-----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, WjoJjbtKZiE1zpWKQamXOJxl7D/pww4cHmd2SMGCPWZ0dVKNCcLjaQeuQe6Lpe6m sMjemE1cXWomLFfxfgsW4Q== 0000950129-04-001305.txt : 20040315 0000950129-04-001305.hdr.sgml : 20040315 20040315153908 ACCESSION NUMBER: 0000950129-04-001305 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040315 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13289 FILM NUMBER: 04669427 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 3300 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137891400 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 3300 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: PRIDE PETROLEUM SERVICES INC DATE OF NAME CHANGE: 19920703 10-K 1 h13348e10vk.txt PRIDE INTERNATIONAL, INC. - DATED 12/31/2003 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, 2003 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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] The aggregate market value of the registrant's common stock held by non-affiliates of the registrant at June 30, 2003, based on the closing price on the New York Stock Exchange on such date, was approximately $2.1 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 8, 2004 was 135,769,487. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held in May 2004 are incorporated by reference into Part III of this report. TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 15 Item 3. Legal Proceedings........................................... 15 Item 4. Submission of Matters to a Vote of Security Holders......... 16 Executive Officers of the Registrant........................ 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 18 Item 6. Selected Financial Data..................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 39 Forward-Looking Statements.................................. 40 Item 8. Financial Statements and Supplementary Data................. 42 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 76 Item 9A. Controls and Procedures..................................... 76 PART III Item 10. Directors and Executive Officers of the Registrant.......... 78 Item 11. Executive Compensation...................................... 78 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 78 Item 13. Certain Relationships and Related Transactions.............. 78 Item 14. Principal Accounting Fees and Services...................... 78 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 79
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. Pride International, Inc. is a Delaware corporation with its principal executive offices located at 5847 San Felipe, Suite 3300, Houston, Texas 77057. Pride's telephone number at such address is (713) 789-1400. OVERVIEW Pride is a leading international provider of contract drilling and related services, operating both offshore and on land. As of March 1, 2004, we operated a global fleet of 327 rigs, including two ultra-deepwater drillships, 11 semisubmersible rigs, 35 jackup rigs, 30 tender-assisted, barge and platform rigs and 249 land-based drilling and workover rigs. Our operations are conducted in more than 30 countries and marine provinces in many of the most active oil and gas basins of the world, including South America, the Gulf of Mexico, the Mediterranean, West and North Africa, the Middle East, Asia Pacific, Russia and Kazahkstan. 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. During 2003, we continued our strategy begun in 2002 to redeploy our assets to stronger markets internationally and to enter into long-term contracts where available at attractive rates. In the Gulf of Mexico, we moved five jackup rigs, one platform rig and one semisubmersible rig from the United States to Mexico. These 2003 moves were in addition to the 11 jackups, one semisubmersible and one platform rig mobilized to Mexico and other international markets in 2002, principally from the U.S. Gulf of Mexico. The rigs are receiving higher day rates for longer terms, and providing substantially higher cash margins, than they would currently be realizing in the U.S. Gulf of Mexico market for the same classes of rigs. At the same time, we believe our remaining available jackup and platform rig fleets in the U.S. Gulf of Mexico leave us well-positioned to benefit from any improvement in that market in 2004. We may redeploy additional assets to more active regions in 2004 if we have the opportunity to do so on attractive terms; however, we expect fewer opportunities for redeployments than in 2002 and 2003. During the fourth quarter of 2003, we also entered into a ten-year aggregate contract extension with Total E&P Angola for the ultra-deepwater drillships Pride Africa and Pride Angola, to commence upon completion of their existing contracts in 2005. The ten-year aggregate is the total usage for both drillships, with a minimum of three years and a maximum of seven years for any one drillship. In addition, in November 2003, the Kizomba A deepwater platform drilling rig constructed by Pride for a unit of Exxon Mobil Corporation began operations offshore Angola under a five-year management contract. Our technical services segment has had major projects ongoing to design, engineer, manage construction of and commission four deepwater platform drilling rigs, one of which, the Kizomba A, has been completed and commenced operations. The rigs are being constructed under lump-sum contracts on behalf of two major oil company customers for installation on spar and tension-leg production platforms. We also are to provide drilling operations management of the rigs once they have been installed on the platforms. We have experienced significant cost overruns on these projects, and we estimate that total costs on all four projects will substantially exceed revenues. Accordingly, during 2003, we recorded substantial loss provisions relating to the construction of these deepwater platform rigs. We do not currently intend to enter into any additional construction contracts on a lump-sum basis for rigs to be owned by others. See "-- Risk Factors -- Costs overruns on our lump-sum construction contracts have resulted in losses on those contracts and may continue to do so in the future" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment and Outlook -- Segment Review -- Technical Services." 1 OPERATIONS We provide contract drilling services to oil and gas exploration and production companies through the use of mobile offshore and land-based drilling rigs in both U.S. offshore and international land and offshore markets. 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. Our land-based fleet also includes a class of rigs known as workover rigs designed to perform maintenance and repair or modification to existing wells. Maintenance and repair services are required on producing oil and gas wells to ensure efficient, continuous operation. These services consist of mechanical repairs necessary to maintain or improve 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 are more often required on oil wells. Also, producing oil and gas wells occasionally require major 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. GULF OF MEXICO We operate two semisubmersible rigs, two independent-leg jackup rigs and 23 mat-supported jackup rigs in the Gulf of Mexico. We are the second largest operator of mat-supported jackup rigs capable of drilling in water depths of 200 to 300 feet. We also operate a fleet of 21 modular platform rigs in the Gulf of Mexico. In the U.S. sector of the Gulf of Mexico, we operate 11 jackup rigs and 18 platform rigs. Six of the jackups and six of the platform rigs are currently working under contracts ranging in duration from well-to-well to one year. The remaining rigs are stacked. In the Mexican sector, two semisubmersible rigs, 14 jackup rigs and three platform rigs are working for a unit of Petroleos Mexicanos S.A. ("Pemex") under contracts with initial durations of one to four years each. We mobilized nine jackup rigs and one platform rig from the U.S. sector to the Mexican sector in 2002, and five additional jackups, one semisubmersible and one platform rig in 2003. Of our two semisubmersibles in this market, the Pride South Seas, which was mobilized in 2002 from South Africa, is contracted through June 2005, and the Pride Mexico, which began operations in October 2003, is contracted through April 2007. INTERNATIONAL OFFSHORE West Africa. Our market-leading position in Angola includes two ultra-deepwater drillships, three deepwater semisubmersibles, one jackup rig, two tender-assisted rigs and one deepwater platform rig. We have a 51% ownership interest in two ultra-deepwater drillships, the Pride Angola and the Pride Africa. The drillships are contracted to work for Total E&P Angola under contracts initially expiring in May 2005 and June 2005, respectively. During the fourth quarter of 2003, we entered into a ten-year aggregate contract extension for these rigs, to commence upon completion of their existing contracts. The ten-year aggregate is the total usage for both drillships, with a minimum of three years and a maximum of seven years for any one drillship. Two of our semisubmersible rigs, the Pride South Pacific and the Pride North America, are working offshore Angola under contracts expiring in April 2004 and August 2004, respectively. We are actively marketing these rigs in the region with the objective of securing work directly following completion of the current contracts. In addition, we operate the dynamically positioned semisubmersible rig Leiv Eiriksson in Angola under a long-term management contract. The current work program expires in April 2004, and we are presently marketing the rig in the region. The jackup rig Pride Cabinda is working offshore Angola under a long-term contract expiring in August 2005. 2 Following completion of its special periodic survey, the tender-assisted rig Alligator is expected to begin working in July 2004 under a contract that expires in January 2006. The tender-assisted rig Barracuda is operating in Angola under a contract that expires in July 2004. In addition, in November 2003, the Kizomba A deepwater platform drilling rig began operations for a unit of ExxonMobil Corporation offshore Angola under a management contract expiring in December 2008. Elsewhere in West Africa, we mobilized the jackup rig Pride North Dakota from the U.S. Gulf of Mexico to Nigeria for work commencing in October 2002 under a contract that expires in October 2004. The swamp barge rig Bintang Kalimantan is working in Nigeria under a contract expiring in March 2004, after which we expect the rig to be stacked, and the tender-assisted rig Al Baraka I is stacked following completion of its management contract in September 2003. South America. In Brazil, the Pride Carlos Walter and the Pride Brazil, which are deepwater, dynamically positioned semisubmersible rigs, are working under five-year contracts for Petrobras that expire in June and July 2006, respectively. The Pride South America, a dynamically positioned semisubmersible rig, is currently working offshore Brazil for Petrobras under a contract that expires in January 2005. The semisubmersible Pride South Atlantic began working on a series of one-well contracts for three independent operators offshore Brazil in January 2004, with possible additional option wells. The firm portion of the program is expected to be completed in July 2004. Our offshore fleet in Venezuela includes two jackup rigs and two barge rigs operating on Lake Maracaibo. We manage the two jackup rigs on behalf of Petroleos de Venezuela, S.A. ("PDVSA") under contracts that expire in March and April 2004 at the end of work in progress. Pride has the right to extend each of these contracts for an additional six months. The two barge rigs are working under ten-year contracts with PDVSA expiring in January 2005. Our semisubmersible rig Pride Venezuela has been stacked in Trinidad since completing its contract with PDVSA offshore Venezuela in July 2003. Other International. We operate two jackup rigs in India. In November 2002, we mobilized the Pride West Virginia from the Gulf of Mexico to India, and it is currently working under a contract that expires in November 2004. The Pride Pennsylvania is working offshore India under a contract that expires in 2006. The semisubmersible rig Pride North Sea operates in the Mediterranean Sea under a contract that expires in August 2004. The jackup rig Pride Ohio is operating in the Middle East under a contract that expires in April 2004. The jackup rig Pride Montana is currently in Saudi Arabia working under a contract expiring in June 2004. The Pride Hawaii, a jackup rig working offshore Malaysia, is under contract until May 2005. The Pride Rotterdam, an accommodation unit, is working in the Dutch sector of the North Sea under a contract that expires in March 2005. The tender-assisted rigs Ile de Sein, working in Indonesia, and the Piranha, working in Malaysia, operate under contracts expiring in December 2004 and June 2005, respectively. INTERNATIONAL LAND We operate 249 land-based rigs internationally, including 227 rigs in South America. In Argentina, we operate a market-leading 154 rigs. Of these rigs, 52 are drilling rigs and 102 are workover rigs. Argentine rig operations are generally conducted in remote regions of the country and require substantial infrastructure and support costs. We believe that our established infrastructure and scale of operations provide us with a competitive advantage in this market. Our land-based fleet in Venezuela consists of 36 rigs, of which nine are drilling rigs and 27 are workover rigs. In Colombia, we operate 12 drilling rigs and eight workover rigs under contracts with major integrated and independent international oil companies and with the national oil company. We operate four drilling rigs and two workover rigs for operators in Bolivia. We operate two drilling rigs in Ecuador. In Brazil, we operate one land-based drilling rig and eight land-based workover rigs. Elsewhere, our land-based operations include five rigs in Chad, one in Mexico, one in France, one in Russia, two in Kazakhstan, four in North Africa and four in the Middle East. 3 E&P SERVICES We provide a variety of services to exploration and production companies in Argentina, Bolivia, Brazil, Colombia, Ecuador, Mexico, Peru and Venezuela through our E&P services division, including cementing, fracturing, coil tubing, directional drilling, underbalanced drilling, nitrogen injection and fishing services. We also manage integrated services projects in Argentina and other South American countries. During 2002 and 2003, our land-based rig and E&P services operations in Argentina and Venezuela were adversely affected by the economic and political instability in those countries. Please read "-- Risk Factors -- Worldwide political and economic developments may hurt our operations" in Item 1 of this annual report, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this annual report. TECHNICAL SERVICES We employ a technical staff dedicated to designing specialized drilling equipment to fulfill specific customer requirements and to conduct research and development in drilling solutions and technologies. The technical services group has designed and managed the construction of numerous rigs in our fleet. Our technical services segment has had major projects ongoing to design, engineer, manage construction of and commission four deepwater platform drilling rigs, one of which has been completed and commenced operations. The rigs are being constructed under lump-sum contracts on behalf of two major oil company customers for installation on spar and tension-leg production platforms. We also are to provide drilling operations management of the rigs once they have been installed on the platforms. We have experienced significant cost overruns on these projects, and we estimate that total costs on all four projects will substantially exceed revenues. Accordingly, during 2003, we recorded substantial loss provisions relating to the construction of these deepwater platform rigs. We do not currently intend to enter into any additional construction contracts on a lump-sum basis for rigs to be owned by others. See "Risk Factors -- Cost overruns on our lump-sum construction contracts have resulted in losses on those contracts and may continue to do so in the future" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment and Outlook -- Segment Review -- Technical Services." RIG FLEET OFFSHORE RIGS The table below presents information about our offshore rig fleet as of March 1, 2004:
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
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BUILT/ UPGRADED OR WATER DRILLING EXPECTED DEPTH DEPTH RIG NAME RIG TYPE/DESIGN COMPLETION RATING RATING LOCATION STATUS - -------- --------------- ----------- ------ -------- -------- ------ (FEET) (FEET) SEMISUBMERSIBLE RIGS -- 13 Leiv Eiriksson(2)......... Bingo 9000 2001 8,200 30,000 Angola Working Pride North America....... Bingo 8000 1999 7,500 25,000 Angola Working Pride South Pacific....... Blohm & Voss 1974/1999 6,500 25,000 Angola Working Pride Portland(3)......... Amethyst 2004 5,600 25,000 Maine Shipyard Pride Rio de Janeiro(3)... Amethyst 2004 5,600 25,000 Curacao Sea Trials Pride Brazil.............. Amethyst 2001 5,000 25,000 Brazil Working Pride Carlos Walter....... Amethyst 2000 5,000 25,000 Brazil Working Pride South America....... Amethyst 1987/1996 4,000 20,000 Brazil Working Pride Mexico.............. Neptune Pentagon 1973/1995 2,625 22,000 Mexico Working Pride South Atlantic...... F&G Enhanced Pacesetter 1982 1,500 25,000 Brazil Working Pride Venezuela........... F&G Enhanced Pacesetter 1982/2001 1,500 25,000 Trinidad Available Pride South Seas.......... Aker H-3 1977/1997 1,000 20,000 Mexico Working Pride North Sea........... Aker H-3 1975/2001 1,000 25,000 Mediterranean 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 Pennsylvania........ Independent leg, cantilever 1973/1998 300 20,000 India Working Pride Tennessee........... Independent leg, cantilever 1981 300 25,000 Mexico Working Pride West Virginia(4).... Independent leg, cantilever 1982/2002 300 30,000 India Working Pride Montana............. Independent leg, cantilever 1980/2001 270 20,000 Saudi Arabia Working Pride North Dakota........ Independent leg, cantilever 1981/2002 250 30,000 Nigeria Working Pride Ohio................ Independent leg, cantilever 1975/1998 250 20,000 Middle East Working GP-20(2).................. Independent leg, cantilever 1982 200 20,000 Venezuela Working GP-19(2).................. Independent leg, cantilever 1981 150 20,000 Venezuela Working Pride Wisconsin........... Independent leg, slot 1976/2002 300 30,000 Mexico Working Pride Texas............... Mat-supported, cantilever 1999 300 20,000 Mexico Working Pride Alaska.............. Mat-supported, cantilever 1982/2002 250 25,000 Mexico Working Pride Kansas.............. Mat-supported, cantilever 1999 250 25,000 USA Working Pride Missouri............ Mat-supported, cantilever 1981 250 20,000 USA Working Pride Alabama............. Mat-supported, cantilever 1982 200 25,000 Mexico Working Pride Arkansas............ Mat-supported, cantilever 1982 200 25,000 Mexico Working Pride Colorado............ Mat-supported, cantilever 1982 200 25,000 Mexico Working Pride Florida............. Mat-supported, cantilever 1981 200 20,000 USA Working Pride Mississippi......... Mat-supported, cantilever 1981/2002 200 25,000 Mexico Working Pride Nebraska............ Mat-supported, cantilever 1981/2002 200 20,000 Mexico Working Pride Nevada.............. Mat-supported, cantilever 1981/2002 200 20,000 Mexico Working Pride New Mexico.......... Mat-supported, cantilever 1982 200 25,000 USA Working Pride South Carolina...... Mat-supported, cantilever 1980/2002 200 20,000 Mexico Working Pride Utah................ Mat-supported, cantilever 1978/2002 80 16,000 USA Available Pride Kentucky............ Mat-supported, slot 1974 262 25,000 USA Available Pride Arizona............. Mat-supported, slot 1981/1996 250 25,000 USA Available Pride California.......... Mat-supported, slot 1997/2002 250 20,000 Mexico Working Pride Georgia............. Mat-supported, slot 1981/1995 250 20,000 USA Working Pride Louisiana........... Mat-supported, slot 1981/2002 250 25,000 Mexico Working Pride Michigan............ Mat-supported, slot 1975/2002 250 25,000 USA Working Pride Oklahoma............ Mat-supported, slot 1996/2002 250 20,000 Mexico Working Pride Wyoming............. Mat-supported, slot 1976 250 25,000 USA Available Pride Illinois............ Mat-supported, slot 1970/1993 225 20,000 USA Available Pride Rotterdam........... Accommodation unit 1975/1992 205 -- North Sea Working
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BUILT/ UPGRADED OR WATER DRILLING EXPECTED DEPTH DEPTH RIG NAME RIG TYPE/DESIGN COMPLETION RATING RATING LOCATION STATUS - -------- --------------- ----------- ------ -------- -------- ------ (FEET) (FEET) TENDER-ASSISTED RIGS -- 5 Al Baraka I(5)............ Self-erecting barge 1994 650 20,000 West Africa Available Piranha................... Self-erecting barge 1978/1998 600 20,000 Malaysia Working Ile de Sein............... Self-erecting barge 1981/1997 450 16,000 Indonesia Working Barracuda................. Self-erecting barge 1982 330 20,000 Angola Working Alligator................. Self-erecting barge 1982/2004 330 20,000 Angola Shipyard BARGE RIGS -- 3 Pride I................... Floating cantilever 1994 150 20,000 Venezuela Working Pride II.................. Floating cantilever 1994 150 20,000 Venezuela Working Bintang Kalimantan........ Swamp barge 1983 N/A 16,000 Nigeria Working PLATFORM RIGS -- 22 Kizomba A(2).............. Ultra-heavy electrical 2003 N/A 30,000 Angola Working Rig 1501E................. Heavy electrical 1996 N/A 25,000 USA Working Rig 1502E................. Heavy electrical 1998 N/A 25,000 USA Available Rig 1503E................. Heavy electrical 1997/2003 N/A 20,000 USA Working Rig 1002E................. Heavy electrical 1996 N/A 20,000 Mexico Working Rig 1003E................. Heavy electrical 1996 N/A 20,000 Mexico Working Rig 1005E................. Heavy electrical 1998 N/A 20,000 Mexico Working Rig 1006E................. Heavy electrical 2001 N/A 20,000 USA Working Rig 750E.................. Heavy electrical 1992 N/A 16,500 USA Available Rig 751E.................. Heavy electrical 1995 N/A 16,500 USA Available Rig 650E.................. Intermediate electrical 1994 N/A 15,000 USA Available Rig 651E.................. Intermediate electrical 1995 N/A 15,000 USA Working Rig 653E.................. Intermediate electrical 1995 N/A 15,000 USA Available Rig 951................... Heavy mechanical 1995 N/A 18,000 USA Available Rig 200................... Intermediate mechanical 1993 N/A 15,000 USA Available Rig 210................... Intermediate mechanical 1996 N/A 15,000 USA Working Rig 220................... Intermediate mechanical 1995 N/A 15,000 USA Available Rig 100................... Intermediate mechanical 1990 N/A 15,000 USA Available Rig 110................... Intermediate mechanical 1990 N/A 15,000 USA Available Rig 130................... Intermediate mechanical 1991 N/A 15,000 USA Available Rig 170................... Intermediate mechanical 1991 N/A 15,000 USA Available Rig 14.................... Light mechanical 1994 N/A 10,000 USA Working
- --------------- (1) Owned by joint ventures in which we have a 51% interest. (2) Managed by us, but owned by others. (3) Owned by a joint venture in which we have a 30% interest; formerly known as the Amethyst 4 and Amethyst 5. (4) We have entered into a memorandum of agreement to sell the unit subject to various conditions, some of which may be difficult to satisfy. Accordingly, the sale may not be completed. (5) Owned by a joint venture in which we have a 12.5% interest. 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 6 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 300 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 rig 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 generally 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 modular platform rigs are capable of drilling to well depths of up to 25,000 feet. The Kizomba A rig, which we built and manage for the customer, can drill wells at depths of up to 30,000 feet. It is permanently installed on a deepwater floating structure known as a tension-leg platform. Our platform rigs can be used to provide drilling, workover and horizontal reentry services using top drives, enhanced pumps and solids control equipment for drilling fluids. 7 LAND RIGS The table below presents information about our land-based rig fleet as of March 1, 2004:
TOTAL DRILLING WORKOVER UTILIZATION ----- -------- -------- ----------- SOUTH AMERICA -- 227 Argentina....................................... 154 52 102 86% Venezuela....................................... 36 9 27 86% Colombia........................................ 20 12 8 65% Bolivia......................................... 6 4 2 50% Brazil(1)....................................... 9 1 8 89% Ecuador......................................... 2 2 -- 50% OTHER INTERNATIONAL -- 22 Chad............................................ 5 3 2 100% North Africa.................................... 4 3 1 0% Oman............................................ 4 4 -- 100% Russia/Kazakhstan............................... 3 3 -- 67% Other........................................... 6 4 2 50% --- -- --- Total Land-Based Rigs................... 249 97 152 82% === == === ====
- --------------- (1) One drilling rig and three workover rigs are managed by us, but owned by third parties. 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. COMPETITION Our competition ranges from large multinational companies offering a wide range of drilling and other oilfield services to smaller, locally owned companies. We believe we are competitive in terms of pricing, performance, equipment, safety, availability of equipment to meet customer needs and availability of experienced, skilled personnel. Competition is usually on a regional basis, but offshore drilling rigs are highly mobile and may be moved, at a cost that is sometimes substantial, from one region to another in response to demand. Drilling contracts are generally awarded on a competitive bid basis. While an operator may consider the contractor's safety record, crew quality, rig location and quality of service and equipment, price is often the primary factor in determining which contractor, among those with suitable rigs, is awarded a job. Some of our competitors have greater financial resources, which may enable them to better withstand periods of low utilization, compete more effectively on the basis of price, build new rigs or acquire existing rigs. CUSTOMERS We work for large multinational oil and gas companies, government-owned oil and gas companies and independent oil and gas producers. During 2003, we had two customers, Pemex and Petrobras, that each accounted for approximately 13% of our consolidated revenues. The loss of either of these significant customers could, in the near term, have a material adverse effect on our results of operations. No other customer accounted for 10% or more of our 2003 consolidated revenues. 8 DRILLING 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). Substantially all of our contracts with major customers are on a dayrate basis. Contracts may also include reimbursement of costs to modify or upgrade a rig to meet customer specifications. 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. Contracts for work in international offshore markets 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 attempt to 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 local currencies by matching our acceptance thereof to our expense requirements in such 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 "-- Risk Factors -- Worldwide political and economic developments may hurt our operations" in Item 1 of this annual report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this annual report and "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of this annual report. In addition, a customer may seek to cancel or renegotiate its contract during periods of depressed market conditions or if we experience downtime or operational problems above the contractual limit. See "-- Risk Factors -- 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." SEASONALITY Our land rigs in Kazakhstan are operating on artificial islands in the Caspian Sea. Because winter ice conditions hinder access and resupply, the rigs are placed in a non-operating standby mode during winter months at a reduced dayrate. Otherwise, our business activities are not significantly affected by seasonal fluctuations. Most of our other 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 1, 2004, we employed approximately 12,200 employees. Approximately 1,200 of our employees were located in the United States and 11,000 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. 9 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 of our Notes to Consolidated Financial Statements included in Item 8 of this annual report. WEBSITE ACCESS TO SEC REPORTS We file annual, quarterly and special reports, proxy statements and other information with the SEC. These filings, and any amendments to these filings, are available free of charge through our internet website at www.prideinternational.com as soon as reasonably practicable after we electronically file that material with, or furnish it to, the SEC. These filing also are available at the SEC's internet website at www.sec.gov. Information contained on our website is not part of this annual report. RISK FACTORS COST OVERRUNS ON OUR LUMP-SUM CONSTRUCTION CONTRACTS HAVE RESULTED IN LOSSES ON THOSE CONTRACTS AND MAY CONTINUE TO DO SO IN THE FUTURE. Our technical services segment is performing four deepwater platform rig construction projects under lump-sum contracts with our customers. One of these rigs has been delivered to the customer and is now in operation. We recorded loss provisions totaling $98.4 million, or $64.0 million net of taxes at the U.S. statutory rate, during 2003 as a result of cost overruns on these projects. The loss provisions include costs incurred to date plus our estimate of costs we expect to incur to complete these projects. Currently unforeseen events may result in further cost overruns to complete these projects, which could be material and which would require us to record additional loss provisions in future periods. Such events could include variations in labor and equipment productivity over the remaining term of the contract, unanticipated cost increases, engineering changes, shipyard or systems problems, project management issues, shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment, work stoppages, shipyard unavailability or delays. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment and Outlook -- Technical Services" in Item 7 of this annual report. WE RECOGNIZE REVENUES AND RELATED COSTS UNDER OUR CONTRACTS IN THE TECHNICAL SERVICES SEGMENT ON A PERCENTAGE-OF-COMPLETION BASIS. ADJUSTMENTS IN ESTIMATES COULD RESULT IN A CHARGE AGAINST EARNINGS, WHICH COULD BE MATERIAL. We recognize revenues and related costs under contracts in our technical services segment on a percentage-of-completion basis. Accordingly, we review contract price and cost estimates periodically as the work progresses and reflect adjustments in income (1) to recognize income proportionate to the percentage of completion in the case of projects showing an estimated profit at completion and (2) to recognize the entire amount of the loss in the case of projects showing an estimated loss at completion. To the extent these adjustments result in an increase in previously reported losses or a reduction in or an elimination of previously reported profits with respect to a project, we would recognize a charge against current earnings, which could be material. Our current estimates may be revised in future periods, and those revisions may be material. Currently, all four of our lump-sum construction projects are in a loss position. A MATERIAL OR EXTENDED DECLINE IN EXPENDITURES BY OIL AND GAS COMPANIES, DUE TO A DECLINE OR VOLATILITY IN OIL AND GAS PRICES, A DECREASE IN DEMAND FOR OIL AND GAS OR OTHER FACTORS, MAY REDUCE DEMAND FOR OUR SERVICES AND MATERIALLY REDUCE OUR PROFITABILITY. 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; 10 - the demand for oil and gas; - the cost of producing and delivering oil and gas; - advances in exploration, development and production technology; - 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; and - 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. Any significant decrease in daily rates or utilization of our rigs, particularly our high-specification semisubmersible rigs or jack-up rigs, could materially reduce our revenues and profitability. AN OVERSUPPLY OF COMPARABLE RIGS IN THE GEOGRAPHIC MARKETS IN WHICH WE COMPETE COULD DEPRESS THE UTILIZATION RATES AND DAYRATES FOR OUR RIGS AND MATERIALLY REDUCE OUR REVENUES AND PROFITABILITY. Utilization rates, which are the number of days a rig actually works divided by the number of days the rig is available for work, and dayrates, which are the contract prices customers pay for rigs per day, are affected by the total supply of comparable rigs available for service in the geographic markets in which we compete. 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 rates 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 lead to construction of new rigs. These increases in the supply of rigs could depress the utilization rates and dayrates for our rigs and materially reduce our revenues and profitability. WORLDWIDE POLITICAL AND ECONOMIC DEVELOPMENTS MAY HURT OUR OPERATIONS MATERIALLY. In 2003, we derived approximately 39% of our revenues from operations in countries within South America and an additional approximately 48% of our revenues from operations in all 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; - uncertainty or instability resulting from armed hostilities or other crises in the Middle East or other geographic areas in which we operate; and - acts of terrorism. Continued hostilities in the Middle East and the occurrence or threat of future terrorist attacks such as those against the U.S. on September 11, 2001 could cause a downturn in the economies of the U.S. and other developed countries. A lower level of economic activity could result in a decline in energy consumption, which could cause our revenues and margins to decline and limit our future growth prospects. More specifically, these risks could lead to increased volatility in prices for crude oil and natural gas and could affect the markets 11 for our drilling services. In addition, these risks could increase instability in the financial and insurance markets and make it more difficult for us to access capital and to obtain insurance coverages that we consider adequate or are otherwise required by our contracts. We attempt to limit the risks of currency fluctuation and restrictions on currency repatriation where possible 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 local 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 cause our results of operations and financial condition to deteriorate materially. During 2003, approximately 25% of our consolidated revenues were derived from our operations in Argentina and Venezuela. Over the past two years, these two countries experienced political and economic instability that resulted in significant changes in their general economic policies and regulations. During 2002, the Argentine peso declined in value against the U.S. dollar following the Argentine government's decisions to abandon 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. The devaluation, coupled with the government's mandated conversion of all dollar-based contracts to pesos, severely pressured our margins. During 2002, we engaged in discussion with all of our Argentine customers regarding the recovery of losses sustained from the devaluation of accounts receivable and the basis on which new business would be contracted. We have restructured most of our contracts on a basis that we believe limits our exposure to further devaluations. However, further devaluations may cause our results to suffer materially. Since the second quarter of 2002, Venezuela has experienced political, economic and social instability, including prolonged labor strikes, demonstrations and an attempt to overthrow the government. Much of the instability negatively impacted PDVSA, which is our principal customer in Venezuela, and led to the dismissal of more than 18,000 employees by the government. The instability in Venezuela has had an adverse effect on our business. Exchange controls, together with employee dismissals and reorganization within PDVSA, led to a slower rate of collection of our trade receivables in early 2003. Although foreign exchange in the other countries where we operate is currently carried out on a free-market basis, local monetary authorities in these countries may, in the future, implement exchange controls or other economic measures that would limit or restrict our rights 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 negatively 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 limited by foreign governmental regulations that favor or require the awarding of contracts to local contractors or by regulations requiring 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. For further information about our international operations, including our results of operations by geographic area, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment and Outlook" in Item 7 of this annual report and to Note 15 of our Notes to Consolidated Financial Statements included in Item 8 of this annual report. 12 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. Substantially all our contracts with major customers are dayrate contracts, where we charge a fixed charge per day regardless of the number of days needed to drill the well. 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 have the right to terminate existing contracts if we experience operational problems. 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 materially reduce our revenues and profitability. WE MAY BE CONSIDERED HIGHLY LEVERAGED. OUR SIGNIFICANT DEBT LEVELS AND DEBT AGREEMENT RESTRICTIONS MAY LIMIT OUR LIQUIDITY AND FLEXIBILITY IN OBTAINING ADDITIONAL FINANCING AND IN PURSUING OTHER BUSINESS OPPORTUNITIES. As of December 31, 2003, we had approximately $2.0 billion in long-term 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; and - 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. As of March 10, 2004, our liquidity position totaled approximately $108 million, consisting of approximately $53 million of unrestricted cash, $31 million of available undrawn capacity under our senior secured revolving credit facilities and $24 million of available undrawn unsecured credit facilities. The total undrawn portion of our senior secured revolving credit facilities at that date was approximately $107 million. Indentures governing our outstanding 9 3/8% senior notes due 2007 and 10% senior notes due 2009 limit our ability to draw under these facilities to a percentage of consolidated net tangible assets, which effectively restricts our ability at present to borrow additional amounts under these facilities. Accordingly, approximately $76 million of the $107 million of undrawn capacity under these facilities was not available as of March 10, 2004 to meet our short-term liquidity needs, leaving only $31 million available. WE ARE SUBJECT TO A NUMBER OF OPERATING HAZARDS INCLUDING THOSE 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 other 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 13 operations, either while on site or during mobilization, such as capsizing, sinking and damage from severe weather conditions. We customarily provide contract indemnity to our customers for: - claims which could be asserted by us relating to damage to or loss of our equipment, including rigs; - claims which could be asserted by us or our employees relating to personal injury or loss of life; and - legal and financial consequences of spills of industrial waste and other liquids, but only to the extent (1) the waste or other liquids were in our control at the time of the spill or (2) our level of culpability is greater than mere negligence. We maintain insurance for injuries to our employees, damage to or loss of our equipment and other insurance coverage for normal business risks, including general liability insurance. Any insurance protection may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. In addition, some of our primary insurance policies have substantial per occurrence or annual deductibles and/or self-insured aggregate amounts. The occurrence of a significant event against which we are not fully insured, or of a number of lesser events against which we are insured, but subject to substantial deductibles, could materially increase our costs and impair our profitability and financial condition. Moreover, the September 11, 2001 terrorist attacks in the United States 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. WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS, INCLUDING THOSE THAT MAY IMPOSE SIGNIFICANT LIABILITY ON US FOR ENVIRONMENTAL DAMAGE. Many aspects of our operations are subject to governmental regulations that may relate directly or indirectly to the contract drilling and well servicing industries, including those requiring us to control the discharge of oil and other contaminants from our rigs or otherwise relating to protection of the environment. We are subject to the U.S. Oil Pollution Act of 1990, the U.S. Outer Continental Shelf Lands Act, and the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA. Additionally, other countries where we operate frequently have regulations covering the discharge of oil and other contaminants in connection with drilling operations. 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, 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 materially limit future contract drilling opportunities or materially increase our costs or both. WE MAY HAVE DIFFICULTY IMPLEMENTING IN A TIMELY MANNER INTERNAL CONTROL PROCEDURES NECESSARY TO ALLOW OUR MANAGEMENT TO REPORT ON THE EFFECTIVENESS OF OUR INTERNAL CONTROLS. IN ADDITION, OUR INDEPENDENT AUDITORS MAY NOT BE ABLE TO ISSUE AN ATTESTATION REPORT ON MANAGEMENT'S ASSESSMENT. Beginning with our report for the year ending December 31, 2004, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include an internal control report of management with our annual report on Form 10-K, which is to include management's assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. That report will also be required to include a statement that our independent auditors have issued an attestation report on management's assessment of our internal control over financial reporting. Our independent auditors, PricewaterhouseCoopers LLP, issued a letter to our audit committee dated August 13, 2003 noting certain matters in our technical services division that they considered to be a material weakness in internal control. In order to achieve compliance with Section 404 within the prescribed period, management has formed an internal control steering committee, engaged outside consultants and adopted a detailed project work plan to assess the adequacy of our internal control over financial reporting, remediate any control weaknesses that 14 may be identified, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We may not, however, be able to complete the work necessary for our management to issue its management report in a timely manner, or any work that will be required for our management to be able to report that our internal control over financial reporting is effective. In addition, our independent auditors may not be able to issue an attestation report on management's assessment. ITEM 2. PROPERTIES 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. Some of our rigs are pledged to collateralize secured credit facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" in Item 7 of this annual report. We also own and operate transport and heavy-duty trucks and other ancillary equipment. We own office and operating facilities in Houma, Louisiana and in Algeria, Angola, Argentina, Brazil, Colombia, France, Peru and Venezuela. Additionally, we lease 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 3 and 6 of our Notes to Consolidated Financial Statements included in Item 8 of this annual report. ITEM 3. LEGAL PROCEEDINGS We are routinely involved in other litigation, claims and disputes incidental to our business, which at times involve 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 flows. However, a substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our consolidated results of operations or cash flows. 15 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 2003. EXECUTIVE OFFICERS OF THE REGISTRANT We have presented below information about our executive officers as of March 1, 2004. 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..................... 48 Chief Executive Officer John C.G. O'Leary................. 48 President Louis A. Raspino.................. 51 Executive Vice President and Chief Financial Officer John R. Blocker, Jr............... 52 Senior Vice President -- Operations Bobby E. Benton................... 51 Vice President -- Western Hemisphere Operations David A. Bourgeois................ 59 Vice President -- U.S. Gulf of Mexico Operations Edward G. Brantley................ 49 Vice President and Chief Accounting Officer Gary W. Casswell.................. 51 Vice President -- Eastern Hemisphere Operations Nicolas J. Evanoff................ 41 Vice President -- Corporate and Governmental Affairs Marcelo D. Guiscardo.............. 51 Vice President -- E&P Services W. Gregory Looser................. 34 Vice President, General Counsel and Secretary Jonathan R.A.S. Talbot............ 41 Vice President -- Marketing
