEMENT ASSUMPTIONS
The unaudited pro forma financial statements reflect the following pro
forma adjustments related to the acquisition of Quitral-Co and Forasol and the
related financing transactions, the sale of the Company's U.S. land-based well
servicing operations and the conversion of $28.0 million principal amount of the
Company's convertible subordinated debentures:
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
QUITRAL-CO ACQUISITION
(A) Operating results for Quitral-Co for the period in 1996 prior to the
acquisition by the Company, based on actual results for the period from January
1, 1996 through March 31, 1996 and estimated results for the month of April
1996. Prior to the acquisition by the Company in April 1996, the books and
records of Quitral-Co were maintained in constant Argentine pesos in accordance
with Argentine GAAP, which differs in certain respects from U.S. GAAP. Financial
information in U.S. dollars prepared in accordance with U.S. GAAP has been
prepared through March 31, 1996. However, such information is not available for
the period from March 31, 1996 through April 30, 1996, the date the acquisition
by the Company was consummated. Accordingly, management has estimated such
results for purposes of preparing the accompanying pro forma financial
information and believes that actual results would not be materially different.
(B) Increase in depreciation and amortization expense resulting from the
preliminary allocation of the purchase cost to the assets acquired and
application of the Company's depreciation policies to such assets. Based on a
preliminary determination of the fair values of the assets and liabilities
acquired, approximately $161.4 million was allocated to property and equipment.
The pro forma adjustment to depreciation expense was based upon an estimated
salvage value of 10% and an estimated average remaining useful life of 12.5
years for the Quitral-Co assets.
(C) Reduction in historical interest income as a result of utilization of
$70.0 million in cash for the acquisition of Quitral-Co. Such cash amount
constituted a portion of the net proceeds from the issuance by the Company in
January 1996 of $80.5 million principal amount of the Company's convertible
subordinated debentures. Therefore, historical interest income on such cash
amount for the three months prior to the acquisition of Quitral-Co has been
reduced, based upon an approximate annual interest rate on investments during
the period of 5.0%.
(D) Increase in interest expense due to issuance and sale of $80.5 million
principal amount of the Company's convertible subordinated debentures. The pro
forma adjustment to interest expense relating to these financing transactions is
composed of the following:
YEAR ENDED
DECEMBER 31, 1996
(IN THOUSANDS)
Interest on convertible subordinated
debentures......................... $ 425
Amortization of deferred financing
costs.............................. 25
------
$ 450
======
(E) Increase in interest expense resulting from $40.0 million of net
borrowings pursuant to collateralized term loans entered into in connection with
the acquisition of Quitral-Co and the addition of a $30.0 million note payable
to the sellers. The pro forma adjustment to interest expense relating to these
financing transactions is composed of the following:
YEAR ENDED
DECEMBER 31, 1996
(IN THOUSANDS)
Collateralized term loans............ $ 1,170
Note payable to sellers.............. 750
--------
$ 1,920
========
The pro forma adjustment to interest expense relating to these financing
transactions is based upon interest rates of 8.75% per annum for the
collateralized term loans and 7.50% per annum for the note payable to sellers,
which were the approximate actual rates in effect during 1996 for each of these
loans. For each .25% change in the actual interest rates incurred on the
collateralized term loans and the note payable to sellers, pro forma net
earnings for the year ended December 31, 1996 would change by approximately
$64,000 and $48,000, respectively.
69
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(F) Income tax effects of the pro forma adjustments included herein, based
on a combined U.S. federal and state income tax rate of 36%, an Argentine income
tax rate of 33% and a Venezuelan tax rate of 34%. Such rates approximate the
statutory rates in effect for the period.
(G) Increase in weighted average common shares and equivalents outstanding
for fully diluted earnings per share calculation purposes, due to issuance by
the Company of $80.5 million principal amount of its convertible subordinated
debentures, which are convertible at a price of $12.25 per share.
FORASOL ACQUISITION
(H) Receipt of aggregate net proceeds of $25.7 million from the Credit
Facility, less $550,000 of debt issuance costs.
(I) Acquisition of Forasol for aggregate consideration of $285.6 million,
consisting of $113.2 million cash and 11.1 million shares of Common Stock valued
at $172.4 million, based on the approximate market value of the Common Stock
prior to the date of the letter agreement of $15.50 per share. In addition,
management estimates that the Company will ultimately incur legal, accounting
and other transaction-related costs, including Forasol closing costs and the
cost to wind up its affairs and liquidate, totaling approximately $10.0 million.
Based on a preliminary determination of the fair values of the assets and
liabilities acquired, approximately $371.2 million of the total purchase cost
was allocated to property and equipment. Additional adjustments to reflect the
acquisition include elimination of the historical capital accounts of Forasol
and an increase in the deferred income tax liability by approximately $20.5
million to provide for temporary differences resulting from the allocation of
the pro forma purchase cost at the statutory income tax rates in the appropriate
taxing jurisdictions.
(J) Increase in depreciation and amortization expense resulting from the
preliminary allocation of the purchase cost to the assets acquired and adoption
by Forasol of the Company's depreciation policies, based upon an estimated
salvage value of 10% and an estimated average remaining useful life of 12.5
years for the Forasol property and equipment.
