-----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, BtYeTZ4c8qxqVuwnt+4kne8xA72WFuI8t+0J0XUBztCHQuKae5KYURB/f+qa8okR ZD0dSHOWs1flENehfO8BBQ== 0000950129-02-001682.txt : 20020415 0000950129-02-001682.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950129-02-001682 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-13289 FILM NUMBER: 02598125 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-K405 1 h95556e10-k405.txt PRIDE INTERNATIONAL INC - YEAR END 12/31/2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NUMBER: 1-13289 --------------------- PRIDE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 789-1400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.01 par value New York Stock Exchange Rights to Purchase Preferred Stock New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant at March 15, 2002, based on the closing price on the New York Stock Exchange on such date, was approximately $1.7 billion. (The executive officers and directors of the registrant and First Reserve Corporation, its affiliates and related parties are considered affiliates for the purposes of this calculation.) The number of shares of the registrant's Common Stock outstanding on March 15, 2002 was 132,863,543. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held in May 2002 are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 2 Item 2. Property.................................................... 13 Item 3. Legal Proceedings........................................... 13 Item 4. Submission of Matters to a Vote of Security Holders......... 14 Executive Officers of the Registrant........................ 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 15 Item 6. Selected Financial Data..................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 28 Forward-Looking Statements.................................. 29 Item 8. Financial Statements and Supplementary Data................. 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 62 PART III Item 10. Directors and Executive Officers of the Registrant.......... 62 Item 11. Executive Compensation...................................... 62 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 62 Item 13. Certain Relationships and Related Transactions.............. 62 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 62
1 PART I ITEM 1. BUSINESS In this Annual Report on Form 10-K, we refer to Pride International, Inc. and its subsidiaries as "we," the "Company" or "Pride," unless the context clearly indicates otherwise. GENERAL Pride is a leading international provider of contract drilling and related services, operating both offshore and on land. As of March 15, 2002, we operated a global fleet of 328 rigs, including two ultra-deepwater drillships, 12 semisubmersible rigs, 35 jackup rigs, 29 tender-assisted, barge and platform rigs and 250 land-based drilling and workover rigs. We operate in more than 30 countries and marine provinces. The significant diversity of our rig fleet and areas of operation enables us to provide a broad range of services and to take advantage of market upturns while reducing our exposure to sharp downturns in any particular market sector or geographic region. Recently, we have increased the size of our fleet capable of drilling in deeper waters. The deepwater market generally supports longer-term, higher-rate contracts. In the past two years, we have made the following major additions to our offshore fleet: - Drillships. We have a 51% interest in and operate two ultra-deepwater drillships, the Pride Africa and the Pride Angola, which commenced operations in October 1999 and May 2000, respectively. The drillships, which are capable of operating in water depths of up to 10,000 feet, are contracted to work for Elf Exploration Angola under contracts expiring in June 2005 and May 2005, respectively, each with two one-year extension options. - Pride Carlos Walter and Pride Brazil. We own two fourth-generation dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil, which commenced operations offshore Brazil in June and July 2001, respectively, for Petroleo Brasilerio S.A. ("Petrobras") under five-year charter and service rendering contracts, each with two one-year extension options. - Marine Drilling Companies, Inc. In September 2001, we acquired Marine Drilling Companies, Inc. in a tax free, stock-for-stock transaction that positioned us as one of the world's largest offshore drilling contractors. Marine owned and operated a fleet of 17 offshore drilling rigs consisting of two semisubmersible units and 15 jackup units. Additionally, Marine owned one jackup rig configured as an accommodation unit. Currently, 14 of these rigs are located in the U.S. Gulf of Mexico, and the four remaining rigs are in Southeast Asia, the North Sea, Angola and Egypt. The combination with Marine has deleveraged our consolidated balance sheet and, at the same time, has enhanced our competitive position in the Gulf of Mexico jackup rig market and elsewhere. The acquisition was accounted for as a pooling-of-interests for accounting and financial reporting purposes and, accordingly, our consolidated financial statements reflect the combined operations of Pride and Marine for each period presented. - Other Recent Acquisitions and Agreements. In February 2001, we acquired a second-generation semisubmersible drilling rig (now the Pride North Sea) and a third-generation semisubmersible drilling rig (now the Pride Venezuela) for $44.7 million in cash and 3.0 million shares of our common stock. The Pride Venezuela is under contract with Petroleos de Venezuela, S.A. ("PDVSA") for a minimum term of one year that began in February 2002. The Pride North Sea was refurbished prior to commencing operations in July 2001 in the Irish Sea, and is now working in the United Kingdom sector of the North Sea. In December 2001, we commenced operations in Chad with the first of five newly constructed land rigs under a seven-year contract with ExxonMobil. In addition, during 2001, we acquired 14 land-based drilling rigs in Argentina and Venezuela for a total cost of $48.0 million. In March 2002, we were awarded contracts for three jackup rigs from our Gulf of Mexico fleet by Petroleos Mexicanos S.A. ("Pemex") for work offshore Mexico. The contracts are for approximately four years each. The first two rigs are expected to commence 2 operations by the end of April 2002 and the third rig by early July 2002. Additionally, we were awarded a two-year contract by Pemex for a 1,000 horsepower platform rig. We expect to continue to expand our operations through acquisitions, rig upgrades and redeployment of assets to active geographic regions. We are a Delaware corporation with our principal executive offices located at 5847 San Felipe, Suite 3300, Houston, Texas 77057. Our telephone number at such address is (713) 789-1400. OPERATIONS SOUTH AMERICA We have significantly expanded our South American operations and now operate five semisubmersible rigs, two jackup rigs, two floating barge rigs and 229 land-based rigs in the region. Brazil. Our semisubmersible rig, Pride South Atlantic, has been operating offshore Brazil for Petrobras since September 1997. The rig is working under a contract expiring in late 2002. The Pride South America, a dynamically-positioned, self-propelled semisubmersible rig is currently working offshore Brazil under a charter and service rendering contract that expires in June 2002. We are currently seeking to extend the contracts for both the Pride South Atlantic and the Pride South America. The Pride Carlos Walter and Pride Brazil, which are deepwater, dynamically-positioned semisubmersible rigs, began work under five-year charter and service rendering contracts for Petrobras in June and July 2001, respectively. Venezuela. Our offshore fleet in Venezuela includes two jackup rigs and two barge rigs operating on Lake Maracaibo and one semisubmersible rig operating offshore Venezuela. The two jackup rigs that we operate are owned by PDVSA and the contracts for the rigs expire in October 2002. In 1995, we placed two floating barge rigs into service on Lake Maracaibo that are working pursuant to ten-year contracts for PDVSA. Our semisubmersible, the Pride Venezuela, is operating for PDVSA pursuant to a contract that commenced in February 2002 with a minimum term of one year. Our land-based fleet in Venezuela currently consists of 43 rigs, of which nine are drilling rigs and 34 are workover rigs. Argentina. In Argentina, we currently operate 154 land-based rigs, which we believe constitutes approximately 50% of the land-based rigs in the Argentine market. Of these rigs, 51 are drilling rigs and 103 are workover rigs. Argentine rig operations are generally conducted in remote regions of the country and require substantial fixed infrastructure and operating support costs. We believe that our established infrastructure and scale of operations provide us with a competitive advantage in this market. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" in Item 7 of this annual report for information on the current political and economic environment in Argentina. Colombia. In Colombia, we currently operate 13 land-based drilling rigs and eight land-based workover rigs under contracts with major integrated and independent international oil companies and with the national oil company. Bolivia. In recent years, demand for rig services has increased in Bolivia as a result of the privatization of components of the Bolivian national oil company. Exploration has also increased due to several significant sales of exploration blocks to private-sector operators and due to the construction of a major natural gas pipeline from Bolivia to markets in Brazil. We currently operate six land-based drilling rigs and four land-based workover rigs in Bolivia. Ecuador. We operate one land-based drilling rig in Ecuador. E&P Services. We provide a variety of services to exploration and production companies in Argentina, Peru, Bolivia, Colombia and Venezuela through our E&P services division, including cementing, fracturing, coil tubing, directional drilling and fishing services. We believe that we have approximately 20% of the aggregate market for these services in the countries where we operate. We also manage integrated services projects in Argentina and are competing for similar projects in other countries. 3 GULF OF MEXICO We operate four independent leg jackup units and 23 mat-supported jackup units in the Gulf of Mexico. We are the second largest operator in the Gulf of Mexico of mat-supported jackup rigs capable of operating in water depths of 200 to 300 feet. We also operate a fleet of 21 offshore modular platform rigs in the Gulf of Mexico. We believe our platform rig fleet is one of the most technologically advanced fleets in the industry. Most of our rigs in the Gulf of Mexico operate under short-term or well-to-well contracts. In March 2002, we were awarded contracts by Pemex for three jackup rigs from our Gulf of Mexico fleet to work offshore Mexico. The contracts are for approximately four years each. The first two rigs are expected to commence operations by the end of April 2002 and the third rig by early July 2002. In addition, we were awarded a two-year contract by Pemex for a 1,000 horsepower platform rig. We are also marketing a semisubmersible rig, the Viking, in the Gulf of Mexico and elsewhere. OTHER INTERNATIONAL Offshore. We have a 51% ownership interest in two ultra-deepwater drillships, the Pride Africa and the Pride Angola. The drillships are contracted to work offshore West Africa for Elf Exploration Angola under contracts expiring in June 2005 and May 2005, respectively, each with two one-year extension options. In November 2001, we assumed operations of the Omega, a conventionally moored semisubmersible rig, in South Africa, and in January 2002 we assumed operations of the dynamically positioned semisubmersible rig, the Leiv Eiriksson, in Angola. Both rigs are owned by third parties who pay us a management fee to operate the rigs on their behalf. The contracts for the Omega and Leiv Eiriksson are for five wells and 16 months, respectively, subject to certain conditions. Our semisubmersible rig Pride North America is working offshore Angola under a contract expiring in August 2004, and our semisubmersible rig Pride South Pacific is working offshore Egypt in the Red Sea under a contract expiring in April 2002. We are currently marketing the rig. In February 2001, we acquired the Pride North Sea, a second generation AKER H-3 semisubmersible rig. The Pride North Sea is presently under contract in the United Kingdom sector of the North Sea through May 2002. We are marketing the rig in the North Sea and elsewhere. We operate six jackup rigs in the eastern hemisphere. The Pride Pennsylvania is working offshore India under a contract that expires in 2003, and the Pride Cabinda is currently working offshore Angola under a long-term contract expiring in 2005. We are preparing the Pride Ohio for a new two-year contract in the Middle East. The Pride Montana is currently in Saudi Arabia working under a contract expiring in 2004. The Pride Hawaii is working offshore Malaysia under a two-year contract that expires in August 2003. The Pride Rotterdam, an accommodation unit, has recently commenced work under a contract in the Dutch sector of the North Sea. We operate five tender-assisted rigs. The Ile de Sein in Indonesia and the Alligator in Angola are working under two-year contracts expiring in July 2002 and December 2002, respectively. The Barracuda is preparing for an 18-month contract in Angola, while the Al Baraka I is working in the Ivory Coast under a four-well contract. The remaining tender-assisted rig, the Piranha, is working in Malaysia under a 15-month contract expiring in January 2003. We also operate one swamp barge rig, the Bintang Kalimantan, in Nigeria under a contract that expires in September 2003. Land. We currently operate five land-based rigs in North Africa and three in the Middle East. We have also commenced drilling and related services in the central African country of Chad. Under the terms of the agreement, we will operate three land-based drilling rigs and two workover rigs and will provide various other support services for initial periods ranging from five to seven years. 4 RIG FLEET OFFSHORE RIGS The table below presents information about our offshore rig fleet as of March 15, 2002:
BUILT/ UPGRADED OR WATER DRILLING EXPECTED DEPTH DEPTH RIG NAME RIG TYPE/DESIGN COMPLETION RATING RATING LOCATION STATUS - -------- --------------- ----------- ------ -------- -------- ------ (FEET) (FEET) DRILLSHIPS -- 2 Pride Africa(1).......... Gusto 10,000 1999 10,000 30,000 Angola Working Pride Angola(1).......... Gusto 10,000 1999 10,000 30,000 Angola Working SEMISUBMERSIBLE RIGS -- 14 Pride Carlos Walter...... Amethyst 2001 5,000 25,000 Brazil Working Pride Brazil............. Amethyst 2001 5,000 25,000 Brazil Working Pride South America(2)... Amethyst 1989/1996 4,000 20,000 Brazil Working Amethyst 4(3)............ Amethyst 2003 5,000 25,000 Mississippi Shipyard Amethyst 5(3)............ Amethyst 2003 5,000 25,000 Texas Shipyard Omega(4)................. Bingo 3000 1983 3,000 30,000 South Africa Working Viking(4)................ Neptune Pentagon 1973 2,625 22,000 Gulf of Mexico Available Leiv Eiriksson(4)........ Bingo 9000 2001 8,200 30,000 Angola Working Pride South Atlantic..... F&G Enhanced Pacesetter 1987 1,500 25,000 Brazil Working Pride South Seas......... Aker H-3 1977/1997 1,000 20,000 South Africa Shipyard Pride Venezuela.......... F&G Enhanced Pacesetter 1982 1,500 25,000 Venezuela Working Pride North Sea.......... Aker H-3 1975 1,000 25,000 North Sea Working Pride North America...... Bingo 8000 1999 7,500 25,000 Angola Working Pride South Pacific...... Blohm & Voss 1975/1999 6,500 25,000 Egypt Working JACKUP RIGS -- 35 Pride Cabinda............ Independent leg, cantilever 1983 300 25,000 Angola Working Pride Hawaii............. Independent leg, cantilever 1975/1997 300 30,000 Malaysia Working Pride Montana............ Independent leg, cantilever 1991 270 20,000 Saudi Arabia Working Pride North Dakota....... Independent leg, cantilever 1981 250 30,000 Gulf of Mexico Working Pride Ohio............... Independent leg, cantilever 1975/1998 250 20,000 Middle East Working Pride Pennsylvania....... Independent leg, cantilever 1973/1998 300 20,000 India Working Pride Tennessee.......... Independent leg, cantilever 1981 300 25,000 Gulf of Mexico Working Pride West Virginia...... Independent leg, cantilever 1982 300 30,000 Gulf of Mexico Working GP-19(4)................. Independent leg, cantilever 1987 150 20,000 Venezuela Working GP-20(4)................. Independent leg, cantilever 1987 200 20,000 Venezuela Working Pride Wisconsin.......... Independent leg, slot 1976/1993 300 30,000 Gulf of Mexico Working Pride Alabama............ Mat-supported, cantilever 1982 200 25,000 Gulf of Mexico Available Pride Alaska............. Mat-supported, cantilever 1982 250 25,000 Gulf of Mexico Available Pride Arkansas........... Mat-supported, cantilever 1982 200 25,000 Gulf of Mexico Available Pride Colorado........... Mat-supported, cantilever 1982 200 25,000 Gulf of Mexico Available Pride Florida............ Mat-supported, cantilever 1981 200 20,000 Gulf of Mexico Available Pride Kansas............. Mat-supported, cantilever 1999 250 25,000 Gulf of Mexico Working Pride Mississippi........ Mat-supported, cantilever 1990 200 25,000 Gulf of Mexico Available Pride Missouri........... Mat-supported, cantilever 1982 250 20,000 Gulf of Mexico Working Pride Nebraska........... Mat-supported, cantilever 1981 200 20,000 Gulf of Mexico Working Pride Nevada............. Mat-supported, cantilever 1981/1995 200 20,000 Gulf of Mexico Committed Pride New Mexico......... Mat-supported, cantilever 1982 200 25,000 Gulf of Mexico Working Pride South Carolina..... Mat-supported, cantilever 1980 200 20,000 Gulf of Mexico Committed Pride Texas.............. Mat-supported, cantilever 1999 300 20,000 Gulf of Mexico Working Pride Arizona............ Mat-supported, slot 1981/1996 250 25,000 Gulf of Mexico Available
5
BUILT/ UPGRADED OR WATER DRILLING EXPECTED DEPTH DEPTH RIG NAME RIG TYPE/DESIGN COMPLETION RATING RATING LOCATION STATUS - -------- --------------- ----------- ------ -------- -------- ------ (FEET) (FEET) Pride California......... Mat-supported, slot 1997 250 20,000 Gulf of Mexico Available Pride Georgia............ Mat-supported, slot 1981/1995 250 20,000 Gulf of Mexico Available Pride Illinois........... Mat-supported, slot 1969/1993 225 20,000 Gulf of Mexico Available Pride Kentucky........... Mat-supported, slot 1974 262 25,000 Gulf of Mexico Available Pride Louisiana.......... Mat-supported, slot 1981 250 25,000 Gulf of Mexico Committed Pride Michigan........... Mat-supported, slot 1975 250 25,000 Gulf of Mexico Shipyard Pride Oklahoma........... Mat-supported, slot 1996 250 20,000 Gulf of Mexico Available Pride Utah............... Mat-supported, slot 1990/2001 45 20,000 Gulf of Mexico Shipyard Pride Wyoming............ Mat-supported, slot 1976 250 25,000 Gulf of Mexico Available Pride Rotterdam.......... Accommodation unit 1975/1992 205 30,000 North Sea Working TENDER-ASSISTED RIGS -- 5 Alligator................ Self-erecting barge 1982/1998 330 20,000 Angola Working Barracuda................ Self-erecting barge 1992 330 20,000 Angola Working Al Baraka I(5)........... Self-erecting barge 1994 650 20,000 Ivory Coast Working Ile de Sein.............. Self-erecting barge 1981/1997 450 16,000 Indonesia Working Piranha.................. Self-erecting barge 1978/1998 600 20,000 Malaysia Working BARGE RIGS -- 3 Pride I.................. Floating cantilever 1995 150 20,000 Venezuela Working Pride II................. Floating cantilever 1995 150 20,000 Venezuela Working Bintang Kalimantan....... Swamp barge 1995 N/A 16,000 Nigeria Working PLATFORM RIGS -- 21 Rig 1501E................ Heavy electrical 1996 N/A 25,000 Gulf of Mexico Working Rig 1502E................ Heavy electrical 1998 N/A 25,000 Gulf of Mexico Working Rig 1002E................ Heavy electrical 1996 N/A 20,000 Gulf of Mexico Working Rig 1003E................ Heavy electrical 1996 N/A 20,000 Gulf of Mexico Available Rig 1004E................ Heavy electrical 1997 N/A 20,000 Gulf of Mexico Available Rig 1005E................ Heavy electrical 1998 N/A 20,000 Gulf of Mexico Working Rig 1006E................ Heavy electrical 2001 N/A 20,000 Gulf of Mexico Available Rig 750E................. Heavy electrical 1992 N/A 16,500 Gulf of Mexico Available Rig 751E................. Heavy electrical 1995 N/A 16,500 Gulf of Mexico Available Rig 650E................. Intermediate electrical 1994 N/A 15,000 Gulf of Mexico Working Rig 651E................. Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Working Rig 653E................. Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Available Rig 951.................. Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Available Rig 200.................. Intermediate mechanical 1993 N/A 15,000 Gulf of Mexico Available Rig 210.................. Intermediate mechanical 1996 N/A 15,000 Gulf of Mexico Available Rig 220.................. Intermediate mechanical 1995 N/A 15,000 Gulf of Mexico Available Rig 100.................. Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Available Rig 110.................. Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Available Rig 130.................. Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Available Rig 170.................. Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Available Rig 14................... Light mechanical 1994 N/A 10,000 Gulf of Mexico Working
- --------------- (1) These rigs are owned by joint ventures in which we have a 51% interest. (2) This rig is subject to a sale and leaseback agreement. (3) Currently under construction. These rigs are owned by a joint venture in which we have a 26.4% interest. (4) Managed by us, but owned by third parties. (5) Owned by a joint venture in which we have a 12.5% interest. 6 Drillships. The Pride Africa and Pride Angola are ultra-deepwater self-propelled drillships that can be positioned over a drill site through the use of a computer-controlled thruster (dynamic positioning) system. Drillships are suitable for deepwater drilling in remote locations because of their mobility and large load-carrying capacity. Semisubmersible Rigs. Our semisubmersible rigs are floating platforms that, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the lower hulls, or pontoons, is below the water surface during drilling operations. The rig is "semisubmerged," remaining afloat in a position, off bottom, where the lower hull is about 60 to 80 feet below the water line and the upper deck protrudes well above the surface. This type of rig maintains its position over the well through the use of either an anchoring system or a computer-controlled thruster system similar to that used by our drillships. Jackup Rigs. The jackup rigs we operate are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean or lake floor until a foundation is established to support the drilling platform. The rig legs may have a lower hull or mat attached to the bottom to provide a more stable foundation in soft bottom areas. Independent leg rigs are better suited for harsher or uneven seabed conditions. Jackup rigs are generally subject to a maximum water depth of approximately 350 to 400 feet, while some jackup rigs may drill in water depths as shallow as ten feet. The length of the rig's legs and the operating environment determine the water depth limit of a particular rig. A cantilever jackup has a feature that allows the drilling platform to be extended out from the hull, allowing it to perform drilling or workover operations over a pre-existing platform or structure. Some cantilever jackup rigs have "skid-off" capability, which allows the derrick equipment to be skidded onto an adjacent platform, thereby increasing the operational capacity of the rig. Slot type jackup rigs are configured for drilling operations to take place through a slot in the hull. Slot type rigs are usually used for exploratory drilling because their configuration makes them difficult to position over existing platforms or structures. Tender-Assisted Rigs. Our tender-assisted rigs are generally non-self-propelled barges moored alongside a platform and containing crew quarters, mud tanks, mud pumps and power generation systems. The only equipment transferred to the platform for drilling or workover operations is the derrick equipment set consisting of the substructure, drillfloor, derrick and drawworks. As a result, tender-assisted rigs are less hazardous and allow smaller, less costly platforms to be used for development projects. Self-erecting tenders carry their own derrick equipment and have a crane capable of erecting the derrick on the platform, thereby eliminating the cost associated with a separate derrick barge and related equipment. Barge Rigs. We operate barge rigs on Lake Maracaibo, Venezuela that have been designed to work in a floating mode with a cantilever feature and a mooring system that enables the rig to operate in waters up to 150 feet deep. In Nigeria, we operate a swamp barge rig. This rig is held on location by submerging the hull onto the sea floor before commencement of work. Platform Rigs. Our platform rigs consist of drilling equipment and machinery arranged in modular packages that are transported to and assembled and installed on fixed offshore platforms owned by the customer. Fixed offshore platforms are steel, tower-like structures that stand on the ocean floor, with the top portion, or platform, above the water level, providing the foundation upon which the platform rig is placed. Two of our platform rigs are capable of operating at well depths of up to 25,000 feet. Our platform rigs are often used to provide drilling and horizontal reentry services using top drives, enhanced pumps and solids control equipment for drilling fluids, as well as for workover services. 7 LAND RIGS The table below presents information about our land-based rig fleet as of March 15, 2002:
TOTAL DRILLING WORKOVER ----- -------- -------- SOUTH AMERICA -- 229 Argentina................................................. 154 51 103 Venezuela................................................. 43 9 34 Colombia.................................................. 21 13 8 Bolivia................................................... 10 6 4 Ecuador................................................... 1 1 -- AFRICA/MIDDLE EAST -- 13 North Africa.............................................. 5 4 1 Oman...................................................... 3 3 -- Chad...................................................... 5 3 2 OTHER -- 8.................................................. 8 6 2 --- -- --- Total Land-Based Rigs............................. 250 96 154 === == ===
A land-based drilling rig consists of engines, drawworks, a mast, substructure, pumps to circulate the drilling fluid, blowout preventers, drill string and related equipment. The intended well depth and the drilling site conditions are the principal factors that determine the size and type of rig most suitable for a particular drilling job. A land-based well servicing rig consists of a mobile carrier, engine, drawworks and derrick. The primary function of a well servicing rig is to act as a hoist so that pipe, rods and down-hole equipment can be run into and out of a well. All of our well servicing rigs can be readily moved between well sites and between geographic areas of operations. Most of our land-based drilling and land-based workover rigs operate under short-term or well-to-well contracts. SERVICES PROVIDED DRILLING SERVICES We provide contract drilling services to oil and gas exploration and production companies through the use of mobile offshore and land-based drilling rigs. Generally, land-based rigs and offshore platform rigs operate with crews of six to 17 persons, jackup rigs, tender-assisted rigs and barge rigs operate with crews of 15 to 25 persons and semisubmersible rigs and drillships operate with crews of 60 to 75 persons. We provide the rig and drilling crew and are responsible for the payment of operating and maintenance expenses. MAINTENANCE AND WORKOVER SERVICES Maintenance services are required on producing oil and gas wells to ensure efficient, continuous operation. These services consist of mechanical repairs necessary to maintain production from the well, such as repairing parted sucker rods, replacing defective downhole pumps in an oil well or replacing defective tubing in a gas well. We provide the rigs, equipment and crews for these maintenance services, which are performed on both oil and gas wells but which are more often required on oil wells. In addition to periodic maintenance, producing oil and gas wells occasionally require major repairs or modifications, called "workovers." Workover services include the opening of new producing zones in an existing well, recompletion of a well in which production has declined, drilling out plugs and packers and the conversion of a producing well to an injection well during enhanced recovery operations. ENGINEERING AND OTHER SERVICES We employ a technical staff dedicated to designing specialized drilling equipment to fulfill specific customer requirements and to conduct research and development. The engineering staff has designed and 8 managed the fabrication of several rigs in our fleet and rigs owned by our customers. We also provide turnkey, project management and other engineering services, which enhance our contract drilling services. We also provide a wide variety of additional oilfield services to customers in Argentina, Peru, Bolivia, Colombia and Venezuela, including directional drilling, coiled tubing services, cementing, well stimulation and fishing operations. We also offer integrated services and comprehensive project management at the well site. COMPETITION Our competition ranges from large multinational competitors offering a wide range of drilling services and well servicing to smaller, locally owned businesses. We believe that we are competitive in terms of pricing, performance, equipment, safety, availability of equipment to meet customer needs and availability of experienced, skilled personnel. Drilling contracts are generally awarded on a competitive bid basis and, while an operator may consider quality of service and equipment, intense price competition is the primary factor in determining which contractor, among those with suitable rigs, is awarded a job. Some of our competitors have greater financial resources than us, which may enable them to better withstand periods of low utilization, to compete more effectively on the basis of price, to build new rigs or to acquire existing rigs. CUSTOMERS We work for large multinational oil and gas companies, government-owned oil companies and independent oil and gas producers. In 2001, we had one customer that accounted for approximately 11% of our consolidated revenues. CONTRACTS Our drilling contracts are awarded through competitive bidding or on a negotiated basis. The contract terms and rates vary depending on competitive conditions, the geographical area, the geological formation to be drilled, the equipment and services to be supplied, the on-site drilling conditions and the anticipated duration of the work to be performed. Oil and gas well drilling contracts are carried out on a dayrate, footage or turnkey basis. Under dayrate contracts, we charge the customer a fixed charge per day regardless of the number of days needed to drill the well. In addition, dayrate contracts usually provide for a reduced day rate (or lump sum amount) for mobilizing the rig to the well location and for assembling and dismantling the rig. Under dayrate contracts, we ordinarily bear no part of the costs arising from down-hole risks (such as time delays for various reasons, including a stuck or broken drill string or blowouts). Most of our contracts are on a dayrate basis. Other contracts provide for payment on a footage basis, whereby we are paid a fixed amount for each foot drilled regardless of the time required or the problems encountered in drilling the well. We may also enter into turnkey contracts, whereby we agree to drill a well to a specific depth for a fixed price and to bear some of the well equipment costs. Compared to dayrate contracts, footage and turnkey contracts involve a higher degree of risk to us and, accordingly, normally provide greater profit potential. In international offshore markets, contracts generally provide for longer terms than contracts in domestic offshore markets. When contracting abroad, we are faced with the risks of currency fluctuation and, in certain cases, exchange controls. Typically, we limit these risks by obtaining contracts providing for payment in U.S. dollars or freely convertible foreign currency. To the extent possible, we seek to limit our exposure to potentially devaluating currencies by matching our acceptance thereof to our expense requirements in such local currencies. There can be no assurance that we will be able to continue to take such actions in the future, thereby exposing us to foreign currency fluctuations that could have a material adverse effect upon our results of operations and financial condition. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" in Item 7 of this annual report and "Quantitative and Qualitative Disclosure About Market Risk" in Item 7A of this annual report. 9 SEASONALITY In general, our business activities are not significantly affected by seasonal fluctuations. Most of our rigs are located in geographical areas that are not subject to severe weather changes that would halt operations for prolonged periods. EMPLOYEES As of March 15, 2002, we employed approximately 9,500 employees. Approximately 1,400 of our employees were located in the United States and 8,100 were located abroad. Hourly rig crews constitute the vast majority of our employees. None of our U.S. employees are represented by a collective bargaining unit. Many of our international employees are subject to industry-wide labor contracts within their respective countries. We believe that our employee relations are good. SEGMENT INFORMATION Information with respect to revenues, earnings from operations and identifiable assets attributable to our industry segments and geographic areas of operations for the last three fiscal years is presented in Note 15 to our consolidated financial statements included in Item 8 of this annual report. RISK FACTORS OUR BUSINESS DEPENDS ON THE LEVEL OF ACTIVITY IN THE OIL AND GAS INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES. The profitability of our operations depends upon conditions in the oil and gas industry and, specifically, the level of exploration and production expenditures of oil and gas company customers. The oil and gas industry is cyclical. The demand for contract drilling and related services is directly influenced by many factors beyond our control, including: - oil and gas prices and expectations about future prices - the cost of producing and delivering oil and gas - government regulations - local and international political and economic conditions - the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and prices - the level of production by non-OPEC countries - the policies of various governments regarding exploration and development of their oil and gas reserves Depending on the market prices of oil and gas, companies exploring for oil and gas may cancel or curtail their drilling programs, thereby reducing demand for drilling services. Such a reduction in demand may erode daily rates and utilization of our rigs, negatively impacting our financial results. Utilization rates and dayrates are also affected by the total supply of comparable rigs available for service in the geographic markets in which we compete. Short-term improvements in demand in a geographic market may cause our competitors to respond by moving competing rigs into the market, thus intensifying price competition. Significant new rig construction could also intensify price competition. In the past, there have been prolonged periods of rig oversupply with correspondingly depressed utilization and dayrates largely due to earlier, speculative construction of new rigs. Improvements in dayrates and expectations of longer-term, sustained improvements in utilization rates and dayrates for offshore drilling rigs may cause our competitors to construct new rigs, which could adversely affect our business. 10 INTERNATIONAL EVENTS MAY HURT OUR OPERATIONS. We derive a significant portion of our revenues from international operations. In 2001, we derived approximately 47% of our revenues from operations in countries within South America and approximately 25% of our revenues from operations in other countries outside the United States. Our operations in these areas are subject to the following risks, among others: - foreign currency fluctuations and devaluation - new economic policies - restrictions on currency repatriation - political instability - war and civil disturbances The September 11, 2001 terrorist attacks in the United States and the United States military action in Afghanistan in response to those attacks have caused instability in the world's financial markets and may significantly increase political and economic instability in the geographic areas in which we operate. We attempt to limit the risks of currency fluctuation and restrictions on currency repatriation by obtaining contracts providing for payment in U.S. dollars or freely convertible foreign currency. To the extent possible, we limit our exposure to potentially devaluating currencies by matching the acceptance of local currencies to our expense requirements in those currencies. Although we have done this in the past, we may not be able to take these actions in the future, thereby exposing us to foreign currency fluctuations that could have a material adverse effect upon our results of operations and financial condition. During 2001, approximately 25% of our consolidated revenues was derived from our land-based drilling, workover and E&P services operations in Argentina, which is currently experiencing a political and economic crisis that has resulted in significant changes in its general economic policies and regulations. Over the past few months, new economic measures have been adopted by the Argentine government, including abandoning the country's fixed dollar-to-peso exchange rate, requiring private sector, dollar-denominated loans and contracts to be paid in pesos and placing restrictions on the convertibility of the Argentine peso. As a result, we recorded a charge in the fourth quarter of 2001 of $6.9 million, net of estimated income taxes, to reduce the carrying value of our net monetary assets in Argentina. We could record additional charges in the future to reflect any continuing adverse impact from these or other unfavorable economic measures that may be adopted. In addition, Argentina has imposed a 20% tax on oil exports effective March 1, 2002. The oil export tax could have a negative effect on oil production in Argentina and, accordingly, have a negative effect on demand in the near term for our services. In addition, although foreign exchange in the other countries where we operate is currently carried out on a free-market basis, there is no assurance that local monetary authorities in these countries will not, in the future, implement exchange controls or other economic measures that would adversely affect our right to receive payments or to otherwise conduct business in these countries. From time to time, certain of our foreign subsidiaries operate in countries that are subject to sanctions and embargoes imposed by the U.S. government and the United Nations. Although these sanctions and embargoes do not prohibit those subsidiaries from completing existing contracts or from entering into new contracts to provide drilling services in such countries, they do prohibit us and our domestic subsidiaries, as well as employees of our foreign subsidiaries who are U.S. citizens, from participating in or approving any aspect of the business activities in those countries. These constraints on our ability to have U.S. persons, including our senior management, provide managerial oversight and supervision may adversely affect the financial or operating performance of such business activities. Our international operations are also subject to other risks, including foreign monetary and tax policies, expropriation, nationalization and nullification or modification of contracts. Additionally, our ability to compete in international contract drilling markets may be adversely affected by foreign governmental regulations that favor or require the awarding of contracts to local contractors or by regulations requiring 11 foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Furthermore, our foreign subsidiaries may face governmentally imposed restrictions from time to time on their ability to transfer funds to us. OUR CUSTOMERS MAY SEEK TO CANCEL OR RENEGOTIATE SOME OF OUR DRILLING CONTRACTS DURING PERIODS OF DEPRESSED MARKET CONDITIONS OR IF WE EXPERIENCE OPERATIONAL DIFFICULTIES. During depressed market conditions, a customer may no longer need a rig that is currently under contract or may be able to obtain a comparable rig at a lower daily rate. As a result, customers may seek to renegotiate the terms of their existing drilling contracts or avoid their obligations under those contracts. In addition, our customers may seek to terminate existing contracts if we experience operational problems. The deepwater markets in which we operate require the use of floating rigs with sophisticated positioning, subsea and related systems designed for drilling in deep water. If this equipment fails to function properly, the rig cannot engage in drilling operations, and customers may have the right to terminate the drilling contracts. The likelihood that a customer may seek to terminate a contract for operational difficulties is increased during periods of market weakness. The cancellation of a number of our drilling contracts could adversely affect our results of operations. WE MAY BE CONSIDERED HIGHLY LEVERAGED. OUR SIGNIFICANT DEBT LEVELS AND DEBT AGREEMENT RESTRICTIONS MAY LIMIT OUR FLEXIBILITY IN OBTAINING ADDITIONAL FINANCING AND IN PURSUING OTHER BUSINESS OPPORTUNITIES. As of December 31, 2001, as adjusted to give effect to our issuance in March 2002 of $300.0 million principal amount of 2 1/2% convertible senior notes due 2007 and the application of the net proceeds to reduce other indebtedness, we would have had approximately $1.8 billion in debt and capital lease obligations. The level of our indebtedness will have several important effects on our future operations, including: - a significant portion of our cash flow from operations will be dedicated to the payment of interest and principal on such debt and will not be available for other purposes - covenants contained in our existing debt arrangements require us to meet certain financial tests, which may affect our flexibility in planning for, and reacting to, changes in our business and may limit our ability to dispose of assets, withstand current or future economic or industry downturns and compete with others in our industry for strategic opportunities - our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited Our ability to meet our debt service obligations and to reduce our total indebtedness will be dependent upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. WE ARE SUBJECT TO HAZARDS CUSTOMARY IN THE OILFIELD SERVICE INDUSTRY AND TO THOSE MORE SPECIFIC TO MARINE OPERATIONS. WE MAY NOT HAVE INSURANCE TO COVER ALL THESE HAZARDS. Our operations are subject to the many hazards customary in the oilfield services industry. Contract drilling and well servicing require the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees, customers and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. Our offshore fleet is also subject to hazards inherent in marine operations, either while on site or during mobilization, such as capsizing, sinking and damage from severe weather conditions. In certain instances, we are required by contract to indemnify customers or others. We maintain insurance for injuries to our employees and other insurance coverage for normal business risks, including general liability insurance. Although we believe our current insurance coverage to be adequate and in accordance with industry practice against normal risks in our operations, any insurance protection may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. The occurrence of a significant event against which we are not fully insured, or of a number of lesser events against 12 which we are insured, but subject to substantial deductibles, could materially and adversely affect our operations and financial condition. Moreover, the September 11, 2001 terrorist attacks have significantly increased premiums for some types of coverage. We may not be able to maintain adequate insurance at rates or on terms that we consider reasonable or acceptable. FAILURE TO RETAIN KEY PERSONNEL COULD HURT OUR OPERATIONS. We require highly skilled personnel to operate and provide technical services and support for our drilling units. To the extent demand for drilling services and the size of the worldwide industry fleet increase, shortages of qualified personnel could arise, creating upward pressure on wages and difficulty in staffing rigs. GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LIABILITIES MAY ADVERSELY AFFECT OUR OPERATIONS. Many aspects of our operations are subject to numerous governmental regulations that may relate directly or indirectly to the contract drilling and well servicing industries, including those relating to the protection of the environment. We have spent and will continue to spend material amounts to comply with these regulations. Laws and regulations protecting the environment have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental damage without regard to negligence or fault on our part. These laws and regulations may expose us to liability for the conduct of, or conditions caused by, others or for acts that were in compliance with all applicable laws at the time the acts were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on us. In addition, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or development drilling for oil and gas could have a material adverse effect on our operations by limiting future contract drilling opportunities. ITEM 2. PROPERTY Our property consists primarily of mobile offshore and land-based drilling rigs, well servicing rigs and ancillary equipment, most of which we own. We operate some rigs under joint venture arrangements, management agreements and lease agreements. We also own and operate transport and heavy-duty trucks and other ancillary equipment. We own approximately 1,000 vehicles and lease approximately 50 others. We own office and operating facilities in Houma, Louisiana and in France, Argentina, Brazil, Venezuela, Algeria, Peru, Angola and Colombia. Additionally, we lease other office and operating facilities in Houston, Texas and in other international locations. We incorporate by reference in response to this item the information set forth in Item 1 of this annual report and the information set forth in Notes 2 and 5 of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. ITEM 3. LEGAL PROCEEDINGS We and a number of other offshore drilling contractors with operations in the Gulf of Mexico are defendants in a lawsuit in the U.S. District Court of the Southern District of Texas entitled Verdin v. R&B Falcon Drilling USA, Inc. The plaintiff, who purports to be an "offshore worker" previously employed by R&B Falcon Drilling USA, Inc. has alleged that the defendants engaged in a conspiracy to depress wages and benefits paid to the defendants' offshore employees in violation of federal and state antitrust laws. We vigorously deny these allegations; however, we have agreed to participate in a settlement, subject to certification of a settlement class by the court and the satisfaction of other conditions. In June 2001, we recognized a $5.1 million charge for the portion of our share of the settlement amount that is not within the policy limits of our insurance. Our insurance carrier has not yet agreed to pay the remaining amount. The court has given preliminary approval to the settlement, which cannot become final until all members of the proposed class of plaintiffs (approximately 80,000 individuals) have been given notice and an opportunity to opt out of the settlement. Based on these and other procedural requirements, it is not expected that the court will be in a position to enter a final order until the second quarter of 2002. We do not believe the settlement will have a material adverse effect on our financial position, results of operations or cash flows. 13 We are routinely involved in other litigation incidental to our business, which at times involves claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the existing litigation will have a material adverse effect on our financial position, results of operations or cash flow. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 2001. EXECUTIVE OFFICERS OF THE REGISTRANT We have presented below information about our executive officers as of March 15, 2002. Officers are elected annually by the Board of Directors and serve until their successors are chosen or until their resignation or removal.
