- - ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-16961
PRIDE INTERNATIONAL, INC.
FORMERLY PRIDE PETROLEUM SERVICES, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 76-0069030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 SAN FELIPE, SUITE 3300
HOUSTON, TEXAS 77057
(Current address of principal executive offices) (Zip Code)
1500 CITY WEST BOULEVARD, SUITE 400
HOUSTON, TEXAS 77042
(Former address of principal executive offices) (Zip Code)
(713) 789-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practical date.
OUTSTANDING AT
CLASS OF COMMON STOCK NOVEMBER 1, 1997
--------------------- -------------------
no par 47,174,900 shares
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<PAGE>
PRIDE INTERNATIONAL, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants................................. 3
Consolidated Balance Sheet
September 30, 1997 and December 31, 1996....................... 4
Consolidated Statement of Operations -
Three months ended September 30, 1997 and 1996................. 5
Consolidated Statement of Operations -
Nine months ended September 30, 1997 and 1996.................. 6
Consolidated Statement of Cash Flows -
Nine months ended September 30, 1997 and 1996.................. 7
Notes to Unaudited Consolidated Financial Statements.............. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 23
Signatures........................................................... 24
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Pride International, Inc.:
We have reviewed the accompanying consolidated balance sheet of Pride
International, Inc. as of September 30, 1997, and the related consolidated
statements of operations for the three-month and nine-month periods ended
September 30, 1997 and 1996 and the related consolidated statement of cash flows
for the nine-month periods ended September 30, 1997 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Pride International, Inc. (formerly
Pride Petroleum Services, Inc.) as of December 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
March 30, 1997, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 1996 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
COOPERS & LYBRAND L.L.P.
Houston, Texas
November 13, 1997
Page 3
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents ........................................... $ 70,791 $ 10,310
Short-term investments .............................................. 310 460
Trade receivables, net of allowance for doubtful
accounts of $303 and $292, respectively .......................... 175,674 99,531
Parts and supplies .................................................. 30,583 27,642
Deferred income taxes ............................................... 4,408 1,778
Other current assets ................................................ 39,848 16,686
----------- ---------
Total current assets ...................................... 321,614 156,407
----------- ---------
PROPERTY AND EQUIPMENT, at cost ........................................... 1,153,214 514,903
ACCUMULATED DEPRECIATION .................................................. (88,025) (139,654)
----------- ---------
Net property and equipment ................................ 1,065,189 375,249
----------- ---------
OTHER ASSETS
Investments in and advances to affiliates ........................... 9,647 --
Goodwill and other intangibles, net ................................. 3,674 3,134
Other ............................................................... 20,361 7,272
----------- ---------
Total other assets ........................................ 33,682 10,406
----------- ---------
$ 1,420,485 $ 542,062
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .................................................... $ 88,794 $ 31,918
Accrued expenses .................................................... 88,156 25,785
Short-term borrowings ............................................... 48,116 3,300
Current portion of long-term debt ................................... 42,408 32,682
Current portion of long-term lease obligations ...................... 5,689 --
----------- ---------
Total current liabilities ................................. 273,163 93,685
----------- ---------
OTHER LONG-TERM LIABILITIES ............................................... 8,869 12,134
LONG-TERM DEBT, net of current portion .................................... 437,764 106,508
LONG-TERM LEASE OBLIGATIONS, net of current portion ....................... 32,580 --
CONVERTIBLE SUBORDINATED DEBENTURES ....................................... 52,500 80,500
DEFERRED INCOME TAXES ..................................................... 51,975 47,438
MINORITY INTEREST ......................................................... 1,273 --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 100,000,000 shares authorized;
47,099,788 and 28,571,876 shares issued and
47,045,568 and 28,517,656 shares outstanding, respectively ..... 1 1
Paid-in capital ..................................................... 419,566 143,581
Treasury stock, at cost ............................................. (191) (191)
Retained earnings ................................................... 142,985 58,406
----------- ---------
Total shareholders' equity ................................ 562,361 201,797
----------- ---------
$ 1,420,485 $ 542,062
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES ................................................... $ 182,908 $ 115,369
OPERATING COSTS ............................................ 118,040 80,936
--------- ---------
Gross Margin ............................... 64,868 34,433
DEPRECIATION AND AMORTIZATION .............................. 16,084 8,168
SELLING, GENERAL AND ADMINISTRATIVE ........................ 18,837 14,294
--------- ---------
Earnings from operations ................... 29,947 11,971
OTHER INCOME (EXPENSE)
Other expense ........................................ (566) (221)
Interest income ...................................... 975 647
Interest expense ..................................... (10,460) (3,178)
--------- ---------
Total other income (expense), net .......... (10,051) (2,752)
--------- ---------
EARNINGS BEFORE MINORITY INTEREST
AND INCOME TAXES ......................................... 19,896 9,219
MINORITY INTEREST .......................................... 134 --
--------- ---------
EARNINGS BEFORE INCOME TAXES ............................... 19,762 9,219
INCOME TAX PROVISION ....................................... 5,730 2,340
--------- ---------
NET EARNINGS ............................................... $ 14,032 $ 6,879
========= =========
NET EARNINGS PER SHARE:
Primary .............................................. $ .29 $ .23
Fully diluted ........................................ $ .27 $ .22
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING:
Primary .............................................. 49,162 29,850
Fully diluted ........................................ 53,754 36,429
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
--------- ---------
REVENUES ............................................... $ 488,821 $ 283,593
OPERATING COSTS ........................................ 322,999 202,796
--------- ---------
Gross Margin ........................... 165,822 80,797
DEPRECIATION AND AMORTIZATION .......................... 41,581 19,987
SELLING, GENERAL AND ADMINISTRATIVE .................... 52,197 34,120
--------- ---------
Earnings from operations ............... 72,044 26,690
OTHER INCOME (EXPENSE)
Other income ..................................... 78,267 475
Interest income .................................. 2,898 2,044
Interest expense ................................. (23,809) (9,856)
--------- ---------
Total other income (expense), net ...... 57,356 (7,337)
--------- ---------
EARNINGS BEFORE MINORITY INTEREST
AND INCOME TAXES ..................................... 129,400 19,353
MINORITY INTEREST ...................................... 302 --
--------- ---------
EARNINGS BEFORE INCOME TAXES ........................... 129,098 19,353
INCOME TAX PROVISION ................................... 44,519 4,899
--------- ---------
NET EARNINGS ........................................... $ 84,579 $ 14,454
========= =========
NET EARNINGS PER SHARE:
Primary .......................................... $ 1.96 $ .52
Fully diluted .................................... $ 1.78 $ .50
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING:
Primary .......................................... 43,115 27,539
Fully diluted .................................... 48,566 33,518
The accompanying notes are an integral part of the consolidated financial
statements.
