-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WF+rH1FhNBdjCssPdQyI0MPBl/WnTpm+hTn6EkwcNW4KhOXCiCCIU8hVEddpsLAr Z8BwRBDGnwVZCfm0SujEFA== 0000890566-98-001475.txt : 19980817 0000890566-98-001475.hdr.sgml : 19980817 ACCESSION NUMBER: 0000890566-98-001475 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIDE INTERNATIONAL INC CENTRAL INDEX KEY: 0000833081 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 760069030 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13289 FILM NUMBER: 98691768 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE ST ST 3300 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137891400 MAIL ADDRESS: STREET 1: 1500 CITY WEST BLVD STREET 2: SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77042 FORMER COMPANY: FORMER CONFORMED NAME: PRIDE PETROLEUM SERVICES INC DATE OF NAME CHANGE: 19920703 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-13289 ---------------------------- PRIDE INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) LOUISIANA 76-0069030 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5847 SAN FELIPE, SUITE 3300 HOUSTON, TEXAS 77057 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 789-1400 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practical date. Common Stock, no par value Outstanding as of August 6, 1998 50,156,400 ================================================================================ PRIDE INTERNATIONAL, INC. INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet as of June 30, 1998 and December 31, 1997......... 3 Consolidated Statement of Operations for the three months ended June 30, 1998 and 1997.................. 4 Consolidated Statement of Operations for the six months ended June 30, 1998 and 1997.................. 5 Consolidated Statement of Cash Flows for the six months ended June 30, 1998 and 1997.................. 6 Notes to Unaudited Consolidated Financial Statements................ 7 Report of Independent Accountants............... 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders........................ 20 Item 6. Exhibits and Reports on Form 8-K....................... 20 Signatures...................... 21 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 2 PRIDE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents....... $ 135,348 $ 74,395 Trade receivables, net.......... 205,064 194,973 Parts and supplies.............. 33,175 26,899 Deferred income taxes........... 1,508 2,252 Prepaid expenses and other current assets................ 46,546 35,691 ------------ ------------ Total current assets.......... 421,641 334,210 ------------ ------------ PROPERTY AND EQUIPMENT, at cost...... 1,526,615 1,273,327 ACCUMULATED DEPRECIATION............. (134,787) (101,680) ------------ ------------ Net property and equipment.... 1,391,828 1,171,647 ------------ ------------ OTHER ASSETS Investments in and advances to affiliates.................... 24,056 9,092 Goodwill and other intangibles, net........................... 3,521 3,623 Other assets.................... 32,238 22,929 ------------ ------------ Total other assets............ 59,815 35,644 ------------ ------------ $ 1,873,284 $1,541,501 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable................ $ 106,996 $ 101,318 Accrued expenses................ 56,111 58,412 Short-term borrowings........... 18,276 21,055 Current portion of long-term debt.......................... 33,662 39,356 Current portion of long-term lease obligations............. 10,582 10,336 ------------ ------------ Total current liabilities..... 225,627 230,477 ------------ ------------ OTHER LONG-TERM LIABILITIES.......... 43,417 28,911 LONG-TERM DEBT, net of current portion............................ 466,323 435,100 LONG-TERM LEASE OBLIGATIONS, net of current portion.................... 32,189 36,275 6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES......................... 52,500 52,500 ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES......................... 231,821 -- DEFERRED INCOME TAXES................ 78,228 72,313 MINORITY INTEREST.................... 11,471 768 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, no par value; 100,000,000 shares authorized; 50,154,768 and 50,097,120 shares issued and 50,100,548 and 50,042,900 shares outstanding, respectively..... 1 1 Paid-in capital................. 523,547 522,946 Treasury stock, at cost......... (191) (191) Retained earnings............... 208,351 162,401 ------------ ------------ Total shareholders' equity.................. 731,708 685,157 ------------ ------------ $ 1,873,284 $1,541,501 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 3 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) THREE MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------- ---------- REVENUES............................. $ 219,186 $ 174,537 OPERATING COSTS...................... 137,442 113,872 ---------- ---------- Gross margin.................... 81,744 60,665 DEPRECIATION AND AMORTIZATION........ 19,084 15,423 SELLING, GENERAL AND ADMINISTRATIVE..................... 19,895 18,342 ---------- ---------- EARNINGS FROM OPERATIONS............. 42,765 26,900 ---------- ---------- OTHER INCOME (EXPENSE) Other expense, net.............. (393) (12) Interest income................. 1,765 1,414 Interest expense................ (12,357) (9,918) ---------- ---------- Total other income (expense), net.......... (10,985) (8,516) ---------- ---------- EARNINGS BEFORE INCOME TAXES......... 31,780 18,384 INCOME TAX PROVISION................. 7,264 5,331 ---------- ---------- NET EARNINGS......................... $ 24,516 $ 13,053 ========== ========== NET EARNINGS PER SHARE Basic........................... $ .49 $ .29 Diluted......................... $ .43 $ .27 WEIGHTED AVERAGE SHARES OUTSTANDING Basic........................... 50,087 44,884 Diluted......................... 61,351 50,293 The accompanying notes are an integral part of the consolidated financial statements. 4 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------- ---------- REVENUES............................. $ 432,872 $ 305,913 OPERATING COSTS...................... 273,935 204,959 ---------- ---------- Gross margin.................... 158,937 100,954 DEPRECIATION AND AMORTIZATION........ 37,899 25,497 SELLING, GENERAL AND ADMINISTRATIVE..................... 40,752 33,360 ---------- ---------- EARNINGS FROM OPERATIONS............. 80,286 42,097 ---------- ---------- OTHER INCOME (EXPENSE) Other income (expense), net..... (559) 78,665 Interest income................. 3,064 1,923 Interest expense................ (22,828) (13,349) ---------- ---------- Total other income (expense), net.......... (20,323) 67,239 ---------- ---------- EARNINGS BEFORE INCOME TAXES......... 59,963 109,336 INCOME TAX PROVISION................. 14,013 38,789 ---------- ---------- NET EARNINGS......................... $ 45,950 $ 70,547 ========== ========== NET EARNINGS PER SHARE Basic........................... $ .92 $ 1.84 Diluted......................... $ .83 $ 1.61 WEIGHTED AVERAGE SHARES OUTSTANDING Basic........................... 50,073 38,263 Diluted......................... 58,331 44,719 The accompanying notes are an integral part of the consolidated financial statements. 5 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------- ---------- OPERATING ACTIVITIES Net earnings....................... $ 45,950 $ 70,547 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities -- Depreciation and amortization... 