PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 23, 1998)
$511,431,000
[LOGO] Pride International, Inc.
Zero Coupon Convertible
Subordinated Debentures Due 2018
The issue price of each Zero Coupon Convertible Subordinated Debenture Due
2018 ("Debenture") to be issued by Pride International, Inc. (the "Company")
will be $391.06 per $1,000 principal amount at maturity. There will be no
periodic payments of interest unless the Company elects to make such payments
after a Tax Event (as defined herein) has occurred. The Debentures will mature
on April 24, 2018. The issue price of each Debenture represents a yield to
maturity of 4.75% per annum (computed on a semiannual bond equivalent basis)
calculated from April 24, 1998. The Debentures will be unsecured general
obligations of the Company, subordinated in right of payment to all existing and
future senior indebtedness of the Company and effectively subordinated to all
the creditors of the Company's subsidiaries, including trade creditors and tort
claimants. As of December 31, 1997, as adjusted to give effect to this offering
and the anticipated use of the net proceeds therefrom, the Company and its
subsidiaries would have had an aggregate of $700.0 million of consolidated
indebtedness and other obligations effectively ranking senior to the Debentures.
The Indenture governing the Debentures will not restrict the incurrence of
senior indebtedness or other indebtedness by the Company or its subsidiaries.
See "Description of Debentures."
Each Debenture will be convertible into shares of the Company's common
stock, no par value ("Common Stock"), at the option of the holder at any time
on or prior to maturity, unless previously redeemed or otherwise purchased by
the Company, at a conversion rate of 13.794 shares of Common Stock per $1,000
principal amount of such Debenture at maturity. The conversion rate will not be
adjusted for accrued original issue discount, the difference between the issue
price and the principal amount at maturity of a Debenture, but will be subject
to adjustment upon the occurrence of certain events affecting the Common Stock.
Upon conversion, the holder of the Debenture will not receive any cash payment
representing accrued original issue discount; such accrued original issue
discount will be deemed paid by the Common Stock received by the holder upon
conversion. See "Description of Debentures -- Conversion Rights." On April 20,
1998, the last reported sale price of the Common Stock on the New York Stock
Exchange (where it is listed under the symbol "PDE") was $23 5/8 per share.
The Company will become obligated to purchase the Debentures, at the option
of the holders thereof, on April 24, 2003, April 24, 2008 and April 24, 2013 for
a purchase price per Debenture of $494.52, $625.35 and $790.79 (equal to the
issue price plus accrued original issue discount to the relevant purchase date),
respectively. The Company will have the option to pay any such purchase price in
cash, Common Stock or any combination thereof. See "Description of
Debentures -- Purchase of Debentures at the Option of the Holder." In addition,
as of 35 business days after the occurrence of a Change in Control (as defined)
of the Company on or prior to April 24, 2003, the Company will become obligated
to purchase the Debentures for cash, at the option of the holders thereof, at a
price equal to the issue price plus accrued original issue discount to the date
of purchase. See "Description of Debentures -- Purchase of Debentures at the
Option of the Holder upon a Change in Control."
The Company may not redeem the Debentures prior to April 24, 2003. On and
after that date, however, the Company will have the option to redeem the
Debentures, in whole or in part, for cash at any time at a redemption price
equal to the issue price plus accrued original issue discount to the date of
redemption. See "Description of Debentures -- Redemption of Debentures at the
Option of the Company."
From and after a Tax Event, at the option of the Company, interest in lieu
of future original issue discount shall accrue on each Debenture from the Option
Exercise Date (as defined herein) at 4.75% per annum on the Restated Principal
Amount (as defined herein) and shall be payable semiannually on each Interest
Payment Date (as defined herein) to Holders of record at the close of business
on each Regular Record Date (as defined herein) immediately preceding such
Interest Payment Date. See "Description of Debentures -- Optional Conversion to
Semiannual Coupon Note upon Tax Event."
For a discussion of certain United States federal income tax consequences
for holders of Debentures, see "Certain Federal Income Tax Consequences."
The Company does not intend to list the Debentures on any national
securities exchange.
PROSPECTIVE PURCHASERS OF THE DEBENTURES SHOULD CAREFULLY CONSIDER THE
MATTERS SET FORTH BEGINNING ON PAGE S-9 UNDER THE CAPTION "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================
PRINCIPAL AMOUNT PRICE TO UNDERWRITING PROCEEDS TO
AT MATURITY PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Debenture... 100% 39.106% 1.173% 37.933%
- --------------------------------------------------------------------------------------------------------
Total(3)........ $511,431,000 $200,000,207 $6,000,006 $194,000,201
========================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $500,000 payable by the Company.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date of this Prospectus Supplement, to purchase up to an
additional $76,714,000 Principal Amount at Maturity of Debentures at the
Price to Public, less Underwriting Discount, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Principal Amount at Maturity, Price to Public, Underwriting Discount and
Proceeds to Company will be $588,145,000, $229,999,984, $6,900,000 and
$223,099,984, respectively. See "Underwriting."
The Debentures are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject orders in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the Debentures will be made in New York, New York
on or about April 24, 1998.
SALOMON SMITH BARNEY MORGAN STANLEY DEAN WITTER
The date of this Prospectus Supplement is April 20, 1998.
<PAGE>
[GRAPHICS]
[GRAPHIC DELETED]
The NYMPHEA, a third generation semisubmersible rig, is currently operating
under a four-year contract offshore Brazil.
[GRAPHIC DELETED]
The ILE DU LEVANT, an independent-leg, cantilevered jackup rig, is currently
operating on Lake Maracaibo in Venezuela.
[GRAPHIC DELETED]
The AMETHYST I, which the Company has contracted to purchase, is a dynamically
positioned, self-propelled semisubmersible rig capable of working in water
depths of up to 4,000 feet.
[GRAPHIC DELETED]
The PRIDE ALABAMA, a 200', mat-supported jackup rig, is currently operating
in the Gulf of Mexico.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES OFFERED
HEREBY OR THE COMMON STOCK OR BOTH, INCLUDING, AMONG OTHERS, OVER-ALLOTMENT,
STABILIZING AND SHORT COVERING TRANSACTIONS IN THE DEBENTURES, AND THE
IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING MADE HEREBY. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) INCLUDED IN
AND INCORPORATED BY REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. UNLESS THE CONTEXT INDICATES OTHERWISE, REFERENCES IN
THIS PROSPECTUS SUPPLEMENT TO THE "COMPANY" OR "PRIDE" ARE TO PRIDE
INTERNATIONAL, INC. AND ITS SUBSIDIARIES.
THE COMPANY
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. In recent years, the Company has
focused its growth strategy on the higher margin offshore and international
drilling markets. Offshore and international markets generally have greater
profit potential than domestic land-based markets, primarily as a result of less
competition, higher utilization rates and stronger demand resulting from a
general trend by oil and gas companies to shift expenditures to exploration and
development activities abroad and in the Gulf of Mexico. For these reasons, the
Company has actively sought to diversify beyond its former domestic land-based
operations, which prior to mid-1993 accounted for substantially all of the
Company's revenues and earnings. Since 1993, the Company has completed
acquisitions adding more than 250 rigs to its offshore and international fleet
and divested its U.S. land-based well servicing operations. The Company has
further expanded its international operations by deploying more than 40
underutilized rigs from its former U.S. land-based fleet to Argentina and
Venezuela. The Company's rig fleet operates in some of the most prolific
hydrocarbon producing regions in the world, as depicted below:
PRIDE'S WORLDWIDE OPERATIONS
<TABLE>
<CAPTION>
GULF OF MEXICO SOUTH AMERICA AFRICA/MIDDLE EAST ASIA
- -------------- ------------- ------------------ ----
<S> <C> <C> <C>
11 Jackup Rigs 1 Semisubmersible Rig 1 Semisubmersible Rig 2 Jackup Rigs
23 Platform Rigs 3 Jackup Rigs 1 Jackup Rig 2 Tender-Assisted Rigs
2 Tender-Assisted Rigs 5 Tender-Assisted Rigs 2 Land Drilling Rigs
6 Lake Barge Rigs 1 Swamp Barge Rig
66 Land Drilling Rigs 8 Land Drilling Rigs
149 Land Workover Rigs 1 Land Workover Rig
</TABLE>
S-3
<PAGE>
During 1997, the Company realigned its operations to concentrate on more
profitable offshore and international drilling markets through the following
strategic transactions:
o DIVESTITURE OF U.S. LAND-BASED OPERATIONS. 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, for approximately $136
million in cash. The Company retained 14 of its larger land-based
rigs for redeployment to international markets, ten of which have
since been redeployed to South America. The divested operations
generated the Company's lowest operating margins.
o FORASOL ACQUISITION. In March 1997, the Company acquired the
operating subsidiaries of Forasol-Foramer N.V. (collectively,
"Forasol") for approximately $113 million in cash and 11.1
million shares of Common Stock. The transaction provided entry into
new international markets while contributing additional capacity in
the Company's existing South American markets, as well as a
deepwater asset base and expertise. Forasol provides drilling,
workover and engineering services in more than 15 countries,
including substantial operations in South America, Africa, the
Middle East and Southeast Asia.
o PURCHASE OF JACKUP RIGS. In May 1997, the Company purchased 13
mat-supported jackup rigs for approximately $269 million. The
purchase of these rigs positioned the Company as the second largest
operator in the Gulf of Mexico of mat-supported jackup rigs capable
of operating in water depths of 200 feet or greater.
o PURCHASE OF ADDITIONAL OFFSHORE ASSETS. In April 1997, the Company
purchased a tender-assisted rig, which has been upgraded for a
total project cost of approximately $30 million and deployed to
Southeast Asia. In October 1997, the Company purchased an
independent-leg, cantilevered jackup rig for approximately $35
million. The jackup rig, capable of operating in water depths of up
to 300 feet, is currently under contract in Southeast Asia.
Currently, the Company operates a global fleet of 295 rigs, including two
semisubmersible rigs, 17 jackup rigs, nine tender-assisted rigs, seven barge
rigs, 23 offshore platform rigs, 78 land-based drilling rigs and 159 land-based
workover rigs. The significant diversity of the Company's rig fleet enables the
Company to provide a broad range of services and to take advantage of market
upturns while reducing its exposure to sharp downturns in any particular market
sector or geographic region.
Most recently, the Company has focused on increasing the size of its fleet
capable of drilling in deeper waters. The Company is participating in the
following offshore rig acquisition and construction projects:
o AMETHYST 1. In March 1998, the Company contracted to purchase, for
approximately $85 million, the M.S.V. AMETHYST ("AMETHYST 1"), a
dynamically positioned, self-propelled semisubmersible drilling rig
capable of working in water depths of up to 4,000 feet. The rig,
which is equipped to provide offshore drilling, deepwater well
intervention and maintenance services and pipeline construction
services, is currently working offshore Brazil for Petroleo
Brasilerio S.A. ("Petrobras") under a charter and service
contract that expires in 2001. The Company expects to close the
purchase in April 1998. See "Use of Proceeds."
o AMETHYST JOINT VENTURES. A newly organized, special purpose
subsidiary of the Company is participating in joint ventures to
construct, own and operate six Amethyst-class dynamically
positioned semisubmersible drilling rigs. The rigs, which will be
larger, enhanced versions of the AMETHYST 1, will be operated under
charter and service contracts with Petrobras having initial terms
of six to eight years. The total estimated cost to construct, equip
and mobilize the six rigs is approximately $1 billion,
approximately 90% of which is expected to be provided from the
proceeds of project finance obligations of the ventures without
recourse to the joint venture participants. Delivery of the rigs is
expected during late 1999 and 2000. The Company estimates that its
total equity investment in the project will be approximately $30
million, which will represent a 30% ownership interest.
o PRIDE AFRICA JOINT VENTURE. A subsidiary of the Company has
entered into a joint venture to construct, own and operate the
PRIDE AFRICA, an ultra-deepwater drillship currently under
construction in South Korea. The PRIDE AFRICA, which will be
capable of operating in water
S-4
<PAGE>
depths of up to 10,000 feet, is contracted to work for Elf
Exploration Angola ("Elf Angola") for five years. It is
anticipated that the PRIDE AFRICA will commence operations in
mid-1999. The joint venture has entered into a financing
arrangement with a group of banks providing that approximately $198
million of the 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 total equity investment in the project will be
approximately $16 million, which will represent a 51% ownership
interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital
Resources."
o PRIDE EUROPE DRILLSHIP. The Company has entered into a letter of
intent with Elf Angola for a second ultra-deepwater drillship to
operate offshore Angola under a three-year contract with two
one-year options. The drillship, which tentatively would be named
the PRIDE EUROPE and would be substantially similar in design to
the PRIDE AFRICA, is also expected to be built in South Korea and
to cost approximately $235 million. The Company expects to enter
into a joint venture similar to the PRIDE AFRICAjoint venture to
construct, own and operate the PRIDE EUROPE and also to arrange
similar non-recourse financing. The Company estimates that its
total equity investment in the project will be approximately $16
million, which will represent a 51% ownership interest.
o NAVIS JOINT VENTURE. In March 1998, the Company entered into an
agreement with a Norwegian company pursuant to which they will
jointly market the drillship NAVIS EXPLORER, an ultra-deepwater
dynamically positioned drillship currently under construction in
South Korea. If the joint venture is successful in obtaining a
suitable long-term contract, the Company may acquire up to a 51%
ownership interest in the vessel.
The Company intends to continue to pursue expansion of its offshore and
international drilling operations through acquisitions, rig upgrades and
redeployment of assets to active geographic regions, as well as through
participation in strategic new projects such as those described above.
S-5
<PAGE>
THE OFFERING
Debentures Offered................. $511,431,000 aggregate principal
amount at maturity (excluding
$76,714,000 aggregate principal
amount at maturity subject to the
Underwriters' over-allotment option)
of Zero Coupon Convertible
Subordinated Debentures Due 2018.
Each Debenture will have an issue
price of $391.06 per $1,000 principal
amount at maturity. There will be no
periodic interest payments on the
Debentures.
Maturity Date...................... April 24, 2018.
Yield to Maturity.................. 4.75% per annum (computed on a
semiannual bond equivalent basis)
calculated from April 24, 1998.
Conversion Rights.................. Each Debenture will be convertible
into shares of Common Stock at the
option of the holder at any time on
or prior to maturity, unless
previously redeemed or otherwise
purchased by the Company, at a
conversion rate of 13.794 shares of
Common Stock per $1,000 principal
amount of such Debenture at maturity
(initially representing a conversion
price of $28.35 per share of Common
Stock). The conversion rate will not
be adjusted for accrued original
issue discount, the difference
between the issue price and the
principal amount at maturity of a
Debenture, but will be subject to
adjustment upon the occurrence of
certain events affecting the Common
Stock. Upon conversion, the holder of
the Debenture will not receive any
cash payment representing accrued
original issue discount; such accrued
original issue discount will be
deemed paid by the Common Stock
received by the holder upon
conversion.
The Company does not undertake to
advise holders of the amount of
accrued original issue discount at
the time of conversion. No fractional
interests in shares of Common Stock
will be delivered upon conversion. A
holder otherwise entitled to a
fractional share of Common Stock will
receive cash equal to the then
current market value of such
fractional share based on the closing
Sale Price (as defined herein) on the
Trading Day (as defined herein)
immediately preceding the conversion
date. See "Description of
Debentures -- Conversion Rights."
Ranking............................ The Debentures will be unsecured
general obligations of the Company,
subordinated in right of payment to
all existing and future senior
indebtedness of the Company and
effectively subordinated to all the
creditors of the Company's
subsidiaries, including trade
creditors and tort claimants. As of
December 31, 1997, as adjusted to
give effect to this offering and the
anticipated use of the net proceeds
therefrom, the Company and its
subsidiaries would have had an
aggregate of $700.0 million of
consolidated indebtedness and other
obligations effectively ranking
senior to the Debentures. In
addition, the Debentures offered
hereby will rank PARI PASSU in right
of payment with the Company's 6 1/4%
Convertible Subordinated Debentures
Due 2006, of which approximately
$52.5 million principal amount was
outstanding at December 31, 1997.
S-6
<PAGE>
Original Issue Discount............ The Company is offering each Debenture at an
original issue discount for United States
federal income tax purposes equal to the
excess of the principal amount at maturity
of the Debenture over the amount of the
issue price. Prospective purchasers of
Debentures should be aware that, although
there will be no periodic payments of
interest on the Debentures, accrued original
issue discount will be includable
periodically in a holder's gross income for
United States federal income tax purposes
prior to conversion, redemption, other
disposition or maturity of such holder's
Debentures, whether or not such Debentures
are ultimately converted, redeemed, sold (to
the Company or otherwise) or paid at
maturity. See "Certain Federal Income Tax
Consequences -- Original Issue Discount."
Optional Redemption................ The Company may not redeem the Debentures
prior to April 24, 2003. On and after that
date, however, the Company will have the
option to redeem the Debentures, in whole or
in part, for cash at any time at a
redemption price equal to the issue price
plus accrued original issue discount to the
date of redemption. See "Description of
Debentures -- Redemption of Debentures at
the Option of the Company."
Purchase at the Option of the
Holder........................... The Company will become obligated to
purchase the Debentures, at the option of
the holders thereof, on April 24, 2003,
April 24, 2008 and April 24, 2013 for a
purchase price per Debenture of $494.52 ,
$625.35 and $790.79 (equal to the issue
price plus accrued original issue discount
to the relevant purchase date),
respectively. The Company will have the
option to pay the purchase price in cash,
Common Stock or any combination thereof.
Because the market price of any shares of
Common Stock to be delivered in payment, in
whole or in part, of the purchase price will
be determined as of the third business day
prior to the applicable purchase date,
holders of Debentures will bear the market
risk with respect to the value of the Common
Stock to be received from the date the
market price is determined to the purchase
date. See "Description of Debentures --
Purchase of Debentures at the Option of the
Holder." In addition, as of 35 business days
after the occurrence of a Change in Control
(as defined) of the Company on or prior to
April 24, 2003, the Company will become
obligated to purchase the Debentures for
cash, at the option of the holders thereof,
at a price equal to the issue price plus
accrued original issue discount to the date
of purchase. See "Description of Debentures
-- Purchase of Debentures at the Option of
the Holder upon a Change in Control."
Use of Proceeds.................... The net proceeds from the sale of the
Debentures offered hereby will be used to
fund the cash portion of the purchase price
of the semisub- mersible rig AMETHYST 1, to
fund the Company's equity investments in the
Amethyst joint ventures, the PRIDE AFRICA
and the PRIDE EUROPE, to repay certain
indebtedness and for general corporate
purposes. See "Use of Proceeds."
Listing............................ The Company does not intend to list the
Debentures on any national securities
exchange. The Common Stock is currently
listed on the New York Stock Exchange under
the symbol "PDE".
Risk Factors....................... Prospective purchasers of the Debentures
should carefully consider the matters set
forth under the caption "Risk Factors."
S-7
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary historical financial information for
the Company as of the dates and for the periods indicated. The following
information should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company (including
the notes thereto) included herein and incorporated by reference in the
accompanying Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 127,099 $ 182,336 $ 263,599 $ 407,174 $ 699,788
Operating costs.................. 100,305 139,653 187,203 292,599 458,861
Depreciation and amortization.... 6,407 9,550 16,657 29,065 58,661
Selling, general and
administrative................. 17,572 25,105 32,418 45,368 73,881
--------- --------- --------- --------- -----------
Earnings from operations......... 2,815 8,028 27,321 40,142 108,385
Other income (expense) net(1).... 504 106 (4,898) (9,323) 47,249
--------- --------- --------- --------- -----------
Earnings before income
taxes(1)....................... 3,319 8,134 22,423 30,819 155,634
Income tax provision (benefit)(2) (2,621) 1,920 7,064 8,091 51,639
--------- --------- --------- --------- -----------
Net earnings(1)(2)............... $ 5,940 $ 6,214 $ 15,359 $ 22,728 $ 103,995
========= ========= ========= ========= ===========
Net earnings per share(1)(2)(3)
Basic....................... $ .37 $ .30 $ .63 $ .85 $ 2.42
========= ========= ========= ========= ===========
Diluted..................... $ .36 $ .30 $ .61 $ .77 $ 2.16
========= ========= ========= ========= ===========
OTHER DATA:
EBITDA(4)........................ $ 9,087 $ 17,273 $ 44,616 $ 71,109 $ 161,337
Capital expenditures............. 12,123 59,171 40,636 61,711 268,307
Ratio of EBITDA(4) to interest
expense........................ 908.7x 83.4x 7.1x 5.2x 4.7x
Ratio of earnings to fixed
charges(5)..................... 5.8x 6.2x 4.0x 2.7x 4.5x
BALANCE SHEET DATA (AS OF
DECEMBER 31):
Working capital.................. $ 21,758 $ 26,640 $ 31,302 $ 62,722 $ 103,733
Property and equipment, net...... 62,823 139,899 178,488 375,249 1,171,647
Total assets..................... 109,981 205,193 257,605 542,062 1,541,501
Long-term debt, net of current
portion........................ 200 42,096 61,136 106,508 435,100
Long-term lease obligations, net
of current portion............. -- -- -- -- 36,275
6 1/4% Convertible Subordinated
Debentures..................... -- -- -- 80,500 52,500
Shareholders' equity............. 69,126 111,385 131,239 201,797 685,157
</TABLE>
- ------------
(1) Other income (expense) net, earnings before income taxes and net earnings
for the year ended December 31, 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 estimated 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 year ended December 31, 1997 were $54.7 million,
or $1.16 per share on a diluted basis.
