<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18437
-------------
POOL ENERGY SERVICES CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0263755
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10375 RICHMOND AVENUE
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 954-3000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
The number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1995: Common stock, no par value - 14,063,983
shares
================================================================================
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,515 $ 56,167
Earnings Attributable to Unconsolidated Affiliates . . . . . . . . . . 752 1,038
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,267 57,205
----------- -----------
Costs and Expenses:
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 60,226 46,105
Selling, general and administrative expenses . . . . . . . . . . . 10,614 8,744
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 4,010 3,407
GPC acquisition related costs . . . . . . . . . . . . . . . . . . . 43 -
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,893 58,256
----------- -----------
Other Income (Expense) - Net . . . . . . . . . . . . . . . . . . . . . 354 854
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 33
----------- -----------
Income (Loss) Before Income Taxes . . . . . . . . . . . . . . . . . . . 1,001 (230)
Income Tax Provision (Credit) . . . . . . . . . . . . . . . . . . . . . 357 (801)
----------- -----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 644 $ 571
=========== ===========
Earnings Per Share of Common Stock . . . . . . . . . . . . . . . . . . $ .05 $ .04
=========== ===========
Average Common Shares Outstanding . . . . . . . . . . . . . . . . . . . 14,063,515 13,560,928
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 3
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202,174 $ 166,404
Earnings Attributable to Unconsolidated Affiliates . . . . . . . . . . . 2,170 4,133
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,344 170,537
----------- -----------
Costs and Expenses:
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 160,852 132,887
Selling, general and administrative expenses . . . . . . . . . . . . 29,491 27,125
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 10,834 10,371
GPC acquisition related costs . . . . . . . . . . . . . . . . . . . . 643 -
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,820 170,383
----------- -----------
Other Income (Expense) - Net . . . . . . . . . . . . . . . . . . . . . . 988 1,458
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 70
----------- -----------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 2,367 1,542
Income Tax Provision (Credit) . . . . . . . . . . . . . . . . . . . . . . 953 (523)
----------- -----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,414 $ 2,065
=========== ===========
Earnings Per Share of Common Stock . . . . . . . . . . . . . . . . . . . $ .10 $ .15
=========== ===========
Average Common Shares Outstanding . . . . . . . . . . . . . . . . . . . . 13,764,681 13,558,317
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1995 1994
--------- ---------
<S> <C> <C>
Net Cash Flows Provided by Operating Activities . . . . . . . . . . . . . $ 6,272 $ 838
--------- ---------
Investing Activities:
Property additions . . . . . . . . . . . . . . . . . . . . . . . . . (18,323) (7,458)
Expenditures for the acquisition of GPC, including acquisition costs,
less cash acquired . . . . . . . . . . . . . . . . . . . . . . . . (2,980) -
Payment for purchase of Pool Arctic Alaska, net of cash acquired . . - (11,250)
Expenditures for modification of Alaska Rig 428 . . . . . . . . . . . - (527)
Proceeds from disposition of property, plant and equipment . . . . . 1,758 8,618
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 473
--------- ---------
Net Cash Flows Used for Investing Activities . . . . . . . . . . (19,081) (10,144)
--------- ---------
Financing Activities:
Proceeds and repayments of short-term borrowings - net . . . . . . . 7,700 6,700
Proceeds from exercise of stock options . . . . . . . . . . . . . . . 61 45
Retirement of debt assumed in GPC acquisition . . . . . . . . . . . . (1,962) -
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . 10,000 545
Principal payments on long-term debt . . . . . . . . . . . . . . . . (1,943) (20)
--------- ---------
Net Cash Flows Provided by Financing Activities . . . . . . . . . 13,856 7,270
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . 1,047 (2,036)
Cash and Cash Equivalents at January 1, . . . . . . . . . . . . . . . . . 2,560 4,603
--------- ---------
Cash and Cash Equivalents at September 30, . . . . . . . . . . . . . . . $ 3,607 $ 2,567
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 3,607 $ 2,560
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 153