37,899 25,497 Discount amortization on zero coupon convertible subordinated debentures..................... 1,821 -- Gain on sale of assets.......... (173) (84,387) Effect of changes in foreign currency exchange rates........ (797) 346 Deferred tax provision (benefit)...................... 6,659 (14,127) Minority interest in earnings of consolidated subsidiaries...... (77) (168) Changes in assets and liabilities, net of effects of acquisitions -- Trade receivables............. (10,091) (4,426) Parts and supplies............ (6,276) (2,577) Prepaid expenses and other current assets............... (9,309) 4,782 Other assets.................. (3,955) (8,032) Accounts payable.............. 5,678 (9,820) Accrued expenses.............. (2,301) 13,274 ---------- ---------- Net cash provided by (used in) operating activities.............. 65,028 (9,091) ---------- ---------- INVESTING ACTIVITIES Purchase of net assets of acquired entities, including acquisition costs, less cash acquired....... -- (371,802) Purchases of property and equipment....................... (248,645) (67,608) Proceeds from sales of property and equipment....................... 2,417 139,010 Investments in affiliates.......... (14,964) (643) ---------- ---------- Net cash used in investing activities.............. (261,192) (301,043) ---------- ---------- FINANCING ACTIVITIES Proceeds from issuance of common stock........................... -- 72,691 Proceeds from exercise of stock options......................... 601 -- Proceeds from issuance of zero coupon convertible subordinated debentures, net of underwriting discounts and offering costs.... 223,100 -- Proceeds from debt borrowings...... 94,550 396,887 Reduction of debt.................. (61,134) (87,971) ---------- ---------- Net cash provided by financing activities.... 257,117 381,607 ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 60,953 71,473 CASH AND CASH EQUIVALENTS, beginning of period.......................... 74,395 10,770 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period............................. $ 135,348 $ 82,243 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 6 PRIDE INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The unaudited consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Pride International, Inc. (the "Company") included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. The unaudited consolidated financial information included herein reflects all adjustments, consisting only of normal recurring adjustments, which are necessary, in the opinion of management, for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for full years. 2. DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES SHORT-TERM BORROWINGS The Company has agreements with several banks for short-term lines of credit denominated in U.S. dollars, French francs and Argentine pesos. The facilities are renewable annually and bear interest at variable rates based on LIBOR for the U.S. dollar and Argentine peso denominated facilities, and PIBOR for the French franc denominated facilities. The interest rates on such borrowings as of June 30, 1998 ranged from 6.04% to 7.69%. LONG-TERM DEBT Long-term debt as of June 30, 1998 and December 31, 1997 consisted of the following: JUNE 30, DECEMBER 31, 1998 1997 ---------- ------------ (IN THOUSANDS) Senior notes......................... $ 325,000 $325,000 Collateralized term loans............ 71,368 79,009 Limited-recourse collateralized term loans.............................. 33,211 35,210 Other notes payable Note payable to sellers......... 5,000 11,000 Eximbank notes payable.......... 5,349 6,533 Notes payable................... 26,647 13,667 Loan obligations to customers... 3,410 4,037 Other debt........................... 30,000 -- ---------- ------------ 499,985 474,456 Current portion of long-term debt.... 33,662 39,356 ---------- ------------ Long-term debt, net of current portion......... $ 466,323 $435,100 ========== ============ SENIOR NOTES In May 1997, the Company issued $325,000,000 of 9.375% Senior Notes due May 1, 2007 (the "Senior Notes"). Interest on the Senior Notes is payable semi-annually on May 1 and November 1 of each year, commencing November 1, 1997. The Senior Notes are not redeemable prior to May 1, 2002, after 7 PRIDE INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which they will be redeemable, in whole or in part, at the option of the Company at redemption prices starting at 104.688% and declining to 100% by May 1, 2005. In the event the Company consummates a public equity offering on or prior to May 1, 2000, the Company at its option may use all or a portion of the proceeds from such public equity offering to redeem up to $108,333,000 principal amount of the Senior Notes at a redemption price equal to 109.375% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of redemption. The indenture governing the Senior Notes contains provisions which limit the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business. COLLATERALIZED TERM LOANS In April 1996, the Company completed two separate financing arrangements with lending institutions pursuant to which it borrowed an aggregate amount of $40,000,000 and an additional $6,500,000 in November 1996. The collateralized term loans bore interest initially at a floating rate of prime plus 0.5% and are repayable in monthly installments of principal and interest over a period of five to six years. In December 1996, the Company elected to convert the interest payable to a fixed rate basis. As a result, the collateralized term loans currently bear interest at fixed rates ranging from 7.95% to 8.50% per annum. The loans are collateralized by certain of the Company's domestic offshore rig fleet and ancillary equipment. The loan agreements include restrictive financial covenants with respect to cash flow coverage and tangible net worth. In connection with the March 1997 acquisition of Forasol-Foramer N.V. ("Forasol"), the Company assumed certain borrowing arrangements with various banks, including a $20 million bank loan, payable in semi-annual installments each August and February through 2002. The loan bears interest at a stated rate of six-month LIBOR plus a margin ranging from 1.25% to 2.50%. In conjunction with this loan, Forasol simultaneously entered into an interest rate swap agreement with a notional amount of $20 million, which fixed the rate of interest on this loan at 7.55% over the term of the debt agreement. A semisubmersible rig is pledged as security for this loan. The Company also assumed a $30 million bank loan, secured by another semisubmersible rig, payable in semi-annual installments beginning May 1997 through 2003, which bears interest at a rate of LIBOR plus a margin ranging from 1.00% to 2.00%. LIMITED-RECOURSE COLLATERALIZED TERM LOANS During 1994, the Company entered into long-term financing arrangements with two Japanese trading companies in connection with the construction and operation of two floating barge rigs. The term loans bear interest at 9.60% and are collateralized by the barge rigs and related charter contracts. The loans are being repaid from the proceeds of the related charter contracts in equal monthly installments of principal and interest through July 2004. In addition, a portion of contract proceeds is being held in trust to assure that timely payment of future debt service obligations is made. As of June 30, 1998, $2,435,000 of such contract proceeds, which amount is included in cash and cash equivalents on the accompanying unaudited consolidated balance sheet, are being held in trust as security for the lenders, and are not presently available for use by the Company. OTHER NOTES PAYABLE Other notes payable consists of an acquisition note payable to sellers, Eximbank loans for the purchase and import of goods manufactured in the United States into other countries, notes payable in connection with financed insurance premiums and miscellaneous loan obligations to customers. 