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