Page 6
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings ..................................................... $ 84,579 $ 14,454
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization ............................... 41,581 19,987
Gain on sale of assets ...................................... (84,775) (412)
Effect of exchange rates .................................... 432 126
Deferred tax provision (benefit) ............................ (579) 3,223
Minority interest ........................................... (302) --
Changes in assets and liabilities, net of
effects of acquisitions -
Trade receivables ...................................... (18,664) (8,311)
Parts and supplies ..................................... (4,922) (1,056)
Other current assets ................................... (13,083) (4,797)
Accounts payable ....................................... 22,528 (2,322)
Accrued expenses and other ............................. (15,890) (1,449)
--------- ---------
Net cash provided by operating activities ......... 10,905 19,443
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities,
including acquisition costs, less cash acquired ............... (371,802) (106,286)
Purchases of property and equipment .............................. (126,183) (47,177)
Proceeds from sales of property and equipment .................... 141,520 7,021
Proceeds from sales of short-term investments .................... 836 5,619
Purchases of short-term investments .............................. (686) (557)
Other ............................................................ (268) (80)
--------- ---------
Net cash used in investing activities ............. (356,583) (141,460)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock ........................... 75,563 46,976
Proceeds from issuance of convertible subordinated debentures .... -- 77,585
Proceeds from debt borrowings .................................... 424,999 62,962
Reduction of debt and capital lease obligations .................. (93,161) (47,706)
Other ............................................................ (1,242) (580)
--------- ---------
Net cash provided by financing activities ......... 406,159 139,237
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ................................................. 60,481 17,220
CASH AND CASH EQUIVALENTS, beginning of period ......................... 10,310 9,295
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................... $ 70,791 $ 26,515
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 7
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with Pride International, Inc.'s (formerly Pride Petroleum Services,
Inc.) (the "Company's") audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. Certain reclassifications have been made to prior year
amounts to conform with the current year presentation.
The unaudited consolidated financial information included herein reflects
all adjustments, consisting only of normal recurring adjustments, which are
necessary, in the opinion of management, for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for full years.
2. COMMITMENTS AND CONTINGENCIES
The Company is routinely involved in litigation incidental to its
business, which often involves claims for significant monetary amounts, some of
which would not be covered by insurance. In the opinion of management, none of
the existing litigation will have any material adverse effect on the Company's
financial position or results of operations.
As of September 30, 1997 and December 31, 1996, the Company had accrued
approximately $3,628,000 and $4,853,000, respectively, for estimated claims
liabilities, of which $2,559,000 and $3,713,000, respectively, was included in
current liabilities and $1,069,000 and $1,140,000, respectively, was included in
other long-term liabilities in the accompanying consolidated balance sheet. As
of September 30, 1997, the Company had letters of credit outstanding totaling
$9,546,000. These letters of credit principally guarantee the funding of the
Company's share of insured claims.
3. ACQUISITIONS AND DISPOSITIONS
In February 1997, the Company sold substantially all of the assets used in
its U.S. land-based well servicing operations for $135,650,000 in cash. After
federal and state income taxes of approximately $42,100,000, repayment of
$3,877,000 of indebtedness collateralized by certain of the assets sold and
$65,000 of interest accrued thereon, and prepayment of $3,960,000 of lease
payments on transferred assets subject to operating leases, the net proceeds to
the Company were $85,648,000. The Company recognized a gain on the sale of
$83,553,000, which amount is included in other income on the accompanying
unaudited consolidated statement of operations.
In March 1997, the Company acquired the operating subsidiaries of
Forasol-Foramer N.V. (collectively, "Forasol") for aggregate consideration of
$285,644,000, consisting of $113,222,000 in cash
Page 8
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
and 11,099,191 shares of common stock valued at $172,422,000, based on the
approximate market value of the common stock prior to the date of the agreement
of $15.50 per share. The acquisition of Forasol was recorded using the purchase
method of accounting. The operating results of Forasol have been included in the
Company's consolidated results of operations from the date of acquisition.
The assets acquired and liabilities assumed in the Forasol acquisition,
based on the Company's preliminary purchase price allocation, were as follows:
ASSETS (LIABILITIES)
-------------------
(IN THOUSANDS)
Cash and cash equivalents....................... $ 13,438
Trade receivables............................... 57,479
Deferred income taxes........................... 1,083
Other current assets............................ 14,924
Property and equipment.......................... 377,819
Investments in affiliates....................... 9,586
Other assets.................................... 4,919
Accounts payable................................ (33,214)
Accrued expenses................................ (60,468)
Short-term borrowings........................... (15,354)
Long-term debt.................................. (31,361)
Long-term lease obligations..................... (35,514)
Deferred income taxes......................... (15,569)
Minority interest............................... (2,124)
--------
$285,644
========
In May 1997, the Company acquired 13 mat-supported jackup drilling rigs
(the "Noble Rigs") from Noble Drilling Corporation and certain subsidiaries for
approximately $269,000,000 in cash. The acquisition was financed through the
sale of Senior Notes and common stock, which was concluded concurrently with the
acquisition. The acquisition was recorded using the purchase method of
accounting. The operating results of the Noble Rigs have been included in the
Company's consolidated results of operations from the date of acquisition.