8 PRIDE INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER DEBT Other debt includes certain foreign short-term borrowings relating to the acquisition of certain equipment to be installed on the PRIDE AFRICA and PRIDE ANGOLA, two ultra-deepwater drillships under construction referred to in Note 5. The Company intends to refinance these short-term borrowings to long-term and has obtained commitments from a group of banks to provide up to $310.0 million in loans to finance these construction projects. Accordingly, the Company has reclassified short-term borrowings of $30.0 million to long-term debt. The loans will be secured by such equipment and will bear interest at a rate of LIBOR plus 1.25% per annum. The Company has agreed to sell such equipment to two joint ventures formed to construct, own and operate the drillships on or before the date of acceptance by the operator of the drillships, which is anticipated to be mid-1999. The Company expects to repay such loans from such sales proceeds. CREDIT FACILITY In March 1997, the Company entered into a senior secured revolving credit facility with a group of banks (as amended and restated in December 1997, the "Credit Facility") under which up to $100 million (including $25 million for letters of credit) is available. Availability under the Credit Facility is limited to a borrowing base based on the fair market value of collateral. The Credit Facility is collateralized by the accounts receivable, inventory and other assets of the Company and its domestic subsidiaries, two-thirds of the stock of the Company's foreign subsidiaries, the stock of the Company's domestic subsidiaries and certain other assets. The Credit Facility terminates in December 2000. Borrowings under the Credit Facility bear interest at a variable rate based on either the prime rate or LIBOR. The Credit Facility limits the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business without prior consent of the lenders. Under the Credit Facility, the Company must maintain certain financial ratios, including (i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii) adjusted EBITDA to debt service and (iv) minimum tangible net worth. As of June 30, 1998, there were no amounts outstanding under the Credit Facility. In order to maintain the availability of the Credit Facility, the Company will be required to obtain waivers from the lenders or amend the Credit Facility prior to the funding of the equipment loans for the PRIDE AFRICA and the PRIDE ANGOLA. If the Company is unable to obtain such a waiver or amendment on terms it considers acceptable, the Company will seek alternate financing arrangements to replace the Credit Facility. CONVERTIBLE SUBORDINATED DEBENTURES In January 1996, the Company completed a public sale of $80,500,000 principal amount of 6 1/4% convertible subordinated debentures. The debentures, which are due February 15, 2006, are convertible into common stock of the Company at a price of $12.25 per share. The debentures are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 1999, at an initial redemption price of 103.125% of the principal amount and declining to 100.0% of the principal amount by February 15, 2002. Interest is payable semi-annually on February 15 and August 15 of each year commencing August 15, 1996. During the first quarter of 1997, an aggregate of $28,000,000 principal amount of the debentures was converted into 2,285,712 shares of common stock. In 1998, the Company completed a public sale of zero coupon convertible subordinated debentures. The net proceeds to the Company in connection with the sale, after deducting underwriting discounts and offering expenses, amounted to approximately $223,100,000. The issue price of $391.06 for each debenture represents a yield to maturity of 4.75% per annum (computed on a semiannual bond equivalent basis) calculated from the issue date. The debentures, which mature on April 24, 2018, are convertible into common stock of the Company at a conversion rate of 13.794 shares of common stock per $1,000 principal amount at maturity. At the maturity date, the value of the debentures would be $588,145,000. The Company 9 PRIDE INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) will become obligated to purchase the debentures, at the option of the holders, in whole or in part, on April 24, 2003, 2008 and 2013 at a price per debenture of $494.52, $625.35 and $790.79, respectively, settled either in cash, common stock or a combination thereof. On or subsequent to April 24, 2003, the debentures are redeemable at the option of the Company, in whole or in part, for cash at a price equal to the issue price plus accrued original issue discount to the date of redemption. 3. INCOME TAXES The Company's consolidated effective income tax rate for the six months ended June 30, 1998 was approximately 23%, as compared to approximately 35% for the corresponding period in 1997. The decrease in the effective tax rate for the first six months of 1998 resulted primarily from the effects of the inclusion of the related operating results of Forasol for the full six month period, which was acquired in March 1997 and has a majority of its international operations in lower tax jurisdictions. Such decrease was partially offset by an increase in the effective tax rate due to the inclusion of the related operating results of an addition in May 1997 of 13 mat-supported jackup drilling rigs. In addition, the 1997 first quarter included a pretax gain of $83.6 million on the sale of the Company's U.S. land operations that were taxed at 36% and certain non-deductible amounts, primarily $3.7 million of after-tax costs related to the induced conversion of $28.0 million of the Company's 6 1/4% convertible subordinated debentures. 4. NET EARNINGS PER SHARE Other income (expense), earnings before income taxes and net earnings for the six months ended June 30, 1997 include a pretax gain on the divestiture of the Company's U.S. land-based well servicing business of $83.6 million. The gain was partially offset by nonrecurring charges totaling $4.2 million, net of income taxes, relating principally to the induced conversion of $28.0 million principal amount of the Company's 6 1/4% convertible subordinated debentures. Excluding such nonrecurring items, net earnings for the six months ended June 30, 1997 were $21.3 million, or $.50 per share on a diluted basis. Basic net earnings per share has been computed based on the weighted average number of shares of common stock outstanding during the applicable period. Diluted net earnings per share has been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period, as if the convertible subordinated debentures were converted into common stock on the date of sale, after giving retroactive effect to the elimination of interest expense, net of income tax effect, applicable to the convertible subordinated debentures. The following table presents information necessary to calculate basic and diluted net earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1998 1997 1998 1997 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings......................... $ 24,516 $ 13,053 $ 45,950 $ 70,547 Interest expense on convertible subordinated debentures............ 2,749 860 3,615 1,956 Income tax effect.................... (989) (309) (1,301) (704) --------- --------- --------- --------- Adjusted net earnings........... $ 26,276 $ 13,604 $ 48,264 $ 71,799 ========= ========= ========= ========= Weighted average number of common shares outstanding................. 50,087 44,884 50,073 38,263 Convertible subordinated debentures......................... 10,258 4,286 7,287 4,286 Stock options and warrants........... 1,006 1,123 971 2,170 --------- --------- --------- --------- Adjusted weighted average shares outstanding................... 61,351 50,293 58,331 44,719 ========= ========= ========= ========= Basic net earnings per share................... $ .49 $ .29 $ .92 $ 1.84 ========= ========= ========= ========= Diluted net earnings per share................... $ .43 $ .27 $ .83 $ 1.61 ========= ========= ========= =========