Accounts and notes receivable (net of allowance for doubtful accounts
of $1,481 and $1,622) . . . . . . . . . . . . . . . . . . . . . . . . . 58,884 50,038
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,072 10,571
Deferred income tax asset (net of $350 and $423 allowance) . . . . . . . 4,464 3,275
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,351 3,821
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 83,539 70,418
Property, Plant and Equipment-Net . . . . . . . . . . . . . . . . . . . . . . 122,311 101,536
Investment in and Noncurrent Receivables from Unconsolidated Affiliates . . . 27,724 26,042
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,642 -
Noncurrent Deferred Income Tax Asset (net of $7,886 and $8,483 allowance) . . 5,130 8,713
Noncurrent Receivables (net of allowance for doubtful accounts of
$2,818 and $3,667) and Other Assets . . . . . . . . . . . . . . . . . . . 2,487 1,972
Noncurrent Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . 1,015 1,137
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,848 $ 209,818
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,300 $ 1,600
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 5,033 126
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 19,549 16,053
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 22,251 19,609
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 56,133 37,388
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,544 369
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,155 1,872
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,707 41,550
Shareholders' Equity:
Common stock, no par value:
25,000,000 shares authorized; 14,063,983 and 13,561,440 shares
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . 134,438 130,177
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . 193 (1,221)
Cumulative foreign currency translation adjustments . . . . . . . . . . . (322) (317)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 134,309 128,639
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,848 $ 209,818
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included in this report
are unaudited but in the opinion of management include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods indicated. All
dollar amounts in the tabulations in the notes to the financial statements are
stated in thousands unless otherwise indicated. Certain reclassifications have
been made in the 1994 financial statements to conform with the 1995
presentation. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
(2) UNCONSOLIDATED AFFILIATES
The following tables set forth certain summarized financial information of
the Company's unconsolidated affiliates as shown by the financial statements of
the affiliates.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues:
Pool Arabia, Ltd. . . . . . . . . . $ 21,600 $ 27,585
Pool Arctic Alaska (2) . . . . . . - 20,693
Intairdril Oman L.L.C. . . . . . . 308 834
Antah Drilling Sdn. Bhd. . . . . . 3,146 2,620
Pool Santana, Limited . . . . . . . 3,887 3,979
--------- ---------
Total . . . . . . . . . . . . . $ 28,941 $ 55,711
========= =========
Gross profit (1):
Pool Arabia, Ltd. . . . . . . . . . $ 7,906 $ 10,550
Pool Arctic Alaska (2) . . . . . . - 5,330
Intairdril Oman L.L.C. . . . . . . 178 536
Antah Drilling Sdn. Bhd. . . . . . 1,712 1,920
Pool Santana, Limited . . . . . . . 1,508 1,737
--------- ---------
Total . . . . . . . . . . . . . $ 11,304 $ 20,073
========= =========
Net income (loss):
Pool Arabia, Ltd. . . . . . . . . . $ (135) $ 1,507
Pool Arctic Alaska (2) . . . . . . - 1,903
Intairdril Oman L.L.C. . . . . . . (348) 86
Antah Drilling Sdn. Bhd. . . . . . (411) 517
Pool Santana, Limited . . . . . . . 494 678
--------- ---------
Total . . . . . . . . . . . . . $ (400) $ 4,691
========= =========
</TABLE>
_____________
(1) Gross profit is computed as revenues less operating expenses
(which exclude depreciation and general and administrative
expenses).
(2) On September 28, 1994, the Company acquired the 60.7% interest not
already owned by the Company in Pool Arctic Alaska, a partnership.
The results of Pool Arctic Alaska have been included in the
accompanying consolidated financial statements since the date of
such acquisition.
6
<PAGE> 7
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) ACQUISITION OF GOLDEN PACIFIC CORP.
On June 13, 1995, the Company acquired all of the outstanding capital
stock of Golden Pacific Corp. ("GPC"), a privately-owned California
well-servicing company with a fleet of approximately 155 rigs and related
equipment, for approximately $18 million, consisting of long-term notes in the
amount of $11.5 million, 493,543 shares of the Company's common stock valued at
$4.2 million and $2.3 million in cash. The cash paid in the transaction was
provided by the Company's existing syndicated bank line of credit.