(2) Income tax provision (benefit) and net earnings for the year ended December
31, 1993 include $3.8 million, or $0.23 per share on a diluted basis,
cumulative effect of change in accounting for income taxes.
(3) Net earnings per share for the years ended December 31, 1996, 1995, 1994 and
1993 have been restated to comply with the requirements of Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
(4) EBITDA (earnings before interest, taxes, depreciation and amortization) is
presented here to provide additional information about the Company's
operations. EBITDA should not be considered as an alternative to net income
as an indicator of the Company's operating performance or as an alternative
to cash flows as a better measure of liquidity.
(5) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor).
S-8
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus include 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 (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 Prospectus Supplement or the accompanying
Prospectus 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), 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 the risk factors discussed herein, 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. Prospective purchasers 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.
RISK FACTORS
THE FOLLOWING SHOULD BE CONSIDERED CAREFULLY WITH THE INFORMATION PROVIDED
ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND THE
DOCUMENTS INCORPORATED BY REFERENCE THEREIN, INCLUDING THE FINANCIAL STATEMENTS
AND THE NOTES THERETO, IN REACHING A DECISION REGARDING AN INVESTMENT IN THE
DEBENTURES OFFERED HEREBY.
LEVERAGE AND DEBT COVENANTS
As of December 31, 1997, the Company had approximately $523.9 million in
long-term indebtedness, net of current portion, approximately $52.5 million of
which was represented by the Company's 6 1/4% Convertible Subordinated
Debentures that are convertible into Common Stock at a conversion price of
$12.25 per share. The level of the Company's indebtedness will have several
important effects on the Company's future operations, including among others,
(i) a significant portion of the Company's cash flow from operations will be
dedicated to the payment of principal of and interest on its indebtedness and
will not be available for other purposes, (ii) covenants contained in the
Company's existing financing arrangements require the Company to meet certain
financial tests, which may affect the Company's flexibility in planning for, and
reacting to, changes in its business, and (iii) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate and other purposes may be limited. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
general economic conditions, industry cycles and financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control.
SUBORDINATION; HOLDING COMPANY STRUCTURE; SUBSIDIARY CASH FLOW
The Debentures will be unsecured general obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company. Under the Indenture governing the Debentures, the Company
generally will not be permitted to pay the principal of, or premium, if any, or
accrued original issue discount on the Debentures or repurchase, redeem or
otherwise retire any Debentures in the event of a default in the payment of any
principal of, or premium, if any, or interest on any senior indebtedness of the
Company when it becomes due and payable, whether at maturity or at a date fixed
for
S-9
<PAGE>
prepayment or by declaration or otherwise, unless and until such payment default
has been cured or waived, or in the event of certain other defaults with respect
to senior indebtedness. In addition, the Debentures are effectively subordinated
to all the creditors of the Company's subsidiaries, including trade creditors
and tort claimants. As of December 31, 1997, as adjusted to give effect to this
offering and the anticipated use of the net proceeds therefrom, the Company and
its subsidiaries would have had an aggregate of $700.0 million of consolidated
indebtedness and other obligations effectively ranking senior to the Debentures.
In addition, the Debentures will rank PARI PASSU in right of payment with the
Company's 6 1/4% Convertible Subordinated Debentures, of which $52.5 million
principal amount was outstanding at December 31, 1997. The Indenture governing
the Debentures will not restrict the incurrence of senior indebtedness or other
indebtedness by the Company or any of its subsidiaries. See "Description of
Debentures -- Subordination."
The Company conducts substantially all of its operations through both U.S.
and foreign subsidiaries, and substantially all of the Company's assets consist
of equity in such subsidiaries. Accordingly, the Company is and will be
dependent on its ability to obtain funds from its subsidiaries to service its
indebtedness, including the Debentures. Certain financing arrangements to which
the Company's subsidiaries are party impose restrictions on the ability of the
Company to gain access to the cash flow or assets of its subsidiaries. In
addition, the Company's foreign subsidiaries may face governmentally imposed
restrictions, from time to time, on their ability to transfer funds to the
Company.
INDUSTRY CONDITIONS
The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. The Company's
current business and operations are substantially dependent upon conditions in
the oil and gas industry and, specifically, the exploration and production
expenditures of oil and gas companies. The demand for contract drilling and
related services is directly influenced by oil and gas prices, expectations
about future prices, the cost of producing and delivering oil and gas,
government regulations, local and international political and economic
conditions, including the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and prices, the level
of production by non-OPEC countries and the policies of the various governments
regarding exploration and development of their oil and gas reserves. There can
be no assurance that current levels of exploration and production expenditures
of oil and gas companies will be maintained or that demand for the Company's
services will reflect the level of such activities.
INTERNATIONAL OPERATIONS
A significant portion of the Company's revenues are attributable to
international operations. Risks associated with operating in international
markets include foreign exchange restrictions and currency fluctuations, foreign
taxation, political instability, foreign and domestic monetary and tax policies,
expropriation, nationalization, nullification, modification or renegotiation of
contracts, war and civil disturbances and other risks that may limit or disrupt
markets. Additionally, the ability of the Company to compete in international
contract drilling markets may be adversely affected by foreign governmental
regulations that favor or require the awarding of such contracts to local
contractors, or by regulations requiring foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. Furthermore, the
Company's foreign subsidiaries may face governmentally imposed restrictions from
time to time on their ability to transfer funds to the Company. No predictions
can be made as to what foreign governmental regulations may be applicable to the
Company's operations in the future.
From time to time, certain foreign subsidiaries of the Company operate in
countries such as Libya and Iran that are subject to sanctions and embargoes
imposed by the U.S. Government. Although these sanctions and embargoes do not
prohibit such subsidiaries from completing existing contracts or from entering
into new contracts to provide drilling services in such countries, they do
prohibit the Company and its domestic subsidiaries, as well as employees of the
Company's foreign subsidiaries who are U.S. citizens, from participating in or
approving any aspect of the business activities in such countries. The Company
is unable to predict whether such constraints on its ability to have U.S.
persons provide managerial oversight and supervision will adversely affect the
financial or operating performance of such business activities.
S-10
<PAGE>
RISKS RELATED TO NEW CONSTRUCTION, UPGRADE AND REFURBISHMENT PROJECTS
The Company intends to make significant expenditures to construct new rigs
and to upgrade and refurbish other rigs that are not currently under contract.
These projects are subject to the risks of delay or cost overruns inherent in
large construction and refurbishment projects, including shipyard availability,
shortages of materials or skilled labor, unforeseen engineering problems, work
stoppages, weather interference, unanticipated cost increases, nonavailability
of necessary equipment and inability to obtain any of the requisite permits or
approvals. Significant delays could also have a material adverse effect on the
Company's marketing plans for such rigs and could jeopardize the contracts under
which the Company plans to operate such rigs.
ACQUISITION-RELATED RISKS
A substantial portion of the Company's growth has resulted from the
acquisition of other oilfield services businesses and assets. There can be no
assurance, however, that the Company will be able to continue to identify
attractive acquisition opportunities, negotiate acceptable acquisition terms,
obtain financing for acquisitions on satisfactory terms or successfully acquire
identified targets. The ability of the Company to pursue acquisition
opportunities may be affected by the limitations on its financing flexibility
imposed by the Company's current financing arrangements. Moreover, there can be
no assurance that competition for acquisition opportunities in the industry will
not escalate, thereby increasing the cost to the Company of making further
acquisitions or causing the Company to refrain from making further acquisitions.
In addition, no assurance can be given that the Company will be successful in
integrating acquired businesses and assets into its existing operations. Such
integration may result in unforeseen operational difficulties or require a
disproportionate amount of management's attention. The Company's failure to
achieve consolidation savings, to incorporate the acquired businesses and assets
into its existing operations successfully or to minimize any unforeseen
operational difficulties could have a material adverse effect on the Company.
OPERATING RISKS AND INSURANCE
The Company's operations are subject to the many hazards inherent in the
oilfield services industry. Contract drilling and well servicing require the use
of heavy equipment and exposure to hazardous conditions, which may subject the
Company to liability claims by employees, customers and third parties. These
hazards can cause personal injury or loss of life, severe damage to or
destruction of property and equipment, pollution or environmental damage and
suspension of operations. The Company's offshore fleet is also subject to
hazards inherent in marine operations, either while on site or during
mobilization, such as capsizing, sinking and damage from severe weather
conditions. In certain instances, contractual indemnification of customers or
others is required of the Company. The Company maintains workers compensation
insurance for its employees and other insurance coverage for normal business
risks, including general liability insurance. Although the Company believes its
insurance coverages to be adequate and in accordance with industry practice
against normal risks in its operations, there can be no assurance that any
insurance protection will be sufficient or effective under all circumstances or
against all hazards to which the Company may be subject. The occurrence of a
significant event against which the Company is not fully insured, or of a number
of lesser events against which the Company is insured, but subject to
substantial deductibles, could materially and adversely affect the Company's
operations and financial condition. Moreover, no assurance can be given that the
Company will be able to maintain adequate insurance in the future at rates or on
terms it considers reasonable or acceptable.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling and
well servicing industries. The Company's operations routinely involve the
handling of waste materials, some of which are classified as hazardous
substances. Consequently, the regulations applicable to the Company's operations
include those with respect to containment, disposal and control of
S-11
<PAGE>
the discharge of hazardous oilfield waste and other non-hazardous waste material
into the environment, requiring removal and cleanup under certain circumstances,
or otherwise relating to the protection of the environment. Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain circumstances impose strict liability, rendering a party liable for
environmental damage without regard to negligence or fault on the part of such
party. Such laws and regulations may expose the Company to liability for the
conduct of, or conditions caused by, others or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed. The
application of these requirements or the adoption of new requirements could have
a material adverse effect on the Company. In addition, the modification of
existing laws or regulations or the adoption of new laws or regulations
curtailing exploratory or development drilling for oil and gas for economic,
environmental or other reasons could have a material adverse effect on the
Company's operations by limiting future contract drilling opportunities.
LIMITATION ON REPURCHASE OF DEBENTURES
On April 24, 2003, April 24, 2008, and April 24, 2013 (each, a "Purchase
Date"), the Company will become obligated to purchase, at the option of the
holder thereof, any outstanding Debenture, subject to certain conditions. In
addition, upon the occurrence of a Change in Control of the Company, each holder
of Debentures may require the Company to repurchase all or a portion of such
holder's Debentures. There can be no assurance that the Company will have
sufficient funds or will be able to arrange financing to purchase or repurchase
Debentures. If the Company did not have sufficient funds to purchase the
Debentures on a Purchase Date, the Company could be required to issue shares of
Common Stock to pay the purchase price at valuations based on the then
prevailing market prices. In connection with the repurchase of Debentures on a
Change in Control Purchase Date (as defined), the Company may be required to
redeem its $325.0 million principal amount of Senior Notes. The Company's
ability to repurchase the Debentures in such event may be limited by law, the
Indenture governing the Debentures and by the terms of other agreements relating
to borrowings that constitute Senior Indebtedness, as such indebtedness or
agreements may be entered into, replaced, supplemented or amended from time to
time, including without limitation, certain provisions of the Senior Notes that
would likely prevent the Company from making any such redemption or repurchase
of the Debentures at any time when holders of the Debentures have the right to
require that the Company repurchase or redeem the Debentures. The Company may be
required to obtain the consent of its then existing lenders to repurchase the
Debentures or may be required to refinance Senior Indebtedness to make any such
payment. If the Company is prohibited from repurchasing the Debentures, such
failure to purchase tendered Debentures would constitute an Event of Default
under the Indenture governing the Debentures, which may, in turn, constitute a
further default under certain of the Company's existing financing arrangements
and the terms of other indebtedness that the Company may enter into from time to
time. In such circumstances, the subordination provisions in the Indenture
governing the Debentures would prohibit payments to the holders of the
Debentures. Furthermore, the Company may not have the financial ability to
repurchase the Debentures in the event payment of Senior Indebtedness is
accelerated. The term "Change in Control" is limited to certain specified
transactions and circumstances and does not include all events that could
adversely affect the Company's financial condition or operating results. The
requirement that the Company offer to repurchase the Debentures upon a Change in
Control will not necessarily protect holders of the Debentures in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving the Company. See "Description of Debentures -- Purchase of Debentures
at the Option of the Holder" and " -- Purchase of Debentures at the Option of
the Holder upon a Change in Control."
ABSENCE OF PUBLIC MARKET FOR THE DEBENTURES
The Debentures will be a new issue of securities for which there currently
is no public market, and the Company does not intend to list the Debentures on
any national securities exchange. Although the Underwriters have informed the
Company that they currently intend to make a market in the Debentures, the
Underwriters are not obligated to do so and may discontinue such market-making
at any time. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Debentures.
S-12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "PDE". Prior to September 10, 1997, the Common Stock traded
on The Nasdaq Stock Market's National Market under the symbol "PRDE". The
following table sets forth the range of high and low sales prices of the Common
Stock for the periods shown:
PRICE
--------------------
HIGH LOW
--------- ---------
1996
First Quarter................... $14 3/8 $ 9 1/8
Second Quarter.................. 18 13 5/8
Third Quarter................... 16 1/4 11 5/8
Fourth Quarter.................. 23 1/4 13 1/8
1997
First Quarter................... $24 3/8 $16 1/4
Second Quarter.................. 24 16 1/2
Third Quarter................... 37 7/16 22 7/8
Fourth Quarter.................. 37 3/4 20
1998
First Quarter................... $25 1/2 $18 1/8
On April 20, 1998, the last reported sale price of the Common Stock on the
NYSE was $23 5/8 per share. As of March 31, 1998, there were 1,991 shareholders
of record of Common Stock.
The Company has not paid any cash dividends on the Common Stock since
becoming a publicly held corporation in September 1988. The Company currently
has a policy of retaining all available earnings for the development and growth
of its business and does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future. The ability of the Company to pay cash
dividends in the future is restricted by the Company's existing financing
arrangements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." The desirability
of paying such dividends could also be materially affected by U.S. and foreign
tax considerations.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Debentures offered
hereby are estimated to be approximately $193.5 million ($222.6 million if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and estimated offering expenses payable by the Company.
Of such net proceeds, approximately $63.8 million will be used to fund the cash
portion of the purchase price of the semisubmersible rig AMETHYST 1, the balance
of which is expected to be financed by a note convertible into Common Stock.
Approximately $30.0 million will be used to fund the Company's equity investment
in the Amethyst joint ventures and approximately $32.0 million will be used to
fund the Company's equity investments in the PRIDE AFRICA and the PRIDE EUROPE.
Approximately $15.0 million will be used to repay the balance currently
outstanding under the Company's Credit Facility, which bears interest at a
variable rate, currently 7 7/16%, and matures in December 2000. The Company
intends to use excess proceeds from this offering for general corporate
purposes, including acquisitions and capital projects. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
S-13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company and its subsidiaries as of December 31, 1997 and
as adjusted to illustrate the effect of this offering and the application of the
net proceeds therefrom. See "Use of Proceeds."
AS OF DECEMBER 31, 1997
----------------------------
ACTUAL AS ADJUSTED
------------ ------------
(DOLLARS IN THOUSANDS)
SHORT-TERM DEBT AND CURRENT
MATURITIES OF LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS.......... $ 70,747 $ 70,747
============ ============
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS
Bank credit facilities.......... $ -- $ --
Collateralized term loans....... 63,632 63,632
Limited-recourse collateralized
term loans..................... 31,112 31,112
Notes payable................... 15,356 15,356
Capital lease obligations....... 36,275 36,275
9 3/8% Senior Notes due 2007.... 325,000 325,000
6 1/4% Convertible Subordinated
Debentures Due 2006............ 52,500 52,500
Zero Coupon Convertible
Subordinated Debentures Due
2018........................... -- 200,000
------------ ------------
Total long-term debt and
capital lease
obligations............ $ 523,875 $ 723,875
------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock, no par value,
5,000,000 shares authorized; no
shares issued or outstanding... -- --
Common Stock, no par value,
100,000,000 shares authorized;
50,097,120 shares issued and
50,042,900 shares
outstanding(1)................. 1 1
Paid-in capital................. 522,946 522,946
Treasury stock.................. (191) (191)
Retained earnings............... 162,401 162,401
------------ ------------
Total shareholders'
equity................. 685,157 685,157
------------ ------------
Total capitalization....... $ 1,209,032 $ 1,409,032
============ ============
- ------------
(1) Does not include 7,054,679 shares of Common Stock initially issuable upon
conversion of the Debentures, 4,285,714 shares of Common Stock issuable upon
conversion of the Company's 6 1/4% Convertible Subordinated Debentures or
3,904,871 shares of Common Stock issuable upon exercise of outstanding stock
options and warrants.
S-14
<PAGE>
SELECTED FINANCIAL DATA
The following selected consolidated financial information as of December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, has been derived from the audited consolidated financial
statements of the Company included elsewhere herein. This information should be
read in conjunction with such consolidated financial statements and the notes
thereto. The selected consolidated financial information as of December 31,
1995, 1994 and 1993, and for each of the years in the two-year period ended
December 31, 1994, has been derived from audited consolidated financial
statements of the Company that have previously been included in the Company's
reports under the Exchange Act that are not incorporated by reference herein or
in the accompanying Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 127,099 $ 182,336 $ 263,599 $ 407,174 $ 699,788
Operating costs...................... 100,305 139,653 187,203 292,599 458,861
Depreciation and amortization........ 6,407 9,550 16,657 29,065 58,661
Selling, general and
administrative..................... 17,572 25,105 32,418 45,368 73,881
---------- ---------- ---------- ------------ ------------
Earnings from operations............. 2,815 8,028 27,321 40,142 108,385
Other income (expense) net (1)....... 504 106 (4,898) (9,323) 47,249
---------- ---------- ---------- ------------ ------------
Earnings before income taxes (1)..... 3,319 8,134 22,423 30,819 155,634
Income tax provision (benefit) (2)... (2,621) 1,920 7,064 8,091 51,639
---------- ---------- ---------- ------------ ------------
Net earnings (1)(2).................. $ 5,940 $ 6,214 $ 15,359 $ 22,728 $ 103,995
========== ========== ========== ============ ============
Net earnings per share (1)(2)(3)
Basic........................... $ .37 $ .30 $ .63 $ .85 $ 2.42
========== ========== ========== ============ ============
Diluted......................... $ .36 $ .30 $ .61 $ .77 $ 2.16
========== ========== ========== ============ ============
Weighted average shares
outstanding (3)
Basic........................... 16,133 20,418 24,551 26,719 43,036
Diluted......................... 16,360 20,650 25,128 33,755 49,143
OTHER DATA:
EBITDA (4)........................... $ 9,087 $ 17,273 $ 44,616 $ 71,109 $ 161,337
Capital expenditures................. 12,123 59,171 40,636 61,711 268,307
Cash flow from operating
activities......................... 9,232 8,371 27,169 21,217 60,564
Cash flow used in investing
activities......................... (20,693) (79,482) (41,513) (162,071) (506,053)
Cash flow from (used in) financing
activities......................... (1,268) 69,572 17,669 141,869 508,718
Ratio of EBITDA(4) to interest
expense............................ 908.7x 83.4x 7.1x 5.2x 4.7x
Ratio of earnings to fixed charges
(5)................................ 5.8x 6.2x 4.0x 2.7x 4.5x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 21,758 $ 26,640 $ 31,302 $ 62,722 $ 103,733
Property and equipment, net.......... 62,823 139,899 178,488 375,249 1,171,647
Total assets......................... 109,981 205,193 257,605 542,062 1,541,501
Long-term debt, net of current
portion............................ 200 42,096 61,136 106,508 435,100
Long-term lease obligations, net of
current portion.................... -- -- -- -- 36,275
6 1/4% Convertible Subordinated
Debentures......................... -- -- -- 80,500 52,500
Shareholders' equity................. 69,126 111,385 131,239 201,797 685,157
</TABLE>
- ------------
(1) Other income (expense) net, earnings before income taxes and net earnings
for the year ended December 31, 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 estimated 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 year ended December 31, 1997 were $54.7 million,
or $1.16 per share on a diluted basis.