10 PRIDE INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As described in Note 2, the Company will become obligated to purchase its zero coupon convertible subordinated debentures, at the option of the holders, in whole or in part, on April 24, 2003, 2008 and 2013. The Company has the option to purchase the debentures for cash, common stock or a combination thereof. The Company anticipates that if redemption of the debentures using common stock would result in dilution to common stockholders of greater than 13.794 shares per $1000 principal amount at maturity (the stated conversion rate), the Company would redeem the debentures for cash. 5. COMMITMENTS AND CONTINGENCIES The Company is routinely involved in litigation incidental to its business, which often involves claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the Company's existing litigation will have a material adverse effect on the Company's financial position, results of operations or cash flows. During 1997, the Company entered into a joint venture to construct, own and operate the PRIDE AFRICA, an ultra-deepwater drillship currently under construction in South Korea. The drillship is contracted to work offshore Angola for an initial term of five years. It is anticipated that the drillship will commence operations in mid-1999. The joint venture has entered into a financing arrangement with a group of banks providing that approximately $200 million of the drillship's estimated construction cost of $235 million will be financed by loans that are, upon delivery of the drillship, without recourse to the joint venture participants. The Company estimates that its equity investment in the project will be approximately $19 million, which represents a 51% ownership interest. The Company also has obtained a commitment from a group of banks to provide up to $110.0 million in loans to finance the acquisition of certain equipment to be installed on the PRIDE AFRICA. The loans will be secured by such equipment and will bear interest at a rate of LIBOR plus 1.25% per annum. The Company has agreed to sell such equipment to the joint venture formed to construct, own and operate the rig on or before the date Elf Angola accepts delivery of the rig under the charter, which is anticipated to be mid-1999, and expects to repay such loan from such sales proceeds. The joint venture intends to draw on its financing arrangement described above to finance its payment to the Company. In addition, the Company has entered into a letter of intent for a second ultra-deepwater drillship to operate offshore Angola under a three-year contract with two one-year options. The drillship, named the PRIDE ANGOLA, is being built in South Korea at a cost of approximately $235 million. The Company has agreed to form a joint venture similar to the PRIDE AFRICA joint venture to construct, own and operate the drillship and has arranged similar nonrecourse financing, subject to final documentation. The Company estimates that its equity investment in the project will be approximately $19 million, which will represent a 51% ownership interest. During 1997, a special purpose company, in which the Company has a 30% indirect investment, was formed to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. Upon their completion, the rigs will be contracted to Petroleo Brasilerio S.A. pursuant to chartering agreements with initial terms of five to eight years. The total estimated cost to construct, equip and mobilize the six rigs is approximately $1.1 billion. Delivery of the rigs is expected over a period from late 1999 through mid 2000. The Company has made aggregate equity contributions of approximately $30 million for the project as of August 14, 1998, of which approximately $21 million had been made as of June 30, 1998. The special purpose company has been seeking financing for up to 90% of the construction costs of the rigs on terms that would not require substantial recourse to the Company or the other project sponsor. To date, however, the special purpose company has been unable to obtain commitments for the financing, and there can be no assurance that financing will be obtained on these or other acceptable terms. In March 1998, the Company contracted to purchase, for approximately $85 million, a dynamically positioned, self-propelled semisubmersible drilling rig. The rig is currently working offshore Brazil under a charter and service contract that expires in 2001. The purchase price of the rig is to consist of $63.8 million in cash, with the balance to be financed by a note convertible into common stock. The Company expects to close the acquisition in the third quarter of 1998. 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Pride International, Inc.: We have reviewed the accompanying consolidated balance sheet of Pride International, Inc. as of June 30, 1998, and the related consolidated statements of operations for the three-month and six-month periods ended June 30, 1998 and 1997 and the related consolidated statement of cash flows for the six-month periods ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1997, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 16, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LLP Houston, Texas August 13, 1998 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements of Pride International, Inc. (the "Company") as of June 30, 1998 and for the three-month and six-month periods ended June 30, 1998 and 1997 included elsewhere herein, and with the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The following information contains forward-looking statements. For a discussion of certain limitations inherent in such statements, see "-- Forward-Looking Statements." GENERAL The Company's operations and future results have been and will be significantly affected by a series of strategic transactions that have transformed the Company from the second largest provider of land-based workover and related well services in the United States into a diversified drilling contractor operating both offshore and onshore in international markets and offshore in the U.S. Gulf of Mexico. With the sale of its domestic land-based well servicing operations in February 1997, the Company has ceased to provide rig services onshore in the United States. Since 1993, the Company has entered into a number of transactions that have significantly