The acquisition was accounted for under the purchase method, and
accordingly the results of the acquired company have been included in the
accompanying condensed consolidated financial statements since the date of
acquisition. The purchase price was allocated on the basis of the estimated
fair market value of the assets acquired and the liabilities assumed as of the
date of acquisition. This allocation resulted in goodwill of approximately
$10.7 million, which is being amortized on a straight-line basis over 30 years.
The purchase price paid at closing is subject to certain adjustments,
principally including adjustments based on GPC's earnings for the period May
28, 1994 to June 13, 1995. The purchase price adjustments are expected to be
finalized in early 1996. The fair values of the assets acquired and
liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired, including $654 of cash and cash equivalents . . $ 37,230
Long-term notes issued for capital stock of GPC . . . . . . . . . . . . . . . . (11,500)
Company's common stock issued for capital stock of GPC . . . . . . . . . . . . (4,200)
Cash paid for capital stock of GPC . . . . . . . . . . . . . . . . . . . . . . (2,300)
Acquisition related expenditures . . . . . . . . . . . . . . . . . . . . . . . (1,292)
---------
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,938
=========
</TABLE>
The following unaudited pro forma summary of financial information presents
the Company's consolidated results of operations as if the acquisition had
occurred at the beginning of the periods indicated, after including the impact
of certain adjustments, such as: additional depreciation expense, amortization
of goodwill, increased interest expense on the acquisition debt, decreased
insurance expense, elimination of certain transactions with affiliates of GPC
and related income tax effects.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
---------------------------------
1995 1994
---------- ---------
(In thousands except earnings per share)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223,194 $ 205,095
========== =========
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,673 $ 4,046
========== =========
Earnings Per Share of Common Stock . . . . . . . . . . . . . $ .19 $ .29
========== =========
Average Shares Outstanding . . . . . . . . . . . . . . . . . 14,059 14,052
========== =========
</TABLE>
The above pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred if the acquisition had taken place at the beginning of the
periods presented, nor is it necessarily indicative of future operating
results.
7
<PAGE> 8
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) LONG-TERM DEBT AND LINES OF CREDIT
In April 1995, the Company obtained a three-year term loan to refinance
$10 million of the purchase price for the 60.7% partnership interest in Pool
Arctic Alaska which was acquired in September 1994. This acquisition was
originally funded from the Company's cash resources and approximately $6.7
million borrowed under its syndicated bank line of credit. The term loan is
repayable in quarterly installments of $0.9 million through March 1996,
followed by quarterly installments of $0.6 million through December 1997 and a
final payment of $2.1 million on March 31, 1998. The term loan agreement
contains restrictive covenants similar to those pertaining to the Company's
syndicated bank line of credit and, in addition, includes a fixed charge
coverage ratio covenant. At the Company's option, interest accrues at a
floating rate based upon (i) the lenders' prime rate plus 0.5%, or (ii) the
London Interbank Offered Rate (LIBOR) plus 2.75%, with the Company's choice of
a one-, two-, three-, or six-month interest period. The applicable interest
rate on amounts outstanding at September 30, 1995 was 8.63%. The term loan is
cross-collateralized to the Company's syndicated bank line of credit.
In June 1995, as partial consideration for the acquisition of GPC, the
Company issued 10% subordinated notes aggregating $11.5 million which are due
in 2005. Required principal payments on the notes are as follows: $1.5
million in 1996, $0.6 million in each of the years 1997 through 2000 and $7.5
million thereafter. These notes are subordinate to the Company's syndicated
bank line of credit and $10 million term loan and are collateralized by (i) the
well- servicing rigs and related equipment of the acquired business, (ii) real
property of the acquired business and (iii) a $5 million letter of credit. The
agreement pertaining to the subordinated notes contains various restrictive
covenants, including covenants pertaining to the creation of certain
encumbrances, the transaction of certain mergers or sales of assets, the
creation of certain additional debt and other matters.
In connection with the two debt transactions discussed above, the
Company's syndicated bank line of credit was amended in the second quarter of
1995 to add as collateral the property owned by the Company's Alaska subsidiary
and the Company's 13 platform rigs located in the Gulf of Mexico and to make
certain changes with respect to the interest rate. Also, in June 1995 the
expiration date of this line of credit was extended from April 1996 to April
1997. The interest rate is a floating rate which is, at the Company's option,
(i) the lenders' prime rate plus 0.25%, or (ii) LIBOR plus 2.625%, with the
Company's choice of a one-, two-, three-, or six-month interest period.