Unaudited pro forma results of operations assuming the sale of the
Company's U.S. land-based well servicing operations and the acquisitions of
Forasol and the Noble Rigs had occurred on January 1, 1996, are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
---------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues........................................... $544,985 $385,730
Net earnings....................................... $ 32,634 $ 3,122
Earnings per share -
Primary......................................... $ .71 $ .08
Fully diluted................................... $ .66
Page 9
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma results of operations presented above do not purport to be
indicative of the results of operations of the Company that might have occurred
if such transactions had occurred as of January 1, 1996 nor are they indicative
of future results.
4. DEBT
SHORT-TERM BORROWINGS
The Company has agreements with several banks for short-term lines of
credit denominated in U.S. dollars, French francs and Argentine pesos. The
facilities are renewable annually and bear interest at variable rates based on
LIBOR for the U.S. dollar and Argentine peso denominated facilities, and PIBOR
for the French franc denominated facilities. The interest rates on such
borrowings at September 30, 1997 range from 6.1% to 17.0%.
LONG-TERM DEBT
Long-term debt at September 30, 1997 and December 31, 1996 consists of the
following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
Senior Notes................................. $325,000 $ --
Collateralized term loans.................... 82,988 46,169
Limited-recourse collateralized term loans... 36,175 38,935
Other notes payable -
Note payable to sellers.................... 14,000 23,000
Eximbank notes payable..................... 7,511 8,900
Notes payable.............................. 7,708 4,033
Loan obligations to customers.............. 6,790 --
Acquisition note payable................... -- 3,877
Secured bank facility...................... -- 14,276
Revolving credit facility.................... -- --
-------- --------
480,172 139,190
Less: current portion........................ 42,408 32,682
-------- --------
$437,764 $106,508
======== ========
SENIOR NOTES
In May 1997, the Company issued $325,000,000 of 9 3/8% Senior Notes due
May 1, 2007 (the "Senior Notes"). Interest on the Senior Notes is payable
semiannually on May 1 and November 1 of each year, commencing November 1, 1997.
The Senior Notes are not redeemable prior to May 1, 2002, after which they will
be redeemable, in whole or in part, at the option of the Company at redemption
prices starting at 104.688% and declining to 100% by May 1, 2005. In the event
the Company consummates a public equity offering (other than the common stock
offering completed concurrently with the Senior Notes offering) on or prior to
May 1, 2000, the Company at its option may use all or a portion of the proceeds
from such public equity offering to redeem up to $108,333,000 principal amount
of the
Page 10
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Senior Notes at a redemption price equal to 109.375% of the aggregate principal
amount thereof, together with accrued and unpaid interest to the date of
redemption.
The Indenture governing the Senior Notes, as amended and supplemented (the
"Indenture"), contains provisions which limit the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens, enter into mergers
and consolidations, pay cash dividends on its capital stock, make acquisitions,
sell assets or change its business.
Net proceeds from the issuance of Senior Notes totaled approximately
$316,600,000, after deducting underwriting discounts and estimated offering
expenses. Of such net proceeds, approximately $270,000,000 was used to finance
the purchase of the Noble Rigs, including acquisition costs, and approximately
$25,000,000 was used to repay certain outstanding indebtedness.
COLLATERALIZED TERM LOANS
In April 1996, the Company completed two separate financing arrangements
with lending institutions pursuant to which it borrowed an aggregate amount of
$40,000,000 and an additional $6,500,000 in November 1996. The collateralized
term loans bore interest initially at a floating rate of prime plus 1/2% and are
repayable in monthly installments of principal and interest over a period of
five to six years. In December 1996, the Company elected to convert the floating
rate to a fixed rate basis. As a result, the collateralized term loans currently
bear interest at fixed rates ranging from 7.95% to 8.50% per annum. The loans
are collateralized by certain of the Company's domestic offshore rig fleet and
ancillary equipment. The loan agreement includes restrictive financial covenants
with respect to cash flow coverage and tangible net worth.
In connection with the March 1997 Forasol acquisition, the Company assumed
certain borrowing arrangements with various banks. These arrangements consist of
the following: i) a $20 million bank loan, payable in semi-annual installments
beginning August 1995 through 2002. The loan bears interest at a stated rate of
six-month LIBOR plus a margin ranging from 1.25% to 2.5%. In conjunction with
this loan, the Company simultaneously entered into an interest rate swap
agreement which fixed the rate of interest on this loan at 7.55% over the term
of the debt agreement. A semisubmersible rig is pledged as security for this
loan and ii) A $30 million bank loan, secured by another semisubmersible rig,
payable in semi-annual installments beginning May 1997 through 2003, which bears
interest at a rate of six-month LIBOR plus a margin ranging from 1% to 2%,
depending on the day rate earned and the amount outstanding under the facility
as it relates the market value of the rig.
LIMITED-RECOURSE COLLATERALIZED TERM LOANS
During 1994, the Company entered into long-term financing arrangements
with two Japanese trading companies in connection with the construction and
operation of two drilling/workover barge rigs. The term loans are collateralized
by the barge rigs and related charter contracts. The loans are being repaid from
the proceeds of the related charter contracts in equal monthly installments of
principal and interest through July 2004. In addition, a portion of contract
proceeds is being held in trust to assure that timely payment of future debt
service obligations is made. At September 30, 1997, $2,435,000 of such contract
proceeds, which amount is included in cash and cash equivalents on the
accompanying unaudited
Page 11
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
consolidated balance sheet, are being held in trust as security for the lenders,
and are not presently available for use by the Company.
OTHER NOTES PAYABLE
Other notes payable consists of an acquisition note payable to sellers,
Eximbank loans for the purchase and import of goods manufactured in the United
States into other countries, notes payable in connection with financed insurance
premiums and miscellaneous loan obligations to customers.