Paul A. Bragg has been Chief Executive Officer since March 1999. From February 1997 to January 2004, he also served as President of Pride. From February 1997 to April 1999, he served as Chief Operating Officer of Pride. 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.) from 1983 through 1987. John C.G. O'Leary was named President in January 2004. From March 1997 to January 2004, he served as Vice President -- International Marketing, a position he obtained 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. He joined Forasol in August 1985. Louis A. Raspino joined Pride in December 2003 as Executive Vice President and Chief Financial Officer. From July 2001 until December 2003, he served as Senior Vice President-Finance and Chief Financial Officer of Grant Prideco, Inc. From December 2000 until March 2001, he was employed as Executive Vice President, Chief Financial Officer and Chief Operating Officer of JRL Enterprises, Inc. From February 1999 until December 2000, he served as Vice President of Finance for Halliburton Company. From October 1997 until July 1998, he was a Senior Vice President at Burlington Resources, Inc. From 1978 until its merger with Burlington Resources, Inc. in 1997, he held a variety of increasingly responsible positions at Louisiana Land and Exploration Company, most recently as Senior Vice President, Finance and Administration and Chief Financial Officer. John R. Blocker, Jr. was named Senior Vice President -- Operations in January 2004. From March 2000 to January 2004, he served as Vice President -- Latin American Operations. He joined Pride in 1993 as President of our Argentine subsidiary, Pride International, S.R.L. He has more than 33 years of oilfield experience with several companies. Bobby E. Benton was named Vice President -- Western Hemisphere Operations in February 2004. He was previously Vice President -- Brazil/Asia Pacific/Middle East since May 2002. Mr. Benton joined Pride in September 2001 in the merger with Marine Drilling Companies, Inc., where he held various senior 16 management positions, including Senior Vice President -- Worldwide Operations and Vice President -- Worldwide Marketing since June 1999. Prior to joining Marine, he served as Vice President -- International Operations with Diamond Offshore Drilling, Inc., following Diamond's acquisition of Arethusa Offshore Company in April 1996. David A. Bourgeois was named Vice President -- U.S. Gulf of Mexico Operations in February 2004. He previously served as Vice President -- North American Operations since May 2002. 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, Mr. Bourgeois was Sales and Marketing Manager of Pride Offshore, Inc., from June 1996 until May 1999 he was Vice President and General Manager of Pride Offshore, Inc. and from May 1999 to May 2002, he served as Vice President -- U.S. Operations. Edward G. Brantley joined Pride as Treasurer in January 2000. In September 2001, he was named Vice President and Chief Accounting Officer. Prior to joining Pride, Mr. Brantley was employed by Baker Hughes Incorporated for 11 years in various capacities, including Controller of its Baker Hughes INTEQ division. Gary W. Casswell was named Vice President -- Eastern Hemisphere Operations in May 1999. He joined Pride in August 1998 from Santa Fe International Corporation (now part of GlobalSantaFe Corporation). From 1974 through 1998, Mr. Casswell served Santa Fe in positions of increasing responsibility, including Operation Manager and Technical Development Manager. Nicolas J. Evanoff joined Pride in April 2002 as Vice President -- Corporate and Governmental Affairs. From February 1997 until joining Pride, he served as Associate General Counsel and as General Counsel, Asia & Middle East, of Transocean Inc. From August 1992 to February 1997, Mr. Evanoff practiced corporate and securities law with Baker Botts L.L.P. in Houston, Texas. 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. W. Gregory Looser was named Vice President, General Counsel and Secretary in December 2003. He joined Pride in May 1999 as Assistant General Counsel. Prior to that time, Mr. Looser was with the law firm of Bracewell & Patterson, L.L.P. in Houston, Texas. Jonathan R.A.S. Talbot was named Vice President -- Marketing in March 2004. Prior to that, he served as Director of Business Development for Pride and previously Forasol since September 1995. Mr. Talbot joined Forasol in 1990. 17 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 8, 2004, there were 1,507 stockholders of record. The following table presents the range of high and low sales prices of our common stock on the NYSE for the periods shown:
PRICE --------------- HIGH LOW ------ ------ 2002 First Quarter............................................... $16.25 $11.70 Second Quarter.............................................. 19.70 15.00 Third Quarter............................................... 15.66 10.80 Fourth Quarter.............................................. 16.15 12.25 2003 First Quarter............................................... $15.48 $12.75 Second Quarter.............................................. 20.09 13.15 Third Quarter............................................... 19.08 15.75 Fourth Quarter.............................................. 18.95 15.75
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 for debt repayment. We 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. 18 ITEM 6. SELECTED FINANCIAL DATA We have derived the following selected consolidated financial information as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003, 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, 2001 and 2000 and for each of the years in the two-year period ended December 31, 2000, from our audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2001 that are not included herein. We have derived the selected consolidated financial information as of December 31, 1999 from the audited consolidated financial statements of Pride and Marine Drilling Companies, Inc., which we acquired in September 2001 in a transaction accounted for under the pooling-of-interests method of accounting, 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, ------------------------------------------------------------ 2003 2002(1) 2001(1) 2000(1) 1999(1) ---------- ---------- ---------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues............................... $1,689,720 $1,269,774 $1,512,895 $1,173,038 $734,791 Operating costs, excluding depreciation and amortization..................... 1,197,845 794,739 889,561 709,721 509,770 Restructuring charges -- operating(2).............. -- -- -- -- 12,817 Depreciation and amortization.......... 249,222 230,204 202,710 178,352 128,534 General and administrative, excluding depreciation and amortization........ 121,259 94,241 100,309 95,528 91,400 Pooling and merger costs(3)............ (824) -- 35,766 -- -- Restructuring charges -- general and administrative(2).................... -- -- -- -- 23,831 ---------- ---------- ---------- ---------- -------- Earnings (loss) from operations........ 122,218 150,590 284,549 189,437 (31,561) Other income (expense), net............ (126,516) (139,851) (127,572) (94,775) (47,601) ---------- ---------- ---------- ---------- -------- Earnings (loss) before income taxes and minority interest.................... (4,298) 10,739 156,977 94,662 (79,162) Income tax provision (benefit)......... (1,130) 2,977 49,948 34,928 (23,889) Minority interest...................... 20,765 16,097 15,508 10,812 3,996 ---------- ---------- ---------- ---------- -------- Net earnings (loss).................... $ (23,933) $ (8,335) $ 91,521 $ 48,922 $(59,269) ========== ========== ========== ========== ======== Net earnings (loss) per share: Basic................................ $ (0.18) $ (0.06) $ 0.70 $ 0.40 $ (0.55) ========== ========== ========== ========== ======== Diluted.............................. $ (0.18) $ (0.06) $ 0.68 $ 0.39 $ (0.55) ========== ========== ========== ========== ======== Weighted average shares outstanding: Basic................................ 134,704 133,305 131,630 123,038 107,801 Diluted.............................. 134,704 133,305 142,778 126,664 107,801
19
DECEMBER 31, -------------------------------------------------------------- 2003 2002(1) 2001(1) 2000(1) 1999(1) ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital....................... $ 83,121 $ 152,364 $ 73,596 $ 123,719 $ 160,490 Property and equipment, net........... 3,446,331 3,473,636 3,452,803 2,706,791 2,590,728 Total assets.......................... 4,378,430 4,402,857 4,291,207 3,423,059 3,144,027 Long-term debt and leases, net of current portion..................... 1,815,078 1,886,447 1,725,856 1,326,623 1,421,227 Stockholders' equity.................. 1,702,779 1,699,297 1,696,086 1,441,995 1,235,212
- --------------- (1) The consolidated financial information as of and for the years ended December 31, 2002, 2001, 2000 and 1999 has been restated to reflect the retroactive adoption of Financial Accounting Standards Board Interpretation ("FIN") No. 46R, "Consolidation of Variable Interest Entities." (2) 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. (3) Pooling and merger costs consist of 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 4 of the Notes to Consolidated Financial Statements in Item 8 of this annual report for more information about these charges. 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" below 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 1, 2004, we operated a global fleet of 327 rigs, including two ultra-deepwater drillships, 11 semisubmersible rigs, 35 jackup rigs, 30 tender-assisted, barge and platform rigs and 249 land-based drilling and workover rigs. We operate in more than 30 countries and marine provinces. We have five principal operating segments: Gulf of Mexico, International Offshore, International Land, E&P Services and Technical Services. The markets for our drilling, workover and related E&P services are highly cyclical. Variations in market conditions during the cycle impact us in different ways depending primarily on the length of drilling contracts in different regions. Contracts in the U.S. Gulf of Mexico, for example, tend to be short-term, so a deterioration or improvement in market conditions tends to impact our operations quickly. Contracts in our international offshore segment, as well as in Mexico, tend to be longer term. Accordingly, short-term changes in market conditions may have little or no impact on our revenues and cash flows from those operations unless the market changes occur during a period when we are attempting to renew a number of those contracts. In late 2001, we commenced the first of four major deepwater platform rig construction projects. The rigs are being constructed on behalf of two major oil company customers under lump-sum contracts. We have experienced significant cost overruns on these projects, and we estimate that total costs on all four projects will substantially exceed contract revenues. Accordingly, in 2003, we recorded provisions for losses on these projects totaling $98.4 million, or $64.0 million net of taxes at the U.S. statutory rate. The provisions reflect our current estimates of the costs to complete the projects and of additional contract revenues from the projects, following a review by our operating and senior management. There are, however, uncertainties regarding many of the estimates and, particularly, the range of possible outcomes of certain commercial 20 disputes related to the projects, which could result in settlements significantly above or below our current estimates. Our current estimates may be revised in future periods, and those revisions may be material. Weakness in the deepwater semisubmersible and drillship markets offshore West Africa and Brazil did not have a significant impact on our results for 2003, as our deepwater rigs in those markets were operating under long-term contracts entered into when market conditions were more favorable. The impact of the continued weakness in these markets on our results for 2004 is likely to be more significant, however, as the contracts for two of our deepwater assets in the West African market are due to be renewed during the year. We believe, however, that conditions in those markets will improve later in 2004 as development drilling commences on a number of major oil discoveries. We experienced improved utilization of our jackup rig fleet in 2003, principally due to our success in marketing rigs into Mexico and other international markets from the U.S. Gulf of Mexico, which has experienced weak market conditions since late 2001. The contracts in Mexico have an average remaining term of approximately two years and, together with recently obtained extensions to the contracts for our two drillships working offshore Angola for an aggregate of ten years, resulted in an increase in the contract backlog for our offshore rig fleet to approximately 74 years and $1.7 billion as of March 1, 2004, from 66 years and $1.4 billion as of March 1, 2003. In calculating our contract backlog, we include the remaining firm period of outstanding contracts, excluding any option periods, and the contract operating day rate less a 5% allowance for any downtime or reduced rate billing, excluding any mobilization fees, performance bonuses and anticipated charges for ancillary services. The above figures are the aggregate for all offshore rigs operated by us, including rigs owned by others that we manage, and excluding the deepwater platform rigs under construction. Conditions in our South American land and related E&P services markets improved during 2003, and our activity in these markets has recovered from the political and economic crises in Argentina and Venezuela in 2002 to levels exceeding those before the crises. Assuming there are no new major disruptions in these markets in 2004, we expect our 2004 results from operations in these markets to be comparable to 2003 results. We ended 2003 with approximately $28 million more debt and $79 million less total cash (cash and cash equivalents plus restricted cash) than at the end of 2002. Total debt and liquidity in 2003 were negatively impacted by the high level of capital expenditures required to prepare rigs in our U.S. fleet for work in Mexico, higher than normal operating costs during the start-up of operations for those rigs, net cash outflows on the rig construction projects discussed above and an increase in trade receivables. We expect that debt levels and liquidity in 2004 will continue to be negatively impacted by increased net cash outflows relating to the construction projects. Debt levels and liquidity in 2004 will also be negatively impacted by our 30% share of stacking and debt service costs if we are unable to secure work during 2004 for the Pride Portland and Pride Rio de Janeiro, two Amethyst-class semisubmersible rigs that are concluding construction and are expected to be available for work in the second quarter and third quarter of 2004, respectively. In addition, the day rate under which either or both of our two West African deepwater semisubmersible rigs, whose existing contracts expire in 2004, are recontracted could have a significant impact on our future debt and liquidity. However, we expect debt and liquidity in 2004 to benefit from a full year of operations for our rigs in Mexico and from a reduced level of capital expenditures, as our program to upgrade rigs from our U.S. Gulf of Mexico fleet for international markets winds down. Debt reduction and liquidity in 2004 also will be positively impacted if we succeed in our announced focused efforts to reduce operating, general and administrative costs, improve our working capital management and sell certain assets. Although we intend to aggressively pursue these strategies to reduce our debt and improve our liquidity, it is not practicable at the present time to quantify the possible impact, if any, of any of these measures. As of March 10, 2004, our liquidity position totaled approximately $108 million, consisting of approximately $53 million of unrestricted cash, $31 million of available undrawn capacity under our senior secured revolving credit facilities and $24 million of available undrawn unsecured credit facilities. The total undrawn portion of our senior secured revolving credit facilities at that date was approximately $107 million. Indentures governing our outstanding 9 3/8% senior notes due 2007 and our 10% senior notes due 2009 limit our ability to 21 draw under these facilities to a percentage of consolidated net tangible assets, which effectively restricts our ability at present to borrow additional amounts under these facilities. Accordingly, approximately $76 million of the $107 million of undrawn capacity under these facilities was not available as of March 10, 2004 to meet our short-term liquidity needs, leaving only $31 million available. Furthermore, in connection with the announced extension of the drilling contracts for our two drillships, we are in the process of finalizing an approximate $128 million expansion of the drillship loans. We currently expect that approximately $103 million of the proceeds and approximately $15 million of currently restricted cash will be used by the joint venture to repay indebtedness due from the joint venture company to Pride early in the second quarter of 2004. If the transaction is completed, the funds paid to us will be available to reduce our other outstanding debt and improve liquidity. In addition, as of December 31, 2003, $38.8 million of our cash balances, which amount is included in restricted cash, consisted of funds held in trust in connection with our drillship and semisubmersible loans and our limited-recourse collateralized term loans and is therefore not available for our use. The amount as of March 10, 2004 was approximately $27 million. In September 2001, we acquired Marine Drilling Companies, Inc. in a stock-for-stock transaction. 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 acquisition was accounted for as a pooling-of-interests for accounting and financial reporting purposes and, accordingly, our consolidated financial statements for each period prior to the merger reflect the combined operations of Pride and Marine. Since November 2003, we have reorganized our senior management team. John O'Leary has been appointed to the position of President, Louis Raspino joined Pride as Executive Vice President and Chief Financial Officer, John Blocker has been appointed Senior Vice President -- Operations and Gregory Looser has been appointed Vice President, General Counsel and Secretary. BUSINESS ENVIRONMENT AND OUTLOOK General Revenues. Our revenues depend principally upon the number of our available rigs, the number of days these rigs are utilized and the contract day rates received. The number of days our rigs are utilized and the contract day rates received are largely dependent upon the balance of supply and demand for drilling and related services in the different geographic regions in which we operate. The number of available rigs may increase or decrease as a result of the acquisition, relocation or disposal of rigs, the construction of new rigs and the number of rigs being upgraded or repaired or the subject of periodic surveys or routine maintenance at any time. In order to improve utilization or realize higher contract day rates, we may mobilize our rigs from one market to another. Our revenues also depend on the number and scope of construction or engineering projects being undertaken by our technical services group. Revenues for these projects are recognized on a percentage-of-completion basis. Oil and gas companies' exploration and development drilling programs drive the demand for drilling and related 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 by our customers for oil and gas drilling and related services. Operating Expenses. Earnings from operations are primarily affected by changes in revenue, but are also a function of changes in operating expenses. Operating expenses are generally influenced by changes in utilization. For instance, if a rig is expected to be idle for an extended period of time, we may reduce the size of the rig's crew and take steps to "cold stack" the rig, which reduces expenses and partially offsets the impact on operating income associated with loss of revenues. We recognize as an operating expense routine overhauls that maintain rather than upgrade the rigs or E&P services equipment. These expenses vary from period to period. Costs of rig enhancements are capitalized and depreciated over the expected useful lives of the enhancements. Depreciation expense decreases earnings from operations in periods subsequent to capital upgrades. Operating expenses in relation to our engineering and construction projects are recognized in 22 proportion to revenues using the percentage-of-completion method. Additionally, operating expenses may include a provision for expected losses if we estimate that a project will be unprofitable in total. Our general and administrative expenses are principally related to our corporate headquarters and our regional offices. Environmental Regulation. We are subject to the U.S. Oil Pollution Act of 1990, the U.S. Outer Continental Shelf Lands Act, and the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA. Additionally, other countries where we operate have similar regulations covering the discharge of oil and other contaminants in connection with drilling operations. SEGMENT REVIEW The following table summarizes average daily revenue and percentage utilization by type of rig for the last three years. Average daily revenue information is based on total revenues for each rig type divided by actual days worked by all rigs of that type. Average daily revenue will differ from average contract day rate for a rig due to billing adjustments for any non-productive time, mobilization fees, performance bonuses and charges to the customer for ancillary services. Percentage utilization is calculated as the total days worked divided by the total days available for work by all rigs of that type.
2003 2002 2001 ---------------------- ---------------------- ---------------------- DAILY DAILY DAILY REVENUE UTILIZATION REVENUE UTILIZATION REVENUE UTILIZATION -------- ----------- -------- ----------- -------- ----------- GULF OF MEXICO Jackup Rigs................. $ 31,400 69% $ 26,300 45% $ 40,100 80% Platform Rigs............... $ 20,000 35% $ 20,700 42% $ 19,500 57% INTERNATIONAL OFFSHORE Drillships/Semisubmersibles... $117,600 86% $124,900 84% $118,500 93% Jackup Rigs................. $ 52,300 94% $ 48,000 89% $ 36,600 82% Tenders and Barges.......... $ 33,200 82% $ 33,700 94% $ 31,400 78% INTERNATIONAL LAND Land Drilling............... $ 14,900 68% $ 12,200 57% $ 13,400 79% Land Workover............... $ 3,900 80% $ 3,400 68% $ 5,600 77%
Gulf of Mexico Demand for drilling services in the U.S. Gulf of Mexico showed only a marginal improvement in 2003. Demand has continued to lag the recovery in natural gas prices that commenced in mid-2002 when natural gas inventory storage levels started to decline. Market conditions have, however, somewhat improved due to the reduction in the supply of rigs resulting from a number of rigs leaving the U.S. sector of the Gulf of Mexico for other markets. As a result, jackups in the U.S. Gulf of Mexico are currently being contracted at rates of approximately $4,000 per day higher than at the start of 2003. In response to the weak market conditions that have existed in the U.S. Gulf of Mexico since the fourth quarter of 2001, we have actively marketed a number of rigs in our U.S. Gulf of Mexico fleet to international markets. Since early 2002, we have obtained long-term contracts for 14 jackup rigs and two platform rigs with a unit of Petroleos Mexicanos S.A. in the Mexican sector of the Gulf of Mexico and for two jackup rigs in other international markets, one in Nigeria and one in India. Additionally, we obtained long-term contracts with Pemex in Mexico for the Pride South Seas, a semisubmersible rig that we mobilized from South Africa, and for the Pride Mexico, a newly acquired semisubmersible rig. The first nine jackup rigs, one of the platform rigs and the Pride South Seas were contracted and completed redeployment in 2002 and worked throughout 2003. Three of the jackups and the second platform rig commenced operations in July 2003, and the Pride Mexico and the remaining two jackup rigs commenced operations in the fourth quarter of 2003. 23 As of March 1, 2004, our 14 jackups working for Pemex had contracts with an average remaining term of 2.1 years and an average contract day rate of $32,900. Six of our jackups were working in the U.S. Gulf of Mexico with an average contract day rate of $26,800, of which four were on short-term contracts. There were five rigs available. Additionally, three of our platform rigs were working offshore Mexico on contracts with an average contract day rate of $20,200 and five were working in the U.S. Gulf of Mexico at an average contract day rate of $21,000. Two of our available jackup rigs could be put back into service in the U.S. Gulf of Mexico at a relatively low cost. The remaining three rigs have not worked since late 2001, and we would require longer-term contracts to justify the cost of reactivating these rigs. All of our available rigs would require additional expenditures to work in Mexico or other international markets. We expect that revenues and gross margins derived from our Gulf of Mexico operations in 2004 will exceed those for 2003 due to higher revenues from a full year of operations, and the absence of start-up costs, for those rigs working in Mexico. Results for 2004 are also expected to benefit from improved day rates and a modest increase in activity in the U.S. sector of the Gulf. International Offshore Our international offshore segment has continued to experience high levels of activity, and we have maintained essentially full utilization of six of our seven high-specification deepwater rigs in 2003. The seventh rig, the Pride South America semisubmersible rig, received its five-year periodic survey and related maintenance in the first quarter of 2003 and was out of service for approximately 70 days. In addition, the rig had approximately 45 days of downtime in the third and fourth quarters of 2003 due to repairs to its thruster systems. The Pride Carlos Walter and Pride Brazil semisubmersible rigs working offshore Brazil both experienced unscheduled downtime in the fourth quarter of 2003 relating to the replacement of certain bearings on their riser tensioner systems. The downtime resulted in approximately $3.0 million of lost revenues and approximately $1.5 million of increased operating costs. Each rig has eight sets of riser tensioners, and we plan to replace the bearings on the remaining unchanged sets during 2004, which is expected to result in an aggregate of approximately 25 days of downtime for the two rigs in 2004. Two of our deepwater semisubmersible rigs working in West Africa are expected to complete their current contracts in April 2004 and August 2004, respectively. Demand and day rates for deepwater rigs in the West African market are lower than when the rigs were last contracted. We currently expect that the rigs will be recontracted at rates significantly less than their current rates and that one or both could have some period without contract revenues. Our remaining three deepwater semisubmersibles are on long-term contracts, and our two deepwater drillships, the Pride Africa and Pride Angola, are working under contracts that were extended in December 2003 by an aggregate of ten years, commencing at the end of the contracts' current terms in June 2005 and May 2005, respectively. The Pride Africa is scheduled to undergo its five-year special periodic survey in the fourth quarter of 2004 and is expected to be out of service for approximately 45 days. The market for intermediate water-depth semisubmersible rigs remained weak during 2003. Idle time for our three rigs working in the international offshore segment was due primarily to one of the rigs undergoing its five-year periodic survey during the period and to the Pride Venezuela being stacked for the last five months of 2003 after it completed its contract with PDVSA in July. The Pride Venezuela has been demobilized to Trinidad and is being marketed internationally. Additionally, the contract for the Pride South Atlantic, offshore Brazil, expired in October 2003, and the rig commenced a new contract to drill three wells, with possibly additional optional wells, offshore Brazil, in January 2004. Both the Pride Venezuela and the Pride South Atlantic were warm stacked after their respective contracts expired. Therefore, operating costs while they were stacked were similar to when they had been working. Since the transfer of two independent-leg jackup rigs to Nigeria and India under two-year contracts in 2002, we have had eight jackup rigs working in international waters outside of the Gulf of Mexico. All of these rigs are currently working under long-term contracts, of which four are due to expire in 2004. These jackup 24 rigs experienced 94% utilization in 2003. The idle time was primarily due to two of these rigs undergoing shipyard repairs in 2003. Additionally, we manage two jackup rigs on behalf of PDVSA in Venezuela under contracts that expire in the second quarter of 2004. Four of our jackup rigs are expected to undergo their planned special periodic surveys during 2004 and will be out of service for a combined total of approximately eight months. We currently expect that the four rigs whose contracts are due to expire in 2004 will be recontracted at modestly lower day rates. We expect revenues and gross margin for our international offshore segment to be lower in 2004 than in 2003 primarily due to the weaker market conditions in the West African deepwater semisubmersible market and to the Pride Africa undergoing its special periodic survey. International Land During 2003, our international land segment benefited from improved economic and political stability in Argentina, where approximately 62% (154 out of 249) of our worldwide land drilling and workover rigs are located. Operations in 2002 had been adversely affected by the economic and political instability in that country. The Argentine peso declined in value against the U.S. dollar following the Argentine government's decision to abandon the country's fixed one-to-one dollar-to-peso exchange rate at the end of 2001. Prior to that decision, commercial transactions were freely entered into in either pesos or dollars because the two currencies operated in parity and both could move out of the country freely. In December 2001, the Argentine government imposed restrictions that severely limited dollar withdrawals and exchanges, with the result that as of December 31, 2001, no Argentine commercial transactions could be conducted in dollars and there was no exchangeability between the peso and the dollar. In January 2002, the Argentine government announced the creation of a dual exchange rate system in which limited transactions would be settled at an official/preferential rate. When this system proved to be non-operational in practice, the government abandoned it in early February 2002 and adopted a free-market rate system for all new transactions. The government also mandated that all existing U.S. dollar commercial transactions be redenominated into pesos at the rate of one peso to one dollar. As a result of this conversion, which followed the earlier devaluation of the peso, we recorded a charge in the fourth quarter of 2001 of $10.7 million before estimated income taxes, and $6.9 million net of estimated income taxes, to reduce the carrying values of our net monetary assets in Argentina, which included our bank accounts, receivables, prepaid expenses, deposits, payables and accrued liabilities. This amount is reflected as other income (expense). During the first quarter of 2002, we engaged in discussions with all of our Argentine customers regarding recovery of losses sustained from the devaluation of accounts receivable and the basis on which new business would be contracted. We restructured most of our contracts on a basis that we believe limits our exposure to further devaluations. Activity levels have recovered steadily from mid-2002 as high oil prices positively impacted our customers' cash flows. The average rate of utilization of our available rig fleet in Argentina was 83.5% in 2003 as compared with 68% in 2002. As of March 1, 2004, 132 rigs, or 86% of our total fleet of 154 rigs, in Argentina were under contract. Venezuela also has been experiencing political, economic and social instability. A prolonged strike by PDVSA employees that ended in February 2003 led to the dismissal of more than 18,000 employees by the government. The recent turmoil in Venezuela led to a reduction in our level of operations in that country during the first quarter of 2003. Since the conclusion of the strike, our rig activity has recovered and currently exceeds the level that existed before the strike. As of March 1, 2004, we had 31 rigs, or 86%, of our total land-based rigs and all four of our offshore rigs in Venezuela under contract as compared with only seven rigs at the end of the strike. Exchange controls, together with employee dismissals and reorganization within PDVSA, initially led to a slower rate of collection of our trade receivables, but the rate of collection has improved since early 2003. In Kazakhstan, the first of two of our large land rigs, which had been earning a standby rate since being accepted by the customer in November 2002, commenced operations on an artificial island in the Caspian Sea in April 2003, and the second rig commenced operations in July 2003. The related contracts required substantial engineering, logistics and construction work to modify, enhance and deploy our rigs in accordance 25 with the customer's specifications. We received up-front fees that we recognized over the rigs' respective contract periods, of which $6.0 million was recognized in 2002 and $42.9 million in 2003. Both of the rigs were stacked at the onset of the winter period in November 2003 and are currently being reactivated. One of the rigs is expected to work throughout the 2004 drilling season. Activity for the second rig depends upon the results of testing of the well it drilled in 2003. In Africa, activity increased due to a full year of operation for five newly constructed mobile land rigs that started work in Chad between December 2001 and April 2002 under contracts with a unit of ExxonMobil with initial terms ranging from five to seven years. E&P Services Our E&P services activity is generated predominately in South America and has benefited from the improved political and economic environment in 2003. Revenues and gross margins have improved during 2003 in Argentina due to the commencement of additional integrated services contracts. Activity in this sector has also improved due to the commencement of directional, measurement-while-drilling and other services onshore Brazil and the provision of cementing services offshore Mexico, where the services are complementary to our existing drilling operations. Technical Services Our technical services group has major projects ongoing to design, engineer, manage construction of and commission four deepwater platform drilling rigs, which are being constructed on behalf of two major oil company customers for installation on spars and tension-leg platforms. We also are to provide drilling operations management of the rigs once they have been installed on the platforms. The first platform drilling rig has been mated with the customer's platform and towed to Angola, where it commenced drilling operations in November 2003. Two of the other deepwater platform rigs are expected to enter into service in the second half of 2004 and the remaining rig is expected to enter into service in early 2005. During 2003, we recorded loss provisions, included in operating costs, totaling $98.4 million, or $64.0 million net of taxes at the U.S. statutory rate, relating to the construction of these deepwater platform rigs. On all four of these projects, costs are now expected to substantially exceed revenues. We do not currently intend to enter into any additional lump-sum construction contracts for rigs to be owned by others. Much of the increased costs are related to difficulties experienced with two different shipyards. We terminated our contract with the initial shipyard prior to the completion of the first two rigs. As a result, we have incurred substantial unplanned costs in completing the construction of the first unit. We have engaged another shipyard to complete construction of the second rig, and the aggregate costs paid to the initial shipyard and committed and paid to the second shipyard have greatly exceeded budgeted expenditures for the rigs. In addition, because of the difficulties with the initial shipyard, we are now utilizing shipyards in the Asia Pacific region for the third and fourth deepwater rig projects. As a result, the lump sum contracts and anticipated freight costs for these two projects are higher than originally budgeted. A U.S. shipyard building one of the primary components for the third rig encountered significant financial difficulties, and we have paid costs in excess of amounts initially agreed to provide financial capacity for it to complete a reduced scope of work. The aggregate costs paid to that shipyard, in addition to the costs associated with the completion of the remaining tasks by newly contracted third parties, as well as transportation and other costs necessitated by the revisions to the project completion plan, have significantly exceeded the budgeted expenditures for the third deepwater rig. Furthermore, based on our experience from the start-up of the first rig and on revisions of estimates, we have included increased costs for construction, transportation, commissioning, training and warranties in our estimates of costs to complete the three remaining rigs. We have commenced arbitration proceedings against the initial shipyard claiming damages of approximately $5.8 million, and the shipyard has asserted counterclaims against us for damages of approximately $13.8 million. We also are in commercial disputes and negotiations with certain equipment vendors and major sub-contractors. We intend to vigorously pursue equitable resolutions with these other parties. 26 Our technical services segment is performing these deepwater platform rig construction projects under lump sum contracts with our customers. In pricing these contracts, we attempted to accurately estimate our cost to perform the work, including the cost of labor, material and services. Despite these efforts, however, the revenue, cost and gross profit or loss we now expect to realize on these lump-sum contracts vary from the originally estimated amounts. We have experienced cost overruns on these contracts that have adversely impacted our financial results. Currently unforeseen events may result in further cost overruns to complete these projects, which could be material and which would require us to record additional loss provisions in future periods. Such events could include variations in labor and equipment productivity over the remaining term of the contract, unanticipated cost increases, engineering changes, shipyard or systems problems, project management issues, shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment, work stoppages, shipyard unavailability or delays. We recognize revenues and related costs from our rig construction contracts under the percentage-of-completion method of accounting using measurements of progress toward completion appropriate for the work performed, such as man-hours, costs incurred or physical progress. Accordingly, we review contract price and cost estimates periodically as the work progresses and reflect adjustments in income (1) to recognize income proportionate to the percentage of completion in the case of projects showing an estimated profit at completion and (2) to recognize the entire amount of the loss in the case of projects showing an estimated loss at completion. To the extent these adjustments result in an increase in previously reported losses or a reduction in or an elimination of previously reported profits with respect to a project, we would recognize a charge against current earnings, which could be material. Although we continually strive to improve our ability to estimate our contract costs and profitability associated with our construction projects, our current estimates may be revised in future periods, and those revisions may be material. Currently, all four of our lump-sum construction projects are in a loss position. Please read "Business -- General" in Item 1 of this annual report and "-- Liquidity and Capital Resources" in this Item 7. 27 RESULTS OF OPERATIONS The following table presents selected consolidated financial information by operating segment for the periods indicated.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2003 2002(1) 2001(1) ------------------ ------------------ ------------------ (DOLLARS IN THOUSANDS) Revenues: Gulf of Mexico.......... $ 271,490 16.1% $ 165,419 13.0% $ 418,850 27.7% International offshore............. 683,058 40.4 642,319 50.6 507,139 33.5 International land...... 482,832 28.6 299,278 23.6 444,405 29.4 E&P services............ 122,052 7.2 73,000 5.7 142,501 9.4 Technical services...... 130,288 7.7 89,758 7.1 -- 0.0 ---------- ----- ---------- ----- ---------- ----- Total revenues....... $1,689,720 100.0% $1,269,774 100.0% $1,512,895 100.0% ========== ===== ========== ===== ========== ===== Operating Costs: Gulf of Mexico.......... $ 185,476 15.5% $ 141,766 17.8% $ 212,401 23.9% International offshore............. 347,398 29.0 310,071 39.0 237,758 26.7 International land...... 341,847 28.5 204,018 25.7 330,492 37.2 E&P services............ 88,318 7.4 52,176 6.6 108,910 12.2 Technical services...... 234,806 19.6 86,708 10.9 -- 0.0 ---------- ----- ---------- ----- ---------- ----- Total operating costs.............. $1,197,845 100.0% $ 794,739 100.0% $ 889,561 100.0% ========== ===== ========== ===== ========== ===== Segment Profit (Loss): Gulf of Mexico.......... $ 86,014 17.5% $ 23,653 5.0% $ 206,449 33.1% International offshore............. 335,660 68.2 332,248 69.9 269,381 43.2 International land...... 140,985 28.7 95,260 20.1 113,913 18.3 E&P services............ 33,734 6.9 20,824 4.4 33,591 5.4 Technical services...... (104,518) (21.3) 3,050 0.6 -- 0.0 ---------- ----- ---------- ----- ---------- ----- Total segment profit............. $ 491,875 100.0% $ 475,035 100.0% $ 623,334 100.0% ========== ===== ========== ===== ========== ===== Depreciation and amortization............ $ 249,222 $ 230,204 $ 202,710 General and administrative.......... 121,259 94,241 100,309 Pooling and merger costs................... (824) -- 35,766 ---------- ---------- ---------- Earnings from operations........... $ 122,218 $ 150,590 $ 284,549 ========== ========== ==========