NAME AGE POSITION - ---- --- -------- Paul A. Bragg............................. 46 President and Chief Executive Officer James W. Allen............................ 58 Senior Vice President and Chief Operating Officer John C.G. O'Leary......................... 46 Vice President -- International Marketing John R. Blocker, Jr. ..................... 50 Vice President -- Latin American Operations Gary W. Casswell.......................... 49 Vice President -- Eastern Hemisphere Operations David A. Bourgeois........................ 57 Vice President -- U.S. Operations Marcelo D. Guiscardo...................... 49 Vice President -- E&P Services Earl W. McNiel............................ 43 Vice President and Chief Financial Officer Robert W. Randall......................... 60 Vice President -- General Counsel and Secretary
Paul A. Bragg has been Chief Executive Officer since March 1999, President since February 1997 and was Chief Operating Officer from February 1997 to April 1999. He joined Pride in July 1993 as its Vice President and Chief Financial Officer. From 1988 until he joined Pride, Mr. Bragg was an independent business consultant and managed private investments. He previously served as Vice President and Chief Financial Officer of Energy Service Company, Inc. (now ENSCO International, Inc.), an oilfield services company, from 1983 through 1987. James W. Allen was named Senior Vice President -- Operations in February 1996 and Chief Operating Officer in April 1999. He joined Pride in January 1993 as its Vice President -- International Operations (Latin America). From 1988 through 1992, Mr. Allen was an independent business consultant and managed private investments. From 1984 to 1988, he was Vice President Latin America for ENSCO. Mr. Allen has 29 years of oilfield experience with several different companies. John C.G. O'Leary was named Vice President -- International Marketing in March 1997 in connection with our acquisition of Forasol-Foramer N.V. Mr. O'Leary had been Manager, Marketing and Business Development of Forasol since June 1993, with primary responsibility for worldwide business development. Mr. O'Leary joined Forasol S.A. in August 1985. John R. Blocker, Jr. was named Vice President -- Latin American Operations in March 2000. He joined Pride in 1993 as President of our Argentina subsidiary, Pride International, S.R.L. From 1987 through 1993, Mr. Blocker managed private investments. He has more than 21 years of oilfield experience with several companies. 14 Gary W. Casswell was named Vice President -- Eastern Hemisphere Operations in May 1999. He joined Pride in August 1998 and has approximately 22 years of oilfield drilling experience. From 1974 through 1998, Mr. Casswell was Operations Manager and Technical Development Manager of Santa Fe International Corporation (now part of GlobalSantaFe Corporation), an oilfield services company. David A. Bourgeois was named Vice President -- U.S. Operations in May 1999. He joined Pride in April 1994 with the purchase of Offshore Rigs, L.L.C., where he was Chief Operating Officer. From April 1994 to June 1996, he was Sales and Marketing Manager of Pride Offshore, Inc. and from June 1996 until May 1999 he was Vice President and General Manager of Pride Offshore, Inc. Marcelo D. Guiscardo joined Pride in March 2000 as Vice President -- E&P Services. From September 1999 until joining Pride, he was President of GDM Business Development, a private company providing consulting services to the energy industry. From November 1993 to September 1999, Mr. Guiscardo held various senior management positions with YPF Sociedad Anonima (now part of Repsol YPF S.A.), an integrated energy company, including Vice President -- Exploration & Production. Earl W. McNiel has been Vice President and Chief Financial Officer of Pride since February 1997. He joined Pride in September 1994 as its Chief Accounting Officer. From 1990 to 1994, Mr. McNiel served as Chief Financial Officer of several publicly owned waste management companies. From 1987 to 1990, he was employed by ENSCO as Manager, Finance. Robert W. Randall has been Vice President and General Counsel of Pride since May 1991. He was elected Secretary in 1993. Prior to 1991, he was Senior Vice President, General Counsel and Secretary for Tejas Gas Corporation, a natural gas transmission company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is listed on the New York Stock Exchange under the symbol "PDE." As of March 15, 2002, there were 1,642 stockholders of record. The following table presents the range of high and low sales prices of our common stock for the periods shown:
PRICE --------------- HIGH LOW ------ ------ 2000 First Quarter............................................... $22.94 $13.25 Second Quarter.............................................. 26.75 19.69 Third Quarter............................................... 29.63 19.06 Fourth Quarter.............................................. 28.88 18.06 2001 First Quarter............................................... $29.30 $19.25 Second Quarter.............................................. 32.66 18.56 Third Quarter............................................... 19.53 9.68 Fourth Quarter.............................................. 15.60 9.82
We have not paid any cash dividends on our common stock since becoming a publicly held corporation in September 1988. We currently have a policy of retaining all available earnings for the development and growth of our business and do not anticipate paying dividends on our common stock at any time in the foreseeable future. Our ability to pay cash dividends in the future is restricted by our existing financing arrangements. The desirability of paying such dividends could also be materially affected by U.S. and foreign tax considerations. 15 ITEM 6. SELECTED FINANCIAL DATA We have derived the following selected consolidated financial information as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, from our audited consolidated financial statements included in Item 8 of this annual report. You should read this information in conjunction with those consolidated financial statements and the notes thereto. We have derived the selected consolidated financial information as of December 31, 1999, 1998 and 1997, and for each of the years in the two-year period ended December 31, 1998, from the audited consolidated financial statements of Pride and Marine that are not included herein. Please read "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this annual report.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues.............................. $1,512,895 $1,173,038 $ 734,791 $1,063,578 $ 890,045 Operating costs....................... 902,267 722,303 519,494 626,510 536,708 Restructuring charges -- operating(1)............. -- -- 12,817 5,500 -- Depreciation and amortization......... 198,928 174,570 125,292 100,122 75,656 Selling, general and administrative... 100,309 95,528 91,400 97,112 81,688 Pooling and merger costs(2)........... 35,766 -- -- -- -- Restructuring charges -- general and administrative(1)................... -- -- 23,831 -- -- ---------- ---------- ---------- ---------- ---------- Earnings (loss) from operations....... 275,625 180,637 (38,043) 234,334 195,993 Other income (expense) net(3)......... (121,012) (85,896) (45,468) (36,610) 49,735 ---------- ---------- ---------- ---------- ---------- Earnings (loss) before income taxes and minority interest............... 154,613 94,741 (83,511) 197,724 245,728 Income tax provision (benefit)........ 49,231 34,928 (25,610) 59,446 83,095 Minority interest..................... 15,508 10,812 3,996 (60) 258 ---------- ---------- ---------- ---------- ---------- Earnings (loss) before extraordinary item................................ 89,874 49,001 (61,897) 138,338 162,375 Extraordinary item, net............... 1,332 -- 3,884 -- -- ---------- ---------- ---------- ---------- ---------- Net earnings (loss)................... $ 91,206 $ 49,001 $ (58,013) $ 138,338 $ 162,375 ========== ========== ========== ========== ========== Net earnings (loss) per share before extraordinary item(1)(2) Basic............................ $ 0.68 $ 0.40 $ (0.57) $ 1.35 $ 1.72 ========== ========== ========== ========== ========== Diluted.......................... $ 0.67 $ 0.39 $ (0.57) $ 1.22 $ 1.60 ========== ========== ========== ========== ========== Net earnings (loss) per share after extraordinary item(1)(2) Basic............................ $ 0.69 $ 0.40 $ (0.54) $ 1.35 $ 1.72 ========== ========== ========== ========== ========== Diluted.......................... $ 0.68 $ 0.39 $ (0.54) $ 1.22 $ 1.60 ========== ========== ========== ========== ========== Weighted average shares outstanding Basic............................ 131,630 123,038 107,801 102,352 94,608 Diluted.......................... 142,778 126,664 107,801 113,577 101,595
16
DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital....................... $ 95,055 $ 124,282 $ 161,941 $ 91,173 $ 158,829 Property and equipment, net........... 3,371,159 2,621,365 2,501,520 2,157,416 1,432,134 Total assets.......................... 4,205,690 3,337,633 3,054,819 2,667,851 1,875,683 Long-term debt and leases, net of current portion..................... 1,639,885 1,237,320 1,328,886 1,020,475 523,875 Stockholders' equity.................. 1,697,106 1,443,330 1,236,468 1,124,861 980,523
- --------------- (1) Restructuring charges include the cost of involuntary employee termination benefits, including severance, wage continuation, medical and other benefits, facility closures, related personnel relocation costs and other costs in connection with a reduction in our workforce in 1999. Please read Note 7 of the Notes to Consolidated Financial Statements in Item 8 of this annual report for more information about these charges. (2) Pooling and merger costs consist of cash costs incurred for investment advisory, legal and other professional fees, closure of duplicate office facilities and employee terminations in connection with our acquisition of Marine in September 2001. Please read Note 7 of the Notes to Consolidated Financial Statements in Item 8 of this annual report for more information about these charges. (3) Other income (expense) net, earnings (loss) before income taxes and net earnings (loss) for the year ended December 31, 1997 include a pretax gain of $83.6 million ($53.5 million, net of income tax) on the divestiture of our U.S. land-based well servicing business. The gain was partially offset by non-recurring charges totaling $4.2 million, net of income taxes, relating principally to the induced conversion of $28.0 million principal amount of our convertible subordinated debentures. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this annual report. The following information contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of certain limitations inherent in such statements. OVERVIEW We provide contract drilling and related services to oil and gas companies worldwide, operating both offshore and on land. As of March 15, 2002, we operated a global fleet of 328 rigs, including two ultra-deepwater drillships, 12 semisubmersible rigs, 35 jackup rigs, 29 tender-assisted, barge and platform rigs and 250 land-based drilling and workover rigs. We operate in more than 30 countries and marine provinces. We have four principal operating segments: United States Offshore, International Offshore, International Land and E&P Services. In recent years, we have increased the size of our fleet capable of drilling in deeper waters. We have a 51% ownership interest in and operate two ultra-deepwater drillships, the Pride Africa and the Pride Angola, that were placed in service in October 1999 and May 2000, respectively. In November 2000, we acquired a jackup drilling rig, the Pride Ohio, which we had been operating under a bareboat charter since 1999. In February 2001, we purchased two semisubmersible drilling rigs, now the Pride Venezuela and the Pride North Sea, that are currently working in Venezuela and the United Kingdom sector of the North Sea, respectively. In March 2001, we increased our ownership from 26.4% to 100% in two newly built, dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil. The Pride Carlos Walter and Pride Brazil commenced operations in Brazil in June and July 2001, respectively, working under five-year charter and service rendering contracts. 17 In September 2001, we acquired Marine Drilling Companies, Inc. in a stock-for-stock transaction that created one of the world's largest offshore drilling contractors. Marine owned and operated a fleet of 17 offshore drilling rigs consisting of two semisubmersible units and 15 jackup units. Additionally, Marine owned one jackup rig configured as an accommodation unit. Currently, 14 of these rigs are located in the U.S. Gulf of Mexico, and the four remaining rigs are in Southeast Asia, the North Sea, Angola and Egypt. We issued 58.7 million shares of our common stock to the former shareholders of Marine, which equaled approximately 44% of the outstanding shares of our common stock immediately following completion of the acquisition. The combination with Marine has deleveraged our consolidated balance sheet and, at the same time, has enhanced our competitive position in the Gulf of Mexico jackup rig market and elsewhere. The acquisition was accounted for as a pooling-of-interests for accounting and financial reporting purposes and, accordingly, our consolidated financial statements reflect the combined operations of Pride and Marine for each period presented. In November 2001, we assumed operations of the Omega, a conventionally moored semisubmersible rig, in South Africa, and in January 2002 we assumed operations of the dynamically positioned semisubmersible rig, the Leiv Eiriksson, in Angola. Both rigs are owned by third parties who pay us a management fee to operate the rigs on their behalf. In 2001, we acquired 14 land-based drilling and workover rigs in Argentina and Venezuela for a total cost of $48.0 million. BUSINESS ENVIRONMENT Our revenues depend principally upon the number of available drilling and workover rigs, the number of days these rigs are utilized and the day rates received, and the amount of integrated project management, coiled tubing drilling and other E&P services that we provide. The number of available rigs may increase or decrease as a result of the acquisition or disposal of rigs, the construction of new rigs, the number of rigs being upgraded or repaired at any time and the entering into or termination of rig management contracts. The number of days our rig fleets are utilized and the day rates received is largely dependent upon the balance of supply and demand for drilling and workover services in the different geographic regions in which we operate. In order to improve utilization or realize higher day rates, we may mobilize our rigs from one market to another. Oil and gas companies' exploration and development drilling programs drive the demand for drilling, workover and E&P services. These drilling programs are affected by their expectations about oil and natural gas prices, anticipated production levels, demand for crude oil and natural gas products, government regulations and many other factors. Oil and gas prices are volatile, which has historically led to significant fluctuations in expenditures for oil and gas drilling and related services. Prices for oil and natural gas increased during 2000 and early 2001 and had a favorable impact on utilization, day rates and demand for our services. From mid-year 2001, activity in the Gulf of Mexico began to weaken, and by the fourth quarter we were experiencing particularly weak conditions in the Gulf of Mexico jackup market as lower natural gas prices and high natural gas inventory storage levels resulted in reduced demand for rig services. That market has continued to weaken since the end of 2001. As of March 15, 2002, 15 of our 27 jackup rigs located in the Gulf of Mexico were either available or undergoing upgrades, and the average day rate for the nine jackup rigs that were working was $23,900. In March 2002, we were awarded contracts by Pemex for three of the stacked mat-supported jackup rigs for work offshore Mexico. The contracts are for approximately four years each at average day rates of approximately $33,500. The first two rigs are expected to commence operations by the end of April 2002 and the third rig by early July 2002. Additionally, we have been awarded a two-year contract by Pemex for a 1,000 horsepower platform rig. 18 Results for our international land and E&P services operations also declined in the fourth quarter of 2001 and have declined further in 2002 principally due to reduced activity levels, particularly in Argentina and Venezuela. During 2001, approximately 25% of our consolidated revenues was derived from our land-based drilling, workover and E&P services operations in Argentina, which is currently experiencing a political and economic crisis that has resulted in significant changes in its general economic policies and regulations. Over the past few months, new economic measures have been adopted by the Argentine government, including abandoning the country's fixed dollar-to-peso exchange rate, requiring private sector, dollar-denominated loans and contracts to be paid in pesos and placing restrictions on the convertibility of the Argentine peso. As a result, we recorded a charge in the fourth quarter of 2001 of $6.9 million, net of estimated income taxes, to reduce the carrying value of our net monetary assets in Argentina. We could record additional charges in the future to reflect any continuing adverse impact from these or other unfavorable economic measures that may be adopted. In addition, Argentina has imposed a 20% tax on oil exports effective March 1, 2002. The oil export tax could have a negative effect on oil production in Argentina and, accordingly, have a negative effect on demand in the near term for our services. Of our total fleet of 250 land-based drilling and workover rigs, 154 were located in Argentina as of March 15, 2002. Current utilization rates for the combined land-based fleet have been adversely impacted by the economic uncertainty in Argentina and Venezuela and are currently approximately 50% as compared with 73% during the fourth quarter of 2001. Activity levels are likely to remain low in our international land segment during 2002 unless market conditions improve in Argentina and Venezuela. The effect of reduced activity in our land markets in South America is expected to be offset to some extent by increased activity in Africa, where the first of five newly constructed mobile land rigs started work in Chad in December 2001. The second and third rigs commenced operations in March 2002 and the final two rigs are expected to commence operations in April 2002. All five rigs are contracted to ExxonMobil for initial periods ranging from five to seven years. In contrast to our other operating segments, our drilling rigs in international offshore markets have continued to experience high levels of activity. Contracts for offshore rigs in international markets tend to be longer-term than contracts in the Gulf of Mexico and are therefore influenced less by short-term fluctuations in the prices of oil and gas. OUTLOOK Due to the volatility of oil and gas commodity prices, it is difficult to predict with any certainty whether conditions for a particular sector of our business will improve or deteriorate. With the current weakness in the Gulf of Mexico jackup market, we expect that results for our domestic offshore segment will continue to decline in the first quarter of 2002 and to remain weak through at least the first half of the year. Our results will benefit from the commencement of the three recently awarded jackup contracts with Pemex. A recovery in the U.S. economy, together with a meaningful decline in North America natural gas inventories, could lead to improved activity levels for our Gulf of Mexico fleet during the second half of 2002. We expect results for our international land and E&P services operations will decline in the first quarter of 2002, due to lower activity levels in Argentina and Venezuela resulting from the political and economic crises in those countries. With the start-up of our land-based operations in Chad, results for our international land-based operations should improve in the second quarter of 2002 and for the balance of the year. Results for our international offshore operations should be somewhat lower in the first quarter of 2002 as we conclude scheduled inspections, maintenance and deployment of several of our intermediate water depth semisubmersible rigs. Results are expected to improve in the second quarter as these rigs return to service. Please read "Business -- General" in Item 1 of this annual report and "-- Liquidity and Capital Resources" in this Item 7. 19 RESULTS OF OPERATIONS The following table presents selected consolidated financial information by operating segment for the periods indicated. Operating costs for the year ended December 31, 1999 include restructuring charges.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 ------------------ ---------------------- ---------------- (DOLLARS IN THOUSANDS) Revenues: United States offshore.... $ 418,850 27.7% $ 327,368 27.9% $168,885 23.0% International offshore.... 507,139 33.5 395,336 33.7 302,856 41.2 International land........ 444,405 29.4 364,461 31.1 263,050 35.8 E&P Services.............. 142,501 9.4 85,873 7.3 -- 0.0 ---------- ----- ---------- ----- -------- ----- Total revenues......... $1,512,895 100.0% $1,173,038 100.0% $734,791 100.0% ========== ===== ========== ===== ======== ===== Operating Costs: United States offshore.... $ 212,401 23.5% $ 183,348 25.4% $128,498 24.1% International offshore.... 250,464 27.8 209,349 29.0 196,860 37.0 International land........ 330,492 36.6 268,832 37.2 206,953 38.9 E&P Services.............. 108,910 12.1 60,774 8.4 -- 0.0 ---------- ----- ---------- ----- -------- ----- Total operating costs................ $ 902,267 100.0% $ 722,303 100.0% $532,311 100.0% ========== ===== ========== ===== ======== ===== Gross Margin: United States offshore.... $ 206,449 33.8% $ 144,020 32.0% $ 40,387 19.9% International offshore.... 256,675 42.0 185,987 41.2 105,996 52.4 International land........ 113,913 18.7 95,629 21.2 56,097 27.7 E&P Services.............. 33,591 5.5 25,099 5.6 -- 0.0 ---------- ----- ---------- ----- -------- ----- Total gross margin..... $ 610,628 100.0% $ 450,735 100.0% $202,480 100.0% ========== ===== ========== ===== ======== =====
2001 COMPARED WITH 2000 Revenues. Revenues in 2001 increased $339.9 million, or 29.0%, as compared to 2000, with increases from each of our operating segments. Revenues from United States offshore operations increased $91.5 million, or 27.9%, in 2001 as compared to 2000, principally due to increases in average day rates, partially offset by an overall decrease in utilization of our Gulf of Mexico jackup rigs. Average day rates for our Gulf of Mexico jackup and platform rig fleets were $38,600 and $19,700, respectively, during 2001 as compared with $28,200 and $14,600, respectively, during 2000. Average utilization rates for our Gulf of Mexico jackup rig fleet declined to 80.0% in 2001 from 90.3% in 2000, whereas average utilization for our platform rigs increased slightly to 57.5% in 2001 from 55.5% in 2000. Revenues from international offshore operations increased $111.9 million, or 28.3%, in 2001 as compared to 2000. The increase was principally due to revenues from newly constructed and recently acquired rigs and full-period operations in 2001 for the drillship Pride Angola. Revenues from the Pride Carlos Walter and the Pride Brazil, two newly-built deepwater semisubmersible rigs that entered into service in June and July 2001, respectively, totaled $49.4 million in 2001, and revenues from the Pride Venezuela and the Pride North Sea semisubmersible rigs, which were acquired in February 2001, totaled $15.1 million. Revenues from the Pride Angola, which commenced operations in May 2000, totaled $64.6 million in 2001 as compared with $37.1 million in 2000. Revenues from international land operations increased $79.9 million, or 21.9%, in 2001 as compared to 2000, as a result of increased day rates for our rigs in South America and the addition of 14 drilling rigs during 20 2001 that contributed $17.1 million of incremental revenue in 2001. Utilization levels for our other land-based rigs in 2001 were the same as 2000 levels. Revenues from E&P services increased $56.6 million, or 65.9%, in 2001 as compared with 2000, primarily due to the inclusion of a full year of operations in 2001 as compared with only nine months of activity in 2000, following the acquisition of the division in April of that year, as well as an increase in revenues from integrated project management services and coiled tubing drilling. Operating Costs. Operating costs in 2001 increased $180.0 million, or 24.9%, as compared to 2000. The increase was principally due to costs related to the newly acquired or constructed semisubmersible rigs, to increased costs of rigs that operated during 2001 that were being upgraded or were stacked in 2000, to costs for a full period in 2001 for the Pride Africa and the E&P services division as compared with a partial period in 2000 and to costs associated with integrated project management services and coiled tubing drilling. Depreciation and Amortization. Depreciation and amortization expense increased $24.4 million, or 14.0%, in 2001 as compared with 2000, due to incremental depreciation recorded on newly acquired and constructed rigs and depreciation of the costs associated with significant rig refurbishments and upgrades. This increase was partially offset by the effect of a reassessment of residual values and estimated remaining useful lives of certain rigs of $10.3 million. Selling, General and Administrative. Selling, general and administrative expenses for 2001 increased $4.8 million, or 5.0%, as compared with 2000, primarily due to a full year of expenses for our E&P services division as compared with nine months of expenses in 2000 and our July 2001 acquisition of 14 additional rigs in Argentina and Venezuela. As a percentage of revenues, selling, general and administrative expenses decreased from 8.1% in 2000 to 6.6% in 2001. Pooling and Merger Costs. Costs totaling $35.8 million were incurred in connection with the acquisition of Marine in September 2001. The costs consisted of investment advisory, legal and other professional fees totaling $24.4 million and costs associated with the closure of duplicate office facilities and employee terminations totaling $11.4 million. Other Income (Expense). Other expense in 2001 increased $35.1 million, or 40.9%, as compared to 2000. Interest expense increased by $14.6 million, principally due to interest on indebtedness added in the acquisition of the interests that we did not previously own in the Pride Carlos Walter and Pride Brazil, interest on construction financing for the rigs that had been capitalized during their construction and amortization of deferred financing costs relating to our zero coupon convertible debentures. The increase in interest expense was partially offset by the impact of a reduction in interest rates on floating rate debt. During 2001, we capitalized $19.0 million of interest expense in connection with construction projects, as compared to $11.2 million of interest capitalized in 2000. Other expense in 2001 included foreign exchange losses of $13.1 million and a $5.1 million charge in connection with the settlement of a wage-related antitrust lawsuit, partially offset by a gain from the sale of surplus assets. The foreign exchange losses included a pre-tax charge of $10.7 million (or $6.9 million net of estimated income taxes) to reduce the carrying value of our net monetary assets in Argentina. Other income in 2000 included a gain from a litigation settlement partially offset by losses on foreign currency exchange contracts. Income Tax Provision. Our consolidated effective income tax rate for 2001 decreased to 31.8% from 36.9% in 2000, principally as a result of increased income in foreign jurisdictions with low or zero effective tax rates. The decrease was partially offset as approximately $19.0 million of the pooling and merger costs is estimated to be non-deductible for U.S. federal income tax purposes. Exclusive of the effects of such non-deductible pooling and merger costs, the effective tax rate would have been approximately 28.9%. Minority Interest. Minority interest in 2001 increased $4.7 million, or 43.4%, as compared to 2000 due to an increase in net income generated by our 51% owned drillship, the Pride Angola, which commenced operations in May 2000. 21 Extraordinary Item. We recognized an extraordinary gain in 2001 of $1.3 million, net of estimated income taxes, related to the early extinguishment of approximately $59.5 million accreted value of our zero coupon convertible subordinated debentures due 2018. 2000 COMPARED WITH 1999 Revenues. Revenues for 2000 increased $438.2 million, or 59.6%, as compared to 1999. Of this increase, $85.9 million related to the initiation of E&P services in April 2000 and $101.4 million related to significantly increased utilization of our international land-based rig fleet, primarily in Argentina and Colombia. Revenues from our United States offshore operations increased $158.5 million due to a full year of operations of the Pride North America semisubmersible rig, which began operating in the third quarter of 1999, as well as increased utilization and higher day rates for our Gulf of Mexico jackup and platform rigs. Revenues from our international offshore operations increased $92.5 million, of which $83.7 million related to the commencement of drillship operations and increased revenues from the semisubmersible rig, the Pride South Pacific, which started operating in the third quarter of 1999. These increases were partially offset by a decrease of $29.8 million in rig management fees. Operating Costs. Operating costs in 2000 increased $190.0 million, or 35.7%, as compared to 1999. Of this increase, $60.8 million related to the initiation of E&P services and approximately $61.9 million related to higher utilization of our international land-based rigs, primarily in Argentina and Colombia. An additional $54.9 million was attributable to higher utilization of our domestic offshore fleet, including a full year of operations in 2000 for the Pride North America, and $12.5 million was attributable to international offshore operations, due to commencement of drillship operations and a full year of operations for the Pride South Pacific, partially offset by a decrease in costs associated with managed rigs. The increases for international land-based rigs and international offshore operations, discussed above, are net of the non-recurring restructuring charges incurred in 1999 of $8.9 million and $3.9 million, respectively, described in Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. Depreciation and Amortization. Depreciation and amortization for 2000 increased $49.3 million, or 39.3%, compared to 1999, primarily as a result of the expansion of our fleet. Selling, General and Administrative. Selling, general and administrative costs in 2000 decreased $19.7 million, or 17.1%, as compared to 1999. Costs for 1999 include restructuring costs of $23.8 million resulting from a reduction in our workforce implemented in 1999, described in Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. Excluding these costs, selling, general and administrative costs in 2000 increased $4.1 million, or 4.5%, as compared to 1999, primarily as a result of the inclusion of costs related to E&P services, which recorded $7.4 million of selling, general and administrative costs, partially offset by reduced wages and related expenses company-wide associated with staff reductions resulting from the restructuring activity in 1999. Other Income (Expense). Other expense in 2000 increased $40.4 million, or 88.9%, as compared to 1999, primarily as a result of an increase of $35.1 million in interest expense on debt incurred to construct two new drillships and the additional interest related to debt incurred in the acquisition of our E&P services division, partially offset by an increase in interest income of $3.2 million related to an increase in cash available for investment. The increase in other expense was also attributable to a reduction of other income of $8.6 million due to foreign exchange losses, partially offset by a litigation settlement. In addition, other income (expense) in 1999 included an insurance gain of $7.4 million related to the loss of a land-based drilling rig in Bolivia. During 2000, we capitalized $11.2 million of interest expense in connection with construction projects, as compared to $33.2 million of interest capitalized in 1999. Minority Interest. Minority interest increased $6.8 million, or 171%, in 2000 as compared to 1999. Minority interest increased $10.6 million due to the 49% minority share of net income from the Pride Africa and Pride Angola drillships, which commenced operations in October 1999 and May 2000, respectively. This increase was partially offset by a decrease in the 40% minority share of net income from our Bolivian subsidiary due to our purchase of that minority interest in September 2000. 