REVOLVING CREDIT FACILITY
In March 1997, the Company entered into a senior secured revolving credit
facility with a group of banks (the "Credit Facility") under which up to $100
million (including $25 million for letters of credit) is available. Availability
under the Credit Facility is limited to a borrowing base based on the value of
collateral. Unless the Company collateralizes its obligations with additional
offshore or domestic assets with a value of at least $40 million ("Additional
Collateral"), the amount available under the Credit Facility would be reduced to
$75 million. The Credit Facility is collateralized by the accounts receivable,
inventory and intangibles of the Company and its domestic subsidiaries,
two-thirds of the stock of the Company's foreign subsidiaries and the stock of
the Company's domestic subsidiaries. The Company's domestic subsidiaries also
initially provided guarantees. The Credit Facility terminates on March 6, 2002
if the Additional Collateral is timely provided; otherwise it terminates on
March 6, 2000. The credit line will be reduced by $12.5 million in each of 2000
and 2001. Borrowings under the Credit Facility bear interest at a variable rate,
initially 7.44%, based on either the prime rate or LIBOR.
The Credit Facility limits the ability of the Company and its subsidiaries
to incur additional indebtedness, create liens, enter into mergers and
consolidations, pay cash dividends on its capital stock, make acquisitions, sell
assets or change its business without prior consent of the lenders. Under the
Credit Facility, the Company must maintain certain financial ratios, including
(i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii)
adjusted EBITDA to debt service and (iv) minimum tangible net worth. In order to
complete the public offering of Senior Notes and the acquisition of the Noble
Rigs, the Company obtained a waiver from the lenders of certain of these
convenants as well as a release of the guarantees provided by the Company's
domestic subsidiaries. In connection with such waiver and release, borrowing
availability was reduced to $15.0 million until such time as the Credit Facility
is amended or replaced. The Company is currently engaged in negotiations with
the lenders for the purpose of amending the Credit facility in order to provide
for full restoration of the borrowing capacity thereunder.
CONVERTIBLE SUBORDINATED DEBENTURES
During the first quarter of 1997, an aggregate of $28,000,000 principal
amount of the Company's 6 1/4% convertible subordinated debentures were
converted into 2,285,712 shares of common stock. In connection therewith, the
Company paid an aggregate of $3,732,000 in cash to induce such conversions. Such
amount has been included in other expense in the accompanying unaudited
consolidated statement of operations. In addition, $917,000 of deferred offering
costs associated with the debentures converted has been charged against
additional paid-in capital in the accompanying unaudited consolidated balance
sheet.
Page 12
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. CAPITAL LEASES
In connection with the acquisition of Forasol, the Company assumed capital
lease obligations pursuant to a sale leaseback agreement for three tender-
assisted rigs. The obligation is payable in semiannual installments through
October 2002, and bears interest at 7.67%.
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
Total capital lease obligations............ $ 38,269 $ --
Less: current portion...................... 5,689 --
-------- ----
$ 32,580 $ --
======== ====
6. COMMON STOCK OFFERING
In May 1997, concurrently with the issuance of the Senior Notes, the
Company also sold 4,391,505 shares of common stock to the public at $17.00 per
share. Net proceeds from the public sale of common stock totaled approximately
$70,881,000, after deducting underwriting discounts and estimated offering
expenses. Of such net proceeds, approximately $45,000,000 was used to repay the
balance outstanding under the Credit Facility and approximately $5,000,000 was
used to repay certain other indebtedness. The balance of the proceeds from the
offerings was used for general corporate purposes, including capital projects.
7. INCOME TAXES
The Company's consolidated effective income tax rate for the nine months
ended September 30, 1997 was approximately 34%, as compared to approximately 25%
for the corresponding period in 1996. The increase in the effective tax rate for
the first nine months of 1997 resulted from the effects of (i) certain
non-deductible amounts, primarily $3.7 million of costs related to induced
conversion of convertible subordinated debentures, (ii) an estimated effective
combined U.S. federal and state income tax rate of 36% on the gain from the sale
of the Company's U.S. land-based well servicing operations, and (iii) an
estimated effective income tax rate of 29% on ongoing operations.
8. NET EARNINGS PER SHARE
Primary net earnings per share has been computed based on the weighted
average number of common shares outstanding during the applicable period. Common
share equivalents have been included in periods in which their effect is
dilutive. Common share equivalents include the number of shares issuable upon
the exercise of stock options and warrants, less the number of shares that could
have been repurchased with the exercise proceeds, using the treasury stock
method. Fully diluted net earnings per share has been computed based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period, as if the convertible subordinated debentures
were converted into common stock at the beginning of the applicable period,
after giving retroactive effect to the elimination of interest expense, net of
income tax effect, applicable to the convertible subordinated debentures.
Page 13
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information necessary to calculate fully diluted
net earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net earnings ....................................... $ 14,032 $ 6,879 $ 84,579 $ 14,454
Interest on convertible subordinated debentures .... 878 1,331 2,834 3,624
Income tax effect .................................. (316) (479) (1,020) (1,304)
-------- -------- -------- --------
Net earnings applicable
to common stock ..................... $ 14,594 $ 7,731 $ 86,393 $ 16,774
======== ======== ======== ========
Weighted average number of
common shares outstanding ..................... 46,809 28,438 41,143 26,116
Additional shares assuming conversion of:
Convertible subordinated debentures ........... 4,286 6,571 4,938 5,950
Stock options and warrants .................... 2,659 1,420 2,485 1,452
-------- -------- -------- --------
Weighted average common shares
and equivalents outstanding ......... 53,754 36,429 48,566 33,518
======== ======== ======== ========
Fully diluted net earnings per share ..... $ .27 $ .22 $ 1.78 $ .50
======== ======== ======== ========
</TABLE>
9. SUBSEQUENT EVENT
In November 1997, the Company sold 2,865,000 shares of common stock
to the public at $35 per share. Net proceeds from the public sale of common
stock were approximately $97.5 million after deducting underwriting discounts
and estimated offering expenses. The Company expects to use approximately $40.0
million of such net proceeds to repay certain indebtedness, including $25.0
million to repay borrowings under the Company's revolving credit facility (which
bears interest at a variable rate, currently 7.7% based on either the prime rate
or LIBOR, and matures in March 2002), $30.0 million of such net proceeds to fund
capital expenditures (currently expected to consist of the cost of three newly
constructed land rigs to be deployed in Venezuela) and the balance for general
corporate purposes.