(NOTES CONTINUED ON FOLLOWING PAGE)
S-15
<PAGE>
(2) Income tax provision (benefit) and net earnings for the year ended December
31, 1993 include $3.8 million, or $0.23 per share on a diluted basis,
cumulative effect of change in accounting for income taxes.
(3) Net earnings per share for the years ended December 31, 1996, 1995, 1994 and
1993 and weighted average shares outstanding as of such dates have been
restated to comply with the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings per Share."
(4) EBITDA (earnings before interest, taxes, depreciation and amortization) is
presented here to provide additional information about the Company's
operations. EBITDA should not be considered as an alternative to net income
as an indicator of the Company's operating performance or as an alternative
to cash flows as a better measure of liquidity.
(5) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor).
S-16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996 and 1995, included
elsewhere herein. 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. As a result of its recent acquisition
activity, the Company expects to continue to experience revenue growth.
International drilling and well servicing activity is affected by
fluctuations in oil and 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 well 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 During 1993 and 1994, the Company made entry-level acquisitions in
Argentina, Venezuela and the Gulf of Mexico.
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. ("PDVSA"), 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. The
Company has further expanded international operations by 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.
o In October 1996, the Company expanded its Colombian operations to
20 rigs through the acquisition of Ingeser de Colombia, S.A.
("Ingeser"), 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.
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 South America, Africa, the Middle
East and Southeast Asia.
S-17
<PAGE>
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 being mobilized to Malaysia.
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.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial information
of the Company by operating segment for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
United States land.............. $ 113,115 42.9% $ 117,142 28.8% $ 16,485 2.4%
United States offshore.......... 49,595 18.8 57,450 14.1 135,281 19.3
International land.............. 100,889 38.3 218,562 53.7 385,590 55.1
International offshore.......... -- -- 14,020 3.4 162,432 23.2
---------- --------- ---------- --------- ---------- ---------
Total revenues............. $ 263,599 100.0% $ 407,174 100.0% $ 699,788 100.0%
========== ========= ========== ========= ========== =========
EARNINGS FROM OPERATIONS:
United States land.............. $ 7,906 28.9% $ 7,808 19.5% $ 519 .5%
United States offshore.......... 6,785 24.9 6,983 17.4 40,965 37.8
International land.............. 12,630 46.2 23,372 58.2 42,500 39.2
International offshore.......... -- -- 1,979 4.9 24,401 22.5
---------- --------- ---------- --------- ---------- ---------
Total earnings from
operations.............. $ 27,321 100.0% $ 40,142 100.0% $ 108,385 100.0%
========== ========= ========== ========= ========== =========
</TABLE>
1997 COMPARED WITH 1996
REVENUES. Revenues for 1997 increased $292.6 million, or 72%, as compared
to 1996. This increase was due primarily to the expansion of the Company's Gulf
of Mexico and international operations as follows: (i) $201.3 million was
related to the operations acquired in the Forasol acquisition in March 1997,
(ii) $70.2 million was related to the operations of the mat-supported jackup
rigs acquired in May 1997 and (iii) $50.0 million was related to the incremental
full-year effect of the operations acquired in the April 1996 acquisition of
Quitral-Co. The remaining increase in revenue was due to the net addition of
five land-based drilling rigs and two barge rigs in South America combined with
increased contract drilling dayrates from ongoing operations. This increase was
partially offset by a reduction of $100.0 million in revenue related to the
divestiture of the Company's domestic land-based well servicing operations.
OPERATING COSTS. Operating costs for 1997 increased $166.3 million, or
57%, as compared to 1996. This increase was due primarily to the acquisitions
and asset purchases discussed above as follows: (i) $130.4 million was related
to the operations acquired in the Forasol acquisition in March 1997, (ii) $30.1
million was related to the operations of the mat-supported jackup rigs acquired
in May 1997 and (iii) $20.0 million was related to the incremental full-year
effect of the operations acquired in the April 1996 acquisition of Quitral-Co.
The remaining increase in operating costs was due to the net addition of four
land-based drilling rigs and two barge rigs in South America combined with
increased labor costs from ongoing operations in Venezuela. This increase in
operating costs was partially offset by a reduction of $90.0 million related to
the divestiture of the Company's domestic land-based well servicing operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1997
increased $29.6 million, or 102%, compared to 1996, primarily as a result of the
acquisitions of Forasol, Quitral-Co and the mat-supported jackup rigs, and
depreciation of new, refurbished and upgraded rigs placed in service during the
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year, which increase was partially offset by the sale of the Company's domestic
land-based well servicing operations.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs in 1997 increased approximately $28.5 million, or 63%, as compared to
1996, primarily as a result of the acquisitions of Forasol, Quitral-Co and the
mat-supported jackup rigs, which increase was partially offset by the sale of
the Company's domestic land-based well servicing operations. As a percentage of
revenues, total selling, general and administrative costs decreased from 11.1%
for 1996 to 10.5% for 1997.
OTHER INCOME (EXPENSE). Other income (expense) resulted in income of $47.2
million in 1997 as compared to expense of $9.3 million in 1996. Other income and
expense included interest income, interest expense, net gains or losses from
sale of assets, minority interests, foreign exchange gains or losses and other
sources. The Company incurred a gain of $83.6 million from the sale of its
domestic land-based well servicing operations in February 1997. This gain was
partially offset by a charge of approximately $3.7 million relating to the
induced conversion of $28.0 million of the Company's 6 1/4% Convertible
Subordinated Debentures and other charges. Interest expense for 1997 increased
$20.7 million, or 152%, compared to 1996. This increase was due primarily to the
issuance of $325.0 million in Senior Notes by the Company in May 1997. During
1997 the Company capitalized approximately $5.7 million in interest expense
related to its capital expenditures, as compared to approximately $2.0 million
in 1996.
INCOME TAX PROVISION (BENEFIT). The Company's consolidated effective
income tax rate for 1997 was approximately 33%, as compared to approximately 26%
for 1996. The increase in the effective tax rate resulted from the effects of
(i) certain non-deductible amounts, primarily $3.7 million of costs related to
induced conversion of the Company's 6 1/4% 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.
1996 COMPARED WITH 1995
REVENUES. Revenues for 1996 increased $143.6 million, or 54%, as compared
to 1995. Of this increase, $131.7 million was a result of expansion of the
Company's international operations, primarily due to the acquisition of
Quitral-Co in April 1996. Revenues from domestic land operations increased $4.0
million, primarily as a result of the inclusion of operating results of X-Pert
Enterprises, Inc. ("X-Pert") (the operations of which were sold in February
1997) for 12 months in 1996 as compared to only ten months in 1995. Revenues
attributable to domestic offshore operations increased $7.9 million, due
primarily to an increased number of the Company's offshore platform rigs working
in 1996.
OPERATING COSTS. Operating costs for 1996 increased $105.4 million, or
56%, as compared to 1995. Of this increase, $94.0 million was a result of
expansion of the Company's international operations and $3.0 million was
attributable to domestic land-based operations, primarily due to the inclusion
of the operating results of X-Pert for the full period, which offset a $2.4
million reduction of workers' compensation expense recorded in the fourth
quarter of 1996. Operating costs related to domestic offshore operations
increased $7.6 million due to an increased number of offshore platform rigs
working, as discussed above, and a related increase in mobilization costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1996
increased $12.4 million, or 74%, as compared to 1995, primarily as a result of
the Quitral-Co acquisition and additional expansion of the Company's
international and domestic offshore assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased $13.0 million, or 40%, as compared to 1995,
primarily due to the inclusion of such costs for Quitral-Co. During 1996, the
Company incurred certain nonrecurring expenses in connection with consolidation
of acquired operations with its existing operations in Argentina and Venezuela.
As a percentage of revenues, total selling, general and administrative costs
were 11% for 1996 as compared to 12% for 1995.
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EARNINGS FROM OPERATIONS. Earnings from operations for 1996 increased by
$12.8 million, or 47%, as compared to 1995. Of this increase, $12.7 million was
attributable to international expansion, including the Quitral-Co acquisition.
Domestic offshore utilization also improved, resulting in a $198,000 increase in
earnings from operations. Earnings from domestic land operations were
essentially unchanged between 1996 and 1995.
OTHER INCOME (EXPENSE). Other income (expense) for 1996 included net gains
from asset sales, foreign exchange transactions and other sources. Other income
(expense) for 1995 consisted primarily of miscellaneous gains of $638,000 from
asset sales, insurance recoveries, foreign exchange transactions and other
sources. Interest income increased to $2.4 million for 1996 from $740,000 for
1995 due to an increase in cash available for investment. Interest expense for
1996 increased by $7.4 million over 1995, as a result of interest accrued on the
convertible subordinated debentures and borrowings related to the Quitral-Co
acquisition and other additions to property and equipment. During 1996 and 1995,
the Company capitalized $1.9 million and $250,000, respectively, of interest
expense in connection with construction projects.
INCOME TAX PROVISION (BENEFIT). The Company's consolidated effective
income tax rate for 1996 was approximately 26%, as compared to approximately 32%
for 1995. The decrease was attributable to the increase in foreign income, which
is taxed at a lower statutory rate, and the reduction in U.S. income, which is
taxed at a higher statutory rate. The decrease was also due to recognition in
1996 of $2.2 million of foreign net operating loss carryforwards, including net
operating loss carryforwards of acquired businesses. The Company had previously
provided a valuation allowance for certain foreign net operating loss
carryforwards, due to uncertainties regarding the Company's ability to realize
such tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $103.7 million and $62.7 million at
December 31, 1997 and 1996, respectively. The Company's current ratio was 1.5
and 1.7 at December 31, 1997 and December 31, 1996, respectively.
In March 1997, the Company entered into a revolving credit facility with a
group of banks (as amended and restated in December 1997, 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. 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 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 March
31, 1998, borrowings totaling $15.0 million were 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 (i) issuance of the Debentures offered hereby and (ii) funding
of the equipment loans described below for the PRIDE AFRICA. 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.
In May 1997, the Company issued $325.0 million 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 on or prior to May 1, 2000, the
Company at its option may use all or a portion of the proceeds from
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such public equity offering to redeem up to $108.3 million 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.
In March 1998, the Company contracted to purchase, for approximately $85
million, the AMETHYST 1, a dynamically positioned, self-propelled
semisubmersible drilling rig capable of working in water depths of up to 4,000
feet. The rig, which is equipped to provide offshore drilling, deepwater well
intervention and maintenance services and pipeline construction services, is
currently working offshore Brazil for Petrobras under a charter and service
contract that expires in 2001. The Company expects to close the purchase in
April 1998 and to finance the cash portion of the purchase price from the
proceeds of this offering, with the balance expected to be financed by a note
convertible into Common Stock.
A newly organized, special purpose subsidiary of the Company is
participating in joint ventures to construct, own and operate six Amethyst-class
dynamically positioned semisubmersible drilling rigs. The rigs, which will be
larger, enhanced versions of the AMETHYST 1, will be operated under charter and
service contracts with Petrobras having initial terms of six to eight years. The
total estimated cost to construct, equip and mobilize the six rigs is
approximately $1 billion, approximately 90% of which is expected to be provided
from the proceeds of project finance obligations of the ventures without
recourse to the joint venture participants. Delivery of the rigs is expected
during late 1999 and 2000. The Company estimates that its total equity
investment in the project will be approximately $30 million, which will
represent a 30% ownership interest.
A subsidiary of the Company has entered into a joint venture to construct,
own and operate the PRIDE AFRICA, an ultra-deepwater drillship currently under
construction in South Korea. The PRIDE AFRICA, which will be capable of
operating in water depths of up to 10,000 feet, is contracted to work for Elf
Angola for five years. It is anticipated that the PRIDE AFRICA will commence
operations in mid-1999. The joint venture has entered into a financing
arrangement with a group of banks providing that approximately $198 million of
the 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 total equity investment in the
project will be approximately $16 million, which will represent a 51% ownership
interest.
The Company 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.
The Company has entered into a letter of intent with Elf Angola for a
second ultra-deepwater drillship to operate offshore Angola under a three-year
contract with two one-year options. The drillship, which tentatively would be
named the PRIDE EUROPE and would be substantially similar in design to the PRIDE
AFRICA, also is expected to be built in South Korea and to cost approximately
$235 million. The Company expects to enter into a joint venture similar to the
PRIDE AFRICA joint venture to construct, own and operate the PRIDE EUROPE and
also to arrange similar non-recourse financing. The Company estimates that its
total equity investment in the project will be approximately $16 million, which
will represent a 51% ownership interest.
The offering of the Debentures is being made under a "shelf" registration
statement under the Securities Act pursuant to which the Company may issue up to
$500.0 million 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 this offering and borrowings under the Credit Facility, will be adequate to
fund the rig acquisitions and equity
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investments discussed above and the Company's normal ongoing capital
expenditure, 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 that 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. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits," FAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" and FAS No. 130 "Reporting Comprehensive
Income" 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.
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, operational reporting
and computer systems. The first phase of implementation was completed in
February 1998. The remaining phases are scheduled for implementation and
completion within the next two years. 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 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 formal communication 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.
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<PAGE>
BUSINESS
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. In recent years, the Company has
focused its growth strategy on the higher margin offshore and international
drilling markets. Offshore and international markets generally have greater
profit potential than domestic land-based markets, primarily as a result of less
competition, higher utilization rates and stronger demand resulting from a
general trend by oil and gas companies to shift expenditures to exploration and
development activities abroad and in the Gulf of Mexico. For these reasons, the
Company has actively sought to diversify beyond its former domestic land-based
operations, which prior to mid-1993 accounted for substantially all of the
Company's revenues and earnings. Since 1993, the Company has completed
acquisitions adding more than 250 rigs to its offshore and international fleet
and divested its U.S. land-based well servicing operations. The Company has
further expanded its international operations by deploying more than 40
underutilized rigs from its former U.S. land-based fleet to Argentina and
Venezuela.
During 1997, the Company realigned its operations to concentrate on more
profitable offshore and international drilling markets through the following
strategic transactions:
o DIVESTITURE OF U.S. LAND-BASED OPERATIONS. 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, for approximately $136
million in cash. The Company retained 14 of its larger land-based
rigs for redeployment to international markets, ten of which have
since been redeployed to South America. The divested operations
generated the Company's lowest operating margins.
o FORASOL ACQUISITION. In March 1997, the Company acquired Forasol
for approximately $113 million in cash and 11.1 million shares of
Common Stock. The transaction provided entry into new international
markets while contributing additional capacity in the Company's
existing South American markets, as well as a deepwater asset base
and expertise. Forasol provides drilling, workover and engineering
services in more than 15 countries, including substantial
operations in South America, Africa, the Middle East and Southeast
Asia.
o PURCHASE OF JACKUP RIGS. In May 1997, the Company purchased 13
mat-supported jackup rigs for approximately $269 million. The
purchase of these rigs positioned the Company as the second largest
operator in the Gulf of Mexico of mat-supported jackup rigs capable
of operating in water depths of 200 feet or greater.
o PURCHASE OF ADDITIONAL OFFSHORE ASSETS. In April 1997, the Company
purchased a tender-assisted rig, which has been upgraded for a
total project cost of approximately $30 million and deployed to
Southeast Asia. In October 1997, the Company purchased an
independent-leg, cantilevered jackup rig for approximately $35
million. The jackup rig, capable of operating in water depths of up
to 300 feet, is currently under contract in Southeast Asia.
Currently, the Company operates a global fleet of 295 rigs, including two
semisubmersible rigs, 17 jackup rigs, nine tender-assisted rigs, seven barge
rigs, 23 offshore platform rigs, 78 land-based drilling rigs and 159 land-based
workover rigs. The significant diversity of the Company's rig fleet enables the
Company to provide a broad range of services and to take advantage of market
upturns while reducing its exposure to sharp downturns in any particular market
sector or geographic region.
Most recently, the Company has focused on increasing the size of its fleet
capable of drilling in deeper waters. The Company is participating in the
following offshore rig acquisition and construction projects:
o AMETHYST 1. In March 1998, the Company contracted to purchase, for
approximately $85 million, the AMETHYST 1, a dynamically
positioned, self-propelled semisubmersible drilling rig capable of
working in water depths of up to 4,000 feet. The rig, which is
equipped to provide offshore drilling, deepwater well intervention
and maintenance services and pipeline construction services, is
currently working offshore Brazil for Petrobras under a charter and
service
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contract that expires in 2001. The Company expects to close the
purchase in April 1998. See "Use of Proceeds."
o AMETHYST JOINT VENTURES. A newly organized, special purpose
subsidiary of the Company is participating in joint ventures to
construct, own and operate six Amethyst-class dynamically
positioned semisubmersible drilling rigs. The rigs, which will be
larger, enhanced versions of the AMETHYST 1, will be operated under
charter and service contracts with Petrobras having initial terms
of six to eight years. The total estimated cost to construct, equip
and mobilize the six rigs is approximately $1 billion,
approximately 90% of which is expected to be provided from the
proceeds of project finance obligations of the ventures without
recourse to the joint venture participants. Delivery of the rigs is
expected during late 1999 and 2000. The Company estimates that its
total equity investment in the project will be approximately $30
million, which will represent a 30% ownership interest.
o PRIDE AFRICA JOINT VENTURE. A subsidiary of the Company has
entered into a joint venture to construct, own and operate the
PRIDE AFRICA, an ultra-deepwater drillship currently under
construction in South Korea. The PRIDE AFRICA, which will be
capable of operating in water depths of up to 10,000 feet, is
contracted to work for Elf Exploration Angola ("Elf Angola") for
five years. It is anticipated that the PRIDE AFRICA will commence
operations in mid-1999. The joint venture has entered into a
financing arrangement with a group of banks providing that
approximately $198 million of the 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 total equity investment in the
project will be approximately $16 million, which will represent a
51% ownership interest. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
o PRIDE EUROPE DRILLSHIP. The Company has entered into a letter of
intent with Elf Angola for a second ultra-deepwater drillship to
operate offshore Angola under a three-year contract with two
one-year options. The drillship, which tentatively would be named
the PRIDE EUROPE and would be substantially similar in design to
the PRIDE AFRICA, is also expected to be built in South Korea and
to cost approximately $235 million. The Company expects to enter
into a joint venture similar to the PRIDE AFRICA joint venture to
construct, own and operate the PRIDE EUROPE and also to arrange
similar non-recourse financing. The Company estimates that its
total equity investment in the project will be approximately $16
million, which will represent a 51% ownership interest.
o NAVIS JOINT VENTURE. In March 1998, the Company entered into an
agreement with a Norwegian company pursuant to which they will
jointly market the drillship NAVIS EXPLORER, an ultra-deepwater
dynamically positioned drillship currently under construction in
South Korea. If the joint venture is successful in obtaining a
suitable long-term contract, the Company may acquire up to a 51%
ownership interest in the vessel.
The Company intends to continue to pursue expansion of its offshore and
international drilling operations through acquisitions, rig upgrades and
redeployment of assets to active geographic regions, as well as through
participation in strategic new projects such as those described above.
OPERATIONS
SOUTH AMERICA
Through a series of acquisitions and the deployment of underutilized
assets, the Company has significantly expanded its South American operations and
now operates one semisubmersible rig, three jackup rigs, two tender-assisted
rigs, six floating barge rigs and 215 land-based rigs in the region.