In connection with the GPC acquisition the Company assumed a liability for
certain deferred compensation obligations of GPC. To evidence such
obligations, the Company issued 10% two-year promissory notes aggregating $1.5
million in principal amount to three employees of GPC. Such notes are secured
by the real property of the acquired business.
8
<PAGE> 9
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) INCOME TAXES
In the second quarter of 1995, the Company determined that a valuation
allowance related to its U.S. federal net operating loss ("NOL") carryforwards
was no longer necessary. The elimination of this valuation allowance resulted
from management's belief that it is now more likely than not that the Company
will generate taxable income sufficient to realize the tax benefit of the NOL
carryforwards prior to their expiration. This belief is based upon, among
other factors, anticipated lower tax depreciation charges within the next one
to two years as a result of most existing property becoming fully depreciated
for U.S. tax purposes, the expected increase in taxable income associated with
the GPC acquisition and consideration of available tax planning strategies.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GOLDEN PACIFIC CORP. ACQUISITION
On June 13, 1995, the Company acquired all of the outstanding capital
stock of Golden Pacific Corp. ("GPC"). GPC, which had annual revenues of
approximately $50 million, operated a fleet of approximately 155 land
well-servicing rigs in California. See Note 3 of Notes to Condensed
Consolidated Financial Statements for a discussion of this acquisition.
RESULTS OF OPERATIONS - QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994
The Company had consolidated net income of $0.6 million for the quarter
ended September 30, 1995 which equaled net income for the quarter ended
September 30, 1994. However, income before income taxes was $1.0 million for
the current quarter, compared to a loss before income taxes of $0.2 million for
the third quarter of 1994. The average price per barrel of West Texas
Intermediate crude oil was lower by approximately 6% in the third quarter of
1995 than in the third quarter of 1994, and average natural gas prices dropped
approximately 12% comparing the same periods. Results from the Company's
domestic operations improved primarily due to the inclusion of results from
rigs and equipment acquired in the GPC acquisition and increased activity
onshore in the lower 48 states, offsetting reduced operating results in Alaska.
The Company's domestic onshore operation reported third quarter well-servicing
rig hours 50% higher than in the corresponding quarter of 1994, primarily due
to the inclusion of rigs acquired in the GPC acquisition as well as higher
overall rig utilization; rig rates, however, were marginally lower. Rig
utilization for the Company's Gulf of Mexico rig fleet was 62% in the third
quarter of 1995 compared to 50% during the comparable period of 1994; average
rig rates, however, were lower, particularly for jackup rigs. Earnings from
the Company's Alaska operations decreased from the third quarter of 1994 due to
the completion in late 1994 of a long-term offshore drilling rig contract.
Results from the Company's international operations increased primarily due to
higher levels of activity in Tunisia, Oman and Pakistan and earnings
attributable to a new offshore platform workover rig in Australia, offset
partly by lower earnings from the Company's unconsolidated affiliate in Saudi
Arabia.
Revenues. Revenues were $75.5 million in the third quarter of 1995, an
increase of 34% compared with revenues of $56.2 million in the third quarter of
1994. The increase was primarily attributable to the inclusion of revenues
from rigs and equipment acquired in the GPC acquisition, the inclusion of
revenues from rigs and equipment previously owned by the Pool Arctic Alaska
partnership, a higher level of activity by the Company's domestic onshore
well-servicing rig fleet, increased rig activity in Tunisia, Oman and Pakistan
and the revenues attributable to a new offshore platform workover rig in
Australia, offset partly by reduced land drilling rig activity in Ecuador.
In September 1994, the Company acquired the 60.7% partnership interest not
already owned by the Company in Pool Arctic Alaska, and accordingly, revenues
generated from Pool Arctic Alaska rigs and equipment have been included in the
Company's consolidated financial statements in the third quarter of 1995.
Prior to the date of such acquisition, the Company's revenues did not include
revenues of Pool Arctic Alaska, which was an unconsolidated affiliate, but did
include revenues from the Company's wholly-owned operations in Alaska.