Page 14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the unaudited consolidated financial statements of Pride International, Inc.
(the "Company") as of September 30, 1997 and for the three and nine month
periods ended September 30, 1997 and 1996 included elsewhere herein, and with
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
GENERAL
The Company's operations and future results have been and will be
significantly affected by a series of strategic transactions that have
transformed the Company from the second largest provider of land-based workover
and related well services in the United States into a diversified drilling
contractor operating both offshore and onshore in international markets and
offshore in the U.S. Gulf of Mexico. With the sale of its domestic land-based
well servicing operations in February 1997, the Company has ceased to provide
rig services onshore in the United States. Nevertheless, as a result of its
recent acquisition activity, the Company expects to continue to experience
revenue growth.
Domestic drilling and well servicing activity historically has had a
significant correlation with changes in oil and natural gas prices.
International drilling and well servicing activity is also affected by
fluctuations in oil and natural gas prices, but historically to a lesser extent
than domestic activity. International rig services contracts are typically for
terms of one year or more, while domestic contracts are typically for one or
multiple wells. Accordingly, international rig services activities generally are
not as sensitive to short-term changes in oil and gas prices as domestic
operations.
Since 1993, the Company has entered into a number of transactions that
have significantly expanded its international and domestic offshore operations,
including the following:
o In mid-1993, the Company commenced operations in Latin America with the
acquisition of businesses operating 23 land-based rigs in Argentina and 13
land-based rigs in Venezuela.
o In June 1994, the Company acquired the largest fleet of modular platform
rigs, consisting of 22 units, in the Gulf of Mexico. Five additional
platform rigs have since been constructed and added to the fleet, and four
rigs were retired. Three additional rigs are currently under construction.
o In January 1995, the Company commenced operating two floating barge rigs
on Lake Maracaibo, Venezuela. The barge rigs were constructed during 1994
pursuant to ten-year operating contracts entered into with Lagoven, S.A.,
a subsidiary of the Venezuelan national oil company.
o In October 1995, the Company acquired six land-based drilling rigs in
Colombia through the acquisition of Marlin Colombia Drilling Co. Inc.
o In April 1996, the Company acquired Quitral-Co S.A.I.C. ("Quitral-Co")
from Perez Companc S.A. and other shareholders. Quitral-Co operated 23
land-based drilling and 57 land-based workover rigs in Argentina and seven
land-based drilling and 23 land-based workover rigs in Venezuela.
Page 15
<PAGE>
o In October 1996, the Company acquired Ingeser de Colombia, S.A., which
operated seven land-based drilling rigs and six land-based workover rigs
in Colombia.
o In November 1996, the Company added three land-based drilling rigs and
support assets to its operations in Argentina through the acquisition of
the assets of another contractor.
o In February 1997, the Company completed the divestiture of its domestic
land-based well servicing operations, which included 407 workover rigs
operating in Texas, California, New Mexico and Louisiana, to Dawson
Production Services, Inc. for approximately $135.7 million in cash.
o In March 1997, the Company completed the Forasol acquisition, adding two
semisubmersible rigs, three jackup rigs, seven tender-assisted rigs, four
barge rigs and 29 land-based rigs operating in various locations in Latin
America, Europe, the Middle East, West Africa and Asia. The Company
recently acquired an additional tender-assisted rig, and an additional
jackup rig, both of which have been contracted in Asia beginning in 1998.
o In May 1997, the Company acquired 13 mat-supported jackup drilling rigs
from Noble. Nine of the rigs are currently operating in the Gulf of
Mexico, one rig is operating offshore West Africa, one has recently
completed refurbishment and was placed in service in September 1997 and
two are currently undergoing refurbishment.
RESULTS OF OPERATIONS
The following tables set forth selected consolidated financial information
of the Company by operating segment for the periods indicated:
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues
Domestic land......................... $-- -- % $29,345 25.4%
Domestic offshore..................... 41,662 22.8 14,603 12.7
International land.................... 99,382 54.3 68,177 59.1
International offshore................ 41,864 22.9 3,244 2.8
------- ---- ------- ----
Total revenues..................... 182,908 100.0 115,369 100.0
------- ----- ------- -----
Operating Costs
Domestic land......................... -- -- 22,047 27.2
Domestic offshore..................... 21,271 18.0 10,778 13.3
International land.................... 70,731 59.9 46,697 57.7
International offshore................ 26,038 22.1 1,414 1.8
------- ---- ------- ----
Total operating costs.............. 118,040 100.0 80,936 100.0
------- ----- ------- -----
Gross Margin
Domestic land......................... -- -- 7,298 21.2
Domestic offshore..................... 20,391 31.4 3,825 11.1
International land.................... 28,651 44.2 21,480 62.4
International offshore................ 15,826 24.4 1,830 5.3
------- ---- ------- ----
Total gross margin................. $64,868 100.0% $34,433 100.0%
======= ===== ======= =====
Page 16
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues
Domestic land......................... $16,485 3.4% $87,290 30.8%
Domestic offshore..................... 87,025 17.8 41,677 14.7
International land.................... 282,579 57.8 144,665 51.0
International offshore................ 102,732 21.0 9,961 3.5
------- ---- ------- ----
Total revenues..................... 488,821 100.0 283,593 100.0
------- ----- ------- -----
Operating Costs
Domestic land......................... 12,776 4.0 67,755 33.4
Domestic offshore..................... 47,346 14.7 30,258 14.9
International land.................... 203,143 62.9 100,752 49.7
International offshore................ 59,734 18.4 4,031 2.0
------- ---- ------- ----
Total operating costs.............. 322,999 100.0 202,796 100.0
------- ----- ------- -----
Gross Margin
Domestic land......................... 3,709 2.2 19,535 24.2
Domestic offshore..................... 39,679 23.9 11,419 14.1
International land.................... 79,436 47.9 43,913 54.3
International offshore................ 42,998 26.0 5,930 7.4
------- ---- ------- ----
Total gross margin................. $165,822 100.0% $80,797 100.0%
======== ===== ======= =====
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
REVENUES. Revenues for the three months ended September 30, 1997 increased
$67.5 million, or 59%, as compared to the corresponding period in 1996. Of this
increase, $31.2 million was a result of expansion of the Company's international
land-based operations, due primarily to the acquisition of Forasol in March 1997
and the acquisition of Ingeser in October 1996. Revenues from international
offshore operations increased $38.6 million, due principally to the addition of
the Forasol offshore assets. Revenues attributable to domestic offshore
operations increased $27.0 million due primarily to the acquisition of the Noble
Rigs in May 1997. These increases were partially offset by a decrease in
revenues of $29.3 million due to the sale of the Company's U.S. land-based well
servicing operations in February 1997.