BRAZIL. In September 1997, the Company's semisubmersible rig NYMPHEA began
drilling offshore Brazil for Petrobras. The rig is working under a four-year
contract with two one-year renewal options. In
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addition, a newly organized, special purpose subsidiary of the Company is
participating in joint ventures to construct, own and operate six Amethyst-class
dynamically positioned semisubmersible drilling rigs. The rigs are to be
operated offshore Brazil under charter and service contracts with Petrobras with
initial terms of six to eight years, with delivery of the rigs expected during
late 1999 and 2000. The Company's interest in the project will be approximately
30%. In March 1998, the Company contracted to purchase the semisubmersible
drilling rig AMETHYST 1. The rig is currently working offshore Brazil for
Petrobras under a charter and service contract that expires in 2001.
VENEZUELA. The Company's offshore fleet in Venezuela includes three jackup
rigs, two tender-assisted rigs and six barge rigs operating on Lake Maracaibo.
Two of the jackup rigs that the Company operates under contracts expiring in
1999 are owned by PDVSA. The other jackup rig is owned by the Company and
operates under a contract expiring in December 2000. In 1995, the Company placed
two floating barge rigs into service on Lake Maracaibo that are working under
ten-year contracts with PDVSA. The Company also operates four other floating
barge rigs and two tender-assisted rigs under management contracts with PDVSA.
The Company's land-based fleet in Venezuela currently consists of 47 rigs,
of which 14 are drilling rigs and 33 are workover rigs. In recent years, PDVSA
has entered into numerous exploitation agreements with international oil
companies to reactivate and develop selected oilfields. Development of these
fields is providing additional demand for the Company's rig services in
Venezuela.
ARGENTINA. In Argentina, the Company currently operates 148 land-based
rigs, which the Company believes represent more than 50% of the land-based rigs
in the Argentine market. Of these rigs, 38 are drilling rigs and 110 are
workover rigs. The Argentine oil and gas production market has experienced
improved conditions in recent years as a result of general economic reform,
sales of certain state-owned fields to private operators and the privatization
of the state-owned oil company, the predecessor of YPF Sociedad Anonima. These
improved conditions have resulted in additional demand for rig services.
Argentine rig operations are generally conducted in remote regions of the
country and require substantial fixed infrastructure and operating support
costs. The Company believes that its established infrastructure and scale of
operations provide it with a competitive advantage in this market.
COLOMBIA. The Company currently operates 14 land-based drilling rigs and
six land-based workover rigs in Colombia. The Colombian government has recently
enacted policies to encourage oil and gas exploration and production activities
and awarded additional properties for development to major international oil
operators under production sharing contracts. The Company believes it is well
positioned to capitalize on these opportunities in Colombia.
BOLIVIA. The Company has recently agreed to mobilize seven land-based rigs
from Argentina to Bolivia to work under contracts with two customers. Demand for
rig services has increased in Bolivia as a result of the privatization of
components of the Bolivian national oil company, as well as significant sales of
exploration blocks to private-sector operators. Exploration activity for natural
gas in Bolivia is currently increasing as a result of the ongoing construction
of a major gas pipeline from Bolivia to markets in Brazil.
GULF OF MEXICO
In May 1997, the Company acquired 13 mat-supported jackup rigs, 11 of which
are currently located in the Gulf of Mexico. The remaining two rigs are located
in West Africa and Southeast Asia. This acquisition positioned the Company as
the second largest operator in the Gulf of Mexico of mat-supported jackup rigs
capable of operating in water depths of 200 feet or greater.
The Company also operates a fleet of 23 offshore modular platform rigs in
the Gulf of Mexico. In recent years, the Company has made substantial capital
improvements in this fleet and believes its fleet is one of the most
technologically advanced fleets in the industry, which the Company believes has
led to higher dayrates and increased utilization of these rigs.
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OTHER INTERNATIONAL
OFFSHORE. The Company's semisubmersible rig SOUTH SEAS DRILLER, which was
recently upgraded, is currently operating offshore South Africa under contracts
extending through early 2000. The Company also operates four tender-assisted
rigs in Africa and the Middle East. The BARRACUDA is currently contracted
through November 1998, with a six-month option. Through a joint venture, the
Company owns a 12.5% interest in the self-erecting tender-assisted rig AL BARAKA
I. In addition to its ownership interest, the Company also manages the rig,
which is contracted through November 1998, with a six-month option. The
ALLIGATOR is presently being upgraded at a shipyard in South Africa. The rig is
expected to commence operations in Cabinda in May 1998. The CORMORANT is
currently under contract through mid-1998.
In Nigeria, the Company operates one swamp barge rig, the BINTANG
KALIMANTAN, as well as a shallow-water jackup rig, the PRIDE UTAH. The BINTANG
KALIMANTAN is currently contracted through April 1999, with a 12-month option.
The PRIDE UTAH is contracted through March 2000. In Southeast Asia, the Company
operates two jackup rigs and two tender-assisted rigs.
LAND-BASED. The Company currently operates six land-based rigs in North
Africa, three in the Middle East and two in Pakistan.
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RIG FLEET
OFFSHORE RIGS
The following table sets forth, as of April 1, 1998, certain information
concerning the Company's offshore rig fleet:
<TABLE>
<CAPTION>
OFFSHORE RIGS
BUILT/ WATER DRILLING
UPGRADED OR DEPTH DEPTH
EXPECTED RATING RATING
RIG NAME RIG TYPE/DESIGN COMPLETION (FEET) (FEET) LOCATION STATUS
- ------------------------------ ---------------------------- ------------ ------- --------- --------------- --------------
<S> <C> <C> <C> <C>
DRILLSHIP -- 2
Pride Africa(1) Gusto 10,000 1999 10,000 30,000 Korea Shipyard
Pride Europe(1) Gusto 10,000 1999 10,000 30,000 Korea Shipyard
SEMISUBMERSIBLE RIGS -- 8
Nymphea F&G Pacesetter 1987 1,500 25,000 Brazil Working
South Seas Driller Aker H-3 1977/1997 1,000 20,000 South Africa Working
Amethyst 2(2) Amethyst Class 1999 5,000 25,000 TBD Shipyard
Amethyst 3(2) Amethyst Class 1999 5,000 25,000 TBD Shipyard
Amethyst 4(2) Amethyst Class 2000 5,000 25,000 TBD Shipyard
Amethyst 5(2) Amethyst Class 2000 5,000 25,000 TBD Shipyard
Amethyst 6(2) Amethyst Class 2000 5,000 25,000 TBD Shipyard
Amethyst 7(2) Amethyst Class 2000 5,000 25,000 TBD Shipyard
JACKUP RIGS -- 17
Pride Pennsylvania Independent leg cantilever 1973/1998 300 20,000 Indonesia Working
Ile du Levant Independent leg cantilever 1991 270 20,000 Venezuela Working
GP-19(3) Independent leg cantilever 1987 150 20,000 Venezuela Working
GP-20(3) Independent leg cantilever 1987 200 20,000 Venezuela Working
Pride Alabama Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Alaska Mat-supported cantilever 1982 250 25,000 Gulf of Mexico Working
Pride Arkansas Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Colorado Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Kansas Mat-supported cantilever 1998 250 25,000 Gulf of Mexico Shipyard
Pride Mississippi Mat-supported cantilever 1990 200 25,000 Gulf of Mexico Working
Pride New Mexico Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Texas Mat-supported cantilever 1998 300 20,000 Gulf of Mexico Shipyard
Pride California Mat-supported slot 1997 250 20,000 Malaysia Working
Pride Louisiana Mat-supported slot 1981 250 25,000 Gulf of Mexico Working
Pride Oklahoma Mat-supported slot 1996 250 20,000 Gulf of Mexico Working
Pride Wyoming Mat-supported slot 1976 250 25,000 Gulf of Mexico Working
Pride Utah Mat-supported slot 1990/1998 45 20,000 Nigeria Working
TENDER-ASSISTED RIGS -- 9
Alligator Self-erecting barge 1992/1998 330 20,000 South Africa Refurbishment
Barracuda Self-erecting barge 1992 330 20,000 Middle East Working
Al Baraka I(4) Self-erecting barge 1994 650 20,000 Middle East Working
Ile de Sein Self-erecting barge 1990/1997 450 16,000 Malaysia Working
Piranha Self-erecting barge 1978/1998 600 20,000 Brunei Working
Cormorant Converted ship 1991 300 16,400 Angola Working
Ile de la Martinique Converted ship 1985 400 16,000 UAE Cold Stacked
GP-14(3) Tender barge 1985 150 20,000 Venezuela Working
GP-18(3) Tender barge 1985 150 20,000 Venezuela Working
BARGE RIGS -- 7
Pride I Floating cantilever 1995 150 20,000 Venezuela Working
Pride II Floating cantilever 1995 150 20,000 Venezuela Working
GP-10(3) Floating cantilever 1967 120 15,000 Venezuela Working
GP-23(3) Floating cantilever 1992 150 20,000 Venezuela Working
GP-24(3) Floating cantilever 1992 150 20,000 Venezuela Working
Galileo II(3) Floating cantilever 1992/1997 150 20,000 Venezuela Working
Bintang Kalimantan Posted swamp barge 1995 N/A 16,000 Nigeria Working
</TABLE>
(TABLE CONTINUED ON NEXT PAGE)
S-27
<PAGE>
<TABLE>
<CAPTION>
BUILT/ WATER DRILLING
UPGRADED OR DEPTH DEPTH
EXPECTED RATING RATING
RIG NAME RIG TYPE/DESIGN COMPLETION (FEET) (FEET) LOCATION STATUS
- --------------------------- ---------------------------- ------------ ------- --------- --------------- --------------
<S> <C> <C>
PLATFORM RIGS -- 23
Rig 1501E Heavy electrical 1996 N/A 25,000 Gulf of Mexico Working
Rig 1502E Heavy electrical 1998 N/A 25,000 Gulf of Mexico Working
Rig 1002E Heavy electrical 1996 N/A 20,000 Gulf of Mexico Working
Rig 1003E Heavy electrical 1996 N/A 20,000 Gulf of Mexico Working
Rig 1004E Heavy electrical 1997 N/A 20,000 Gulf of Mexico Working
Rig 1005E Heavy electrical 1998 N/A 20,000 Gulf of Mexico Working
Rig 750E Heavy electrical 1992 N/A 16,500 Gulf of Mexico Working
Rig 751E Heavy electrical 1995 N/A 16,500 Gulf of Mexico Working
Rig 650E Intermediate electrical 1994 N/A 15,000 Gulf of Mexico Working
Rig 651E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Working
Rig 653E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Working
Rig 951 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Working
Rig 952 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Working
Rig 30 Intermediate mechanical 1986 N/A 15,000 Gulf of Mexico Stacked
Rig 100 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Available
Rig 110 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Stacked
Rig 130 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Working
Rig 170 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Stacked
Rig 200 Intermediate mechanical 1993 N/A 15,000 Gulf of Mexico Available
Rig 210 Intermediate mechanical 1996 N/A 15,000 Gulf of Mexico Working
Rig 220 Intermediate mechanical 1995 N/A 15,000 Gulf of Mexico Working
Rig 14 Light mechanical 1994 N/A 10,000 Gulf of Mexico Working
Rig 15 Light mechanical 1994 N/A 10,000 Gulf of Mexico Stacked
</TABLE>
- ------------
(1) Currently under construction. See "Business -- General -- PRIDE AFRICA
Joint Venture" and "PRIDE EUROPE Drillship."
(2) To be constructed pursuant to arrangements with Petrobras. The Company is
currently negotiating shipyard contracts for the construction of these rigs.
See "Business -- General -- Amethyst Joint Ventures."
(3) Operated but not owned by the Company.
(4) Owned by a joint venture in which the Company has a 12.5% interest.
DRILLSHIPS. The PRIDE AFRICA and the PRIDE EUROPE, which are currently
under construction, are ultra-deepwater self-propelled drillships that will be
positioned over a drill site through the use of a computer-controlled thruster
(dynamic positioning) system. Drillships normally require water depths of at
least 200 feet to conduct operations. Drillships are suitable for deepwater
drilling in moderate weather environments and in remote locations because of
their mobility and large load-carrying capacity.
SEMISUBMERSIBLE RIGS. The Company's semisubmersible rigs are floating
platforms that, by means of a water ballasting system, can be submerged to a
predetermined depth so that a substantial portion of the lower hulls, or
pontoons, is below the water surface during drilling operations. The rig is
semisubmerged, remaining afloat in a position where the lower hull is about 60
to 80 feet below the water line and the upper deck protrudes well above the
surface. This type of rig maintains its position over the well through the use
of an anchoring system or computer-controlled thruster system.
JACKUP RIGS. The jackup rigs currently operated by the Company are mobile,
self-elevating drilling platforms equipped with legs that can be lowered to the
ocean or lake floor until a foundation is established to support the drilling
platform. The rig legs may have a lower hull or mat attached to the bottom to
provide a more stable foundation in soft bottom areas. Independent leg rigs are
better suited for harsher or uneven seabed conditions. Jackup rigs are generally
subject to a maximum water depth of approximately 350 to 400 feet, while some
jackup rigs may drill in water depths as shallow as ten feet. The water depth
limit of a particular rig is determined by the length of its legs and the
operating environment. Moving a rig from one drill site to another involves
lowering the hull into the water until it is afloat and then jacking up its legs
with the hull floating on the surface of the water. The hull is then towed to
the new drilling site.
S-28
<PAGE>
A cantilever jackup has a feature that allows the drilling platform to be
extended out from the hull, allowing it to perform drilling or workover
operations over a pre-existing platform or structure. Certain cantilever jackup
rigs have "skid-off" capability, which allows the derrick equipment to be
skidded onto an adjacent platform, thereby increasing the operational capacity
of the rig. Slot-type jackup rigs are configured for drilling operations to take
place through a slot in the hull. Slot-type rigs are usually used for
exploratory drilling because their configuration makes them difficult to
position over existing platforms or structures.
TENDER-ASSISTED RIGS. The Company's tender-assisted rigs are generally
non-self-propelled barges moored alongside a platform and containing crew
quarters, mud pits, mud pumps and power generation systems. The only equipment
transferred to the platform for drilling or workover operations is the derrick
equipment set consisting of the substructure, drillfloor, derrick and drawworks.
As a result, tender-assisted rigs are less hazardous and allow smaller, less
costly platforms to be used for development projects. Self-erecting tenders
carry their own derrick equipment set and have a crane capable of erecting the
derrick on the platform, thereby eliminating the cost associated with a separate
derrick barge and related equipment.
BARGE RIGS. The Company operates barge rigs on Lake Maracaibo, Venezuela
that have been designed to work in a floating mode with a cantilever feature and
a mooring system that enables the rig to operate in waters up to 150 feet deep.
In Nigeria, the Company operates a posted swampbarge rig. The rig is held on
location by legs or posts that are jacked down into the sea floor before
commencement of work.
PLATFORM RIGS. The Company's platform rigs in the Gulf of Mexico consist
of well servicing equipment and machinery arranged in modular packages that are
transported to and assembled and installed on fixed offshore platforms owned by
the customer. Fixed offshore platforms are steel, tower-like structures that
stand on the ocean floor, with the top portion, or platform, above the water
level, providing the foundation upon which the platform rig is placed. Platform
rigs often provide drilling and horizontal reentry services using portable top
drives, enhanced pumps and solids control equipment for drilling fluids, as well
as workover services.
S-29
<PAGE>
LAND-BASED RIGS
The following table sets forth, as of March 1, 1998, certain information
concerning the Company's land-based rig fleet:
LAND-BASED RIGS
TOTAL DRILLING WORKOVER
----- --------- ---------
COUNTRY
SOUTH AMERICA -- 215
Argentina*...................... 148 38 110
Venezuela....................... 47 14 33
Colombia........................ 20 14 6
AFRICA/MIDDLE EAST -- 9
Algeria......................... 4 4 --
Libya........................... 2 1 1
Oman............................ 2 2 --
Bahrain......................... 1 1 --
OTHER -- 13 13 4 9
----- -- ---
Total Land-Based Rigs...... 237 78 159
===== == ===
- ------------
* Includes seven rigs to be deployed to Bolivia.
A land-based drilling rig consists of engines, drawworks, a mast,
substructure, pumps to circulate the drilling fluid, blowout preventers, drill
string and related equipment. The engines power a rotary table that turns the
drill string, causing the drill bit to bore through the subsurface rock layers.
Rock cuttings are carried to the surface by the circulating drilling fluid. The
intended well depth and the drilling site conditions are the principal factors
that determine the size and type of rig most suitable for a particular drilling
job.
A land-based well servicing rig consists of a mobile carrier, engine,
drawworks and derrick. The primary function of a well servicing rig is to act as
a hoist so that pipe, rods and down-hole equipment can be run into and out of a
well. All of the Company's well servicing rigs can be readily moved between well
sites and between geographic areas of operations.
SERVICES PROVIDED
DRILLING SERVICES
The Company provides contract drilling services to oil and gas exploration
and production companies through the use of mobile offshore and land-based
drilling rigs. Generally, land-based rigs and offshore platform rigs operate
with crews of six to 17 persons while semisubmersible rigs, jackup rigs, tender-
assisted rigs and barge rigs operate with crews of 15 to 25 persons. The Company
provides the rig and drilling crew and is responsible for the payment of
operating and maintenance expenses. Mobilization expenses are generally paid by
the customer.
MAINTENANCE AND WORKOVER SERVICES
Maintenance services are required on producing oil and gas wells to ensure
efficient, continuous operation. These services consist of mechanical repairs
necessary to maintain production from the well, such as repairing parted sucker
rods, replacing defective down-hole pumps in an oil well or replacing defective
tubing in a gas well. The Company provides the rigs, equipment and crews for
these maintenance services, which are performed on both oil and gas wells but
which are more often required on oil wells. Many of the Company's rigs also have
pumps and tanks that can be used for circulating fluids into and out of the
well. Typically, maintenance jobs are performed on a series of wells in
geographic proximity and require little, if any, revenue-generating equipment
other than a rig.
S-30
<PAGE>
In addition to periodic maintenance, producing oil and gas wells
occasionally require major repairs or modifications, called "workovers."
Workover services include the opening of new producing zones in an existing
well, recompletion of a well in which production has declined, drilling out
plugs and packers and the conversion of a producing well to an injection well
during enhanced recovery operations. These extensive workover operations are
normally performed by a well servicing rig with additional specialized accessory
equipment, which may include rotary drilling equipment, mud pumps, mud tanks and
blowout preventers, depending upon the particular type of workover operation.
Most of the Company's rigs are designed and equipped to handle the more complex
workover operations.
ENGINEERING SERVICES
The Company believes that its engineering and design expertise has become
an important factor in the growth and success of its business. The Company
employs a technical staff dedicated to industry research and development and to
designing specialized drilling equipment to fulfill specific customer
requirements. The engineering staff has designed and managed the fabrication of
many rigs in the Company's offshore rig fleet and is actively involved in the
Company's newbuild projects. The Company also employs an engineering staff that
provides turnkey and project management services, reservoir drainage analysis
and well engineering, which enhances the Company's contract drilling services.
COMPETITION
Competition in the international markets in which the Company operates
ranges from large multinational competitors offering a wide range of well
servicing and drilling services to smaller, locally owned businesses. The
Company believes that it is competitive in terms of pricing, performance,
equipment, safety, availability of equipment to meet customer needs and
availability of experienced, skilled personnel in those international areas in
which it operates. Currently, the Company has strong market positions in South
America, the Gulf of Mexico and Africa/Middle East.
In periods of low rig utilization, drilling contracts are generally awarded
on a competitive bid basis and, while an operator may consider quality of
service and equipment, intense price competition is the primary factor in
determining which contractor, among those with suitable rigs, is awarded a job.
Certain of the Company's competitors have greater financial resources than the
Company, which may enable them to better withstand periods of low utilization,
to compete more effectively on the basis of price, to build new rigs or to
acquire existing rigs.
CUSTOMERS
The Company provides services for large multinational oil and gas
companies, government-owned oil and gas companies and independent operators.
During 1997, PDVSA accounted for approximately 14% of the Company's consolidated
revenues. No other customer accounted for more than 10% of the Company's
consolidated revenues.