Revenues for Alaska operations included in the Company's consolidated financial
statements were $5.2 million in the third quarter of 1995. Revenues generated
by the Company's wholly-owned operations in Alaska in the corresponding quarter
of 1994 were $1.8 million.
Domestic onshore well-servicing revenues increased $14.5 million or 51% in
the third quarter of 1995 from the corresponding quarter of 1994, partly as a
result of the GPC acquisition. Gulf of Mexico offshore workover and drilling
revenues increased $0.4 million or 5% and international operations revenues
increased $1.1 million or 18% from the third quarter of 1994. Revenues for
international operations do not include revenues from the Company's foreign
joint ventures, which are unconsolidated affiliates.
10
<PAGE> 11
Earnings Attributable to Unconsolidated Affiliates. Earnings attributable
to unconsolidated affiliates were $0.8 million in the third quarter of 1995
compared to $1.0 million in the third quarter of 1994. Earnings attributable
to Pool Arabia, Ltd., the Company's Saudi Arabia affiliate, decreased $0.3
million from the third quarter of 1994 primarily as a result of the completion
in early 1995 of three land workover rig contracts in Kuwait and the completion
in March 1995 of a land drilling contract in Saudi Arabia. Results
attributable to Pool Arctic Alaska were a loss of $0.2 million in the third
quarter of 1994. Earnings from Pool Arctic Alaska ceased to be included in
earnings attributable to unconsolidated affiliates immediately following the
Company's purchase of its partner's interest in September 1994.
Costs and Expenses. The Company's costs and expenses were $74.9 million
in the third quarter of 1995, compared to $58.3 million in the corresponding
quarter of 1994. Such increase was attributable to the inclusion of operating
expenses related to the rigs and equipment obtained in the GPC acquisition, the
inclusion of costs and expenses related to the rigs and equipment previously
owned by the Pool Arctic Alaska partnership, and related costs associated with
higher levels of activity in the Company's domestic onshore well-servicing and
Gulf of Mexico offshore service lines. At the beginning of the fourth quarter
of 1994, the Company revised its estimate of the remaining depreciable lives of
certain rigs and equipment to better reflect the remaining economic lives of
such assets. Such change increased net income for the third quarter of 1995
(as compared to the third quarter of 1994) by approximately $0.5 million.
Other Income - Net. Other income - net in the third quarter of 1994
included a $0.5 million gain resulting from a settlement related to the sale in
1991 of Libya assets that had been written off in the mid-1980's when the
Company terminated operations in that country.
Interest Expense. Interest expense was $0.7 million higher in the third
quarter of 1995 than in the third quarter of 1994 due to the $10 million term
loan to refinance the acquisition of the 60.7% partnership interest in Pool
Arctic Alaska, the GPC acquisition debt and higher borrowings under the
Company's syndicated bank line of credit (the "Line of Credit").
Income Taxes. The Company recorded income tax expense of $0.4 million in
the third quarter of 1995 on income before income taxes of $1.0 million,
compared to an income tax benefit of $0.8 million on a loss before income taxes
of $0.2 million in the third quarter of 1994. This increase of $1.2 million of
net deferred income tax expense was due to stronger domestic operating results
in the third quarter of 1995 compared to the third quarter of 1994. Also, the
third quarter of 1994 included a net reversal of $0.4 million of previously
accrued foreign income taxes. The Company's interim period tax expense is
determined by utilizing the aggregate of estimated annual effective tax rates
for each of its domestic and foreign locations.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The Company had consolidated net income of $1.4 million for the first nine
months of 1995, which included a $0.4 million after-tax charge for costs
related to the GPC acquisition, compared to net income of $2.1 million for the
first nine months of 1994. However, income before income taxes of $2.4 million
for the nine months ended September 30, 1995 showed a 54% improvement over
income before income taxes of $1.5 million earned in the first nine months of
1994. Results from the Company's domestic operations improved primarily
because of increased activity onshore in the lower 48 states, offsetting the
effect of lower rates in the Gulf of Mexico and reduced operating results in
Alaska. The Company's domestic onshore operation reported rig hours 26% higher
for the first nine months of 1995 than in the corresponding period of 1994,
primarily due to the inclusion of rigs from the GPC acquisition since June 14,
1995; rig rates, however, were marginally lower. The Company's offshore
operation in the Gulf of Mexico experienced rig utilization of 63% in the first
nine months of 1995 compared to 51% in the corresponding period of 1994;
average rig rates, however, were lower, particularly for jackup rigs. Earnings
from the Company's Alaska operations decreased from the first nine months of
1994 due to one of its three land drilling rigs being on standby status during
the first nine months of 1995, whereas it operated for four months during the
corresponding period of 1994 before going on standby status, and due to the
completion in late 1994 of a
11
<PAGE> 12
long-term offshore drilling rig contract. Results from the Company's
international operations decreased primarily due to lower earnings from the
Company's unconsolidated affiliates in Saudi Arabia and Oman, reduced land
drilling activity in Ecuador and the absence of two rig contracts in Kuwait
which were completed in mid-1994.