OPERATING COSTS. Operating costs for the three months ended September 30,
1997 increased $37.1 million, or 46%, as compared to the corresponding period in
1996. Of this increase, $24.0 million was a result of expansion of the Company's
international land-based operations, due principally to the acquisitions of
Forasol and Ingeser, as discussed above. Operating costs for international
offshore operations increased $24.6 million, due principally to the addition of
the Forasol offshore assets. Operating costs attributable to domestic offshore
operations increased $10.5 million due primarily to the acquisition of the Noble
Rigs, as discussed above. Operating costs decreased by $22.0 million due to the
sale of the Company's U.S. land-based well servicing operations, as discussed
above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended September 30, 1997 increased $7.9 million, or 97%, as compared to
the corresponding period in 1996, primarily as a result of the acquisitions of
Forasol, Ingeser, and the Noble Rigs, partially offset by the sale of the
Company's domestic land-based assets.
Page 17
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended September 30, 1997 increased $4.5 million,
or 32%, as compared to the corresponding period in 1996, primarily due to
inclusion of such costs for Forasol and Ingeser. As a percentage of revenues,
total selling, general and administrative costs were 10.3% for the third quarter
of 1997, as compared to 12.4% for the third quarter of 1996.
OTHER INCOME (EXPENSE). Other income (expense) for the third quarter of
1997 included net gains from asset sales, foreign exchange transactions and
other sources. Interest income for the three months ended September 30, 1997
increased by $328,000 as compared to the corresponding period in 1996, due to an
increase in cash available for investment. Interest expense for the three months
ended September 30, 1997 increased by $7.3 million over the corresponding 1996
period, as a result of interest accrued on the Senior Notes, borrowings assumed
in connection with the acquisition of Forasol and other additions to property
and equipment. During the three months ended September 30, 1997, the Company
capitalized $2.5 million of interest expense in connection with construction
projects.
INCOME TAX PROVISION. The Company's consolidated effective income tax rate
for the three months ended September 30, 1997 was approximately 29%, as compared
to approximately 25% for the corresponding period in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES. Revenues for the nine months ended September 30, 1997 increased
$205.2 million, or 72%, as compared to the corresponding period in 1996. Of this
increase, $137.9 million was a result of expansion of the Company's
international land-based operations, due primarily to the acquisition of Forasol
in March 1997, the acquisition of Ingeser in October 1996 and the acquisition of
Quitral-Co in April 1996. Revenues from international offshore operations
increased $92.8 million, due principally to the addition of the Forasol offshore
assets. Revenues attributable to domestic offshore operations increased $45.3
million due primarily to the acquisition of the Noble Rigs in May 1997. These
increases were partially offset by a decrease in revenues of $70.8 million due
to the sale of the Company's U.S.
land-based well servicing operations in February 1997.
OPERATING COSTS. Operating costs for the nine months ended September 30,
1997 increased $120.2 million, or 59%, as compared to the corresponding period
in 1996. Of this increase, $102.4 million was a result of expansion of the
Company's international land-based operations, due principally to the
acquisitions of Forasol, Ingeser and Quitral-Co, as discussed above. Operating
costs for international offshore operations increased $55.7 million, due
principally to the addition of the Forasol offshore assets. Operating costs
attributable to domestic offshore operations increased $17.1 million due
primarily to the acquisition of the Noble Rigs. Operating costs decreased by
$55.0 million due to the sale of the Company's U.S. land-based well servicing
operations, as discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the nine
months ended September 30, 1997 increased $21.6 million, or 108%, as compared to
the corresponding period in 1996, primarily as a result of the acquisitions of
Forasol, Ingeser, Quitral-Co and the Noble Rigs, partially offset by the sale of
the Company's domestic land-based assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the nine months ended September 30, 1997 increased $18.1 million,
or 53%, as compared to the corresponding
Page 18
<PAGE>
period in 1996, primarily due to inclusion of such costs for Forasol, Ingeser
and Quitral-Co. As a percentage of revenues, total selling, general and
administrative costs were 10.7% for the first nine months of 1997, as compared
to 12.0% for the first nine months of 1996.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1997 included a gain of $83.6 million from the sale of the
Company's U.S. land-based well servicing operations. The gain was partially
offset by a charge of $3.7 million relating to the induced conversion of $28.0
million principal amount of the Company's 6 1/4% convertible subordinated
debentures and other miscellaneous net charges. Other income (expense) for the
nine months ended September 30, 1996 included net gains from asset sales,
foreign exchange transactions and other sources. Interest income for the nine
months ended September 30, 1997 increased by $854,000 as compared to the
corresponding period in 1996 due to an increase in cash available for
investment. Interest expense for the nine months ended September 30, 1997
increased by $14.0 million over the corresponding 1996 period, as a result of
interest accrued on the Senior Notes and borrowings assumed in connection with
the acquisition of Forasol and Quitral-Co and other additions to property and
equipment. During the nine months ended September 30, 1997, the Company
capitalized $4.5 million of interest expense in connection with construction
projects.