CONTRACTS
The Company's drilling contracts are awarded through competitive bidding or
on a negotiated basis. The contract terms and rates vary depending on
competitive conditions, the geographical area, the geological formation to be
drilled, the equipment and services to be supplied, the on-site drilling
conditions and the anticipated duration of the work to be performed.
Oil and gas well drilling contracts are carried out on either a dayrate,
footage or turnkey basis. Under dayrate contracts, the Company charges the
customer a fixed charge per day regardless of the number of days needed to drill
the well. In addition, dayrate contracts usually provide for a reduced dayrate
(or lump sum amount) for mobilizing the rig to the well location and for
assembling and dismantling the rig. Under dayrate contracts, the Company
ordinarily bears no part of the costs arising from down-hole risks (such as time
delays for various reasons, including a stuck or broken drill string or
blowouts). Most of the Company's contracts are on a dayrate basis. Other
contracts provide for payment on a footage basis, whereby the Company is paid a
fixed amount for each foot drilled regardless of the time required or the
S-31
<PAGE>
problems encountered in drilling the well. The Company may also enter into
turnkey contracts, whereby it agrees to drill a well to a specific depth for a
fixed price and to bear some of the well equipment costs. Compared to dayrate
contracts, footage and turnkey contracts involve a higher degree of risk to the
Company and, accordingly, normally provide greater profit potential. Two of the
Company's jackup rigs are currently operating under turnkey contracts.
In international markets, contracts generally provide for longer terms than
contracts in domestic offshore markets. When contracting abroad, the Company is
faced with the risks of currency fluctuation and, in certain cases, exchange
controls. Typically, the Company limits these risks by obtaining contracts
providing for payment in U.S. dollars or freely convertible foreign currency. To
the extent possible, the Company seeks to limit its exposure to potentially
devaluating currencies by matching its acceptance thereof to its expense
requirements in such local currencies. There can be no assurance that the
Company will be able to continue to take such actions in the future, thereby
exposing the Company to foreign currency fluctuations that could have a material
adverse effect upon its results of operations and financial condition. There can
be no assurances, however, that the local monetary authorities in the countries
in which the Company operates will not implement exchange controls in the
future.
SEASONALITY
In general, the Company's business activities are not significantly
affected by seasonal fluctuations. The Company's rigs are located in
geographical areas that are not subject to severe weather that would halt
operations for prolonged periods.
LEGAL PROCEEDINGS
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 a material adverse effect on the Company's
financial position or results of operations.
EMPLOYEES
The Company currently employs approximately 8,400 employees. Approximately
1,600 of the employees are located in the United States and 6,800 are located
abroad. Hourly rig crew members constitute the vast majority of employees. None
of the Company's U.S. employees are represented by a collective bargaining unit.
Many of the Company's international employees are subject to industry-wide labor
contracts within their respective countries. Management believes that the
Company's employee relations are good.
S-32
<PAGE>
MANAGEMENT
The following table and descriptions set forth information regarding the
directors and executive officers of the Company. Directors are elected at the
Company's annual meeting of shareholders and serve for five-year terms or until
their successors are elected and qualified or until their earlier resignation or
removal in accordance with the Company's bylaws. Officers are elected annually
by the Board of Directors and serve until their successors are chosen or until
their resignation or removal.
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ------------------------------------- ---- -------------------------------------------------
<S> <C> <C>
Ray H. Tolson (1).................... 63 Chairman of the Board and Chief Executive Officer
Paul A. Bragg........................ 42 President and Chief Operating Officer
James W. Allen....................... 54 Senior Vice President -- Operations
Gerard Godde......................... 55 Senior Vice President -- Forasol Operations
John O'Leary......................... 42 Vice President -- International Marketing
Steven R. Tolson..................... 40 Vice President -- U.S. Operations -- Offshore
Robert W. Randall.................... 55 Vice President -- General Counsel and Secretary
Earl W. McNiel....................... 39 Vice President and Chief Financial Officer
Christian J. Boon Falleur (3)........ 51 Director
James B. Clement (1)(2)(3)........... 52 Director
Remi Dorval (2)...................... 47 Director and Vice Chairman
Jorge E. Estrada M................... 50 Director
Ralph D. McBride (1)(2)(3)........... 51 Director
Thomas H. Roberts, Jr. (2)........... 73 Director
James T. Sneed (1)(3)................ 66 Director
</TABLE>
- ------------
* As of March 1, 1998
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
RAY H. TOLSON was elected Chairman of the Board in December 1993. He has
served as a director since August 1988 and Chief Executive Officer of the
Company and its predecessor since 1975. Mr. Tolson was President of the Company
from February 1975 to February 1997.
PAUL A. BRAGG has been President of the Company since February 1997. He
joined the Company in July 1993 as its Vice President and Chief Financial
Officer. From 1988 until he joined the Company, Mr. Bragg was an independent
business consultant and managed private investments. He previously served as
Vice President and Chief Financial Officer of Energy Service Company, Inc. (now
ENSCO International Inc.) ("ENSCO"), an oilfield services company, from 1983
through 1987.
JAMES W. ALLEN joined the Company in January 1993 as its Vice
President -- International Operations. In February 1996, he was named Senior
Vice President -- Operations. From 1988 through 1992, Mr. Allen was an
independent business consultant and managed private investments. From 1984 to
1988, he was Vice President Latin America for ENSCO. Mr. Allen has 29 years of
oilfield experience with several different companies.
GERARD GODDE was named Senior Vice President of the Company in March 1997
in connection with the Forasol transaction. Mr. Godde has served as Senior Vice
President and Chief Operating Officer of Forasol since April 1996 and Managing
Director of Forasol since 1987. Mr. Godde joined Forasol in 1968 and has been
involved with the management of its various offshore and land operations in
Africa, the Middle East and North America.
JOHN O'LEARY was named Vice President -- International Marketing in March
1997 in connection with the Forasol transaction. Mr. O'Leary had been Manager,
Marketing and Business Development of Forasol
S-33
<PAGE>
since June 1993, with primary responsibility for worldwide business development.
Mr. O'Leary joined Forasol S.A. in August 1985.
STEVEN R. TOLSON was named Vice President -- U.S. Operations -- Offshore in
February 1997. Mr. Tolson has held various management and engineering positions
with the Company since 1994. Prior to 1994, Mr. Tolson held various engineering
positions with Conoco Inc. Ray Tolson is Steven Tolson's father.
ROBERT W. RANDALL has been Vice President and General Counsel of the
Company since May 1991. He was elected Secretary of the Company in 1993. Prior
to 1991, he was Senior Vice President, General Counsel and Secretary for Tejas
Gas Corporation, a natural gas transmission company.
EARL W. MCNIEL has been Vice President and Chief Financial Officer of the
Company since February 1997. He joined the Company in September 1994 as its
Chief Accounting Officer. From 1990 to 1994, Mr. McNiel served as Chief
Financial Officer of several publicly owned waste management companies. From
1987 to 1990, he was employed by ENSCO as Manager, Finance.
CHRISTIAN J. BOON FALLEUR became a director of the Company in March 1997 in
connection with the Forasol transaction. Prior to becoming a director, Mr. Boon
Falleur was a Supervisory Director and Executive Vice President of Forasol. He
has been affiliated since 1972 with Ackermans & van Haaren Group, a publicly
traded company listed on the Brussels Stock Exchange, and is currently in charge
of its energy services and construction sections.
JAMES B. CLEMENT has been a director of the Company since November 1993.
From 1977 until October 1997, he was an executive officer of Offshore Logistics,
Inc., serving as its President, Chief Executive Officer and a director since
1988. He currently serves as a consultant to Offshore Logistics and manages
personal investments.
REMI DORVAL became a director and vice chairman of the Company in March
1997 in connection with the Forasol transaction. Prior to becoming a director,
Mr. Dorval was a Supervisory Director and Chief Executive Officer of Forasol.
Since 1990, he has been a supervisory director of Soletanche Group, a privately
held French company, and is in charge of its interests in the oil and gas
sector.
JORGE E. ESTRADA M. has been a director of the Company since October 1993.
For more than five years, Mr. Estrada has been President and Chief Executive
Officer of JEMPSA Media and Entertainment, a company specializing in the Spanish
and Latin American entertainment industry. Previously Mr. Estrada served as
President -- Worldwide Drilling Division of Geosource and Vice President of
Geosource Exploration Division -- Latin America.
RALPH D. MCBRIDE became a director of the Company in September 1995. Mr.
McBride has been a partner with the law firm of Bracewell & Patterson, Houston,
Texas, since 1980.
THOMAS H. ROBERTS, JR. has been a director of the Company since 1988. He
held a variety of management positions with DEKALB Energy Company until his
retirement in 1996. Mr. Roberts will retire from the Board of Directors
effective on the date of the 1998 Annual Meeting of Shareholders, which is
currently scheduled for May 1998.
JAMES T. SNEED has been a director of the Company since October 1992. In
1991 he retired after 37 years of employment with Mobil Oil Corporation where he
was Production Manager USA.
S-34
<PAGE>
DESCRIPTION OF DEBENTURES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE DEBENTURES OFFERED
HEREBY (REFERRED TO IN THE ACCOMPANYING PROSPECTUS AS THE "OFFERED DEBT
SECURITIES") SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES,
THE DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE DEBT SECURITIES SET
FORTH IN THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE.
CAPITALIZED TERMS DEFINED IN THE ACCOMPANYING PROSPECTUS AND THE INDENTURE, AS
DEFINED BELOW, HAVE THE SAME MEANINGS WHEN USED IN THIS PROSPECTUS SUPPLEMENT.
GENERAL
The Debentures are a series of Subordinated Debt Securities described in
the accompanying Prospectus. The Debentures will be issued pursuant to an
Indenture to be dated as of April 1, 1998 (as supplemented by the Supplemental
Indenture thereto setting forth certain terms of the Debentures, the
"Indenture"), between the Company and Marine Midland Bank, as trustee (the
"Trustee"). The following summaries of certain provisions of the Debentures
and the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Debentures and the Indenture, including the definitions therein of certain terms
not otherwise defined in this Prospectus Supplement.
The Debentures will be unsecured, subordinated, general obligations of the
Company limited to $511,431,000 aggregate principal amount at maturity
($588,145,000 aggregate principal amount at maturity if the Underwriters'
over-allotment option is exercised in full) and will mature on April 24, 2018.
The principal amount at maturity of each Debenture will be $1,000 (except as may
be adjusted upon conversion of the Debentures to semiannual coupon notes
following a Tax Event) and will be payable at the office of the Paying Agent,
which initially will be the Trustee, or an office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York. For
purposes of this Description of Debentures, "Issue Date" means April 24, 1998,
and "Issue Price" means $391.06 per $1,000 principal amount at maturity of the
Debentures.
The Debentures will be issued at a substantial discount from their
principal amount at maturity. See "Certain Federal Income Tax
Considerations -- Original Issue Discount." Except as discussed below under
"-- Optional Conversion to Semiannual Coupon Note upon Tax Event," there will
be no periodic payments of interest. The calculation of the accrual of original
issue discount (the difference between the Issue Price and the principal amount
at maturity of a Debenture) ("Original Issue Discount") in the period during
which a Debenture remains outstanding will be on a semiannual bond equivalent
basis using a 360-day year comprising 12 30-day months; such accrual will
commence on the Issue Date. In the event of the maturity, conversion, purchase
by the Company at the option of a Holder or redemption of a Debenture, Original
Issue Discount and interest, if any, will cease to accrue on such Debenture,
under the terms and subject to the conditions of the Indenture. The Company may
not reissue a Debenture that has matured or been converted, purchased by the
Company at the option of a Holder, redeemed or otherwise cancelled (except for
registration of transfer, exchange or replacement thereof).
The Debentures will be issued in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity or integral multiples
thereof. See "-- Book-Entry, Delivery and Form" and "-- Certificated
Debentures." Holders of Debentures in certificated form may present Debentures
for conversion at the office of the Conversion Agent and for exchange or
registration of transfer at the office of the Security Registrar. Each such
agent initially will be the Trustee. The Company will not charge a service
charge for any registration of transfer or exchange of Debentures, but the
Company may require payment by a Holder of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection therewith.
RANKING AND HOLDING COMPANY STRUCTURE
The Debentures will be unsecured general obligations of the Company
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company and effectively subordinated to all the creditors of the
Company's subsidiaries, including trade creditors and tort claimants. As of
S-35
<PAGE>
December 31, 1997, as adjusted to give effect to this offering and the
anticipated use of the net proceeds therefrom, the Company and its subsidiaries
would have had an aggregate of $700.0 million of consolidated indebtedness and
other obligations effectively ranking senior to the Debentures. In addition, the
Debentures will rank PARI PASSU in right of payment with the Company's 6 1/4%
Convertible Subordinated Debentures, of which approximately $52.5 million
principal amount was outstanding at December 31, 1997. The Indenture will not
contain any provisions that limit the ability of the Company or any of its
subsidiaries to incur indebtedness or to grant security interests or liens in
respect of their assets or that afford Holders protection in the event of a
highly leveraged or similar transaction involving the Company.
The Company conducts substantially all of its operations through both U.S.
and foreign subsidiaries, and substantially all of the Company's assets consist
of equity in such subsidiaries. Accordingly, the Company is and will be
dependent on its ability to obtain funds from its subsidiaries to service its
indebtedness, including the Debentures. Because the Debentures are solely an
obligation of the Company, the Company's subsidiaries are not obligated or
required to pay any amounts due pursuant to the Debentures or to make funds
available therefor in the form of dividends or advances to the Company.
CONVERSION RIGHTS
A Holder of a Debenture may convert it into Common Stock at any time before
the close of business on April 24, 2018; PROVIDED, HOWEVER, that if a Debenture
is called for redemption, the Holder may convert it at any time before the close
of business on the Redemption Date. A Debenture in respect of which a Holder has
delivered a written Purchase Notice or a Change in Control Purchase Notice
exercising the option of such Holder to require the Company to purchase such
Debenture may be converted only if such notice is withdrawn in accordance with
the terms of the Indenture.
The initial Conversion Rate for the Debentures is 13.794 shares of Common
Stock per $1,000 principal amount at maturity of Debentures, subject to
adjustment upon the occurrence of certain events described below. A Holder
otherwise entitled to a fractional share of Common Stock will receive cash equal
to the then current market value of such fractional share based on the closing
Sale Price on the Trading Day immediately preceding the Conversion Date. A
Holder may convert a portion of such Holder's Debentures so long as such portion
is $1,000 principal amount at maturity or an integral multiple thereof.
To convert a Debenture into Common Stock, a Holder must (i) complete and
manually sign the conversion notice on the back of the Debenture (or complete
and manually sign a facsimile thereof) and deliver such notice to the Conversion
Agent, (ii) surrender the Debenture to the Conversion Agent, (iii) if required,
furnish appropriate endorsements and transfer documents and (iv) if required,
pay all transfer or similar taxes. The date on which all of the foregoing
requirements have been satisfied is the Conversion Date.
Upon conversion of a Debenture, a Holder will not receive any cash payment
representing accrued Original Issue Discount. The Company's delivery to the
Holder of the fixed number of shares of Common Stock into which the Debenture is
convertible (together with the cash payment, if any, in lieu of a fractional
share of Common Stock) will be deemed to satisfy the Company's obligation to pay
the principal amount of the Debenture, including the accrued Original Issue
Discount attributable to the period from the Issue Date through the Conversion
Date. Thus, the accrued Original Issue Discount will be deemed to be paid in
full rather than cancelled, extinguished or forfeited. The Conversion Rate will
not be adjusted at any time during the term of the Debentures for such accrued
Original Issue Discount. The Company does not undertake to advise Holders of the
amount of such accrued Original Issue Discount at the time of conversion. A
certificate for the number of full shares of Common Stock into which any
Debenture is converted (and cash in lieu of any fractional share of Common
Stock) will be delivered through the Conversion Agent as soon as practicable
following the Conversion Date. For a discussion of the federal income tax
treatment of a Holder receiving Common Stock upon conversion, see "Certain
Federal Income Tax Consequences -- Conversion."
S-36
<PAGE>
The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other capital stock of the Company;
subdivisions, combinations or certain reclassifications of Common Stock;
distributions to all holders of Common Stock of certain rights, warrants or
options to purchase Common Stock or securities convertible into Common Stock for
a period expiring within 60 days after the applicable record date for such
distribution at a price per share less than the Sale Price at the time of
determination; and distributions to all holders of Common Stock of assets or
debt securities of the Company or rights, warrants or options to purchase
securities of the Company (excluding cash dividends or other cash distributions
from consolidated current net income or retained earnings other than any
Extraordinary Cash Dividend). No adjustment need be made, however, (i) if
Holders may participate in the transactions otherwise giving rise to an
adjustment on a basis and with notice that the Board of Directors of the Company
determines to be fair and appropriate, (ii) for rights to purchase Common Stock
pursuant to a Company dividend or interest reinvestment plan, (iii) for changes
in the par value of the Common Stock or (iv) unless such adjustment, together
with any other adjustments similarly deferred, equals at least 1% of the then
current Conversion Rate. In addition, if as a result of an adjustment the
Debentures become convertible solely into cash, no subsequent adjustment will be
made. In cases where the fair market value (per share of Common Stock) of the
portion of assets, debt securities or rights, warrants or options to purchase
securities of the Company distributed to shareholders exceeds the Average Sale
Price of a share of Common Stock, or such Average Sale Price exceeds the fair
market value (per share of Common Stock) of such portion of assets, debt
securities or rights, warrants or options so distributed by less than $1.00,
rather than being entitled to an adjustment in the Conversion Rate, the Holder
of a Debenture upon conversion thereof will be entitled to receive, in addition
to the shares of Common Stock into which such Debenture is convertible, the kind
and amounts of assets, debt securities or rights, options or warrants
constituting the distribution that such Holder would have received if such
Holder had converted such Debenture immediately prior to the record date for
determining the shareholders entitled to receive the distribution. The Indenture
permits the Company to increase the Conversion Rate from time to time at its
discretion.
If the Company is party to a consolidation, merger, binding share exchange
or a transfer of all or substantially all of its assets otherwise permitted
under the terms of the Indenture, the right to convert a Debenture into Common
Stock may be changed into a right to convert it into the kind and amount of
securities, cash or other assets that the Holder would have received if the
Holder had converted such Holder's Debentures immediately prior to the
transaction.
In the event of a taxable distribution to holders of Common Stock that
results in an adjustment of the Conversion Rate (or in which Holders otherwise
participate) or in the event the Conversion Rate is increased at the discretion
of the Company, the Holders of the Debentures may, in certain circumstances, be
deemed to have received a distribution subject to United States federal income
tax as a dividend. See "Certain Federal Income Tax Consequences -- Constructive
Dividend."
In the event the Company exercises its option to have interest in lieu of
Original Issue Discount accrue on a Debenture following a Tax Event, the Holder
will be entitled on conversion to receive the same number of shares of Common
Stock such Holder would have received if the Company had not exercised such
option. If the Company exercises such option, Debentures surrendered for
conversion during the period from the close of business on any Regular Record
Date (as defined herein) next preceding any Interest Payment Date (as defined
herein) to the opening of business of such Interest Payment Date (except
Debentures to be redeemed on a date within such period) must be accompanied by
payment of an amount equal to the interest thereon that the registered Holder is
to receive. Except where Debentures surrendered for conversion must be
accompanied by payment as described above, no interest on converted Debentures
will be payable by the Company on any Interest Payment Date subsequent to the
date of conversion. See " -- Optional Conversion to Semiannual Coupon Note upon
Tax Event."
SUBORDINATION
For a description of the provisions relating to the subordination of the
Debentures, see "Description of Debt Securities -- Provisions Applicable Solely
to Subordinated Debt Securities" in the accompanying Prospectus.
S-37
<PAGE>
REDEMPTION OF DEBENTURES AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Debentures. Prior to April 24, 2003,
the Debentures will not be redeemable at the option of the Company. On and after
such date, the Company may redeem the Debentures for cash as a whole at any
time, or from time to time in part, upon not less than 30 days' nor more than 60
days' notice of redemption given by mail to Holders of Debentures. Any such
redemption must be in integral multiples of $1,000 principal amount at maturity.