Revenues. Revenues for the first nine months of 1995 were $202.2 million,
an increase of 21% compared with revenues of $166.4 million for the first nine
months of 1994. This increase was attributable to the inclusion of revenues
from rigs and equipment previously owned by the Pool Arctic Alaska partnership,
revenues from rigs and equipment acquired in the GPC acquisition, a higher
level of activity by the Company's domestic onshore well-servicing rig fleet,
increased rig activity in Tunisia, Oman and Pakistan, revenues attributable to
a new offshore platform workover rig in Australia and increased domestic
production services activity in the first nine months of 1995, offset partly by
lower rig rates for the Company's Gulf offshore rig fleet, the absence of two
rig contracts in Kuwait which were completed in mid-1994 and reduced land
drilling activity in Ecuador.
In September 1994, the Company acquired the 60.7% partnership interest not
already owned by the Company in Pool Arctic Alaska, and accordingly revenues
generated from Pool Arctic Alaska rigs and equipment have been included in the
Company's consolidated financial statements in the first nine months of 1995.
Prior to the date of such acquisition, the Company's revenues did not include
revenues of Pool Arctic Alaska, which was an unconsolidated affiliate, but did
include revenues from the Company's wholly-owned operations in Alaska.
Revenues for Alaska operations included in the Company's consolidated financial
statements were $16.3 million in the first nine months of 1995. Revenues
generated by the Company's wholly-owned operations in Alaska in the
corresponding period of 1994 were $5.7 million.
Domestic onshore well-servicing revenues increased $21.9 million or 26% in
the first nine months of 1995 from the corresponding period of 1994, partly as
a result of the GPC acquisition. In addition, domestic production services
revenues increased $1.3 million or 4% in the first nine months of 1995 from the
first nine months of 1994. Gulf of Mexico offshore workover and drilling
revenues decreased $0.7 million or 3%, and international operations revenues
increased $1.9 million or 11%, from the first nine months of 1994. Revenues
for international operations do not include revenues from the Company's foreign
joint ventures, which are unconsolidated affiliates.
Earnings Attributable to Unconsolidated Affiliates. Earnings attributable
to unconsolidated affiliates were $2.2 million in the first nine months of 1995
compared to $4.1 million in the first nine months of 1994. Earnings
attributable to Pool Arabia, Ltd. decreased $0.9 million from the first nine
months of 1994 primarily as a result of the completion in early 1995 of three
land workover rig contracts in Kuwait and the completion in March 1995 of a
land drilling contract in Saudi Arabia. Earnings attributable to Pool Arctic
Alaska were $0.5 million in the first nine months of 1994. Earnings from Pool
Arctic Alaska ceased to be included in earnings attributable to unconsolidated
affiliates immediately following the Company's purchase of its partner's
interest in September 1994. Earnings attributable to Intairdril Oman L.L.C.
decreased $0.2 million from the first nine months of 1994 due to lower rig
activity.