- --------------- (1) The consolidated financial information by operating segment for 2002 and 2001 has been restated to reflect the retroactive adoption of FIN No. 46R, "Consolidation of Variable Interest Entities." 2003 Compared with 2002 Revenues. Revenues for 2003 were $419.9 million, or 33.1%, higher than in 2002, due primarily to increased activity for our offshore rigs in Mexico, an increase in land drilling and E&P services activity due to the recovery in Argentina and Venezuela, increased activity in Kazakhstan, and an increase in revenues recognized related to the design, engineering and construction of deepwater platform rigs by our technical services group. Additionally, one of our international deepwater rigs, the Pride South Pacific, worked throughout 2003, but was idle from April 2002 to November 2002. These increases in revenues were partially offset by a decrease in activity in the U.S. sector of the Gulf of Mexico. 28 Operating Costs. Operating costs for 2003 were $403.1 million, or 50.7%, higher than in 2002 due to increased costs, including loss provisions of $98.4 million, incurred on contracts related to the construction of deepwater platform rigs and costs associated with rigs that operated during 2003 that were stacked or being upgraded during 2002. Additionally, certain operating costs denominated in euros increased due to the strengthening of that currency relative to the dollar. These increases in costs were partially offset by the favorable impact of the devaluation in Venezuela on expenses denominated in its local currency. Operating costs for 2002 were reduced by $1.5 million as a result of changes in estimates of costs accrued in prior periods primarily for contractually required maintenance costs that were not expected to be incurred on two rigs managed by us. Depreciation and Amortization. Depreciation expense increased by $19.0 million, or 8.3%, to $249.2 million in 2003, from $230.2 million in 2002, due to incremental depreciation on newly acquired and constructed rigs and other rig refurbishments and upgrades. General and Administrative. General and administrative expenses increased by $27.1 million, or 28.7%, to $121.3 million for 2003, from $94.2 million for 2002, due primarily to executive retirement costs of $5.3 million, increased overhead related to higher activity in Argentina, Mexico and Venezuela, the impact of the decline in the value of the dollar relative to the euro on certain expenses denominated in euros and higher professional fees, insurance and staffing costs. Other Income (Expense). Other expense for 2003 decreased by $13.3 million, or 9.5%, as compared to 2002. Interest expense decreased by $7.6 million due principally to a reduction in the weighted average interest rate of our debt as a result of recent debt refinancings, partly offset by an increase in the average amount of outstanding debt. Additionally, the effective interest rate applicable to our Pride Angola drillship loan declined after January 2003 from the swapped rate of 6.52% to a rate based on LIBOR plus a margin of 1.25%. Other income in 2003 was comprised of mostly net foreign exchange gains, primarily in Venezuela, partly offset by expenses related to the redemption of $150 million principal amount of our 93/8% senior notes due 2007, including a redemption premium of $4.7 million and the recognition of $1.5 million of unamortized deferred financing costs. Other expense in 2002 principally comprised a loss of $1.2 million related to the early extinguishment of approximately $244.2 million accreted value, net of offering costs, of our zero coupon convertible senior and subordinated debentures. Income Tax Provision. Our consolidated effective income tax rate for 2003 was 26.3% as compared to 27.7% for 2002. The lower rate for the current period was principally a result of increased income in foreign jurisdictions with low or zero effective tax rates, partly offset by a true-up of the provision relating to tax returns for prior periods. Minority Interest. Minority interest in 2003 increased $4.7 million, or 29.0%, as compared to 2002, primarily due to an increase in income from a reduction in interest expense on the Pride Angola drillship loan. 2002 Compared with 2001 Revenues. Revenues in 2002 decreased $243.1 million, or 16.1%, as compared to 2001, primarily due to reduced activity and day rates for our jackup and platform rigs in the U.S. Gulf of Mexico and a reduction in revenues in Argentina and Venezuela due to reduced activity levels for our land drilling and E&P services operations and the devaluation of their currencies. Additionally, one of our seven high-specification deepwater rigs, the Pride South Pacific, which worked throughout 2001, was idle from April 2002 to November 2002. These decreases were partially offset by a full year of operations for two of our semisubmersible rigs, the Pride Carlos Walter and Pride Brazil, which commenced working for Petrobras under five-year contracts in June and July 2001, increased jackup activity in Mexico, the commencement of land drilling operations in Chad and in Kazakhstan and the start-up of operations for our technical services division. Operating Costs. Operating costs in 2002 decreased $94.8 million, or 10.7%, as compared to 2001 due to decreased costs associated with rigs that were stacked or being upgraded during 2002 that operated during 2001 and a reduction in operating costs in Argentina and Venezuela due to reduced activity levels in those 29 countries and the devaluation of their local currencies. These reductions in costs were partially offset by a full year of operating costs for the Pride Carlos Walter and Pride Brazil placed into service in June and July 2001, costs related to the commencement of operations in Chad and Kazakhstan and to the start-up of operations of our technical services division. Depreciation and Amortization. Depreciation and amortization expense increased $27.5 million, or 13.6%, in 2002 as compared with 2001, due to incremental depreciation on newly acquired and constructed rigs and other rig refurbishments and upgrades. This increase was partially offset by the impact of a reassessment of residual values and estimated remaining useful lives of certain rigs during the third quarter of 2001 and the elimination of amortization of goodwill beginning in January 2002. General and Administrative. General and administrative expenses for 2002 decreased $6.1 million, or 6.0%, as compared with 2001, primarily due to cost savings associated with the closure of duplicate facilities and staffing reductions following our September 2001 acquisition of Marine. Additionally, the devaluation of the currencies in Argentina and Venezuela favorably impacted expenses denominated in their local currencies. 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 of $11.4 million. Other Income (Expense). Other expense in 2002 increased $12.3 million, or 9.6%, as compared to 2001. Interest expense increased by $15.5 million, principally due to interest on indebtedness added in the March 2001 acquisition of the remaining 73.6% ownership of the Pride Carlos Walter and Pride Brazil and interest on construction financing for the rigs that had been capitalized during their construction. During 2002, we capitalized $1.9 million of interest expense in connection with construction projects, as compared to $19.0 million of interest capitalized in 2001. Interest income declined $9.1 million due to lower cash balances available for investment and to a reduction in interest rates. Other expense in 2002 principally comprised a loss of $1.2 million related to the early extinguishment of approximately $244.2 million accreted value, net of offering costs, of our zero coupon convertible senior and subordinated debentures. 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 and a gain of $2.0 million related to the early extinguishment of approximately $59.5 million accreted value, net of offering costs, of our zero coupon convertible subordinated debentures due 2018. The 2001 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 following devaluation of the Argentine currency. Income Tax Provision. Our consolidated effective income tax rate for 2002 decreased to 27.7% from 31.8% in 2001. The higher rate in 2001 was principally a result of approximately $19.0 million of the pooling and merger costs being estimated to be non-deductible for U.S. federal income tax purposes. Minority Interest. Minority interest in 2002 increased $0.6 million, or 3.8%, as compared to 2001, primarily due to an increase in net income generated by our 51% owned drillships, the Pride Africa and Pride Angola, as a result of decreased downtime and increased performance bonuses received from our customer. LIQUIDITY AND CAPITAL RESOURCES We had net working capital of $83.1 million and $152.4 million as of December 31, 2003 and December 31, 2002, respectively. The decrease in net working capital was attributable primarily to the use of cash to upgrade rigs being contracted to Mexico and other international markets from our U.S. Gulf of Mexico fleet and other capital expenditures in excess of cash generated from operating activities, an increase in the current portion of long-term debt as a result of the reclassification of approximately $86 million of senior convertible notes that mature in December 2004 from long-term to current liabilities and net cash outlays on deepwater platform rig construction projects. 30 Rig Construction Projects In 2003, we recorded a provision for expected losses on deepwater platform rig construction projects of $98.4 million. Of this amount, approximately $80.0 million corresponds to the excess of expected cash outlays after December 31, 2003 to complete the projects over estimated future cash receipts from the projects, which will negatively impact liquidity in 2004 and the first six months of 2005. Capital Expenditures Additions to property and equipment during 2003 totaled $217.0 million, including $23.4 million for the upgrade of one large land rig to work in Kazakhstan, $12.2 million for the acquisition of a conventionally moored semisubmersible rig, now the Pride Mexico, $85.1 million for the upgrading of five jackup rigs, one platform rig and the Pride Mexico for contracts in Mexico, $10.0 million for other rig upgrades, refurbishments and reactivations, and approximately $86.3 million for sustaining capital projects. Since early 2002, we have obtained long-term contracts in Mexico for 14 jackup rigs, two platform rigs and two semisubmersible rigs. Most of these rigs came from our U.S. Gulf of Mexico rig fleet and required substantial upgrades to meet international standards and Pemex's specific requirements. The upgrades included expanding the living quarters and adding additional equipment such as extra mud pumps, top-drives and higher load capacity cranes. Although we currently expect our capital expenditures in 2004 to decrease as our program to upgrade rigs in our U.S. Gulf of Mexico fleet for international markets winds down, we may be required to upgrade a number of rigs whose contracts expire in 2004 in connection with their working under new contracts. These upgrades could require significant investments of our working capital. Rig Mobilization Fees Mobilization fees received from customers and the costs incurred to mobilize a rig from one geographic area to another, as well as up-front fees to modify a rig to meet a customer's specifications, are deferred and amortized over the term of the related drilling contracts. Additionally, we defer costs associated with obtaining special periodic survey certificates from various regulatory bodies in order to operate our offshore rigs. We amortize these costs over the period of validity of the related certificate. These up-front fees and costs impact liquidity in the period in which the fees are received or the costs incurred, whereas they will impact our statement of operations in the periods during which the deferred revenues and costs are amortized. Deferred revenues and costs that are expected to be amortized in the twelve-month period following each balance sheet date are included in other accrued liabilities and current assets, respectively, and deferred revenues and costs that are expected to be amortized after more than twelve months from each balance sheet date are included in other long-term liabilities and other assets, respectively. The amount of up-front fees received and the related costs vary from period to period depending upon the nature of new contracts entered into and market conditions then prevailing. Generally, contracts for drilling services in remote locations or contracts that require specialized equipment will provide for higher up-front fees than contracts for readily available equipment in major markets. In 2003, up-front fees received included $13.5 million related to the mobilization of rigs to Mexico. In 2002, up-front fees received included $48.9 million in respect of engineering, logistics and construction work to modify, enhance and deploy two large land rigs for Kazakhstan, in accordance with the customer's specifications, and $18.8 million related to the mobilization of rigs to Mexico. Credit Facilities In June 2002, we entered into senior secured credit facilities with a group of banks providing for aggregate availability of up to $450.0 million, consisting of a five-year $200.0 million term loan and a three-year $250.0 million revolving credit facility. In December 2003, we replaced the term loan with a new $197.0 million term loan expiring in January 2009 and extended the period of the revolving credit agreement until January 2007. Borrowings under the revolving credit facility are available for general corporate purposes. We may issue up to $50.0 million of letters of credit under the facility. As of December 31, 2003, $189.0 million of borrowings and an additional $27.8 million of letters of credit were outstanding under the revolving credit 31 facility. The facilities are collateralized by two deepwater semisubmersible rigs, the Pride North America and the Pride South Pacific, and 28 jackup rigs. Borrowings under the facilities currently bear interest at variable rates based on LIBOR plus a spread based on the credit rating of the facility or, if unrated, index debt. As of December 31, 2003, the interest rates on the term loan and revolving credit facility were 3.66% and 3.20%, respectively. The credit facilities contain provisions that limit our ability and the ability of our subsidiaries, with certain exceptions, to pay dividends or make other restricted payments and investments; incur additional debt; create liens; incur dividend or other payment restrictions affecting subsidiaries; consolidate, merge or transfer all or substantially all of our assets; sell assets or subsidiaries; enter into speculative hedging arrangements outside the ordinary course of business; enter into transactions with affiliates; make maintenance capital expenditures and incur long-term operating leases. The credit facilities also require us to comply with specified financial tests, including a ratio of net debt to EBITDA, an interest coverage ratio, a ratio of net debt to total capitalization and a minimum net worth. In 2003, in order to reduce the potential impact of fluctuations in LIBOR, we entered into interest rate agreements that effectively cap the interest rate on $194.0 million of borrowings under our senior secured term loan at rates from 3.58% to 5.0%, plus the applicable spread, and provide a lower limit on rates from 0.72% to 0.91%, plus the applicable spread, to March 2007. If interest rates fall below the lower limits, interest rates payable increase to rates from 2.0% to 3.94%, plus the applicable spread. The interest rate agreements are marked-to-market quarterly with the change in fair value recorded as a component of interest expense. At December 31, 2003, the net value of the instruments was a liability of $0.6 million. Marking these instruments to market each quarter may increase short-term earnings volatility as market perceptions of future interest rate movements change. We amended our $95.0 million senior secured revolving credit facility with non-U.S. banks in October 2003. The amended facility provides aggregate availability of up to $180.0 million, including up to $10.0 million of letters of credit, and is collateralized by three semisubmersible rigs, two jackup rigs and a tender-assisted rig. Borrowings under the amended credit facility bear interest at variable rates based on LIBOR plus a spread ranging from 1.2% to 2.1%. As of December 31, 2003, $99.0 million of borrowings and an additional $10.0 million of letters of credit were outstanding under this credit facility. As of March 10, 2004, the undrawn portion of our senior secured revolving credit facilities was approximately $107 million. Indentures governing our outstanding 9 3/8% senior notes due 2007 and our 10% senior notes due 2009 limit our ability to draw under these facilities to a percentage of consolidated net tangible assets, which, as of March 10, 2004, effectively restricted our ability to borrow approximately $76 million of undrawn capacity under these facilities. Accordingly, only $31 million of these facilities were available to meet our short-term liquidity needs. Outstanding Debt Securities In April and May 2003, we issued $300 million aggregate principal amount of 3.25% convertible senior notes due 2033. Substantially all of the net proceeds of approximately $294.8 million were used to repay amounts outstanding under our senior secured revolving credit facilities, which included borrowings used to fund a portion of the purchase price of our zero coupon convertible subordinated debentures due 2018, described below. The notes bear interest at a rate of 3.25% per annum. We also will pay contingent interest during any six-month interest period commencing on or after May 1, 2008 for which the trading price of the notes for each of the five trading days immediately preceding such period equals or exceeds 120% of the principal amount of the notes. Beginning May 5, 2008, we may redeem any of the notes at a redemption price of 100% of the principal amount redeemed plus accrued and unpaid interest. In addition, noteholders may require us to repurchase the notes on May 1 of 2008, 2010, 2013, 2018, 2023 and 2028 at a repurchase price of 100% of the principal amount redeemed plus accrued and unpaid interest. We may elect to pay all or a portion of the repurchase price in common stock instead of cash, subject to certain conditions. The notes are convertible under specified circumstances into shares of our common stock at a conversion rate of 38.9045 shares per $1,000 principal amount of notes (which is equal to a conversion price of $25.704), subject to adjustment. Upon conversion, we will have the right to deliver, in lieu of shares of common stock, cash or a combination of cash and common stock. 32 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 $291.5 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 is payable semiannually. 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. First Reserve manages private equity funds that specialize in the energy industry. 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 July 2003, we redeemed $150.0 million principal amount of our 9 3/8% senior notes due 2007 at a redemption price of 103.125% of the principal amount, plus accrued and unpaid interest to the redemption date. We paid a total of $157.6 million in connection with the redemption, including $2.9 million of accrued and unpaid interest and a $4.7 million premium. The call premium in respect of any additional redemptions reduces to 101.563% of the principal amount redeemed on or after May 1, 2004. In January 2003, we repurchased substantially all of our outstanding zero coupon convertible senior debentures due 2021 for $98.2 million, which was equal to their accreted value on the date of purchase. In April 2003, we repurchased $226.5 million face amount of our zero coupon convertible subordinated debentures due 2018 for $112.0 million, which was equal to their accreted value on the date of purchase. The purchase price was funded through borrowings under our senior secured revolving credit facilities and available cash. Convertible subordinated debentures with a face amount of $2.1 million, and an accreted value of $1.1 million as of December 31, 2003, remain outstanding. Drillship Loans We have a 51% ownership interest in and operate the ultra-deepwater drillships Pride Africa and Pride Angola, which are contracted to work for Total Exploration & Production Angola SA under contracts which were extended, in December 2003, by an aggregate of ten years, commencing at the end of the contracts' current terms 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 collateralized 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, 2003, a total of $182.7 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 January 2003 and effectively capped the interest rate on the Pride Angola loan at 6.52% from February 2003 to January 2007. After January 2003, the effective interest rate applicable to our Pride Angola drillship loan declined from the swapped rate of 6.52% to a rate based on six-month LIBOR plus a margin of 1.25%. Interest expense was approximately $4.8 million lower, and minority interest was approximately $2.4 million higher, in 2003 than it would have been if we had continued to pay interest on this debt at the swapped rate. Following the extension of the contracts for our two drillships, we are in the process of finalizing an approximate $128 million expansion of the drillship loans. We expect to complete the increase of the facility early in the second quarter of 2004. We expect that approximately $103 million of the proceeds and approximately $15 million of currently restricted cash will be used by the joint venture to repay indebtedness due from the joint venture company to Pride and that the balance of the proceeds will be used by the joint venture to repay indebtedness to our joint venture partner and to increase future working capital in the joint venture. If the transaction is completed, the funds paid to us will be available to reduce our other outstanding debt, including the $86 million of senior convertible notes described below, and for other working capital purposes. 33 Semisubmersible Rig Financings In March 2001, we increased from 26.4% to 100% our ownership in a joint venture that 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 charter and service rendering contracts expiring in June and July 2006, respectively, 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 and approximately $86 million of senior convertible notes issued to the Brazilian participant. The notes mature in December 2004, bear interest at 9% per annum and are convertible into approximately 4.0 million shares of our common stock. The holder of the notes has the right to require us to prepay the notes at any time (1) after July 1, 2004 or (2) before July 1, 2004 to the extent of the amount of any required capital contributions by such holder with respect to the joint venture for the Pride Portland and the Pride Rio de Janeiro described below under "-- Investments." We have the option to prepay the notes any time after June 1, 2004. 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 facility bear interest at rates based on LIBOR plus an applicable margin of 1.50% to 1.85%. Principal and interest on the loans are payable semi-annually from March 2002 through 2008. Funding under the facility and repayment of the construction loans (which had interest rates of 11% per annum) was completed in November 2001. The loans are collateralized 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 facility, we entered into 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. As of December 31, 2003, there were borrowings of $178.2 million outstanding under this facility. In February 1999, we completed the sale and leaseback of the Pride South America semisubmersible drilling rig with an unaffiliated leasing trust pursuant to which we received $97.0 million. Since that time we have been recording activity associated with this transaction as an operating lease in accordance with the provisions of Statement of Financial Accounting Standards No. 13 "Accounting for Leases". Upon evaluation of the provisions of the recently issued Financial Accounting Standards Board ("FASB") Interpretation No. 46R "Consolidation of Variable Interest Entities" ("FIN No. 46R"), issued in December 2003, it was determined that the leasing trust would qualify for consolidation as a variable interest entity and that we were the primary beneficiary, as defined. Pursuant to the recommendation of the FASB, in the fourth quarter of 2003 we adopted the consolidation provisions of FIN No. 46R retroactively by restating previously issued financial statements for comparability purposes to consolidate the leasing trust's assets and liabilities, which comprise the Pride South America rig and the associated note payable, from inception of the lease. As of December 31, 2003, the carrying amount of the note payable was approximately $82.3 million. 34 Contractual Obligations As of December 31, 2003, we had approximately $4.4 billion in total assets and $2.0 billion of long-term debt and capital lease obligations. 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 obligations at December 31, 2003.
PAYMENTS DUE BY PERIOD --------------------------------------------------- LESS THAN 1-3 AFTER CONTRACTUAL OBLIGATIONS(1) TOTAL 1 YEAR YEARS 4-5 YEARS 5 YEARS - -------------------------- -------- --------- ------ --------- ------- (IN MILLIONS) Principal payments on long-term debt................................ $1,993.8 $188.7 $297.6 $ 963.7 $543.8 Interest payments on long-term debt... 417.3 102.4 179.0 100.3 35.6 Capital lease obligations............. 12.7 2.7 9.7 0.2 0.1 Operating lease obligations........... 39.2 12.1 13.7 6.5 6.9 Deepwater platform rig construction obligations......................... 186.9 178.9 8.0 -- -- Retirement obligations................ 3.6 1.2 1.4 0.9 0.1 -------- ------ ------ -------- ------ Total............................... $2,653.5 $486.0 $509.4 $1,071.6 $586.5 ======== ====== ====== ======== ======
- --------------- (1) Does not include unconditional purchase commitments to third parties for materials, goods and services incurred in the normal course of business. Investments in Joint Ventures We own a 30.0% equity interest in a joint venture company that is currently completing construction of two dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride Portland and the Pride Rio de Janeiro (formerly referred to as Amethyst 4 and Amethyst 5). The Pride Rio de Janeiro is undergoing sea trials in the Caribbean Sea and the Pride Portland is expected to exit the shipyard in Maine in May 2004. 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, which totaled approximately $342 million as of March 1, 2004, are being provided without recourse to any of the joint venture owners at a weighted average fixed interest rate of 4.31%. 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. In addition, the joint venture partners have agreed to provide equity contributions to finance all of the estimated $5.2 million of incremental costs associated with upgrading both rigs to a water depth capability of 1,700 meters from the original design of approximately 1,500 meters, of which our 30% share would be approximately $1.6 million. We expect that the joint venture partners will have to make additional capital contributions to fund the project through the sea trial stage for each rig or, alternatively, will have to provide acceptable guarantees to MARAD to permit the required further draws to become available under the MARAD-guaranteed credit facilities. If the funding is made by additional capital contributions, we expect that our proportionate share would be approximately $8.0 million. The capital contributions are likely to be required during the second quarter of 2004. Through December 31, 2003, our equity contributions to the joint venture totaled $33.7 million, including capitalized interest of $7.3 million and contributions of $0.8 million in connection with the water depth upgrades. If either joint venture partner failed to make its capital contribution and the other joint venture partner failed to cover the obligations, a default would occur under the fixed rate obligations guaranteed by MARAD. MARAD would be entitled to foreclose on the mortgages related to the Pride Portland and the Pride Rio de Janeiro and take possession of the two rigs. 35 The Pride Portland and Pride Rio de Janeiro are being built to operate under long-term 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 Pride Portland and Pride Rio de Janeiro under new or amended contracts. There can be no assurance, however, that either the Pride Portland or the Pride Rio de Janeiro will be contracted to Petrobras or to any other customer. If no contract is obtained before the rigs complete their sea trials, the rigs will be stacked. In this case, the joint venture partners would need to advance further funds to the joint venture company to allow it to pay stacking costs as well as principal and interest payments on the debt as they become due since the joint venture company would have no alternative source of funds to allow it to make such payments. Initial interest and debt service payments in respect of construction debt for the two rigs are expected to total approximately $22.0 million during 2004, of which our 30% share would be $6.6 million. We have a 12.5% interest in Basafojagu (HS) Inc., a company incorporated in Liberia that has capital lease obligations in respect of the Al Baraka 1 tender-assisted drilling rig. The majority shareholder is a subsidiary of a major Saudi Arabian banking and industrial group, and the two lessor banks are members of that same group. We entered into a long-term management agreement with Basafojagu to manage and operate the rig. We also provided guarantees for our 12.5% share, or approximately $5.0 million at December 31, 2003, of Basafojagu's lease obligations. Basafojagu is in arrears in payment of its lease obligations. In January 2004, we entered into a purchase option that expires on May 15, 2004 to acquire the tender barge and associated derrick set for aggregate consideration of $15.3 million. If we exercise our option, we will be released of all obligations under the guarantees and under the lease and management agreements. We currently expect that we will exercise our purchase option. Other Sources and Uses of Cash We have a Direct Stock Purchase Plan, which provides a means for investors to purchase shares of our common stock without paying brokerage commissions or service charges. During 2001 and 2003, we sold approximately 2.6 million and 830,000 shares, respectively, of common stock under this plan for net proceeds of $62.0 million and $15.0 million, respectively. No shares were sold under the plan in 2002. As of December 31, 2003, $38.8 million of our cash balances, which amount is included in restricted cash, consisted of funds held in trust in connection with our drillship and semisubmersible loans and our limited-recourse collateralized term loans and, accordingly, was not available for our use. The amount as of March 10, 2004 was approximately $27 million. Management believes that the cash and cash equivalents on hand, together with the cash generated from our operations and borrowings under our credit facilities, will be adequate to fund normal ongoing capital expenditures, working capital and debt service requirements for the foreseeable future. We may redeploy additional assets to more active regions in 2004 if we have the opportunity to do so on attractive terms; however, we expect fewer opportunities for redeployments than in 2002 and 2003. 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 project opportunities primarily through a combination of working capital, cash flow from operations and full or limited recourse debt or equity financing. In addition, we may consider from time to time opportunities to dispose of certain assets when we believe the capital could be more effectively deployed to reduce debt or for other purposes, and we continue to discuss with potential buyers the possible sale of certain assets. In addition to the matters described in this "-- Liquidity and Capital Resources" section, please read "-- Business Environment and Outlook" for additional matters that may have a material impact on our liquidity. TAX MATTERS We have a U.S. deferred tax asset of $244.7 million relating to U.S. net operating loss ("NOL") carryforwards. Due to the acquisition of Marine in September 2001, certain NOL carryforwards are subject to 36 limitation under Sections 382 and 383 of the U.S. Internal Revenue Code. We have determined that such limitations should not affect our ability to realize the benefits associated with such NOL carryforwards. The U.S. NOL carryforwards total $699.3 million and expire in 2019 through 2023. We estimate that we will generate sufficient U.S. taxable income of approximately $699.3 million prior to the expiration dates of these NOL carryforwards to fully utilize them. Historically, the difference between financial income (loss) and taxable income (loss) is primarily due to accelerated tax depreciation. Tax depreciation in excess of book depreciation for the years ended December 31, 2003, 2002, and 2001 was $66.4 million, $89.5 million, and $78.5 million, respectively. The Argentine NOL carryforwards were utilized in the current year due to a merger between the entity with the losses and our profitable Argentine entity. The profitable entity had sufficient income to utilize the entire amount of the deferred tax asset. We provide an allowance for the deferred tax assets in certain taxing jurisdictions because the benefits of the net operating losses will be realized only if we enter into additional profitable contracts in those jurisdictions. In 2003 we had an increase of 14.8% in the U.S. statutory rate for foreign taxes due to the following: (34.9)% for an adjustment to prior year deferred tax assets for foreign losses, and 49.7% for current year foreign taxes in excess of U.S. statutory rate. In 2003 we had an increase of 34.9% in the U.S. statutory rate for the change in valuation allowance due to an adjustment to prior year allowances on the deferred tax asset for foreign losses as explained above that will not be utilized in future years. We also had a decrease in the U.S. statutory rate for the following: 55.2% tax increase due to estimated U.S. tax at December 31, 2002 below the actual tax expense on the U.S. tax return as filed and a 3.1% increase to U.S. tax for other permanent items. In 2002 we had a decrease of (126.1)% in the U.S. statutory rate for foreign taxes due to the following: (112.0)% for previously omitted deferred tax assets for foreign losses, (51.7)% for current year deferred tax assets created by Mexico losses, and 37.6% for current year foreign taxes in excess of U.S. statutory rate. In 2002 we had an increase of 115.2% in the U.S. statutory rate for the change in valuation allowance due to the following: 112.0% for previously omitted allowances on the deferred tax asset for foreign losses as explained above that will not be utilized in future years, 51.7% for the current year allowance on Mexico tax losses described above that will not be utilized in future years, and (48.5)% decrease for the partial reversal of the allowance on French tax losses from rig rental income in France from Russia and Kazakhstan contracts that extend into 2003. Management's assumptions regarding these tax provisions, as described herein, were consistent with those of prior periods. CRITICAL ACCOUNTING POLICIES We consider policies concerning property and equipment and rig construction contracts to have the most significant impact on our consolidated financial statements. Property and equipment are carried at original cost or adjusted net realizable value, as applicable. Property and equipment held and used by us are reviewed for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Indicators of possible impairment include extended periods of idle time and/or an inability to contract specific assets or groups of assets, such as a specific type of drilling rig, or assets in a specific geographical region. However, the drilling, workover and related service industries in which we operate are highly cyclical and it is not unusual to find that assets that were idle, underutilized or contracted at sub-economic rates for significant periods of time resume activity at economic rates when market conditions improve. Additionally, most of our assets are mobile, and we may mobilize rigs from one market to another to improve utilization or realize higher day rates. 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 costs, utilization and day rates for the estimated remaining useful lives of the asset or group of assets being assessed. 37 Asset impairment evaluations are by, nature, highly subjective. They involve expectations about future cash flows generated by our assets, and reflect management's assumptions and judgments regarding future industry conditions and their effect on future utilization levels, day rates and costs. The use of different estimates and assumptions could result in materially different carrying values of our assets and could materially affect our results of operations. We account for rig construction contracts using the percentage-of-completion method. In applying this method we estimate periodically for each project the profit or loss at completion. This involves estimating future costs and revenues as well as determining the amount of costs incurred and revenues earned to date. Although estimating future revenues may require the exercise of a high degree of judgment, for example where there have been changes to the scope of work that have not been approved by the customer, the most judgmental areas often involve estimates of future costs. This judgment is most critical in construction projects that are expected to show a loss at completion since any change in estimate will immediately effect the amount of the recorded loss provision. In projects that are expected to show a profit, the judgment would only impact the results in proportion to the estimate of percentage complete. With our current construction projects, we have had to make particularly difficult judgments and estimates concerning the likely outcome, or range of outcomes, of a number of commercial disputes with shipyards, equipment vendors, major sub-contractors and others. Certain of these disputes involve claims and counterclaims and may involve either binding arbitration or legal proceedings. 38 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 7 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 our drillship and semisubmersible loan agreements that effectively fixed or capped the interest rate on such debt. Additionally, during 2003, we entered into interest rate agreements that effectively capped the interest rate on $194 million of borrowings under our senior secured term loan. These latter interest rate agreements are marked-to-market quarterly with the change in fair value recorded as a component of interest expense. As of December 31, 2003, the net value of these instruments was a liability of $0.6 million. As of December 31, 2003, we held interest rate swap and cap agreements covering $557.9 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, 2003 and 2002 was approximately $2,095 million and $2,065 million, respectively, which is more than its carrying value as of December 31, 2003 and 2002 of $1,994 million and $1,973 million, respectively. A hypothetical 10% decrease in interest rates relative to market interest rates at December 31, 2003 would increase the fair market value of our long-term debt at December 31, 2003 by approximately $34 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. We had no unrealized losses as of December 31, 2003 on forward exchange contracts and option contracts based on quoted market prices of comparable instruments. The estimated unrealized loss on our forward exchange and option contracts as of December 31, 2002 was approximately $1.0 million. We do not hold or issue forward exchange contracts, option contracts or other derivative financial instruments for speculative purposes. 39 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: - market conditions, expansion and other development trends in the contract drilling industry - utilization rates and contract rates for rigs - 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) - estimates of profit or loss from performance of lump-sum rig construction contracts - future asset sales - completion and employment of rigs under construction - repayment of debt - utilization of net operating loss carryforwards - business strategies - expansion and growth of operations - future exposure to currency devaluations - expected outcomes of legal and administrative proceedings and their expected effects on our financial position, results of operations and cash flows - future operating results and financial condition and - the effectiveness of our disclosure controls and procedures and internal control over financial reporting 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 business conditions - prices of oil and gas and industry expectations about future prices - cost overruns in our lump-sum construction and other turnkey contracts - adjustments in estimates affecting our revenue recognition under percentage-of-completion accounting - foreign exchange controls and currency fluctuations - political stability in the countries in which we operate - the business opportunities (or lack thereof) that may be presented to and pursued by us - changes in laws or regulations - the validity of the assumptions used in the design of our disclosure controls and procedures and - our ability to implement in a timely manner internal control procedures necessary to allow our management to report on the effectiveness of our internal control over financial reporting 40 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. 41 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS 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, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, 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 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. As discussed in Note 1 to the consolidated financial statements, effective in 2003, the Company changed its policies for consolidation of variable interest entities and for presentation of gains and losses on debt retirement and in 2002, changed the manner in which it accounts for goodwill. PRICEWATERHOUSECOOPERS LLP Houston, Texas March 11, 2004 42 PRIDE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET
DECEMBER 31, ----------------------- 2003 2002 ---------- ---------- (IN THOUSANDS, EXCEPT PAR VALUES) ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 69,134 $ 133,986 Restricted cash........................................... 38,840 52,700 Trade receivables, net.................................... 371,510 265,885 Parts and supplies, net................................... 73,763 64,920 Deferred income taxes..................................... 3,371 3,332 Other current assets...................................... 170,306 176,912 ---------- ---------- Total current assets................................. 726,924 697,735 ---------- ---------- PROPERTY AND EQUIPMENT, net................................. 3,446,331 3,473,636 ---------- ---------- OTHER ASSETS Investments in and advances to affiliates................. 33,984 29,620 Goodwill.................................................. 69,014 72,014 Other assets.............................................. 102,177 129,852 ---------- ---------- Total other assets................................... 205,175 231,486 ---------- ---------- $4,378,430 $4,402,857 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.......................................... $ 163,707 $ 186,657 Accrued expenses.......................................... 260,098 238,061 Deferred income taxes..................................... 957 985 Short-term borrowings..................................... 27,555 17,724 Current portion of long-term debt......................... 188,737 99,265 Current portion of long-term lease obligations............ 2,749 2,679 ---------- ---------- Total current liabilities............................ 643,803 545,371 ---------- ---------- OTHER LONG-TERM LIABILITIES................................. 54,423 88,572 LONG-TERM DEBT, net of current portion...................... 1,805,099 1,873,936 LONG-TERM LEASE OBLIGATIONS, net of current portion......... 9,979 12,511 DEFERRED INCOME TAXES....................................... 59,378 100,966 MINORITY INTEREST........................................... 102,969 82,204 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; 135,769 and 134,453 shares issued; 135,400 and 134,084 shares outstanding..................................... 1,358 1,344 Paid-in capital........................................... 1,261,073 1,237,146 Treasury stock, at cost................................... (4,409) (4,409) Accumulated other comprehensive loss...................... (124) (3,598) Retained earnings......................................... 444,881 468,814 ---------- ---------- Total stockholders' equity........................... 1,702,779 1,699,297 ---------- ---------- $4,378,430 $4,402,857 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 43 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------ 2003 2002 2001 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES: Services............................................... $1,565,806 $1,168,196 $1,512,895 Sales.................................................. 123,914 101,578 -- ---------- ---------- ---------- Total revenues................................. 1,689,720 1,269,774 1,512,895 ---------- ---------- ---------- OPERATING COSTS, excluding depreciation and amortization: Services............................................... 975,489 696,841 889,561 Sales.................................................. 222,356 97,898 -- ---------- ---------- ---------- Total operating costs.......................... 1,197,845 794,739 889,561 DEPRECIATION AND AMORTIZATION............................ 249,222 230,204 202,710 GENERAL AND ADMINISTRATIVE, excluding depreciation and amortization........................................... 121,259 94,241 100,309 POOLING AND MERGER COSTS................................. (824) -- 35,766 ---------- ---------- ---------- EARNINGS FROM OPERATIONS................................. 122,218 150,590 284,549 ---------- ---------- ---------- OTHER INCOME (EXPENSE) Interest expense....................................... (133,227) (140,863) (125,394) Interest income........................................ 3,182 2,084 11,148 Other income (expense), net............................ 3,529 (1,072) (13,326) ---------- ---------- ---------- Total other expense, net....................... (126,516) (139,851) (127,572) ---------- ---------- ---------- EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST............................................... (4,298) 10,739 156,977 INCOME TAX PROVISION (BENEFIT)........................... (1,130) 2,977 49,948 MINORITY INTEREST........................................ 20,765 16,097 15,508 ---------- ---------- ---------- NET EARNINGS (LOSS)...................................... $ (23,933) $ (8,335) $ 91,521 ========== ========== ========== NET EARNINGS (LOSS) PER SHARE Basic.................................................. $ (0.18) $ (0.06) $ 0.70 Diluted................................................ $ (0.18) $ (0.06) $ 0.68 WEIGHTED AVERAGE SHARES OUTSTANDING Basic.................................................. 134,704 133,305 131,630 Diluted................................................ 134,704 133,305 142,778
The accompanying notes are an integral part of the consolidated financial statements. 44 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ACCUMULATED COMMON STOCK TREASURY STOCK OTHER TOTAL ---------------- PAID-IN ---------------- COMPREHENSIVE RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL SHARES AMOUNT GAIN (LOSS) EARNINGS EQUITY ------- ------ ---------- ------ ------- ------------- -------- ------------- (IN THOUSANDS) BALANCE -- DECEMBER 31, 2000...... 126,250 $1,263 $1,056,206 -- $ -- $(1,102) $385,628 $1,441,995 Net earnings.................... -- -- -- -- -- -- 91,521 91,521 Foreign currency translation.... -- -- -- -- -- 87 -- 87 ---------- Total comprehensive income.... 91,608 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......................... 43 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...... 132,793 1,328 1,218,624 -- -- (1,015) 477,149 1,696,086 Net loss........................ -- -- -- -- -- -- (8,335) (8,335) Foreign currency translation.... -- -- -- -- -- (2,583) -- (2,583) ---------- Total comprehensive loss...... (10,918) Issuance of common stock in connection with private investments................... 528 5 6,295 369 (4,409) -- -- 1,891 Other issuance of common stock......................... 37 -- 476 -- -- -- -- 476 Exercise of stock options....... 1,095 11 9,069 -- -- -- -- 9,080 Tax benefit on non-qualified stock options................. -- -- 2,682 -- -- -- -- 2,682 ------- ------ ---------- --- ------- ------- -------- ---------- BALANCE -- DECEMBER 31, 2002...... 134,453 1,344 1,237,146 369 (4,409) (3,598) 468,814 1,699,297 Net loss........................ -- -- -- -- -- -- (23,933) (23,933) Foreign currency translation.... -- -- -- -- -- 3,474 -- 3,474 ---------- Total comprehensive loss...... (20,459) Issuance of common stock in connection with Direct Stock Purchase Plan................. 830 8 14,992 -- -- -- -- 15,000 Other issuance of common stock......................... 104 1 1,264 -- -- -- -- 1,265 Exercise of stock options....... 382 5 3,759 -- -- -- -- 3,764 Tax benefit of non-qualified stock options................. -- -- 516 -- -- -- -- 516 Stock option compensation....... -- -- 3,396 -- -- -- -- 3,396 ------- ------ ---------- --- ------- ------- -------- ---------- BALANCE -- DECEMBER 31, 2003...... 135,769 $1,358 $1,261,073 369 $(4,409) $ (124) $444,881 $1,702,779 ======= ====== ========== === ======= ======= ======== ==========
The accompanying notes are an integral part of the consolidated financial statements. 45 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------- 2003 2002 2001 --------- --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net earnings (loss)..................................... $ (23,933) $ (8,335) $ 91,521 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities -- Depreciation and amortization........................... 249,222 230,204 202,710 Discount amortization on zero coupon convertible debentures......................................... 1,808 11,062 16,204 Amortization of deferred loan costs.................. 8,191 7,836 6,604 (Gain) loss on sale of assets........................ 453 (438) (1,393) Deferred income taxes................................ (41,139) (30,856) 7,252 (Gain) loss on early extinguishment of debt.......... -- 1,228 (2,049) Minority interest.................................... 20,765 16,097 15,508 Stock option compensation............................ 3,396 -- -- Changes in assets and liabilities, net of effects of acquisitions -- Trade receivables............................... (112,346) 53,436 (43,370) Parts and supplies.............................. (8,843) (5,108) (4,152) Other current assets............................ 6,043 (48,192) (57,910) Other assets.................................... 25,029 (18,795) (28,230) Accounts payable................................ (7,951) (43,271) (18,061) Accrued expenses................................ 37,394 5,735 51,223 Other liabilities............................... (41,654) (15,302) 20,706 --------- --------- --------- Net cash provided by operating activities....... 116,435 155,301 256,563 --------- --------- --------- INVESTING ACTIVITIES Purchase of net assets of acquired entities, including acquisition costs, less cash acquired................ -- (2,414) (8,934) Purchases of property and equipment..................... (232,497) (215,490) (307,714) Proceeds from dispositions of property and equipment.... 1,277 1,256 2,737 Investments in and advances to affiliates............... (4,364) (1,205) (17,788) --------- --------- --------- Net cash used in investing activities........... (235,584) (217,853) (331,699) --------- --------- --------- FINANCING ACTIVITIES Proceeds from issuance of common stock.................. 16,265 476 63,023 Proceeds from exercise of stock options................. 3,764 9,080 6,367 Proceeds from issuance of convertible senior debentures, net of issue costs................................... 294,800 291,515 254,500 Proceeds from debt borrowings........................... 188,016 385,000 194,039 Reduction of debt....................................... (462,408) (551,221) (456,083) Decrease (increase) in restricted cash.................. 13,860 2,700 (4,900) --------- --------- --------- Net cash provided by financing activities....... 54,297 137,550 56,946 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (64,852) 74,998 (18,190) CASH AND CASH EQUIVALENTS, beginning of year.............. 133,986 58,988 77,178 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of year.................... $ 69,134 $ 133,986 $ 58,988 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 46 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. Investments in which the Company owns less than 50% and exercises significant influence are accounted for using the equity method of accounting, and investments in which the Company does not exercise significant influence are accounted for using the cost method of accounting. Certain reclassifications have been made to prior years' amounts to conform with the current year presentation. Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 145, which eliminates the requirements that gains and losses from the extinguishment of debt be aggregated and classified as extraordinary items. Accordingly, the consolidated statement of operations for the years ended December 31, 2002 and 2001 reflect reclassifications of the gross effect of $798,000 and $1.3 million, respectively, from extraordinary item into other income (expense), net and income tax provision. 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 the 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 historical 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
In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 46R, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (revised December 2003)". FIN No. 46R requires a company to consolidate a variable interest entity, as defined, when the company will absorb a majority of the variable interest entity's expected losses, receive a majority of the variable interest entity's expected residual returns, or both. FIN No. 46R also requires certain disclosures relating to consolidated variable interest entities and unconsolidated variable interest entities in which a company has a significant variable interest. With respect to variable interest entities in which a company holds a variable interest that was acquired before February 1, 2003, the consolidation provisions are required to be applied no later than the company's first fiscal year or interim period ending after December 15, 2003. Upon evaluation of the provisions of FIN No. 46R, it was determined that the unaffiliated trust with which the Company completed the sale and leaseback of the Pride South America semisubmersible drilling rig in February 1999 would qualify for consolidation as a variable interest entity in which the Company is the primary beneficiary, as defined. Pursuant to the recommendation of FIN No. 46R, the Company has elected to retroactively adopt the provisions and restate previously issued financial statements for the applicable years 47 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for comparability purposes. The effect on the Company's consolidated statement of operations for the years ended December 31, 2002 and 2001 was as follows:
YEAR ENDED DECEMBER 31, --------------------- 2002 2001 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings (loss) -- as reported.......................... $(8,947) $91,206 Add: Lease rental expenses included in reported net earnings (loss)................................................. 12,706 12,706 Deduct: Depreciation expense...................................... (3,782) (3,782) Interest expense.......................................... (8,312) (8,609) ------- ------- Net earnings (loss) -- as adjusted.......................... $(8,335) $91,521 ======= ======= NET EARNINGS (LOSS) PER SHARE: Basic -- as reported........................................ $ (0.07) $ 0.69 Basic -- as adjusted........................................ $ (0.06) $ 0.70 Diluted -- as reported...................................... $ (0.07) $ 0.68 Diluted -- as adjusted...................................... $ (0.06) $ 0.68
Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and adjustments on historical experience and on other information and assumptions that are believed to be reasonable under the circumstances. Estimates and judgments about future events and their effects cannot be perceived with certainty; accordingly, these estimates may change as additional information is obtained, as more experience is acquired, as the Company's operating environment changes and as new events occur. While it is believed that such estimates are reasonable, actual results could differ from those estimates. Estimates are used for, but not limited to, determining the realization of customer and insurance receivables, recoverability of long-lived assets, useful lives for depreciation and amortization, determination of income taxes, contingent liabilities, insurance and legal accruals and costs to complete construction projects. 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. Parts and Supplies Parts and supplies consist of spare rig parts and supplies held for use in operations and are valued at weighted average cost. 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. 48 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 results of operations. 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. 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 Effective January 1, 2002, the Company adopted SFAS No. 142, which eliminates the amortization of goodwill and requires that goodwill be reviewed annually for impairment. The Company ceased amortizing goodwill on January 1, 2002, which was previously amortized using the straight-line method over ten to fifteen years. The Company performed impairment tests of goodwill in the fourth quarters of 2003 and 2002 and determined that the fair value exceeded the recorded cost as of December 31, 2003 and 2002, respectively; accordingly, no impairment was recorded. The change in the carrying value of goodwill for the years ended December 31, 2003 and 2002 was as follows (in thousands):
GULF OF INTERNATIONAL E&P MEXICO LAND SERVICES TOTAL ------- ------------- -------- ------- Balance as of December 31, 2001.............. $1,472 $17,435 $45,749 $64,656 Goodwill acquired............................ -- -- 7,358 7,358 ------ ------- ------- ------- Balance as of December 31, 2002.............. 1,472 17,435 53,107 72,014 Earn out payment............................. -- -- (3,000) (3,000) ------ ------- ------- ------- Balance as of December 31, 2003.............. $1,472 $17,435 $50,107 $69,014 ====== ======= ======= =======
In March 2003, the Company reduced by $3.0 million the carrying amount of goodwill recorded in its April 2000 acquisition of Services Especiales San Antonio S.A. ("San Antonio"). The seller of San Antonio was entitled to four "earn out" payments of up to $3 million each on the first four anniversary dates of the closing if San Antonio's revenues from services provided to the seller and its affiliates exceeded specified levels during the 12 calendar months ending immediately prior to the relevant anniversary date. The specified revenue level was not achieved for the third anniversary earn-out payment. The Company recorded goodwill of $16.7 million in the year ended December 31, 2001, in connection with certain acquisitions during those periods. 49 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's net earnings and net earnings per share, adjusted to exclude goodwill amortization expense, for the year ended December 31, 2001, were as follows (in thousands, except per share amounts): Net earnings -- as reported................................. $91,521 Goodwill amortization, net of tax........................... 2,737 ------- Net earnings -- as adjusted................................. $94,258 ======= NET EARNINGS PER SHARE: Basic -- as reported........................................ $ 0.70 Goodwill amortization, net of tax........................... 0.02 ------- Basic -- as adjusted........................................ $ 0.72 ======= NET EARNINGS PER SHARE: Diluted -- as reported...................................... $ 0.68 Goodwill amortization, net of tax........................... 0.02 ------- Diluted -- as adjusted...................................... $ 0.70 =======
Long Lived Asset Impairment Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 and the basic requirements of APB No. 30; however, it establishes a single accounting model to be used for long-lived assets to be disposed of by sale and it expands the presentation of discontinued operations to include more disposal transactions. The Company performed an impairment test on certain specific rigs and groups of rigs in the fourth quarter of 2003 and determined that the undiscounted future cash flows based on expected day rates and utilization rates exceeded the recorded cost of the specific rigs and group of rigs as of December 31, 2003; accordingly, no impairment was recorded. 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 recognized upon completion. Mobilization fees received and costs incurred to mobilize a rig in connection with a customer contract from one geographic area to another are deferred and recognized on a straight-line basis over the term of such contract, excluding any option periods. Costs incurred to mobilize a rig without a contract are expensed as incurred. Fees received for capital improvements to rigs are deferred and recognized on a straight-line basis over the period of the related drilling contract. The costs of such capital improvements are capitalized and depreciated over the useful lives of the assets. Rig Construction Contracts The Company has historically constructed drilling rigs only for its own use. However, at the request of some of its significant customers, the Company has entered into lump sum contracts to design, construct and mobilize specialized drilling rigs through the Company's technical services group. The Company also has 50 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) entered into contracts to operate the rigs on behalf of the customers. Construction contract revenues and related costs are recognized under the percentage-of-completion method of accounting using measurements of progress toward completion appropriate for the work performed, such as man-hours, costs incurred or physical progress. Accordingly, the Company reviews contract price and cost estimates periodically as the work progresses and reflects adjustments in income (i) to recognize income proportionate to the percentage of completion in the case of projects showing an estimated profit at completion and (ii) to recognize the entire amount of the loss in the case of projects showing an estimated loss at completion. To the extent these adjustments result in an increase in previously reported losses or a reduction in or an elimination of previously reported profits with respect to a project, the Company would recognize a charge against current earnings. See Note 2. Rig Certifications The Company is required to obtain certifications from various regulatory bodies in order to operate its offshore drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs associated with obtaining and maintaining such certifications, including inspections and surveys, drydock costs and remedial structural work to the rigs are deferred and amortized over the corresponding certification periods. The Company expended $20.2 million, $13.6 million and $5.5 million during 2003, 2002 and 2001, respectively, in obtaining and maintaining such certifications. As of December 31, 2003 and 2002, the deferred and unamortized portion of such costs on the Company's balance sheet were $31.6 million and $19.1 million, respectively. The portion of the costs that are expected to be amortized in the 12-month periods following each balance sheet date are included in other current assets on the balance sheet and the costs expected to be amortized after more than 12 months from each balance sheet date are included in other assets. The costs are amortized on a straight-line basis over the period of validity of the certifications obtained. These certifications are typically for five years, but in some cases are for shorter periods. Accordingly, the remaining useful lives for these deferred costs are up to five years. 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 SFAS No. 52, "Foreign Currency Translation". In those countries where the U.S. dollar is the functional currency, 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 for the period, 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 cash and cash equivalents and trade receivables. The Company places its cash and cash equivalents in U.S. government securities and other high quality financial instruments. The Company limits 51 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 APB 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. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation -- Transition and Disclosure -- an Amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. The disclosure provisions of SFAS No. 148 are effective immediately and require revised disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Company has adopted the new disclosure requirements, as reflected below. Under SFAS No. 123, the fair value of stock-based awards is calculated using option pricing models. The Company's calculations were made using the Black-Sholes option pricing model with the following significant assumptions:
2003 2002 2001 ------- ------- ------- Dividend yield............................................ 0.00% 0.00% 0.00% Volatility................................................ 62.57% 59.45% 56.05% Risk free interest rate................................... 2.95% 4.73% 4.87% Expected term............................................. 5 years 5 years 5 years
The weighted average fair values per share of options granted during the years ended December 31, 2003, 2002 and 2001 were $8.53, $7.94 and $9.31, respectively. 52 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) If the fair value based method of accounting prescribed by SFAS No. 123 had been applied, the Company's pro forma net earnings (loss), net earnings (loss) per share and stock-based compensation cost would approximate the 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, ------------------------------ 2003 2002 2001 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings (loss) -- as reported................... $(23,933) $ (8,335) $ 91,521 Add: Stock-based compensation included in reported net earnings (loss), net of tax.................... 2,081 -- -- Deduct: Stock-based employee compensation expense determined under the intrinsic value method, net of tax................................................ (10,784) (8,538) (18,197) -------- -------- -------- Pro forma net earnings (loss)........................ $(32,636) $(16,873) $ 73,324 ======== ======== ======== Net earnings (loss) per share: Basic -- as reported............................... $ (0.18) $ (0.06) $ 0.70 Basic -- pro forma................................. $ (0.24) $ (0.13) $ 0.56 Diluted -- as reported............................. $ (0.18) $ (0.06) $ 0.68 Diluted -- pro forma............................... $ (0.24) $ (0.13) $ 0.56
New Accounting Pronouncements The FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" and SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" during the second quarter of 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including those embedded in other contracts, and for hedging activities and is effective for contracts entered into or modified after June 30, 2003. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with both liability and equity characteristics. The adoption of SFAS Nos. 149 and 150 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. 2. CONSTRUCTION PROJECTS At the request of two major international oil company customers, the Company entered into lump-sum contracts to design, engineer, manage construction of and commission four deepwater platform drilling rigs for installation on spars and tension-leg platforms. The Company also entered into contracts to provide drilling operations management of the rigs once they have been installed on platforms. The first rig has been mated to the customers' platform and towed to Angola, where it commenced operations in November 2003. The other rigs are expected to enter into service in late 2004 and early 2005. In 2003, the Company recorded loss provisions, included in operating costs, totaling $98.4 million relating to the construction of these deepwater platform rigs as the costs are expected to substantially exceed revenues on all four projects. Much of the increased costs are related to difficulties experienced with two different shipyards. The Company terminated its contract with the initial shipyard prior to the completion of the first two rigs. As a result, the Company has incurred substantial unplanned costs in completing the construction of the first unit. The Company engaged another shipyard to complete construction of the second rig, and the aggregate costs paid to the initial shipyard and committed and paid to the second shipyard have greatly exceeded budgeted expenditures for the rig. The Company is now utilizing shipyards in the Asia Pacific region for the third and fourth deepwater rig projects. As a result, the lump-sum contracts and anticipated freight costs for these two 53 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) projects are higher than were originally budgeted. A U.S. shipyard building one of the primary components for the third rig project encountered significant financial difficulties, and the Company has paid costs in excess of amounts initially agreed to provide financial capacity for it to complete a reduced scope of work. The aggregate costs paid to that shipyard, in addition to the costs associated with the completion of the remaining tasks by newly contracted third parties, as well as transportation and other costs necessitated by revisions to the project completion plan, have significantly exceeded the budgeted expenditures for the third deepwater platform rig. Based on the experience from the start-up of the first rig and on revisions of estimates, increased costs for construction, transportation, commissioning, training and warranties have been included in the Company's estimates of costs to complete the remaining three rigs. The Company has commenced arbitration proceedings against the initial shipyard claiming damages of approximately $5.8 million, and the shipyard has asserted counterclaims against the Company for damages of approximately $13.8 million. The Company is also in commercial disputes and negotiations with certain equipment vendors and major sub-contractors. While the Company intends to vigorously pursue equitable resolutions with the other parties, the Company has provided for additional cost estimates to resolve some of these disputes. The Company's technical services segment is performing these deepwater platform rig construction projects under lump-sum contracts with its customers. Revenues and costs realized on these lump sum contracts vary from the originally estimated amounts. Unforeseen events may result in further cost overruns to complete these projects, which could be material and which would require the Company to record additional loss provisions in future periods. Such events could include variations in labor and equipment productivity over the remaining term of the contract, unanticipated cost increases, engineering changes, shipyard or systems problems, project management issues, shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment, work stoppages, shipyard unavailability or delays. 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
DECEMBER 31, ----------------------- 2003 2002 ---------- ---------- (IN THOUSANDS) Rigs and rig equipment...................................... $4,455,736 $4,225,928 Transportation equipment.................................... 31,340 28,125 Buildings................................................... 37,966 35,866 Other....................................................... 46,888 44,102 Construction-in-progress.................................... 43,199 63,065 Land........................................................ 8,323 8,752 ---------- ---------- 4,623,452 4,405,838 Accumulated depreciation and amortization................... (1,177,121) (932,202) ---------- ---------- Net property and equipment.................................. $3,446,331 $3,473,636 ========== ==========
The Company capitalizes interest applicable to the construction of significant additions to property and equipment. For the years ended December 31, 2003, 2002 and 2001, total interest incurred was $134.4 million, $142.8 million and $144.4 million, respectively, of which $1.2 million, $1.9 million and $19.0 million, respectively, was capitalized. 54 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the years ended December 31, 2003, 2002 and 2001, maintenance and repair costs included in operating costs on the accompanying consolidated statement of operations were $97.6 million, $81.6 million and $85.2 million, respectively. 4. ACQUISITIONS In March 2001, the Company increased from 26.4% to 100% its ownership in a joint venture that constructed two dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil. The purchase consideration for the interests the Company did not previously own consisted of approximately $86 million aggregate principal amount of senior convertible notes, convertible into approximately 4.0 million shares of the Company's common stock, 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. 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 ($178 million of which was outstanding as of December 31, 2003) and approximately $86 million of convertible senior notes issued to the Brazilian participant. See Note 5. In September 2001, the Company acquired Marine in a stock-for-stock transaction. 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. 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). The Company incurred pooling and merger costs totaling $35.8 million associated with this acquisition, which consisted 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 2002 and 2001, the Company paid $12.0 million and $22.9 million, respectively, of such fees and acquisition costs. During 2003, the Company reversed the remaining pooling and merger cost accrual. 5. DEBT Short-Term Borrowings The Company has agreements with several banks for unsecured short-term lines of credit primarily denominated in U.S. dollars. The facilities are renewable annually and bear interest at variable rates based on LIBOR. The weighted average interest rate on such borrowings as of December 31, 2003 was 2.8%. As of December 31, 2003, $27.6 million was outstanding under these facilities and $25.2 million was available. 55 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-Term Debt Long-term debt consisted of the following:
DECEMBER 31, ----------------------- 2003 2002 ---------- ---------- (IN THOUSANDS) Senior secured term loan.................................... $ 197,000 $ 198,500 Senior secured revolving credit facilities.................. 288,000 110,000 9 3/8% Senior Notes due 2007................................ 175,000 325,000 10% Senior Notes due 2009................................... 200,000 200,000 Drillship loans............................................. 182,674 231,966 Semisubmersible loans....................................... 260,558 301,343 2 1/2% Convertible Senior Notes due 2007.................... 300,000 300,000 3 1/4% Convertible Senior Notes due 2033.................... 300,000 -- Zero Coupon Convertible Senior Debentures Due 2021.......... 4 98,220 Zero Coupon Convertible Subordinated Debentures Due 2018.... 1,098 111,481 Senior convertible notes payable............................ 85,853 85,853 Limited-recourse collateralized term loans.................. 3,649 10,263 Other notes payable......................................... -- 575 ---------- ---------- 1,993,836 1,973,201 Current portion of long-term debt........................... 188,737 99,265 ---------- ---------- Long-term debt, net of current portion...................... $1,805,099 $1,873,936 ========== ==========
Senior Secured Term Loan and Senior Secured Revolving Credit Facilities The Company entered into senior secured credit facilities with a group of banks providing for aggregate availability of up to $450.0 million, consisting of a $197.0 million term loan maturing in January 2009 and a $250.0 million revolving credit facility maturing in January 2007. Borrowings under the revolving credit facility are available for general corporate purposes. The Company may issue up to $50.0 million of letters of credit under the facility. As of December 31, 2003, $189.0 million of borrowings and an additional $27.8 million of letters of credit were outstanding under the revolving credit facility. Borrowings under the facilities currently bear interest at variable rates based on LIBOR plus a spread based on the credit rating of the facility or, if unrated, index debt. The interest rate was 3.66% for the term loan and 3.20% for the revolving credit facility as of December 31, 2003. In 2003, in order to reduce the potential impact of fluctuations in LIBOR, the Company entered into interest rate agreements that effectively cap the interest rate on total outstanding borrowings under the term loan at rates from 3.58% to 5.0% and provide a lower limit on rates from 0.72% to 0.91%, plus the applicable spread, to March 2007. The Company accounts for these interest rate agreements at market value, with changes reflected in current earnings. The facilities are collateralized by two deepwater semisubmersible rigs, the Pride North America and the Pride South Pacific, and 28 jackup rigs. The facilities contain provisions that limit the ability of the Company and its subsidiaries, with certain exceptions, to pay dividends or make other restricted payments and investments; incur additional debt; create liens; incur dividend or other payment restrictions affecting subsidiaries; consolidate, merge or transfer all or substantially all of its assets; sell assets or subsidiaries; enter into speculative hedging arrangements outside the ordinary course of business; enter into transactions with affiliates; make certain capital expenditures and incur long-term operating leases. The credit facilities also 56 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) require the Company to comply with specified financial tests, including a ratio of net debt to EBITDA, an interest coverage ratio, a ratio of net debt to total capitalization and a minimum net worth. As of December 31, 2003, the Company had a senior secured revolving credit facility with non-U.S. banks that provides aggregate availability of up to $180.0 million, including $10.0 million of letters of credit, and is collateralized by three semisubmersible rigs, two jackup rigs and a tender-assisted rig. Borrowings under the credit facility bear interest at variable rates based on LIBOR plus a spread ranging from 1.2% to 2.1%. As of December 31, 2003, $99.0 million of borrowings and an additional $10.0 million of letters of credit were outstanding under this credit facility. As of December 31, 2003, the Company had $104.2 million in aggregate availability under its senior secured revolving credit facilities. Indentures governing our outstanding 9 3/8% and 10% senior notes limit the Company's ability to borrow under these facilities to a percentage of consolidated net tangible assets. 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 redeemable, in whole or in part, at the option of the Company at redemption prices declining in annual increments from 103.125% at May 1, 2003 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. In July 2003, the Company redeemed $150 million principal amount of the 9 3/8% Senior Notes at a redemption price of 103.125% of the principal amount, plus accrued and unpaid interest to the redemption date. The Company paid a total of $157.6 million in connection with the redemption, including $2.9 million of accrued and unpaid interest and a $4.7 million premium. In addition, the Company expensed $1.5 million, before income taxes, of deferred financing costs, which amount is included in other income (expense), net in the consolidated statement of operations. 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 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. 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 57 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 and are collateralized by the drillships. As of December 31, 2003, $67.6 million was outstanding under the loans for the Pride Africa and $115.1 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 2007 for the Pride Africa and Pride Angola, respectively. The payment terms of the Pride Angola loan were extended from July 2005 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%. 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 January 2003 and capped the interest rate on the Pride Angola loan at 6.52% from February 2003 to January 2007. As a result, the drillship loans had a weighted average interest rate of 6.8% as of December 31, 2003. 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. As of December 31, 2003 and 2002, $26.7 million and $34.3 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 July 2001, the Company 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 facility bear interest at rates based on LIBOR plus an applicable margin of 1.50% to 1.85%. Principal and interest on the loans are payable semi-annually from March 2002 through 2008. Funding under the 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 facility, the Company entered into 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% 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 loans are collateralized 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. As of December 31, 2003 and 2002, $11.4 million and $16.0 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. In February 1999, the Company completed the sale and leaseback of the Pride South America semisubmersible drilling rig with an unaffiliated trust pursuant to which it received $97.0 million. The lease was classified as an operating lease for financial statement purposes. With the adoption of FIN No. 46R in December 2003, it was determined that the Company was the primary beneficiary, as defined, of the unaffiliated trust, and accordingly, the Company should consolidate said trust as a variable interest entity. The Company elected to adopt the provisions of FIN No. 46R retroactively and restate previously issued financial 58 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) statements. Debt in the amount of $82.3 million and $86.0 million and property and equipment, net of $74.1 million and $77.9 million were recorded as of December 31, 2003 and 2002, respectively, in connection with the retroactive adoption of FIN No. 46R. See Note 1. 2 1/2% Convertible Senior Notes Due 2007 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, were $291.5 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 semiannually on March 1 and September 1 of each year. 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% and declining to 100% by March 1, 2007, in each case plus accrued and unpaid interest. 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 conversion price per share 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. First Reserve manages private equity funds that specialize in the energy industry. 3 1/4% Convertible Senior Notes Due 2033 In April and May 2003, the Company issued $300 million aggregate principal amount of 3.25% convertible senior notes due 2033. Substantially all of the net proceeds (after expenses) of approximately $294.8 million were used to repay amounts outstanding under the Company's senior secured revolving credit facilities, which included borrowings used to fund a portion of the purchase price of the zero coupon convertible subordinated debentures due 2018 discussed below. The notes bear interest at a rate of 3.25% per annum. The Company also will pay contingent interest during any six-month interest period commencing on or after May 1, 2008 for which the trading price of the notes for each of the five trading days immediately preceding such period equals or exceeds 120% of the principal amount of the notes. Beginning May 5, 2008, the Company may redeem any of the notes at a redemption price of 100% of the principal amount redeemed plus accrued and unpaid interest. In addition, noteholders may require the Company to repurchase the notes on May 1 of 2008, 2010, 2013, 2018, 2023 and 2028 at a repurchase price of 100% of the principal amount redeemed plus accrued and unpaid interest. The Company may elect to pay all or a portion of the repurchase price in common stock instead of cash, subject to certain conditions. The notes are convertible under specified circumstances into shares of the Company's common stock at a conversion rate of 38.9045 shares per $1,000 principal amount of notes (which is equal to a conversion price of $25.704), subject to adjustment. Upon conversion, the Company will have the right to deliver, in lieu of shares of its common stock, cash or a combination of cash and common stock. Zero Coupon Convertible Senior Debentures Due 2021 In January 2001, the Company issued zero coupon convertible senior debentures due January 16, 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. 59 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 2002, the Company purchased on the open market and then extinguished $277.9 million face amount of the debentures for $172.8 million. In January 2003, the Company repurchased substantially all of the remaining outstanding zero coupon convertible senior debentures for $98.2 million. Zero Coupon Convertible Subordinated Debentures Due 2018 In April 1998, the Company issued zero coupon convertible subordinated debentures due April 24, 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 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. During 2001, the Company purchased on the open market and then extinguished $129.1 million face amount of the debentures for $56.2 million. During 2002, the Company purchased on the open market and then extinguished $153.3 million face amount of the debentures for $72.7 million. In April 2003, the Company repurchased $226.5 million face amount of the outstanding debentures for $112.0 million, which was equal to their accreted value on the date of purchase. The purchase price was funded through borrowings under the Company's senior secured revolving credit facilities and available cash. Debentures with a face amount of $2.1 million, and an accreted value of $1.1 million as of December 31, 2003, remain outstanding. Senior Convertible Notes Payable 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. See Note 4. The notes, which mature in December 2004, bear interest at 9% per annum and are convertible into approximately 4.0 million shares of the Company's common stock. The holder of the notes has the right to require the Company to prepay the notes at any time (1) after July 1, 2004 or (2) before July 1, 2004 to the extent of the amount of any required capital contributions by such holder with respect to the joint venture for the Pride Portland and the Pride Rio de Janeiro described in Note 13. The Company has the option to prepay the notes any time after June 1, 2004. 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. As of December 31, 2003 and 2002, $0.7 million and $2.4 million, respectively, of such contract proceeds, which amount is included in restricted cash, was being held in trust as collateral for the lenders and is not available for use by the Company. 60 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future Maturities Future maturities of long-term debt as of December 31, 2003 are as follows:
AMOUNT -------------- (IN THOUSANDS) 2004........................................................ 188,737 2005........................................................ 188,611 2006........................................................ 108,955 2007........................................................ 926,254 2008........................................................ 37,449 Thereafter.................................................. 543,830 ---------- Total long-term debt...................................... $1,993,836 ==========
As of December 31, 2003, the fair value of long-term debt was approximately $2.1 billion. 6. LEASES The Company has lease obligations pursuant to sale and leaseback agreements or financing arrangements with unaffiliated entities for three platform rigs and offices in France that are accounted for as capital leases. The obligations are payable in semiannual installments through June 2006 and bear interest at a weighted average rate of 7.8% per annum. Future maturities of capital lease obligations as of December 31, 2003 are as follows:
AMOUNT -------------- (IN THOUSANDS) 2004........................................................ $ 3,645 2005........................................................ 8,180 2006........................................................ 2,180 2007........................................................ 124 2008........................................................ 123 Thereafter.................................................. 61 ------- Total minimum lease obligations........................... 14,313 Less: interest portion...................................... (1,585) ------- 12,728 Less: current portion....................................... 2,749 ------- Long-term portion........................................... $ 9,979 =======
Rental expense for operating leases for equipment, vehicles and various facilities of the Company for the years ended December 31, 2003, 2002 and 2001 were $49.4, $28.4 million and $36.1 million, respectively. 7. 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 attempts to limit the risks of adverse currency fluctuations and restrictions on currency repatriation by obtaining contracts providing for payment in U.S. dollars or freely convertible foreign currency. To the extent possible, the Company seeks to limit its exposure to local currencies by matching its acceptance 61 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) thereof to its expense requirements in such currencies. Moreover, the Company enters into forward exchange contracts and option contracts to manage foreign currency exchange risk principally associated with its Euro-and denominated expenses. These forward exchange contacts and option contracts have not been designated as hedging instruments under SFAS No. 133, as the forward or option contracts are not systematically identified as being the hedge of specific expenditures at inception. Currency option contracts existing as of December 31, 2003 consist of U.S. dollar calls/Euro puts with a notional amount of $2.6 million sold by the Company, U.S. dollar puts/Euro calls with a notional amount of $1.1 million purchased by the Company and South African Rand calls/U.S. dollar puts with a notional amount of 5 million Rand, equivalent to $0.8 million at the year end exchange rate, purchased by the Company. The counterparties to these contracts are all major European banks. The Company had no unrealized losses as of December 31, 2003 on forward exchange contracts and option contracts based on quoted market prices of comparable instruments. The unrealized loss as of December 31, 2002 was approximately $1.0 million. The net realized and unrealized gains (losses) on all forward and option contracts, included in other income (expense), net for the years ended December 31, 2003, 2002 and 2001, were approximately $1.2 million, $4.8 million and $(0.1) million, respectively. The Company is subject to the risk of variability in interest payments on its floating rate debt. In 2003, in order to reduce the potential impact of fluctuations in LIBOR, the Company entered into interest rate agreements that effectively cap the interest rate on $194.0 million of borrowings under its senior secured term loan at rates from 3.58% to 5.0%, plus the applicable spread, and provide a lower limit on rates from 0.72% to 0.91%, plus the applicable spread, to March 2007. If interest rates fall below the lower limits, interest rates payable increase to rates from 2.0% to 3.94%, plus the applicable spread. The interest rate agreements are marked-to-market quarterly with the change in fair value recorded as a component of interest expense. As of December 31, 2003, the net value of the instruments was a liability of $0.6 million. 8. INCOME TAXES The components of the income tax provision (benefit) were as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 2003 2002 2001 -------- -------- ------- (IN THOUSANDS) U.S.: Federal: Current............................................. $ -- $ -- $15,694 Deferred............................................ (78,127) (38,675) 9,664 -------- -------- ------- Total -- Federal................................. (78,127) (38,675) 25,358 -------- -------- ------- Foreign: Current............................................. 42,487 33,833 27,002 Deferred............................................ 34,510 7,819 (2,412) -------- -------- ------- Total -- Foreign................................. 76,997 41,652 24,590 -------- -------- ------- Income tax provision (benefit)................. $ (1,130) $ 2,977 $49,948 ======== ======== =======
62 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The difference between the effective federal income tax amounts and rate reflected in the income tax provision (benefit) and the amount and rate which would be determined by applying the U.S. statutory federal tax rate to earnings (loss) before income taxes and minority interest is summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 2003 2002 2001 --------------- ----------------- --------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ------- ----- -------- ------ -------- ---- (IN THOUSANDS) U.S. statutory rate............. $(1,504) 35.0% $ 3,759 35.0% $ 54,942 35.0% Foreign: Tax on foreign earnings....... (635) 14.8 (13,541) (126.1) (7,207) (4.6) Change in valuation allowance.................. (1,498) 34.8 12,372 115.2 (2,821) (1.8) ------- ----- -------- ------ -------- ---- Net effect of foreign income taxes......................... (2,133) 49.6 (1,169) (10.9) (10,028) (6.4) Change in estimate.............. 2,372 (55.2) 291 2.7 5,034 3.2 Other........................... 135 (3.1) 96 0.9 -- -- ------- ----- -------- ------ -------- ---- Effective income tax rate....... $(1,130) 26.3% $ 2,977 27.7% $ 49,948 31.8% ======= ===== ======== ====== ======== ====
In 2003, the Company had an increase of 14.8% in the U.S. statutory rate for foreign taxes due to the following: (34.8)% for an adjustment to prior year deferred tax assets for foreign losses, and 49.6% for current year foreign taxes in excess of U.S. statutory rate. In 2003, the Company had an increase of 34.8% in the U.S. statutory rate for the change in valuation allowance due to an adjustment to prior year allowances on the deferred tax asset for foreign losses as explained above that will not be utilized in future years. The change in estimate for 2003 relates primarily to the difference between the Company's estimate of U.S. income tax on approximately $153 million of 2002 foreign earnings and the actual amount on the 2002 U.S. tax return as filed. In 2002, the Company had a decrease of (126.1)% in the U.S. statutory rate for foreign taxes due to the following: (112.0)% for previously omitted deferred tax assets for foreign losses, (51.7)% for current year deferred tax assets created by Mexico losses, and 37.6% for current year foreign taxes in excess of U.S. statutory rate. In 2002, the Company had an increase of 115.2% in the U.S. statutory rate for the change in valuation allowance due to the following: 112.0% for previously omitted allowances on the deferred tax asset for foreign losses as explained above that will not be utilized in future years, 51.7% for the current year allowance on Mexico tax losses described above that will not be utilized in future years, and (48.5)% decrease for the partial reversal of the allowance on French tax losses from rig rental income in France from Russia and Kazakhstan contracts that extend into 2003. The domestic and foreign components of earnings (losses) before income taxes and minority interest were as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 2003 2002 2001 --------- --------- -------- (IN THOUSANDS) Domestic........................................... $(257,512) $(142,044) $ 22,297 Foreign............................................ 253,214 152,783 134,680 --------- --------- -------- Earnings (losses) before income taxes and minority interest......................................... $ (4,298) $ 10,739 $156,977 ========= ========= ========
63 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 were as follows:
DECEMBER 31, --------------------- 2003 2002 --------- --------- (IN THOUSANDS) Deferred tax liabilities: Depreciation.............................................. $ 320,284 $ 312,215 Other..................................................... 21,286 16,962 --------- --------- Total deferred tax liabilities......................... 341,570 329,177 --------- --------- Deferred tax assets: Net operating loss carryforwards.......................... (272,698) (217,114) Alternative Minimum Tax credits........................... (27,958) (27,958) Other..................................................... (10,285) (9,271) --------- --------- Total deferred tax assets.............................. (310,941) (254,343) Valuation allowance for deferred tax assets............... 22,287 23,785 --------- --------- Net deferred tax assets................................ (288,654) (230,558) --------- --------- Net deferred tax liability............................. $ 52,916 $ 98,619 ========= =========
Applicable U.S. deferred income taxes and related foreign dividend withholding taxes have not been provided on approximately $507.8 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, 2003, the Company had deferred tax assets of $272.7 million relating to $783.2 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 $699.2 million and expire in 2019 through 2023. Foreign NOL carryforwards include $41.6 million that do not expire and $42.3 million that expire in 2003 through 2013. The Company has recognized a partial 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 the Company's 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 (LOSS) PER SHARE Basic net earnings (loss) per share has been computed based on the weighted average number of shares of common stock outstanding during the applicable period. Diluted net earnings (loss) per share has been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the applicable period, as if stock options, convertible debentures and other convertible debt 64 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) were converted into common stock, after giving retroactive effect to the elimination of interest expense, net of income tax effect. The following table presents information necessary to calculate basic and diluted net earnings (loss) per share:
YEAR ENDED DECEMBER 31, ------------------------------ 2003 2002 2001 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings (loss).................................. $(23,933) $ (8,335) $ 91,521 Interest expense on convertible debentures and notes.............................................. -- -- 9,171 Income tax effect.................................... -- -- (3,210) -------- -------- -------- Net earnings (loss) -- as adjusted................. $(23,933) $ (8,335) $ 97,482 ======== ======== ======== Weighted average shares outstanding.................. 134,704 133,305 131,630 Convertible debentures and notes..................... -- -- 9,437 Stock options........................................ -- -- 1,711 -------- -------- -------- Weighted average shares outstanding -- as adjusted........................................ 134,704 133,305 142,778 ======== ======== ======== Net earnings (loss) per share: Basic.............................................. $ (0.18) $ (0.06) $ 0.70 ======== ======== ======== Diluted............................................ $ (0.18) $ (0.06) $ 0.68 ======== ======== ========
The calculation of diluted weighted average shares outstanding excludes 35.9 million, 34.3 million and 13.2 million common shares issuable pursuant to convertible debt and outstanding options for the years ended December 31, 2003, 2002 and 2001, respectively, because their effect was antidilutive or the exercise price of stock options exceeded the average price of the Company's common stock for the applicable period. 10. EMPLOYEE BENEFITS The Company has a 401(k) defined contribution plan for its employees, which allows 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, 2003, 2002 and 2001 were $2.5 million, $1.6 million and $3.5 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 net proceeds from the exercise of stock options. 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, 2003, no shares of preferred stock are outstanding. 65 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Common Stock The Company has 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. For the years ended December 31, 2003 and 2001, the Company sold 0.8 million shares for $15.0 million and 2.6 million shares for $62.0 million, respectively. There were no shares sold under the plan in 2002. In January 2000, Marine completed a public offering of 1.0 million shares of its common stock, for net proceeds of $18.5 million. The proceeds were used to fund the acquisition, upgrade and mobilization of the Pride South Carolina, formerly the Marine 202, a jackup drilling rig. 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 4. In October 2002, the Company issued 527,652 shares of common stock to two funds managed by First Reserve in exchange for an additional 11.9% investment in the Amethyst joint venture. Subsequently, in November 2002 the other joint venture partner exercised its option to acquire up to 70% of the interest acquired by the Company, in exchange for 369,356 shares of the Company's common stock. The shares of Company common stock acquired in the exchange are currently held as treasury shares. Stockholders' Rights Plan The Company has 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. 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. 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 66 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 through 2003 were vested 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 under various Marine stock option plans were deemed to be options 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. 67 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, 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 Granted................................. $14.35-$19.14 1,225,000 $ 14.35 52,500 Exercised............................... $ 6.25-$16.50 (1,095,005) -- -- Forfeited............................... $ 8.00-$29.63 (1,208,650) -- -- ---------- ------- Outstanding as of December 31,2002........ 8,717,030 401,165 Granted................................. $15.40-$16.10 2,700,000 $ 15.40 52,500 Exercised............................... $ 6.19-$19.56 (364,395) $ 8.38-$15.50 (18,000) Forfeited............................... $ 8.00-$29.63 (500) $ 8.38-$29.25 (33,000) ---------- ------- Outstanding as of December 31, 2003....... 11,052,135 402,665 ========== ======= Exercisable as of December 31,2003........ 8,485,435 323,915 ========== =======
The following table summarizes information on stock options outstanding and exercisable at December 31, 2003 pursuant to the employee stock option plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ---------------------------- WEIGHTED WEIGHTED WEIGHTED RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- -------------- ----------- -------------- $ 0.00-$14.81................. 5,823,760 5.7 $11.85 5,031,060 $11.44 $14.81-$29.63................. 5,228,375 6.9 $18.59 3,454,375 $20.11 ---------- --------- $ 0.00-$29.63................. 11,052,135 6.3 $15.04 8,485,435 $14.97 ========== =========
The following table summarizes information on stock options outstanding and exercisable at December 31, 2003 pursuant to the directors' stock option plan:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ---------------------------- WEIGHTED WEIGHTED WEIGHTED RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- -------------- ----------- -------------- $ 0.00-$14.81.................. 124,500 5.1 $12.78 98,250 $12.36 $14.81-$29.63.................. 278,165 3.5 $19.31 225,665 $20.22 ------- ------- $ 0.00-$29.63.................. 402,665 4.0 $17.29 323,915 $17.83 ======= =======
During 2003, the Company recognized $3.4 million of stock option compensation in connection with the modification of the terms of certain key employees' stock option grants. 12. COMMITMENTS AND CONTINGENCIES The Company is routinely involved in other litigation, claims and disputes incidental to its business, which at times involves claims for significant monetary amounts, some of which would not be covered by 68 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. However, a substantial settlement payment or judgment in excess of the Company's accruals could have a material adverse effect on its consolidated results of operations or cash flows. 13. INVESTMENTS IN JOINT VENTURES As of December 31, 2003, the Company had a 30.0% equity interest in a joint venture company that is currently completing construction of two dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride Portland and Pride Rio de Janeiro. The Pride Rio de Janeiro is undergoing sea trials in the Caribbean Sea and the Pride Portland is expected to leave the shipyard in Maine in May 2004. 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 any of the 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. In addition, the joint venture partners have agreed to provide equity contributions to finance all of the estimated $5.2 million of incremental costs associated with upgrading both rigs to a water depth capability of 1,700 meters from the original design of approximately 1,500 meters, of which the Company's 30% share would be approximately $1.6 million. The Company expects that the joint venture partners will have to make additional capital contributions to fund the project through the sea trial stage for each rig or, alternatively, will have to provide acceptable guarantees to MARAD to permit the required further draws to become available under the MARAD-guaranteed credit facilities. If the funding is made by additional capital contributions, the Company expects that its proportionate share would be approximately $8.0 million. The capital contributions are likely to be required during the second quarter of 2004. Through December 31, 2003, the Company's equity contributions to the joint venture totaled $33.7 million, including capitalized interest of $7.3 million and contributions of $0.8 million in connection with the water depth upgrades. Initial interest and debt service payments in respect of construction debt for the two rigs are expected to total approximately $22.0 million during 2004, of which the Company's 30% share would be $6.6 million. The Company has a 12.5% interest in Basafojagu (HS) Inc. ("Basafojagu"), a company incorporated in Liberia that has capital lease obligations in respect of the Al Baraka 1 tender-assisted drilling rig. The majority shareholder is a subsidiary of a major Saudi Arabian banking and industrial group, and the two lessor banks are also members of that same group. The Company entered into a long-term management agreement with Basafojagu to manage and operate the rig. The Company also provided guarantees for its 12.5% share, or approximately $5.0 million as of December 31, 2003, of Basafojagu's lease obligations. Basafojagu is in arrears in payment of its lease obligations. In January 2004, the Company entered into a purchase option that expires on May 15, 2004 to acquire the tender barge and associated derrick set for aggregate consideration of $15.3 million. If the Company exercises its option, it will be released of all obligations under the guarantees and under the lease and management agreements. The Company considers it likely that the purchase option will be exercised and, therefore, has not provided for any amounts contingently payable under its guarantee. The Company has a 30.0% ownership in United Gulf Energy Resource Co. SAOC-Sultanate of Oman, which owns 99.9% of National Drilling and Services Co. LLC ("NDSC"), an Omani company. NDSC owns and operates four land drilling rigs. The Company accounts for this investment under the equity method, which as of December 31, 2003 was $300,000. 69 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. SUPPLEMENTAL FINANCIAL INFORMATION Other Current Assets Other current assets consisted of the following:
DECEMBER 31, ------------------- 2003 2002 -------- -------- (IN THOUSANDS) Deferred mobilization and inspection costs.................. $ 46,406 $ 59,753 Insurance receivables....................................... 5,975 33,982 Prepaid expenses............................................ 34,059 27,549 Other receivables........................................... 8,129 13,266 Construction project costs.................................. 48,262 28,351 Deferred financing costs.................................... 11,949 11,121 Other....................................................... 15,526 2,890 -------- -------- Total other current assets................................ $170,306 $176,912 ======== ========
Other Assets Other assets consisted of the following:
DECEMBER 31, ------------------- 2003 2002 -------- -------- (IN THOUSANDS) Deferred mobilization and inspection costs.................. $ 40,576 $ 55,882 Deferred financing costs.................................... 34,055 38,860 Deferred compensation plan.................................. 12,996 11,670 Deferred income taxes....................................... 4,048 -- Other....................................................... 10,502 23,440 -------- -------- Total other assets........................................ $102,177 $129,852 ======== ========
70 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accrued Expenses Accrued expenses consisted of the following:
DECEMBER 31, ------------------- 2003 2002 -------- -------- (IN THOUSANDS) Deferred mobilization revenues.............................. $ 48,894 $ 90,302 Construction project costs.................................. 64,496 -- Payroll and benefits........................................ 44,809 42,830 Interest.................................................... 17,370 26,398 Current income taxes........................................ 24,263 22,334 Taxes, other than income.................................... 21,256 21,705 Insurance................................................... 9,746 7,147 Earn-out payment, current portion........................... 3,000 3,000 Foreign currency contracts.................................. -- 1,116 Pooling and merger costs.................................... -- 886 Other....................................................... 26,264 22,343 -------- -------- Total accrued expenses.................................... $260,098 $238,061 ======== ========
Other Long-Term Liabilities Other long-term liabilities consisted of the following:
DECEMBER 31, ----------------- 2003 2002 ------- ------- (IN THOUSANDS) Deferred mobilization revenue............................... $26,190 $47,457 Deferred compensation....................................... 12,996 14,621 Deferred revenue, other..................................... 1,176 14,712 Earn-out payment, net of current portion.................... -- 3,000 Other....................................................... 14,061 8,782 ------- ------- Total other long-term liabilities......................... $54,423 $88,572 ======= =======
71 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other Income (Expense), Net Other income (expense), net consisted of the following:
YEAR ENDED DECEMBER 31, ---------------------------- 2003 2002 2001 ------- ------- -------- (IN THOUSANDS) Argentina writedown.................................... $ -- $ -- $(10,679) Foreign exchange gain (loss)........................... 9,592 (1) (2,375) Gain (loss) on extinguishment of debt.................. (6,142) (1,228) 2,049 Insurance gains........................................ -- -- 1,299 Litigation settlement.................................. -- -- (5,100) Other, net............................................. 79 157 1,480 ------- ------- -------- Total other income (expense), net.................... $ 3,529 $(1,072) $(13,326) ======= ======= ========
Cash Flow Information Supplemental cash flows and non-cash transactions were as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 2003 2002 2001 ------- -------- ------- (IN THOUSANDS) Cash paid during the year for: Interest............................................. $89,354 $111,576 $97,970 Income taxes -- U.S., net............................ -- -- 13,165 Income taxes -- foreign, net......................... 33,233 22,728 25,704 Change in capital expenditures in accounts payable... (7,078) 35,863 55,346
72 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 GULF OF --------------------- E&P TECHNICAL MEXICO OFFSHORE LAND SERVICES SERVICES OTHER TOTAL ---------- ---------- -------- -------- --------- -------- ---------- (IN THOUSANDS) 2003 Revenues................ $ 271,490 $ 683,058 $482,832 $122,052 $ 130,288 $ -- $1,689,720 Earnings (loss) from operations............ 9,272 215,283 33,388 10,351 (104,856) (41,220) 122,218 Total assets............ 1,028,071 2,157,692 821,390 182,138 68,359 120,780 4,378,430 Capital expenditures, including acquisitions.......... 73,305 84,951 22,761 9,154 -- 26,801 216,972 Depreciation and amortization.......... 62,720 100,808 70,213 11,138 92 4,251 249,222 2002 Revenues................ $ 165,419 $ 642,319 $299,278 $ 73,000 $ 89,758 $ -- $1,269,774 Earnings (loss) from operations............ (36,664) 247,466 (42,338) (1,614) 3,217 (19,477) 150,590 Total assets............ 726,832 2,578,901 721,843 159,695 37,887 177,699 4,402,857 Capital expenditures, including acquisitions.......... 95,879 17,363 135,485 10,709 508 (4,118) 255,826 Depreciation and amortization.......... 46,041 98,385 71,557 10,345 10 3,866 230,204 2001 Revenues................ $ 418,850 $ 507,139 $444,405 $142,501 -- $ -- $1,512,895 Earnings (loss) from operations............ 112,490 186,279 15,723 7,547 -- (37,490) 284,549 Total assets............ 929,550 2,296,297 767,769 147,967 -- 149,624 4,291,207 Capital expenditures, including acquisitions.......... 45,596 708,433 151,451 22,895 -- 3,898 932,273 Depreciation and amortization.......... 57,860 79,847 47,745 13,566 -- 3,692 202,710
73 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth certain information with respect to the Company by geographic area:
NORTH SOUTH OTHER AMERICA AMERICA INTERNATIONAL TOTAL --------- ---------- ------------- ---------- (IN THOUSANDS) 2003 Revenues............................. $ 398,680 $ 662,172 $ 628,868 $1,689,720 Earnings (loss) from operations...... (137,725) 65,239 194,704 122,218 Long-term assets..................... 521,006 718,059 2,412,441 3,651,506 Capital expenditures, including acquisitions....................... 100,106 30,826 86,040 216,972 Depreciation and amortization........ 66,654 88,213 94,355 249,222 2002 Revenues............................. $ 252,127 $ 515,045 $ 502,602 $1,269,774 Earnings (loss) from operations...... (43,016) 69,333 124,273 150,590 Long-term assets..................... 508,411 702,166 2,494,545 3,705,122 Capital expenditures, including acquisitions....................... 46,923 38,554 170,349 255,826 Depreciation and amortization........ 49,917 91,702 88,585 230,204 2001 Revenues............................. $ 418,850 $ 716,572 $ 377,473 $1,512,895 Earnings from operations............. 75,000 86,360 123,189 284,549 Long-term assets..................... 953,619 1,235,863 1,465,712 3,655,194 Capital expenditures, including acquisitions....................... 49,494 612,741 270,038 932,273 Depreciation and amortization........ 61,552 86,339 54,819 202,710
Revenue is classified in 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. Significant Customers Two customers each accounted for approximately 13% of consolidated revenues for the year ended December 31, 2003, which amounts are included in South America and Other International geographic segments, respectively. Two customers accounted for approximately 16% and 12%, respectively, of consolidated revenues for the year ended December 31, 2002, which amounts are included in South America and Other International geographic segments, respectively. One customer accounted for approximately 11% of consolidated revenues for the year ended December 31, 2001, which amount is included in the South America geographic segment. 74 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 2003 and 2002 were as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 Revenues................................... $395,421 $408,615 $450,834 $434,850 Earnings (losses) from operations(1)....... 50,414 11,888 82,947 (23,031) Net earnings (loss)........................ 3,980 (18,173) 28,712 (38,452) Net earnings (loss) per share: Basic.................................... $ 0.03 $ (0.14) $ 0.21 $ (0.28) Diluted.................................. $ 0.03 $ (0.14) $ 0.19 $ (0.28) Weighted average common shares and equivalents outstanding: Basic.................................... 134,131 134,246 135,131 135,291 Diluted.................................. 134,840 134,246 155,466 135,291 2002 Revenues................................... $298,557 $309,484 $312,750 $348,983 Earnings from operations(1)................ 35,283 37,489 35,458 42,360 Net earnings (loss)........................ 263 (4,155) (5,586) 1,143 Net earnings (loss) per share: Basic.................................... $ -- $ (0.03) $ (0.04) $ 0.01 Diluted.................................. $ -- $ (0.03) $ (0.04) $ 0.01 Weighted average common shares and equivalents outstanding: Basic.................................... 132,863 133,094 133,212 134,041 Diluted.................................. 133,816 133,094 133,212 134,838
- --------------- (1) Results previously reported for interim periods have been restated to reflect the retroactive adoption of FIN No. 46R, "Consolidation of Variable Interest Entities". See Note 1. 75 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with our independent auditors regarding accounting and financial disclosure matters. ITEM 9A. CONTROLS AND PROCEDURES We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this annual report. In the course of this evaluation, management considered certain internal control areas, including those enumerated below, in which we have made and are continuing to make changes to improve and enhance controls. Based upon that evaluation, our Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures are effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in the SEC's rules and forms, of information required to be disclosed by us in the reports that we file or submit under the Exchange Act. Beginning with the year ending December 31, 2004, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include an internal control report of management with our annual report on Form 10-K. The internal control report must contain (1) a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting for our company, (2) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, (3) management's assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not our internal control over financial reporting is effective, and (4) a statement that our independent auditors have issued an attestation report on management's assessment of our internal control over financial reporting. In order to achieve compliance with Section 404 within the prescribed period, management has formed an internal control steering committee, engaged outside consultants and adopted a detailed project work plan to assess the adequacy of our internal control over financial reporting, remediate any control weaknesses that may be identified, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. As a result of this initiative, we may make changes in our internal control over financial reporting from time to time during the period prior to December 31, 2004. During the most recently completed fiscal quarter and through the date of this annual report, we have made the following significant changes in our internal control over financial reporting: - senior management realignment, including separation of the Chief Executive Officer and President positions and appointment of a new President, Chief Financial Officer, Senior Vice President -- Operations and General Counsel; - appointment of a new internal audit director; - implementation of improved policies and procedures in our technical services division; - broadening of the scope and number of internal certifications sent to our Chief Executive Officer and our Chief Financial Officer; - revision and adoption of a strengthened audit committee charter; - adoption of a corporate governance and nominating committee charter, compensation committee charter, Code of Business Conduct and Ethical Practices, corporate governance guidelines and executive committee charter; and - adoption of an audit committee policy on handling of accounting and audit related complaints, including a related ethics hotline program. 76 There were no other changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As disclosed in our quarterly report on Form 10-Q for the quarterly period ended June 30, 2003, in connection with the completion of their review of our financial statements for the three-month and six-month periods ended June 30, 2003 included in that report and, in particular, their analysis of our loss provision related to our rig construction contracts, our independent auditors, PricewaterhouseCoopers LLP, issued a letter to our audit committee dated August 13, 2003 noting certain matters in our technical services division that it considered to be a material weakness in internal control. The matters listed in the letter were the misapplication of generally accepted accounting principles and the lack of procedures and policies to properly process change orders with customers on a timely basis. We have made changes in policies and procedures to improve and enhance internal controls with regard to the processing of change orders and in the technical services division generally and believe these improvements and enhancements have appropriately addressed the matters referred to in the letter. These changes include the following: - Established procedures for the centralized review and monitoring of change orders; - Enhanced procedures for the periodic review and assessment for income recognition of each change order in accordance with generally accepted accounting principles; - Strengthened the accounting function within the technical services segment and enhanced formal reporting procedures to the corporate accounting group; and - Initiated monthly meetings among project managers and corporate accounting personnel to review change order analysis, estimates to complete and supporting documentation for each project in connection with the monthly close of accounts. 77 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to our definitive proxy statement, which is to be filed with the SEC pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2003. Information with respect to our executive officers is set forth under the caption "Executive Officers of the Registrant" in Part I of this annual report. CODE OF BUSINESS CONDUCT AND ETHICAL PRACTICES We have adopted a Code of Business Conduct and Ethical Practices, which applies to, among others, our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. We have posted a copy of the code under "Corporate Governance" in the "Investor Relations" section of our internet website at www.prideinternational.com. Copies of the code may be obtained free of charge on our website or by requesting a copy in writing from our Corporate Secretary at 5847 San Felipe, Suite 3300, Houston, Texas 77057. Any waivers of the code must be approved by our board of directors or a designated board committee. Any amendments to, or waivers from, the code that apply to our executive officers and directors will be posted under "Corporate Governance" in the "Investor Relations" section of our internet website at www.prideinternational.com. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to our definitive proxy statement, which is to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year on December 31, 2003. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to our definitive proxy statement, which is to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year on December 31, 2003. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to our definitive proxy statement, which is to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year on December 31, 2003. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to our definitive proxy statement, which is to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year on December 31, 2003. 78 PART IV ITEM 15. 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 Auditors.............................. 42 Consolidated Balance Sheet -- December 31, 2003 and 2002.... 43 Consolidated Statement of Operations -- Years ended December 31, 2003, 2002 and 2001.......................... 44 Consolidated Statement of Stockholders' Equity -- Years ended December 31, 2003, 2002 and 2001.......................... 45 Consolidated Statement of Cash Flows -- Years ended December 31, 2003, 2002 and 2001.......................... 46 Notes to Consolidated Financial Statements.................. 47
(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 SEC 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. 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 No. 0-16963).
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.5 -- 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) Pride and its subsidiaries are parties to several debt instruments that have not been filed with the SEC 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 SEC upon request. 10.1 -- Second Amended and Restated Shareholders Agreement, dated as of March 4, 2002, among Pride, First Reserve Fund VII, Limited Partnership, First Reserve Fund VIII, L.P. and First Reserve Fund IX, L.P. (incorporated by reference to Exhibit 10.11 to Pride's Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-13289). +10.2 -- 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, Registration No. 33-33233). +10.3 -- Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4A to Pride's Registration Statement on Form S-8, Registration No. 33-26854). +10.4 -- 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, Registration No. 333-35089). +10.5 -- 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, Registration No. 333-35089). +10.6 -- 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). +10.7 -- Summary of Pride International, Inc. Group Life Insurance and Accidental Death and Dismemberment Insurance Plan (incorporated by reference to Exhibit 10(j) to Pride's Registration Statement on Form S-1, Registration No. 33-33233). +10.8 -- 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 No. 0-16963). +10.9 -- 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, Registration No. 333-35093). +10.10 -- 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). +10.11 -- 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). +10.12 -- Fourth Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.12 to Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289). +10.13 -- Fifth Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.13 to Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289). +10.14 -- Pride International, 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 No. 0-16963). +10.15 -- 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).
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.16 -- 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). +10.17 -- 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). +10.18 -- 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). +10.19 -- Pride International, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4 to Pride's Registration Statement on Form S-8, Registration No. 333-06825). +10.20 -- Employment/Non-Competition/Confidentiality Agreement dated January 1, 2002 between Pride and Jorge E. Estrada (incorporated by reference to Exhibit 10.20 of Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289. +10.21 -- 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). +10.22 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and John O'Leary (incorporated by reference to Exhibit 10.31 to Pride's Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-13289). +10.23 -- 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). +10.24 -- 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). +10.25 -- 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). +10.26 -- 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). +10.27 -- 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). +10.28 -- Employment/Non-Competition/Confidentiality Agreement dated October 31, 2002 between Pride and Nicolas J. Evanoff (incorporated by reference to Exhibit 10.30 of Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289). *+10.29 -- Employment/Non-Competition/Confidentiality Agreement dated November 22, 2003 between Pride and Louis A. Raspino. +10.30 -- First Amended and Restated Employment Agreement dated September 1, 1999 between Marine and Bobby E. Benton (incorporated by reference to Exhibit 10.5 of Marine's Quarterly Report on Form 10-Q for quarter ended September 30, 1999, File No. 1-14389). *+10.31 -- Retirement Agreement effective January 9, 2004 between Pride and James W. Allen. *+10.32 -- Retirement Agreement effective December 3, 2003 between Pride and Robert W. Randall. *12 -- Computation of ratio of earnings to fixed charges. *21 -- Subsidiaries of Pride. *23 -- Consent of PricewaterhouseCoopers LLP. *31.1 -- Certification of Chief Executive Officer of Pride pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
81
EXHIBIT NUMBER DESCRIPTION - ------- ----------- *31.2 -- Certification of Chief Financial Officer of Pride pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32 -- Certification of the Chief Executive Officer and the Chief Financial Officer of Pride pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------- * Filed herewith. + Compensatory plan, contract or arrangement. (b) Reports on Form 8-K In a current report on Form 8-K dated December 3, 2003, we reported pursuant to Item 5 of Form 8-K that we had announced certain organizational changes. We also filed as an exhibit pursuant to Item 7 of Form 8-K the news release dated December 3, 2003 issued with respect to the organizational changes. 82 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 MARCH 15, 2004. PRIDE INTERNATIONAL, INC. By: /s/ PAUL A. BRAGG ------------------------------------ Paul A. Bragg 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 MARCH 15, 2004.