The table below shows Redemption Prices of a Debenture per $1,000 principal
amount at maturity on April 24, 2003, at each April 24 thereafter prior to
maturity and at maturity on April 24, 2018, which prices reflect the accrued
Original Issue Discount calculated through each such date. The Redemption Price
of a Debenture redeemed between such dates would include an additional amount
reflecting the additional Original Issue Discount accrued from the next
preceding date in the table to and including the actual Redemption Date.
<TABLE>
<CAPTION>
ACCRUED ORIGINAL
DEBENTURE ISSUE DISCOUNT REDEMPTION
REDEMPTION DATE ISSUE PRICE(1) AT 4.75%(2) PRICE(1)+(2)
- ------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
April 24, 2003....................... $ 391.06 $103.46 $ 494.52
April 24, 2004....................... 391.06 127.23 518.29
April 24, 2005....................... 391.06 152.14 543.20
April 24, 2006....................... 391.06 178.25 569.31
April 24, 2007....................... 391.06 205.61 596.67
April 24, 2008....................... 391.06 234.29 625.35
April 24, 2009....................... 391.06 264.34 655.40
April 24, 2010....................... 391.06 295.85 686.91
April 24, 2011....................... 391.06 328.86 719.92
April 24, 2012....................... 391.06 363.46 754.52
April 24, 2013....................... 391.06 399.73 790.79
April 24, 2014....................... 391.06 437.74 828.80
April 24, 2015....................... 391.06 477.57 868.63
April 24, 2016....................... 391.06 519.32 910.38
April 24, 2017....................... 391.06 563.08 954.14
April 24, 2018....................... 391.06 608.94 1,000.00
</TABLE>
If fewer than all outstanding Debentures are to be redeemed, the Trustee
shall select the Debentures to be redeemed in principal amounts at maturity of
$1,000 or integral multiples thereof by such method as the Trustee shall deem
fair and appropriate. If a portion of a Holder's Debentures is selected for
partial redemption and such Holder converts a portion of such Debentures prior
to such redemption, such converted portion shall be deemed (so far as may be) to
be the portion selected for redemption.
PURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER
On April 24, 2003, April 24, 2008 and April 24, 2013 (each, a "Purchase
Date"), the Company will become obligated to purchase, at the option of the
Holder thereof, any outstanding Debenture for which a written Purchase Notice
has been delivered by the Holder to the Paying Agent at any time from the
opening of business on the date that is 20 business days preceding such Purchase
Date until the close of business on such Purchase Date and for which such
Purchase Notice has not been withdrawn, subject to certain additional
conditions.
The table below shows the Purchase Prices of a Debenture as of the
specified Purchase Dates:
PURCHASE DATE PURCHASE PRICE
- ------------------------------------- --------------
April 24, 2003....................... $ 494.52
April 24, 2008....................... 625.35
April 24, 2013....................... 790.79
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<PAGE>
The Purchase Price payable in respect of a Debenture will be equal to the
Issue Price plus accrued Original Issue Discount through the Purchase Date, with
respect to each Purchase Date. If prior to the Purchase Date the Debentures have
been converted to semiannual coupon notes following the occurrence of a Tax
Event, the Purchase Price will be equal to the Restated Principal Amount plus
accrued and unpaid interest from the date of such conversion to, but excluding,
the Purchase Date. See "-- Optional Conversion to Semiannual Coupon Note upon
Tax Event."
The Company, at its option, may elect to pay such Purchase Price in cash,
Common Stock or any combination thereof. For a discussion of the tax treatment
of such a transaction, see "Certain Federal Income Tax Consequences -- Other
Disposition."
The Company will be required to give notice (the "Company Notice") not
less than 20 business days prior to each Purchase Date (the "Company Notice
Date") to all Holders at their addresses shown in the Security Register of the
Security Registrar (and to beneficial owners as required by applicable law)
stating, among other things, (i) whether the Company will pay the Purchase Price
of the Debentures in cash, Common Stock or any combination thereof, specifying
the percentages of each, and (ii) the procedures that Holders must follow to
require the Company to purchase Debentures from such Holders.
The Purchase Notice given by any Holder electing to require the Company to
purchase Debentures shall state (i) the certificate numbers of the Debentures to
be delivered by such Holder for purchase by the Company; (ii) the portion of the
principal amount at maturity of Debentures to be purchased, which portion must
be $1,000 or an integral multiple thereof; (iii) that such Debentures are to be
purchased by the Company pursuant to the applicable provisions of the Debentures
and (iv) if the Company elects, pursuant to the Company Notice, to pay a
specified percentage of the Purchase Price in Common Stock but such specified
percentage is ultimately to be paid in cash because any of the conditions to
payment of such specified percentage of the Purchase Price in Common Stock
contained in the Indenture is not satisfied prior to the close of business on
the Purchase Date, as described below, that such Holder elects (a) to withdraw
such Purchase Notice as to some or all of the Debentures to which it relates
(stating the principal amount at maturity and certificate numbers of the
Debentures as to which such withdrawal shall relate) or (b) to receive cash in
respect of the Purchase Price of all Debentures subject to such Purchase Notice.
If the Holder fails to indicate such Holder's choice with respect to the
election described in clause (iv) above in the Purchase Notice, such Holder
shall be deemed to have elected to receive cash for the specified percentage of
the Purchase Price that was to have been payable in Common Stock. See "Certain
Federal Income Tax Consequences -- Other Disposition."
Any Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the Paying Agent prior to the close of business on the
Purchase Date. The notice of withdrawal shall state the principal amount at
maturity and the certificate numbers of the Debentures as to which the
withdrawal notice relates and the principal amount at maturity, if any, that
remains subject to the Purchase Notice.
If the Company elects to pay the Purchase Price, in whole or in part, in
shares of Common Stock, the number of shares to be delivered in respect of the
specified percentage of the Purchase Price to be paid in Common Stock shall be
equal to the dollar amount of such specified percentage of the Purchase Price
divided by the Market Price (as defined below) of a share of Common Stock. No
fractional interests in shares of Common Stock will be delivered upon any
purchase by the Company of Debentures in payment, in whole or in part, of the
Purchase Price. Instead, the Company will pay cash based on the Market Price for
all fractional shares of Common Stock. Each Holder whose Debentures are
purchased at the option of such Holder as of the Purchase Date shall receive the
same percentage of cash or Common Stock in payment of the Purchase Price for
such Debentures, except as described above with regard to the payment of cash in
lieu of fractional shares of Common Stock. See "Certain Federal Income Tax
Considerations -- Other Disposition."
The "Market Price" means the average of the Sale Price of the Common
Stock for the five Trading Day period ending on and including the third Trading
Day prior to the applicable Purchase Date, appropriately adjusted to take into
account the actual occurrence, during the seven Trading Days preceding such
Purchase Date, of certain events that would result in an adjustment of the
Conversion Rate with respect
S-39
<PAGE>
to the Common Stock. The "Sale Price" on any Trading Day means the closing per
share sale price for the Common Stock (or, if no closing sale price is reported,
the average of the bid and ask prices or, if more than one in either case, the
average of the average bid and average ask prices) on such Trading Day as
reported in composite transactions for the principal United States securities
exchange on which the Common Stock is traded or, if the Common Stock is not
listed on a United States national or regional securities exchange, as reported
by the National Association of Securities Dealers Automated Quotation System. A
"Trading Day" means each day on which the securities exchange or quotation
system used to determine the Sale Price is open for trading or quotation.
Because the Market Price of the Common Stock is determined prior to a Purchase
Date, Holders of Debentures bear the market risk with respect to the value of
the Common Stock to be received from the date such Market Price is determined to
the Purchase Date. The Company may pay the Purchase Price, in whole or in part,
in Common Stock only if the information necessary to calculate the Market Price
is reported in a daily newspaper of national circulation.
Upon determination of the actual number of shares of Common Stock issuable
in accordance with the foregoing provisions, the Company will publish such
determination in a daily newspaper of national circulation.
The Company's right to purchase Debentures, in whole or in part, with
Common Stock is subject to the Company's satisfying various conditions,
including the registration of the Common Stock under the Securities Act and the
Exchange Act, unless there exists an exemption from such registration. If such
conditions are not satisfied prior to the close of business on the Purchase
Date, the Company will pay, without further notice, the Purchase Price of the
Debentures entirely in cash. The Company may not change the form of
consideration (or components or percentages of components thereof) to be paid
once the Company has given its Company Notice to Holders of Debentures except as
described in the second sentence of this paragraph.
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and
any other rules under the Exchange Act that may then be applicable to the
Company's offer to purchase Debentures at the option of the Holders thereof, and
will file Schedule 13E-4 or any other schedule required thereunder in connection
therewith.
Payment of the Purchase Price for a Debenture for which a Purchase Notice
has been delivered and not validly withdrawn is conditioned upon delivery of
such Debenture (together with necessary endorsements) to the Paying Agent at any
time (whether prior to, on or after the Purchase Date) after delivery of such
Purchase Notice. Payment of the Purchase Price for such Debenture will be made
promptly following the later of the business day following the Purchase Date and
the time of delivery of such Debenture. If the Paying Agent holds, in accordance
with the terms of the Indenture, money or securities sufficient to pay the
Purchase Price of such Debenture on the business day following the Purchase
Date, then, on and after the Purchase Date, such Debenture will cease to be
outstanding and Original Issue Discount on such Debenture will cease to accrue
and will be deemed paid, whether or not such Debenture is delivered to the
Paying Agent, and all other rights of the Holder shall terminate (other than the
right to receive the Purchase Price upon delivery of such Debenture).
PURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL
In the event of any Change in Control of the Company occurring on or prior
to April 24, 2003, each Holder of Debentures will have the right, at the
Holder's option, subject to the terms and conditions of the Indenture, to
require the Company to purchase all or any portion (provided that the principal
amount at maturity must be $1,000 or an integral multiple thereof) of the
Holder's Debentures as of the date that is 35 business days after the occurrence
of such Change in Control (the "Change in Control Purchase Date") at a cash
price equal to the Issue Price plus accrued Original Issue Discount through and
including the Change in Control Purchase Date (the "Change in Control Purchase
Price"). If prior to a Change in Control Purchase Date the Debentures have been
converted to semiannual coupon notes following the occurrence of a Tax Event,
the Company will be required to purchase the Debentures at a cash price equal to
the Restated Principal Amount plus accrued and unpaid interest from the date of
such conversion to, but excluding, the
S-40
<PAGE>
Change in Control Purchase Date. Holders will not have any right to require the
Company to purchase Debentures in the event of any Change in Control of the
Company occurring after April 24, 2003.
Within 15 business days after the Change in Control, the Company shall mail
to the Trustee and to each Holder (and to beneficial owners as required by
applicable law) a notice regarding the Change in Control, which notice shall
state, among other things: (i) the date of such Change in Control and, briefly,
the events causing such Change in Control, (ii) the date by which the Change in
Control Purchase Notice must be given, (iii) the Change in Control Purchase
Date, (iv) the Change in Control Purchase Price, (v) the name and address of the
Paying Agent and the Conversion Agent, (vi) the Conversion Rate and any
adjustments thereto, (vii) that Debentures with respect to which a Change in
Control Purchase Notice is given by the Holder may be converted into shares of
Common Stock only if the Change in Control Purchase Notice has been withdrawn by
the Holder in accordance with the terms of the Indenture, (viii) the procedures
that Holders must follow to exercise these rights, (ix) the procedures for
withdrawing a Change in Control Purchase Notice and (x) that Holders who want to
convert Debentures must satisfy the requirements set forth in the Debentures.
The Company will cause a copy of such notice to be published in a daily
newspaper of national circulation.
To exercise the purchase right, the Holder must deliver written notice of
the exercise of such right (a "Change in Control Purchase Notice") to the
Paying Agent prior to the close of business on the Change in Control Purchase
Date. The Change in Control Purchase Notice shall state (i) the certificate
numbers of the Debentures to be delivered by the Holder thereof for purchase by
the Company; (ii) the portion of the principal amount at maturity of Debentures
to be purchased, which portion must be $1,000 or an integral multiple thereof
and (iii) that such Debentures are to be purchased by the Company pursuant to
the applicable provisions of the Debentures.
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent prior to the close of
business on the Change in Control Purchase Date. The notice of withdrawal shall
state the principal amount at maturity and the certificate numbers of the
Debentures as to which the withdrawal notice relates and the principal amount at
maturity, if any, which remains subject to a Change in Control Purchase Notice.
Payment of the Change in Control Purchase Price for a Debenture for which a
Change in Control Purchase Notice has been delivered and not validly withdrawn
is conditioned upon delivery of such Debenture (together with necessary
endorsements) to the Paying Agent at any time (whether prior to, on or after the
Change in Control Purchase Date) after the delivery of such Change in Control
Purchase Notice. Payment of the Change in Control Purchase Price for such
Debenture will be made promptly following the later of the business day
following the Change in Control Purchase Date and the time of delivery of such
Debenture. If the Paying Agent holds, in accordance with the terms of the
Indenture, money sufficient to pay the Change in Control Purchase Price of such
Debenture on the business day following the Change in Control Purchase Date,
then, on and after the Change in Control Purchase Date, such Debenture will
cease to be outstanding and Original Issue Discount on such Debenture will cease
to accrue and will be deemed paid, whether or not such Debenture is delivered to
the Paying Agent, and all other rights of the Holder shall terminate (other than
the right to receive the Change in Control Purchase Price upon delivery of such
Debenture).
The Indenture will provide that a "Change in Control" occurs (i) if the
Company determines that any person or group has become the direct or indirect
beneficial owner of more than 50% of the Voting Stock of the Company; (ii) if
the Company is merged with or into or consolidated with another corporation and,
immediately after giving effect to the merger or consolidation, less than 50% of
the outstanding voting securities entitled to vote generally in the election of
directors or persons who serve similar functions of the surviving or resulting
entity are then beneficially owned in the aggregate by (x) the shareholders of
the Company immediately prior to such merger or consolidation, or (y) if the
record date has been set to determine the shareholders of the Company entitled
to vote on such merger or consolidation, the shareholders of the Company as of
such record date; (iii) if the Company, either individually or in conjunction
with one or more subsidiaries, sells, conveys, transfers or leases, or the
subsidiaries sell,
S-41
<PAGE>
convey, transfer or lease, all or substantially all of the assets of the Company
and the subsidiaries, taken as a whole (either in one transaction or a series of
related transactions), including Capital Stock of the subsidiaries, to any
person (other than a wholly owned subsidiary); (iv) upon the liquidation or
dissolution of the Company; or (v) upon the first day on which a majority of the
individuals who constitute the Board of Directors are not Continuing Directors.
For purposes of this definition, (i) the term "Capital Stock" in any
person shall mean any and all shares, interests, partnership interests,
participations or other equivalents in the equity interest (however designated)
in such person and any rights (other than debt securities convertible into an
equity interest), warrants or options to acquire an equity interest in such
person; (ii) the term "Continuing Director" shall mean an individual who (a)
is a member of the Board of Directors of the Company and (b) either (x) was a
member of the Board of Directors of the Company on the Issue Date or (y) whose
nomination for election or election to the Board of Directors of the Company was
approved by the vote of at least 66 2/3% of the directors then still in office
who were either directors on the Issue Date or whose election or nomination for
election was previously so approved; and (iii) the term "Voting Stock" shall
mean, with respect to any person, securities of any class or classes of Capital
Stock in such person entitling the holders thereof (whether at all times or at
the times that such class of Capital Stock has voting power by reason of the
happening of any contingency) to vote in the election of members of the board of
directors or comparable body of such person.
The term "all or substantially all of the assets" is likely to be
interpreted by reference to applicable state law at the time applicable and will
be dependent on the facts and circumstances existing at such time. As a result,
there may be a degree of uncertainty in ascertaining whether a sale or transfer
of "all or substantially all of the assets" of the Company has occurred.
For purposes of this definition, (i) the terms "person" and "group"
shall have the meaning used for purposes of Rules 13d-3 and 13d-5 of the
Exchange Act as in effect on the Issue Date, whether or not applicable; and (ii)
the term "beneficial owner" shall have the meaning used in Rules 13d-3 and
13d-5 under the Exchange Act as in effect on the Issue Date, whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time or upon
the occurrence of certain events.
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and
any other rules under the Exchange Act that may then be applicable to the
Company's offer to purchase Debentures at the option of the Holders thereof upon
a Change in Control of the Company, and will file Schedule 13E-4 or any other
schedule required thereunder in connection therewith.
The Change in Control purchase feature of the Debentures may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The Change in Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate shares of Common Stock or to obtain control of the Company
by means of a merger, tender offer, solicitation or otherwise, or part of a plan
by management to adopt a series of antitakeover provisions. The terms of such
feature result from negotiations between the Company and the Underwriters.
The provisions of the Indenture relating to a Change in Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that may
adversely affect Holders, if such transaction does not constitute a Change in
Control, as set forth above.
If a Change in Control were to occur, there can be no assurance that the
Company would have funds sufficient to pay the Change in Control Purchase Price
for all of the Debentures that might be delivered by Holders seeking to exercise
the purchase right, because the Company might also be required to prepay certain
other indebtedness having financial covenants with change of control provisions
in favor of the holders thereof. Moreover, the right to require the Company to
purchase Debentures as a result of the occurrence of a Change in Control could
create an event of default under Senior Indebtedness as a result of
S-42
<PAGE>
which any repurchase could, absent a waiver, be blocked by the subordination
provision of the Debentures. In addition, the Company's ability to purchase
Debentures with cash may be limited by the terms of its then-existing borrowing
agreements.
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTE UPON TAX EVENT
From and after the date (the "Tax Event Date") of the occurrence of a Tax
Event, the Company shall have the option to elect to have interest in lieu of
future Original Issue Discount accrue at 4.75% per annum on a principal amount
per Debenture (the "Restated Principal Amount") equal to the Issue Price plus
Original Issue Discount accrued to the date immediately prior to the Tax Event
Date or the date on which the Company exercises the option described herein,
whichever is later (such date hereinafter referred to as the "Option Exercise
Date"). Such interest shall accrue from the Option Exercise Date and shall be
payable semiannually on April 24 and October 24 of each year (each an "Interest
Payment Date") to holders of record at the close of business on March 31 or
September 30 (each a "Regular Record Date") immediately preceding such
Interest Payment Date. Interest will be computed on the basis of a 360-day year
comprised of 12 30-day months and will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Option
Exercise Date.
A "Tax Event" means that the Company shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this Prospectus Supplement, as a result of (a) any amendment
to, or change (including any prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein or (b) any amendment to, or change in, an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority, in each case which
amendment or change is enacted, promulgated, issued or announced or which
interpretation is issued or announced or which action is taken, on or after the
date of this Prospectus Supplement, there is more than an insubstantial risk
that interest (including Original Issue Discount) payable on the Debentures
either (i) would not be deductible on a current accrual basis or (ii) would not
be deductible under any other method, in either case in whole or in part, by the
Company (by reason of deferral, disallowance or otherwise) for United States
federal income tax purposes.
President Clinton's 1999 budget proposed a series of tax law changes that
would, if enacted and made applicable to the Debentures, prevent the Company
from deducting interest (including Original Issue Discount) payable on the
Debentures on a current accrual basis for United States federal income tax
purposes and could cause some or all of the interest (including Original Issue
Discount) payable on the Debentures to fail to be deductible by the Company
under any other method for United States federal income tax purposes. If such a
proposal were enacted and made applicable to the Debentures in a manner that
would limit the ability of the Company to either (i) deduct the interest
(including Original Issue Discount) payable on the Debentures on a current
accrual basis or (ii) deduct the interest (including Original Issue Discount)
payable on the Debentures under any other method for United States federal
income tax purposes, such enactment would result in a Tax Event and the terms of
the Debentures would be subject to modification at the option of the Company as
described above. The modification of the terms of Debentures by the Company upon
a Tax Event as described above could possibly alter the timing of income
recognition by holders of the Debentures with respect to the semiannual payments
of interest due on the Debentures after the Option Exercise Date. See "Certain
United States Federal Income Tax Considerations."