expanded its international and domestic offshore operations, including the following: o During 1993, the Company made market-entry acquisitions in Argentina and Venezuela. The Company further expanded these operations by subsequently deploying more than 40 rigs from its former U.S. land-based fleet to Argentina and Venezuela, and by acquiring four rigs from an Argentine competitor. The Company also made market-entry acquisitions in the Gulf of Mexico in 1994 and Colombia in 1995. o In January 1995, the Company commenced operating two barge rigs on Lake Maracaibo, Venezuela. The barge rigs were constructed during 1994 pursuant to ten-year operating contracts entered into with Petroleos de Venezuela, S.A., the Venezuelan national oil company. o In April 1996, the Company acquired Quitral-Co S.A.I.C. ("Quitral-Co") from Perez Companc S.A. and other shareholders. The 23 land-based drilling and 57 land-based workover rigs in Argentina and seven land-based drilling and 23 land-based workover rigs in Venezuela operated by Quitral-Co were combined with the Company's existing land-based operations in those countries. In November 1996, the Company added three land-based drilling rigs and support assets to its operations in Argentina through the acquisition of the assets of another contractor. o In October 1996, the Company expanded its Colombian operations to 20 rigs through the acquisition of Ingeser de Colombia, S.A., which operated seven land-based drilling rigs and six land-based workover rigs in Colombia. o In February 1997, the Company completed the divestiture of its domestic land-based well servicing operations, which included 407 workover rigs in Texas, California, New Mexico and Louisiana. o In March 1997, the Company completed the acquisition of the operating subsidiaries of Forasol-Foramer N.V. (collectively, "Forasol"), adding two semisubmersible rigs, three jackup rigs, seven tender-assisted rigs, four barge rigs and 29 land-based rigs operating in various locations in South America, Africa, the Middle East and Southeast Asia. o In April 1997, the Company purchased a tender-assisted rig, which has been upgraded and deployed to Southeast Asia. In October 1997, the Company purchased an independent-leg, cantilevered jackup rig capable of operating in water depths of up to 300 feet, which is currently under contract in Southeast Asia. o In May 1997, the Company purchased 13 mat-supported jackup drilling rigs, 11 of which are currently operating in the Gulf of Mexico, one of which is currently operating in West Africa and one of which is operating in Malaysia. 13 o In July 1998, the Company acquired 60% of a Bolivian company, Compania Boliviana de Perforacion S.A.M. ("CBP"), pursuant to a joint initiative with the Bolivian national oil company, Yacimientos Petroliferos Fiscales Bolivianos ("YPFB"). CBP was capitalized through the contribution of 13 land drilling and workover rigs, oilfield trucks and other related drilling assets by YPFB and $17 million of cash by the Company. International drilling and well servicing activity is affected by fluctuations in oil prices, but historically to a lesser extent than domestic activity. International rig services contracts are typically for terms of one year or more, while domestic contracts are typically for one well or multiple wells. Accordingly, international rig services activities generally are not as sensitive to short-term changes in oil prices as domestic operations. The continuing weakness in worldwide oil prices, which began trending downward in the fourth quarter of 1997, is depressing offshore drilling activity, particularly in the U.S. Gulf of Mexico. This continuation of low oil prices has caused some customers to reduce their 1998 drilling budgets, primarily in the water depths where jackup drilling rigs are used. This decreased drilling activity has in turn increased competition among drilling contractors for the available work, and has recently forced dayrates for some jackup rigs down by as much as 50 percent compared to levels seen earlier in the year. If oil prices remain at current levels, the Company anticipates lower dayrates and possibly lower utilization on some of its rigs, particularly its platform rigs and jackup rigs in the U.S. Gulf of Mexico. RESULTS OF OPERATIONS The following table sets forth selected consolidated financial information of the Company by operating segment for the periods indicated:
THREE MONTHS ENDED JUNE 30, -------------------------------------------- 1998 1997 --------------------- --------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) Revenues International land.............. $ 101,973 46.5% $ 103,201 59.1% International offshore.......... 69,584 31.8 41,923 24.0 United States offshore.......... 47,629 21.7 29,413 16.9 ---------- --------- ---------- --------- Total revenues............. 219,186 100.0 174,537 100.0 ---------- --------- ---------- --------- Operating Costs International land.............. 76,335 55.5 76,139 66.9 International offshore.......... 35,472 25.8 23,100 20.3 United States offshore.......... 25,635 18.7 14,633 12.8 ---------- --------- ---------- --------- Total operating costs...... 137,442 100.0 113,872 100.0 ---------- --------- ---------- --------- Gross Margin International land.............. 25,638 31.4 27,062 44.6 International offshore.......... 34,112 41.7 18,823 31.0 United States offshore.......... 21,994 26.9 14,780 24.4 ---------- --------- ---------- --------- Total gross margin......... $ 81,744 100.0% $ 60,665 100.0% ========== ========= ========== ========= (TABLE CONTINUED ON FOLLOWING PAGE) 14 SIX MONTHS ENDED JUNE 30, -------------------------------------------- 1998 1997 --------------------- --------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) Revenues International land.............. $ 210,606 48.7% $ 183,197 59.9% International offshore.......... 129,335 29.9 60,868 19.9 United States land.............. -- -- 16,485 5.4 United States offshore.......... 92,931 21.4 45,363 14.8 ---------- --------- ---------- --------- Total revenues............. 432,872 100.0 305,913 100.0 ---------- --------- ---------- --------- Operating Costs International land.............. 153,911 56.2 132,412 64.6 International offshore.......... 69,109 25.2 33,696 16.5 United States land.............. -- -- 12,776 6.2 United States offshore.......... 50,915 18.6 26,075 12.7 ---------- --------- ---------- --------- Total operating costs...... 273,935 100.0 204,959 100.0 ---------- --------- ---------- --------- Gross Margin International land.............. 56,695 35.7 50,785 50.3 International offshore.......... 60,226 37.9 27,172 26.9 United States land.............. -- -- 3,709 3.7 United States offshore.......... 42,016 26.4 19,288 19.1 ---------- --------- ---------- --------- Total gross margin......... $ 158,937 100.0% $ 100,954 100.0% ========== ========= ========== =========