SIGNATURES TITLE ---------- ----- /s/ PAUL A. BRAGG Chief Executive Officer, and Director - -------------------------------------- (Principal Executive Officer) Paul A. Bragg /s/ LOUIS A. RASPINO Executive Vice President and Chief - -------------------------------------- Financial Officer (Principal Financial Officer) Louis A. Raspino /s/ EDWARD G. BRANTLEY Vice President and Chief Accounting Officer - -------------------------------------- (Principal Accounting Officer) Edward G. Brantley /s/ WILLIAM E. MACAULAY Chairman of the Board - -------------------------------------- William E. Macaulay /s/ ROBERT L. BARBANELL 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/ RALPH D. MCBRIDE Director - -------------------------------------- Ralph D. McBride /s/ DAVID B. ROBSON Director - -------------------------------------- David B. Robson
83 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 SEC 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. 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 No. 0-16963). 4.5 -- 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) Pride and its subsidiaries are parties to several debt instruments that have not been filed with the SEC 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 SEC upon request. 10.1 -- Second Amended and Restated Shareholders Agreement, dated as of March 4, 2002, among Pride, First Reserve Fund VII, Limited Partnership, First Reserve Fund VIII, L.P. and First Reserve Fund IX, L.P. (incorporated by reference to Exhibit 10.11 to Pride's Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-13289). +10.2 -- 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, Registration No. 33-33233). +10.3 -- Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4A to Pride's Registration Statement on Form S-8, Registration No. 33-26854). +10.4 -- 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, Registration No. 333-35089). +10.5 -- 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, Registration No. 333-35089). +10.6 -- 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). +10.7 -- Summary of Pride International, Inc. Group Life Insurance and Accidental Death and Dismemberment Insurance Plan (incorporated by reference to Exhibit 10(j) to Pride's Registration Statement on Form S-1, Registration No. 33-33233).
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.8 -- 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 No. 0-16963). +10.9 -- 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, Registration No. 333-35093). +10.10 -- 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). +10.11 -- 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). +10.12 -- Fourth Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.12 to Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289). +10.13 -- Fifth Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10.13 to Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289). +10.14 -- Pride International, 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 No. 0-16963). +10.15 -- 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). +10.16 -- 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). +10.17 -- 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). +10.18 -- 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). +10.19 -- Pride International, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4 to Pride's Registration Statement on Form S-8, Registration No. 333-06825). +10.20 -- Employment/Non-Competition/Confidentiality Agreement dated January 1, 2002 between Pride and Jorge E. Estrada (incorporated by reference to Exhibit 10.20 of Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289. +10.21 -- 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). +10.22 -- Employment/Non-Competition/Confidentiality Agreement dated February 5, 1999 between Pride and John O'Leary (incorporated by reference to Exhibit 10.31 to Pride's Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-13289). +10.23 -- 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). +10.24 -- 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). +10.25 -- 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).
EXHIBIT NUMBER DESCRIPTION - ------- ----------- +10.26 -- 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). +10.27 -- 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). +10.28 -- Employment/Non-Competition/Confidentiality Agreement dated October 31, 2002 between Pride and Nicolas J. Evanoff (incorporated by reference to Exhibit 10.30 of Pride's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-13289). *+10.29 -- Employment/Non-Competition/Confidentiality Agreement dated November 22, 2003 between Pride and Louis A. Raspino. +10.30 -- First Amended and Restated Employment Agreement dated September 1, 1999 between Marine and Bobby E. Benton (incorporated by reference to Exhibit 10.5 of Marine's Quarterly Report on Form 10-Q for quarter ended September 30, 1999, File No. 1-14389). *+10.31 -- Retirement Agreement effective January 9, 2004 between Pride and James W. Allen. *+10.32 -- Retirement Agreement effective December 3, 2003 between Pride and Robert W. Randall. *12 -- Computation of ratio of earnings to fixed charges. *21 -- Subsidiaries of Pride. *23 -- Consent of PricewaterhouseCoopers LLP. *31.1 -- Certification of Chief Executive Officer of Pride pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2 -- Certification of Chief Financial Officer of Pride pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32 -- Certification of the Chief Executive Officer and the Chief Financial Officer of Pride pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------- * Filed herewith. + Compensatory plan, contract or arrangement. EX-3.2 3 h13348exv3w2.txt BYLAWS OF PRIDE EXHIBIT 3.2 BYLAWS OF PRIDE INTERNATIONAL, INC. ARTICLE I OFFICES 1.1 Registered Office. The registered office of Pride International, Inc. (the "Corporation") required by the General Corporation Law of the State of Delaware or any successor statute (the "DGCL"), to be maintained in the State of Delaware, shall be the registered office named in the Certificate of Incorporation of the Corporation, as it may be amended or restated in accordance with the DGCL from time to time (the "Certificate of Incorporation"), or such other office as may be designated from time to time by the Board of Directors of the Corporation (the "Board of Directors") in the manner provided by law. Should the Corporation maintain a principal office within the State of Delaware, such registered office need not be identical to such principal office of the Corporation. 1.2 Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may determine from time to time or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 Place of Meetings. Meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, or the officer calling the meeting. 2.2 Annual Meeting. An annual meeting of the stockholders, for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held at such place, within or without the State of Delaware, on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within thirteen months subsequent to the last annual meeting of stockholders. At the annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the annual meeting as set forth in Section 2.8 hereof. Failure to hold the annual meeting at the designated time or otherwise shall not work a dissolution of the Corporation. 2.3 Special Meetings. Unless otherwise provided by the provisions of the DGCL, or by or pursuant to the Certificate of Incorporation, special meetings of the stockholders may be called at any time only by the Chairman of the Board of Directors, by the Chief Executive Officer or by the Board of Directors pursuant to a resolution approved by the affirmative vote of at least a majority of the Whole Board, and no such special meeting may be called by any other person or persons (the term "Whole Board" shall mean the total number of authorized Directors, whether or not there exist any vacancies in previously authorized directorships). Upon written request of any person or persons authorized to call special meetings who have duly called such a special meeting, it shall be the duty of the Secretary to give due notice thereof to the stockholders. If the Secretary shall neglect or refuse to give notice of the meeting, the person or persons calling the meeting may do so. Every special meeting of the stockholders of the Corporation shall be held on such date and at such place within or without the State of Delaware as the person or persons calling the meeting may designate. 2.4 Notice of Meeting. Written notice of all meetings stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, Chief Executive Officer or Secretary of the Corporation, to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered to a stockholder when deposited in the United States mail addressed to such stockholder at such stockholder's address as it appears on the stock transfer records of the Corporation, with postage thereon prepaid. Notice of any meeting of stockholders of the Corporation need not be given to any stockholder of the Corporation if waived by him in writing in accordance with Section 7.3 hereof. In addition, attendance at a meeting of the stockholders of the Corporation shall constitute a waiver of notice of such meeting, except when a stockholder of the Corporation attends a meeting for the express purpose of objecting (and so expresses such objection at the beginning of the meeting) to the transaction of any business on the ground that the meeting is not lawfully called or convened. 2.5 Registered Holders of Shares; Closing of Share Transfer Records; Record Date. (a) Registered Holders as Owners. Unless otherwise provided under Delaware law, the Corporation may regard the person in whose name any shares issued by the Corporation are registered in the stock transfer records of the Corporation at any particular time (including, without limitation, as of a record date fixed pursuant to paragraph (b) of this Section 2.5) as the owner of those shares at that time for purposes of voting those shares, receiving distributions thereon or notices in respect thereof, transferring those shares, exercising rights of dissent with respect to those shares, entering into agreements with respect to those shares, or giving proxies with respect to those shares; and neither the Corporation nor any of its officers, directors, employees or agents shall be liable for regarding that person as the owner of those shares at that time for those purposes, regardless of whether that person possesses a certificate for those shares. (b) Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive a dividend by the Corporation, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than 60 days and, in the case of a meeting of stockholders, not less than ten days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. The Board of Directors shall not close the books of the Corporation against transfers of shares during the whole or any part of such period. 2 If the Board of Directors does not fix a record date for any meeting of the stockholders, the record date for determining stockholders entitled to notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived in accordance with Section 7.3 of these Bylaws, at the close of business on the day next preceding the day on which the meeting is held. 2.6 Quorum of Stockholders. (a) Quorum Generally. Unless otherwise provided by the DGCL or the Certificate of Incorporation, a majority of the Voting Stock, present in person or represented by proxy, shall constitute a quorum at any meeting of the stockholders of the Corporation. The term "Voting Stock" shall mean all outstanding shares of all classes and series of capital stock of the Corporation entitled to vote generally in the election of Directors of the Corporation, considered as one class; and, if the Corporation shall have outstanding at any time shares of Voting Stock entitled to more or less than one vote for any such share, each reference in these Bylaws to a proportion or percentage in voting power of Voting Stock shall be calculated by reference to the portion or percentage of all votes entitled to be cast by holders of all such shares generally in the election of Directors of the Corporation. "Broker non-votes" shall be considered present at the meeting with respect to the determination of a quorum but shall not be considered as votes cast with respect to matters as to which no authority is granted. (b) Quorum with Respect to a Class or Series. If any outstanding class or series of capital stock of the Corporation shall be entitled to vote as a class or series with respect to any matter to be submitted to a vote of the stockholders, then, with respect to any such matter, in addition to the requirement of Section 2.6(a), a majority of the outstanding shares of such class or series of capital stock so entitled to vote shall be required to be present in person or represented by proxy, in order to constitute a quorum, unless otherwise provided in a Directors' Resolution establishing such class or series. (c) Continuation of Business. The stockholders present at any duly convened meeting may continue to do business at such meeting or at any adjournment thereof notwithstanding any withdrawal from the meeting of holders of shares counted in determining the existence of a quorum. 2.7 Adjournment. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any meeting of the stockholders may be adjourned from time to time, without notice other than by announcement at the meeting at which such adjournment is taken, and at any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. 3 2.8 Voting by Stockholders. (a) Voting on Matters Other than the Election of Directors. With respect to any matters as to which no other voting requirement is specified by the DGCL, the Certificate of Incorporation or these Bylaws, the affirmative vote required for stockholder action shall be that of a majority of the shares present in person or represented by proxy at the meeting. Broker non-votes shall not be considered as shares present as to matters with respect to which no authority has been granted. In the case of a matter submitted for a vote of the stockholders as to which a stockholder approval requirement is applicable under the stockholder approval policy of any stock exchange or quotation system on which the capital stock of the Corporation is traded or quoted, the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any provision of the Internal Revenue Code, in each case for which no higher voting requirement is specified by the DGCL, the Certificate of Incorporation or these Bylaws, the vote required for approval shall be the requisite vote specified in such stockholder approval policy, Rule 16b-3 or Internal Revenue Code provision, as the case may be (or the highest such requirement if more than one is applicable). For the approval of the appointment of independent public accountants (if submitted for a vote of the stockholders), the vote required for approval shall be a majority of the votes cast on the matter. (b) Voting in the Election of Directors. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes cast by the holders of outstanding shares of capital stock of the Corporation entitled to vote in the election of directors at a meeting of stockholders at which a quorum is present. (c) Stockholder Proposals. At an annual meeting of stockholders of the Corporation, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such annual meeting. To be properly brought before an annual meeting, business or proposals must (i) be specified in the notice relating to the meeting (or any supplement thereto) given by or at the direction of the Board of Directors in accordance with Section 2.4 hereof or (ii) be properly brought before the meeting by a stockholder of the Corporation who (A) is a stockholder of record at the time of the giving of such stockholder's notice provided for in this Section 2.8, (B) shall be entitled to vote at the annual meeting and (C) complies with the requirements of this Section 2.8, and otherwise be proper subjects for stockholder action and be properly introduced at the annual meeting. For a proposal to be properly brought before an annual meeting by a stockholder of the Corporation, in addition to any other applicable requirements, such stockholder must have given timely advance notice thereof in writing to the Secretary of the Corporation. To be timely, such stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 120 days prior to the scheduled annual meeting date, regardless of any postponements, deferrals or adjournments of such annual meeting to a later date; provided, however, that if the scheduled annual meeting date differs from the annual meeting date of the next preceding annual meeting by greater than 30 days, and if less than 100 days' prior notice or public disclosure of the scheduled annual meeting date is given or made, notice by such stockholder, to be timely, must be so delivered or received not later than the close of business on the 10th day following the earlier of the day on which the notice of such meeting was mailed to stockholders of the Corporation or the day on which such public disclosure was made. Any such stockholder's notice to the Secretary of the Corporation shall set forth as to each matter such 4 stockholder proposes to bring before the annual meeting (i) a description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of such stockholder proposing such business and any other stockholders of the Corporation known by such stockholder to be in favor of such proposal, (iii) the number of shares of each class or series of capital stock of the Corporation Beneficially Owned (as defined below) by such stockholder on the date of such notice and (iv) any material interest of such stockholder in such proposal. A person shall be the "beneficial owner" of any shares of any class or series of capital stock of the Corporation of which such person would be the beneficial owner pursuant to the terms of Rule 13d-3 of the Exchange Act as in effect on the Public Status Date; stock shall be deemed "Beneficially Owned" by the beneficial owner or owners thereof. The Chairman of the Board or, if he is not presiding, the presiding officer of the meeting of stockholders of the Corporation shall determine whether the requirements of this Section 2.8 have been met with respect to any stockholder proposal. If the Chairman of the Board or the presiding officer determines that any stockholder proposal was not made in accordance with the terms of this Section 2.8, he shall so declare at the meeting and any such proposal shall not be acted upon at the meeting. At a special meeting of stockholders of the Corporation, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such special meeting. To be properly brought before such a special meeting, business or proposals must (i) be specified in the notice relating to the meeting (or any supplement thereto) given by or at the direction of the Board of Directors in accordance with Section 2.4 hereof or (ii) constitute matters incident to the conduct of the meeting as the Chairman of the Board or the presiding officer of the meeting shall determine to be appropriate. In addition to the foregoing provisions of this Section 2.8, a stockholder of the Corporation shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.8. 2.9 Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting who shall decide all questions relating to the qualification of voters, the validity of the proxies and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions. 2.10 Approval or Ratification of Acts or Contracts by Stockholders. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the stockholders, or at any special meeting of the stockholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the stockholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present) shall be as valid and as binding upon the Corporation and upon all the stockholders as if it has been approved or ratified by every stockholder of the Corporation. 5 ARTICLE III DIRECTORS 3.1 Powers, Number, Classification and Tenure. (a) Powers of the Board of Directors. The powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by or under the direction of, the Board of Directors. In addition to the authority and powers conferred upon the Board of Directors by the DGCL, the Certificate of Incorporation or these Bylaws, the Board of Directors is hereby authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, the Certificate of Incorporation and any Bylaw of the Corporation adopted by the stockholders of the Corporation; provided, however, that no Bylaw of the Corporation hereafter adopted by the stockholders of the Corporation, nor any amendment thereto, shall invalidate any prior act of the Board of Directors that would have been valid if such Bylaw or amendment thereto had not been adopted. (b) Management. Except as otherwise provided by the Certificate of Incorporation or these Bylaws or to the extent prohibited by Delaware law, the Board of Directors shall have the right (which, to the extent exercised, shall be exclusive) to establish the rights, powers, duties, rules and procedures that (i) from time to time shall govern the Board of Directors, including, without limiting the generality of the foregoing, the vote required for any action by the Board of Directors and (ii) from time to time shall affect the Directors' power to manage the business and affairs of the Corporation; no Bylaw of the Corporation shall be adopted by the stockholders of the Corporation that shall impair or impede the implementation of this Section 3.1(b). (c) Number of Directors. Within the limits specified in the Certificate of Incorporation, and subject to such rights of holders of shares of one or more outstanding series of preferred stock of the Corporation to elect one or more Directors of the Corporation under circumstances as shall be provided by or pursuant to the Certificate of Incorporation, the number of Directors of the Corporation that shall constitute the Board of Directors shall be fixed from time to time exclusively by, and may be increased or decreased from time to time exclusively by, the affirmative vote of at least a majority of the Whole Board. (d) Term. Each Director of the Corporation shall hold office for the full term for which such Director is elected and until such Director's successor shall have been duly elected and qualified or until his earlier death, resignation or removal in accordance with the Certificate of Incorporation and these Bylaws. (e) Vacancies. Unless otherwise provided by or pursuant to the Certificate of Incorporation, newly created directorships resulting from any increase in the authorized number of Directors of the Corporation and any vacancies on the Board of Directors resulting from death, resignation or removal in accordance with the Certificate of Incorporation and these Bylaws may be filled by the affirmative vote of at least a majority of the remaining Directors of the Corporation then in office, even if such remaining Directors constitute less than a quorum of the Board of Directors or by the stockholders. Any Director of the Corporation elected in 6 accordance with the preceding sentence shall hold office until the next annual meeting of stockholders and until such Director's successor shall have been duly elected and qualified or until his earlier death, resignation or removal in accordance with the Certificate of Incorporation and these Bylaws. Unless otherwise provided by or pursuant to the Certificate of Incorporation, no decrease in the number of Directors of the Corporation constituting the Board of Directors shall shorten the term of any incumbent Director of the Corporation. 3.2 Qualifications. Directors need not be residents of the State of Delaware or stockholders of the Corporation. 3.3 Nomination of Directors. Subject to such rights of holders of shares of one or more outstanding series of preferred stock of the Corporation to elect one or more Directors of the Corporation under circumstances as shall be provided by or pursuant to the Certificate of Incorporation, only persons who are nominated in accordance with the procedures set forth in this Section 3.3 shall be eligible for election as, and to serve as, Directors of the Corporation. Nominations of persons for election to the Board of Directors may be made only at a meeting of the stockholders of the Corporation at which Directors of the Corporation are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of the giving of such stockholder's notice provided for in this Section 3.3, who shall be entitled to vote at such meeting in the election of Directors of the Corporation and who complies with the requirements of this Section 3.3. Any such nomination by a stockholder of the Corporation shall be preceded by timely advance notice in writing to the Secretary of the Corporation. To be timely, such stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 120 days prior to the scheduled annual meeting date, regardless of any postponements, deferrals or adjournments of such annual meeting to a later date; provided, however, that if the scheduled annual meeting date differs from the annual meeting date of the next preceding annual meeting of stockholders of the Corporation by greater than 30 days, and if less than 100 days' prior notice or public disclosure of the scheduled meeting date is given or made, notice by such stockholder, to be timely, must be so delivered or received not later than the close of business on the 10th day following the earlier of the day on which the notice of such meeting was mailed to stockholders of the Corporation or the day on which such public disclosure was made. Any such stockholder's notice to the Secretary of the Corporation shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a Director of the Corporation, (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the number of shares of each class or series of capital stock of the Corporation Beneficially Owned by such person on the date of such notice and (D) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors of the Corporation, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including, without limitation, the written consent of such person to having such person's name placed in nomination at the meeting and to serve as a Director of the Corporation if elected), and (ii) as to such stockholder giving the notice, (A) the name and address, as they appear on the Corporation's books, of such stockholder and (B) the number of shares of each class or series of capital stock of the Corporation Beneficially Owned by such stockholder on the date of such notice. The Chairman of the Board or, if he is not presiding, the presiding officer of the meeting of stockholders of the Corporation shall determine whether the requirements of this Section 3.3 have been met with respect to any 7 nomination or intended nomination. If the Chairman of the Board or the presiding officer determines that any nomination was not made in accordance with the requirements of this Section 3.3, he shall so declare at the meeting and the defective nomination shall be disregarded. In addition to the foregoing provisions of this Section 3.3, a stockholder of the Corporation shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.3. 3.4 Place of Meeting; Order of Business. Except as otherwise provided by law, meetings of the Board of Directors, regular or special, may be held either within or without the State of Delaware, at whatever place is specified by the person or persons calling the meeting. In the absence of specific designation, the meetings shall be held at the principal office of the Corporation. At all meetings of the Board of Directors, business shall be transacted in such order as shall from time to time be determined by the Chairman of the Board (if any), or in his absence by the Chief Executive Officer, or by resolution of the Board of Directors. 3.5 Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places within or without the State of Delaware, at such hour and on such day as may be fixed by resolution of the Board of Directors, without further notice of such meetings. The time or place of holding regular meetings of the Board of Directors may be changed by the Chairman of the Board or the Chief Executive Officer by giving written notice thereof as provided in Section 3.7 hereof. 3.6 Special Meetings. Special meetings of the Board of Directors shall be held, whenever called by the Chairman of the Board, the Chief Executive Officer or by resolution adopted by the Board of Directors, at such place or places within or without the State of Delaware as may be stated in the notice of the meeting. 3.7 Attendance at and Notice of Meetings. Written notice of the time and place of, and general nature of the business to be transacted at, all special meetings of the Board of Directors, and written notice of any change in the time or place of holding the regular meetings of the Board of Directors, shall be given to each director personally or by mail, telecopier or similar communication at least one day before the day of the meeting; provided, however, that notice of any meeting need not be given to any director if waived by him in writing, or if he shall be present at such meeting. Attendance at a meeting of the Board of Directors shall constitute presence in person at and waiver of notice of such meeting, except where a person attends the meeting for the express purpose of objecting (and so expresses such objection at the beginning of the meeting) to the transaction of any business on the ground that the meeting is not lawfully called or convened. 3.8 Quorum of and Action by Directors. A majority of the directors in office shall constitute a quorum of the Board of Directors for the transaction of business; but a lesser number may adjourn the meeting from day to day until a quorum is present. Except as otherwise provided by law or in these Bylaws, the vote of a majority of the directors present shall constitute the action of the Board of Directors. 3.9 Board and Committee Action by Unanimous Written Consent in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action 8 required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or such committee, as the case may be, and is filed with the Secretary of the Corporation. 3.10 Board and Committee Conference Telephone Meetings. Subject to the provisions required or permitted by the DGCL for notice of meetings, unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in and hold a meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can speak to and hear each other, and attendance at a meeting pursuant to this Section 3.10 shall constitute presence in person at such meeting, except where a person attends the meeting for the express purpose of objecting (and so expresses such objection at the beginning of the meeting) to the transaction of any business on the ground that the meeting is not lawfully called or convened. 3.11 Compensation. Directors will receive such compensation for their services as may be fixed by resolution of the Board of Directors and shall receive their actual expenses of attendance, if any, for each regular or special meeting of the Board; provided that nothing contained herein shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. 3.12 Removal. A director of the Corporation may be removed from office, with or without cause, by the affirmative vote of the holders of a majority of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, voting together as a single class. Notwithstanding the first paragraph of this Section 3.12, whenever holders of outstanding shares of one or more series of Preferred Stock are entitled to elect members of the Board of Directors pursuant to the resolution or resolutions of the Board of Directors providing for the establishment of any such series, any such director of the Corporation so elected may be removed in accordance with such resolution or resolutions. 3.13 Committees of the Board of Directors. (a) The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members one or more committees, each of which shall be comprised of one or more of its members, and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations by the Board of Directors, replace absent or disqualified members at any meeting of that committee. Any such committee, to the extent provided in such resolution or in the Certificate of Incorporation or these Bylaws, shall have and may exercise all of the authority of the Board of Directors to the extent permitted by the DGCL. Any such committee may authorize the seal of the Corporation to be affixed to all papers which may require it. In addition to the above, such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by resolution adopted by the Board of Directors. 9 (b) The Board of Directors shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the number of members of any such committee shall constitute a quorum for the transaction of business unless a greater number is required by a resolution adopted by the Board of Directors. The act of the majority of the members of a committee present at any meeting at which a quorum is present shall be the act of such committee, unless the act of a greater number is required by a resolution adopted by the Board of Directors. Each such committee may elect a chairman (unless the Board of Directors appoints a chairman) and may appoint such subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors, meetings of any committee shall be conducted in accordance with Sections 3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and 7.3 hereof. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Any member of any such committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of a member of a committee shall not of itself create contract rights. (c) Any action taken by any committee of the Board of Directors shall promptly be recorded in the minutes and filed with the Secretary of the Corporation. ARTICLE IV OFFICERS 4.1 Designation. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer and such Executive, Senior or other Vice Presidents, Assistant Secretaries and other officers as may be elected or appointed by the Board of Directors. Any number of offices may be held by the same person, provided that no person holding more than one office may sign, in more than one capacity, any certificate or other instrument required by law to be signed by two officers. The Board of Directors shall also elect or appoint from among the Directors a person to act as Chairman of the Board who shall not be deemed to be an officer of the Corporation unless he or she has otherwise been elected or appointed as such. 4.2 Powers and Duties. The officers of the Corporation shall have such powers and duties as generally pertain to their offices, except as modified herein or by the Board of Directors, as well as such powers and duties as from time to time may be conferred by the Board of Directors. The Chairman of the Board shall have such duties as may be assigned to him by the Board of Directors and shall preside at meetings of the Board of Directors and at meetings of the stockholders. The Chief Executive Officer shall have general supervision over the business, affairs and property of the Corporation. 4.3 Vacancies. Whenever any vacancies shall occur in any office by death, resignation, increase in the number of offices of the Corporation, or otherwise, the same shall be 10 filled by the Board of Directors, and the officer so elected shall hold office until such officer's successor is elected or appointed or until his earlier death, resignation or removal. 4.4 Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract, common law, and statutory rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. 4.5 Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President and the Treasurer of the Corporation shall each have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V CAPITAL STOCK 5.1 Certificates for Shares. The certificates for shares of the capital stock of the Corporation shall be in such form as may be approved by the Board of Directors or may be uncertificated shares. In the case of certificated shares, the Corporation shall deliver certificates representing shares to which stockholders are entitled. Certificates representing such certificated shares shall be signed by the Chairman of the Board, the President or a Vice President and either the Secretary or an Assistant Secretary of the Corporation, and may bear the seal of the Corporation or a facsimile thereof. The signatures of such persons upon a certificate may be facsimiles. The stock record books and the blank stock certificate books shall be kept by the Secretary of the Corporation, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time by resolution determine. In case any person who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be Chairman of the Board or shall have ceased to be an officer before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer at the date of its issuance. 5.2 Transfer of Shares. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. 5.3 Ownership of Shares. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. 11 5.4 Regulations Regarding Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation. 5.5 Lost or Destroyed Certificates. The Chief Executive Officer, the President or any Vice President may determine the conditions upon which a new certificate of stock may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in its discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety, to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims that may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed. ARTICLE VI INDEMNIFICATION 6.1 General. The Corporation shall, to the fullest extent permitted by applicable law in effect on the date of effectiveness of these Bylaws, and to such greater extent as applicable law may thereafter permit, indemnify and hold Indemnitee harmless from and against any and all losses, liabilities, costs, claims, damages and, subject to Section 6.2, Expenses (as this and all other capitalized words used in this Article VI not previously defined in these Bylaws are defined in Section 6.15 hereof), arising out of any event or occurrence related to the fact that Indemnitee is or was a director or an officer of the Corporation or is or was serving in another Corporate Status. 6.2 Expenses. If Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf relating to such Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter. To the extent that the Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. 6.3 Advances. In the event of any threatened or pending Proceeding in which Indemnitee is a party or is involved and that may give rise to a right of indemnification under this Article VI, following written request to the Corporation by Indemnitee, the Corporation shall promptly pay to Indemnitee amounts to cover Expenses reasonably incurred by Indemnitee in such Proceeding in advance of its final disposition upon the receipt by the Corporation of (i) a written undertaking executed by or on behalf of Indemnitee providing that Indemnitee will repay the advance if it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Corporation as provided in this Article VI and (ii) satisfactory evidence as to the amount of such Expenses. 12 6.4 Request for Indemnification. To obtain indemnification, Indemnitee shall submit to the Secretary of the Corporation a written claim or request. Such written claim or request shall contain sufficient information to reasonably inform the Corporation about the nature and extent of the indemnification or advance sought by Indemnitee. The Secretary of the Corporation shall promptly advise the Board of Directors of such request. 6.5 Determination of Entitlement; No Change of Control. If there has been no Change of Control at the time the request for indemnification is submitted, Indemnitee's entitlement to indemnification shall be determined in accordance with Section 145(d) of the DGCL. If entitlement to indemnification is to be determined by Independent Counsel, the Corporation shall furnish notice to Indemnitee within ten days after receipt of the request for indemnification notice specifying the identity and address of Independent Counsel. The Indemnitee may, within 14 days after receipt of such written notice, deliver to the Corporation a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis for such assertion. If there is an objection to the selection of Independent Counsel, either the Corporation or Indemnitee may petition the Court for a determination that the objection is without a reasonable basis or for the appointment of Independent Counsel selected by the Court. 6.6 Determination of Entitlement; Change of Control. If there has been a Change of Control at the time the request for indemnification is submitted, Indemnitee's entitlement to indemnification shall be determined in a written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall give the Corporation written notice advising of the identity and address of the Independent Counsel so selected. The Corporation may, within 14 days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. Indemnitee may, within 14 days after the receipt of such objection from the Corporation, submit the name of another Independent Counsel and the Corporation may, within seven days after receipt of such written notice, deliver to the Indemnitee a written objection to such selection. Any objections referred to in this Section 6.6 may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and such objection shall set forth with particularity the factual basis for such assertion. Indemnitee may petition the Court for a determination that the Corporation's objection to the first or second selection of Independent Counsel is without a reasonable basis or for the appointment as Independent Counsel selected by the Court. 6.7 Procedures of Independent Counsel. If a Change of Control shall have occurred before the request for indemnification is sent by Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided in this Article VI) to be entitled to indemnification upon submission of a request for indemnification in accordance with Section 6.4 hereof, and thereafter the Corporation shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be used by Independent Counsel as a basis for a determination of entitlement to indemnification unless the Corporation provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel convinces him by clear and convincing evidence that the presumption should not apply. 13 Except in the event that the determination of entitlement to indemnification is to be made by Independent Counsel, if the person or persons empowered under Section 6.5 or 6.6 hereof to determine entitlement to indemnification shall not have made and furnished to Indemnitee in writing a determination within 60 days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification or such indemnification is prohibited by applicable law. The termination of any Proceeding or of any Matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article VI) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Corporation, or with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. A person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan of the Corporation shall be deemed to have acted in a manner not opposed to the best interests of the Corporation. For purposes of any determination hereunder, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal Proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise or on information, opinions, reports or statements presented to him or to the Corporation by any of the Corporation's officers, employees or directors, or by any other person as to matters the person reasonably believes are in such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation or another enterprise in the course of their duties or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section shall mean any other corporation or any partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this paragraph shall not be deemed to be exclusive or to limit in any way the circumstances in which an Indemnitee may be deemed to have met the applicable standards of conduct for determining entitlement to rights under this Article. 14 6.8 Independent Counsel Expenses. The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred acting pursuant to this Article VI and in any Proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection has been made to his selection until a court has determined that such objection is without a reasonable basis. 6.9 Adjudication. In the event that (i) a determination is made pursuant to Section 6.5 or 6.6 hereof that Indemnitee is not entitled to indemnification under this Article VI; (ii) advancement of Expenses is not timely made pursuant to Section 6.3 hereof; (iii) Independent Counsel has not made and delivered a written opinion determining the request for indemnification (a) within 90 days after being appointed by the Court, (b) within 90 days after objections to his selection have been overruled by the Court or (c) within 90 days after the time for the Corporation or Indemnitee to object to his selection; or (iv) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or is deemed to have been made pursuant to Section 6.5, 6.6 or 6.7 hereof, Indemnitee shall be entitled to an adjudication by the Court of his entitlement to such indemnification or advancement of Expenses. In the event that a determination shall have been made that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 6.9 shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding commenced pursuant to this Section 6.9, the Corporation shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. If a determination shall have been made or is deemed to have been made that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6.9, or otherwise, unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification, or such indemnification is prohibited by law. The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6.9 that the procedures and presumptions of this Article VI are not valid, binding and enforceable. If the Indemnitee, pursuant to this Section 6.9, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Article VI, and if he prevails therein, then Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, then the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be prorated. 