Costs and Expenses. The Company's costs and expenses were $201.8 million
in the first nine months of 1995, compared to $170.4 million in the
corresponding period of 1994. Such increase was attributable to the
inclusion, for the period June 14 through September 30, 1995, of operating
expenses related to the rigs and equipment obtained in the GPC acquisition, the
inclusion of costs and expenses related to the rigs and equipment previously
owned by the Pool Arctic Alaska partnership, $0.6 million of expenses related
to the GPC acquisition, primarily for yard closings, and related costs
associated with higher levels of activity in the Company's domestic onshore
well-servicing line as well as in Tunisia, Oman and Pakistan. Partially
offsetting these higher costs and expenses were lower repair and maintenance
expenses for the Company's Gulf of Mexico offshore fleet and lower costs and
expenses in Ecuador due to a reduced level of drilling activity. At the
beginning of the fourth quarter of 1994, the Company revised its estimate of
the remaining depreciable lives of certain rigs and equipment to better reflect
the remaining economic lives of such assets.
12
<PAGE> 13
Such change increased net income for the first nine months of 1995 (as compared
to the first nine months of 1994) by approximately $1.6 million.
Other Income - Net. Other income - net in the first nine months of 1994
included a $0.5 million gain resulting from a settlement related to the sale in
1991 of Libya assets that had been written off in the mid-1980's when the
Company terminated operations in that country.
Interest Expense. Interest expense was $1.1 million higher in the first
nine months of 1995 than in the corresponding period of 1994 due primarily to
the $10 million term loan to refinance the acquisition of the 60.7% partnership
interest in Pool Arctic Alaska, the GPC acquisition and higher borrowings under
the Company's Line of Credit.
Income Taxes. The Company recorded income tax expense of $1.0 million on
income before income taxes of $2.4 million in the first nine months of 1995,
compared to an income tax benefit of $0.5 million on income before income taxes
of $1.5 million in the first nine months of 1994. This increase of $1.5
million of net deferred income tax expense was due to stronger domestic
operating results in the first nine months of 1995 plus the effect of certain
amendments to prior period U.S. federal tax returns, partly offset by the
reversal of no longer needed deferred foreign taxes for 1990 income tax
indemnities and the elimination of the Company's valuation allowance related to
its U.S. federal net operating loss carryforwards (see Note 5 of Notes to
Condensed Consolidated Financial Statements for further discussion). The first
nine months of 1994 included a net reversal of $0.6 million of previously
accrued foreign income taxes. The Company's interim period tax expense is
determined by utilizing the aggregate of estimated annual effective tax rates
for each of its domestic and foreign locations.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows. The Company had cash and cash equivalents of $3.6 million at
September 30, 1995 compared to $2.6 million at December 31, 1994. Working
capital was $27.4 million and $33.0 million at September 30, 1995 and December
31, 1994, respectively. The Company used a net $19.0 million for investing
activities in the first nine months of 1995, primarily for capital expenditures
of $18.3 million, including $6.7 million for the construction of a new offshore
platform workover rig which began earning revenues in Australia in the third
quarter of 1995, and $3.0 million, net of cash acquired, used in connection
with the acquisition of GPC, offset partly by $1.8 million of proceeds from
dispositions of equipment. The Company used a net $10.1 million for investing
activities in the first nine months of 1994. This included the purchase of Pool
Arctic Alaska for $11.3 million, net of cash acquired, and $8.0 million of
other capital expenditures, offset partly by $7.0 million of proceeds from the
sale and leaseback of three offshore jackup rigs and $1.6 million of proceeds
from sales of other equipment. The Company anticipates that 1995 capital
expenditures (excluding the capital expenditures for the GPC acquisition) will
consist of (i) approximately $19.5 million for capital additions and
improvements to its existing rig fleet and (ii) approximately $7.2 million for
the new offshore platform workover rig in Australia. It is anticipated that
the $19.5 million of capital expenditures will be financed chiefly through
internally generated funds, although the Company will avail itself of
borrowings as needed. The Company is in the process of obtaining $6.5 million
of project financing to refinance the cost of the new offshore platform
workover rig located in Australia which the Company paid for in the first nine
months of 1995.
Acquisition of GPC. On June 13, 1995, the Company acquired all of the
outstanding capital stock of GPC for approximately $18 million, consisting of
$11.5 million in subordinated long-term notes due in 2005, 493,543 shares of
the Company's common stock valued at $4.2 million and $2.3 million in cash.
See Note 3 of Notes to Condensed Consolidated Financial Statements for further
discussion.