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997. REVENUES. Revenues for the three months ended June 30, 1998 increased $44.6 million, or 25.6%, as compared to the corresponding period in 1997. Revenues from international offshore operations increased $27.7 million, due primarily to the deployment of four additional offshore rigs and one additional tender-assisted rig. Revenues from domestic offshore operations increased $18.2 million, due primarily to the addition of the 13 mat-supported jackup rigs in May 1997 as well as increased day rates in the Gulf of Mexico. Such revenues were partially offset by a $1.2 million decrease for the Company's international land-based operations due to a slight decrease in overall utilization for the Company's land rig fleet. OPERATING COSTS. Operating costs for the three months ended June 30, 1998 increased $23.6 million, or 20.7%, as compared to the corresponding period in 1997. Of this increase, $12.4 million was a result of the Company's international offshore operations, due to the deployment of additional rigs, as discussed above. Operating costs from domestic offshore operations increased $11.0 million, due primarily to the addition of the 13 mat-supported jackup rigs. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three months ended June 30, 1998 increased $3.7 million, or 23.7%, as compared to the corresponding period in 1997, primarily due to the additional expansion of the Company's international land-based and domestic offshore assets as described above. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the three months ended June 30, 1998 increased $1.6 million, or 8.5%, as compared to the corresponding period in 1997, primarily due to the expansion of the Company's domestic offshore operations. As a percentage of revenues, selling, general and administrative expenses were 9.1% for the second quarter of 1998, as compared to 10.5% for the second quarter of 1997. OTHER INCOME (EXPENSE). Interest income increased to $1.8 million for the three months ended June 30, 1998, from $1.4 million for the corresponding period in 1997, due to increased cash made available from increased operations and the public sale of zero coupon convertible subordinated debentures in April 1998. Interest expense for the three months ended June 30, 1998 increased by $2.4 million over the 15 corresponding period in 1997, as a result of $1.8 million in discount amortization on the Company's zero coupon debentures and due to increased borrowings relating to the construction of the two new drillships and two jackup rigs. During the three months ended June 30, 1998, the Company capitalized $2.5 million of interest expense in connection with construction projects, as compared to $2.0 million for the six months ended June 30, 1997. INCOME TAX PROVISION. The Company's consolidated effective income tax rate for the three months ended June 30, 1998 was approximately 22.9%, as compared to approximately 29.0% for the corresponding period in 1997, due to the mobilization to and operation of rigs in lower tax jurisdictions. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997. REVENUES. Revenues for the six months ended June 30, 1998 increased $127.0 million, or 41.5%, as compared to the corresponding period in 1997. Of this increase, $27.4 million was as a result of the acquisition of Forasol's international land operations and $68.5 million was as a result of the expansion of the Company's international offshore operations, primarily the acquisition of the Forasol offshore assets in March 1997 and the deployment of several other acquired and/or refurbished offshore assets. In addition, revenues from domestic offshore operations increased $47.6 million, due primarily to the acquisition of the 13 mat-supported jackup rigs in May 1997. These increases were partially offset by a decrease in revenues of $16.5 million, due to the sale of the Company's U.S. land-based well servicing operations in February 1997. OPERATING COSTS. Operating costs for the six months ended June 30, 1998 increased $69.0 million, or 33.7%, as compared to the corresponding period in 1997. Of this increase, $56.9 million was a result of expansion of the Company's international operations, as discussed above. In addition, operating costs from domestic offshore operations increased $24.8 million, due primarily to the acquisition of the 13 mat-supported jackup rigs. Operating costs decreased by $12.8 million, due to the sale of the Company's U.S. land-based well servicing operations, as discussed above. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the six months ended June 30, 1998 increased $12.4 million, or 48.6%, as compared to the corresponding period in 1997, primarily as a result of the acquisitions of Forasol, the 13 mat-supported jackup rigs and the completion and deployment of several newly-constructed jackup rigs. This increase was partially offset by the sale of the Company's U.S. domestic land-based assets in February 1997. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the six months ended June 30, 1998 increased $7.4 million, or 22.2%, as compared to the corresponding period in 1997, primarily due to the inclusion of such expenses for the Forasol acquisition and the acquisition of the mat-supported jackup rigs. As a percentage of revenues, total selling, general and administrative expenses were 9.4% for the first six months of 1998, as compared to 10.9% for the first six months of 1997. OTHER INCOME (EXPENSE). Other income (expense) for the six months ended June 30, 1997 included a gain of $83.6 million from the sale of the Company's U.S. land-based well servicing operations in February 1997. The gain was partially offset by a charge of $3.7 million related to the induced conversion of $28.0 million principal amount of the Company's 6 1/4% convertible subordinated debentures. Interest income increased to $3.1 million for the six months ended June 30, 1998, from $1.9 million for the corresponding period in 1997, due to increased cash made available from increased operations and the public sale of zero coupon convertible subordinated debentures in April 1998. Interest expense for the six months ended June 30, 1998 increased by $9.5 million over the corresponding period in 1997, as a result of increased borrowings and discount amortization on the Company's zero coupon convertible subordinated debentures. During the six months ended June 30, 1998, the Company capitalized $5.8 million of interest expense in connection with construction projects. INCOME TAX PROVISION. The Company's consolidated effective income tax rate for the six months ended June 30, 1998 was approximately 23%, as compared to approximately 35% for the corresponding period in 1997. The decrease in the effective tax rate for the first six months of 1998 resulted primarily from the effects of the inclusion of the related operating results of Forasol, which has a majority of its 16 international operations in lower tax jurisdictions, for the full six month period as well as expansion of the Company's other international operations. In addition, the 1997 first quarter included a pretax gain of $83.6 million on the sale of the Company's U.S. land operations that were taxed at 36% and certain non-deductible amounts, primarily $3.7 million of after-tax costs related to the induced conversion of $28.0 million of the Company's 6 1/4% convertible subordinated debentures. LIQUIDITY AND CAPITAL RESOURCES The Company had net working capital of $196.0 million and $103.7 million as of June 30, 1998 and December 31, 1997, respectively. The Company's current ratio was 1.9 as of June 30, 1998 and 1.5 as of December 31, 1997. The increase in the current ratio was attributable primarily to the increase in cash and cash equivalents from the sale of zero coupon convertible subordinated debentures in April 1998. In March 1997, the Company entered into a senior secured revolving credit facility with a group of banks (as amended and restated in December 1997, the "Credit Facility") under which up to $100 