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture will provide that, if an Event of Default specified therein
occurs and is continuing, either the Trustee or the Holders of at least 25% in
aggregate principal amount at maturity of the outstanding Debentures may declare
the Issue Price of the Debentures plus accrued Original Issue Discount (or if
the Debentures have been converted to semiannual coupon notes following a Tax
Event, the Restated Principal Amount, plus accrued and unpaid interest) on the
Debentures to and including the date of default (in the case of an Event of
Default specified in (i) or (ii) of the following paragraph) or to the date of
such declaration (in the case of an Event of Default specified in (iii) or (iv)
of the following paragraph) on all the
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Debentures to be due and payable immediately. In the case of certain events of
bankruptcy or insolvency, the Issue Price plus the accrued Original Issue
Discount thereon (or if the Debentures have been converted to semiannual coupon
notes following a Tax Event, the Restated Principal Amount, plus accrued and
unpaid interest) to and including the occurrence of such event IPSO FACTO shall
become immediately due and payable without any declaration or other act on the
part of either the Trustee or any Holder. At any time after a declaration of
acceleration has been made, but before a judgment has been obtained, the Holders
of a majority in aggregate principal amount at maturity of the outstanding
Debentures may, under certain circumstances, rescind or annul any such
acceleration. Interest shall, to the extent permitted by law, accrue and be
payable on demand upon a default in the payment of principal amount at maturity,
Issue Price, accrued Original Issue Discount, or any Redemption Price, Purchase
Price, Change in Control Purchase Price or shares of Common Stock (or cash in
lieu thereof) to be delivered upon conversion of the Debentures, and such
interest shall be compounded semiannually. The accrual of such interest on
overdue amounts shall be in lieu of, and not in addition to, the continued
accrual of Original Issue Discount.
Under the Indenture, an Event of Default with respect to the Debentures
includes any of the following: (i) failure to pay the principal amount at
maturity, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price or Change in Control Purchase Price with respect to any Debenture
when the same becomes due and payable; (ii) failure by the Company to deliver
shares of Common Stock (or cash in lieu thereof) when such Common Stock (or cash
in lieu thereof) is required to be delivered upon conversion of a Debenture as
provided in the Indenture; (iii) failure by the Company to perform any other
covenant of the Company in the Indenture, continued for 90 days after written
notice as provided in the Indenture; and (iv) certain events of bankruptcy,
insolvency or reorganization involving the Company.
The Holders of a majority in aggregate principal amount at maturity of the
outstanding Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Debentures,
subject to certain limitations specified in the Indenture.
Notwithstanding the provisions described in the accompanying Prospectus
under "Description of Debt Securities -- Provisions Applicable to Both Senior
and Subordinated Debt Securities -- Events of Default," " -- Modification"
and " -- Meetings," the right of any Holder (a) to receive payment of the
principal amount at maturity, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest,
if any, in respect of the Debentures held by such Holder on or after the
respective due dates expressed in the Debentures, (b) to convert such Debentures
or (c) to institute suit for the enforcement of any such payment on or after
such respective dates or the right to convert, shall not be impaired or
adversely affected without such Holder's consent.
The Holders of a majority in aggregate principal amount at maturity of
outstanding Debentures may on behalf of all Holders of Debentures waive any past
default under the Indenture, except (i) any default in any payment on the
Debentures, (ii) any default with respect to the conversion rights of the
Debentures or (iii) any default in respect of certain covenants or provisions in
the Indenture that may not be modified or amended without the consent of the
Holder of each outstanding Debenture affected.
MODIFICATION
For a description of provisions relating to modification of the Indenture,
see "Description of Debt Securities -- Provisions Applicable to Both Senior and
Subordinated Debt Securities -- Modification" in the accompanying Prospectus.
With respect to the Debentures, no modification or amendment may, without the
consent of the Holder of each outstanding Debenture affected thereby, reduce the
principal amount at maturity, Issue Price, Purchase Price, Conversion Rate,
Change in Control Purchase Price or Redemption Price with respect to any
Debenture, or extend the stated maturity of any Debenture or alter the manner or
rate of accrual of Original Issue Discount or interest, make any Debenture
payable in money or securities other than that stated in the Debenture or make
any change that materially adversely affects the conversion rights associated
with any Debenture or the right to require the Company to purchase a Debenture.
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LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Company, under
Title 11 of the United States Code, the claim of the Holder of a Debenture may
be limited to the Issue Price of the Debenture plus that portion of the Original
Issue Discount deemed to have accrued from the Issue Date to the commencement of
the proceeding.
TAXATION OF DEBENTURES
See "Certain Federal Income Tax Considerations" for a discussion of
certain United States federal income tax aspects that may apply to Holders of
Debentures.
INFORMATION CONCERNING THE TRUSTEE
Marine Midland Bank is the Trustee, Registrar, Paying Agent and Conversion
Agent under the Indenture with respect to the Debentures. Marine Midland Bank
also serves as trustee for the Company's 6 1/4% Convertible Subordinated
Debentures.
BOOK-ENTRY, DELIVERY AND FORM
The Debentures will be issued in the form of one or more Debentures in
global form (the "Global Debentures"). Each Global Debenture will be deposited
on or about the date of the closing of the sale of the Debentures with, or on
behalf of, The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee of DTC. Beneficial interest in the Global Debentures will
be represented through financial institutions acting on their behalf as direct
or indirect participants in DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC and
facilitates the clearance and settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the NYSE, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Ownership of beneficial interests in a Global Debenture will be limited to
Participants or persons who hold interests through Participants. The Company
expects that pursuant to procedures established by DTC (i) upon deposit of the
Global Debentures, DTC will credit the accounts of Participants designated by
the Underwriters with portions of the principal amount of the Global Debenture
and (ii) ownership of the Debentures evidenced by the Global Debenture will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the interests of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Debentures evidenced by the Global
Debenture will be limited to such extent.
As long as DTC or its nominee is the registered owner or holder of a
Debenture, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Debentures represented by the Global Debenture for all
purposes under the Indenture and the Debentures. Except as provided below,
owners of beneficial interests in a Global Debenture will not be entitled to
have Debentures represented by such Global Debenture registered in their names,
will not receive or be entitled to receive physical delivery
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of Certificated Debentures and will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
In addition, no beneficial owner of an interest in a Global Debenture will be
able to transfer that interest except in accordance with the applicable
procedures of DTC. As a result, the ability of a person having a beneficial
interest in Debentures represented by a Global Debenture to pledge such interest
to persons or entities that do not participate in the DTC's system, or to
otherwise take actions with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Debentures by DTC, or for maintaining, supervising or reviewing any records
of DTC relating to such Debentures.
Payments with respect to the principal of and any premium and interest on
any Debenture represented by a Global Debenture registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of DTC or its nominee in its capacity as the registered Holder
of the Global Debenture representing such Debentures under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Debentures, including the Global Debentures, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Debentures (including principal or any premium or
interest).
The Company expects, however, that DTC or its nominee, upon receipt of any
payment in respect of a Global Debenture representing any Debentures held by it
or its nominee, will immediately credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Debenture for such Debentures as shown on the records of
DTC or its nominee. The Company also expects that payments by Participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
As long as the Debentures are represented by a Global Debenture, DTC's
nominee will be the holder of the Debentures and therefore will be the only
entity that can exercise a right to repayment, purchase or conversion of the
Debentures. Notice by Participants or Indirect Participants or by owners of
beneficial interests in a Global Debenture held through such Participants or
Indirect Participants of the exercise of the option to elect repayment, purchase
or conversion of beneficial interests in Debentures represented by a Global
Debenture must be transmitted to DTC in accordance with its procedures on a form
required by DTC and provided to Participants. To ensure that DTC's nominee will
timely exercise a right to repayment, purchase or conversion with respect to a
particular Debenture, the beneficial owner of such Debenture must instruct the
broker or the Participant or Indirect Participant through which it holds an
interest in such Debenture to notify DTC of its desire to exercise such right.
Different firms have cut-off times for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other Participant or Indirect Participant through which it holds an interest in
a Debenture in order to ascertain the cut-off time by which such an instruction
must be given for timely notice to be delivered to DTC. The Company will not be
liable for any delay in delivery of notices of the exercise of the option to
elect repayment.
CERTIFICATED DEBENTURES
Debentures represented by certificates in definitive form registered in the
names of the beneficial owners thereof or their nominees ("Certificated
Debentures") shall be transferred to all beneficial owners in exchange for
their beneficial interests in a Global Debenture if either (i) DTC or any
successor depositary (the "Depositary") notifies the Company that it is
unwilling or unable to continue as Depositary for such Global Debenture and a
successor Depositary is not appointed by the Company within 90 days of such
notice, (ii) an Event of Default has occurred and is continuing with respect to
the Debentures and the
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Registrar has received a request from the Depositary to issue Certificated
Debentures in lieu of all or a portion of the Global Debenture (in which case
the Company shall deliver Certificated Debentures within 30 days of such
request) or (iii) the Company determines not to have the Debentures of such
series represented by a Global Debenture.
Neither the Company nor the Trustee will be liable for any delay by the
related Depositary or its nominee in identifying the beneficial owners of the
related Debentures, and each such Person may conclusively rely on, and will be
protected in relying on, instructions from such Depositary or nominee for all
purposes (including with respect to the registration and delivery, and the
respective principal amounts, of the Debentures to be issued).
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
Participants of their respective obligations as described hereunder or under the
rules and procedures governing their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Debentures
represented by the Global Debentures (including principal and any premium and
interest) be made by wire transfer of immediately available funds to the
accounts specified by DTC or its nominee. With respect to Debentures represented
by Certificated Debentures, the Company will make all payments of principal and
any premium and interest by mailing a check to each such Holder's registered
address. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. In contrast,
the Debentures are expected to trade in DTC's Same-Day Funds Settlement System
until maturity or until the Debentures are issued in certificated form, and any
permitted secondary market trading activity in the Debentures will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Debentures.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of United States federal income tax considerations is
based on current law, regulations and judicial and administrative
interpretations thereof, all of which are subject to change, which may or may
not be applied retroactively, or different interpretations by the Internal
Revenue Service or the courts. The tax treatment of a Holder of a Debenture may
vary depending upon his particular situation. Certain Holders (including
insurance companies, tax-exempt organizations, individual retirement and other
tax-deferred accounts, financial institutions, broker-dealers, foreign
corporations and individuals who are not citizens or residents of the United
States) may be subject to special rules not discussed below. This summary does
not discuss the tax considerations of subsequent purchasers of Debentures and is
limited to investors who hold Debentures as capital assets. EACH PURCHASER OF
DEBENTURES SHOULD CONSULT HIS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
TO HIM OF ACQUIRING, HOLDING, CONVERTING OR OTHERWISE DISPOSING OF THE
DEBENTURES, INCLUDING THE APPLICABILITY AND THE EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS AND RECENT CHANGES IN APPLICABLE TAX LAWS.
The Company has been advised by Baker & Botts, L.L.P., counsel to the
Company ("Counsel"), that, on the basis of current laws, regulations and
administrative and judicial standards, all of which are subject to change, the
Debentures will be treated as indebtedness for United States federal income tax
purposes. Counsel has further advised the Company that, while the following does
not purport to discuss all tax matters relating to the Debentures, on the
assumption that the Debentures will be treated as indebtedness, the following
are the material federal income tax consequences of the ownership and
disposition of the Debentures, subject to the qualifications set forth above. In
providing this advice, Counsel has relied upon the accuracy of the information
in this Prospectus Supplement and other public filings by the Company and upon
certain representations of the Company.
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ORIGINAL ISSUE DISCOUNT
The Debentures will be issued at a substantial discount from their
principal amount at maturity. For United States federal income tax purposes, the
difference between the issue price (the initial price at which a Debenture is
sold as set forth on the cover page of this Prospectus Supplement) and the
stated Redemption Price at maturity of the Debenture constitutes original issue
discount ("Original Issue Discount"). Holders of the Debentures will be
required to include Original Issue Discount in income periodically over the term
of the Debentures before receipt of the cash or other payment attributable to
such income.
For United States federal income tax purposes, each Holder of a Debenture
generally must include in gross income a portion of the Original Issue Discount
in each taxable year during which the Debenture is held in an amount equal to
the Original Issue Discount that accrues on the Debenture during such period,
determined by using a constant yield to maturity method. The Original Issue
Discount included in income for each year will be calculated under a compounding
formula that will result in the allocation of less Original Issue Discount to
the earlier years of the term of the Debenture and more Original Issue Discount
to later years. For the approximate cumulative total amount of the Original
Issue Discount accrued annually, see the chart under "Description of
Debentures -- Redemption of Debentures at the Option of the Company." Any
amount included in income as Original Issue Discount will increase a Holder's
tax basis in the Debenture.
CONVERSION
A Holder's conversion of a Debenture into Common Stock is not a taxable
event (except with respect to cash received in lieu of a fractional share of
Common Stock). The Holder's tax basis in the Common Stock received on conversion
of a Debenture will be the same as the Holder's adjusted tax basis in the
Debenture at the time of conversion (exclusive of any basis allocable to a
fractional share of Common Stock), and the holding period of the Common Stock
received on conversion will include the holding period of the Debenture
converted, except that it is possible that the holding period of the Common
Stock allocable to accrued Original Issue Discount will commence on the day
following the date of the conversion.
OTHER DISPOSITION
If a Holder elects to exercise his option to tender a Debenture to the
Company on a Purchase Date and the Company issues Common Stock in satisfaction
of the Purchase Price, such exchange will be treated the same as a conversion.
If a Holder elects to exercise his option to tender a Debenture to the
Company on a Purchase Date and the Company delivers a combination of cash and
Common Stock in satisfaction of the Purchase Price, such Holder will recognize
gain (but not loss) to the extent that the cash and the value of the Common
Stock received exceeds the Holder's adjusted tax basis in the Debenture, but in
no event will any such gain exceed the amount of cash received. A Holder's basis
in the Common Stock received would be the same as the Holder's basis in the
Debenture put to the Company by the Holder (exclusive of any basis allocable to
a fractional share), decreased by the amount of cash received (other than cash
received in lieu of a fractional share), and increased by the amount of gain, if
any, recognized by the Holder (other than gain with respect to a fractional
share). The holding period for the Common Stock received in the exchange will
include the holding period for the Debenture tendered, except that it is
possible that the holding period of the Common Stock allocable to accrued
Original Issue Discount will commence on the day following the Purchase Date.
If a Holder elects to exercise his option to tender a Debenture to the
Company on a Purchase Date or a Change in Control Purchase Date and the Holder
receives cash, such a tender will be a taxable sale. The Holder will recognize
gain or loss upon the sale, to the extent that the cash received in satisfaction
of the Purchase Price or the Change in Control Purchase Price is more or less
than the Holder's adjusted tax basis in the tendered Debenture.
If a Holder sells a Debenture in the market, it will be a taxable sale with
the same results as a tender to the Company with a payment in cash.
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Under the Taxpayer Relief Act of 1997, net capital gain (I.E., generally,
capital gain in excess of capital loss) recognized by a Holder who is an
individual upon the disposition of a Debenture that has been held for more than
18 months will generally be subject to tax at a rate not to exceed 20%. Net
capital gain recognized by such a Holder upon the disposition of a Debenture
that has been held for more than 12 months but for not more than 18 months will
continue to be subject to tax at a rate not to exceed 28% and capital gain
recognized from the disposition of a Debenture that has been held for 12 months
or less will continue to be subject to tax at ordinary income tax rates. In
addition, capital gain recognized by a corporate taxpayer will continue to be
subject to tax at the ordinary income tax rates applicable to corporations.
If the Debentures are or become actively traded, within the meaning of
certain statutory provisions relating to straddles, then, under a literal
interpretation of those provisions, each Debenture might be considered part of a
straddle because of the option of the Holder to require the Company to purchase
the Debenture on a Purchase Date. If a Debenture were part of a straddle, then
the normal rules applicable to the holding period of the Debentures would not
apply and certain other consequences not here described would ensue. While the
question is not entirely free from doubt, Counsel considers it unlikely that
debt instruments having terms like those of the Debentures would be considered
to come within the straddle rules. Holders should consult their own tax advisors
on this matter.
CONSTRUCTIVE DIVIDEND
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for United
States federal income tax purposes and, in accordance with the antidilution
provisions of the Debentures, the Conversion Rate of the Debentures is
increased, such increase may be deemed to be the payment of a taxable dividend
to Holders of the Debentures. For example, an increase in the Conversion Rate in
the event of distributions of evidences of indebtedness or assets of the Company
or an increase in the event of an Extraordinary Cash Dividend will generally
result in deemed dividend treatment to Holders of the Debentures, but generally
an increase in the event of stock dividends or the distribution of rights to
subscribe for Common Stock will not. In addition, if the Conversion Rate is
increased at the discretion of the Company, such increase may result in deemed
dividend treatment to Holders of the Debentures. See "Description of
Debentures -- Conversion Rights."
TAX EVENT
The modification of the terms of the Debentures by the Company upon a Tax
Event as described in "Description of Debentures -- Optional Conversion to
Semiannual Coupon Note upon Tax Event" will not be a taxable event to Holders
of the Debentures. However, such modification could affect the timing of income
recognition by the Holders thereafter with respect to the semiannual payments of
interest due on the Debentures after the Option Exercise Date.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below (the "Underwriters"), and each of the Underwriters has severally agreed
to purchase from the Company, the principal amount at maturity of Debentures set
forth opposite their respective names below:
PRINCIPAL AMOUNT
AT MATURITY
UNDERWRITER OF DEBENTURES
- ------------------------------------- ----------------
Smith Barney Inc..................... $255,715,500
Morgan Stanley & Co. Incorporated.... 255,715,500
----------------
Total........................... $511,431,000
================
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Debentures offered hereby (other than those subject to the over-allotment option
described below) if any Debentures are purchased. In the event of a default by
any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that they propose
initially to offer the Debentures to the public at the public offering price set
forth on the cover page of this Prospectus Supplement, and to certain dealers at
such offering price less a concession not in excess of 0.703% of the principal
amount at maturity of the Debentures. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of 0.25% of the principal amount
at maturity of the Debentures to other dealers. After the initial offering, the
public offering price and such concessions may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to an additional $76,714,000 principal amount at maturity of Debentures at the
public offering price less the underwriting discount, plus accrued Original
Issue Discount, if any, accrued from the Issue Date, computed on a semiannual
bond equivalent basis. The Underwriters may exercise such option only to cover
over-allotments in connection with the sale of the Debentures that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the principal amount at maturity of Debentures
subject to such option proportionate to such Underwriters' initial commitment.
The Company has agreed not to offer, sell or contract to sell, or otherwise
dispose of, or announce the offering of, any shares of Common Stock, or any
securities convertible into, or exchangeable for, shares of Common Stock for a
period of 90 days from the date of this Prospectus Supplement without the prior
written consent of Smith Barney Inc., subject to certain exceptions.
The current executive officers and directors of the Company have agreed not
to offer, sell or contract to sell, or otherwise dispose of, any shares of
Common Stock, or any securities convertible into, or exchangeable for, or
warrants, rights or options to acquire Common Stock, or enter into any agreement
to do any of the foregoing, for a period of 90 days from the date of this
Prospectus Supplement without the prior written consent of Smith Barney Inc.,
subject to certain exceptions.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
In connection with the offering of the Debentures, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Debentures or the Common Stock or both. Specifically, the Underwriters may
over-allot in connection with the offering, creating a short position in the
Debentures for their respective accounts. In addition, to cover over-allotments
or to stabilize the price of the Debentures, the Underwriters may bid for, and
purchase, the Debentures in the open market. Finally, the
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Underwriters may impose a penalty bid, whereby selling concessions allowed to
syndicate members or other broker-dealers for distributing the Debentures in the
offering may be reclaimed by the syndicate if the syndicate repurchases
previously distributed Debentures in transactions to cover short positions, in
stabilization transactions or otherwise. These activities may stabilize,
maintain or otherwise affect the market price of the Debentures, which may be
higher than the price that might otherwise prevail in the open market, and, if
commenced, may be discontinued at any time.
There currently is no public market for the Debentures. The Debentures will
not be listed on any securities exchange, and there can be no assurance that
there will be a secondary market for the Debentures. From time to time, the
Underwriters may make a market in the Debentures; however, the Underwriters are
not obligated to do so and may discontinue such market-making at any time.
Accordingly, there can be no assurance as to whether an active trading market
for the Debentures will develop or as to the liquidity of any trading market for
the Debentures.