INCOME TAX PROVISION. The Company's consolidated effective income tax rate
for the nine months ended September 30, 1997 was approximately 34%, as compared
to approximately 25% for the corresponding period in 1996. The increase in the
effective tax rate for the first nine months of 1997 resulted from the effects
of (i) certain non-deductible amounts, primarily $3.7 million of costs related
to induced conversion of convertible subordinated debentures, (ii) an estimated
effective combined U.S. federal and state income tax rate of 36% on the gain
from the sale of the Company's U.S. land-based well servicing operations, and
(iii) an estimated effective income tax rate of 29% on ongoing operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $48.5 million and $62.7 million at
September 30, 1997 and December 31, 1996, respectively. The Company's current
ratio was 1.2 to 1.0 at September 30, 1997 and 1.7 to 1.0 at December 31, 1996.
Since the end of 1996, the following transactions have had a material
impact on the Company's cash requirements:
o In February 1997, the Company sold substantially all of the assets used in
its domestic land-based well servicing operations for approximately $135.7
million in cash. The Company's net proceeds from the sale, after taxes,
repayment of indebtedness collateralized by certain of the assets sold and
prepayment of terminated operating leases, were approximately $85.6
million.
o In March 1997, the Company completed the acquisition of Forasol for $113.2
million in cash and 11.1 million shares of common stock. The cash portion
of the purchase price was funded out of working capital, including the net
proceeds from the sale of the Company's domestic land-based well servicing
operations and borrowings of $25.7 million under the Credit Facility
described below.
Page 19
<PAGE>
o In May 1997, the Company completed the acquisition of the Noble Rigs for
$269.0 million in cash. The acquisition was financed through the sale of
Senior Notes and common stock, discussed below, which was concluded
concurrently with the acquisition.
In March 1997, the Company entered into a revolving credit facility with a
group of banks (the "Credit Facility") which provides for availability of up to
$100.0 million (including $25.0 million for letters of credit). Availability
under the Credit Facility is limited to a borrowing base based on the value of
collateral. Unless the Company secures its obligations with additional offshore
or domestic assets with a value of at least $40.0 million ("Additional
Collateral"), the credit line will be reduced to $75.0 million. The Credit
Facility is collateralized by the accounts receivable, inventory and intangibles
of the Company and its domestic subsidiaries, two-thirds of the stock of the
Company's foreign subsidiaries, the stock of the Company's domestic subsidiaries
and certain other assets. The Credit Facility terminates on March 6, 2002 if the
Additional Collateral is timely provided; otherwise it terminates on March 6,
2000. The credit line, unless extended, will be reduced by $12.5 million in each
of 2000 and 2001.
The Credit Facility limits the ability of the Company and its subsidiaries
to incur additional indebtedness, create liens, enter into mergers and
consolidations, pay cash dividends on its capital stock, make acquisitions, sell
assets or change its business without prior consent of the lenders. Under the
Credit Facility, the Company must maintain certain financial ratios, including
(i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii)
adjusted EBITDA to debt service and (iv) minimum tangible net worth. In order to
complete the public offering of Senior Notes and the acquisition of the Noble
Rigs, the Company obtained a waiver from the lenders of certain of these
covenants as well as a release of the guarantees provided by the Company's
domestic subsidiaries. In connection with such waiver and release, borrowing
availability was reduced to $15.0 million until such time as the Credit Facility
is amended or replaced. The Company is currently engaged in negotiations with
the lenders for the purpose of amending the Credit Facility in order to provide
for full restoration of the borrowing capacity thereunder.
During the first quarter of 1997, the Company borrowed an aggregate of
$45.0 million pursuant to the Credit Facility, of which $14.3 million was used
to repay amounts outstanding under the Company's previous credit facility and
$25.7 million was used to partially fund the acquisition of Forasol. Borrowings
under the Credit Facility bear interest at a variable rate, initially 7.44%,
based on either the prime rate or LIBOR. These borrowings were repaid in May
1997, as discussed below.
In May 1997, the Company issued $325,000,000 of 93/8% Senior Notes due May
1, 2007 (the "Senior Notes"). Interest on the Senior Notes is payable
semiannually on May 1 and November 1 of each year, commencing November 1, 1997.
The Senior Notes are not redeemable prior to May 1, 2002, after which they will
be redeemable, in whole or in part, at the option of the Company at redemption
Page 20
<PAGE>
prices starting at 104.688% and declining to 100% by May 1, 2005. In the event
the Company consummates a public equity offering (other than the common stock
offering completed concurrently with the Senior Notes offering) on or prior to
May 1, 2000, the Company at its option may use all or a portion of the proceeds
from such public equity offering to redeem up to $108,333,000 principal amount
of the Senior Notes at a redemption price equal to 109.375% of the aggregate
principal amount thereof, together with accrued and unpaid interest to the date
of redemption.
The Indenture governing the Senior Notes, as amended and supplemented (the
"Indenture"), contains provisions which limit the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens, enter into mergers
and consolidations, pay cash dividends on its capital stock, make acquisitions,
sell assets or change its business.