6.10 Participation by the Corporation. With respect to any Proceeding: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, to the extent that it may wish, the Corporation (jointly with any other indemnifying party similarly notified) will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; and (c) the Corporation shall not be liable to 15 indemnify Indemnitee under this Article VI for any amounts paid in settlement of any action or claim effected without its written consent, which consent shall not be unreasonably withheld. After receipt of notice from the Corporation to Indemnitee of the Corporation's election to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Article VI for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than as otherwise provided below. Indemnitee shall have the right to employ his own counsel in such action, suit, proceeding or investigation but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless the employment of counsel by Indemnitee has been authorized by the Corporation, or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such action, or the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel employed by Indemnitee shall be subject to indemnification pursuant to the terms of this Article VI. The Corporation shall not be entitled to assume the defense of any Proceeding brought in the name of or on behalf of the Corporation or as to which Indemnitee shall have reasonably concluded that there is a conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such action. The Corporation shall not settle any action or claim in any manner which would impose any limitation or unindemnified penalty on Indemnitee without Indemnitee's written consent, which consent shall not be unreasonably withheld. 6.11 Nonexclusivity of Rights. The rights of indemnification and advancement of Expenses as provided by this Article VI shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled to under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Article VI or any provision hereof shall be effective as to any Indemnitee for acts, events and circumstances that occurred, in whole or in part, before such amendment, alteration or repeal. The provisions of this Article VI shall continue as to an Indemnitee whose Corporate Status has ceased for any reason and shall inure to the benefit of his or its heirs, executors, administrators, successors or assigns. Neither the provisions of this Article VI or those of any agreement to which the Corporation is a party shall be deemed to preclude the indemnification of any person who is not specified in this Article VI as having the right to receive indemnification or is not a party to any such agreement, but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL. 6.12 Insurance and Subrogation. The Corporation shall not be liable under this Article VI to make any payment of amounts otherwise indemnifiable hereunder if, but only to the extent that, Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. In the event of any payment hereunder, the Corporation shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and take all action reasonably requested by the Corporation to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. 16 6.13 Severability. If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Article VI shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 6.14 Certain Actions Where Indemnification Is Not Provided. Notwithstanding any other provision of this Article VI, no person shall be entitled to indemnification or advancement of Expenses under this Article VI with respect to any Proceeding, or any Matter therein, brought or made by such person against the Corporation. 6.15 Definitions. For purposes of this Article VI: "Change of Control" means a change in control of the Corporation after the date Indemnitee acquired his Corporate Status, which shall be deemed to have occurred in any one of the following circumstances occurring after such date: (i) there shall have occurred an event that is or would be required to be reported with respect to the Corporation in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Exchange Act, if the Corporation is or were subject to such reporting requirement; (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 40% or more of the combined voting power of the Corporation's then outstanding voting securities without prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person's attaining such percentage interest; (iii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including, for this purpose, any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. "Corporate Status" describes the status of Indemnitee as a director, officer, employee, agent or fiduciary of the Corporation or any predecessor of the Corporation, of Pride Oil Well Service Company, a Texas corporation, of Pride International, Inc., a Louisiana corporation, of Marine Drilling Companies, Inc., a Texas corporation, of any subsidiary of the Corporation or of Pride Oil Well Service Company, Pride International, Inc., Marine Drilling Companies, Inc., or of any other corporation, partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise which Indemnitee is or was serving at the request of the Corporation. "Court" means the Court of Chancery of the State of Delaware or any other court of competent jurisdiction. 17 "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding by reason of his Corporate Status. "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently is, nor in the five years previous to his selection or appointment has been, retained to represent: (i) the Corporation or Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. "Matter" is a claim, a material issue or a substantial request for relief. "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 6.9 hereof to enforce his rights under this Article VI. 6.16 Notices. Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if he anticipates or contemplates making a claim for Expenses or an advance pursuant to the terms of this Article VI, notify the Corporation of the commencement of such Proceeding; provided, however, that any delay in so notifying the Corporation shall not constitute a waiver or release by Indemnitee of rights hereunder and that any omission by Indemnitee to so notify the Corporation shall not relieve the Corporation from any liability that it may have to Indemnitee otherwise than under this Article VI. Any communication required or permitted to the Corporation shall be addressed to the Secretary of the Corporation and any such communication to Indemnitee shall be addressed to Indemnitee's address as shown on the Corporation's records unless he specifies otherwise and shall be personally delivered, delivered by U.S. Mail, or delivered by commercial express overnight delivery service. Any such notice shall be effective upon receipt. 6.17 Contractual Rights. The right to be indemnified or to the advancement or reimbursement of Expenses (i) is a contract right based upon good and valuable consideration, pursuant to which Indemnitee may sue as if these provisions were set forth in a separate written contract between Indemnitee and the Corporation, (ii) is and is intended to be retroactive and shall be available as to events occurring prior to the adoption of these provisions and (iii) shall continue after any rescission or restrictive modification of such provisions as to events occurring prior thereto. 6.18 Savings Clause. If any provision of this Article VI of the Bylaws is determined by a court having jurisdiction over the matter to require the Corporation to do or refrain from doing any act that is in violation of applicable law, the court shall be empowered to modify or 18 reform such provision so that, as modified or reformed, such provision provides the maximum of indemnification permitted by law and such provision, as so modified or reformed, and the balance of this Article VI shall be applied in accordance with their terms. Without limiting the generality of the foregoing, if any portion of this Article VI of the Bylaws shall be invalidated on any ground, the Corporation shall nevertheless indemnify an Indemnitee to the full extent permitted by an applicable portion of this Article VI of the Bylaws that shall not have been invalidated and to the full extent permitted by law with respect to that portion that has been invalidated. 6.19 Successors and Assigns. This Article VI of the Bylaws shall be binding upon the Corporation, its successors and assigns and shall inure to the benefit of Indemnitee's heirs and personal representatives. ARTICLE VII MISCELLANEOUS PROVISIONS 7.1 Bylaw Amendments. The Board of Directors shall have the power to adopt, amend and repeal from time to time the Bylaws of the Corporation, subject to the right of stockholders entitled to vote with respect thereto to amend or repeal such Bylaws as adopted or amended by the Board of Directors. Bylaws of the Corporation may be adopted, amended or repealed by the affirmative vote of the holders of a majority of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, voting together as a single class, at any annual meeting, or at any special meeting if notice of the proposed amendment is contained in the notice of said special meeting, or by the Board of Directors as specified in the preceding sentence. 7.2 Books and Records. The Corporation shall keep books and records of account and shall keep minutes of the proceedings of its stockholders, its Board of Directors and each committee of its Board of Directors. 7.3 Waiver of Notice. Whenever any notice is required to be given to any stockholder, director or committee member under the provisions of the DGCL or under the Certificate of Incorporation, as amended, or these Bylaws, said notice shall be deemed to be sufficient if given (i) by telegraphic, facsimile, cable or wireless transmission or (ii) by deposit of the same in a post office box in a sealed prepaid wrapper addressed to the person entitled thereto at his post office address, as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing, as the case may be. Whenever any notice is required to be given to any stockholder, director or committee member under the provisions of the DGCL or under the Certificate of Incorporation, as amended, or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special 19 meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. 7.4 Resignations. Any director or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chief Executive Officer or the Secretary of the Corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. 7.5 Seal. The seal of the Corporation shall be in such form as the Board of Directors may adopt. 7.6 Fiscal Year. The fiscal year of the Corporation shall end on the 31st day of December of each year or as otherwise provided by a resolution adopted by the Board of Directors. 7.7 Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of the Chairman of the Board, any other director, or any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors. 7.8 Reliance upon Books, Reports and Records. Each director and each member of any committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the director or member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or behalf of the Corporation. 20 EX-10.29 4 h13348exv10w29.txt EMPLOYMENT AGREEMENT - LOUIS A. RASPINO EXHIBIT 10.29 PRIDE INTERNATIONAL, INC. EMPLOYMENT/NON-COMPETITION/ CONFIDENTIALITY AGREEMENT LOUIS A. RASPINO EMPLOYMENT/NON-COMPETITION/CONFIDENTIALITY AGREEMENT DATE: The date of execution set forth below. COMPANY/EMPLOYER: Pride International, Inc., a Delaware corporation 5847 San Felipe, Suite 3300 Houston, Texas 77057 EMPLOYEE: Louis A. Raspino 26 Rains Way Houston, Texas 77007 This Employment/Non-Competition/Confidentiality Agreement by and between Pride International, Inc. (the "Company" and as further defined below) and Louis A. Raspino ("Employee") dated effective as of December 3, 2003 (the "Agreement") is made on the terms as herein provided. PREAMBLE WHEREAS, the Company wishes to attract and retain well-qualified employees and key personnel and to assure itself of the continuity of its management; WHEREAS, the Company recognizes that Employee will serve as a valuable resource of the Company, and the Company desires to be assured of the continued services of Employee; WHEREAS, the Company desires to obtain assurances that Employee 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, Employee will serve as 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; WHEREAS, the Company is concerned that in the event of a possible or threatened Change in Control (as defined below) of the Company, Employee may feel insecure, and therefore the Company desires to provide security to Employee in the event of a Change in Control; WHEREAS, the Company further desires to assure Employee that if a possible or threatened Change in Control should arise and Employee should be involved in deliberations or negotiations in connection therewith, Employee 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 Employee from any direct or implied threat to his financial well-being by a Change in Control; WHEREAS, Employee 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 impact the Company and Employee under circumstances of regular employment between the Company and Employee 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, the Agreement deals with the regular employment of Employee under circumstances whereby no Change in Control is threatened, occurring or has occurred ("Regular Employment") and it deals with circumstances whereby a Change in Control is threatened, occurring or has occurred. The Agreement deals with matters impacting both Regular Employment and employment following a Change in Control, including non-competition and confidentiality; and WHEREAS, Employee is willing to enter into and carry out the non-competition and confidentiality obligations and covenants set forth herein in consideration of the Agreement. AGREEMENT NOW, THEREFORE, Employee and the Company (together the "Parties") agree as follows: I. PRIOR AGREEMENTS/CONTRACTS 1.01 PRIOR AGREEMENTS. Employee represents and warrants to the Company that (i) he has no continuing non-competition agreements with any prior employers that have not been disclosed in writing to the Company and (ii) neither the execution of the Agreement by Employee or the performance by Employee of his obligations under the Agreement will result in a violation or breach of, or constitute a default under the provisions of any contract, agreement or other instrument to which Employee is or was a party. II. DEFINITION OF TERMS 2.01 COMPANY. Company means Pride International, Inc., a Delaware 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 Agreement, Company includes all subsidiaries and affiliates of the Company to the extent such subsidiary and/or affiliate is carrying on any portion of the business of the Company or a business similar to that being conducted by the Company. -2- 2.02 EMPLOYMENT DATE. The Employee's initial date of active employment, which shall be December 3, 2003 (the "Employment Date"). 2.03 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 the 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 12(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 (the "Board") 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. 2.04 TERMINATION. The term "Termination" shall mean termination of the employment of Employee 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 termination at the end of any "Employment Period" (as hereinafter defined) due to non-renewal or failure to extend this Agreement for any reason except for cause. a. The term "disability" means physical or mental incapacity qualifying Employee for a long-term disability under the Company's long-term disability plan. If no such plan exists on the Employment Date, the term "disability" means physical or mental incapacity as determined by a doctor jointly selected by Employee and the Board of Directors of the Company -3- qualifying Employee for long-term disability under reasonable employment standards. b. The term "cause" means: (i) the willful and continued failure of Employee 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 after Change in Control as discussed herein). No act or failure to act by Employee 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 Employee 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 Employee. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for cause for purposes of the 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 Employee and an opportunity for Employee and his counsel to be heard before the Board) for the purpose of considering whether Employee 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 Employee 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 Employee's title, position, duties, responsibilities or authority to such an extent or in such a manner as to relegate Employee to a position not substantially similar to that which he held prior to such reduction or change and which would degrade, embarrass or otherwise make it unreasonable for Employee to remain in the employment of the Company; and includes a violation by the Company of the employment provisions and conditions of this Agreement. d. The resignation of Employee shall be deemed "voluntary" if it is for any reason other than one or more of the following: (i) Employee's resignation or retirement is requested by the Company other than for cause; -4- (ii) Any significant adverse change in the nature or scope of Employee's position, authorities or duties from those described in this Agreement; (iii) Any reduction in Employee'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 requirement of the Company that Employee relocate more than 50 miles from downtown Houston, Texas; (vi) Any action by the Company which would constitute Constructive Termination; or (vii) Non-renewal or failure to extend any employment term, contrary to the wishes of Employee. Termination that entitles Employee to the payments and benefits provided in Section 3.05 or 4.02 hereof shall not be deemed or treated by the Company as the termination of Employee'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, if, and to the extent that, such benefits are provided under Section 3.05 or 4.02 hereof. 2.05 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. As of the Employment Date, Employee shall become an employee of the Company in an advisory capacity, but shall not serve as an officer or perform similar policy-making functions for the Company until December 16, 2003. Effective as of December 16, 2003, Employee will assume the position of Executive Vice President and Chief Financial Officer of the Company. Employee will report to the Company's Chief Executive Officer. Except as otherwise provided in the Agreement, the Company hereby agrees to continue Employee in its employ, and Employee hereby agrees to remain in the employ of the Company, for the Employment Period (as defined below). From December 16, 2003 through the remaining Employment Period, Employee shall exercise such position and authority and perform such responsibilities as are commensurate with the position and authority of Executive Vice President and Chief Financial Officer of the Company. -5- 3.02 BEST EFFORTS AND OTHER EMPLOYMENT OBLIGATIONS OF EMPLOYEE; BUSINESS EXPENSES AND OFFICE AND OTHER SERVICES. a. Employee 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. Said duties shall be rendered at Houston, Texas, and such other place or places within or without the State of Texas as the Company and Employee shall agree. b. The parties acknowledge that prior to December 16, 2003, Employee will be winding down his duties at his previous employer. From and after December 16, 2003, Employee 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 Employee performed for the Company. Such employment shall be considered "full time" employment. Employee shall also have the right to devote such incidental and immaterial amounts 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. Notwithstanding the foregoing, it shall not be a violation of the Agreement for Employee to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of Employee's responsibilities hereunder. Employee shall have the right to make investments in any business provided such investment does not result in a violation of the Non-Competition Section of this Agreement. c. Employee acknowledges and agrees that Employee owes a fiduciary duty to the Company. In keeping with these duties, Employee shall make full disclosure to the Company of all business opportunities pertaining to the Company's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. d. Employee shall not intentionally take any action which he knows would not comply with United States laws applicable to Employee's actions on behalf of the Company, and/or any of its subsidiaries or affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (the "FCPA"), as the FCPA may hereafter be amended, and/or its successor statutes. e. During the employment relationship and after the employment relationship terminates, Employee agrees to refrain from any disparaging comments -6- about the Company, any affiliates, or any current or former officer, director or employee of the Company or any affiliate, and Employee agrees not to take any action, or assist any person in taking any other action, that is materially adverse to the interests of the Company or any affiliate or inconsistent with fostering the goodwill of the Company and its affiliates; provided, however, that nothing in this Agreement shall apply to or restrict in any way the communication of information by Employee to any state or federal law enforcement agency or require notice to the Company thereof, and Employee will not be in breach of the covenant contained above solely by reason of his testimony which is compelled by process of law. The Company and its affiliates, officers and directors agree to refrain from any disparaging comments about Employee; provided, however, that nothing in this Agreement shall apply to or restrict in any way the communication of information by the Company and its affiliates, officers and directors to any state or federal law enforcement agency or require notice to Employee thereof, and the Company and its affiliates, officers and directors will not be in breach of the covenant contained above solely by reason of testimony which is compelled by process of law. f. During the Employment Period, Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Employee in accordance with the most favorable policies, practices and procedures of the Company as in effect from time to time. g. During the Employment Period, the Company shall furnish Employee with office space, secretarial assistance and such other facilities and services as shall be suitable to Employee's position and adequate for the performance of Employee's duties hereunder. 3.03 TERM OF EMPLOYMENT. Employee's Regular Employment will commence on the Employment Date and will be a for a term of two (2) years ending at 12:00 o'clock midnight on the second anniversary of the Employment Date (the "Employment Period"); thereafter, the Employment Period will be automatically extended for successive terms of one (1) year commencing on each anniversary of the Employment Date, unless the Company or Employee gives 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 (1) year after the date that the notice of non-renewal was given. 3.04 COMPENSATION AND BENEFITS. During the Employment Period Employee shall receive the following compensation and benefits: a. Employee will receive an annual base salary of not less than $390,000.00, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular executive compensation practices (the "Annual Base Salary"). The Annual Base Salary will be reviewed at least annually, but in no event earlier than December 2004. -7- b. Employee will be eligible to participate on a reasonable basis in annual bonus (as more fully described below), stock option and other incentive compensation plans which provide opportunities to receive compensation in addition to his Annual Base Salary which are at least equal to the opportunities provided by the Company for executives with comparable duties. Employee will be eligible to participate in the Company's annual incentive plan at a maximum bonus award level of no less than 100% of Annual Base Salary; provided however, that for the 2004 fiscal year the actual bonus payable to Employee shall be no less than 75% of Annual Base Salary. c. Employee will be entitled to receive and participate in employee benefits (including, but not limited to, medical, life, health, accident and disability insurance and disability benefits) and perquisites which are at least equal to those provided by the Company to executives with comparable duties d. Employee will receive paid vacation days each year to the same extent as provided to executives with comparable duties; provided, however, Employee will have no fewer than twenty (20) paid vacation days each year. e. Employee shall receive a lump-sum cash sign-on bonus in the amount of $200,000, payable within the first fifteen (15) days of January, 2004. In the event Employee shall cease employment due to voluntary resignation (other than Constructive Termination) or for cause during the initial two-year Employment Period, Employee agrees to repay to the Company $100,000 immediately upon such cessation of employment. The Company shall have the right to apply any compensation payable to Employee on or following the date of cessation of employment toward the satisfaction of this obligation, and Employee consents to such right of set-off. f. Employee shall receive a monthly automobile allowance in an amount not less than $750. g. Effective as of the Employment Date, Employee shall receive an award of a non-qualified option to acquire up to 300,000 shares of common stock of Pride International, Inc. ("Common Stock"), pursuant to the terms of the 1998 Long Term Incentive Plan (the "LTIP"). The option award shall become exercisable in accordance with the following schedule: -8-
Date of Initial Exercisability Following Employment Date Number of Shares ------------------------- ---------------- 6 Months 60,000 12 Months 60,000 18 Months 60,000 24 Months 60,000 30 Months 60,000 TOTAL 300,000
The exercise price will be the closing share price on the Employment Date. The option will have a 10-year term, subject to earlier expiration in the event of termination of employment in accordance with the Company's customary option award terms (attached as Exhibit A hereto). The Company hereby acknowledges (i) that the stock options granted and to be granted pursuant to this Section 3.04g and Section 3.04h are intended to induce Employee to enter into employment with the Company and to replace stock options granted by his prior employer which he will forfeit, and (ii) that the stock options granted and to be granted pursuant to this Section 3.04g and Section 3.04h are not intended to reduce the stock options, if any, which may otherwise be granted by the Company to Employee by reason of Employee's employment hereunder. h. Effective as of January 2, 2004, Employee shall be awarded a non-qualified option pursuant to the LTIP to acquire up to 150,000 shares of Common Stock. The exercise price will be the closing share price on the date of grant. The option will have a 10-year term, subject to earlier expiration in the event of termination of employment in accordance with the Company's customary option award terms (attached as Exhibit B hereto). The option will become exercisable in three installments, with 50,000 shares exercisable on the date of grant, and 50,000 shares becoming exercisable on each of the first and second anniversaries of the date of grant. i. Employee shall be entitled to participate in the Company's Supplemental Executive Retirement Plan (the "SERP") subject to the vesting schedule set forth below. Employee shall be eligible to accrue an annual benefit, payable in accordance with the terms of the SERP, for a period of up to ten (10) years following his retirement. The benefit shall be equal to 40% of Annual Base Salary at the time of retirement or such other benefit under the SERP as shall be provided to employees of comparable status, subject to any conditions for payment of benefit under the terms of the SERP and subject to the vesting schedule set forth below. Benefits payable under the SERP will become vested, subject to Employee's continued employment, in accordance with the schedule set forth below: -9-
Cumulative Annual Base Salary Date Amount Vested Payout Percentage ---- ------------- ----------------- 12/31/04 -0- -0- 12/31/05 -0- -0- 12/31/06 -0- -0- 12/31/07 20% 8% 12/31/08 40% 16% 12/31/09 60% 24% 12/31/10 80% 32% 12/31/11 100% 40%
In the event of Employee's Termination at any time after the Employment Date or in the event of Employee's termination following a Change in Control under circumstances entitling him to benefits under Section 4.02, the benefits payable under the SERP will be fully vested. In addition, upon a Change in Control the benefits payable under the SERP will be fully vested to the extent provided under the terms of the SERP as in effect from time to time. In the event of Employee's separation from employment, for any reason other than Termination, prior to December 31, 2011 (other than a termination resulting in full vesting pursuant to the preceding two sentences), the portion of the SERP payout percentage which has not become vested will be forfeited. Employee shall be deemed to have attained his "Early Retirement Age" for purposes of the SERP in the event of his cessation of employment, for any reason other than Termination, following attainment of any vested benefit under the schedule above or in the event of his cessation of employment which results in attainment of full vesting under the provisions of this Section 3.04i. Employee's benefits under the SERP shall not be reduced by reason of the fact that his years of service may be fewer than otherwise required under the terms of the SERP for the full benefit. j. Employee will participate, or if dependent on Employee's election, will be eligible to participate in all other executive incentive stock and benefit plans approved by the Company. 3.05 TERMINATION WITHOUT CHANGE IN CONTROL. Notwithstanding anything herein to the contrary, the Company shall have the right to terminate Employee's employment at any time during the Employment Period (including any extended term). Should the Company choose not to renew or extend the Employment Period of the Agreement or choose to terminate Employee during, or at the end of, the Employment Period, or in the event of death or disability of Employee, 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 or provide to Employee (or his Executor, Administrator or Estate in the event of death, as soon as reasonably practical): -10- a. An amount equal to two (2) full years of his base salary, which base salary is here defined as twelve (12) times the then current monthly salary in effect for Employee 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 Employee 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 Employee for a period of two (2) full years following the date of his Termination, life, health, accident and disability insurance coverages which are not less than the highest benefits furnished to Employee during the term of this Agreement. c. An amount equal to two times the target award for Employee under the Company's annual bonus plan for the fiscal year in which Termination occurs; provided, however, that (i) if Employee has deferred his award for such year under a Company plan, the payment due Employee under this subparagraph shall be paid in accordance with the terms of the deferral or as specified by Employee and (ii) if the Company has not specified a target award for such year, the amount will be equal to two times fifty percent (50%) of the maximum percentage of Employee's Annual Base Salary Employee may be entitled to under the Company's annual bonus plan in such year. d. The Company will pay, distribute and otherwise provide to Employee 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 his Termination, and all employer contributions made or payable to any such plan for his account prior to the end of the month in which his termination occurs shall be deemed vested and payable to him; provided, however, that in the event any such employer contributions are prohibited from being deemed vested and payable for any reason (other than due to a lack of Employee's consent), the total amount of such employer contributions shall be paid to Employee in a lump sum outside of any such plan. Such payment or distribution shall be made in accordance with the elections made by Employee with respect to distributions in accordance with the plan as if Employee's employment with the Company terminated at the end of the month in which Termination occurs. This Section 3.05 shall not be deemed to refer to the SERP, which is otherwise addressed in Section 3.04i. e. All stock options and awards to which Employee is entitled will immediately vest and the time for exercising any option will be as specified in the applicable plan and award agreement as if Employee were still employed by the Company. -11- f. With respect to any qualified or non-qualified retirement pension plan that may be adopted by the Company after the Employment Date, if Employee elects to treat Termination as retirement then on the date of Termination, Employee 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 such 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 the retirement benefits to which he is entitled under such plan(s). Employee may treat the termination as termination other than "retirement" if Employee so elects and may defer "retirement" to a later date if permitted by any applicable plan(s). g. The "Compensation and Benefits" section hereof shall be applicable in determining the payments and benefits due Employee under this section and if Termination occurs after a reduction in all or part of Employee'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 compensation, benefit or other plan or arrangement of the Company because Employee 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 Employment Date, 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 Employee, his dependents, beneficiaries and estate as if Employee's employment had not been terminated. i. All life, health, hospitalization, medical and accident benefits available to Employee's spouse and dependents shall continue for the same term as Employee's benefits. If Employee 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 Employee. j. The Company's obligation under this Section to continue to pay or provide health care, life, accident and disability insurance to Employee, Employee's spouse and Employee's dependents shall be reduced when and to the extent any such benefits are paid or provided to Employee by another employer; provided, however, that Employee shall have all rights, if any, afforded to retirees to convert group life insurance coverage to the individual life insurance coverage as, to the extent of, and whenever his group life insurance coverage under this Section is reduced or expires. Apart from this subparagraph, Employee shall have and be subject to no obligation to mitigate. -12- 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 of the Company. To the extent the Company's performance under this Section includes the performance of the Company's obligations to Employee under any other plan or under another agreement between the Company and Employee, the rights of Employee under such other plan or other agreement, which are discharged under the Agreement, are discharged, surrendered, or released pro tanto. IV. CHANGE IN CONTROL 4.01 EXTENSION OF EMPLOYMENT PERIOD. Upon any Change in Control, the 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 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 Section 3.03. 4.02 CHANGE IN CONTROL TERMINATION PAYMENTS AND BENEFITS. In the event Employee is terminated within three (3) years following a Change in Control, Employee will receive the payments and benefits specified in the "Termination Without Change in Control" Section at the same time and in the same manner therein specified except as amended and modified below: 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) Employee 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 Employee 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 3.05c hereof. d. All other rights and benefits specified in Section 3.05. 4.03 VOLUNTARY RESIGNATION UPON CHANGE IN CONTROL. If Employee voluntarily resigns his employment within twelve (12) months after a Change in Control (whether or not the Company may be alleging the right to terminate employment for cause), he will receive the same payments, compensation and benefits as if he had had a Termination on the date of resignation after Change in Control. -13- V. NON COMPETITION AND CONFIDENTIALITY/PROTECTION OF INFORMATION 5.01 CONSIDERATION. Employee recognizes that in each of the highly competitive businesses in which the Company is engaged, the Company's trade secrets and other confidential information, along with personal contacts, are of primary importance in securing and maintaining business prospects, in retaining the accounts and goodwill of present Customers and protecting the business of the Company. Employee, therefore, agrees that in exchange for the provision of trade secrets and other confidential information, he will agree to the non-competition and confidentiality obligations and covenants outlined in this Section V. 5.02 NON-COMPETITION. In exchange for the consideration described above in Section 5.01, Employee agrees that during his employment with the Company on and after December 16, 2003 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 noncompete covenants and obligations herein will terminate on the date of termination of Employee), Employee 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 to or in any way engage in any business which (i) is primarily engaged in the drilling and workover of oil and gas wells within the geographical area described in Section 5.02(e) and (ii) actually competes to a substantial extent with the Company; 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 Employee had direct or indirect supervision or control, within three (3) years preceding Employee'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 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 -14- holding a position with the Company within two (2) years after the date of termination of employment of Employee with the Company or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever period expires earlier; provided however, Employee can seek written consent from the Company to hire an officer, director, employee or individual who has terminated employment with the Company, and Company consent will not be unreasonably withheld. e. The geographical area within which the non-competition obligations and covenants of the 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 obligations and covenants of the 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 or its territorial waters and the Company is not then doing business in that other country, there will be no territorial limitations extending into such other country. 5.03 CONFIDENTIALITY/PROTECTION OF INFORMATION. Employee acknowledges that his employment with the Company 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, Employee 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, Employee 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 Employee's duties as an employee of the Company, and Employee may not make use of any information of the Company after he is no longer an employee of the Company. Employee 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 that 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, machines, 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 the Agreement, except to the extent that such information may be otherwise lawfully and readily available to the general public. Employee further agrees that he will, upon termination of his employment with the Company, return to the Company all books, records, lists and other written, electronic, typed or -15- printed materials, whether furnished by the Company or prepared by Employee, which contain any information relating to the Company's business, and Employee agrees that he will neither make nor retain any copies of such materials after termination of employment. Notwithstanding any of the foregoing, nothing in this Agreement shall prevent Employee from complying with applicable federal and/or state laws. Notwithstanding any of the foregoing, Employee will not be liable for any breach of these confidentiality provisions unless the same constitutes a material detriment 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 it would likely cause damage to the Company or constitute a material detriment to the Company. 5.04 COMPANY REMEDIES FOR VIOLATION OF NON-COMPETITION OR CONFIDENTIALITY/PROTECTION OF INFORMATION PROVISIONS. Without limiting the right of the Company to pursue all other legal and equitable rights available to it for violation of any of the obligations and covenants made by Employee herein, it is agreed that: a. the skills, experience and contacts of Employee 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 Employee as to time and area contained in the Agreement are reasonable; and c. the injury suffered by the Company by a violation of any obligation or covenant in the Agreement resulting from loss of profits created by (i) the competitive use of such skills, experience contacts and otherwise and/or (ii) the use or communication of any information deemed confidential herein will be difficult to calculate in damages in an action at law and cannot fully compensate the Company for any violation of any obligation or covenant in the Agreement, accordingly: (i) the Company shall be entitled to injunctive relief to prevent violations thereof and prevent Employee from rendering any services to any person, firm or entity in breach of such obligation or covenant and to prevent Employee from divulging any confidential information; and (ii) compliance with the Agreement is a condition precedent to the Company's obligation to make payments of any nature to Employee, subject to the other provisions hereof. 5.05 TERMINATION OF BENEFITS FOR VIOLATION OF NON-COMPETITION AND CONFIDENTIALITY/PROTECTION OF INFORMATION PROVISIONS. If Employee materially violates the confidentiality/protection of information and/or non-competition obligations and covenants herein or any other related agreement -16- he may have signed as an employee of the Company, Employee agrees 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 Section 3.05 of the Agreement, subject to the provision of Section 6.01 hereof. There will be no withholding of benefits or payments due to a violation of the non-competition obligations hereof if the termination occurred after a Change in Control, and Employee will not be bound by the non-competition provisions if terminated after a Change in Control. 5.06 REFORMATION OF SCOPE. If the provisions of the confidentiality and/or non-competition obligations and covenants should ever be deemed to exceed the time, geographic or occupational limitations permitted by the applicable law, Employee and the Company agree that such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by the applicable law, and the determination of whether Employee violated such obligation and covenant will be based solely on the limitation as reformed. 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 the Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have the Agreement declared unenforceable, or may take, or attempt to take other action to deny Employee the benefits intended under the Agreement; or actions may be taken to enforce the non-competition or confidentiality provisions of the Agreement. In these circumstances, the purpose of the Agreement could be frustrated. It is the intent of the parties that Employee not be required to incur the legal fees and expenses associated with the protection or enforcement of his rights under the Agreement by litigation or other legal action because such costs would substantially detract from the benefits intended to be extended to Employee 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 Employment Date, it should appear to Employee that the Company is or has acted contrary to or is failing or has failed to comply with any of its obligations under the Agreement for the reason that it regards the Agreement to be void or unenforceable, that Employee has violated the terms of the 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 the Agreement, or in the event that the Company or any other person takes any action to declare the Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits provided or intended to be provided to him hereunder, and Employee has acted in good faith to perform his obligations under the Agreement, the Company irrevocably authorizes Employee from time to time to retain counsel of his choice at the expense of the -17- 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 the Agreement or with the initiation or defense of any litigation or any other legal action, whether by or against Employee 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 attorney's fees and expenses hereunder based upon any belief or assertion by the Company that Employee has not acted in good faith or has violated the Agreement. If Company subsequently establishes that Employee was not acting in good faith and has violated the Agreement, Employee will be liable to the Company for reimbursement of amounts paid due to Employee's actions not based on good faith and in violation of the Agreement. The reasonable fees and expenses of counsel selected from time to time by Employee hereinabove provided shall be paid or reimbursed to Employee by the Company, on a regular, periodic basis within thirty (30) days after presentation by Employee 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. Employee will be liable for and will pay all income tax liability by virtue of any payments made to Employee 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 Employee, the Company shall "gross-up" Employee for such tax liability by paying to Employee an amount sufficient so that after payment of all such taxes so imposed, Employee's position on an after-tax basis is what it would have been had no such additional taxes been imposed. Employee will cooperate with the Company to minimize the tax consequences to Employee and to the Company so long as the actions proposed to be taken by the Company do not cause any additional tax consequences to Employee and do not prolong or delay the time that payments are to be made, or reduce the amount of payments to be made, unless Employee consents in writing to any delay or deferment of payment. 6.03 PAYMENT OF BENEFITS UPON TERMINATION FOR CAUSE. If the termination of Employee is not after a Change in Control and is for cause, the Company will have the right to withhold all payments other than (i) what is accrued and owing under the terms of any employee benefit plan maintained by the Company, and (ii) those specified in Section 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 Employee to which he would have been entitled had Employee's termination not been for cause, plus interest on all amounts withheld from Employee 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 -18- cause occurs after a Change in Control, the Company shall not have the right to suspend or withhold payments to Employee under any provision of the Agreement (including vested rights to the SERP benefit) until or unless a final judgment is entered upholding the Company's determination that the termination was for cause, in which event Employee 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 Employee's participation in other benefits available to Employee or personnel of the Company 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 Employee would be entitled but for the Agreement. 