million (including $25 million for letters of credit) is available. Availability under the Credit Facility is limited to a borrowing base based on the fair market value of collateral. The Credit Facility is collateralized by the accounts receivable, inventory and other assets of the Company and its domestic subsidiaries, two-thirds of the stock of the Company's foreign subsidiaries, the stock of the Company's domestic subsidiaries and certain other assets. The Credit Facility terminates in December 2000. Borrowings under the Credit Facility bear interest at a variable rate based on either the prime rate or LIBOR. The Credit Facility limits the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business without prior consent of the lenders. Under the Credit Facility, the Company must maintain certain financial ratios, including (i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii) adjusted EBITDA to debt service and (iv) minimum tangible net worth. As of June 30, 1998, there were no amounts outstanding under the Credit Facility. In order to maintain the availability of the Credit Facility, the Company will be required to obtain waivers from the lenders or amend the Credit Facility prior to the funding of the equipment loans for the PRIDE AFRICA and the PRIDE ANGOLA. If the Company is unable to obtain such a waiver or amendment on terms it considers acceptable, the Company will seek alternate financing arrangements to replace the Credit Facility. During 1997, the Company entered into a joint venture to construct, own and operate the PRIDE AFRICA, an ultra-deepwater drillship currently under construction in South Korea. The drillship is contracted to work offshore Angola for an initial term of five years. It is anticipated that the drillship will commence operations in mid-1999. The joint venture has entered into a financing arrangement with a group of banks providing that approximately $200 million of the drillship' s estimated construction cost of $235 million will be financed by loans that are, upon delivery of the drillship, without recourse to the joint venture participants. The Company estimates that its equity investment in the project will be approximately $19 million, which represents a 51% ownership interest. The Company also has obtained a commitment from a group of banks to provide up to $110.0 million in loans to finance the acquisition of certain equipment to be installed on the PRIDE AFRICA. The loans will be secured by such equipment and will bear interest at a rate of LIBOR plus 1.25% per annum. The Company has agreed to sell such equipment to the joint venture formed to construct, own and operate the rig on or before the date Elf Angola accepts delivery of the rig under the charter, which is anticipated to be mid-1999, and expects to repay such loan from such sales proceeds. The joint venture intends to draw on its financing arrangement described above to finance its payment to the Company. In addition, the Company has entered into a letter of intent for a second ultra-deepwater drillship to operate offshore Angola under a three-year contract with two one-year options. The drillship, named the PRIDE ANGOLA, is being built in South Korea at a cost of approximately $235 million. The Company has agreed to form a joint venture similar to the PRIDE AFRICA joint venture to construct, own and operate the drillship and has arranged similar nonrecourse financing, subject to final documentation. The Company 17 estimates that its equity investment in the project will be approximately $19 million, which will represent a 51% ownership interest. During 1997, a special purpose company, in which the Company has a 30% indirect investment, was formed to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. Upon their completion, the rigs will be contracted to Petroleo Brasilerio S.A. pursuant to chartering agreements with initial terms of five to eight years. The total estimated cost to construct, equip and mobilize the six rigs is approximately $1.1 billion. Delivery of the rigs is expected over a period from late 1999 through mid 2000. The Company has made aggregate equity contributions of approximately $30 million for the project as of August 14, 1998, of which approximately $21 million had been made as of June 30, 1998. The special purpose company has been seeking financing for up to 90% of the construction costs of the rigs on terms that would not require substantial recourse to the Company or the other project sponsor. To date, however, the special purpose company has been unable to obtain commitments for the financing, and there can be no assurance that financing will be obtained on these or other acceptable terms. In March 1998, the Company contracted to purchase, for approximately $85 million, a dynamically positioned, self-propelled semisubmersible drilling rig. The rig is currently working offshore Brazil under a charter and service contract that expires in 2001. The purchase price of the rig is to consist of $63.8 million in cash, with the balance to be financed by a note convertible into common stock. The Company expects to close the acquisition in the third quarter of 1998. In April 1998, the Company completed a public sale of zero coupon convertible subordinated debentures. The net proceeds to the Company in connection with the sale, after deducting underwriting discounts and offering expenses, amounted to approximately $223.1 million. Of such net proceeds approximately $63.2 million will be used to fund the cash portion of the purchase price of a semisubmersible rig, approximately $30.0 million will be used to fund the Company's investments in the Amethyst joint ventures and approximately $38.0 million will be used to fund the Company's equity investments in the PRIDE AFRICA and the PRIDE ANGOLA. Approximately $45.0 million was used to repay the balance outstanding under the Company's Credit Facility. The Company used the excess proceeds from the offering for general corporate purposes. The debentures, which mature on April 24, 2018, are convertible into common stock of the Company at a conversion rate of 13.794 shares of common stock per $1,000 principal amount at maturity. At maturity, the amortized principal value of the debenture would be approximately $588.1 million. The sale of the zero coupon debentures was pursuant to under a "shelf" registration statement under the Securities Act of 1933 pursuant to which the Company may issue up to $500.0 million initial offering price of securities consisting of any combination of debt securities, common stock and preferred stock of the Company. Management believes that the cash generated from the Company's operations, together with the net proceeds from the zero coupon debentures offering and borrowings under the Credit Facility, will be adequate to fund the rig acquisition and equity investments discussed above and the Company's normal ongoing capital expenditures, working capital and debt service requirements. The Company is active in reviewing possible expansion and acquisition opportunities relating to all of its business segments. While the Company has no definitive agreements to acquire additional equipment other than those discussed above, suitable opportunities may arise in the future. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable. From time to time, the Company has one or more bids outstanding for contracts that could require significant capital expenditures and mobilization costs. The Company expects to fund acquisitions and project opportunities primarily through a combination of working capital, cash flow from operations and full or limited recourse debt or equity financing. ACCOUNTING MATTERS The Company will adopt Statement of Financial Accounting Standards ("FAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information", FAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits", and FAS No. 133 "Accounting for Derivative 18 Instruments and Hedging Activities" for the year ended December 31, 1998. The Company does not anticipate that the adoption of these disclosure standards will have a material impact on its consolidated financial statements. FAS No. 130 "Reporting Comprehensive Income" was adopted during the quarter ended March 31, 1998 and had no impact on the Company's financial position, results of operations or cash flows. YEAR 2000 MATTERS Year 2000 issues result from the inability of computer programs or computerized equipment to accurately calculate, store or use a date subsequent to December 31, 1999. The erroneous date can be interpreted in a number of different ways; typically the year 2000 is represented as the year 1900. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business. The Company is in the process of implementing new financial reporting, and operational reporting computer systems. The first phase of implementation was completed in February 1998. The remaining phases are scheduled for implementation and completion within the next twelve months. In addition, the Company is assessing the use of less critical software systems and various types of equipment. The Company is using both internal and external resources to complete tasks and perform testing necessary to address the year 2000 issues. The Company believes that the potential impact, if any, of these systems not being year 2000 compliant will at most require employees to manually complete otherwise automated tasks or calculations and that it should not affect the Company's ability to continue its operating activities. The Company has initiated communications with its significant suppliers, business partners and customers to determine the extent to which the Company is vulnerable to those third parties' failure to correct their own year 2000 issues. There can be no assurances that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The Company believes that the cost to implement the above systems will not have a material adverse effect on the Company's financial position or results of operations. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures and investments in the construction, acquisition and refurbishment of rigs (including the amount and nature thereof and the timing of completion thereof), expansion and other development trends of the contract drilling industry, business strategies, expansion and growth of operations and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by management of the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, general economic and business conditions, prices of oil and gas, foreign exchange controls and currency fluctuations, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in laws or regulations, the ability to obtain shipyard contracts and other factors, many of which are beyond the control of the Company. Any such statements are not guarantees of future performance, and actual results or developments may differ materially from those projected in the forward-looking statements. 19 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Company was held in Houston, Texas on May 12, 1998 for the purpose of voting on the proposals described below. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitation. Shareholders approved the election of seven directors, each to serve for a term of five years by the following vote:
SHARES VOTED SHARES VOTED SHARES SHARES NOT DIRECTORS "FOR" "AGAINST" "ABSTAINING" VOTED - ------------------------------------- ------------ ------------ ------------ ---------- Ray H. Tolson........................ 39,913,262 1,682,019 -- 8,475,267 Remi Dorval.......................... 39,917,160 1,678,121 -- 8,475,267 Christian J. Boon Falleur............ 39,917,160 1,678,121 -- 8,475,267 James B. Clement..................... 39,917,160 1,678,121 -- 8,475,267 Jorge E. Estrada M................... 39,917,160 1,678,121 -- 8,475,267 Ralph D. McBride..................... 39,917,160 1,678,121 -- 8,475,267 James T. Sneed....................... 39,917,160 1,678,121 -- 8,475,267
Shareholders approved the adoption of the Company's 1998 Long-Term Incentive Plan by the following vote: Shares voted "For"................. 19,751,623 Shares voted "Against"............. 12,731,740 Shares "Abstaining"................ 149,472 Shares not voted..................... 17,437,713 Shareholders approved an amendment to the Company's 1993 Directors' Stock Option Plan to increase by 200,000 the number of shares of common stock issued by such plan by the following vote: Shares voted "For"................. 29,513,309 Shares voted "Against"............. 2,929,330 Shares "Abstaining"................ 190,197 Shares not voted..................... 17,437,712 Shareholders ratified the appointment of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.) as the Company's independent accountants for 1998 by the following vote: Shares voted "For"................. 41,477,827 Shares voted "Against"............. 57,962 Shares "Abstaining"................ 59,491 Shares not voted..................... 8,475,268 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NO. - ------------------------ 15 -- Awareness Letter of PricewaterhouseCoopers LLP 27 -- Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarterly period ended June 30, 1998. 20 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PRIDE INTERNATIONAL, INC. By: EARL W. MCNIEL (EARL W. MCNIEL) VICE PRESIDENT AND CHIEF FINANCIAL OFFICER By: M. TERRY MAY (M. TERRY MAY) CHIEF ACCOUNTING OFFICER Date: August 14, 1998 21 EX-15 2 EXHIBIT 15 AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Pride International, Inc. Quarterly Report on Form 10-Q We are aware that our report dated August 13, 1998 on our review of interim consolidated financial information of Pride International, Inc. for the periods ended June 30, 1998 and 1997 and included in this Form 10-Q is incorporated by reference in the Company's registration statements on Form S-8 and Form S-3 filed with the Securities and Exchange Commission: Form S-8 (file no. 33-26854) filed on February 6, 1989; Form S-8 (file no. 33-44823) filed on December 30, 1991; Form S-8 (file no. 333-06823) and Form S-8 (file no. 333-06825) filed on June 26, 1996; Form S-3 (file no. 333-21385) filed on April 4, 1997; Form S-8 (file no. 333-27661) filed on May 22, 1997; Form S-8 (file no. 333-35089) and Form S-8 (file no. 333-35093) filed on September 8, 1997, and Form S-3 (file no. 333-44925) filed on March 23, 1998. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statements prepared or certified by us within the meanings of Sections 7 and 11 of that Act. PricewaterhouseCoopers LLP Houston, Texas August 14, 1998 EX-27 3
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PRIDE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 135,348 0 205,604 (311) 33,175 421,641 1,391,828 (134,787) 1,873,284 225,627 284,321 0 0 1 731,707 1,873,284 432,872 432,872 273,935 352,586 (2,505) 0 22,828 59,963 14,013 45,950 0 0 0 45,950 .92 .83
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