Also in connection with the GPC acquisition the Company assumed a
liability for certain deferred compensation obligations of GPC. To evidence
such obligations, the Company issued notes aggregating $1.5
13
<PAGE> 14
million in principal amount to three employees of GPC. See Note 4 of Notes to
Condensed Consolidated Financial Statements for further discussion.
As part of the acquisition of GPC, the Company assumed $2 million of GPC's
debt, all of which was retired in June 1995.
Credit Facilities and Long-Term Debt. The Company has available a Line of
Credit to finance temporary working capital requirements and to support the
issuance of letters of credit. In June 1995, expiration of the Line of Credit
was extended from April 1996 to April 1997. The maximum availability is the
lesser of (i) $30 million, or (ii) a calculated amount based upon a percentage
of domestic receivables meeting certain criteria. At September 30, 1995, the
maximum availability was $30 million, of which $9.3 million had been drawn in
cash and $13.8 million was being utilized to support the issuance of letters of
credit, including $5.9 million in letters of credit issued in connection with
the GPC acquisition as security for the acquisition debt and for obligations to
GPC's insurers.
In April 1995, the Company obtained a three-year term loan (the "Term
Loan") to refinance $10 million of the purchase price for the 60.7% partnership
interest in Pool Arctic Alaska it acquired in September 1994. This acquisition
was originally funded from the Company's cash resources and approximately $6.7
million borrowed under its Line of Credit. Since April 1995, the Company has
made scheduled principal payments of $1.8 million on this Term Loan. See Note
4 of Notes to Condensed Consolidated Financial Statements for further
discussion.
In connection with obtaining the Term Loan in April 1995 and the Company's
purchase of GPC in June 1995, the Line of Credit was amended to add as
collateral all the property of the Company's wholly-owned Alaska subsidiary and
the Company's 13 platform rigs located in the Gulf of Mexico and to make
certain changes with respect to the interest rate. The Line of Credit
continues to be secured by certain accounts receivable, certain deposit
accounts, and stock of subsidiary companies. The interest rate is a floating
rate which is, at the Company's option, (i) the lenders' prime rate plus 0.25%,
or (ii) LIBOR plus 2.625%, with the Company's choice of a one-, two-, three-,
or six-month interest period.
14
<PAGE> 15
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DOCUMENT
----------- --------
27(*) - Financial Data Schedule
_______________
(*) Filed herewith
(b) Reports on Form 8-K - The Registrant filed a Current Report on Form 8-K/A
(Amendment No. 1) dated August 25, 1995 (Date of event: June 13, 1995),
for the purpose of supplying the financial statements of Golden Pacific
Corp. and Subsidiaries and the pro forma financial information of the
Company reflecting the addition of Golden Pacific Corp. and Subsidiaries,
which were omitted from the Form 8-K filed June 27, 1995 in reliance on
Item 7(a)(4).
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POOL ENERGY SERVICES CO.
(Registrant)
NOVEMBER 10, 1995 /S/ E. J. SPILLARD
- -------------------------------- ------------------------------------
(Date) E. J. Spillard
Senior Vice President, Finance
(principal financial officer)
NOVEMBER 10, 1995 /S/ B. G. GORDON
- -------------------------------- ------------------------------------
(Date) B. G. Gordon
Controller
(principal accounting officer)
16
<PAGE> 17
POOL ENERGY SERVICES CO.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------- --------
<S> <C>
27 - Financial Data Schedule
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,607
<SECURITIES> 0
<RECEIVABLES> 52,375
<ALLOWANCES> 1,481
<INVENTORY> 11,072
<CURRENT-ASSETS> 83,539
<PP&E> 196,558
<DEPRECIATION> 74,247
<TOTAL-ASSETS> 252,848
<CURRENT-LIABILITIES> 56,133
<BONDS> 16,544
<COMMON> 134,438
0
0
<OTHER-SE> (129)
<TOTAL-LIABILITY-AND-EQUITY> 252,848
<SALES> 0
<TOTAL-REVENUES> 202,174
<CGS> 0
<TOTAL-COSTS> 160,852
<OTHER-EXPENSES> 643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,145
<INCOME-PRETAX> 2,367
<INCOME-TAX> 953
<INCOME-CONTINUING> 1,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,414
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