6.05 NOTICES. Notices, requests, demands and other communications provided for by the 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) via facsimile transmission if the receiver acknowledges receipt; or (iii) via 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 Employee, 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. Employee shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under the 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 Employee lives, no person, other than the parties hereto, shall have any rights under or interest in the Agreement or the subject matter hereof. Upon the death of Employee, his executors, administrators, devisees and heirs, in that order, shall have the right to enforce the provisions hereof, to the extent applicable. 6.07 ENTIRE AGREEMENT; AMENDMENT. The Agreement constitutes the entire agreement of the Parties with respect of the subject matter hereof. No provision of the 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. The 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 Employee, expressly to assume and agree to perform the -19- Agreement. Except as otherwise provided herein, the Agreement shall be binding upon and inure to the benefit of Employee and his legal representatives, heirs and assigns; provided, however, that in the event of Employee's death prior to payment or distribution of all amounts, distributions and benefits due him hereunder, if any, each such unpaid amount and distribution shall be paid in accordance with the Agreement to the person or persons designated by Employee to the Company to receive such payment or distribution and in the event Employee 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 parts. 6.09 GOVERNING LAW. Except to the extent required to be governed by the laws of the State of Delaware because the Company is incorporated under the laws of said State, the validity, interpretation and enforcement of the Agreement shall be governed by the laws of the State of Texas. 6.10 VENUE. To the extent permitted by applicable state or federal law, venue for all proceedings hereunder will be in the U.S. District Court for the Southern District of Texas, Houston Division. 6.11 HEADINGS. The headings in the Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of the Agreement. 6.12 SEVERABILITY. In the event that any provision or portion of the Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of the 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 the Agreement is found to be invalid or unenforceable for any reason, the remaining provisions of the Agreement shall be binding upon the parties hereto, and the Agreement will be construed to give meaning to the remaining provisions of the Agreement in accordance with the intent of the Agreement. 6.14 COUNTERPARTS. The 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. 6.15 NO WAIVER. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of the Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. IN WITNESS WHEREOF, Employee has hereunto set his hand and, pursuant to the authorization from its Board of Directors and the Compensation Committee of such Board of Directors, the Company has caused these presents to be executed in its name and on its behalf. -20- EXECUTED in multiple originals and/or counterparts, effective as of December 3, 2003. /s/ Louis A. Raspino ------------------------------------ Louis A. Raspino ATTEST: PRIDE INTERNATIONAL, INC. /s/ W. Gregory Looser By: /s/ Paul A. Bragg - --------------------- ------------------------------- W. Gregory Looser Paul A. Bragg Assistant Secretary President and Chief Executive Officer -21- EX-10.31 5 h13348exv10w31.txt RETIREMENT AGREEMENT - JAMES W. ALLEN EXHIBIT 10.31 RETIREMENT AGREEMENT THIS RETIREMENT AGREEMENT (the "Agreement") made and entered into effective January 9, 2004, by and between Pride International, Inc. (the "Company") and James W. Allen (the "Executive"); WITNESSETH: WHEREAS, the Executive and the Company are parties to that certain Employment Agreement/Non-Competition/Confidentiality Agreement effective as of February 5, 1999 (the "Employment Agreement"); and WHEREAS, the parties mutually desire to arrange for Executive's retirement from the Company and its subsidiaries under certain terms; and WHEREAS, in consideration of the mutual promises contained herein, the parties hereto are willing to enter into this Agreement upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Retirement and Resignation from Officer Positions. Effective as of the close of business on January 9, 2004 (the "Retirement Date"), the Executive will retire as an employee of the Company. As of the Retirement Date, the Executive agrees to resign any and all director or officer positions he holds with the Company or any of its subsidiaries. 2. Consideration Prior Agreement and Waiver and Release. The Executive shall have until 21 calendar days after the date this Agreement was furnished to him to consider whether to sign and return this Agreement to the Company by first class mail or by hand delivery. In consideration for the Executive's execution of and compliance with this Agreement, including but not limited to the Confidentiality and Non-Competition provisions of Section 4 and the execution of the Waiver and Release attached hereto as Attachment A, the Company shall provide the consideration set forth below in this Section 2. This consideration is provided subject to the binding execution by the Executive (without revocation) of the Waiver and Release, which must be executed on or after the Retirement Date. The Company's obligation to make any further payments or provide any benefits otherwise due under Section 2 shall cease in the event the Executive fails to comply with the terms of this Agreement or the Waiver and Release, and no payment shall be made until the expiration of the seven-day revocation period following execution of the Waiver and Release (the "Effective Waiver Date"). A. Additional SERP Benefit to the Executive. The Company agrees to pay the Executive a benefit under the Company's Supplemental Executive Retirement Plan ("SERP"), in lieu of any benefit to which the Executive may have otherwise been entitled under the SERP, equal to $29,166.67 per month. This benefit will be payable for a period of sixty (60) months following the Retirement Date in equal monthly installments in accordance with the terms of the SERP. B. Stock Options. For purposes of this Section 2.B., the Executive shall be deemed to be terminated under circumstances entitling the Executive to the stock option vesting and exercise rights described in Section 3.05(e) of the Employment Agreement, and accordingly any stock options awarded to the Executive under any incentive plan of the Company which remain unexercised as of the Executive's Retirement Date shall become fully vested and exercisable as of his Retirement Date and shall remain exercisable until the original expiration date of the applicable option, subject to all of the terms and conditions of the applicable incentive plan and stock option award agreement. C. Welfare Coverage Continuation. Following the Retirement Date, the Executive and his qualifying dependents will continue to be eligible for coverage under the Company's medical and dental benefit plan, in accordance with and subject to the terms and conditions of such plan, until the date that the Executive reaches, or in the event of Executive's death, would have reached, age 65, subject to (i) Executive's continued payment of the employee portion of the then-applicable premium, as such portion and premiums are in effect from time to time, and (ii) the Company's ability to amend or terminate its benefit plans at any time. If the Executive becomes eligible for medical and dental benefits from another employer, the Company's obligation to provide such benefits coverage shall immediately cease. To the extent permitted under the terms of the Company's group life insurance plan and by the insurance carrier, the Executive shall have the opportunity to convert his life insurance coverage currently provided by the Company into an individual policy, or to continue participation in the Company's group life insurance plan, provided that the Executive shall be required to pay the full cost of such coverage as in effect from time to time. D. Final Annual Bonus. The Executive's annual bonus for work performed in calendar year 2003 will be determined by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") in its discretion in accordance with the terms of the Company's annual bonus plan and performance criteria. The annual bonus for 2003 will be paid at the same time as the 2003 annual bonuses for other executives. The Executive will not receive any annual bonus for the 2004 calendar year. E. Indemnification and Release. The Company hereby agrees to waive and release the Executive from any and all claims, demands, actions, liabilities and damages arising out of any actions taken by the Executive in the course and scope of his employment with the Company, and to indemnify and defend the Executive for such actions to the fullest extent permitted by applicable law consistent with the Company's Certificate of Incorporation and By-Laws, if such actions were taken in good faith and in a manner the Executive reasonably believed to be in, or not opposed to, the best interest of the Company, but excluding actions which the Executive knew, or should have known, were in violation of applicable law or Company policies or otherwise in breach of any agreement between the Executive and the Company. -2- 3. Other Benefits. The Executive's benefits under the Company's 401(k) Retirement and Savings Plan, 401(k) Restoration Plan and Employee Stock Purchase Plan shall be determined and paid in accordance with the terms of such plans. 4. Restrictive Covenants. As a material inducement to the Company to enter into this Agreement, Executive agrees to the restrictive covenants set forth below, the substance of which was originally agreed to by the Executive in entering into the Employment Agreement in exchange for the Company's provision to the Executive of confidential information and for other good and valid consideration: A. Confidentiality. The Executive acknowledges that in the course of his employment with the Company he has obtained 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, 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, the 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 the 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 that 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 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. B. 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 his Retirement Date the Executive will -3- 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 Retirement Date, in any area where the Company provided, produced, leased or sold such products or services at any time during the three (3) years preceding the Retirement Date, 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 the Retirement Date, 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 the Retirement Date from whom the Company had solicited business during such three (3) year period; 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 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 Retirement Date or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever occurs earlier. C. 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. D. Enforcement. The Executive hereby agrees that a violation of the provisions of Section 4 would cause irreparable injury to the Company and its affiliates, -4- for which they would have no adequate remedy at law. The Company shall have the right to seek injunctive relief from a court having jurisdiction for any actual or threatened breach of Section 4 without necessity of complying with any requirement as to the posting of a bond or other security (it being understood that the Executive hereby waives any such requirement). Any such injunctive relief shall be in addition to any other remedies to which the Company may be entitled at law or in equity or otherwise. In addition, in the event a permanent injunction is issued against the Executive pursuant to this 4.D, the Executive agrees that this will result in an immediate suspension of payments and benefits otherwise payable or provided by the Company under this Agreement. E. Interpretation. If any provision of Section 4 is found by a court of competent jurisdiction to be unreasonably broad, oppressive or unenforceable, such court (i) shall narrow the scope of the Agreement in order to ensure that the application thereof is not unreasonably broad, oppressive or unenforceable and (ii) to the fullest extent permitted by law, shall enforce such Agreement as though reformed. F. Company. As used in this Section 4, the term "Company" includes the Company and any direct or indirect subsidiary of the Company. 5. Assistance with Legal Proceedings. The Executive agrees that for a period of three years after the Retirement Date, the Executive will furnish such information and proper assistance as may be reasonably necessary in connection with any litigation or other legal proceedings in which the Company or any affiliate or subsidiary is then or may become involved; provided, however, that the parties agree to negotiate a reasonable rate of compensation for any such services that exceed eight hours per month. 6. Non-Alienation. The 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 the 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 the Executive, his executors, administrators, devisees and heirs, in that order, shall have the right to enforce the provisions hereof. 7. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. 8. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. 9. Venue. To the extent permitted by applicable State and Federal law, venue for all proceedings hereunder will be in Harris County, Texas. 10. Notices. All notices or communications hereunder shall be in writing, addressed as follows: -5- To the Company: Pride International, Inc. 5847 San Felipe, Suite 3300 Houston, Texas 77057 Attention: Chief Executive Officer To the Executive: James W. Allen 11842 Riverview Houston, Texas 77077 All such notices shall be conclusively deemed to be received and shall be effective; (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed. 11. Source of Payments: All cash payments provided in this Agreement will be paid from the general funds of the Company. The Executive's status with respect to amounts owed under this Agreement will be that of a general unsecured creditor of the Company, and the Executive will have no right, title or interest whatsoever in or to any investments which the Company may make to aid the Company in meeting its obligations hereunder. Nothing contained in this Agreement, and no action taken pursuant to this provision, will create or be construed to create a trust of any kind between the Company and the Executive or any other person. 12. Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes that will be required pursuant to any law or governmental regulation or ruling. 13. Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or part, such invalidity will not affect any otherwise valid provision, and all other valid provisions will remain in full force and effect. 14. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, and all of which together will constitute one document. 15. Titles. The titles and headings preceding the text of the paragraphs and subparagraphs of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation or effect. 16. Governing Law. This Agreement will be construed and enforced in accordance with the laws of the State of Texas. -6- 17. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof, and expressly supersedes the Employment Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement in multiple counterparts, all of which shall constitute one agreement, effective as of the date and year first above written. PRIDE INTERNATIONAL, INC. By: /s/ Paul A. Bragg --------------------------------------- Paul A. Bragg President and Chief Executive Officer ATTEST: JAMES W. ALLEN /s/ W. Gregory Looser /s/ James W. Allen - ---------------------------------- ------------------------------------------- W. Gregory Looser Secretary -7- Attachment A Dated: January 9, 2004 WAIVER AND RELEASE In exchange for the consideration offered under the Retirement Agreement between me and Pride International, Inc. (the "Company"), dated January 9, 2004 (the "Retirement Agreement"), I hereby waive all of my claims and release the Company, its affiliates and its subsidiaries and each of their directors and officers, executives and agents, and benefit plans and the fiduciaries and agents of said plans (collectively referred to as the "Corporate Group") from any and all claims, demands, actions, liabilities and damages. I UNDERSTAND THAT SIGNING THIS WAIVER AND RELEASE IS AN IMPORTANT LEGAL ACT. I ACKNOWLEDGE THAT THE COMPANY HAS ADVISED ME IN WRITING TO CONSULT AN ATTORNEY BEFORE SIGNING THIS WAIVER AND RELEASE. I FURTHER ACKNOWLEDGE THAT I WAS GIVEN 21 CALENDAR DAYS AFTER THE DATE THE RETIREMENT AGREEMENT WAS FURNISHED TO ME TO CONSIDER WHETHER TO SIGN AND RETURN THE RETIREMENT AGREEMENT TO THE COMPANY. In exchange for the consideration offered to me by the Retirement Agreement, which I acknowledge provides consideration to which I would not otherwise be entitled, I agree not to sue or file any action or proceeding with any local, state and/or federal agency or court regarding or relating in any way to the Company, and I knowingly and voluntarily waive all claims and release the Corporate Group from any and all claims, demands, actions, liabilities, and damages, whether known or unknown, arising out of or relating in any way to the Corporate Group, except with respect to rights under the Retirement Agreement, and such rights or claims as may arise after the date this Waiver and Release is executed. This Waiver and Release includes, but is not limited to, claims and causes of action under: Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Civil Rights Act of 1866, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act of 1990; the Older Workers Benefit Protection Act of 1990; the Employee Retirement Income Security Act of 1974, as amended; the Family and Medical Leave Act of 1993; and/or contract, tort, defamation, slander, wrongful termination or other claims or any other state or federal statutory or common law. Should any of the provisions set forth in this Waiver and Release be determined to be invalid by a court, agency or other tribunal of competent jurisdiction, it is agreed that such determination shall not affect the enforceability of other provisions of this Waiver and Release. I acknowledge that this Waiver and Release and the Retirement Agreement set forth the entire understanding and agreement between me and the Company or any other member of the Corporate Group concerning the subject matter of this Waiver and Release and supersede the Employment Agreement (as defined in the Retirement Agreement) and any other prior or contemporaneous oral and/or written agreements or representations, if any, between me and the Company or any other member of the Corporate Group. -8- I understand that for a period of seven (7) calendar days following my signing this Waiver and Release (the "Waiver Revocation Period"), I may revoke my acceptance of the offer by delivering a written statement to the Company by hand or by registered mail, addressed to the address for the Company specified in the Retirement Agreement, in which case the Waiver and Release will not become effective. In the event I revoke my acceptance of this offer, the Company shall have no obligation to provide me the consideration offered under the Retirement Agreement to which I would not otherwise have been entitled. I understand that failure to revoke my acceptance of the offer within the Waiver Revocation Period will result in this Waiver and Release being permanent and irrevocable. I acknowledge that I have read this Waiver and Release, have had an opportunity to ask questions and have it explained to me and that I understand that this Waiver and Release will have the effect of knowingly and voluntarily waiving any action I might pursue, including breach of contract, personal injury, retaliation, discrimination on the basis of race, age, sex, national origin or disability and any other claims arising prior to the date of this Waiver and Release. By execution of this document, I do not waive or release or otherwise relinquish any legal rights I may have which are attributable to or arise out of acts, omissions or events of the Company or any other member of the Corporate Group which occur after the date of execution of this Waiver and Release. AGREED TO AND ACCEPTED this 9th day of January, 2004. /s/ JAMES W. ALLEN - ---------------------------------- JAMES W. ALLEN -9- EX-10.32 6 h13348exv10w32.txt RETIREMENT AGREEMENT - ROBERT W. RANDALL EXHIBIT 10.32 RETIREMENT AGREEMENT THIS RETIREMENT AGREEMENT (the "Agreement") made and entered into effective as of December 3, 2003 (the "Effective Date"), by and between Pride International, Inc. (the "Company") and Robert W. Randall (the "Executive"); WITNESSETH: WHEREAS, the Executive and the Company are parties to that certain Employment Agreement/Non-Competition/Confidentiality Agreement effective as of February 5, 1999 (the "Employment Agreement"); and WHEREAS, the parties mutually desire to arrange for Executive's retirement from the Company and its subsidiaries under certain terms; and WHEREAS, in consideration of the mutual promises contained herein, the parties hereto are willing to enter into this Agreement upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Retirement and Resignation from Officer Positions. Effective as of January 2, 2004 (the "Retirement Date"), the Executive will retire as an employee of the Company. As of the Effective Date, the Executive hereby resigns any and all director or officer positions he holds with the Company or any of its subsidiaries. 2. Consideration Prior Agreement and Waiver and Release. The Executive shall have until 21 calendar days after the date this Agreement was furnished to him to consider whether to sign and return this Agreement to the Company by first class mail or by hand delivery. In consideration for the Executive's execution of and compliance with this Agreement, including but not limited to the Confidentiality and Non-Competition provisions of Section 4 and the execution of the Waiver and Release attached hereto as Attachment A, the Company shall provide the consideration set forth below in this Section 2. This consideration is provided subject to the binding execution by the Executive (without revocation) of the Waiver and Release, which must be executed on or after the Retirement Date. The Company's obligation to make any further payments or provide any benefits otherwise due under Section 2 shall cease in the event the Executive fails to comply with the terms of this Agreement or the Waiver and Release, and no payment shall be made until the expiration of the seven-day revocation period following execution of the Waiver and Release (the "Effective Waiver Date"). A. Additional SERP Benefit to the Executive. The Company agrees to pay the Executive a benefit under the Company's Supplemental Executive Retirement Plan ("SERP"), in lieu of any benefit to which the Executive may have otherwise been entitled under the SERP, equal to $6,725 per month, which is 35% of the Executive's final annual base salary of $210,000. This benefit will be payable for a period of eighty (80) months following the Retirement Date in equal monthly installments in accordance with the terms of the SERP. B. Stock Options. Any stock options awarded to the Executive under any incentive plan of the Company which remain unexercised as of the Executive's Retirement Date shall become fully vested and exercisable as of his Retirement Date and shall remain exercisable until the original expiration date of the applicable option as if the Executive remained employed by the Company, subject to all of the terms and conditions of the applicable incentive plan and stock option award agreement. C. Welfare Coverage Continuation. Following the Retirement Date, the Executive and his qualifying dependents will continue to be eligible for coverage under the Company's medical and dental benefit plan until the date that the Executive reaches, or in the event of Executive's death, would have reached age 65, subject to (i) Executive's continued payment of the employee portion of the then-applicable premium, as such portion and premiums are in effect from time to time, and (ii) the Company's ability to amend or terminate its benefit plans at any time. If the Executive becomes eligible for medical and dental benefits from another employer, the Company's obligation to provide such benefits coverage shall immediately cease. To the extent permitted under the terms of the Company's group life insurance plan and by the insurance carrier, the Executive shall have the opportunity to convert his life insurance coverage currently provided by the Company into an individual policy, or to continue participation in the Company's group life insurance plan, provided that the Executive shall be required to pay the full cost of such coverage as in effect from time to time. D. Final Annual Bonus. The Executive's annual bonus for work performed in calendar year 2003 will be determined by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") in its discretion in accordance with the terms of the Company's annual bonus plan and performance criteria. The Company agrees that the appropriate officers will recommend to the Compensation Committee that the Executive's annual bonus for the 2003 calendar year include the maximum discretionary component; provided, however, that the parties agree that the Compensation Committee shall have the ultimate discretion to determine the Executive's annual bonus for the 2003 calendar year. The annual bonus for 2003 will be paid at the same time as the 2003 annual bonuses for other executives. The Executive will not receive any annual bonus for the 2004 calendar year. E. Indemnification and Release. The Company hereby agrees to waive and release the Executive from any and all claims, demands, actions, liabilities and damages arising out any actions taken by the Executive in the course and scope of his employment with the Company, and to indemnify and defend the Executive for such actions to the fullest extent permitted by applicable law consistent with the Company's Certificate of Incorporation and By-Laws, if such actions were taken in good faith and in a manner the Executive reasonably believed to be in, or not opposed to, the best interest of the Company, but excluding actions which the Executive knew, or should have known, were -2- in violation of applicable law or Company policies or otherwise in breach of any agreement between the Executives and the Company. 3. Other Benefits. The Executive's benefits under the Company's 401(k) Retirement and Savings Plan, 401(k) Restoration Plan and Employee Stock Purchase shall be determined and paid in accordance with the terms of such plans. 4. Restrictive Covenants. As a material inducement to the Company to enter into this Agreement, Executive agrees to the restrictive covenants set forth below, the substance of which was originally agreed to by the Executive in entering into the Employment Agreement in exchange for the Company's provision to the Executive of confidential information and for other good and valid consideration: A. Confidentiality. The Executive acknowledges that in the course of his employment with the Company he has obtained 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, 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, the 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 the 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 that 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 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. B. Non-Competition. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge -3- 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 one (1) year after his Retirement Date 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 one (1) year preceding the Retirement Date, in any area where the Company provided, produced, leased or sold such products or services at any time during the one (1) year preceding the Retirement Date, 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 one (1) year preceding the Retirement Date, to or from any person, firm or entity which was a customer for such products or services of the Company during the one (1) year preceding the Retirement Date from whom the Company had solicited business during such one (1) year period; 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 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 Retirement Date or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever occurs earlier. C. 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. -4- D. Enforcement. The Executive hereby agrees that a violation of the provisions of Section 4 would cause irreparable injury to the Company and its affiliates, for which they would have no adequate remedy at law. Any controversy or claim arising out of or relating to the provisions of this Section 4, or any alleged breach of Section 4, shall be settled by binding arbitration in accordance with Section 9. Notwithstanding the foregoing, however, the Company specifically retains the right before, during or after the pendency of any arbitration to seek injunctive relief from a court having jurisdiction for any actual or threatened breach of Section 4 without necessity of complying with any requirement as to the posting of a bond or other security (it being understood that the Executive hereby waives any such requirement). Any such injunctive relief shall be in addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, and the institution and maintenance of an action or judicial proceeding for, or pursuit of, such injunctive relief shall not constitute a waiver of the right of the Company to submit the dispute to arbitration. In addition, in the event a permanent injunction is issued against the Executive pursuant to this 4.D, the Executive agrees that this will result in an immediate suspension of payments and benefits otherwise payable or provided by the Company under this Agreement. E. Interpretation. If any provision of Section 4 is found by a court of competent jurisdiction to be unreasonably broad, oppressive or unenforceable, such court (i) shall narrow the scope of the Agreement in order to ensure that the application thereof is not unreasonably broad, oppressive or unenforceable and (ii) to the fullest extent permitted by law, shall enforce such Agreement as though reformed. F. Company. As used in this Section 4, the term "Company" includes the Company and any direct or indirect subsidiary of the Company. 5. Assistance with Legal Proceedings. The Executive agrees that for a period of three years after the Retirement Date, the Executive will furnish such information and proper assistance as may be reasonably necessary in connection with any litigation or other legal proceedings in which the Company or any affiliate or subsidiary is then or may become involved; provided, however, that the parties agree to negotiate a reasonable rate of compensation for any such services that exceed eight hours per month. 6. Non-Alienation. The 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 the 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 the Executive, his executors, administrators, devisees and heirs, in that order, shall have the right to enforce the provisions hereof. 7. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. -5- 8. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. 9. Venue. To the extent permitted by applicable State and Federal law, venue for all proceedings hereunder will be in Harris County, Texas. 10. Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Pride International, Inc. 5847 San Felipe, Suite 3300 Houston, Texas 77057 Attention: Chief Executive Officer To the Executive: Robert W. Randall 14621 Westway Lane Houston, TX 77077 All such notices shall be conclusively deemed to be received and shall be effective; (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed. 11. Source of Payments: All cash payments provided in this Agreement will be paid from the general funds of the Company. The Executive's status with respect to amounts owed under this Agreement will be that of a general unsecured creditor of the Company, and the Executive will have no right, title or interest whatsoever in or to any investments which the Company may make to aid the Company in meeting its obligations hereunder. Nothing contained in this Agreement, and no action taken pursuant to this provision, will create or be construed to create a trust of any kind between the Company and the Executive or any other person. 12. Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes that will be required pursuant to any law or governmental regulation or ruling. 13. Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or part, such invalidity will not affect any otherwise valid provision, and all other valid provisions will remain in full force and effect. -6- 14. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, and all of which together will constitute one document. 15. Titles. The titles and headings preceding the text of the paragraphs and subparagraphs of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation or effect. 16. Governing Law. This Agreement will be construed and enforced in accordance with the laws of the State of Texas. 17. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof, and expressly supersedes the Employment Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement in multiple counterparts, all of which shall constitute one agreement, on December 3, 2003, but effective as of the date and year first above written. PRIDE INTERNATIONAL, INC. By: /s/ PAUL A. BRAGG ------------------------------------- Paul A. Bragg President and Chief Executive Officer ATTEST: ROBERT W. RANDALL /s/ W. GREGORY LOOSER /s/ ROBERT W. RANDALL - -------------------------------- ---------------------------------------- W. Gregory Looser Assistant Secretary -7- Attachment A Dated: December 3, 2003 WAIVER AND RELEASE In exchange for the consideration offered under the Retirement Agreement between me and Pride International, Inc. (the "Company"), dated effective December 3, 2003 (the "Retirement Agreement"), I hereby waive all of my claims and release the Company, its affiliates and its subsidiaries and each of their directors and officers, executives and agents, and benefit plans and the fiduciaries and agents of said plans (collectively referred to as the "Corporate Group") from any and all claims, demands, actions, liabilities and damages. I UNDERSTAND THAT SIGNING THIS WAIVER AND RELEASE IS AN IMPORTANT LEGAL ACT. I ACKNOWLEDGE THAT THE COMPANY HAS ADVISED ME IN WRITING TO CONSULT AN ATTORNEY BEFORE SIGNING THIS WAIVER AND RELEASE. I FURTHER ACKNOWLEDGE THAT I WAS GIVEN 21 CALENDAR DAYS AFTER THE DATE THE RETIREMENT AGREEMENT WAS FURNISHED TO ME TO CONSIDER WHETHER TO SIGN AND RETURN THE RETIREMENT AGREEMENT TO THE COMPANY. In exchange for the consideration offered to me by the Retirement Agreement, which I acknowledge provides consideration to which I would not otherwise be entitled, I agree not to sue or file any action or proceeding with any local, state and/or federal agency or court regarding or relating in any way to the Company, and I knowingly and voluntarily waive all claims and release the Corporate Group from any and all claims, demands, actions, liabilities, and damages, whether known or unknown, arising out of or relating in any way to the Corporate Group, except with respect to rights under the Retirement Agreement, and such rights or claims as may arise after the date this Waiver and Release is executed. This Waiver and Release includes, but is not limited to, claims and causes of action under: Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Civil Rights Act of 1866, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act of 1990; the Older Workers Benefit Protection Act of 1990; the Employee Retirement Income Security Act of 1974, as amended; the Family and Medical Leave Act of 1993; and/or contract, tort, defamation, slander, wrongful termination or other claims or any other state or federal statutory or common law. Should any of the provisions set forth in this Waiver and Release be determined to be invalid by a court, agency or other tribunal of competent jurisdiction, it is agreed that such determination shall not affect the enforceability of other provisions of this Waiver and Release. I acknowledge that this Waiver and Release and the Retirement Agreement set forth the entire understanding and agreement between me and the Company or any other member of the Corporate Group concerning the subject matter of this Waiver and Release and supersede the Employment Agreement (as defined in the Retirement Agreement) and any other prior or contemporaneous oral and/or written agreements or representations, if any, between me and the Company or any other member of the Corporate Group. -8- I understand that for a period of seven (7) calendar days following my signing this Waiver and Release (the "Waiver Revocation Period"), I may revoke my acceptance of the offer by delivering a written statement to the Company by hand or by registered mail, addressed to the address for the Company specified in the Retirement Agreement, in which case the Waiver and Release will not become effective. In the event I revoke my acceptance of this offer, the Company shall have no obligation to provide me the consideration offered under the Retirement Agreement to which I would not otherwise have been entitled. I understand that failure to revoke my acceptance of the offer within the Waiver Revocation Period will result in this Waiver and Release being permanent and irrevocable. I acknowledge that I have read this Waiver and Release, have had an opportunity to ask questions and have it explained to me and that I understand that this Waiver and Release will have the effect of knowingly and voluntarily waiving any action I might pursue, including breach of contract, personal injury, retaliation, discrimination on the basis of race, age, sex, national origin or disability and any other claims arising prior to the date of this Waiver and Release. By execution of this document, I do not waive or release or otherwise relinquish any legal rights I may have which are attributable to or arise out of acts, omissions or events of the Company or any other member of the Corporate Group which occur after the date of execution of this Waiver and Release. AGREED TO AND ACCEPTED this 3rd day of December, 2003. /s/ ROBERT W. RANDALL - ----------------------------- ROBERT W. RANDALL -9- EX-12 7 h13348exv12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES . . . EXHIBIT 12 Ratio of Earnings to Fixed Charges Computation (in thousands except ratio of earnings to fixed charges)
------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- Net income (loss): Net income (loss) before income taxes and minority interest (a) $ (4,298) $ 10,739 $ 156,977 $ 94,662 $ (79,162) Portion of rents representative of interest expense (a) 5,914 3,006 6,104 5,107 4,600 Interest on indebtedness, including amortization of deferred loan costs (a) 133,227 140,863 125,394 111,112 74,914 Amortization of capitalized interest 3,691 3,613 3,090 2,962 1,778 Minority interest in pre-tax income of subsidiaries that have not incurred fixed charges (2,775) (2,132) (2,014) (955) (3,976) --------- --------- --------- --------- --------- Net income (loss) as adjusted $ 135,759 $ 156,089 $ 289,551 $ 212,888 $ (1,846) ========= ========= ========= ========= ========= Fixed Charges: Portion of rents representative of the interest factor (a) $ 5,914 $ 3,006 $ 6,104 $ 5,107 $ 4,600 Interest on indebtedness, including amortization of deferred loan costs (a) 133,227 140,863 125,394 111,112 74,914 Capitalized interest 1,207 1,900 19,032 11,200 33,210 --------- --------- --------- --------- --------- Total fixed charges $ 140,348 $ 145,769 $ 150,530 $ 127,419 $ 112,724 ========= ========= ========= ========= ========= Ratio of earnings to fixed charges 1.0x 1.1x 1.9x 1.7x (b) ========= ========= ========= ========= =========
(a) Results previously reported for years ended December 31, 2002, 2001, 2000 and 1999, have been restated to reflect the retroactive adoption of FIN No. 46R, "Consolidation of Variable Interest Entities". (b) Due to the Company's loss in 1999, the ratio coverage was less than 1:1. The Company must generate additional earnings of $114,570 to achieve a coverage of 1:1. EX-21 8 h13348exv21.txt SUBSIDIARIES OF PRIDE . . . EXHIBIT 21
COMPANY JURISDICTION OF INCORPORATION OR ORGANIZATION - ------- --------------------------------------------- Al Jazirah Sharikat Ltd. Liberia Almeria Austral S.A. Argentina 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 (Dormant) Caland Boren B.V. The Netherlands Compagnie Monegasque.de Services Comoser. S.A.M. Monaco Criwey Corporation S.A. Uruguay Dayana Finance S.A. Panama Drilling Labor Services, Ltd. PTE Singapore Dundee Corporation Liberia Dupont Maritime Ltd. Liberia Durand Maritime S.N.C. France Estimulaciones Y Empaques S.A. Venezuela Foradel Sdn B.H.D. Malaysia Forafels Inc. Panama Foral S.A. France Forarom SRL Romania Forasol S.N.C. France Forasol Servicios De Angola, Limitada Angola Forasub, B.V. The Netherlands Forinter Limited Channel Islands Gisor Limited U.K. Gulf of Mexico Personnel Services S. de R.l. de C.V. Mexico Hispano Americana de Petroleos S.A. Argentina Hispano Americana de Petroleo S.A. Argentina Horwell S.A.S. France Inter-Drill Limited Bahamas Internationale de Travaux et de Materiel S.A.S. France Larcom Insurance Ltd. Bermuda Marlin Colombia Drilling Co., Inc. British Virgin Islands
Martin Maritime Ltd Bahamas Medfor S.A.S. France Mexico Drilling Limited, LLC Delaware Mexico Drilling Limited, LLC Mexico Branch Perforaciones Pride S. de R.l. de C.V. Mexico Petro Tech Saic.de M.Y S. Argentina Petrodrill Corporation Ltd. Bahamas Petrodrill Engineering N.V. The Netherlands Antilles 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 International PTE Ltd Singapore Petroleum Supply Company Texas Pride Amethyst Ltd. British Virgin Islands Pride Amethyst II Ltd. British Virgin Islands Pride Arabia Limited Saudi Arabia Pride Central America, LLC Delaware Pride Central America, LLC (Mexican Branch) Mexico Branch Pride Colombia Services Colombia Pride de Venezuela, C.A. Venezuela Pride do Brazil Ltda. Brazil Pride Drilling, C.A. Venezuela Pride Drilling, LLC Delaware Pride Drilling N.V. Curacao Pride E&P SERVICES Ltd. British Virgin Islands Pride Foral, S.P.A. Algeria Pride Foramer S.A.S. France Pride Foramer de Venezuela, C.A. Venezuela Pride Forasol Drilling Nigeria Limited Nigeria Pride-Forasol-Foramer Ltd. British Virgin Islands
Pride Forasol Perfuracoes e Servicos do Brasil LTDA. Brazil Pride Forasol, S.A.S. France Pride Global Ltd. British Virgin Islands Pride International Bolivia Ltda Bolivia Pride International, CA Venezuela Pride International, Inc. Delaware Pride International JSC Russia Pride International, Ltd. British Virgin Islands Pride International Management Company Delaware Pride International Personnel, Ltd. British Virgin Islands Pride International Services, Inc. Delaware Pride International, S.R.L. Argentina Pride Marine, Inc. Delaware Pride Maritima Ltd. British Virgin Islands Pride Mexico Holdings LLC Delaware Pride North America LLC Delaware Pride North Atlantic, Ltd. British Virgin Islands Pride North Sea, Ltd. British Virgin Islands Pride North Sea (Uk) Limited U.K. Pride Offshore, Inc. Delaware Pride Offshore International LLC Delaware Pride Ohio, Ltd. British Virgin Islands Pride Peru S.A. Peru Pride South America Ltd. British Virgin Islands Pride South America Ltd. Ecuador Pride South Pacific LLC Delaware Pride U.S. Personnel, Ltd. British Virgin Islands Redbridge Navigation Limited Liberia Redfish Holdings S. de R.l. de C.V. Mexico San Antonio Services, Ltd. British Virgin Islands San Antonio Services Ltd. Ecuador SE Pacific Drilling Ltd. British Virgin Islands
Servicios Especiales San Antonio S.A. Argentina Servicios Especiales San Antonio S.A. Colombia Servicios Especiales San Antonio S.A. Sucursal Del Peru Peru Servicios Especiales San Antonio S.A Suc. Venezuela Venezuela Societe Maritime de Services S.N.C."Somaser" France Sonamer Angola Ltd. Bahamas Sonamer France S.A.S. France Sonamer Jack-ups, Ltd. Bahamas Sonamer Limited Bahamas Sonamer Perfuracoes Ltda Bahamas Sucursal Bolivia Servicios Especiales San Antonio S.A. Bolivia Twin Oaks Financial Ltd. British Virgin Islands Uniao Nacional de Perfuracao Ltda ("UNAP") Brazil United Gulf Energy Resources Co. Oman Utah Drilling Limited British Virgin Islands Westville Management Corporation British Virgin Islands
EX-23.1 9 h13348exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Post-Effective Amendment No. 1 on Form S-8 to the Registration Statements on Form S-4 (Nos. 333-66644 and 333-666444-01) and the Registration Statements on Form S-3 (Nos. 333-89604, 333-40302, 333-40014 and 333-444925) of Pride International, Inc. of our report dated March 11, 2004 relating to the financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Houston, Texas March 15, 2004 EX-31.1 10 h13348exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATIONS I, Paul A. Bragg, certify that: 1. I have reviewed this annual report on Form 10-K of Pride International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 By: /s/ PAUL A. BRAGG -------------------------------------------------------- Paul A. Bragg Chief Executive Officer EX-31.2 11 h13348exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATIONS I, Louis A. Raspino, certify that: 1. I have reviewed this annual report on Form 10-K of Pride International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 By: /s/ LOUIS A. RASPINO -------------------------------------------------------- Louis A. Raspino Executive Vice President and Chief Financial Officer EX-32 12 h13348exv32.txt CERTIFICATION OF CEO & CFO PURSUANT TO SECTION 906 EXHIBIT 32 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the "Act") and Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), each of the undersigned, Paul A. Bragg, Chief Executive Officer of Pride International, Inc., a Delaware corporation (the "Company"), and Louis A. Raspino, Executive Vice President and Chief Financial Officer of the Company, hereby certify that, to his knowledge: (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and (2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 15, 2004 /s/ PAUL A. BRAGG - --------------------------------------------------------- PAUL A. BRAGG Chief Executive Officer /s/ LOUIS A. RASPINO - --------------------------------------------------------- LOUIS A. RASPINO Executive Vice President and Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Act and Rule 13a-14(b) promulgated under the Exchange Act and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----