22 Income Tax Provision (Benefit). Our consolidated effective income tax rate in 2000 increased to 36.9% as compared to a tax benefit of 30.7% in 1999. The increase is principally a result of increased income in jurisdictions with higher effective income tax rates and of foreign tax payments that were not deductible for U.S. tax purposes. LIQUIDITY AND CAPITAL RESOURCES We had net working capital of $95.1 million and $124.3 million as of December 31, 2001 and December 31, 2000, respectively. Our current ratio, the ratio of current assets to current liabilities, was 1.2 at December 31, 2001 and 1.3 at December 31, 2000. The decrease in net working capital was primarily attributable to purchases of property and equipment, partially offset by an increase in working capital generated from operations and proceeds from the issuances of zero coupon convertible senior debentures and common stock. During the year ended December 31, 2001, additions to property and equipment consisted of $442.9 million for the Pride Carlos Walter and Pride Brazil (including $100.0 million for the purchase of the equity ownership interest we did not already own), $123.6 million for the purchase of the Pride Venezuela and Pride North Sea, $54.0 million for the construction of five mobile land-based rigs and related equipment for operations in Chad, $48.0 million for the acquisition of 14 land-based rigs and related facilities in South America, $142.5 million for certain reactivation, refurbishment and upgrade expenditures and approximately $121.3 million for other enhancement and sustaining capital projects. We have a 51% ownership interest in and operate the ultra-deepwater drillships Pride Africa and Pride Angola, which are contracted to work for Elf Exploration Angola under contracts expiring in June 2005 and May 2005, respectively, each with two one-year extension options. Financing for approximately $400 million of the drillships' total construction cost of $495 million was provided by a group of banks. The loans are secured by the two drillships and the proceeds from the related drilling contracts and are non-recourse to us and the joint owner. As of December 31, 2001, a total of $288.7 million was outstanding under these loans. As a condition of the drillship loans, we entered into interest rate swap and cap agreements. The agreements effectively fixed the interest rate on the Pride Africa loan at 7.34% through December 2006, effectively fixed the interest rate on the Pride Angola loan at 6.52% through July 2003 and effectively capped the interest rate on the Pride Angola loan at 6.52% from August 2003 to July 2007. In 1997 and 1999, respectively, we issued $325.0 million of 9 3/8% senior notes due 2007 and $200.0 million of 10% senior notes due 2009. The notes contain provisions that limit our ability and the ability of our subsidiaries, with certain exceptions, to pay dividends or make other restricted payments; incur additional debt or issue preferred stock; create or permit to exist liens; incur dividend or other payment restrictions affecting subsidiaries; consolidate, merge or transfer all or substantially all our assets; sell assets; enter into transactions with affiliates and engage in sale and leaseback transactions. In 1998, we issued $588.1 million face amount of zero coupon convertible subordinated debentures that mature in 2018, subject to the holders' rights to require us to repurchase the debentures beginning in April 2003 at the accreted value of the debentures, which equals the original issue price (39.1% of face amount) plus accrued original issue discount to the repurchase date. We have the option to pay the purchase price in cash or common stock. The debentures outstanding as of December 31, 2001 had a face amount of $382.0 million and an accreted value of $177.6 million. The debentures are convertible at any time into shares of our common stock at a conversion rate of 13.794 shares of common stock per $1,000 principal amount at maturity. During 2001, we purchased on the open market and then extinguished $129.1 million principal amount at maturity of the debentures. The aggregate purchase price was $56.2 million and the accreted value of the debentures, less deferred offering costs, was approximately $58.2 million, resulting in a gain after estimated taxes of $1.3 million, which amount was included as an extraordinary item in our consolidated statement of operations for the period. In January 2001, we issued $431.5 million face amount of zero coupon convertible senior debentures due 2021. The debentures are convertible into shares of our common stock at a conversion rate of 21.729 shares of common stock per $1,000 principal amount at maturity. We will become obligated to purchase the debentures 23 for cash, at the option of the holders, beginning in January 2003 at the accreted value of the debentures, which equals the original issue price (60.8% of face amount) plus accrued original issue discount to the relevant purchase date. The debentures outstanding as of December 31, 2001 had a face amount of $431.5 million and an accreted value of $268.5 million. The debentures have restrictive covenants similar to our 9 3/8% senior notes due 2007 and 10% senior notes due 2009. In March 2002, we purchased on the open market and then extinguished $227.0 million principal amount at maturity of the debentures. The aggregate purchase price was $140.5 million and the accreted value of the debentures, less deferred offering costs, was $139.8 million, resulting in an extraordinary loss after estimated income taxes of $0.5 million, which will be recognized in the first quarter of 2002. The effective conversion price of the zero coupon convertible subordinated debentures due 2018 on their initial "put" date in April 2003 will be approximately $35.85 per share, and the effective conversion price of the zero coupon convertible senior debentures due 2021 on their initial "put" date in January 2003 will be approximately $29.43 per share. The closing price of our common stock on the New York Stock Exchange on March 15, 2002 was $14.80 per share. Based on current market conditions, we believe that we will likely be required to purchase for cash all the debentures of each series that are outstanding on their respective initial put dates. In March 2002, we issued $300.0 million principal amount of 2 1/2% convertible senior notes due 2007. Net proceeds, after deducting underwriting discounts and offering costs, were $291.8 million. The notes are convertible into approximately 18.2 million shares of our common stock (equal to a conversion rate of 60.5694 shares of common stock per $1,000 principal amount or $16.51 per share). Interest on the notes will be paid semiannually beginning in September 2002. The net proceeds have been and will be used to repay debt, including the repurchase of both series of outstanding zero coupon debentures. In connection with the issuance of the notes, a private equity fund related to First Reserve Corporation purchased 7.9 million shares of our common stock from third parties. As a result of that purchase and other purchases of our common stock by First Reserve managed funds, First Reserve funds currently own a total of 19.5 million shares of our common stock, or approximately 14.7% of the total shares outstanding. In February 2001, we purchased a second-generation semisubmersible drilling rig (now the Pride North Sea) and a third-generation semisubmersible drilling rig (now the Pride Venezuela) for $44.7 million in cash and 3.0 million shares of our common stock valued at $78.9 million. In March 2001, we increased from 26.4% to 100% our ownership in a joint venture that recently constructed two dynamically-positioned, deepwater semisubmersible drilling rigs. The Pride Carlos Walter commenced operations in June 2001, and the Pride Brazil commenced operations in July 2001. These rigs are operating for Petrobras under five-year charter and service rendering contracts, each with two one-year extension options. The purchase consideration for the interests we did not previously own consisted of approximately $86 million aggregate principal amount of senior convertible notes, which were issued to the Brazilian participant in the joint venture, and 519,468 shares of our common stock valued at approximately $14.0 million, which were issued to two investment funds managed by First Reserve Corporation pursuant to the funds' original investment in the joint venture. The acquisition added to our consolidated balance sheet approximately $443 million of assets represented by the two rigs, approximately $287 million of indebtedness incurred to finance the construction of the rigs ($250.0 million of which was outstanding as of December 31, 2001) and approximately $86 million of senior convertible notes issued to the Brazilian participant. The notes mature in March 2004, bear interest at 9% per annum and are convertible into approximately 4.0 million shares of our common stock. In July 2001, we entered into a credit agreement with a group of foreign banks to provide loans totaling up to $250.0 million to refinance the construction loans for the Pride Carlos Walter and Pride Brazil. Borrowings under the new facility bear interest at rates based on LIBOR plus an applicable margin of 1.50% to 1.85%. Principal and interest on the new loans are payable semi-annually from March 2002 through 2008. Funding under the new facility and repayment of the construction loans (which had interest rates of 11% per annum) was completed in November 2001. The new loans are secured by, among other things, a first priority mortgage on the drilling rigs and assignment of the charters for the rigs. As required by the lenders under the 24 new facility, we entered into interest rate swap and cap agreements, which capped the interest rate on $50.0 million of the debt at 7% and which fixed the interest rate on the remainder of the debt at 5.58% from March 2002 through September 2006. In addition to the debt obligations described above, we had, as of December 31, 2001, approximately $46.7 million of other debt and capital lease obligations incurred primarily in connection with expansions of our offshore rig fleet and the purchase of the E&P services division. These include (1) a balance of $16.3 million principal amount of limited-recourse collateralized term loans made with two Japanese trading companies in 1994 to finance construction of our barge rigs, the Pride I and the Pride II, which term loans are being repaid from charter payments for the rigs in equal monthly installments of principal and interest (at 9.61% per annum) through July 2004 and (2) a $26.0 million promissory note (of which $11.6 million was outstanding as of December 31, 2001) issued to the seller of the E&P services division payable in monthly installments equal to the lesser of (a) 25% of the revenues of the division for the relevant month from services provided by it to the seller and its affiliates or (b) $722,222, which note bears interest at LIBOR plus 2.75% (which was 4.62% at December 31, 2001), payable quarterly. We are also obligated to make "earn-out" payments of up to $3.0 million each in April 2002, April 2003 and April 2004 based on the amount of E&P services purchased annually by the seller of that division. We expect the "earn-out" payment in April 2002 to be $3.0 million. We currently have senior bank credit facilities with domestic and foreign banks that provide aggregate availability of up to $255.0 million. The credit facilities terminate between June 2002 and June 2005. Borrowings under each of the credit facilities bear interest at variable rates based on LIBOR plus a spread ranging from 0.50% to 2.50%. As of December 31, 2001, there were borrowings of $100.0 million outstanding under these credit facilities. We also have a senior secured credit facility with a U.S. bank under which up to $15.0 million of letters of credit may be issued. Outstanding letters of credit issued under this credit facility are secured by our cash and cash equivalents maintained at such bank. The letter of credit facility expires in March 2003. As of December 31, 2001, there were $12.6 million of letters of credit issued under this credit facility. As of December 31, 2001, our long-term debt and capital lease obligations totaled approximately $1.7 billion. Although we do not expect that our level of total indebtedness will have a material adverse impact on our financial position, results of operations or liquidity in future periods, it may limit our flexibility in certain areas. Please read "Risk Factors -- We may be considered highly leveraged. Our significant debt levels and debt agreement restrictions may limit our flexibility in obtaining additional financing and in pursuing other business opportunities" in Item 1 of this annual report. The following table summarizes our contractual cash obligations at December 31, 2001.
PAYMENTS DUE BY PERIOD ----------------------------------------------- UP TO 1 2-3 4-5 OVER 5 CONTRACTUAL CASH OBLIGATIONS(1) YEAR YEARS YEARS YEARS TOTAL - ------------------------------- ------- -------- ------ ------ -------- (IN MILLIONS) Principal payments on long-term debt(2)............................... $ 99.8 $ 831.3 $184.6 $609.0 $1,724.7 Interest payments....................... 97.2 180.1 123.7 62.5 463.5 Capital lease obligations............... 3.8 7.3 10.1 -- 21.2 Operating leases -- rigs(3)............. 12.8 23.3 26.7 81.3 144.1 ------ -------- ------ ------ -------- Total cash obligations............. $213.6 $1,042.0 $345.1 $752.8 $2,353.5 ====== ======== ====== ====== ========
- --------------- (1) Does not include unconditional purchase commitments to third parties for materials, goods and services incurred in the normal course of business. (2) Assumes that we are required to purchase all the outstanding zero coupon convertible debentures of each series for cash on their initial put dates. (3) Primarily related to the Pride South America semisubmersible rig. In addition to rig operating leases, we have operating leases for other equipment, vehicles and various facilities. Rental expense under all 25 operating leases for the years ended December 31, 2001, 2000 and 1999 was $48.8 million, $39.4 million and $30.7 million, respectively. We established the Pride International, Inc. Direct Stock Purchase Plan in 2000, which provides a convenient way for investors to purchase shares of our common stock without paying brokerage commissions or service charges. During 2001, we sold approximately 2.6 million shares of common stock under this plan for net proceeds of $62.0 million. We have a 26.4% equity interest in a joint venture company that is constructing two dynamically-positioned, deepwater semisubmersible drilling rigs, yet to be named and currently referred to as the Amethyst 4 and Amethyst 5. In April 2001, the builder of these rigs, Friede Goldman Halter, Inc. ("FGH") filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code and requested the Bankruptcy Court to reject the construction contracts. In July 2001, the Bankruptcy Court officially rejected the construction contracts. To ensure completion of construction under the shipbuilding contracts for the Amethyst 4 and Amethyst 5, FGH posted performance bonds totaling $175 million. The surety has commenced funding the cost of completing the rigs under its obligations. Currently, a limited scope of work is continuing on the rigs at FGH to prepare them for transit to other shipyards, and bids are being obtained for completion of the construction of the rigs. We anticipate that the construction of the rigs will be completed in late 2003. The joint venture company has financed 87.5% of the cost of construction of these rigs through credit facilities, with repayment of the borrowings under those facilities guaranteed by the United States Maritime Administration ("MARAD"). Advances under the credit facilities are being provided without recourse to us or the other joint venture owners. The remaining 12.5% of the cost of construction is being provided by the joint venture company from equity contributions that have been made by the joint venture partners. Through December 31, 2001, our equity contributions to the joint venture totaled $26.5 million, including capitalized interest of $4.9 million. In the opinion of management, the performance and payment bonds issued by the surety on behalf of FGH, together with additional draws under the MARAD-guaranteed credit facilities, will provide sufficient funds to complete the Amethyst 4 and Amethyst 5 without requiring additional contributions by the joint venture partners. The Amethyst 4 and Amethyst 5 are being built to operate under long-term charter and service rendering contracts with Petrobras; however, Petrobras has given notice of cancellation of those contracts for late delivery. Based on current demand for deepwater drilling rigs, we believe that Petrobras or another customer will employ the Amethyst 4 and Amethyst 5 under new or amended contracts. There can be no assurance, however, that either the Amethyst 4 or Amethyst 5 will be chartered to Petrobras or to any other customer. We believe that cash and cash equivalents on hand, together with the cash generated from our operations, borrowings under our credit facilities and the net proceeds from our March 2002 issuance of 2 1/2% convertible senior notes, will be adequate to fund normal ongoing capital expenditures, working capital and debt service requirements for the foreseeable future. As of December 31, 2001, $55.4 million of our cash balances, which amount is included in restricted cash, consists of funds held in trust in connection with our drillship and semisubmersible loans and our limited-recourse collateralized term loans and, accordingly, is not available for our use. The September 2001 combination with Marine has deleveraged our consolidated balance sheet and enhanced our competitive position in the Gulf of Mexico jackup rig market and elsewhere. Since the combination was a stock-for-stock transaction and Marine was essentially debt free, the combined company has a lower debt to equity ratio than Pride had previously on a stand-alone basis. The lower debt to equity ratio has resulted in improved credit ratings, which are expected to reduce borrowing costs. We believe the cash flows of the combined companies will allow us to both reduce our existing long-term indebtedness more rapidly and refinance certain debt components on more favorable terms than Pride would have been able to accomplish on a stand-alone basis. From time to time, we may review additional expansion and acquisition opportunities. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable. From time to time, we have one or more bids outstanding for contracts that could require significant capital expenditures and mobilization costs. We expect to fund acquisitions and project opportunities primarily 26 through a combination of working capital, cash flow from operations and full or limited recourse debt or equity financing. SIGNIFICANT ACCOUNTING POLICIES We consider policies concerning use of estimates, property and equipment, revenue recognition and foreign currency translation to have the most significant impact on our consolidated financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While we believe that such estimates are reasonable, actual results could differ from those estimates. Property and equipment are carried at original cost or adjusted net realizable value, as applicable. Major renewals and improvements are capitalized and depreciated over each asset's estimated remaining useful life. Maintenance and repair costs are charged to expense as incurred. When assets are sold or retired, the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Property and equipment held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We estimate the future undiscounted cash flows of the affected assets to determine the recoverability of carrying amounts. In general, analyses are based on expected day rates and utilization rates. We recognize revenue as services are performed based upon contracted day rates and the number of operating days during the period. Revenue from turnkey contracts is generally recognized upon completion. Anticipated losses on turnkey contracts are recognized in operating results when known. Mobilization fees received and costs incurred to mobilize a rig from one geographic area to another are deferred and recognized over the term of the related drilling contract. We account for translation of foreign currency in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." The majority of our revenues and expenditures are denominated in U.S. dollars to limit our exposure to foreign currency fluctuations, resulting in the use of the U.S. dollar as the functional currency. In addition, our operations in Venezuela and certain other foreign jurisdictions are in "highly inflationary" economies resulting in the use of the U.S. dollar as the functional currency. As a result, certain assets and liabilities of foreign operations are translated at historical exchange rates, revenues and expenses in these countries are translated at the average rate of exchange on a monthly basis, and all translation gains or losses are reflected in the period's results of operations. In those countries where the U.S. dollar is not the functional currency, revenues and expenses are translated at the average rate of exchange for the period, assets and liabilities are translated at end-of-period exchange rates and all translation gains and losses are recorded in accumulated other comprehensive loss within stockholders' equity. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141, which is applicable to all business combinations initiated after June 30, 2001, prohibits the use of pooling-of-interests method of accounting for business combinations and provides a new definition of intangible assets. SFAS No. 142 eliminates the amortization of goodwill and requires that goodwill be reviewed annually for impairment. SFAS No. 142 also requires that the useful lives of previously recognized intangible assets be reassessed and the remaining amortization periods be adjusted accordingly. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and affects all goodwill and other intangible assets recognized on our balance sheet at that date, regardless of when the assets were initially recognized. We recognized goodwill amortization expense of $4.0 million, $3.0 million and $0.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Such amortization will not be recorded in future years. We are currently evaluating the impairment methodology for goodwill. 27 In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 with early adoption encouraged. SFAS No. 143 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 with earlier application encouraged. We are currently assessing the impact of SFAS No. 144 and, therefore, cannot reasonably estimate the effect of this statement on our consolidated financial position, results of operations or cash flows. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. These risks arise primarily as a result of potential changes in the fair market value of financial instruments that would result from adverse fluctuation in interest rates and foreign currency exchange rates as discussed below. We entered into these instruments other than for trading purposes. We incorporate by reference in response to this item the information set forth in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. Interest Rate Risk. We are exposed to interest rate risk through our convertible and fixed rate long-term debt. We have entered into agreements as required by the lenders under certain loan and credit agreements that effectively fixed or capped the interest rate on such debt. As of December 31, 2001, we held interest rate swap and cap agreements covering $521.6 million of our long-term debt. The fair market value of fixed rate debt will increase as prevailing interest rates decrease. The fair value of our long-term debt is estimated based on quoted market prices where applicable, or based on the present value of expected cash flows relating to the debt discounted at rates currently available to us for long-term borrowings with similar terms and maturities. The estimated fair value of our long-term debt as of December 31, 2001 and 2000 was approximately $1,744 million and $1,329 million, respectively, which is more than its carrying value as of December 31, 2001 and 2000 of $1,725 million and $1,305 million, respectively. A hypothetical 10% decrease in interest rates relative to market interest rates at December 31, 2001 would increase the fair market value of our long-term debt at December 31, 2001 by approximately $54 million. Foreign Currency Exchange Rate Risk. We operate in a number of international areas and are involved in transactions denominated in currencies other than U.S. dollars, which expose us to foreign exchange rate risk. We utilize forward exchange and option contracts, local currency borrowings and the payment structure of customer contracts to selectively reduce our exposure to exchange rate fluctuations in connection with monetary assets, liabilities and cash flows denominated in certain foreign currencies. The estimated unrealized loss on our forward exchange and option contracts as of December 31, 2001 and 2000 was approximately $6.6 million and $6.8 million, respectively. A hypothetical 10% increase in the U.S. dollar relative to the value of all foreign currencies as of December 31, 2001 would result in an approximate $4.0 million decrease in the fair value of our forward exchange and option contracts. We do not hold or issue forward exchange contracts, option contracts or other derivative financial instruments for speculative purposes. 28 FORWARD-LOOKING STATEMENTS This annual report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included in this annual report that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These include such matters as: - benefits, effects or results of the Marine acquisition - 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) - repayment of debt - market conditions, expansion and other development trends in the contract drilling industry - business strategies - expansion and growth of operations - utilization rates and contract rates for rigs - completion and employment of rigs under construction and - future operating results and financial condition We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including those described under "Business -- Risk Factors" in Item 1 of this annual report and the following: - general economic and business conditions - prices of oil and gas and industry expectations about future prices - foreign exchange controls and currency fluctuations - political stability in the counties in which we operate - the business opportunities (or lack thereof) that may be presented to and pursued by us and - changes in laws or regulations Most of these factors are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in these statements. We will not update these statements unless the securities laws require us to do so. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Pride International, Inc.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the consolidated financial position of Pride International, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the acquisition of Marine Drilling Companies, Inc. on September 13, 2001 in a transaction accounted for as a pooling of interests, as described in Note 1 to the consolidated financial statements. We did not audit the financial statements of Marine Drilling Companies, Inc., which statements reflect total assets of $661 million as of December 31, 2000 and total revenue of $264 million and $115 million for the years ended December 31, 2000 and 1999, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Marine Drilling Companies, Inc., is based solely on the report of other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Houston, Texas March 27, 2002 30 PRIDE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, ----------------------- 2001 2000 ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 58,988 $ 77,178 Restricted cash........................................... 55,400 50,500 Trade receivables, net.................................... 333,433 284,761 Parts and supplies........................................ 59,720 54,448 Deferred income taxes..................................... 2,096 601 Other current assets...................................... 122,503 67,998 ---------- ---------- Total current assets................................. 632,140 535,486 ---------- ---------- PROPERTY AND EQUIPMENT, net................................. 3,371,159 2,621,365 ---------- ---------- OTHER ASSETS Investments in and advances to affiliates................. 26,524 59,420 Goodwill, net............................................. 64,656 51,940 Other assets.............................................. 111,211 69,422 ---------- ---------- Total other assets................................... 202,391 180,782 ---------- ---------- $4,205,690 $3,337,633 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.......................................... $ 188,686 $ 148,246 Accrued expenses.......................................... 203,527 151,270 Short-term borrowings..................................... 42,379 22,135 Current portion of long-term debt......................... 99,850 85,286 Current portion of long-term lease obligations............ 2,643 4,267 ---------- ---------- Total current liabilities............................ 537,085 411,204 ---------- ---------- OTHER LONG-TERM LIABILITIES................................. 128,293 82,639 LONG-TERM DEBT, net of current portion...................... 1,624,888 1,219,638 LONG-TERM LEASE OBLIGATIONS, net of current portion......... 14,997 17,682 DEFERRED INCOME TAXES....................................... 137,214 112,541 MINORITY INTEREST........................................... 66,107 50,599 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 50,000 shares authorized; none issued............................................ -- -- Common stock, $.01 par value; 400,000 shares authorized; 132,847 and 126,251 shares issued and outstanding, respectively........................................... 1,328 1,263 Paid-in capital........................................... 1,218,624 1,056,206 Accumulated other comprehensive loss...................... (1,015) (1,102) Retained earnings......................................... 478,169 386,963 ---------- ---------- Total stockholders' equity........................... 1,697,106 1,443,330 ---------- ---------- $4,205,690 $3,337,633 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 31 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------- 2001 2000 1999 ------------ ------------ ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES.................................................. $1,512,895 $1,173,038 $734,791 OPERATING COSTS........................................... 902,267 722,303 519,494 RESTRUCTURING CHARGES..................................... -- -- 12,817 ---------- ---------- -------- Gross Margin............................................ 610,628 450,735 202,480 DEPRECIATION AND AMORTIZATION............................. 198,928 174,570 125,292 SELLING, GENERAL AND ADMINISTRATIVE....................... 100,309 95,528 91,400 POOLING AND MERGER COSTS.................................. 35,766 -- -- RESTRUCTURING CHARGES..................................... -- -- 23,831 ---------- ---------- -------- EARNINGS (LOSS) FROM OPERATIONS........................... 275,625 180,637 (38,043) ---------- ---------- -------- OTHER INCOME (EXPENSE) Interest expense........................................ (116,785) (102,233) (67,176) Interest income......................................... 11,148 12,682 9,438 Other income (expense), net............................. (15,375) 3,655 12,270 ---------- ---------- -------- Total other expense, net........................ (121,012) (85,896) (45,468) ---------- ---------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST................................... 154,613 94,741 (83,511) INCOME TAX PROVISION (BENEFIT)............................ 49,231 34,928 (25,610) MINORITY INTEREST......................................... 15,508 10,812 3,996 ---------- ---------- -------- NET EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM............. 89,874 49,001 (61,897) EXTRAORDINARY ITEM, NET................................... 1,332 -- 3,884 ---------- ---------- -------- NET EARNINGS (LOSS)....................................... $ 91,206 $ 49,001 $(58,013) ========== ========== ======== NET EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM Basic................................................... $ 0.68 $ 0.40 $ (0.57) Diluted................................................. $ 0.67 $ 0.39 $ (0.57) NET EARNINGS (LOSS) PER SHARE AFTER EXTRAORDINARY ITEM Basic................................................... $ 0.69 $ 0.40 $ (0.54) Diluted................................................. $ 0.68 $ 0.39 $ (0.54) WEIGHTED AVERAGE SHARES OUTSTANDING Basic................................................... 131,630 123,038 107,801 Diluted................................................. 142,778 126,664 107,801
The accompanying notes are an integral part of the consolidated financial statements. 32 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK TOTAL ----------------- PAID-IN ACCUMULATED OTHER RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL COMPREHENSIVE LOSS EARNINGS EQUITY ------- ------ ---------- ------------------ -------- ------------- (IN THOUSANDS) BALANCE -- DECEMBER 31, 1998............. 102,803 $1,028 $ 727,987 $ (129) $395,975 $1,124,861 Net loss............................... -- -- -- -- (58,013) (58,013) Foreign currency translation........... -- -- -- (1,417) -- (1,417) ---------- Total comprehensive loss............. (59,430) Issuance of common stock in connection with conversion or cancellation of debentures........................... 6,768 68 75,757 -- -- 75,825 Issuance of common stock in connection with private investment.............. 3,141 31 37,415 -- -- 37,446 Issuance of stock for stock offering... 4,600 46 54,371 -- -- 54,417 Other issuance of common stock......... 186 2 2,530 -- -- 2,532 Exercise of stock options.............. 103 1 642 -- -- 643 Tax benefit of non-qualified stock options.............................. -- -- 174 -- -- 174 ------- ------ ---------- -------- -------- ---------- BALANCE -- DECEMBER 31, 1999............. 117,601 1,176 898,876 (1,546) 337,962 1,236,468 Net earnings........................... -- -- -- -- 49,001 49,001 Foreign currency translation........... -- -- -- 444 -- 444 ---------- Total comprehensive income........... 49,445 Issuance of common stock in connection with Direct Stock Purchase Plan...... 2,282 23 54,377 -- -- 54,400 Issuance of common stock in connection with private investment.............. 4,500 45 71,955 -- -- 72,000 Issuance of stock for stock offering... 1,000 10 18,451 -- -- 18,461 Other issuance of common stock......... 101 1 2,081 -- -- 2,082 Exercise of stock options.............. 766 8 7,397 -- -- 7,405 Tax benefit of non-qualified stock options.............................. -- -- 3,069 -- -- 3,069 ------- ------ ---------- -------- -------- ---------- BALANCE -- DECEMBER 31, 2000............. 126,250 1,263 1,056,206 (1,102) 386,963 1,443,330 Net earnings........................... -- -- -- -- 91,206 91,206 Foreign currency translation........... -- -- -- 87 -- 87 ---------- Total comprehensive income........... 91,293 Issuance of common stock in connection with Direct Stock Purchase Plan...... 2,596 26 62,000 -- -- 62,026 Issuance of common stock in connection with private investments............. 3,555 35 92,971 -- -- 93,006 Other issuance of common stock......... 97 1 996 -- -- 997 Exercise of stock options.............. 349 3 6,364 -- -- 6,367 Tax benefit on non-qualified stock options.............................. -- -- 87 -- -- 87 ------- ------ ---------- -------- -------- ---------- BALANCE -- DECEMBER 31, 2001............. 132,847 $1,328 $1,218,624 $ (1,015) $478,169 $1,697,106 ======= ====== ========== ======== ======== ==========
The accompanying notes are an integral part of the consolidated financial statements. 33 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 --------- --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net earnings (loss)..................................... $ 91,206 $ 49,001 $ (58,013) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities -- Depreciation and amortization........................ 198,928 174,570 125,292 Discount amortization on zero coupon convertible debentures......................................... 16,204 10,388 10,986 Amortization of deferred loan costs................ 6,604 344 443 Gain on sale of assets............................. (1,393) (3,718) (10,512) Deferred tax provision............................. 6,535 14,518 (17,792) Minority interest.................................. 15,508 10,812 3,096 Extraordinary item................................. (1,332) -- (3,884) Changes in assets and liabilities, net of effects of acquisitions -- Trade receivables............................... (43,370) (104,736) 51,884 Parts and supplies.............................. (4,152) (10,758) (7,134) Other current assets............................ (54,037) 32,280 (42,838) Other assets.................................... (28,230) (23,099) (178) Accounts payable................................ (18,061) 6,332 (79,285) Accrued expenses................................ 29,709 26,923 11,601 Other liabilities............................... 39,406 21,961 3,573 --------- --------- --------- Net cash provided by (used in) operating activities.................................... 253,525 204,818 (12,761) --------- --------- --------- INVESTING ACTIVITIES Purchase of net assets of acquired entities, including acquisition costs, less cash acquired................ (8,934) (45,755) -- Purchases of property and equipment..................... (307,714) (215,372) (549,485) Proceeds from dispositions of property and equipment.... 2,737 5,115 119,076 Investments in and advances to affiliates............... (17,788) (8,408) (2,430) Proceeds from sales of short-term investments........... -- 72,931 204,970 Purchases of short-term investments..................... -- (30,054) (247,847) --------- --------- --------- Net cash used in investing activities........... (331,699) (221,543) (475,716) --------- --------- --------- FINANCING ACTIVITIES Proceeds from issuance of common stock.................. 63,023 146,943 94,395 Proceeds from exercise of stock options................. 6,367 7,406 643 Proceeds from minority interest owners.................. -- -- 24,558 Proceeds from issuance of convertible senior debentures, net of issue costs................................... 254,500 -- -- Proceeds from debt borrowings........................... 194,039 129,222 623,040 Reduction of debt....................................... (453,045) (255,459) (236,984) Increase in restricted cash............................. (4,900) (33,800) (14,300) --------- --------- --------- Net cash provided by (used in) financing activities.................................... 59,984 (5,688) 491,352 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (18,190) (22,413) 2,875 CASH AND CASH EQUIVALENTS, beginning of year.............. 77,178 99,591 96,716 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of year.................... $ 58,988 $ 77,178 $ 99,591 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 34 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND REPORTING The consolidated financial statements include the accounts of Pride International, Inc. and its wholly-owned and majority-owned subsidiaries (the "Company" or "Pride"). All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior years' amounts to conform with the current year presentation. In September 2001, Pride acquired Marine Drilling Companies, Inc. ("Marine") pursuant to a merger of Marine into a wholly owned subsidiary of Pride. Approximately 58.7 million shares of Pride common stock were issued to the former shareholders of Marine, which equaled approximately 44% of the outstanding common shares of the combined company immediately following acquisition. The Marine merger was followed by a merger that changed Pride's state of incorporation from Louisiana to Delaware. The acquisition of Marine was accounted for as a pooling-of-interests for accounting and financial reporting purposes. Under this method of accounting, the recorded historical carrying amounts of the assets and liabilities of Pride and Marine are carried forward to the financial statements of the combined company at recorded amounts, results of operations of the combined company include the income and expenses of Pride and Marine for the entire fiscal period in which the combination occurred, and the historical results of operations of the separate companies for fiscal periods prior to the combination are combined and reported as the results of operations of the combined company. The results of operations of Pride and Marine for periods prior to the combination that are included in the combined company's recorded amounts are as follows (in thousands):
PRIDE MARINE COMBINED -------- -------- ---------- SIX MONTHS ENDED JUNE 30, 2001 Revenues............................................ $561,414 $182,639 $ 744,053 Net earnings........................................ 30,071 52,562 82,633 YEAR ENDED DECEMBER 31, 2000 Revenues............................................ $909,007 $264,031 $1,173,038 Net earnings........................................ 736 48,265 49,001 YEAR ENDED DECEMBER 31, 1999 Revenues............................................ $619,385 $115,406 $ 734,791 Extraordinary item.................................. 3,884 -- 3,884 Net loss............................................ (51,883) (6,130) (58,013)
CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments having maturities of three months or less at the date of purchase to be cash equivalents. SHORT-TERM INVESTMENTS Short-term investments include marketable securities, which in the case of debt instruments have maturities in excess of three months at the date of purchase, are classified as available for sale and are carried at the lower of cost or market value. Due to the short-term maturities of investments, realized and unrealized gains and losses are not significant. PARTS AND SUPPLIES Parts and supplies consist of spare rig parts and supplies held for use in operations and are valued at the lower of weighted average cost or estimated market value. 35 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are carried at original cost or adjusted net realizable value, as applicable. Major renewals and improvements are capitalized and depreciated over the respective asset's remaining useful life. Maintenance and repair costs are charged to expense as incurred. When assets are sold or retired, the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. For financial reporting purposes, depreciation of property and equipment is provided using the straight-line method based upon expected useful lives of each class of assets. Estimated useful lives of the assets for financial reporting purposes are as follows:
YEARS ----- Rigs and rig equipment...................................... 5-25 Transportation equipment.................................... 3-7 Buildings and improvements.................................. 10-20 Furniture and fixtures...................................... 5