(K) Increase in interest expense resulting from $25.7 million of net
borrowings under the Credit Facility. The pro forma adjustment to interest
expense is based on the variable rate of the Credit Facility, currently 7.44%.
For each .25% change in the current variable rate, pro forma net earnings for
the year ended December 31, 1996 would change by approximately $41,000.
(L) Reduction in interest expense resulting from use of a portion of the
net proceeds from Forasol's public offering of common shares in May 1996 to
repay indebtedness and liquidate capital lease obligations of Forasol. The
principal amounts extinguished and the related interest savings are as follows:
AMOUNT INTEREST
EXTINGUISHED SAVINGS RATE RANGE
(IN THOUSANDS)
Credit Facility...................... $20,840 $ 585 7.5%
Current portion of long-term debt.... 8,650 240 7.1% - 7.7%
Current portion of long-term lease
obligations........................ 3,210 100 6.4% - 8.6%
Long-term debt....................... 8,860 250 7.1% - 7.7%
Long-term lease obligations.......... 8,040 250 6.4% - 8.6%
------------- -------
Total........................... $49,600 $ 1,425
============= =======
Forasol operates in tax free jurisdictions (primarily Angola) and
approximately $1.3 million of the $1.4 million in pro forma annual savings
result from such tax jurisdictions.
70
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(M) Income tax effects of the pro forma adjustments included herein, based
on a combined U.S. federal and state income tax rate of 36% and a French income
tax rate of 37%. Such rates approximate the statutory rates in effect for the
period.
(N) Estimated increase in weighted average common shares and equivalents
outstanding due to issuance of 11.1 million shares of Common Stock in connection
with the acquisition of Forasol.
SALE OF U.S. LAND-BASED WELL SERVICING OPERATIONS
(O) Receipt of net proceeds from sale of U.S. land-based well servicing
operations, net of $44.3 million of estimated federal and state income taxes,
repayment of approximately $3.9 million of indebtedness collateralized by
certain of the assets sold and prepayment of approximately $3.7 million of lease
payments on transferred assets subject to operating leases. Also, elimination of
the assets to be sold and reflection of an estimated gain of approximately $53.8
million on the sale.
(P) Elimination of the results of operations related to the assets of the
Company's U.S. land-based well servicing business to be sold.
(Q) Adjustment of income tax expense as follows:
YEAR ENDED
DECEMBER 31, 1996
(IN THOUSANDS)
Elimination of actual income tax
expense incurred by U.S. land-based
operations......................... $ (371)
Income tax effects of pro forma
adjustments based on a combined
U.S. federal and state income tax
rate of 36%, which rate
approximates the combined statutory
rate in effect for the period...... (3,044)
-----------------
$(3,415)
=================
CONVERSION OF CONVERTIBLE SUBORDINATED DEBENTURES
(R) To induce conversion of $28.0 million of convertible subordinated
debentures for 2,285,712 shares of Common Stock. Conversion costs amounted to
$3.7 million, which will be recorded as a charge to income in the first quarter
of 1997.
(S) Decrease in interest expense due to the conversion.
(T) Increase in federal and state income taxes as a result of the
conversion and based on a combined U.S. federal and state income tax rate of
36%.
(U) Increase of 2,285,712 primary shares of Common Stock outstanding as a
result of the conversion.
71
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRIDE PETROLEUM SERVICES, INC.
By: /s/EARL W. MCNIEL
Earl W. McNiel
Vice President and
Chief Financial Officer
Dated: April 8, 1997
72
<PAGE>
EXHIBIT INDEX
2.1 -- Purchase Agreement, dated as of December 16, 1996,
by and among Pride Petroleum Services,
Inc., Forasol-Foramer N.V. and certain shareholders
of Forasol- Foramer N.V. (incorporated
by reference to Appendix A of the Company's Proxy
Statement/Prospectus dated January 31,
1997 (File No. 0-16963)).
23.1 -- Consent of Ernst & Young Audit
23.2 -- Consent of Price Waterhouse
23.3 -- Consent of Pistrelli, Diaz y Associados
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 Amendment No. 1 (Reg. No. 333-21385) and to the inclusion
in Current Report on Form 8-K of our report dated March 24, 1997, relating to
the consolidated financial statements of Forasol-Foramer N.V. which are
incorporated by reference in such Registration Statement. We also consent to the
reference to our firm under the caption "Independent Public Accountants."
ERNST & YOUNG AUDIT
/s/ FRANCOIS VILLARD
Represented by
Francois Villard
Paris, France
April 8, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement No. 333-21385 on Form S-3 Amendment No. 1 dated on or
around April 6, 1997 and to the inclusion in the Current Report on Form 8-K/A
dated March 10, 1997 of our report dated May 8, 1996, relating to the financial
statements of Forasol-Foramer N.V. which are incorporated by reference in such
Registration Statement. We also consent to the reference to our firm under the
caption "Independent Public Accountants."
Paris, France
April 4, 1997
PRICE WATERHOUSE
EXHIBIT 23.3
LETTER OF CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use and
incorporation by reference of our report dated May 20, 1996 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 incorporated by reference in the Registration
Statement on Form S-3 (Reg. No. 333-21385) by Pride Petroleum Services, Inc.
PISTRELLI, DIAZ Y ASOCIADOS
ENRIQUE C. GROTZ
Partner
Buenos Aires, Argentina
April 7, 1997