In May 1997, the Company also sold 4,391,505 shares of common stock to the
public at $17.00 per share. Net proceeds from the combined offerings of Senior
Notes and common stock totaled approximately $387.5 million, after deducting
underwriting discounts and estimated offering expenses. Of such net proceeds,
approximately $269,000,000 was used to finance the purchase of the Noble Rigs,
including acquisition costs, approximately $45,000,000 was used to repay the
balance outstanding under the Revolving Credit Facility and approximately
$30,000,000 was used to repay certain other indebtedness. The Company intends to
use excess proceeds from the offerings for general corporate purposes, including
acquisitions and capital projects.
In November 1997, the Company sold 2,865,000 shares of common stock
to the public at $35 per share. Net proceeds from the public sale of common
stock were approximately $97.5 million after deducting underwriting discounts
and estimated offering expenses. The Company expects to use approximately $40.0
million of such net proceeds to repay certain indebtedness, including $25.0
million to repay borrowings under the Company's revolving credit facility (which
bears interest at a variable rate, currently 7.7% based on either the prime rate
or LIBOR, and matures in March 2002), $30.0 million of such net proceeds to fund
capital expenditures (currently expected to consist of the cost of three newly
constructed land rigs to be deployed in Venezuela) and the balance for general
corporate purposes.
Management believes that the cash generated from the Company's operations,
together with the net proceeds from the offerings and borrowings under the
Credit Facility as amended or replaced, will be adequate to fund its normal
ongoing capital expenditure, working capital and debt service requirements.
The Company has entered into an agreement with Elf Exploration Angola for
the charter of a new-construction, dynamically-positioned drillship for a term
of at least five years. The Company plans to form a joint venture company in
which it will own at least 51% to build, own and operate the rig. The drillship
is projected to cost approximately $235 million and is expected to be delivered
during the second half of 1999. The Company and it joint venture partner intend
to finance construction of the vessel utilizing principally limited-recourse,
project-specific loans. The Company's equity investment is expected to be
approximately $12 million.
In addition, the Company has entered into an agreement with Maritima
Navegacao e Engenharia Ltda of Brazil and Workships Contractors BV of the
Netherlands for construction and operation of three new-generation,
dynamically-positioned semi submersible drilling rigs. The Amethysts 2,3 and 4
should be completed in approximately 24 months for contracts of at least six
years with Petrobras, for operations offshore Brazil. The Company will
participate for a minority ownership position in the rigs and will provide
technical support necessary for their operation. The Company and its partners
intend to finance construction of the units utilizing principally
limited-recourse, project-specific loans. The Company's equity investment in
these three units is expected to be approximately $13.5 million.
The Company is active in reviewing possible expansion and acquisition
opportunities relating to all of its business segments. While the Company has no
definitive agreements to acquire additional equipment other than those discussed
above, suitable opportunities may arise in the future. The timing, size or
success of any acquisition effort and the associated potential capital
commitments are unpredictable. From time to time, the Company has one or more
bids outstanding for contracts that could require significant capital
expenditures and mobilization costs. The Company expects to fund acquisitions
and project opportunities primarily through a combination of working capital,
cash flow from operations and full or limited recourse debt or equity financing.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as
Page 21
<PAGE>
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements, other than statements
of historical facts, included in this Quarterly Report on Form 10-Q that address
activities, events or developments that the Company expects, projects, believes
or anticipates will or may occur in the future, including such matters as future
operating results, future capital expenditures and investments in the
acquisition and refurbishment of rigs (including the amount and nature thereof),
repayment of debt, expansion and other development trends of the contract
drilling industry, business strategies, expansion and growth of operations and
other such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by management of the Company in light of
its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes are appropriate in
the circumstances. Such statements are subject to a number of assumptions, risks
and uncertainties, including those discussed herein, general economic and
business conditions, prices of and demand for crude oil and natural gas, foreign
exchange and currency fluctuations, the business opportunities (or lack thereof)
that may be presented to and pursued by the Company, changes in laws or
regulations or other factors, many of which are beyond the control of the
Company. Prospective investors are cautioned that any such statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.
ACCOUNTING MATTERS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128, which is effective for periods ending after December
15, 1997, including interim periods, simplifies the standards for computing
earnings per share and replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. Initial adoption of this
standard is not expected to have a material impact on the Company's financial
position or results of operations. Early adoption is not permitted.
Page 22
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
EXHIBIT NO.
15 - Awareness Letter of Independent Accountants
Bylaws of Pride International, Inc., as amended on August 20, 1997
(incorporated by reference to Exhibit 4.5 of the Company's Registration
Statement on Form S-8 file no. 333-35089).
(b)Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIDE INTERNATIONAL, INC.
By: RAY H. TOLSON
(RAY H. TOLSON)
Chairman of the Board and
Chief Executive Officer
By: EARL W. MCNIEL
(EARL W. MCNIEL)
Vice President and Chief
Financial Officer
By: M. TERRY MAY
(M. TERRY MAY)
Chief Accounting Officer
Date: November 14, 1997
Page 24
EXHIBIT 15
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Pride International, Inc.
Registration Statements on Form S-8 and Form S-3
We are aware that our report dated November 13, 1997 on our review of
interim consolidated financial information of Pride International, Inc. for the
periods ended September 30, 1997 and 1996 and included in this Form 10-Q is
incorporated by reference in the Company's registration statements filed with
the Securities and Exchange Commission: Form S-8 (file no. 33-26854) filed on
February 6, 1989; Form S-8 (file no. 33-44823) filed on December 30, 1991; Form
S-8 (file no. 333-06823) and Form S-8 (file no. 333-06825) filed on June 26,
1996; Form S-3 (file no. 333-21385) filed on April 4, 1997; Form S-8 (file no.
333-27661) filed on May 22, 1997 and Form S-8 (file no. 333-35089) and Form S-8
(file no. 333-35093) filed on September 8, 1997. Pursuant to Rule 436(C) under
the Securities Act of 1933, this report should not be considered a part of the
registration statements prepared or certified by us within the meanings of
Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Houston, Texas
November 13, 1997
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