Rigs and rig equipment have salvage values not exceeding 20% of the cost of the rig or rig equipment. Property and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company estimates the future undiscounted cash flows of the affected assets to determine the recoverability of carrying amounts. In general, analyses are based on expected day rates and utilization rates. Interest is capitalized on construction in progress at the interest rate on debt incurred for construction or at the weighted average cost of debt outstanding during the period of construction. GOODWILL The Company recorded goodwill in connection with certain of its acquisitions and amortized the amounts using the straight-line method over ten to fifteen years. See "New Accounting Pronouncements" below. REVENUE RECOGNITION The Company recognizes revenue as services are performed based upon contracted day rates and the number of operating days during the period. Revenue from turnkey contracts is generally recognized upon completion. Anticipated losses on turnkey contracts are recognized in operating results when known. Mobilization fees received and costs incurred to mobilize a rig from one geographic area to another are deferred and recognized over the term of the related drilling contract. INCOME TAXES The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the asset is recovered or the liability is settled. FOREIGN CURRENCY TRANSLATION The Company accounts for translation of foreign currency in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." The majority of the Company's revenues and expenditures are denominated in U.S. dollars to limit the Company's exposure to foreign 36 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) currency fluctuations, resulting in the use of the U.S. dollar as the functional currency. In addition, the Company's operations in Venezuela and certain other foreign jurisdictions are in "highly inflationary" economies resulting in the use of the U.S. dollar as the functional currency. As a result, certain assets and liabilities of foreign operations are translated at historical exchange rates, revenues and expenses in these countries are translated at the average rate of exchange on a monthly basis, and all translation gains or losses are reflected in the period's results of operations. In those countries where the U.S. dollar is not the functional currency, revenues and expenses are translated at the average rate of exchange for the period, assets and liabilities are translated at end-of-period exchange rates and all translation gains and losses are included in accumulated other comprehensive loss within stockholders' equity. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash balances, short-term investments and trade receivables. The Company places its temporary cash and short term investments in U.S. Government securities and other high quality financial instruments. The Company limits the amount of credit exposure to any one financial institution or issuer. The Company's customer base consists primarily of major integrated and government-owned international oil companies as well as smaller independent oil and gas producers. Management believes the credit quality of its customers is generally high. The Company has in place insurance to cover certain exposure in its foreign operations and provides allowances for potential credit losses when necessary. CONDITIONS AFFECTING ONGOING OPERATIONS The Company's current business and operations are substantially dependent upon conditions in the oil and gas industry and, specifically, the exploration and production expenditures of oil and gas companies. The demand for contract drilling and related services is influenced by oil and gas prices, expectations about future prices, the cost of producing and delivering oil and gas, government regulations and local and international political and economic conditions. There can be no assurance that current levels of exploration and production expenditures of oil and gas companies will be maintained or that demand for the Company's services will reflect the level of such activities. STOCK-BASED COMPENSATION The Company uses the intrinsic value based method of accounting for stock-based compensation prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations. Under this method, the Company records no compensation expense for stock options granted when the exercise price for options granted is equal to the fair market value of the Company's stock on the date of the grant. DERIVATIVE INSTRUMENTS AND HEDGING The Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No. 133." SFAS No. 133 requires that all derivative financial instruments, including certain derivative instruments imbedded in other contracts, be recognized in the balance sheet at fair value, and that changes in such fair value be recognized in earnings unless specific hedging criteria are met. The Company adopted SFAS No. 133, as amended, on January 1, 2001. Adoption of SFAS No. 133, as amended, has not had nor is it expected to have a material impact on the Company's consolidated results of operations or financial position. 37 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) MANAGEMENT ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While it is believed that such estimates are reasonable, actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the amortization of goodwill and requires that goodwill be reviewed annually for impairment. SFAS No. 142 also requires that the useful lives of previously recognized intangible assets be reassessed and the remaining amortization periods be adjusted accordingly. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and affects all goodwill and other intangible assets recognized on the Company's balance sheet at that date, regardless of when the assets were initially recognized. The Company recognized goodwill amortization expense of $4.0 million, $3.0 million and $0.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Such amortization will not be recorded in future years. The Company is currently evaluating the impairment methodology for goodwill. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 with early adoption encouraged. SFAS No. 143 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 with earlier application encouraged. The Company is currently assessing the impact of SFAS No. 144 and, therefore, cannot reasonably estimate the effect of this statement on its consolidated financial position, results of operations or cash flows. 2. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2001 and 2000 consists of the following:
DECEMBER 31, ----------------------- 2001 2000 ---------- ---------- (IN THOUSANDS) Rigs and rig equipment...................................... $3,814,593 $2,923,564 Transportation equipment.................................... 25,501 21,948 Buildings................................................... 33,644 29,627 Other....................................................... 38,675 37,251 Construction-in-progress.................................... 145,117 106,031 Land........................................................ 8,752 7,905 ---------- ---------- 4,066,282 3,126,326 Accumulated depreciation and amortization................... (695,123) (504,961) ---------- ---------- Net property and equipment.................................. $3,371,159 $2,621,365 ========== ==========
38 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company capitalizes interest applicable to the construction of significant additions to property and equipment. For the years ended December 31, 2001, 2000 and 1999, total interest incurred was $135.8 million, $113.4 million and $100.4 million, respectively, of which $19.0 million, $11.2 million and $33.2 million, respectively, was capitalized. During the years ended December 31, 2001, 2000 and 1999, maintenance and repair costs included in operating costs on the accompanying consolidated statement of operations were $85.2 million, $116.5 million and $71.6 million, respectively. 3. ACQUISITIONS In February 2001, the Company acquired a second-generation semisubmersible drilling rig (now the Pride North Sea) and a third-generation semisubmersible drilling rig (now the Pride Venezuela) for $44.7 million in cash and 3.0 million shares of the Company's common stock valued at $78.9 million. The Pride Venezuela is under contract in Venezuela for a minimum term of one year that began in February 2002. The Pride North Sea was refurbished prior to commencing operations in July 2001 in the Irish Sea, and is now working under a contract in the United Kingdom sector of the North Sea. In March 2001, the Company increased from 26.4% to 100% its ownership in a joint venture that recently constructed two dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil, which commenced operations offshore Brazil in June and July 2001, respectively, for Petroleo Brasilerio S.A. ("Petrobras") under five-year charter and service rendering contracts, each with two one-year extension options. The purchase consideration for the interests the Company did not previously own consisted of approximately $86 million aggregate principal amount of senior convertible notes, which were issued to the Brazilian participant in the joint venture, and 519,468 shares of the Company's common stock valued at approximately $14 million, which were issued to two investment funds managed by First Reserve Corporation pursuant to the funds' original investment in the joint venture. See reference to First Reserve in Note 16. The acquisition added to the Company's consolidated balance sheet approximately $443 million of assets represented by the two rigs, approximately $287 million of indebtedness incurred to finance the construction of the rigs ($250 million of which was outstanding as of December 31, 2001) and approximately $86 million of convertible senior notes issued to the Brazilian participant. In July 2001, the Company acquired all the outstanding capital stock of Almeria Austral S.A. and an affiliate ("Almeria") for aggregate consideration of $48 million. Almeria operates 12 land drilling rigs in Argentina and two land drilling rigs in Venezuela. Each of the acquisitions discussed above was recorded using the purchase method of accounting. The operating results of each acquisition have been included in the Company's consolidated results of operations from the date of the acquisition. In September 2001, the Company acquired Marine in a stock-for-stock transaction that created one of the world's largest offshore drilling contractors. Marine owned and operated a fleet of 17 offshore drilling rigs consisting of two semisubmersible units and 15 jack-up units. Additionally, Marine owned one jack-up rig configured as an accommodation unit. The acquisition of Marine was accounted for as a pooling-of-interests for accounting and financial reporting purposes. In connection with the acquisition, the estimated remaining useful lives and residual values of certain rigs were reassessed and, as a result, net income for 2001 increased $6.7 million (or $.05 per share on a basic and diluted basis). 39 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. DEBT SHORT-TERM BORROWINGS The Company has agreements with several banks for short-term lines of credit denominated in U.S. dollars. The facilities are renewable annually and bear interest at variable rates based on LIBOR. The weighted average interest rates on such borrowings at December 31, 2001 was 8.0%. As of December 31, 2001, $42.4 million was outstanding under these facilities and $62.2 million was available. LONG-TERM DEBT Long-term debt at December 31, 2001 and 2000 consisted of the following:
DECEMBER 31, ----------------------- 2001 2000 ---------- ---------- (IN THOUSANDS) 9 3/8% Senior Notes due 2007................................ $ 325,000 $ 325,000 10% Senior Notes due 2009................................... 200,000 200,000 Drillship loans............................................. 288,687 351,826 Semisubmersible loans....................................... 250,000 -- Zero Coupon Convertible Senior Debentures Due 2021.......... 268,545 -- Zero Coupon Convertible Subordinated Debentures Due 2018.... 177,575 226,861 Senior convertible notes payable............................ 85,853 21,250 Limited-recourse collateralized term loans.................. 16,274 21,736 Note payable to seller...................................... 11,556 20,222 Other notes payable......................................... 1,248 13,029 Credit facilities........................................... 100,000 125,000 ---------- ---------- 1,724,738 1,304,924 Current portion of long-term debt........................... 99,850 85,286 ---------- ---------- Long-term debt, net of current portion...................... $1,624,888 $1,219,638 ========== ==========
9 3/8% SENIOR NOTES DUE 2007 In May 1997, the Company issued $325.0 million principal amount of 9 3/8% Senior Notes due May 1, 2007 (the "9 3/8% Senior Notes"). Interest on the 9 3/8% Senior Notes is payable semi-annually on May 1 and November 1 of each year. The 9 3/8% Senior Notes are not redeemable prior to May 1, 2002, after 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. The indenture governing the 9 3/8% Senior Notes contains provisions that limit the ability of the Company and its subsidiaries, with certain exemptions, to pay dividends or make other restricted payments; incur additional debt or issue preferred stock; create or permit to exist liens; incur dividend or other payment restrictions affecting subsidiaries; consolidate, merge or transfer all or substantially all of its assets; sell assets; enter into transactions with affiliates and engage in sale and leaseback transactions. 10% SENIOR NOTES DUE 2009 In May 1999, the Company issued $200.0 million principal amount of 10% Senior Notes due June 1, 2009 (the "10% Senior Notes"). Interest on the 10% Senior Notes is payable semi-annually on June 1 and December 1 of each year. The 10% Senior Notes are not redeemable prior to June 1, 2004, after which they 40 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) will be redeemable, in whole or in part, at the option of the Company at redemption prices starting at 105% of the principal amount and declining to 100% by June 1, 2007. In the event the Company consummates a qualified equity offering on or prior to June 1, 2002, the Company may use all or a portion of the proceeds to redeem up to 33% of the principal amount of the 10% Senior Notes at a redemption price equal to 110% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of redemption. The indenture governing the 10% Senior Notes contains provisions that limit the ability of the Company and its subsidiaries, with certain exemptions, to pay dividends or make other restricted payments; incur additional debt or issue preferred stock; create or permit to exist liens; incur dividend or other payment restrictions affecting subsidiaries; consolidate, merge or transfer all or substantially all of its assets; sell assets; enter into transactions with affiliates and engage in sale and leaseback transactions. DRILLSHIP LOANS In connection with the construction of two ultra-deepwater drillships, the Pride Africa and the Pride Angola, the Company and the two joint venture companies in which the Company has a 51% interest entered into financing arrangements with a group of banks that provided $400 million of the drillships' total cost of $495 million. The loans with respect to the Pride Africa and the Pride Angola are non-recourse to the Company and the joint owner. As of December 31, 2001, $125.8 million was outstanding under the loans for the Pride Africa and $162.9 million was outstanding under the loans for the Pride Angola. The loans are being repaid from the proceeds of the related charter contracts in semi-annual installments of principal and interest through December 2006 and July 2005 for the Pride Africa and Pride Angola, respectively. The payment terms of the Pride Angola loan were extended to July 2007 when the customer extended the drilling contract to five years in February 2002. The drillship loans bear interest at LIBOR plus 1.10% to 1.25% and had a weighted average interest rate of 6.88% at December 31, 2001. As a condition of the drillship loans, the Company entered into interest rate swap and cap agreements with the lenders that fixed the interest rate on the Pride Africa loan at 7.34% through December 2006, fixed the interest rate on the Pride Angola loan at 6.52% through July 2003 and capped the interest rate on the Pride Angola loan at 6.52% from August 2003 to July 2007. Such swap and cap agreements are not considered derivatives because (1) the swap and cap agreements were required by the lenders under the drillship loans; (2) the Company believes that such loans would not have been available to the Company without the related swap and cap agreements; and (3) the drillship loans prohibit the Company from selling or transferring the swap and cap agreements without the consent of the lenders, and the Company does not believe that the lenders would grant such consent as long as any principal amounts are outstanding. In accordance with the debt agreements, certain cash balances are held in trust to assure that timely interest and principal payments are made. At December 31, 2001 and 2000, $48.4 million and $48.1 million, respectively, of such cash balances, which amount is included in restricted cash, was held in trust and is not available for use by the Company. SEMISUBMERSIBLE LOANS In March 2001, in connection with the acquisition of the interests the Company did not previously own in two deepwater semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil, the Company assumed approximately $287 million of indebtedness incurred to finance the construction of the rigs. An aggregate $53 million of the construction-related indebtedness, which was scheduled to mature in November 2001 and bore interest at 11 3/4% per annum, was repaid in April 2001. In July 2001, the Company entered into a credit agreement with a group of foreign banks to provide loans totaling up to $250 million to refinance the construction loans for the Pride Carlos Walter and Pride Brazil. Borrowings under the new facility bear interest at rates based on LIBOR plus an applicable margin of 1.50% to 1.85%. Principal and interest are payable semi-annually from March 2002 through 2008. Funding under the new facility and repayment of the construction loans (which had interest rates of 11% per annum) was completed in November 2001. As required by the lenders under the new facility, the Company entered into 41 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest rate swap and cap agreements with the lenders that capped the interest rate on $50.0 million of the debt at 7% and which fixed the interest rate on the remainder of the debt at 5.58% from March 2002 through September 2006. Such swap and cap agreements are not considered derivatives because (1) the swap and cap agreements were required by the lenders under the facility agreement; (2) the Company believes that such credit facility would not have been available to the Company without the related swap and cap agreements; and (3) the credit facility prohibits the Company from selling or transferring the swap and cap agreements without the consent of the lenders, and the Company does not believe that the lenders would grant such consent as long as any principal amounts are outstanding. The new loans are secured by, among other things, a first priority mortgage on the drilling rigs and assignment of the charters for the rigs. The debt agreement requires certain cash balance to be held in trust to assure that timely interest and principal payments are made. At December 31, 2001, $4.6 million of such cash balances, which amount is included in restricted cash, was held in trust and is not available for use by the Company. ZERO COUPON CONVERTIBLE SENIOR DEBENTURES In January 2001, the Company issued zero coupon convertible senior debentures due 2021 with a face amount of $431.5 million. The net proceeds to the Company in connection with the sale, after deducting underwriting discounts and offering expenses, amounted to approximately $254.5 million. The issue price of $608.41 for each debenture represents a yield to maturity of 2.50% per annum (computed on a semiannual bond equivalent basis) calculated from the issue date. The difference between the issue price and face amount of the debentures is recorded as a discount and amortized to interest expense using the effective interest method over the term of the debentures. The debentures, which mature on January 16, 2021, are convertible into shares of common stock of the Company at a conversion rate of 21.729 shares of common stock per $1,000 principal amount at maturity. The Company will become obligated to purchase the debentures, at the option of the holders, in whole or in part, for cash on January 16, 2003, 2005, 2007, 2009 and 2016 at a price per debenture equal to the issue price plus accrued original issue discount to the relevant purchase date. On or subsequent to January 16, 2004, 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. The debentures have restrictive covenants similar to the 9 3/8% Senior Notes and the 10% Senior Notes. See Note 16. ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES In April 1998, the Company issued zero coupon convertible subordinated debentures due 2018 with a face amount of $588.1 million. The net proceeds to the Company in connection with the sale, after deducting underwriting discounts and offering expenses, amounted to approximately $222.6 million. 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 difference between the issue price and face amount of the debentures is recorded as a discount and amortized to interest expense using the effective interest method over the term of the debentures. The debentures, which mature on April 24, 2018, are convertible into shares of common stock of the Company at a conversion rate of 13.794 shares of common stock per $1,000 principal amount at maturity. The Company 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 equal to the issue price plus accrued original issue discount to the relevant purchase date, settled either in cash, common stock or a combination thereof at the option of the Company. 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. During 2001, the Company purchased on the open market and then extinguished $129.1 million face amount of the debentures. The total purchase price was $56.2 million and the accreted value of the debentures, less unamortized deferred offering costs, was $58.2 million, resulting in an extraordinary gain after 42 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) estimated income taxes of $1.3 million. As of December 31, 2001, the outstanding debentures had a face amount of $382.0 million. SENIOR CONVERTIBLE NOTE PAYABLE In connection with the purchase of the Pride South America, the Company issued to the seller a $21.3 million senior convertible note. The note was repaid at maturity in September 2001. In March 2001, in connection with the acquisition of the interests the Company did not previously own in the Pride Carlos Walter and the Pride Brazil, the Company issued approximately $86 million aggregate principal amount of senior convertible notes. The notes, which mature in March 2004 and bear interest at 9% per annum, are convertible into approximately 4.0 million shares of the Company's common stock. LIMITED-RECOURSE COLLATERALIZED TERM LOANS The limited-recourse collateralized term loans are collateralized by two of the Company's drilling/ workover barge rigs, the Pride I and the Pride II, 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. These loans are non-interest bearing and have implied interest rates of 9.61%. In addition, a portion of contract proceeds is being held in trust to assure that timely payment of future debt service obligations is made. At December 31, 2001 and 2000, $2.4 million and $2.4 million, respectively, of such contract proceeds, which amount is included in restricted cash, was being held in trust as security for the lenders and is not available for use by the Company. NOTE PAYABLE TO SELLER In connection with the acquisition in April 2000 of Services Especiales San Antonio S.A. ("San Antonio"), which constitutes the Company's E&P services division, the Company issued a $26.0 million promissory note to the seller. The note is payable in monthly installments though March 2003 and bears interest at LIBOR plus 2.75%, which was 4.62% at December 31, 2001. CREDIT FACILITIES At December 31, 2001, the Company had senior bank credit facilities with domestic and foreign banks with aggregate availability of up to $255.0 million. The credit facilities terminate between June 2002 and June 2005. Borrowings under each of the credit facilities bear interest at variable rates based on LIBOR plus a spread ranging from 0.50% to 2.50%. As of December 31, 2001, there was $100.0 million outstanding under these credit facilities. The Company has a senior secured credit facility with a U.S. bank under which up to $15.0 million of letters of credit may be issued. Outstanding letters of credit issued under this credit facility are secured by the Company's cash and cash equivalents maintained at such bank. The letter of credit facility expires in March 2003. As of December 31, 2001, there were $12.6 million of letters of credit issued under this credit facility. 43 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FUTURE MATURITIES Future maturities of long-term debt at December 31, 2001 are as follows:
AMOUNT -------------- (IN THOUSANDS) 2002........................................................ $ 99,850 2003........................................................ 644,035 2004........................................................ 187,271 2005........................................................ 88,702 2006........................................................ 95,888 Thereafter.................................................. 608,992 ---------- Total long-term debt...................................... $1,724,738 ==========
As of December 31, 2001, the fair value of long-term debt was approximately $1,744 million. The effective conversion price of the zero coupon convertible subordinated debentures due 2018 on their initial "put" date in April 2003 will be approximately $35.85 per share, and the effective conversion price of the zero coupon convertible senior debentures due 2021 on their initial "put" date in January 2003 will be approximately $29.43 per share. The closing price of the Company common stock on the New York Stock Exchange on March 15, 2002 was $14.80 per share. Based on current market conditions, the Company believes that it will likely be required to purchase for cash all debentures of each series that are outstanding on their respective initial put dates at the then accreted amount. The amounts included in the above table of future maturities reflect the accreted amount of both series of debentures as of December 31, 2001. Such table does not contemplate the accretion up to the respective initial put dates, nor does it include the subsequent events described in Note 16. 5. LEASES In February 1999, the Company completed the sale and leaseback of the Pride South America semisubmersible drilling rig with an unaffiliated entity pursuant to which it received $97.0 million as the sales price. The excess of funding over net book value of the rig has been deferred and is being amortized as a reduction of lease expense over the lease term. The lease is for a maximum term of 13.5 years, and the Company has options to purchase the rig at the end of 8.5 years and at the end of the maximum term. The lease has been classified as an operating lease for financial statement purposes. Rentals on the rig range from $11.7 million to $15.9 million annually. The Company has entered into agreements with an unaffiliated financial institution for the sale and leaseback of up to $22.0 million of equipment to be used in the Company's business. The Company has received aggregate proceeds of $15.9 million pursuant to these facilities attributable to two offshore platform rigs placed in service in 1996. The Company has purchase and lease renewal options at projected future fair market values under the agreements. The leases have been classified as operating leases for financial statement purposes. The excess of funding over net book value has been deferred and is being amortized as a reduction of lease expense over the maximum lease term of five years. Rentals on these transactions total $3.1 million annually. Rental expense for operating leases for equipment, vehicles and various facilities of the Company for the years ended December 31, 2001, 2000 and 1999 were $48.8 million, $39.4 million and $30.7 million, respectively. The Company has capital lease obligations pursuant to sale and leaseback agreements or financing arrangements with unaffiliated entities for three platform rigs and offices in France. The obligations are payable in semiannual installments through June 2006 and bear interest at a weighted average rate of 7.8%. 44 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future maturities of capital lease obligations, net of interest, at December 31, 2001 are as follows:
AMOUNT -------------- (IN THOUSANDS) 2002........................................................ $ 2,643 2003........................................................ 2,921 2004........................................................ 2,508 2005........................................................ 7,637 2006........................................................ 1,931 ------- Total capital lease obligations........................... $17,640 =======
6. FINANCIAL INSTRUMENTS The Company's operations are subject to foreign exchange risks, including the risks of adverse foreign currency fluctuations and devaluations and of restrictions on currency repatriation. The Company limits the risks of adverse currency fluctuations and restrictions on currency repatriation by obtaining contracts providing for payment in U.S. dollars or freely convertible currency. To the extent possible, the Company limits its exposure to potentially devaluating currencies by matching its acceptance of local currencies to its expense requirements in those currencies. Moreover, the Company enters into forward exchange contracts and option contracts to manage foreign currency exchange risk associated with its Euro-denominated expenses. These forward exchange contacts and option contracts have not been designated as hedging instruments under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as the forward or option contracts are not systematically identified as being the hedge of specific Euro expenditures on inception. Currency option contracts existing at December 31, 2001 principally consist of U.S. dollar calls/Euro puts sold by the Company. These contracts provide an economic hedge of the Company's exposure to fluctuations in the value of the Euro relative to the U.S. dollar. If the U.S. dollar strengthens during the period of the contracts, the counterparties will likely exercise their options and deliver Euro for U.S. dollars at the predetermined rate. In this case, the premium on the contract will offset part of the difference between the contractual strike rate on the option and the spot U.S. dollar/Euro rate at which the Company could otherwise have sold its U.S. dollars for Euro. If the U.S. dollar falls below the strike rate, the counterparties will tend not to exercise their options. In this case, the premium will partially offset the negative effect to the Company of the increase in the U.S. dollar equivalent of its Euro-denominated expenditures. The counterparties to these contracts are all major European banks. The unrealized loss on all forward exchange contracts and option contracts based on quoted market prices of comparable instruments was approximately $6.6 million and $6.8 million at December 31, 2001 and 2000, respectively. The net realized and unrealized losses on all forward and option contracts, included in other income (expense) for the years ended December 31, 2001, 2000 and 1999, were approximately $0.1 million, $3.3 million and $4.3 million, respectively. 45 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes forward exchange contracts and option contracts outstanding at December 31, 2001:
WEIGHTED AVERAGE NOTIONAL NOTIONAL EXCHANGE EXCHANGE CONTRACT TYPE AMOUNT CURRENCY CURRENCY RATE MATURITY GAIN (LOSS) - ------------- -------------- ----------- --------- -------- -------- -------------- (IN THOUSANDS) (IN THOUSANDS) Forward exchange contracts........... $30,900 U.S. Dollar Euro 0.8959 2002 $(6,503) U.S. Dollar call options sold........ 12,000 U.S. Dollar Euro 1.0700 2002 (70) U.S. Dollar call options purchased... 2,000 U.S. Dollar Euro 1.0105 2002 -- ------- ------- Total................. $44,900 $(6,573) ======= =======
The value of forward exchange contracts and option contracts upon ultimate settlement is dependent upon actual currency exchange rates at the various maturity or exercise dates. Upon maturity of forward exchange contracts, the Company delivers U.S. dollars and receives the Euro at the contractual rate or may pay or receive cash based on the notional amounts of the contracts and the difference between the contractual and market exchange rates on the maturity dates. In the case of sales of U.S. dollar call options, the Company is obliged to accept the Euro in exchange for U.S. dollars at the contractual rate on the exercise date notified by the counterparty or, by agreement, may pay cash based on the notional amounts of the contracts and the excess of market exchange rates over the contractual exchange rates on the exercise date. 7. RESTRUCTURING CHARGE AND POOLING AND MERGER COSTS During 1999, the Company implemented a restructuring plan to address the dramatic decline in drilling and workover activity. The restructuring consisted of regional base consolidations, downsizing of administrative staffs and other reductions in personnel and resulted in an initial pretax charge of $38.5 million for current and future cash expenditures. Restructuring charges included $34.7 million of costs attributable to involuntary employee termination benefits (including insurance, wage continuation, medical and other benefits) relating to 767 operational employees and 88 management and administrative employees, $900,000 attributable to facility closures and $1.1 million of other costs in connection with the restructuring. As of December 31, 1999, the Company paid $31.8 million and reversed $1.8 million of the restructuring charges. During the year ended December 31, 2000, the Company had paid the remaining $4.9 million of such costs. In connection with the acquisition of Marine in September 2001, the Company incurred costs totaling $35.8 million consisting of investment advisory, legal and other professional fees of $24.4 million and costs associated with the closure of duplicate office facilities and employee terminations of $11.4 million. During 2001, the Company had paid $22.9 million of such fees and acquisition costs. 46 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES The components of the provision (benefit) for income taxes were as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 2001 2000 1999 ------- ------- -------- (IN THOUSANDS) United States: Federal: Current.............................................. $15,694 $(1,457) $(18,188) Deferred............................................. 8,947 14,360 (10,197) ------- ------- -------- Total -- Federal.................................. 24,641 12,903 (28,385) ------- ------- -------- Foreign: Current.............................................. 27,002 21,867 10,370 Deferred............................................. (2,412) 158 (7,595) ------- ------- -------- Total -- Foreign.................................. 24,590 22,025 2,775 ------- ------- -------- Provision (benefit) for income taxes............ $49,231 $34,928 $(25,610) ======= ======= ========
The difference between the effective federal income tax rate reflected in the provision (benefit) for income taxes and the amounts which would be determined by applying the statutory federal tax rate to earnings (loss) before income taxes and minority interest is summarized as follows:
YEAR ENDED DECEMBER 31, ------------------ 2001 2000 1999 ---- ---- ---- U.S. statutory rate......................................... 35.0% 35.0% 35.0% Foreign..................................................... (6.4) 1.6 (3.3) Other....................................................... 3.2 0.3 (1.0) ---- ---- ---- Effective tax rate........................................ 31.8% 36.9% 30.7% ==== ==== ====
The domestic and foreign components of earnings (loss) before income taxes and minority interest were as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 -------- -------- --------- (IN THOUSANDS) Domestic............................................ $ 20,248 $(15,284) $(116,967) Foreign............................................. 134,365 110,025 33,456 -------- -------- --------- Earnings (loss) before income taxes and minority interest....................................... $154,613 $ 94,741 $ (83,511) ======== ======== =========
47 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets as of December 31, 2001 and 2000 were as follows:
DECEMBER 31, --------------------- 2001 2000 --------- --------- (IN THOUSANDS) Deferred tax liabilities: Depreciation........................................... $ 298,147 $ 247,891 Other.................................................. 12,368 8,776 --------- --------- Total deferred tax liabilities....................... 310,515 256,667 --------- --------- Deferred tax assets: Net operating loss carryforwards....................... (155,093) (133,119) Alternative Minimum Tax credits........................ (27,958) (16,863) Other.................................................. (3,763) (8,972) --------- --------- Total deferred tax assets............................ (186,814) (158,954) Valuation allowance for deferred tax assets............ 11,417 14,227 --------- --------- Net deferred tax assets.............................. (175,397) (144,727) --------- --------- Net deferred tax liability........................... $ 135,118 $ 111,940 ========= =========
Applicable U.S. deferred income taxes and related foreign dividend withholding taxes have not been provided on approximately $361.2 million of undistributed earnings and profits of the Company's foreign subsidiaries. The Company considers such earnings to be permanently reinvested outside the United States. It is not practicable to estimate the amount of deferred income taxes associated with these unremitted earnings. As of December 31, 2001, the Company had deferred tax assets of $155.1 million relating to $445.5 million of net operating loss ("NOL") carryforwards and had $28.0 million of non-expiring Alternative Minimum Tax ("AMT") credits. The NOL carryforwards and AMT credits can be used to reduce the Company's federal and foreign income taxes payable in future years. The Company's ability to realize the entire benefit of its deferred tax assets requires that the Company achieve certain future earnings levels prior to the expiration of its NOL carryforwards. U.S. NOL carryforwards total $333.0 million and expire in the years ending December 31, 2019, 2020 and 2021. Foreign NOL carryforwards include $38.2 million which do not expire and $4.7 million and $69.6 million which expire in the years ending December 31, 2002 and 2003, respectively. The Company has recognized a partial valuation allowance due to the uncertainty of realizing certain foreign NOL carryforwards. The Company could be required to record an additional valuation allowance against certain or all of its remaining deferred tax assets if market conditions deteriorate or future earnings are below current estimates. In connection with the acquisition of Marine, the Company determined that certain NOL carryforwards and AMT credits are subject to limitation under Sections 382 and 383 of the U.S. Internal Revenue Code as a result of the greater than 50% cumulative change in ownership. However, the Company has determined that such limitations should not affect its ability to realize the benefits of the deferred tax assets associated with such NOL carryforwards and AMT credits. 9. NET EARNINGS PER SHARE 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 48 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) during the period, as if stock options, convertible debentures and other convertible debt were converted into common stock, after giving retroactive effect to the elimination of interest expense, net of income tax effect, applicable to the convertible debentures and other convertible debt. The following table presents information necessary to calculate basic and diluted net earnings per share:
YEAR ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings (loss) before extraordinary item.......... $89,874 $49,001 $(61,897) Extraordinary gain..................................... 1,332 -- 3,884 ------- ------- -------- Net earnings (loss) after extraordinary item........... 91,206 49,001 (58,013) Interest expense on convertible debentures and notes... 9,171 -- -- Income tax effect...................................... (3,210) -- -- ------- ------- -------- Adjusted net earnings (loss) after extraordinary item.............................................. $97,167 $49,001 $(58,013) ======= ======= ======== Weighted average shares outstanding.................... 131,630 123,038 107,801 Convertible debentures and notes....................... 9,437 -- -- Stock options.......................................... 1,711 3,626 -- ------- ------- -------- Adjusted weighted average shares outstanding......... 142,778 126,664 107,801 ======= ======= ======== Net earnings (loss) per share before extraordinary item Basic................................................ $ 0.68 $ 0.40 $ (0.57) ======= ======= ======== Diluted.............................................. $ 0.67 $ 0.39 $ (0.57) ======= ======= ======== Net earnings (loss) per share after extraordinary item Basic................................................ $ 0.69 $ 0.40 $ (0.54) ======= ======= ======== Diluted.............................................. $ 0.68 $ 0.39 $ (0.54) ======= ======= ========
The calculation of diluted weighted average shares outstanding excludes 13.2 million, 13.1 million and 18.6 million common shares issuable pursuant to outstanding options, convertible notes and debentures for the years ended December 31, 2001, 2000 and 1999, respectively, because their effect was antidilutive. 10. EMPLOYEE BENEFITS The Company has 401(k) defined contribution plans for its employees, which allow eligible employees to defer up to 15% of their eligible annual compensation, with certain limitations. The Company may at its discretion match up to 100% of the first 6% of compensation. The Company's contributions to the plan for the years ended December 31, 2001, 2000 and 1999 were $3.5 million, $2.9 million and $2.7 million, respectively. The Company has a deferred compensation plan, which provides its officers and key employees with the opportunity to participate in an unfunded, non-qualified plan. Eligible employees may defer up to 100% of compensation, including bonuses and proceeds from the exercise of stock options. 49 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. STOCKHOLDERS' EQUITY PREFERRED STOCK The Company is authorized to issue 50 million shares of preferred stock, par value $0.01 per share. The Company's board of directors has the authority to issue shares of preferred stock in one or more series and to fix the number of shares, designations and other terms of each series. The board of directors has designated 4.0 million shares of preferred stock to constitute the Series A Junior Participating Preferred Stock in connection with the Company's stockholders' rights plan. As of December 31, 2001, no shares of preferred stock are outstanding. COMMON STOCK In March 2000, the Company issued 4.5 million shares of common stock to a fund managed by First Reserve Corporation for approximately $72.0 million in order to finance the $35.0 million cash portion of the consideration paid for San Antonio (which constitutes the Company's E&P services division) and to improve the Company's overall liquidity. See reference to First Reserve in Note 16. In July 2000, the Company established the Pride International, Inc. Direct Stock Purchase Plan, which provides a convenient way for investors to purchase shares of its common stock without paying brokerage commissions or service charges. The Company sold 2.3 million shares under this plan for $54.4 million during the year ended December 31, 2000. For the year ended December 31, 2001, the Company sold 2.6 million shares for $62.0 million. In February 2001, the Company issued 3.0 million shares of common stock valued at $78.9 million in connection with the acquisition of the Pride North Sea and the Pride Venezuela. In March 2001, the Company issued 519,468 shares of common stock valued at approximately $14.0 million to investment funds managed by First Reserve Corporation in connection with the Company's acquisition of the funds' equity ownership interest in the Pride Carlos Walter and Pride Brazil (See Note 3). STOCKHOLDERS' RIGHTS PLAN The Company has adopted a preferred share purchase rights plan. Under the plan, each share of common stock includes one right to purchase preferred stock. The rights will separate from the common stock and become exercisable (1) ten days after public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% of the Company's outstanding common stock or (2) ten business days following the start of a tender offer or exchange offer that would result in a person's acquiring beneficial ownership of 15% of the Company's outstanding common stock. A 15% beneficial owner is referred to as an "acquiring person" under the plan. Certain investment funds managed by First Reserve Corporation, their affiliates and certain related parties currently have the right to acquire beneficial ownership of up to 19% of the Company's common stock without becoming an acquiring person under the plan. See reference to First Reserve in Note 16. The Company's board of directors can elect to delay the separation of the rights from the common stock beyond the ten-day periods referred to above. The plan also confers on the board the discretion to increase or decrease the level of ownership that causes a person to become an acquiring person. Until the rights are separately distributed, the rights will be evidenced by the common stock certificates and will be transferred with and only with the common stock certificates. After the rights are separately distributed, each right will entitle the holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock for a purchase price of $50. The rights will expire at the close of business on September 30, 2011, unless the Company redeems or exchanges them earlier as described below. 50 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) If a person becomes an acquiring person, the rights will become rights to purchase shares of the Company's common stock for one-half the current market price, as defined in the rights agreement, of the common stock. This occurrence is referred to as a "flip-in event" under the plan. After any flip-in event, all rights that are beneficially owned by an acquiring person, or by certain related parties, will be null and void. The Company's board of directors has the power to decide that a particular tender or exchange offer for all outstanding shares of the Company's common stock is fair to and otherwise in the best interests of its stockholders. If the board makes this determination, the purchase of shares under the offer will not be a flip-in event. If, after there is an acquiring person, the Company is acquired in a merger or other business combination transaction or 50% or more of the Company's assets, earning power or cash flow are sold or transferred, each holder of a right will have the right to purchase shares of the common stock of the acquiring company at a price of one-half the current market price of that stock. This occurrence is referred to as a "flip-over event" under the plan. An acquiring person will not be entitled to exercise its rights, which will have become void. Until ten days after the announcement that a person has become an acquiring person, the Company's board of directors may decide to redeem the rights at a price of $0.01 per right, payable in cash, shares of common stock or other consideration. The rights will not be exercisable after a flip-in event until the rights are no longer redeemable. At any time after a flip-in event and prior to either a person's becoming the beneficial owner of 50% or more of the shares of common stock or a flip-over event, the Company's board of directors may decide to exchange the rights for shares of common stock on a one-for-one basis. Rights owned by an acquiring person, which will have become void, will not be exchanged. STOCK OPTION PLANS The Company has a long-term incentive plan which provides for the granting or awarding of stock options, restricted stock, stock appreciation rights and stock indemnification rights to officers and other key employees. The number of shares authorized and reserved for issuance under the long-term incentive plan is limited to 10% of total issued and outstanding shares, subject to adjustment in the event of certain changes in the Company's corporate structure or capital stock. Stock options may be exercised in whole or in part within 60 days of termination of employment or one year after retirement, total disability or death of an employee. Options granted under the long-term incentive plan prior to 1998 were vested 25% immediately, 50% after one year, 75% after two years and 100% after three years. Options granted in 1998 were vested 20% after one year, 40% after two years, 60% after three years, 80% after four years and 100% after five years. Options granted in 1999 and thereafter were vested 20% immediately, 40% after six months, 60% after 18 months, 80% after two years and 100% after 30 months. In 1993, the shareholders of the Company approved and ratified the 1993 Directors' Stock Option Plan. The purpose of the plan is to afford the Company's directors who are not full-time employees of the Company or any subsidiary of the Company an opportunity to acquire a greater proprietary interest in the Company. A maximum of 400,000 shares of the Company's common stock has been reserved for issuance upon the exercise of options granted pursuant to the plan. The exercise price of options is the fair market value per share on the date the option is granted. Directors' stock options vest over two years at the rate of 50% per year and expire ten years from date of grant. Pursuant to the merger agreement with Marine, all options to acquire Marine common stock were deemed to be an option to acquire the same number of shares of the Company's common stock and all Marine options became fully vested and exercisable pursuant to the "change of control" provisions of the Marine stock option plans. 51 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Employee and director stock option transactions for the last three years are summarized as follows:
EMPLOYEE STOCK OPTIONS DIRECTOR STOCK OPTIONS -------------------------- ----------------------- PRICE SHARES PRICE SHARES ------------- ---------- ------------- ------- Outstanding as of December 31, 1998............................ 7,150,172 234,165 Granted......................... $ 6.19-$17.56 1,516,275 $ 9.44-$15.50 53,500 Exercised....................... $ 1.25-$10.50 (103,233) -- -- Forfeited....................... $ 1.25-$22.75 (1,160,294) -- -- ---------- ------- Outstanding as of December 31, 1999............................ 7,402,920 287,665 Granted......................... $15.75-$28.66 1,454,700 $19.56-$29.25 48,500 Exercised....................... $ 1.25-$22.75 (737,873) $ 4.00-$15.63 (28,000) Forfeited....................... $ 6.19-$18.88 (121,385) -- ---------- ------- Outstanding as of December 31, 2000............................ 7,998,362 308,165 Granted......................... $14.65-$29.63 2,159,500 $14.65-$28.10 66,500 Exercised....................... $ 2.50-$22.75 (322,689) $ 4.00-$8.38 (26,000) Forfeited....................... $ 8.00-$29.63 (39,488) -- -- ---------- ------- Outstanding as of December 31, 2001............................ 9,795,685 348,665 ========== ======= Exercisable as of December 31, 2001............................ 7,407,335 298,415 ========== =======
The weighted average fair values per share of options granted during the years ended December 31, 2001, 2000 and 1999 were $9.31, $10.55 and $5.43, respectively. The fair values were estimated using the Black-Scholes option-pricing model with the following significant assumptions:
2001 2000 1999 ------- ------- ------- Dividend yield............................................ 0.00% 0.00% 0.00% Volatility................................................ 56.05% 54.64% 52.50% Risk free interest rate................................... 4.87% 6.26% 5.75% Expected term............................................. 5 years 5 years 5 years
The following table summarizes information on stock options outstanding and exercisable at December 31, 2001 pursuant to the employee stock option plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- --------------------------------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE AVERAGE EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE REMAINING LIFE EXERCISE PRICE - --------------- ----------- -------------- -------------- ----------- -------------- -------------- $ 1.25-$12.00........ 3,917,196 5.93 $ 8.45 3,166,346 5.70 $ 8.30 $12.01-$29.63........ 5,878,489 7.74 $19.61 4,240,989 7.16 $20.96 --------- --------- $ 1.25-$29.63........ 9,795,685 7.02 $15.15 7,407,335 6.54 $15.55 ========= =========
52 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information on stock options outstanding and exercisable at December 31, 2001 pursuant to the directors' stock option plan:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- --------------------------------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE AVERAGE EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE REMAINING LIFE EXERCISE PRICE - --------------- ----------- -------------- -------------- ----------- -------------- -------------- $ 8.38-$10.00........ 44,000 6.11 $ 9.30 44,000 6.11 $ 9.30 $10.01-$29.25........ 304,665 7.14 $20.11 254,415 6.73 $20.86 ------- ------- $ 8.38-$29.25........ 348,665 7.01 $18.74 298,415 6.64 $19.16 ======= =======
If the fair value based method of accounting prescribed by SFAS No. 123 had been applied, the Company's net income and earnings per share would approximate the pro forma amounts indicated below. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts.
YEAR ENDED DECEMBER 31, ---------------------------- 2001 2000 1999 ------- ------- -------- Net earnings (loss) (in thousands)..................... $73,010 $39,105 $(66,239) Net earnings (loss) per share Basic................................................ $ 0.55 $ 0.32 $ (0.61) Diluted.............................................. $ 0.55 $ 0.31 $ (0.61)
12. COMMITMENTS AND CONTINGENCIES During 2001, approximately 25% of the Company's consolidated revenues was derived from its land-based drilling, workover and E&P services operations in Argentina, which is currently experiencing a political and economic crisis that has resulted in significant changes in that country's general economic policies and regulations. Over the past few months, new economic measures have been adopted by the Argentine government, including abandoning the country's fixed dollar-to-peso exchange rate, requiring private sector, dollar-denominated loans and contracts to be paid in pesos and placing restrictions on the convertibility of the Argentine peso. As a result, the Company recorded a charge in the fourth quarter of 2001 of $6.9 million, net of estimated income taxes, to reduce the carrying value of its net monetary assets in Argentina. The Company could record additional charges in the future to reflect any continuing adverse impact from these or other unfavorable economic measures that may be adopted. In addition, Argentina has imposed a 20% tax on oil exports effective March 1, 2002. The oil export tax could have a negative effect on oil production in Argentina and, accordingly, have a negative effect on demand in the near term for the Company's services. The Company and a number of other offshore drilling contractors with operations in the Gulf of Mexico are defendants in a lawsuit in the U.S. District Court of the Southern District of Texas entitled Verdin v. R&B Falcon Drilling USA, Inc. The plaintiff, who purports to be an "offshore worker" previously employed by R&B Falcon Drilling USA, Inc. has alleged that the defendants engaged in a conspiracy to depress wages and benefits paid to the defendants' offshore employees in violation of federal and state antitrust laws. The Company vigorously denies these allegations; however, it has agreed to participate in a settlement, subject to certification of a settlement class by the court and the satisfaction of other conditions. In June 2001, the Company recognized a $5.1 million charge for the portion of its share of the settlement amount that is not within the policy limits of its insurance. The Company's insurance carrier has not yet agreed to pay the remaining amount. The court has given preliminary approval to the settlement, which cannot become final until all members of the proposed class of plaintiffs (approximately 80,000 individuals) have been given notice and an opportunity to opt out of the settlement. Based on these and other procedural requirements, it is not expected that the court will be in a position to enter a final order until the second quarter of 2002. The 53 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company does not believe the settlement will have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company is routinely involved in other litigation incidental to its business, which at times involves claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the existing litigation will have a material adverse effect on the Company's financial position, results of operations or cash flows. 13. INVESTMENT IN AMETHYST JOINT VENTURE The Company has a 26.4% equity interest in a joint venture company that is constructing two dynamically-positioned, deepwater semisubmersible drilling rigs, yet to be named and currently referred to as the Amethyst 4 and Amethyst 5. In April 2001, the builder of these rigs, Friede Goldman Halter, Inc. ("FGH"), filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code and requested the Bankruptcy Court to reject the construction contracts. In July 2001, the Bankruptcy Court officially rejected the construction contracts. To ensure completion of construction under the shipbuilding contracts for the Amethyst 4 and Amethyst 5, FGH posted performance bonds totaling $175 million. The surety has commenced funding the cost of completing the rigs under its obligations. Currently, a limited scope of work is continuing on the rigs at FGH to prepare them for transit to other shipyards, and bids are being obtained for completion of the construction of the rigs. The Company anticipates that the construction of the rigs will be completed in late 2003. The joint venture company has financed 87.5% of the cost of construction of these rigs through credit facilities, with repayment of the borrowings under those facilities guaranteed by the United States Maritime Administration ("MARAD"). Advances under the credit facilities are being provided without recourse to the Company or the other joint venture owners. The remaining 12.5% of the cost of construction is being provided by the joint venture company from equity contributions that have been made by the joint venture partners. Through December 31, 2001, the Company's equity contributions to the joint venture totaled $26.5 million, including capitalized interest of $4.9 million. In the opinion of management, the performance and payment bonds issued by the surety on behalf of FGH, together with additional draws under the MARAD-guaranteed credit facilities, will provide sufficient funds to complete the Amethyst 4 and Amethyst 5 without requiring additional contributions by the joint venture partners. First Reserve-managed funds continue to hold an interest in the portion of the joint venture that is constructing the Amethyst 4 and Amethyst 5, which interest is exchangeable for 527,652 shares of the Company's common stock. See reference to First Reserve in Note 16. The Amethyst 4 and Amethyst 5 are being built to operate under long-term charter and service rendering contracts with Petrobras; however, Petrobras has given notice of cancellation of those contracts for late delivery. Based on current demand for deepwater drilling rigs, the Company believes that Petrobras or another customer will employ the Amethyst 4 and Amethyst 5 under new or amended contracts. There can be no assurance, however, that either the Amethyst 4 or Amethyst 5 will be chartered to Petrobras or to any other customer. 54 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. SUPPLEMENTAL FINANCIAL INFORMATION OTHER CURRENT ASSETS Other current assets as of December 31, 2001 and 2000 consisted of the following:
DECEMBER 31, ------------------ 2001 2000 -------- ------- (IN THOUSANDS) Income tax receivable....................................... $ -- $ 1,041 Insurance receivables....................................... 26,426 7,727 Receivable from affiliate................................... -- 6,600 Other receivables........................................... 20,600 5,565 Deferred mobilization and inspection costs.................. 34,275 21,460 Deferred financing costs.................................... 1,816 3,395 Prepaid expenses............................................ 33,825 17,849 Other....................................................... 5,561 4,361 -------- ------- Total other current assets................................ $122,503 $67,998 ======== =======
GOODWILL Goodwill was $72.9 million and $56.1 million at December 31, 2001 and 2000, respectively. Accumulated amortization of goodwill at December 31, 2001 and 2000 was $8.2 million and $4.2 million, respectively. Goodwill amortization expense amounted to $4.0 million, $3.0 million and $0.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. OTHER ASSETS Other assets as of December 31, 2001 and 2000 consisted of the following:
DECEMBER 31, ------------------ 2001 2000 -------- ------- (IN THOUSANDS) Deferred financing costs.................................... $ 41,064 $17,989 Deferred mobilization and inspection costs.................. 38,177 25,429 Employee savings plan....................................... 14,875 16,749 Other....................................................... 17,095 9,255 -------- ------- Total other assets........................................ $111,211 $69,422 ======== =======
55 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCRUED EXPENSES Accrued expenses as of December 31, 2001 and 2000 consisted of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- (IN THOUSANDS) Insurance................................................... $ 13,623 $ 4,666 Payroll and benefits........................................ 40,297 46,450 Taxes, other than income.................................... 6,417 4,772 Interest.................................................... 20,735 15,164 Current income taxes........................................ 8,020 9,604 Earn-out payment, current portion........................... 3,000 3,000 Deferred revenue............................................ 39,182 11,292 Foreign currency contracts.................................. 6,573 6,313 Project costs............................................... 4,400 -- Pooling and merger costs.................................... 12,912 -- Other....................................................... 48,368 50,009 -------- -------- Total accrued expenses.................................... $203,527 $151,270 ======== ========
OTHER LONG-TERM LIABILITIES Other long-term liabilities as of December 31, 2001 and 2000 consisted of the following:
DECEMBER 31, ------------------ 2001 2000 -------- ------- (IN THOUSANDS) Deferred compensation....................................... $ 16,188 $17,005 Deferred mobilization revenue............................... 47,420 29,322 Deferred revenue, other..................................... 17,682 8,838 Earn-out payment, net of current portion.................... 6,000 9,000 Deferred gain on sale/leaseback............................. 2,839 3,116 Project costs............................................... 22,994 -- Other....................................................... 15,170 15,358 -------- ------- Total other long-term liabilities......................... $128,293 $82,639 ======== =======
56 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER INCOME (EXPENSE), NET Other income (expense), net for the years ended December 31, 2001, 2000 and 1999 consisted of the following:
DECEMBER 31, ---------------------------- 2001 2000 1999 -------- ------- ------- (IN THOUSANDS) Argentina writedown.................................... $(10,679) $ -- $ -- Foreign exchange gains (losses)........................ (2,375) (7,404) 1,709 Insurance gains........................................ 1,299 1,800 13,633 Litigation settlement.................................. (5,100) 5,000 -- Other, net............................................. 1,480 4,259 (3,072) -------- ------- ------- Total other income (expense), net.................... $(15,375) $ 3,655 $12,270 ======== ======= =======
CASH FLOW INFORMATION Supplemental cash flow and non-cash transactions are as follows:
YEAR ENDED DECEMBER 31, --------------------------- 2001 2000 1999 ------- ------- ------- (IN THOUSANDS) Cash paid during the year for: Interest.............................................. $97,970 $97,166 $86,105 Income taxes -- U.S., net............................. 13,165 -- 2,059 Income taxes -- foreign, net.......................... 25,704 14,884 7,116 Change in capital expenditures in accounts payable...... 55,346 21,244 28,177
57 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS The following table sets forth certain consolidated information with respect to the Company by operating segment:
INTERNATIONAL U.S. -------------------------------- -------------------- E&P CORPORATE OFFSHORE LAND OFFSHORE SERVICES TOTAL --------- -------- -------- ---------- -------- ---------- (IN THOUSANDS) 2001 Revenue................... $ -- $418,850 $444,405 $ 507,139 $142,501 $1,512,895 Earnings (loss) from operations.............. (33,798) 111,936 12,917 177,355 7,215 275,625 Total assets.............. 145,751 929,550 767,769 2,214,653 147,967 4,205,690 Capital expenditures, including acquisitions............ 3,898 45,596 151,451 708,433 22,895 932,273 Depreciation and amortization............ -- 58,414 50,551 76,065 13,898 198,928 2000 Revenue................... $ -- $327,368 $364,461 $ 395,336 $ 85,873 $1,173,038 Earnings (loss) from operations.............. (34,340) 78,435 27,305 101,300 7,937 180,637 Total assets.............. 228,599 969,722 523,420 1,470,816 145,076 3,337,633 Capital expenditures, including acquisitions............ 12,493 72,544 74,076 84,699 65,758 309,570 Depreciation and amortization............ -- 57,886 49,657 57,309 9,718 174,570 1999 Revenue................... $ -- $168,885 $263,050 $ 302,856 $ -- $ 734,791 Earnings (loss) from operations.............. (47,565) (9,416) (14,972) 33,910 -- (38,043) Total assets.............. 197,570 821,160 538,917 1,497,172 -- 3,054,819 Capital expenditures, including acquisitions............ 7,184 168,201 61,213 347,774 -- 584,372 Depreciation and amortization............ -- 43,763 44,214 37,315 -- 125,292
58 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth certain information with respect to the Company by geographic area:
UNITED SOUTH OTHER STATES AMERICA INTERNATIONAL TOTAL -------- ---------- ------------- ---------- (IN THOUSANDS) 2001 Revenue............................... $418,850 $ 716,572 $ 377,473 $1,512,895 Earnings from operations.............. 78,138 75,664 121,823 275,625 Long-term assets...................... 953,619 1,154,219 1,465,712 3,573,550 Capital expenditures, including acquisitions........................ 49,494 612,741 270,038 932,273 Depreciation and amortization......... 58,414 84,329 56,185 198,928 2000 Revenue............................... $327,368 $ 549,984 $ 295,686 $1,173,038 Earnings from operations.............. 44,095 67,694 68,848 180,637 Long-term assets...................... 787,830 648,117 1,366,200 2,802,147 Capital expenditures, including acquisitions........................ 85,037 112,935 111,598 309,570 Depreciation and amortization......... 57,886 57,731 58,953 174,570 1999 Revenue............................... $168,885 $ 402,798 $ 163,108 $ 734,791 Earnings (loss) from operations....... (56,981) 8,030 10,908 (38,043) Long-term assets...................... 698,198 599,412 1,304,326 2,601,936 Capital expenditures, including acquisitions........................ 175,385 61,213 347,774 584,372 Depreciation and amortization......... 43,763 47,711 33,818 125,292
For the years ended December 31, 2001, 2000 and 1999, revenues from Argentina were $379.7 million, $262.7 million and $131.8 million, respectively. As of December 31, 2001, 2000 and 1999, total assets in Argentina were $448.7 million, $330.0 million and $244.1 million, respectively. Revenue is allocated to geographic areas based on the physical location of the rigs. Transactions between reportable segments are accounted for consistent with revenue and expense of external customers and are eliminated in consolidation. Depreciation expense relating to corporate fixed assets allocated to the operating segments for the years ended December 31, 2001, 2000 and 1999 was $3.7 million, $3.3 million and $2.2 million, respectively. SIGNIFICANT CUSTOMERS One customer accounted for approximately 11% of consolidated revenue for the year ended December 31, 2001, one customer accounted for approximately 11% of consolidated revenue for the year ended December 31, 2000 and two customers accounted for approximately 16% and 12%, respectively, of consolidated revenue for the year ended December 31, 1999. All revenue from these customers is attributable to the Company's operations in South America. 16. SUBSEQUENT EVENTS In March 2002, the Company issued $300.0 million principal amount of 2 1/2% convertible senior notes due March 1, 2007. The net proceeds to the Company, after deducting underwriting discounts and offering costs, was $291.8 million. The notes are convertible into approximately 18.2 million shares of common stock of the Company (equal to a conversion rate of 60.5694 shares of common stock per $1,000 principal amount or $16.51 per share). Interest on the notes is payable on March 1 and September 1 of each year, with the first 59 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest payment due September 1, 2002. On or after March 4, 2005, the notes are redeemable at the Company's option, in whole or in part, for cash at redemption prices starting at 101.0% and declining to 100% by March 1, 2007. The Company may redeem some or all of the notes at any time prior to March 4, 2005 at 100% of the principal amount, plus accrued and unpaid interest and an amount equal to 7.5% of the principal amount, less the amount of any interest actually paid on the notes on or prior to the redemption date, if the closing price of the Company's common stock has exceeded 150% of the price per share of the common stock corresponding to the conversion rate then in effect for at least 20 trading days within a period of 30 consecutive trading days. In connection with the issuance of the notes, a private equity fund related to First Reserve Corporation purchased 7.9 million shares of the Company's common stock from third parties. As a result of that purchase and other purchases of the Company's common stock by First Reserve managed funds, First Reserve funds currently own a total of 19.5 million shares of common stock, or approximately 14.7% of the total shares outstanding. First Reserve has been entitled to nominate one member of the Company's board of directors since July 1999. William E. Macaulay, a director of the Company, currently is First Reserve's board nominee. First Reserve manages private equity funds that specialize in the energy industry. In March 2002, the Company purchased on the open market and then extinguished a total of $227.0 million principal amount at maturity of its zero coupon convertible senior debentures due 2021. The total purchase price was $140.5 million and the accreted value of the debentures, less offering costs, was $139.8 million, resulting in an extraordinary loss after estimated income taxes of $0.5 million. 60 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 2001 and 2000 were as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 Revenue.................................... $355,228 $388,825 $406,298 $362,544 Earnings from operations................... 76,223 99,794 45,555 54,053 Net earnings............................... 35,921 46,712 5,443 3,130 Net earnings per share Basic.................................... $ 0.28 $ 0.35 $ 0.04 $ 0.02 Diluted.................................. $ 0.26 $ 0.32 $ 0.04 $ 0.02 Weighted average common shares and equivalents outstanding Basic.................................... 128,674 132,151 132,790 132,829 Diluted.................................. 147,213 154,803 133,865 133,717 2000 Revenue.................................... $222,563 $284,026 $304,317 $362,132 Earnings from operations................... 21,926 35,932 54,478 68,301 Net earnings (loss)........................ (2,115) 5,882 16,727 28,507 Net earnings (loss) per share Basic.................................... $ (0.02) $ 0.05 $ 0.13 $ 0.23 Diluted.................................. $ (0.02) $ 0.05 $ 0.13 $ 0.22 Weighted average common shares and equivalents outstanding Basic.................................... 118,636 123,498 124,225 125,746 Diluted.................................. 118,636 125,881 127,658 128,034
61 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with the Company's independent accountants regarding accounting and financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") within 120 days of the end of the Company's fiscal year on December 31, 2001. Information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of this annual report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are included as part of this report: (1) Financial Statements:
PAGE ---- Report of Independent Accountants........................... 30 Consolidated Balance Sheet -- December 31, 2001 and 2000.... 31 Consolidated Statement of Operations -- Years ended December 31, 2001, 2000 and 1999................................... 32 Consolidated Statement of Changes in Stockholders' Equity -- Years ended December 31, 2001, 2000 and 1999.... 33 Consolidated Statement of Cash Flows -- Years ended December 31, 2001, 2000 and 1999.......................... 34 Notes to Consolidated Financial Statements.................. 35
62 (2) Consolidated Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable or not required, or the information required thereby is included in the consolidated financial statements or the notes thereto included in this annual report. (3) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 -- Agreement and Plan of Merger, dated as of May 23, 2001, among Pride International, Inc., a Louisiana corporation ("Old Pride"), PM Merger, Inc., a Delaware corporation renamed Pride International, Inc. ("Pride"), Marine Drilling Companies, Inc. ("Marine") and AM Merger, Inc. (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in the Registration Statement of Old Pride and Pride on Form S-4, Registration Nos. 333-66644 and 333-66644-01 (the "Registration Statement")). 2.2 -- Letter Agreement, dated as of August 3, 2001, among Old Pride, Pride, Marine and AM Merger, Inc. (incorporated by reference to Exhibit 2.2 to Pride's Current Report on Form 8-K filed with the Commission on September 28, 2001, File No. 1-13289 (the "Form 8-K")). 3.1 -- Certificate of Incorporation of Pride (incorporated by reference to Annex D to the Joint Proxy Statement/Prospectus included in the Registration Statement). 3.2 -- Bylaws of Pride (incorporated by reference to Annex E to the Joint Proxy Statement/Prospectus included in the Registration Statement). 4.1 -- Form of Common Stock Certificate (incorporated by reference to Exhibit 4.13 to the Registration Statement). 4.2 -- Rights Agreement, dated as of September 13, 2001, between Pride and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.2 to the Form 8-K). 4.3 -- Certificate of Designations of Series A Junior Participating Preferred Stock of Pride (incorporated by reference to Exhibit 4.3 to the Form 8-K). 4.4 -- Indenture, dated as of May 1, 1997, between Pride and JP Morgan Chase Bank (formerly The Chase Manhattan Bank), as trustee (the "Senior Trustee") (incorporated by reference to Exhibit 4.1 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File Nos. 0-16961 and 1-13289). 4.5 -- Third Supplemental Indenture, dated as of January 16, 2001, between Pride and the Senior Trustee, relating to $431,454,000 principal amount at maturity of Zero Coupon Convertible Senior Debentures Due 2021 (incorporated by reference to Exhibit 4.5 of Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). 4.6 -- Fourth Supplemental Indenture, dated as of September 10, 2001, between Pride and the Senior Trustee (incorporated by reference to Exhibit 4.4 to the Form 8-K). 4.7 -- Indenture, dated as of April 1, 1998, between Pride and HSBC Bank USA (formerly named Marine Midland Bank), as trustee (the "Subordinated Trustee") (incorporated by reference to Exhibit 4.1 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-13289). 4.8 -- First Supplemental Indenture, dated as of April 24, 1998, between Pride and the Subordinated Trustee, relating to $588,145,000 principal amount at maturity of Zero Coupon Convertible Subordinated Debentures Due 2018 (incorporated by reference to Exhibit 4.2 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-13289). 4.9 -- Second Supplemental Indenture, dated as of September 10, 2001, between Pride and the Subordinated Trustee (incorporated by reference to Exhibit 4.5 to the Form 8-K). Pride and its subsidiaries are parties to several debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of Pride and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Pride agrees to furnish a copy of such instruments to the Commission upon request.
63
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 -- Securities Purchase Agreement, dated as of May 5, 1999 (the "Purchase Agreement"), between Pride and First Reserve Fund VIII, L.P. ("Fund VIII") (incorporated by reference to Exhibit 10.2 of Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-13289). 10.2 -- Letter Agreement dated June 4, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.2 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.3 -- Letter Agreement dated June 18, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.3 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.4 -- Letter Agreement dated June 21, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.4 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.5 -- Letter Agreement dated July 14, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.5 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.6 -- Put and Exchange Agreement, dated as of September 14, 1999, between Pride and Fund VIII (incorporated by reference to Exhibit 10.1 of Pride's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-13289). 10.7 -- Securities Purchase Agreement, dated as of March 31, 2000, among Pride, Fund VIII and Twin Oaks Financial Ltd. (incorporated by reference to Exhibit 10.1 of Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, File No. 1-13289). 10.8 -- Master Restructuring Agreement, dated as of March 9, 2001, among Pride, Drillpetro Inc., Techdrill Inc., Westville Management Corporation, Fund VIII, First Reserve Fund VII, Limited Partnership ("Fund VII"), Maritima Petroleo e Engenharia Ltda., Amethyst Financial Company Limited and Pride Amethyst II Ltd. (incorporated by reference to Exhibit 10.1 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-13289). 10.9 -- Exchange Agreement, dated as of March 9, 2001, among Pride, Fund VIII and Fund VII (incorporated by reference to Exhibit 10.2 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-13289). 10.10 -- Letter Agreement, dated as of March 9, 2001, among Pride, Pride Amethyst II, Fund VIII and Fund VII (incorporated by reference to Exhibit 10.3 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-13289). *10.11 -- Second Amended and Restated Shareholders Agreement, dated as of March 4, 2002, among Pride, Fund VIII, Fund VII and First Reserve Fund IX, L.P. +10.12 -- Form of Indemnity Agreement between Pride and certain executive officers and directors (incorporated by reference to Exhibit 10(g) to Pride's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.13 -- Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4A to Pride's Registration Statement on Form S-8 dated February 6, 1989, Registration No. 33-26854). +10.14 -- First Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.7 to Pride's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). +10.15 -- Second Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.8 to Pride's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). +10.16 -- Third Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.17 -- Pride Petroleum Services, Inc. Salary\ Deferral Plan (incorporated by reference to Exhibit 10(i) to Pride's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233).
64
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.18 -- Summary of Pride Petroleum Services, Inc. Group Life Insurance and Accidental Death and Dismemberment Insurance (incorporated by reference to Exhibit 10(j) to Pride's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.19 -- Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10(j) to Pride's Annual Report on Form 10-K for the year ended December 31, 1992, File Nos. 0-16961 and 1-13289). +10.20 -- First Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 4.7 to Pride's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35093). +10.21 -- Second Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.10 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.22 -- Third Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.11 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). +10.23 -- Pride Petroleum Services, Inc. 401(k) Restoration Plan (incorporated by reference to Exhibit 10(k) to Pride's Annual Report on Form 10-K for the year ended December 31, 1993, File Nos. 0-16961 and 1-13289). +10.24 -- Pride International, Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.15 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.25 -- First Amendment to Pride International, Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.16 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.26 -- Second Amendment to Pride International, Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.17 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.27 -- Pride International, Inc. 1998 Long-Term Incentive Plan (incorporated by reference to Appendix A to Pride's Proxy Statement on Schedule 14A for the 1998 Annual Meeting of Shareholders of Pride, File No. 1-13289). +10.28 -- Compensation Agreement dated February 6, 1997 between Pride and Jorge E. Estrada M. (incorporated by reference to Exhibit 10.19 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.29 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and Paul A. Bragg (incorporated by reference to Exhibit 10.19 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). +10.30 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and James W. Allen (incorporated by reference to Exhibit 10.20 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). *+10.31 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and John O'Leary. +10.32 -- Employment/Non-Competition/Confidentiality Agreement dated October 15, 1998 between Pride and John R. Blocker, Jr. (incorporated by reference to Exhibit 10.24 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.33 -- Employment/Non-Competition/Confidentiality Agreement dated August 15, 1998 between Pride and Gary W. Casswell (incorporated by reference to Exhibit 10.23 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.34 -- Employment Agreement dated June 21, 1994 between Pride Offshore, Inc. and David A. Bourgeois (incorporated by reference to Exhibit 10.25 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289).
65
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.35 -- Employment/Non-Competition/Confidentiality Agreement dated March 1, 2000 between Pride and Marcelo D. Guiscardo (incorporated by reference to Exhibit 10.26 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.36 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and Earl W. McNiel (incorporated by reference to Exhibit 10.24 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). +10.37 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and Robert W. Randall (incorporated by reference to Exhibit 10.23 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). *21 -- Subsidiaries of Pride. *23.1 -- Consent of PricewaterhouseCoopers LLP. *23.2 -- Consent of KPMG LLP *99 -- Report of KPMG LLP to the Board of Directors and Shareholders of Marine Drilling Companies, Inc. dated January 23, 2001 with respect to the consolidated balance sheet of Marine as of December 31, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 2000.
- --------------- * Filed herewith. + Compensatory plan or arrangement. In a Form 8-K/A filed with the Commission on November 27, 2001, amending a Current Report on Form 8-K dated September 28, 2001, the Company incorporated by reference pursuant to Item 7 of Form 8-K certain financial statements in connection with its acquisition of Marine Drilling Companies, Inc. 66 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON APRIL 1, 2002. PRIDE INTERNATIONAL, INC. By: /s/ PAUL A. BRAGG ------------------------------------ Paul A. Bragg President, Chief Executive Officer and Director PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON APRIL 1, 2002.
SIGNATURES TITLE ---------- ----- /s/ PAUL A. BRAGG President, Chief Executive Officer, and Director ------------------------------------------------ (Principal Executive Officer) Paul A. Bragg /s/ EARL W. MCNIEL Vice President and Chief Financial Officer ------------------------------------------------ (Principal Financial Officer) Earl W. McNiel /s/ EDWARD G. BRANTLEY Vice President and Chief Accounting Officer ------------------------------------------------ (Principal Accounting Officer) Edward G. Brantley /s/ ROBERT L. BARBANELL Chairman of the Board and Director ------------------------------------------------ Robert L. Barbanell /s/ DAVID A.B. BROWN Director ------------------------------------------------ David A.B. Brown /s/ J.C. BURTON Director ------------------------------------------------ J.C. Burton /s/ JORGE E. ESTRADA M. Director ------------------------------------------------ Jorge E. Estrada M. /s/ WILLIAM E. MACAULAY Director ------------------------------------------------ William E. Macaulay /s/ RALPH D. MCBRIDE Director ------------------------------------------------ Ralph D. McBride /s/ DAVID B. ROBSON Director ------------------------------------------------ David B. Robson
67 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 -- Agreement and Plan of Merger, dated as of May 23, 2001, among Pride International, Inc., a Louisiana corporation ("Old Pride"), PM Merger, Inc., a Delaware corporation renamed Pride International, Inc. ("Pride"), Marine Drilling Companies, Inc. ("Marine") and AM Merger, Inc. (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in the Registration Statement of Old Pride and Pride on Form S-4, Registration Nos. 333-66644 and 333-66644-01 (the "Registration Statement")). 2.2 -- Letter Agreement, dated as of August 3, 2001, among Old Pride, Pride, Marine and AM Merger, Inc. (incorporated by reference to Exhibit 2.2 to Pride's Current Report on Form 8-K filed with the Commission on September 28, 2001, File No. 1-13289 (the "Form 8-K")). 3.1 -- Certificate of Incorporation of Pride (incorporated by reference to Annex D to the Joint Proxy Statement/Prospectus included in the Registration Statement). 3.2 -- Bylaws of Pride (incorporated by reference to Annex E to the Joint Proxy Statement/Prospectus included in the Registration Statement). 4.1 -- Form of Common Stock Certificate (incorporated by reference to Exhibit 4.13 to the Registration Statement). 4.2 -- Rights Agreement, dated as of September 13, 2001, between Pride and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.2 to the Form 8-K). 4.3 -- Certificate of Designations of Series A Junior Participating Preferred Stock of Pride (incorporated by reference to Exhibit 4.3 to the Form 8-K). 4.4 -- Indenture, dated as of May 1, 1997, between Pride and JP Morgan Chase Bank (formerly The Chase Manhattan Bank), as trustee (the "Senior Trustee") (incorporated by reference to Exhibit 4.1 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File Nos. 0-16961 and 1-13289). 4.5 -- Third Supplemental Indenture, dated as of January 16, 2001, between Pride and the Senior Trustee, relating to $431,454,000 principal amount at maturity of Zero Coupon Convertible Senior Debentures Due 2021 (incorporated by reference to Exhibit 4.5 of Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). 4.6 -- Fourth Supplemental Indenture, dated as of September 10, 2001, between Pride and the Senior Trustee (incorporated by reference to Exhibit 4.4 to the Form 8-K). 4.7 -- Indenture, dated as of April 1, 1998, between Pride and HSBC Bank USA (formerly named Marine Midland Bank), as trustee (the "Subordinated Trustee") (incorporated by reference to Exhibit 4.1 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-13289). 4.8 -- First Supplemental Indenture, dated as of April 24, 1998, between Pride and the Subordinated Trustee, relating to $588,145,000 principal amount at maturity of Zero Coupon Convertible Subordinated Debentures Due 2018 (incorporated by reference to Exhibit 4.2 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-13289). 4.9 -- Second Supplemental Indenture, dated as of September 10, 2001, between Pride and the Subordinated Trustee (incorporated by reference to Exhibit 4.5 to the Form 8-K). Pride and its subsidiaries are parties to several debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of Pride and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Pride agrees to furnish a copy of such instruments to the Commission upon request. 10.1 -- Securities Purchase Agreement, dated as of May 5, 1999 (the "Purchase Agreement"), between Pride and First Reserve Fund VIII, L.P. ("Fund VIII") (incorporated by reference to Exhibit 10.2 of Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-13289). 10.2 -- Letter Agreement dated June 4, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.2 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289).
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.3 -- Letter Agreement dated June 18, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.3 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.4 -- Letter Agreement dated June 21, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.4 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.5 -- Letter Agreement dated July 14, 1999 between Pride and Fund VIII, amending the Purchase Agreement (incorporated by reference to Exhibit 10.5 of Pride's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-13289). 10.6 -- Put and Exchange Agreement, dated as of September 14, 1999, between Pride and Fund VIII (incorporated by reference to Exhibit 10.1 of Pride's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-13289). 10.7 -- Securities Purchase Agreement, dated as of March 31, 2000, among Pride, Fund VIII and Twin Oaks Financial Ltd. (incorporated by reference to Exhibit 10.1 of Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, File No. 1-13289). 10.8 -- Master Restructuring Agreement, dated as of March 9, 2001, among Pride, Drillpetro Inc., Techdrill Inc., Westville Management Corporation, Fund VIII, First Reserve Fund VII, Limited Partnership ("Fund VII"), Maritima Petroleo e Engenharia Ltda., Amethyst Financial Company Limited and Pride Amethyst II Ltd. (incorporated by reference to Exhibit 10.1 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-13289). 10.9 -- Exchange Agreement, dated as of March 9, 2001, among Pride, Fund VIII and Fund VII (incorporated by reference to Exhibit 10.2 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-13289). 10.10 -- Letter Agreement, dated as of March 9, 2001, among Pride, Pride Amethyst II, Fund VIII and Fund VII (incorporated by reference to Exhibit 10.3 to Pride's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, File No. 1-13289). *10.11 -- Second Amended and Restated Shareholders Agreement, dated as of March 4, 2002, among Pride, Fund VIII, Fund VII and First Reserve Fund IX, L.P. +10.12 -- Form of Indemnity Agreement between Pride and certain executive officers and directors (incorporated by reference to Exhibit 10(g) to Pride's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.13 -- Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4A to Pride's Registration Statement on Form S-8 dated February 6, 1989, Registration No. 33-26854). +10.14 -- First Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.7 to Pride's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). +10.15 -- Second Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.8 to Pride's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). +10.16 -- Third Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.17 -- Pride Petroleum Services, Inc. Salary\ Deferral Plan (incorporated by reference to Exhibit 10(i) to Pride's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.18 -- Summary of Pride Petroleum Services, Inc. Group Life Insurance and Accidental Death and Dismemberment Insurance (incorporated by reference to Exhibit 10(j) to Pride's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.19 -- Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10(j) to Pride's Annual Report on Form 10-K for the year ended December 31, 1992, File Nos. 0-16961 and 1-13289).
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.20 -- First Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 4.7 to Pride's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35093). +10.21 -- Second Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.10 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.22 -- Third Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.11 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). +10.23 -- Pride Petroleum Services, Inc. 401(k) Restoration Plan (incorporated by reference to Exhibit 10(k) to Pride's Annual Report on Form 10-K for the year ended December 31, 1993, File Nos. 0-16961 and 1-13289). +10.24 -- Pride International, Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.15 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.25 -- First Amendment to Pride International, Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.16 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.26 -- Second Amendment to Pride International, Inc. Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.17 to Pride's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13289). +10.27 -- Pride International, Inc. 1998 Long-Term Incentive Plan (incorporated by reference to Appendix A to Pride's Proxy Statement on Schedule 14A for the 1998 Annual Meeting of Shareholders of Pride, File No. 1-13289). +10.28 -- Compensation Agreement dated February 6, 1997 between Pride and Jorge E. Estrada M. (incorporated by reference to Exhibit 10.19 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.29 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and Paul A. Bragg (incorporated by reference to Exhibit 10.19 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). +10.30 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and James W. Allen (incorporated by reference to Exhibit 10.20 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). *+10.31 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and John O'Leary. +10.32 -- Employment/Non-Competition/Confidentiality Agreement dated October 15, 1998 between Pride and John R. Blocker, Jr. (incorporated by reference to Exhibit 10.24 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.33 -- Employment/Non-Competition/Confidentiality Agreement dated August 15, 1998 between Pride and Gary W. Casswell (incorporated by reference to Exhibit 10.23 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.34 -- Employment Agreement dated June 21, 1994 between Pride Offshore, Inc. and David A. Bourgeois (incorporated by reference to Exhibit 10.25 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.35 -- Employment/Non-Competition/Confidentiality Agreement dated March 1, 2000 between Pride and Marcelo D. Guiscardo (incorporated by reference to Exhibit 10.26 to Pride's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-13289). +10.36 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and Earl W. McNiel (incorporated by reference to Exhibit 10.24 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289).
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.37 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and Robert W. Randall (incorporated by reference to Exhibit 10.23 of Pride's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-13289). *21 -- Subsidiaries of Pride. *23.1 -- Consent of PricewaterhouseCoopers LLP. *23.2 -- Consent of KPMG LLP *99 -- Report of KPMG LLP to the Board of Directors and Shareholders of Marine Drilling Companies, Inc. dated January 23, 2001 with respect to the consolidated balance sheet of Marine as of December 31, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 2000.
- --------------- * Filed herewith. + Compensatory plan or arrangement. In a Form 8-K/A filed with the Commission on November 27, 2001, amending a Current Report on Form 8-K dated September 28, 2001, the Company incorporated by reference pursuant to Item 7 of Form 8-K certain financial statements in connection with its acquisition of Marine Drilling Companies, Inc. EX-10.11 3 h95556ex10-11.txt SECOND AMENDED SHAREHOLDERS AGREEMENT EXHIBIT 10.11 SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT AMONG PRIDE INTERNATIONAL, INC. FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, FIRST RESERVE FUND VIII, L.P., AND FIRST RESERVE FUND IX, L.P. MARCH 4, 2002 SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT This Second Amended and Restated Shareholders Agreement (this "Agreement") is entered into as of the 4th day of March, 2002 by and among Pride International, Inc., a Delaware corporation (the "Company"), First Reserve Fund VII, Limited Partnership, a Delaware limited partnership ("First Reserve VII"), First Reserve Fund VIII, L.P., a Delaware limited partnership ("First Reserve VIII") and First Reserve Fund IX, L.P., a Delaware limited partnership ("First Reserve IX") (collectively, "First Reserve"). WITNESSETH: WHEREAS, pursuant to that certain Securities Purchase Agreement entered into by and between First Reserve VII and Pride International, Inc., a Louisiana corporation and the predecessor of the Company ("Pride-Louisiana"), dated as of May 5, 1999, as amended by the Letter Agreements dated June 4, 1999, June 18, 1999, June 21, 1999 and July 14, 1999, by the Put and Exchange Agreement dated September 14, 1999 and by the Exchange Agreement dated March 9, 2001 (as so amended, the "Purchase Agreement"), First Reserve VII received upon consummation of the transactions contemplated by the Purchase Agreement, shares of common stock of Pride-Louisiana; WHEREAS, pursuant to that certain Securities Purchase Agreement entered into by and among First Reserve VIII, Pride-Louisiana and Twin Oaks Financial Ltd. dated as of March 31, 2000 (the "Second Purchase Agreement"), First Reserve VIII received upon consummation of the transactions contemplated thereby additional shares of such common stock; WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of May 23, 2001, among Pride-Louisiana, the Company, Marine Drilling Companies, Inc., a Texas corporation ("Marine"), and AM Merger, Inc., a Delaware corporation ("AM Merger"), following the merger of Marine with and into AM Merger, Pride-Louisiana merged with and into the Company, with the Company surviving, pursuant to which merger each outstanding share of the common stock of Pride-Louisiana was converted into one share of common stock, par value $.01 per share, of the Company (the "Common Stock"); WHEREAS, in connection with an offering of 2 1/2% Convertible Senior Notes Due 2007 of the Company (the "Note Offering"), First Reserve IX may purchase up to 7,874,015 shares of Common Stock (the "First Reserve IX Purchase"); and WHEREAS, in connection with the Note Offering, the parties hereto desire to amend and restated the First Amended and Restated Shareholders Agreement, dated March 31, 2000, as amended by the Exchange Agreement dated March 9, 2001, on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 2 ARTICLE 1 DEFINED TERMS Section 1.1 Defined Terms. The following capitalized terms when used in this Agreement shall have the following meanings: "Affiliate" shall have the respective meanings assigned thereto in Rule 405 as presently promulgated under the Securities Act. "Amethyst Agreements" means the Put and Exchange Agreement dated September 14, 1999 between the Company and First Reserve, as amended by the Exchange Agreement dated March 9, 2001 among the Company, First Reserve VII and First Reserve VIII. "beneficial ownership" and "group" shall have the respective meanings assigned thereto in Rules 13d-3 and 13d-5 as presently promulgated under the Exchange Act. "Board" means the Board of Directors of the Company. "Common Stock" has the meaning assigned in the Recitals to this Agreement. "Company Securities" means, collectively, the Common Stock and any class or series of the Company's preferred stock, and any other securities, warrants or options or rights of any nature (whether or not issued by the Company) that are convertible into, exchangeable for, or exercisable for the purchase of, or otherwise give the holder thereof any rights in respect of Common Stock, or any class or series of Company preferred stock that is entitled to vote generally for the election of directors or otherwise. "Director" means any member of the Board. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "First Reserve Group" means, collectively, First Reserve and its Affiliates; provided, however, that a Person shall not be deemed a member of the First Reserve Group if the only reason that such Person would be deemed an Affiliate of First Reserve is because it is (a) a limited partner of First Reserve, (b) an operating company in which First Reserve (and/or any other fund or funds similar to First Reserve that is controlled by, controlling or under common control with First Reserve) has an investment, but in which First Reserve and such other funds do not, in the aggregate (i) have at least a majority of the voting power (defined in a manner consistent with the definition of Voting Power set forth herein with respect to the Company) of the securities of such operating company, or (ii) the contractual right to designate at least a majority of the members of the board of directors (or similar governing body) of such operating company, or (c) an Affiliate of an operating company described in clause (b) who is not otherwise an Affiliate of the First Reserve Group. "HSR Waiting Period" shall mean any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 3 "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other entity of whatever nature. "Purchase Agreement" shall have the meaning assigned in the Recitals to this Agreement. "Purchase Agreements" means, when the plural is used, the Purchase Agreement and the Second Purchase Agreement, collectively. "Registration Rights Agreement" means the provisions of Article 5 hereof, as amended, modified or supplemented from time to time. "Second Purchase Agreement" shall have the meaning assigned in the Recitals to this Agreement. "Securities Act" means the Securities Act of 1933, as amended. "Termination Date" means April 1, 2009. "Voting Power" means, at, any measurement date, the total number of votes that could have been cast in an election of directors of the Company had a meeting of the stockholders of the Company been duly held based upon a record date as of the measurement date if all Company Securities then outstanding and entitled to vote at such meeting were present and voted to the fullest extent possible at such meeting. Section 1.2 Other Definitions. Definitions applicable to the Registration Rights Agreement provisions of this Agreement are found in Article 5 hereof. Section 1.3 Construction. Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter, and the singular shall include the plural, and vice versa. Except as specified otherwise, all references to Articles and Sections refer to articles and sections of this Agreement, and all references to exhibits are to Exhibits attached to this Agreement, each of which is made a part of this Agreement for all purposes. The word "including" shall mean "including, without limitation" unless the context otherwise requires. ARTICLE 2 BOARD OF DIRECTORS; VOTING Section 2.1 Election of Directors. (a) First Reserve VIII shall have the right (i) to nominate one person for election to the Board; provided, however, that the person nominated shall be a managing director or other higher official of First Reserve Corporation or otherwise be reasonably acceptable to the Company, and (ii) (A) to receive all notices, reports and other communications sent to Directors at the same time they are transmitted to Directors, and to receive reasonable notice of and to have 4 one representative attend any meeting of the Company's Board, (B) to consult with and advise members of senior management of the Company, and (C) upon reasonable notice, to have access to the books and records of the Company. First Reserve VIII may assign (without notice to the Company) any or all of the rights under this Article II to First Reserve VII or First Reserve IX to the extent deemed advisable by First Reserve in order to comply with laws and regulations applicable to the First Reserve Group and the members thereof; provided, however, that First Reserve VIII shall not be able to assign such rights to First Reserve IX unless and until any applicable HSR Waiting Period with respect to the First Reserve IX Purchase shall have expired or been terminated. First Reserve IX hereby represents and warrants to the Company that it is acquiring the Common Stock pursuant to the First Reserve IX Purchase solely for the purpose of investment and that it has no intention of participating in the formulation, determination or direction of the basic business decisions of the Company unless and until such HSR Waiting Period shall have expired or been terminated. If any such assignment takes place, all references in this Article 2 shall thereafter be deemed to refer to the assignee of such rights. First Reserve VIII hereby designates William E. Macaulay as its initial nominee for election to the Company's Board. (b) At each election of directors at which the term of the nominee of First Reserve VIII as a director of the Company expires, the Company will nominate the designee of First Reserve VIII for election to the Company's Board for the succeeding term for which Directors are elected, will recommend his or her election to the Company's stockholders and otherwise will use its reasonable best efforts to cause the Company's stockholders to elect the designee of First Reserve VIII to the Company's Board. The Company shall use its reasonable best efforts to solicit from its stockholders proxies voted in favor of such nominee, and shall vote all management proxies in favor of such nominee, except for such proxies that specifically indicate to the contrary. The rights set forth in this Section 2.1(a) shall survive until the termination of this Agreement as provided in Section 6.1 hereof. (c) In the event that any Director designated pursuant to Section 2.1(a) for any reason ceases to serve as a member of the Board during his term of office, First Reserve VIII shall be entitled to designate a successor Director to fill the vacancy created thereby on the terms and subject to the conditions of this Section 2.1. If and to the extent that the remaining members of the Board are entitled to fill vacancies on the Board, upon the occurrence of any vacancy, the Board will promptly take any actions necessary to fill such vacancies in accordance with the foregoing provision in order to cause the election of the nominee of First Reserve VIII. Section 2.2 No Inconsistent Company Actions. The Company hereby agrees not to take any action inconsistent with the provisions of Section 2.1. ARTICLE 3 ACQUISITION AND SALE OF COMPANY SECURITIES Section 3.1. Company Securities. First Reserve covenants and agrees with the Company that, without the consent of the Company, except for the Company Securities acquired pursuant to the Purchase Agreements or any similar agreement to which the Company and First Reserve (or its Affiliates or designees) are parties, any Company Securities acquired with the 5 consent of the Company (including Company Securities acquired pursuant to the First Reserve IX Purchase) and any Company Securities issued pursuant to a stock split, stock dividend or recapitalization with respect to such Company Securities, no member of the First Reserve Group shall, directly or indirectly, acquire any Company Securities, if the effect of such acquisition, agreement or other action would be to increase the aggregate beneficial ownership of Company Securities by the First Reserve Group to an amount exceeding 19% of either the Voting Power or the number of outstanding shares of any class or series of Company Securities. The Company has taken all necessary action to, and will continue to, ensure that no member of the First Reserve Group will become an "Acquiring Person" under the Rights Agreement, dated as of September 13, 2001, between the Company and American Stock Transfer & Trust Company, as rights agent, as it may be amended from time to time, as a result of any purchase of Company Securities in compliance with this Section 3.1. Section 3.2 Distribution of Company Securities. First Reserve covenants that it shall not, and that it shall cause each other member of the First Reserve Group that it controls not to, directly or indirectly, sell, transfer beneficial ownership of, pledge, hypothecate or otherwise dispose of any Company Securities, except by conversion, exchange or exercise of such Company Securities pursuant to their terms in a manner not otherwise in violation of Section 3.1 or pursuant to: (a) a bona fide pledge of or the granting of a security interest or any other lien or encumbrance in such Company Securities to a lender that is not a member of the First Reserve Group to secure a bona fide loan for money borrowed made to one or more members of the First Reserve Group, the foreclosure of such pledge or security interest or any other lien or encumbrance that may be placed involuntarily upon any Company Securities, or the subsequent sale or other disposition of such Company Securities by such lender or its agent; (b) a transfer, assignment, sale or disposition of such Company Securities to another member of the First Reserve Group that has signed this Agreement; (c) a distribution of Company Securities to any partner of First Reserve; provided that any distributee that is a member of the First Reserve Group has signed this Agreement; and provided, further that any arrangements coordinated or initiated by or on behalf of First Reserve to assist its limited partners in the sale of Company Securities distributed to them must comply with the provisions of this Section 3.2; (d) sales in public offerings registered under the Securities Act; (e) sales effected in compliance with the provisions of Rule 144 under the Securities Act; (f) other privately negotiated sales of Company Securities; (g) upon consummation of or otherwise in connection with a business combination or similar transaction involving the Company that is approved by the Board; 6 (h) sales in a tender offer open to all holders of Company Securities; or (i) put rights and call rights granted in the Second Purchase Agreement. Notwithstanding anything to the contrary in this Section 3.2, in effecting any sale, transfer of any beneficial interest in or other disposition of Company Securities pursuant to Sections 3.2(c), (d) and (f), above, the members of the First Reserve Group selling, transferring or disposing such Company Securities shall, unless the Company consents otherwise, use their reasonable best efforts to refrain from knowingly selling, transferring or disposing of such number of Company Securities as represent either the right to acquire or ownership of 5% or more of the Voting Power to any one Person or group of Persons (other than Twin Oaks Financial Ltd.). Section 3.3. Proxy Solicitations. First Reserve agrees that as a stockholder, the First Reserve Group shall vote or cause to be voted all Company Securities of which any member of the First Reserve Group is the beneficial owner with respect to each matter submitted to the Company's stockholders providing for, involving, expected to facilitate or that could reasonably be expected to result in a business combination or other change in control of the Company that has not been approved by the Board (including without limitation the election or removal of one or more Company directors or one or more nominees for director proposed by the Board), either (a) in the manner recommended by the Board, or (b) proportionately with all other holders of Company Securities voting with respect to such matter (provided, that the First Reserve Group shall at all times retain the power to vote for the election of the nominee of First Reserve VIII or its assignee to the Company's Board). First Reserve hereby agrees that it and each member of the First Reserve Group that it controls shall not take any action, or solicit proxies in any fashion, inconsistent with the provisions of this Section 3.3. Section 3.4. Groups. First Reserve covenants that it shall not, and that no other member of the First Reserve Group that it controls shall, join a partnership, limited partnership, syndicate or other group, or otherwise act in concert with any other Person, for the purpose of acquiring, holding, voting or disposing of any Company Securities, other than the First Reserve Group itself. Section 3.5. Limitation on Covenants. Notwithstanding any provision to the contrary in this Agreement, during any period that any person designated by First Reserve VIII to serve as a Director in accordance with the provisions of Section 2.1(a) is not serving as a Director as a result of the failure of the Company or the Board to comply with the terms of this Agreement, or if any such designee is not elected by the stockholders (and Section 2.1(a) and Section 2.2 are complied with), then the covenants set forth in this Article 3 shall cease to be effective during such period; provided, however, that if a person designated by First Reserve ceases to be a Director by reason of death or resignation, then the provisions of this Section 3.5 shall not apply if the Board appoints First Reserve VIII's (or its assignee's) designated replacement to fill any such vacancy within 15 business days after the Company receives notice of such designation. The provisions of this Section 3.5 shall be in addition to any other remedies that First Reserve may have in connection with a breach of the provisions of Article 2 hereof. 7 ARTICLE 4 LEGEND AND STOP TRANSFER ORDER Section 4.1 Legend and Stop Transfer Order. To assist in effectuating the provisions of this Agreement, First Reserve hereby consents: (a) to the placement, on certificates issued with respect to the shares of Common Stock issued to it pursuant to the Purchase Agreements or otherwise promptly after any Company Securities become subject to the provisions of this Agreement, of the following legend on all certificates representing ownership of Company Securities owned of record by any member of the First Reserve Group or by any Person where a member of the First Reserve Group is the beneficial owner thereof, until such shares are sold, transferred or disposed in a manner permitted hereby to a Person who is not then a member of the First Reserve Group: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF AN AGREEMENT AMONG PRIDE INTERNATIONAL, INC. AND FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, FIRST RESERVE FUND VIII, L.P., AND FIRST RESERVE FUND IX, L.P. AND MAY NOT BE VOTED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE THEREWITH. COPIES OF THE AGREEMENT ARE ON FILE AT THE OFFICE OF THE CORPORATE SECRETARY OF PRIDE INTERNATIONAL, INC. ; and (b) to the entry of stop transfer orders with the transfer agent or agents of Company Securities against the transfer of Company Securities, except in compliance with the requirements of this Agreement, or if the Company acts as its own transfer agent with respect to any Company Securities, to the refusal by the Company to transfer any such securities, except in compliance with the requirements of this Agreement. The Company agrees to remove promptly all legends and stop transfer orders with respect to the transfer of Company Securities being made to a Person who is not then a member of the First Reserve Group in compliance with the provisions of this Agreement. ARTICLE 5 REGISTRATION RIGHTS AGREEMENT Section 5.1. Defined Terms. The following capitalized terms when used in this Registration Rights Agreement shall have the following meanings: "Amethyst Registrable Securities" means the shares of Common Stock that (i) are Registrable Securities and (ii) are received by a member of the First Reserve Group upon exchange of the Exchangeable Stock pursuant to Section 5.10 or 5.11 of the Purchase Agreement or would be received by a member of the First Reserve Group upon exercise of its right to exchange the Exchangeable Stock pursuant to Section 5.10 of the Purchase Agreement. For purposes hereof, the "Exchangeable Stock" shall consist of the 1,250 common shares, par value $1.00 per share, of Pride Amethyst II Ltd. ("Amethyst II") distributed to First Reserve VIII and First Reserve VII (or to another member of First Reserve Group) pursuant to the Master 8 Restructuring Agreement, dated as of March 9, 2001, among the Company, Drillpetro Inc. ("Drillpetro"), Techdrill Inc. ("Techdrill"), Westville Management Corporation, First Reserve VII, First Reserve VIII, Maritima Petroleo e Engenharia Ltda., Amethyst Financial Company Limited and Amethyst II. "Demand Registration" means a demand registration as defined in Section 5.2(a) hereof. "Existing Holders" means the holders of registrable securities in accordance with the terms of the Existing Registration Rights Agreements. "Existing Registration Rights Agreements" means that certain (i) Registration Rights Agreement, dated as of March 9, 2001, by and among the Company, Drillpetro and Techdrill and (ii) Registration Rights Agreement, dated as of March 4, 2002, by and between the Company and Deutsche Banc Alex. Brown Inc. "Holders" means the holders of the Registrable Securities in accordance with the terms of this Registration Rights Agreement. "Indemnified Party" has the meaning set forth in Section 5.3(c). "Indemnifying Party" has the meaning set forth in Section 5.3(c). "Piggyback Registration" means a piggyback registration as defined in Section 5.2(b) hereof. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Registrable Securities" means (a) all shares of Common Stock issued to First Reserve pursuant to the Purchase Agreements including all shares of Common Stock which may be issued upon exchange of the Exchangeable Stock or otherwise pursuant to the Amethyst Agreements, (b) all shares acquired by the First Reserve Group in the open market prior to the date hereof, (c) all shares of Common Stock purchased by the First Reserve Group in connection with the Notes Offering, (d) all shares hereafter acquired by the First Reserve Group, and (e) any other securities issued by the Company after the date hereof with respect to such shares of Common Stock by means of exchange, reclassification, dividend, distribution, split up, combination, subdivision, recapitalization, merger, spin-off, reorganization or otherwise; provided, however, that as to any Registrable Securities, such securities shall cease to constitute Registrable Securities for the purposes of this Registration Rights Agreement if and when: (i) a Registration Statement with respect to the sale of such securities shall have been declared 9 effective by the SEC and such securities shall have been sold pursuant thereto; (ii) such securities shall have been sold in compliance with of all applicable resale provisions of Rule 144 under the Securities Act; (iii) such securities may be sold by the Holder thereof in reliance upon Rule 144(k) (or any successor rule) promulgated under the Securities Act, or (iv) such securities cease to be issued and outstanding for any reason. "Registration Statement" means any registration statement filed by the Company that covers any of the Registrable Securities pursuant to the provisions of this Registration Rights Agreement, including the Prospectus included therein, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "SEC" means the Securities and Exchange Commission, or any successor agency thereto. "Securities Act" means the Securities Act of 1933, as amended. Section 5.2. Registration Rights (a) Demand Registration. (i) At any time after September 4, 2002, First Reserve may at any time and from time to time make a written request for registration under the Securities Act in a firm commitment underwritten public offering of Registrable Securities owned by them having a good faith estimated public offering price of at least $20 million (a "Demand Registration"); provided that the Company shall not be obligated to effect more than three Demand Registrations in any 12-month period or more than an aggregate of four Demand Registrations pursuant to this Section 5.2(a). Such request will specify the number of shares of Registrable Securities proposed to be sold. Within five days of such request, the Company shall give written notice of such request to all other Holders of Registrable Securities and shall include in the registration in respect of which notice has been given all Registrable Securities with respect to which the Company has received written requests from Holders for inclusion therein within ten days after the Company's notice regarding such registration has been given as provided herein. If Registrable Securities of other Holders are included in such registration, the Holder or Holders requesting such Demand Registration may reduce the number of shares of Registrable Securities initially specified to be included in such registration in its or their sole discretion; provided, that Registrable Securities having a good faith estimated public offering price of at least $20 million are included in such registration. A registration will not count as a Demand Registration until the Registration Statement filed pursuant to such registration has been declared effective by the SEC and remains effective for the period specified in Section 5.2(d)(i). (ii) The Holder or Holders requesting the Demand Registration shall select the managing underwriters (including the book running lead managing underwriters) and any additional investment bankers and managers to be used in connection with the offering (unless a member of the First Reserve Group is included among the Holders selling pursuant to such registration, in which case First Reserve shall select such underwriters, investment bankers and managers); provided that the lead managing underwriter must be reasonably satisfactory to the Company. 10 (iii) Neither the Company nor any of its security holders (other than the Holders of Registrable Securities in such capacity) shall be entitled to include any of the Company's securities in a Registration Statement initiated as a Demand Registration under this Section 5.2(a) without the consent of First Reserve. (iv) In addition to the Demand Registration rights enumerated above, with respect to the Amethyst Registrable Securities at any time after (X) July 1, 2002 or (Y) such earlier date which is 60 days prior to the date on which the Exchangeable Stock shall have been exchanged for Common Stock pursuant to Section 5.10 or 5.11 of the Purchase Agreement, First Reserve may make a request in writing that the Company file a registration statement under the Securities Act to register under the Securities Act all Amethyst Registrable Securities (whether or not such Amethyst Registrable Securities are then issued and outstanding) for resale on a delayed or continuous basis for a period of one year in an amount equal to the lesser of (A) all such Amethyst Registrable Securities, or (B) the number of Amethyst Registrable Securities that could be sold pursuant to the provisions of Rule 144 by an affiliate of the Company (assuming such Amethyst Registrable Securities were not restricted securities within the meaning of Rule 144) during such one-year period. Such a request (and the related registration) shall be in addition to the Demand Registrations provided for in Section 5.2(a)(i) of this Agreement. (b) Piggyback Registration. If the Company proposes to file a registration statement under the Securities Act with respect to an offering of Common Stock (i) for the Company's own account (other than a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC for transactions traditionally registered on Form S-4 or S-8)) or (ii) for the account of any of its holders of Common Stock, including without limitation, the Existing Holders (other than pursuant to a Demand Registration under Section 5.2(a)), then the Company shall give written notice of such proposed filing to First Reserve as soon as practicable (but in no event later than the earlier to occur of (i) the tenth day following receipt by the Company of notice of exercise of other demand registration rights and (ii) 15 days before the filing date), and such notice shall offer First Reserve the opportunity to register such number of shares of Registrable Securities as First Reserve may request within 10 days after receipt by First Reserve of the Company's notice on the same terms and conditions as the Company's or such holder's Common Stock (a "Piggyback Registration"). First Reserve will be permitted to withdraw all or any part of its Registrable Securities from a Piggyback Registration at any time prior to the date the Registration Statement filed pursuant to such Piggyback Registration becomes effective with the SEC. (c) Reduction of Offering. Notwithstanding anything contained herein, if the Piggyback Registration is an underwritten offering and the lead managing underwriter of such offering delivers a written opinion to the Company that the size of the offering that the Company, First Reserve, the Existing Holders and any other Persons whose securities are proposed to be included in such offering is such that the offering or the offering price would be materially and adversely affected, the Company will include in such Piggyback Registration in the following order of priority (i) first, all of the securities proposed to be registered by the Company (if the offering is for the account of the Company), or, if the offering is for the account of the Existing Holders (or any of them), all of the securities proposed to be registered by such 11 Existing Holders, (ii) second, all of the Registrable Securities requested by First Reserve, and (iii) thereafter, the securities proposed to be registered by any other Persons. (d) Filings; Information. Whenever First Reserve requests that any Registrable Securities be registered pursuant to Section 5.2(a) hereof, the Company will use its reasonable best efforts to effect the registration of such Registrable Securities and to permit the sale of such Registrable Securities in accordance with the intended method of disposition thereof, as promptly as is practicable, and in connection with any such request: (i) the Company will as expeditiously as possible, but in no event later than 30 days after receipt of a request to file a registration statement with respect to such Registrable Securities, prepare and file with the SEC a Registration Statement on any form for which the Company then qualifies and which counsel for the Company shall deem appropriate and available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof and which is reasonably satisfactory to First Reserve, and use its reasonable best efforts to cause such Registration Statement to become and remain effective for a period of not less than 90 days (or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold); provided that if at the time the Company receives a request to file a Registration Statement with respect to Registrable Securities or thereafter, the Company is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such Registration Statement or a related prospectus or supplement thereto (but would not be required if such Registration Statement were not filed) and the board of directors of the Company determines in good faith that such disclosure would be materially detrimental to the Company and its stockholders, the Company shall have a period of not more than 120 days (less the number of days during the previous 12 months that the use of a Prospectus was suspended pursuant to Section 5.2(d)(vi) and/or this Section 5.2(d)(i)) within which to file such registration statement measured from the date of the Company's receipt of First Reserve's request for registration in accordance with Section 5.2(a) hereof or to file any supplement required by Section 5.2(d)(vi). The filing of a registration statement may only be deferred once for any potential transaction or event or related transactions or events that could arise as a result of negotiations or other activities and any registration statement whose filing has been deferred as a result shall be filed forthwith if the negotiations or other activities are disclosed or terminated. In order to defer the filing of a registration statement pursuant to this Section 5.2(d)(i), the Company shall promptly, upon determining to seek such deferral, deliver to First Reserve a certificate signed by the President or Chief Financial Officer of the Company stating that the Company is deferring such filing pursuant to this Section 5.2(d)(i). (ii) the Company will prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period set forth in Section 5.2(d)(i) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement. 12 (iii) the Company will, if requested, prior to filing a Registration Statement or any amendment or supplement thereto, furnish to First Reserve and each applicable managing underwriter, if any, copies thereof, and thereafter furnish to First Reserve and each such underwriter, if any, such number of copies of such Registration Statement, amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the Prospectus included in such Registration Statement (including each preliminary Prospectus) as First Reserve or each such underwriter may reasonably request in order to facilitate the sale of the Registrable Securities. (iv) After the filing of the Registration Statement, the Company will promptly notify First Reserve of any stop order issued or, to the Company's knowledge, threatened to be issued by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it as soon as possible if entered. (v) the Company will use its reasonable best efforts to qualify the Registrable Securities for offer and sale under such other securities or blue sky laws of such jurisdictions in the United States as First Reserve reasonably requests; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph 5.2(d)(v), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (vi) the Company will as promptly as is practicable notify First Reserve, at any time when a Prospectus is required by law to be delivered in connection with sales by an underwriter or dealer, of the occurrence of any event requiring the preparation of a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and promptly make available to First Reserve and to the underwriters any such supplement or amendment. First Reserve agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in the preceding sentence, First Reserve will forthwith discontinue the offer and sale of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until receipt by First Reserve and the underwriters of the copies of such supplemented or amended Prospectus and, if so directed by the Company, First Reserve will deliver to the Company all copies, other than permanent file copies, then in First Reserve's possession of the most recent Prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective as provided in Section 5.2(d)(i) by the number of days during the period from and including the date of the giving of such notice to the date when the Company shall make available to First Reserve such supplemented or amended Prospectus. (vii) the Company will enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the sale of such Registrable Securities. 13 (viii) the Company will furnish to First Reserve and to each underwriter a signed counterpart, addressed to such underwriter, of an opinion or opinions of counsel to the Company and a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the managing underwriter reasonably requests. (ix) the Company will make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the SEC thereunder. (x) the Company will use its reasonable best efforts to cause all such Registrable Securities to be listed on each securities exchange or market on which the Common Stock is then listed. The Company may require First Reserve to furnish promptly in writing to the Company such information regarding First Reserve, the plan of distribution of the Registrable Securities and other information as the Company may from time to time reasonably request or as may be legally required in connection with such registration. (e) Registration Expenses. In connection with any Demand Registration or any Piggyback Registration, the Company shall pay the following expenses incurred in connection with such registration: (i) filing fees with the SEC; (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (iii) printing expenses; (iv) fees and expenses incurred in connection with the listing of the Registrable Securities; (v) fees and expenses of counsel and independent certified public accountants for the Company and (vi) the reasonable fees and expenses of any additional experts retained by the Company in connection with such registration. In connection with the preparation and filing of a Registration Statement pursuant to Section 5.2(a), the Company will also pay the reasonable fees and expenses of a single legal counsel chosen by First Reserve. First Reserve shall pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities and any other expenses of First Reserve. (f) Participation in Underwritten Registrations. No Person may participate in any underwritten registered offering contemplated hereunder unless such Person (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and this Registration Rights Agreement. 14 (g) Holdback Agreements. First Reserve agrees not to effect any public sale (including a sale pursuant to Rule 144 of the Securities Act) of any Registrable Securities, or any securities convertible into or exchangeable or exercisable for such securities, during the 14 days prior to, and during the 120-day period beginning on, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration in which First Reserve participates, other than the Registrable Securities to be sold pursuant to such registration statement. Section 5.3. Indemnification (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless First Reserve, its general partner, the general partner of the general partner, and the officers and directors of such general partner, and each Person, if any, who controls First Reserve within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses arising out or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or prospectus relating to the Registrable Securities or any preliminary Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities and expenses are caused by any untrue statement or omission or alleged untrue statement or omission based upon information relating to First Reserve or the plan of distribution furnished in writing to the Company by or on behalf of First Reserve expressly for use therein; provided, that the foregoing indemnity with respect to any preliminary Prospectus shall not inure to the benefit of First Reserve if a copy of the most current Prospectus at the time of the delivery of the Registrable Securities was not provided to the purchaser, the Company had previously furnished First Reserve with a sufficient number of copies of the current Prospectus and such current Prospectus would have cured the defect giving rise to such loss, claim, damage or liability. The Company also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters on substantially the same basis as that of the indemnification of First Reserve provided in this Section 5.3(a). (b) Indemnification by First Reserve. First Reserve agrees to indemnify and hold harmless the Company, its officers and directors, and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to First Reserve, but only with reference to information relating to First Reserve or the plan of distribution furnished in writing by or on behalf of First Reserve expressly for use in any Registration Statement or Prospectus, or any amendment or supplement thereto, or any preliminary Prospectus. First Reserve also agrees to indemnify and hold harmless any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 5.3(b). (c) Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which 15 indemnity may be sought pursuant to Section 5.3(a) or Section 5.3(b), such Person (the "Indemnified Party") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Party") in writing and the Indemnifying Party shall have the right to assume the defense of such proceeding and retain counsel reasonably satisfactory to such Indemnified Party to represent such Indemnified Party and any others the Indemnifying Party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. (d) Contribution. If the indemnification provided for in this Registration Rights Agreement is unavailable to an Indemnified Party in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the Company and First Reserve and the underwriters in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities. The relative fault of the Company and, First Reserve and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and First Reserve agree that it would not be just and equitable if contribution pursuant to this Section 5.3(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 16 Section 5.4. Rule 144. The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act and that it will take such further action as First Reserve may reasonably request to the extent required from time to time to enable First Reserve to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. Upon the request of First Reserve, the Company will deliver to First Reserve a written statement as to whether it has complied with such reporting requirements. Section 5.5. Miscellaneous. (a) Notices. Any notice or other communication required or permitted under this Registration Rights Agreement shall be in writing or by telex, telephone or facsimile transmission with subsequent written confirmation, and may be personally served or sent by United States mail and shall be deemed to have been given upon receipt by the party notified. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 5.5) shall be as set forth opposite each party's name on the signature page hereof. (b) Termination. This Registration Rights Agreement will terminate upon the earlier of (i) the date upon which the Company and First Reserve mutually agree in writing to terminate this Registration Rights Agreement and (ii) the first date on which there ceases to be any Registrable Securities. (c) Transfer of Registration Rights. The rights of Holders hereunder may be assigned by Holders to a transferee or assignee of any Registrable Securities provided that the Company is given written notice at the time of or within a reasonable time after said transfer, stating the name and address of such transferee or assignee and identifying the securities with respect to which such registration rights are being assigned; and provided further that the registration rights granted by the Company in Section 5.2 may only be transferred to, and the definition of "Holders" shall only include, transferees who meet either of the following criteria: such transferee is (i) a holder of 100,000 or more shares of the Registrable Securities before giving effect to the transfer, (ii) a member of the First Reserve Group, or (iii) a bank, trust company or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. To the extent the rights under Section 5.2(a) of this Agreement are assigned to multiple Holders, all rights hereunder that may be exercised by the First Reserve Group may only be exercised by one or more Holders holding 50% or more of the Registrable Securities in the aggregate. (d) Waivers and Amendments; Noncontractual Remedies; Preservation of Remedies. This Registration Rights Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Company and the Holders of a majority of the Registrable Securities or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising a right, 17 power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude a further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any breach of any provision of this Registration Rights Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such breach is based may also be the subject matter of any other provision of this Registration Rights Agreement (or of any other agreement between the parties) as to which there is no breach. (e) Severability. If any provision of this Registration Rights Agreement or the applicability of any such provision to a person or circumstances shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Registration Rights Agreement or the application of such provision to Persons or circumstances other than those for which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision of this Registration Rights Agreement shall be valid and shall be enforced to the fullest extent permitted by law. To the extent permitted by applicable law each party hereto hereby waives any provision or provisions of law which would otherwise render any provision of this Registration Rights Agreement invalid, illegal or unenforceable in any respect. (f) Successors and Assigns. Subject to Section 5.5(c), this Registration Rights Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. (g) Other Registration Rights Agreements. Without the prior written consent of First Reserve, the Company will neither enter into any new registration rights agreements that conflict with the terms of this Registration Rights Agreement nor permit the exercise of any other registration rights in a manner that conflicts with the terms of the registration rights granted hereunder. ARTICLE 6 MISCELLANEOUS Section 6.1 Termination. Except as provided in Section 5.5(b) as to the Registration Rights Agreement (which shall be governed by such Section 5.5(b)) and this Section 6.1, the respective covenants and agreements of First Reserve and the Company contained in this Agreement will continue in full force and effect until the earliest to occur of either of the following: (i) the Termination Date, or (ii) the sale or other disposition in accordance with this Agreement by the First Reserve Group of Company Securities if after and giving effect to such sale or other disposition, the First Reserve Group beneficially owns in the aggregate Company Securities representing less than 5% of the Voting Power (including all exchangeable and convertible Company Securities on an "as-if" exchanged or converted basis). Upon any termination of this Agreement pursuant to this Section 6.1, all of the obligations of the Company and First Reserve hereunder (other than the Registration Rights Agreement) shall terminate. 18 Section 6.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing or by telex, telephone or facsimile transmission with subsequent written confirmation, and may be personally served or sent by United States mail and shall be deemed to have been given upon receipt by the party notified. For purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 6.2) shall be as set forth opposite each party's name on the signature page hereof. Section 6.3 Waivers and Amendments; Noncontractual Remedies; Preservation of Remedies. Other than with respect to the provisions of the Registration Rights Agreement, which shall be governed by Section 5.5(d), this Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Company and the holders of a majority of the Company Securities held by the First Reserve Group or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising a right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude a further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any breach of any provision of this Agreement (other than the Registration Rights Agreement, which shall be governed by Section 5.5(d)) shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such breach is based may also be the subject matter of any other provision of this Agreement (or of any other agreement between the parties) as to which there is no breach. Section 6.4 Severability. If any provision of this Agreement or the applicability of any such provision to a person or circumstances shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to persons or circumstances other than those for which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision of this Agreement shall be valid and shall be enforced to the fullest extent permitted by law. To the extent permitted by applicable law each party hereto hereby waives any provision or provisions of law which would otherwise render any provision of this Agreement invalid, illegal or unenforceable in any respect. Section 6.5 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts and when so executed shall constitute one Agreement, notwithstanding that all parties are not signatories to the same counterpart. Section 6.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, without giving effect to the conflict of laws principles of such state that would apply the substantive law of any other state. 19 Section 6.7 Successors and Assigns. Subject to the transfer restrictions contained in this Agreement, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 20 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Address: PRIDE INTERNATIONAL, INC. 5847 San Felipe Road, Suite 3300 By: /s/ Paul A. Bragg Houston, Texas 77057 -------------------------------------- Attn: Mr. Paul A. Bragg Paul A. Bragg Fax: 713-789-1430 President and Chief Executive Officer [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT] Address: FIRST RESERVE FUND VII, LIMITED 600 Travis, Suite 6000 PARTNERSHIP Houston, Texas 77002 Attn: Ben A. Guill Fax: 713-224-0771 By: First Reserve GP VII, L.P., its General Partner By: First Reserve Corporation, its General Partner By: /s/ Thomas R. Denison ---------------------------- Thomas R. Denison Managing Director Address: FIRST RESERVE FUND VIII, L.P. 600 Travis, Suite 6000 Houston, Texas 77002 Attn: Ben A. Guill By: First Reserve GP VII, L.P., its Fax: 713-224-0771 General Partner By: First Reserve Corporation, its General Partner By: /s/ Thomas R. Denison ---------------------------- Thomas R. Denison Managing Director Address: FIRST RESERVE FUND IX, L.P. 600 Travis, Suite 6000 Houston, Texas 77002 Attn: Ben A. Guill By: First Reserve GP IX, L.P., its Fax: 713-224-0771 General Partner By: First Reserve GP IX, Inc., its General Partner By: /s/ Thomas R. Denison ---------------------------- Thomas R. Denison Managing Director [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT] EX-10.31 4 h95556ex10-31.txt EMPLOYMENT/NON-COMPETITION/CONFIDENTIALITY AGMT EXHIBIT 10.31 PRIDE INTERNATIONAL, INC. EMPLOYMENT/NON-COMPETITION/ CONFIDENTIALITY AGREEMENT JOHN C.G. O'LEARY EFFECTIVE FEBRUARY 5, 1999 INDEX
I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS ...................................... 4 1.01 Effect of Prior Agreements ................................................. 4 II. DEFINITION OF TERMS ........................................................ 4 2.01 Company .................................................................... 4 2.02 Executive/Officer/Employee ................................................. 4 2.03 Office/Position/Title ...................................................... 4 2.04 Effective Date ............................................................. 4 2.05 Change in Control .......................................................... 5 2.06 Termination ................................................................ 5 2.07 Customer ................................................................... 7 III. EMPLOYMENT ................................................................. 7 3.01 Employment ................................................................. 7 3.02 Best Efforts And Other Employment Of Executive ............................. 8 3.03 Term Of Employment ......................................................... 8 3.04 Compensation And Benefits .................................................. 9 3.05 Termination Without Change In Control ...................................... 10 IV. CHANGE IN CONTROL .......................................................... 12 4.01 Extension Of Employment Period ............................................. 12 4.02 Change In Control Termination Payments & Benefits .......................... 13 4.03 Voluntary Resignation Upon Change In Control ............................... 13 V. NON-COMPETITION AND CONFIDENTIALITY ........................................ 13 5.01 Consideration .............................................................. 13 5.02 Non-Competition ............................................................ 14 5.03 Confidentiality ............................................................ 15 5.04 Geographical Area .......................................................... 16 5.05 Company Remedies For Violation Of Non-Competition Or Confidentiality Agreement .............................................. 16 5.06 Termination Of Benefits For Violation Of Non-Competition And Confidentiality ........................................................ 17 VI. GENERAL .................................................................... 17 6.01 Enforcement Costs .......................................................... 17 6.02 Income, Excise Or Other Tax Liability ...................................... 18 6.03 Payment Of Benefits Upon Termination For Cause ............................. 19 6.04 Non-Exclusive Agreement .................................................... 19
6.05 Notices .................................................................... 19 6.06 Non-Alienation ............................................................. 19 6.07 Entire Agreement: Amendment ................................................ 20 6.08 Successors And Assigns ..................................................... 20 6.09 Governing Law .............................................................. 20 6.10 Venue ...................................................................... 20 6.11 Headings ................................................................... 20 6.12 Severability ............................................................... 20 6.13 Partial Invalidity ......................................................... 20 6.14 Counterparts ............................................................... 21
EMPLOYMENT/NON-COMPETITION/CONFIDENTIALITY AGREEMENT DATE: February 5, 1999 COMPANY/EMPLOYER: Pride International, Inc., A Louisiana corporation 5847 San Felipe, Suite 3300 Houston, Texas 77057 EXECUTIVE/EMPLOYEE: John C.G. O'Leary 755 Marchmont Houston, Texas 77024 This Agreement is made as of the date first above written and to become effective as herein provided. PREAMBLE WHEREAS, the Company wishes to attract and retain well-qualified Executive and key personnel and to assure itself of the continuity of its management; WHEREAS, Executive is an officer of the Company with significant management responsibilities in the conduct of its business; WHEREAS, the Company recognizes that Executive is a valuable resource of the Company and the Company desires to be assured of the continued services of Executive; WHEREAS, the Company desires to obtain assurances that Executive will devote his best efforts to his employment with the Company and will not enter into competition with the Company in its business as now conducted and to be conducted, or solicit customers or other employees of the Company to terminate their relationships with the Company; WHEREAS, Executive is a key employee of the Company and he acknowledges that his talents and services to the Company are of a special, unique, unusual and extraordinary character and are of particular and peculiar benefit and importance to the Company; Page 4 of 23 WHEREAS, the Company is concerned that in the event of a possible or threatened change in control of the Company, uncertainties necessarily arise; Executive may have concerns about the continuation of his employment status and responsibilities and may be approached by others offering competing employment opportunities; the Company, therefore, desires to provide Executive assurances as to the continuation of his employment status and responsibilities in such event; WHEREAS, the Company further desires to assure Executive that, if a possible or threatened change in control should arise and Executive should be involved in deliberations or negotiations in connection therewith, Executive would be in a secure position to consider and participate in such transaction as objectively as possible in the best interests of the Company and to this end desires to protect Executive from any direct or implied threat to his financial well-being; WHEREAS, Executive is willing to continue to serve as such but desires assurances that in the event of such a change in control he will continue to have the employment status and responsibilities he could reasonably expect absent such event and, that in the event this turns out not to be the case, he will have fair and reasonable severance protection on the basis of his service to the Company to that time; WHEREAS, different factors affect the Company and Executive under circumstances of regular employment between the Company and the Executive when there is no threat of change in control and/or none has occurred, as opposed to circumstances under which a change in control is rumored, threatened, occurring or has occurred. For this reason this Employment Agreement is primarily in two parts. One part deals with the regular employment of Executive under circumstances whereby no change in control is threatened, occurring or occurred; herein called "Regular Employment". The second part deals with circumstances whereby a change in control is threatened, occurring or has occurred. Other parts of the Agreement deal with matters affecting both Regular Employment and employment following change in control, including non-competition and confidentiality; WHEREAS, the Company has previously entered into a Severance Agreement with Executive dated March 11, 1997 ("Severance Agreement"); WHEREAS, the Company and Executive desire to terminate the Severance Agreement and replace it with this Agreement; and WHEREAS, Executive is willing to enter into and carry out the Non-Competition and Confidentiality Agreement set forth herein in consideration of the Employment Agreement set forth herein. Page 5 of 23 AGREEMENT NOW, THEREFORE, the parties agree as follows: I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS. 1.01 EFFECT OF PRIOR AGREEMENTS. On and as of 12:00 o'clock noon of the Effective Date all prior employment and non-competition contracts between Company and Executive are hereby amended, modified and superseded by this Agreement insofar as future employment, compensation, non-competition, confidentiality, accrual of payments or any form of compensation or benefits from the Company are concerned. This Agreement does not release or relieve Company from its liability or obligation with respect to any compensation, payments, or benefits already accrued to Executive, nor to any vesting of benefits or other rights which are attributable to length of employment, seniority or other such matters. This Agreement does not relieve Executive of any prior non-competition or confidentiality obligations and agreements and the same are hereby modified and amended as to future matters and future confidentiality even as to matters accruing prior to the Effective Date hereof. The Severance Agreement is hereby terminated with no liability to the Company. II. DEFINITION OF TERMS. 2.01 COMPANY. Company means Pride International, Inc., a Louisiana corporation, as the same presently exists, as well as any and all successors, regardless of the nature of the entity or the State or Nation of organization, whether by reorganization, merger, consolidation, absorption or dissolution. For the purpose of the Non-Competition and Confidentiality Agreement, Company includes any subsidiary or affiliate of the Company to the extent it is carrying on any portion of the business of the Company or a business similar to that being conducted by the Company. 2.02 EXECUTIVE/OFFICER/EMPLOYEE. Executive/Officer/Employee means John C.G. O'Leary. 2.03 OFFICE/POSITION/TITLE. The Office, Position and Title for which the Executive is employed is that of Vice President - Worldwide Marketing of the Company and carries with it the duties, responsibilities, rights, benefits and privileges presently held by the Executive, or as may reasonably be assigned to the Executive as are customary and usual for such position. 2.04 EFFECTIVE DATE. This Agreement becomes effective and binding as of February 5, 1999. Page 6 of 23 2.05 CHANGE IN CONTROL. The term "Change in Control" of the Company shall mean, and shall be deemed to have occurred on the date of the first to occur of any of the following: a. there occurs a Change in Control of the Company of the nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A or Item 1 of Form 8(k) promulgated under the Securities Exchange Act of 1934 as in effect on the date of this Agreement, or if neither item remains in effect, any regulations issued by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 which serve similar purposes; b. any "person" {as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934} is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; c. the individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; d. the Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty percent (50%) of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation; or e. the Company shall have sold, transferred or exchanged all, or substantially all, of its assets to another corporation or other entity or person. 2.06 TERMINATION. The term "termination" shall mean termination, prior to the expiration of the Employment Period, of the employment of the Executive with the Company {including death and disability (as described below)} for any reason other than cause (as described below) or voluntary resignation (as described below). Termination includes "Constructive Termination" as described below. Termination includes non-renewal or failure to extend this Agreement at the end of any employment term, except for cause. Page 7 of 23 a. The term "disability" means physical or mental incapacity qualifying the Executive for a long-term disability under the Company's long-term disability plan. If no such plan exists on the Effective Date of this Agreement, the term "disability" means physical or mental incapacity as determined by a doctor jointly selected by the Executive and the Board of Directors of the Company qualifying the Executive for long-term disability under reasonable employment standards. b. The term "cause" means: (i) the willful and continued failure of the Executive substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Board of Directors which specifically identifies the manner in which the Board believes he has not substantially performed his duties, (ii) willful misconduct materially and demonstrably injurious to the Company or (iii) material violation of the covenant not to compete (except after termination under the Change in Control provisions hereof and confidentiality provisions hereof.) No act or failure to act by the Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of the Executive to accept any or all of a change in the nature or scope of his position, authorities or duties, a reduction in his total compensation or benefits, or other action by or at request of the Company in respect of his position, authority, or responsibility that is contrary to this Agreement, may not be considered by the Board of Directors to be a failure to perform or misconduct by the Executive. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause for purposes of this Agreement unless and until there shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-fourths of the entire Board of Directors of the Company at a meeting of the Board of Directors called and held (after reasonable notice to the Executive and an opportunity for the Executive and his counsel to be heard before the Board) for the purpose of considering whether the Executive has been guilty of such a willful failure to perform or such willful misconduct as justifies termination for cause hereunder, finding that in the good faith opinion of the Board of Directors the Executive has been guilty thereof and specifying the particulars thereof. c. The term "Constructive Termination" means any circumstance by which the actions of the Company either reduce or change Executive's title, position, duties, responsibilities or authority to such an extent or in such a manner as to relegate Executive to a Page 8 of 23 position not substantially similar to that which he presently holds; would degrade, embarrass or otherwise make it unreasonable for Executive to remain in the employment of the Company; and includes violation of the employment provisions and conditions of this Agreement. d. The resignation of the Executive shall be deemed "voluntary" if it is for any reason other than one or more of the following: (i) The Executive's resignation or retirement is requested by the Company other than for cause; (ii) Any significant adverse change in the nature or scope of the Executive's position, authorities or duties from those described in this Agreement; (iii) Any reduction in the Executive's total compensation or benefits from that provided in the Compensation and Benefits Section hereof; (iv) The material breach by the Company of any other provision of this Agreement; (v) Any action by the Company which would constitute Constructive Termination; or (vi) Non-renewal or failure to extend any employment term, contrary to the wishes of the Executive. Termination that entitles the Executive to the payments and benefits provided in the "Termination Payments and Benefits" Section hereof shall not be deemed or treated by the Company as the termination of the Executive's employment or the forfeiture of his participation, award, or eligibility, for the purpose of any plan, practice or agreement of the Company referred to in the Compensation and Benefits Section hereof. 2.07 CUSTOMER. The term "Customer" includes all persons, firms or entities that are purchasers or end-users of services or products offered, provided, developed, designed, sold or leased by the Company during the relevant time periods, and all persons, firms or entities which control, or which are controlled by, the same person, firm or entity which controls such purchase. III. EMPLOYMENT. 3.01 EMPLOYMENT. Except as otherwise provided in this Agreement, the Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to Page 9 of 23 remain in the employ of the Company, for the Term of Employment ("Employment Period") herein specified. During the Employment Period, Executive shall exercise such position and authority and perform such responsibilities as are commensurate with the position and authority being exercised and duties being performed by the Executive immediately prior to the Effective Date of this Agreement, which services shall be performed at the location where the Executive was employed immediately prior to the Effective Date of this Agreement or at such other location as the Company may reasonably require. 3.02 BEST EFFORTS AND OTHER EMPLOYMENT OF EXECUTIVE. a. Executive agrees that he will at all times faithfully, industriously and to the best of his ability, experience and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms hereof, to the reasonable satisfaction of the Company. Such duties shall be rendered at Houston, Texas, and such other place or places within or outside the State of Texas as the Company shall agree. b. Executive shall devote his normal and regular business time, attention and skill to the business and interests of the Company, and the Company shall be entitled to all of the benefits, profits or other issue arising from or incident to all work, services and advice of Executive performed for the Company. Such employment shall be considered "full time" employment. Executive shall have the right to make investments in businesses which engage in activities other than those engaged by the Company. Executive shall also have the right to devote such incidental and immaterial amount of his time which are not required for the full and faithful performance of his duties hereunder to any outside activities and businesses which are not being engaged in by the Company and which shall not otherwise interfere with the performance of his duties hereunder. Executive shall have the right to make investments in the manner and to the extent authorized and set forth in the Non-Competition Section of this Agreement. 3.03 TERM OF EMPLOYMENT. ("EMPLOYMENT PERIOD"). Executive's regular employment (no Change in Control being presently contemplated) will commence on the Effective Date of this Agreement and will be for a term of two (2) years ending at 12:00 o'clock midnight February 4, 2001; thereafter, the Term of Employment of Executive will be automatically extended for successive terms of one (1) year each commencing February 5, 2001, and on February 5 of each year thereafter, unless Company or Executive gives Page 10 of 23 written notice to the other that employment will not be renewed or continued after the next scheduled expiration date which is not less than one year after the date that the notice of non-renewal was given. All extended employment terms will be considered to be within the Employment Period while Executive is employed with the Company. 3.04 COMPENSATION AND BENEFITS. During the Employment Period the Executive shall receive the following compensation and benefits: a. He shall receive an annual base salary of not less than his annual base salary which is $217,000.00, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular executive compensation practices. Executive's salary will be reviewed at least annually by the Compensation Committee of the Board of Directors. b. To the extent that such plans exist immediately prior to the Effective Date of this Agreement, he shall be eligible to participate on a reasonable basis, and to continue his existing participation, in annual bonus, stock option and other incentive compensation plans which provide opportunities to receive compensation in addition to his annual base salary which are the greater of: (i) the opportunities provided by the Company for Executives with comparable duties, or (ii) the opportunities under any such plans in which he was participating immediately prior to the Effective Date of this Agreement. c. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he shall be entitled to receive and participate in salaried employee benefits including, but not limited to: medical, life, health, accident and disability insurance and disability benefits and prerequisites which are the greater of: (i) the employee benefits and prerequisites provided by the Company to Executives with comparable duties, or (ii) the employee benefits and prerequisites to which he was entitled or in which he participated immediately prior to the Effective Date of this Agreement. d. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to continue to accrue credited service for retirement benefits and to be entitled to receive retirement benefits under and pursuant to the terms of the Company's qualified retirement plan for salaried employees, the Company's supplemental executive retirement plan, and any successor or other retirement plan or agreement in effect on the Effective Date of this Agreement in respect to his retirement, whether or not a qualified plan or agreement, so that his aggregate monthly retirement benefit from all such plans and agreements (regardless when he begins to receive such benefit) will be not less Page 11 of 23 than it would be had all such plans and agreements were in effect immediately prior to the Effective Date of this Agreement and continued to be in effect without change until and after he begins to receive such benefits. e. Paid vacations each year and use of Company cars to the same extent as he is presently receiving or the benefits provided to Executives with comparable duties whichever is greater. f. Participation in all other executive incentive stock and benefit plans approved by the Compensation Committee. 3.05. TERMINATION WITHOUT CHANGE IN CONTROL. The Company shall have the right to terminate Executive at any time during the Employment Period (including any extended term). Should the Company choose not to renew or extend the Employment Period of this Employment Agreement or choose to terminate the Executive during, or at the end of, the Employment Period, or in the event of death or disability of the Executive, if the termination is not after a Change in Control and is not for cause, the Company shall, within thirty (30) days following such termination, pay and provide to the Executive (or his Executor, Administrator or Estate in the event of death, as soon as reasonably practical): a. An amount equal to two full years of his base salary (including the amount allocated to the covenant not to compete), which base salary is here defined as twelve (12) times the then current monthly salary in effect for the Executive and all other benefits due him based upon the salary in effect on the Date of Termination (but not less than the highest annual base salary paid to the Executive during any of the three (3) years immediately preceding his Date of Termination). There shall be deducted only such amounts as may be required by law to be withheld for taxes and other applicable deductions. b. The Company shall provide to Executive for a period of two (2) full years following the Date of Termination, life, health, accident and disability insurance. These benefits are not to be less than the highest benefits furnished to the Executive during the term of this Agreement. c. An amount equal to two (2) times the target award for the Executive under the Company's annual bonus plan for the fiscal year in which termination occurs, provided that if the Executive has deferred his award for such year under a Company plan, the payment due the Executive under this subparagraph shall be paid in accordance with the terms of the deferral or as specified by the Executive. Page 12 of 23 d. The Company shall pay, distribute and otherwise provide to the Executive the amount and value of his entire plan account and interest under any retirement plan, employee benefit plan, investment plan or stock ownership plan, if any exists on the Date of Termination, and all employer contributions made or payable to any such plan for his account prior to the end of the month in which Termination occurs shall be deemed vested and payable to him. Such payment or distribution shall be in accordance with the elections made by the Executive with respect to distributions in accordance with the plan as if the Executive's employment in the Company terminated at the end of the month in which Termination occurs. e. All stock options and awards to which the Executive is entitled will immediately vest and the time for exercising any option will be as specified in the plan as if the Executive were still employed by the Company; provided however if the immediate vesting of all benefits under the plan is not permitted by the plan, then the benefits will be vested only to the extent authorized or permitted by the plan. f. If Executive elects to treat the termination as retirement then on the Date of Termination, the Executive shall be deemed to have retired from the Company. At that time, or at such later time as he may elect consistent with the terms of any applicable plan or benefit, in order to receive benefits or avoid or minimize any applicable early pension reduction provisions, he shall be entitled to commence to receive total combined qualified and non-qualified retirement benefits to which he is entitled hereunder; or, his total non-qualified retirement benefit hereunder if under the terms of the Company's qualified retirement plan for salaried employees he is not entitled to a qualified benefit. Executive may treat the termination as termination other than "retirement" if Executive so elects and may defer "retirement" to a later date if permitted by any applicable plan. g. The "Compensation and Benefits" Section hereof shall be applicable in determining the payments and benefits due the Executive under this Section and if Termination occurs after a reduction in all or part of the Executive's total compensation or benefits, the lump sum severance allowance and other compensation and benefits payable to him pursuant to this section shall be based upon his compensation and benefits before the reduction. h. If any provision of this Section cannot, in whole or in part, be implemented and carried out under the terms of the applicable Page 13 of 23 compensation, benefit or other plan or arrangement of the Company because the Executive has ceased to be an actual employee of the Company, due to insufficient or reduced credited service based upon his actual employment by the Company or because the plan or arrangement has been terminated or amended after the Effective Date of this Agreement, or for any other reason, the Company itself shall pay or otherwise provide the equivalent of such rights, benefits and credits for such benefits to the Executive, his dependents, beneficiaries and estate as if Executive's employment had not been terminated. i. All life, health, hospitalization, medical and accident benefits available to Executive's spouse and dependents shall continue for the same term as the Executive's benefits. If the Executive dies, all benefits will be provided for a term of two (2) years (or three (3) years if after a change in control) after the date of death of the Executive. j. The Company's obligation under this Section to continue to pay or provide health care, life, accident and disability insurance to the Executive, the Executive's spouse and Executive's dependents, during the remainder of the Employment Period shall be reduced when and to the extent any of such benefits are paid or provided to the Executive by another employer, provided that the Executive shall have all rights afforded to retirees to convert group insurance coverage to the individual insurance coverage as, to the extent of, and whenever his group insurance coverage under this Section is reduced or expires. Apart from this subparagraph, the Executive shall have and be subject to no obligation to mitigate. k. The Company shall deduct applicable withholding taxes in performing its obligations under this Section. Nothing in this Section is intended, nor shall be deemed or interpreted, to be an amendment to any compensation, benefit or other plan to the Company. To the extent the Company's performance under this Section includes the performance of the Company's obligations to the Executive under any other plan or under another agreement between the Company and the Executive, the rights of the Executive under such other plan or other agreements, which are discharged under this Agreement, are discharged, surrendered, or released pro tanto. IV. CHANGE IN CONTROL. 4.01 EXTENSION OF EMPLOYMENT PERIOD. Upon any Change in Control the Page 14 of 23 Employment Period shall be immediately and without further action extended for a term of three (3) years following the Effective Date of the Change in Control and will expire at 12:00 o'clock midnight on the last day of the month following three (3) years after the Change in Control. Thereafter, the Employment Period will be extended for successive terms of one (1) year each, unless terminated, all in the manner specified in the Term of Employment Section pertaining to regular employment. 4.02 CHANGE IN CONTROL, TERMINATION PAYMENTS AND BENEFITS. In the event the Executive is terminated within three (3) years following a Change in Control, the Executive will receive the payments and benefits specified in the "Termination without Change in Control" Section in the same time and manner therein specified except as amended and modified hereby: a. The salary and benefits specified in Section 3.05a will be paid based upon a multiple of three (3) years (instead of two (2) years). b. Life, health, accident and disability insurance specified in Section 3.05b will be provided until: (i) Executive becomes reemployed and receives similar benefits from a new employer, or (ii) three (3) years after the Date of Termination, whichever is earlier. c. An amount equal to three (3) times the maximum award that the Executive could receive under the Company's Annual Bonus Plan for the fiscal year in which the termination occurs, instead of the benefits provided in Section 3.05(c) hereof. d. All other rights and benefits specified in Section 3.05. 4.03 VOLUNTARY RESIGNATION UPON CHANGE IN CONTROL. If the Executive voluntarily resigns his employment within twelve (12) months after a Change in Control (whether or not Company may be alleging the right to terminate employment for cause), he will receive the same payments, compensation and benefits as if he had been terminated on the date of resignation after Change in Control. V. NON-COMPETITION AND CONFIDENTIALITY. 5.01 CONSIDERATION. The base salary awarded to the Executive and to be paid to the Executive in the future includes consideration for the Non-Competition and Confidentiality Agreement set forth herein and the amount to be paid to Executive in the event of the termination of employment of Executive, voluntarily, involuntarily, or under a Change in Control, under Sections 3.05a and 4.02a hereof constitute payment, in part, for the Non-Competition and Confidentiality of the Executive. It is contracted, stipulated Page 15 of 23 and agreed that fifteen percent (15%) of such amount paid and to be paid to the Executive shall constitute the consideration for the Non-Competition and Confidentiality Agreement set forth herein. 5.02 NON-COMPETITION. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company could cause serious harm to the Company. Accordingly, the Executive agrees that during his employment with the Company and for a period of two (2) years after he is no longer employed by the Company (unless his employment is terminated after a Change in Control, in which event there will be no covenant not to compete and the provisions of the covenant not to compete herein contained will terminate on the date of termination of Executive) the Executive will not, directly or indirectly, either as an individual, proprietor, stockholder {other than as a holder of up to one percent (1%) of the outstanding shares of a corporation whose shares are listed on a stock exchange or traded in accordance with the automated quotation system of the National Association of Securities Dealers}, partner, officer, employee or otherwise: a. work for, become an employee of, invest in, provide consulting services or in any way engage in any business which provides, produces, leases or sells products or services of the same or similar type provided, produced, leased or sold by the Company and with regard to which Executive was engaged, or over which Executive had direct or indirect supervision or control, within three (3) years preceding the Executive's termination of employment, in any area where the Company provided, produced, leased or sold such products or services at any time during the three (3) years preceding such termination of employment; or b. provide, sell, offer to sell, lease, offer to lease, or solicit any orders for any products or services which the Company provided and with regard to which the Executive had direct or indirect supervision or control, within three (3) years preceding Executive's termination of employment, to or from any person, firm or entity which was a customer for such products or services of the Company during the three (3) years preceding such termination from whom the Company had solicited business during such three (3) years; or c. solicit, aid, counsel or encourage any officer, director, employee or other individual to: (i) leave his or her employment or position with the Company, (ii) compete with the business of the Company, or (iii) violate the terms of any employment, non-competition or similar Page 16 of 23 agreement with the Company; or d. employ, directly or indirectly; permit the employment of; contract for services or work to be performed by; or otherwise, use, utilize or benefit from the services of any officer, director, employee or any other individual holding a position with the Company within two (2) years after the Date of Termination of employment of Executive with the Company or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever occurs earlier. 5.03 CONFIDENTIALITY. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company, or divulged to others, could cause serious harm to the Company. Accordingly, Executive will not at any time during or after his employment by the Company, directly or indirectly, divulge, disclose or communicate to any person, firm or corporation (in any manner whatsoever) any information concerning any matter affecting or relating to the Company or the business of the Company. While engaged as an employee of the Company, Executive may only use information concerning any matters affecting or relating to the Company or the business of the Company for a purpose which is necessary to the carrying out of the Executive's duties as an employee of the Company, and Executive may not make use of any information of the Company after he is no longer an employee of the Company. The Executive agrees to the foregoing without regard to whether all of the foregoing matters will be deemed confidential, material or important, it being stipulated by the parties. All information, whether written or otherwise, regarding the Company's business, including, but not limited to, information regarding customers, customer lists, costs, prices, earnings, products, services, formulae, compositions, machinery, equipment, apparatus, systems, manufacturing procedures, operations, potential acquisitions, new location plans, prospective and executed contracts and other business arrangements, and sources of supply, is prima facie presumed to be important, material and confidential information of the Company for the purposes of this Agreement, except to the extent that such information may be otherwise lawfully and readily available to the general public. The Executive further agrees that he will, upon termination of his employment with the Company, return to the Company all books, records, lists and other written, typed or printed materials, whether furnished by the Company or prepared by the Executive, which contain any information relating to the Company's business, and the Executive agrees that he will neither make nor retain any copies of such materials after termination of employment. Notwithstanding any of the foregoing, the Executive will not be liable for any breach of these confidentiality provisions unless the same constitutes a material detriment Page 17 of 23 to the Company, or due to the nature of the information divulged and the manner in which it was divulged and the person to whom it was divulged would likely cause damage to the Company or constitute a material detriment to the Company. 5.04 GEOGRAPHICAL AREA. The geographical area within which the non-competition covenants of this Agreement shall apply is that territory within two hundred (200) miles of: (i) any of the Company's present offices, (ii) any of the Company's present rig yards, and (iii) any additional location where the Company, as of the date of any action taken in violation of the non-competition covenants of this Agreement, has an office, a rig yard, or definitive plans to locate an office or a rig yard. Notwithstanding the foregoing, if the two hundred (200) mile radius extends into another country and the Company is not then doing business in that other country, there will be no territorial limitations extending into such other country. 5.05 COMPANY REMEDIES FOR VIOLATION OF NON-COMPETITION OR CONFIDENTIALITY AGREEMENT. Without limiting the right of the Company to pursue all other legal and equitable rights available to it for violation of any of the covenants made by Executive herein, it is agreed that: a. the skills, experience and contacts of Executive are of a special, unique, unusual and extraordinary character which give them a peculiar value; b. because of the business of the Company, the restrictions agreed to by Executive as to time and area contained in this Agreement are reasonable; and c. the injury suffered by the Company by a violation of any covenant in this Agreement resulting from loss of profits created by the competitive use of such skills, experience and contacts that otherwise will be difficult to calculate in damages in an action at law and cannot fully compensate the Company for any violation of any covenant in this Agreement, accordingly: (i) the Company shall be entitled to injunctive relief to prevent violations of such covenants or continuing violations thereof and to prevent Executive from rendering any services to any person, firm or entity in breach of such covenant and to prevent Executive from divulging any confidential information, and (ii) compliance with this Agreement is a condition Page 18 of 23 precedent to the Company's obligation to make payments of any nature to the Executive. 5.06 TERMINATION OF BENEFITS FOR VIOLATION OF NON-COMPETITION AND CONFIDENTIALITY. If Executive's termination was not after a Change in Control and if the Executive shall have materially violated the Confidentiality and/or Non-Competition Agreement or any agreement he may have signed as an employee of the Company, the Executive agrees that there shall be no obligation on the part of the Company to provide any payments or benefits (other than payments or benefits already earned or accrued) described in the Termination of Rights and Benefits Section hereof, subject to the provisions of Section 6.01 hereof. There will be no withholding of benefits or payments if the termination occurred after a Change in Control and Executive will not be bound by the non-competition provisions if terminated while the Change in Control provisions hereof are applicable. VI. GENERAL. 6.01 ENFORCEMENT COSTS. The Company is aware that upon the occurrence of a Change in Control, or under other circumstances even when a Change in Control has not occurred, the Board of Directors or a stockholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take other action to deny Executive the benefits intended under this Agreement; or actions may be taken to enforce the non-competition or confidentiality provisions of this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the parties that the Executive not be required to incur the legal fees and expenses associated with the protection or enforcement of his rights under this Agreement by litigation or other legal action because such costs would substantially detract from the benefits intended to be extended to Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such costs. Accordingly, if at any time after the Effective Date of this Agreement, it should appear to Executive that the Company is or has acted contrary to or is failing or has failed to comply with any of its obligations under this Agreement for the reason that it regards this Agreement to be void or unenforceable, that Executive has violated the terms of this Agreement, or for any other reason, or that the Company has purported to terminate his employment for cause or is in the course of doing so, or is withholding payments or benefits, or is threatening to withhold payments or benefits, contrary to this Agreement, or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action Page 19 of 23 designed to deny, diminish or to recover from Executive the benefits provided or intended to be provided to him hereunder, and Executive has acted in good faith to perform his obligations under this Agreement, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice at the expense of the Company to represent him in connection with the protection and enforcement of his rights hereunder, including, without limitation, representation in connection with termination of his employment or withholding of benefits or payments contrary to this Agreement or with the initiation or defense of any litigation or any other legal action, whether by or against the Executive or the Company or any Director, Officer, stockholder or other person affiliated with the Company, in any jurisdiction. Company is not authorized to withhold the periodic payments of attorneys' fees and expenses hereunder based upon any belief or assertion by the Company that Executive has not acted in good faith or has violated this Agreement. If Company subsequently establishes that Executive was not acting in good faith and has violated this Agreement, Executive will be liable to the Company for reimbursement of amounts paid due to Executive's actions not based on good faith and in violation of this Agreement. The reasonable fees and expenses of counsel selected from time to time by Executive as hereinabove provided shall be paid or reimbursed to Executive by the Company, on a regular, periodic basis within thirty (30) days after presentation by Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of $250,000.00. 6.02 INCOME, EXCISE OR OTHER TAX LIABILITY. Executive will be liable for and will pay all income tax liability by virtue of any payments made to the Executive under this Agreement, as if the same were earned and paid in the normal course of business and not the result of a Change in Control and not otherwise triggered by the "golden parachute" or excess payment provisions of the Internal Revenue Code of the United States, which would cause additional tax liability to be imposed. If any additional income tax, excise or other taxes are imposed on any amount or payment in the nature of compensation paid or provided to or on behalf of Executive, the Company shall "gross up" Executive for such tax liability by paying to Executive an amount sufficient so that after payment of all such taxes so imposed Executive's position on an after-tax basis is what it would have been had no such additional taxes been imposed. Executive will cooperate with the company to minimize the tax consequences to the Executive and to the Company so long as the actions proposed to be taken by the Company do not cause any additional tax consequences to Executive and do not prolong or delay the time that payments are to be made, or the amount of payments to be made, unless the Executive consents, in writing, to any delay or deferment of payment. Page 20 of 23 6.03 PAYMENT OF BENEFITS UPON TERMINATION FOR CAUSE. If the termination of Executive is for cause and not after a Change in Control, the Company will have the right to withhold all payments (except those specified in Sections 6.01); provided, however, that if a final judgment is entered finding that cause did not exist for termination, the Company will pay all benefits to Executive to which he would have been entitled had the termination not been for cause, plus interest on all amounts withheld from the Executive at the rate specified for judgments under Article 5069-1.05 V.A.T.S. but not less than ten percent (10%) per annum. If the termination for cause occurs after a Change in Control, the Company shall have no right to suspend or withhold payments to Executive under any provision of this Agreement until or unless a final judgment is entered upholding the Company's determination that the termination was for cause, in which event Executive will be liable to the Company for all amounts paid, plus interest at the rate allowed for judgments under Article 5069-1.05 V.A.T.S. 6.04 NON-EXCLUSIVE AGREEMENT. The specific arrangements referred to herein are not intended to exclude or limit Executive's participation in other benefits available to executive personnel generally, or to preclude or limit other compensation or benefits as may be authorized by the Board of Directors of the Company at any time, or to limit or reduce any compensation or benefits to which Executive would be entitled but for this Agreement. 6.05 NOTICES. Notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall either be personally delivered by hand or sent by: (i) Registered or Certified Mail, return receipt requested, postage prepaid, properly packaged, addressed and deposited in the United States Postal System; (ii) by facsimile transmission if the receiver acknowledges receipt; or (iii) by Federal Express or other expedited delivery service provided that acknowledgment of receipt is received and retained by the deliverer and furnished to the sender, if to Executive, at the last address he has filed in writing with the Company, or if to the Company, to its Corporate Secretary at its principal executive offices. 6.06 NON-ALIENATION. Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Upon the death of Executive, his Executors, Administrators, devisees and heirs, in that order, shall have the right to enforce the provisions hereof. Page 21 of 23 6.07 ENTIRE AGREEMENT: AMENDMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. No provision of this Agreement may be amended, waived, or discharged except by the mutual written agreement of the parties. The consent of any other person(s) to any such amendment, waiver or discharge shall not be required. 6.08 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, by operation of law or otherwise, including, without limitation, any corporation or other entity or persons which shall succeed (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, and the Company will require any successor, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of Executive and his legal representatives, heirs and assigns, provided however, that in the event of Executive's death prior to payment or distribution of all amounts, distributions and benefits due him hereunder, each such unpaid amount and distribution shall be paid in accordance with this Agreement to the person or persons designated by Executive to the Company to receive such payment or distribution and in the event Executive has made no applicable designation, to his Estate. If the Company should split, divide or otherwise become more than one entity, all liability and obligations of the Company shall be the joint and several liability and obligation of all of the parties. 6.09 GOVERNING LAW. Except to the extent required to be governed by the laws of the State of Louisiana because the Company is incorporated under the laws of said State, the validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of Texas. 6.10 VENUE. To the extent permitted by applicable State and Federal law, venue for all proceedings hereunder will be in Harris County, Texas. 6.11 HEADINGS. The headings in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 6.12 SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 6.13 PARTIAL INVALIDITY. In the event that any part, portion or Section of this Page 22 of 23 Agreement is found to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be binding upon the parties hereto and the Agreement will be construed to give meaning to the remaining provisions of this Agreement in accordance with the intent of this Agreement. 6.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be original, but all of which together constitute one and the same instrument. IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors and the Compensation Committee, the Company has caused these presents to be executed in its name and on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. Executed in multiple originals and/or counterparts as of the Effective Date. /s/ JOHN C. G. O'LEARY ------------------------------------- JOHN C.G. O'LEARY PRIDE INTERNATIONAL, INC. CORPORATE SEAL BY: /s/ RAY H. TOLSON ---------------------------------- RAY H. TOLSON CEO and Chairman of the Board ATTEST: BY: /s/ Frida A. Martinez ------------------------------- Frida A. Martinez Assistant Secretary Page 23 of 23 EX-21 5 h95556ex21.txt SUBSIDIARIES OF PRIDE EXHIBIT 21 PRIDE INTERNATIONAL, INC. SUBSIDIARIES
JURISDICTION OF INCORPORATION COMPANY OR ORGANIZATION - ------- ----------------------------- Amethyst Financial Company Ltd. British Virgin Islands Andre Maritime Ltd. Bahamas Basafojagu (HS) Inc. Liberia BiGem Holdings N.V. Netherlands Antilles C.A. Foravep Venezuela Caland Boren B.V. The Netherlands Compagnie Monegasque De Services Comoser s.a.m. Monaco Compania Boliviana de Perforacion S.A.M. Bolivia Dayana Finance S.A. Panama Drilling Labor Services PTE Ltd. Singapore Dundee Corporation Panama Dupont Maritime Ltd. British Virgin Islands Dupont Maritime Ltd. Liberia Foradel SDN B.H.D. Malaysia Forafels Inc. Panama Foral S.A. France Foramac Drilling Limited United Kingdom Forarom SRI Romania Forasol Arabia Limited Saudi Arabia Forasol Drilling (West Africa) Ltd. Abuja Forasol Servicos de Angola, Limitada Angola Forasub, B.V. The Netherlands Forinter Limited Channel Islands Forinter Ltd. Jersey Gisor Limited United Kingdom Hispano Americana de Petroleos S.A. Argentina Horwell S.A. France Inter-drill Limited Bahamas Internationale de Travaux et de Materiel France Larcom Insurance Ltd. Bermuda Marine 300 Series, Inc. Delaware Marine Drilling International, Inc. Delaware Marine Drilling Management Company Delaware Marlin Columbia Drilling Co., Inc. British Virgin Islands Martin Maritime Limited Bahamas Medfor S.A. France Mexico Drilling Limited, LLC Delaware Petrodrill Engineering N.V. The Netherlands Petrodrill Five Limited British Virgin Islands Petrodrill Four Limited British Virgin Islands Petrodrill Offshore Inc. Bahamas Petrodrill Seven Limited British Virgin Islands Petrodrill Six Limited British Virgin Islands
Petrodrill Three Limited British Virgin Islands Petrodrill Two Limited British Virgin Islands Petroleum Supply Company Texas Pride Amethyst II Ltd. British Virgin Islands Pride Amethyst Ltd. British Virgin Islands Pride Arabia Limited Saudi Arabia Pride Central America, LLC Delaware Pride Cyprus Ltd. Cyprus Pride de Venezuela, C.A. Venezuela Pride Drilling N.V. Curaco Pride Drilling, C.A. Venezuela Pride Drilling, LLC Delaware Pride E&P Services Ltd. British Virgin Islands Pride Foral, S.P.A. Algeria Pride Foramer S.A.S. Brazil Pride Forasol Perfuracoes e Servicos de Brasil Ltda. British Virgin Islands Pride Forasol, S.A.S. Argentina Pride Global Ltd. Russia Pride International Bolivia Ltda Delaware Pride International JSC British Virgin Islands Pride International Management Company Delaware Pride International Personnel, Ltd. Venezuela Pride International Services, Inc. British Virgin Islands Pride International, C.A. Argentina Pride International, Ltd. Cyprus Pride International, S.R.L. Delaware Pride Limassol Ltd. British Virgin Islands Pride Marine, Inc. British Virgin Islands Pride North Atlantic, Ltd. Delaware Pride North Sea, Ltd. British Virgin Islands Pride Offshore, Inc. Peru Pride Ohio, Ltd. British Virgin Islands Pride Peru S.A. British Virgin Islands Pride South America Ltd. France Pride U.S. Personnel, Ltd. France Pride-Forasol-Foramer Ltd. British Virgin Islands Pridemaritima Ltd. British Virgin Islands S.B.M. France France San Antonio Services, Ltd. British Virgin Islands SE Pacific Drilling Ltd. British Virgin Islands Servicios Especiales San Antonio S.A. Argentina Societe Maritime de Services France Societe Maritime de Services "Somaser" France Sonamer Angola Ltd. Bahamas Sonamer France S.A.S. France Sonamer Jack-Ups, Ltd. Bahamas Sonamer Limited Bahamas Twin Oaks Financial Ltd. British Virgin Islands United Gulf Energy Resources Co. Oman United Gulf Energy Resources Co. SAOC Oman Utah Drilling Limited British Virgin Islands Westville Management Corporation British Virgin Islands
EX-23.1 6 h95556ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Post-Effective Amendment No. 1 on Form S-8 to the Registration Statement of Pride International, Inc. on Form S-4 (Registration Nos. 333-66644 and 333-66644-01) of our report dated March 27, 2002 on our audits of the consolidated financial statements of Pride International, Inc. as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, which report is included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Houston, Texas April 1, 2002 EX-23.2 7 h95556ex23-2.txt CONSENT OF KPMG LLP EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post Effective Amendment No. 1 on Form S-8 to the registration statement on Form S-4 (Nos. 333-66644 and 333-66644-01) of Pride International, Inc. of our report dated January 23, 2001, with respect to the consolidated balance sheet of Marine Drilling Companies, Inc. as of December 31, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 2000, which report is included in this Annual Report of Pride International, Inc. on Form 10-K for the year ended December 31, 2001. KPMG LLP Houston, Texas April 1, 2002 EX-99 8 h95556ex99.txt REPORT OF KPMG LLP OF MARINE DRILLING COMPANIES EXHIBIT 99 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Marine Drilling Companies, Inc.: We have audited the consolidated balance sheet of Marine Drilling Companies, Inc. as of December 31, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 2000 (not presented separately herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Marine Drilling Companies, Inc. and subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Houston, Texas January 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----