LEGAL MATTERS
Certain legal matters in connection with the Debentures offered hereby will
be passed upon for the Company by Baker & Botts, L.L.P., Houston, Texas, and for
the Underwriters by Vinson & Elkins L.L.P., Houston, Texas. McGlinchey Stafford,
a professional limited liability company, New Orleans, Louisiana, will pass on
all matters of Louisiana law in this connection. Certain United States federal
income tax matters will be passed upon for the Company by Baker & Botts, L.L.P.,
Houston, Texas.
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PRIDE INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Accountants.... SF-2
Consolidated Balance Sheet as of
December 31, 1997 and 1996......... SF-3
Consolidated Statement of Operations
for the years ended December 31,
1997, 1996 and 1995................ SF-4
Consolidated Statement of Changes in
Shareholders' Equity for the years
ended December 31, 1997, 1996 and
1995............................... SF-5
Consolidated Statement of Cash Flows
for the years ended December 31,
1997, 1996 and 1995................ SF-6
Notes to Consolidated Financial
Statements......................... SF-7
SF-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Pride International, Inc.:
We have audited the consolidated balance sheet of Pride International, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in the shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pride
International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 16, 1998
SF-2
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... $ 73,539 $ 10,310
Short-term investments.......... 856 460
Trade receivables, net.......... 194,973 99,531
Parts and supplies.............. 26,899 27,642
Deferred income taxes........... 2,252 1,778
Other current assets............ 35,691 16,686
------------ ------------
Total current assets....... 334,210 156,407
------------ ------------
PROPERTY AND EQUIPMENT, AT COST...... 1,273,327 514,903
ACCUMULATED DEPRECIATION............. (101,680) (139,654)
------------ ------------
Net property and
equipment.............. 1,171,647 375,249
------------ ------------
OTHER ASSETS
Investments in and advances to
affiliates..................... 9,092 --
Goodwill and other intangibles,
net............................ 3,623 3,134
Other assets.................... 22,929 7,272
------------ ------------
Total other assets......... 35,644 10,406
------------ ------------
$ 1,541,501 $ 542,062
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................ $ 101,318 $ 31,918
Accrued expenses................ 58,412 25,785
Short-term borrowings........... 21,055 3,300
Current portion of long-term
debt........................... 39,356 32,682
Current portion of long-term
lease obligations.............. 10,336 --
------------ ------------
Total current
liabilities............ 230,477 93,685
------------ ------------
OTHER LONG-TERM LIABILITIES.......... 28,911 12,134
LONG-TERM DEBT, net of current
portion............................ 435,100 106,508
LONG-TERM LEASE OBLIGATIONS, net of
current portion.................... 36,275 --
CONVERTIBLE SUBORDINATED
DEBENTURES......................... 52,500 80,500
DEFERRED INCOME TAXES................ 72,313 47,438
MINORITY INTEREST.................... 768 --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value;
100,000,000 shares authorized;
50,097,120 and 28,571,876
shares issued and 50,042,900
and 28,517,656 shares
outstanding, respectively...... 1 1
Paid-in capital................. 522,946 143,581
Treasury stock, at cost......... (191) (191)
Retained earnings............... 162,401 58,406
------------ ------------
Total shareholders'
equity................. 685,157 201,797
------------ ------------
$ 1,541,501 $ 542,062
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
SF-3
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
REVENUES............................. $ 699,788 $ 407,174 $ 263,599
OPERATING COSTS...................... 458,861 292,599 187,203
---------- ---------- ----------
Gross Margin.................... 240,927 114,575 76,396
DEPRECIATION AND AMORTIZATION........ 58,661 29,065 16,657
SELLING, GENERAL AND
ADMINISTRATIVE..................... 73,881 45,368 32,418
---------- ---------- ----------
EARNINGS FROM OPERATIONS............. 108,385 40,142 27,321
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Other income.................... 77,844 1,902 638
Interest income................. 3,773 2,410 740
Interest expense................ (34,368) (13,635) (6,276)
---------- ---------- ----------
Total other income
(expense), net.......... 47,249 (9,323) (4,898)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES......... 155,634 30,819 22,423
INCOME TAX PROVISION................. 51,639 8,091 7,064
---------- ---------- ----------
NET EARNINGS......................... $ 103,995 $ 22,728 $ 15,359
========== ========== ==========
NET EARNINGS PER SHARE
Basic........................... $ 2.42 $ .85 $ .63
Diluted......................... $ 2.16 $ .77 $ .61
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic........................... 43,036 26,719 24,551
Diluted......................... 49,143 33,755 25,128
The accompanying notes are an integral part of the consolidated financial
statements.
SF-4
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY TOTAL
---------------- PAID-IN STOCK RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL AT COST EARNINGS EQUITY
------ ------ -------- -------- -------- -------------
<S> <C> <C>
BALANCE -- DECEMBER 31, 1994............ 24,028 $ 1 $ 91,256 $ (191) $ 20,319 $ 111,385
Net earnings....................... -- -- -- -- 15,359 15,359
Issuance of common stock in
connection with acquisition...... 525 -- 3,279 -- -- 3,279
Exercise of stock options.......... 256 -- 739 -- -- 739
Tax benefit of non-qualified stock
options.......................... -- -- 477 -- -- 477
------ ------ -------- -------- -------- -------------
BALANCE -- DECEMBER 31, 1995............ 24,809 1 95,751 (191) 35,678 131,239
Net earnings....................... -- -- -- -- 22,728 22,728
Issuance of common stock in public
offerings, net of offering
costs............................ 3,450 -- 45,641 -- -- 45,641
Issuance of common stock in
connection with acquisition...... 4 -- 29 -- -- 29
Exercise of stock options.......... 255 -- 1,338 -- -- 1,338
Tax benefit of non-qualified stock
options.......................... -- -- 822 -- -- 822
------ ------ -------- -------- -------- -------------
BALANCE -- DECEMBER 31, 1996............ 28,518 1 143,581 (191) 58,406 201,797
Net earnings....................... -- -- -- -- 103,995 103,995
Issuance of common stock in public
offerings, net of offering
costs............................ 7,257 -- 168,400 -- -- 168,400
Issuance of common stock in
connection with acquisition...... 11,099 -- 172,422 -- -- 172,422
Issuance of common stock in
connection with conversion of
debentures....................... 2,286 -- 27,463 -- -- 27,463
Exercise of stock options.......... 883 -- 6,138 -- -- 6,138
Tax benefit of non-qualified stock
options.......................... -- -- 4,942 -- -- 4,942
------ ------ -------- -------- -------- -------------
BALANCE -- DECEMBER 31, 1997............ 50,043 $ 1 $522,946 $ (191) $162,401 $ 685,157
====== ====== ======== ======== ======== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
SF-5
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
OPERATING ACTIVITIES
Net earnings.................... $ 103,995 $ 22,728 $ 15,359
Adjustments to reconcile net
earnings to net cash provided
by operating activities --
Depreciation and
amortization............ 58,661 29,065 16,657
Gain on sale of assets..... (83,845) (815) (1,544)
Effect of exchange rates... 3,736 (437) (142)
Deferred tax provision..... 13,692 5,882 4,602
Changes in assets and
liabilities, net of
effects of
acquisitions --
Trade receivables..... (37,963) (16,438) (4,493)
Parts and supplies.... 743 (2,303) (2,866)
Other assets.......... (11,696) (2,330) (1,914)
Accounts payable...... 38,886 (735) 119
Accrued expenses and
other.............. (25,645) (13,400) 1,391
----------- ----------- -----------
Net cash
provided by
operating
activities.... 60,564 21,217 27,169
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of net assets of
acquired entities, including
acquisition costs, less cash
acquired...................... (369,432) (119,067) (8,144)
Purchases of property and
equipment..................... (268,307) (61,711) (40,636)
Proceeds from dispositions of
property and equipment........ 131,536 14,438 6,862
Proceeds from sales of
short-term investments........ 836 6,047 1,250
Purchases of short-term
investments................... (686) (1,045) (360)
Other........................... -- (733) (485)
----------- ----------- -----------
Net cash used in
investing
activities.... (506,053) (162,071) (41,513)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common
stock......................... 168,400 45,641 --
Proceeds from exercise of stock
options....................... 6,138 1,338 739
Proceeds from issuance of
convertible subordinated
debentures.................... -- 77,585 --
Proceeds from debt borrowings... 533,145 89,362 27,535
Reduction of debt............... (198,965) (72,066) (10,410)
Other........................... -- 9 (195)
----------- ----------- -----------
Net cash
provided by
financing
activities.... 508,718 141,869 17,669
----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... 63,229 1,015 3,325
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 10,310 9,295 5,970
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 73,539 $ 10,310 $ 9,295
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
SF-6
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Pride International, Inc. (the "Company") is a Louisiana corporation
which was organized in 1988 as the successor to a company originally
incorporated in 1968. The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments having maturities
of three months or less at the date of purchase to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments include marketable securities, which in the case of
debt instruments have maturities in excess of three months but less than one
year at the date of purchase, are classified as available for sale and are
carried at the lower of cost or market value. There were no material differences
between cost and fair market value as of December 31, 1997 and 1996.
PARTS AND SUPPLIES
Parts and supplies consist of spare rig parts and supplies held for use in
operations and are valued at the lower of weighted average cost or market value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at original cost or adjusted net
realizable value, as applicable. Major renewals and improvements are capitalized
and depreciated over the respective asset's useful life. Maintenance and repair
costs are charged to expense as incurred. When assets are sold or retired, the
remaining costs and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in income.
For financial reporting purposes, depreciation of property and equipment is
provided using the straight line method based upon expected useful lives of each
class of assets. Estimated useful lives of the assets for financial reporting
purposes are as follows:
YEARS
---------
Rigs and rig equipment............... 5-25
Transportation equipment............. 3-7
Buildings and improvements........... 10-20
Furniture and fixtures............... 5
Rigs and rig equipment have salvage values ranging from $150,000 to
$8,000,000 with such values not exceeding 10% of the cost of the rig.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the cost in excess of fair value of the net assets of
businesses acquired and is being amortized using the straight line method over
15 years. Other intangible assets represent costs allocated to service
contracts, employment contracts and covenants not to compete acquired in
business acquisitions. Other intangible assets are being amortized using the
straight line method over their estimated useful lives, which range from three
to ten years.
SF-7
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue as services are performed based upon
contracted day rates and the number of operating days during the period.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and the tax bases of
assets and liabilities using enacted tax rates.
FOREIGN CURRENCY TRANSLATION
The Company accounts for translation of foreign currency in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation." The Company's Venezuelan operations are in a "highly
inflationary" economy resulting in the use of the U.S. dollar as the functional
currency. Therefore, certain assets of these operations are translated at
historical exchange rates and all translation gains or losses are reflected in
the period's results of operations. In the other countries in which the Company
operates the local currency is considered the functional currency. Translation
of assets and liabilities in those countries is made at the prevailing exchange
rate as of the balance sheet date. Revenues and expenses are translated at the
average rate of exchange during the period.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in U.S.
Government securities and other high quality financial instruments. By policy,
the Company limits the amount of credit exposure to any one financial
institution or issuer. The Company's customer base consists primarily of major
integrated and government-owned international oil companies as well as smaller
independent oil and gas producers. Management believes the credit quality of its
customers is generally high. The Company has in place insurance to cover certain
exposure in its foreign operations and provides allowances for potential credit
losses when necessary.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While it is believed that such estimates are reasonable,
actual results could differ from those estimates.
CONDITIONS AFFECTING ONGOING OPERATIONS
The Company's current business and operations are substantially dependent
upon conditions in the oil and gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. The demand for contract
drilling and related services is influenced by oil and gas prices, expectations
about future prices, the cost of producing and delivering oil and gas,
government regulations and local and international political and economic
conditions. There can be no assurance that current levels of exploration and
production expenditures of oil and gas companies will be maintained or that
demand for the Company's services will reflect the level of such activities.
STOCK-BASED COMPENSATION
The Company accounts for compensation cost for stock option plans in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees."
SF-8
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1996 consisted of the
following:
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
(IN THOUSANDS)
Land................................. $ 2,812 $ 3,462
Rigs and rig equipment............... 1,170,783 445,220
Transportation equipment............. 12,612 17,570
Buildings............................ 8,374 10,984
Other................................ 828 1,757
Construction-in-progress............. 77,918 35,910
------------ ------------
1,273,327 514,903
Accumulated depreciation and
amortization....................... (101,680) (139,654)
------------ ------------
Net property and equipment...... $ 1,171,647 $ 375,249
============ ============
As of December 31, 1997, construction-in-progress included approximately
$38,000,000 of costs related to the acquisition and refurbishment of a
tender-assisted rig and a drillship, $15,000,000 of costs related to the
construction or refurbishment of three offshore platform rigs and three
land-based drilling and workover rigs and $17,000,000 of costs related to the
refurbishment of certain newly-acquired offshore jackup drilling rigs.
Construction-in-progress as of December 31, 1996 included approximately
$21,000,000 of costs related to the acquisition or refurbishment of 11
land-based drilling rigs, $5,400,000 of costs related to upgrading the rig fleet
and equipment acquired from Quitral-Co S.A.I.C. ("Quitral-Co") and $6,400,000
of costs related to the construction of an offshore platform workover rig.
The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. For the years ended December
31, 1997, 1996 and 1995, total interest incurred was $40,018,000, $15,550,000
and $6,526,000, respectively, of which $5,650,000, $1,915,000 and $250,000,
respectively, was capitalized.
During the years ended December 31, 1997, 1996 and 1995, maintenance and
repair costs included in operating costs on the accompanying consolidated
statement of operations were $51,429,000, $32,698,000 and $20,776,000,
respectively.
3. ACQUISITIONS AND DISPOSITIONS
In May 1997, the Company acquired 13 mat-supported jackup drilling rigs
(the "Jackup Rigs") for approximately $269,000,000 in cash. The acquisition
was financed through the sale of Senior Notes and common stock, which was
completed concurrently with the acquisition.
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 and 11,099,191 shares of common
stock valued at $172,422,000, based on the approximate market value of the
common stock immediately prior to the date of the agreement of $15.50 per share.
SF-9
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.................... 56,831
Deferred income taxes................ 2,012
Other current assets................. 18,624
Property and equipment............... 369,527
Investments in affiliates............ 9,431
Other assets......................... 5,227
Accounts payable..................... (30,514)
Accrued expenses..................... (57,053)
Short-term borrowings................ (15,354)
Long-term debt....................... (31,361)
Long-term lease obligations.......... (35,514)
Other long-term liabilities.......... (4,805)
Deferred income taxes................ (12,721)
Minority interest.................... (2,124)
---------------------
Net assets acquired............. $ 285,644
=====================
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 repayment 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 pretax gain on the sale
of $83,553,000, which amount is included in other income on the accompanying
consolidated statement of operations.
In November 1996, the Company acquired three land-based drilling rigs and
other support assets from another contractor in Argentina for $8,900,000 cash.
In October 1996, the Company acquired all of the outstanding capital stock
of Ingeser de Colombia, S.A. ("Ingeser") for aggregate consideration of
$5,500,000, consisting of $4,000,000 cash and a contingent note payable to the
sellers for $1,500,000. Based on the debt assumed and the working capital
position of Ingeser, the transaction was valued at approximately $12,000,000.
Ingeser operates seven drilling rigs and six workover rigs in the Republic of
Colombia.
In April 1996, the Company acquired all of the outstanding capital stock of
Quitral-Co for an aggregate purchase price of $140,000,000, consisting of
$110,000,000 in cash and a $30,000,000 installment note payable to the selling
shareholders. In connection with the acquisition of Quitral-Co, the Company paid
a commission of $310,000 to a director of the Company.
SF-10
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assets acquired and liabilities assumed in the Quitral-Co acquisition
were as follows:
ASSETS (LIABILITIES)
--------------------
(IN THOUSANDS)
Cash and cash equivalents............ $ 5,564
Short-term investments............... 2,851
Trade receivables.................... 35,189
Parts and supplies................... 15,618
Deferred income taxes................ 1,300
Other current assets................. 3,814
Property and equipment............... 161,420
Other assets......................... 2
Accounts payable..................... (21,710)
Accrued expenses..................... (23,462)
Long-term debt....................... (13,936)
Deferred income taxes................ (26,650)
--------------------
Net assets acquired............. $140,000
====================
Each of the acquisitions discussed above was recorded using the purchase
method of accounting. The operating results of each acquisition have been
included in the Company's consolidated results of operations from the date of
acquisition.
Unaudited pro forma results of operations assuming the acquisitions of
Quitral-Co, Forasol and the Jackup Rigs and the sale of the Company's U.S.
land-based well servicing operations had occurred on January 1, 1996, are as
follows:
YEAR ENDED DECEMBER
31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues............................. $ 755,952 $ 622,712
Net earnings......................... $ 52,050 $ 16,994
Earnings per share
Basic........................... $ 1.12 $ .45
Diluted......................... $ 1.03 $ .45
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 December 31, 1997 ranged from 6.25% to 9.00%. As of December 31,
1997, $21,055,000 was outstanding under these facilities and $11,445,000 was
available.
SF-11
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following:
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Senior Notes......................... $ 325,000 $ --
Collateralized term loans............ 79,009 46,169
Limited-recourse collateralized term
loans.............................. 35,210 38,935
Other notes payable
Note payable to sellers......... 11,000 23,000
Eximbank notes payable.......... 6,533 8,900
Notes payable................... 13,667 4,033
Loan obligations to customers... 4,037 --
Acquisition note payable........ -- 3,877
Secured bank facility........... -- 14,276
Credit Facility...................... -- --
---------- ----------
474,456 139,190
Current portion of long-term debt.... 39,356 32,682
---------- ----------
Long-term debt, net of
current portion............ $ 435,100 $ 106,508
========== ==========
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the Company believes that the recorded value of
all its long-term debt approximates fair market value as of December 31, 1997
and 1996.
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
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 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.
Net proceeds from the issuance of Senior Notes totaled approximately
$316,600,000, after deducting underwriting discounts and estimated offering
expenses.
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
on the term loans to a fixed rate basis. As a
SF-12
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Forasol acquisition, 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 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 December 31, 1997, $2,435,000 of such contract proceeds, which
amount is included in cash and cash equivalents on the accompanying 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.
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
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 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.
CONVERTIBLE SUBORDINATED DEBENTURES
In January 1996, the Company completed the 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
SF-13
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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% 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 1997, an aggregate of $28,000,000 principal amount of the debentures
was 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 income in the accompanying consolidated
statement of operations. As of December 31, 1997, the remaining $52,500,000
principal amount of the debentures had a fair value of $108,214,000, based on
quoted market prices.
Future maturities of long-term debt are as follows:
AMOUNT
--------------
(IN THOUSANDS)
1998................................. $ 39,356
1999................................. 26,845
2000................................. 25,206
2001................................. 21,735
2002................................. 16,702
Thereafter........................... 344,612
--------------
Total long-term debt....... $474,456
==============
In addition to the above, subsequent to December 31, 1997, the Company
obtained a commitment from a group of banks to provide up to $110,000,000 in
loans to finance its acquisition of certain equipment to be installed on the
drillship more fully described in Note 11. 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 drillship on or before the date the customer
accepts delivery of the drillship under the charter, which is anticipated to be
mid-1999, and expects to repay such loan from such sales proceeds.
5. FINANCIAL INSTRUMENTS
The Company's operations are subject to foreign exchange risks principally
related to the Argentine peso, the Venezuelan bolivar, the Colombian peso and
the French franc. The Company attempts to limit its exposure to foreign currency
exchange risks by obtaining contracts providing for payment in U.S. dollars or
freely convertible foreign currency. Moreover, the Company purchases forward
exchange contracts to hedge its French franc denominated expenses. These
contracts are accounted for as hedges to the extent they relate to anticipated
expenses.
Realized and unrealized gains or losses on forward exchange contracts which
are designated as, and are effective as, hedges are deferred and are recognized
in results of operations when expenses are recognized. The cash flows from these
transactions are classified consistent with the cash flows for the transaction
being hedged. Deferred gains and losses are recognized in results of operations
if the hedge is no longer effective.
Gains or losses on forward exchange contracts that are not hedges are
reported in results of operations as exchange rates change.
As of December 31, 1997, the Company had approximately $41,000,000 notional
amount of forward exchange contracts, principally French francs, to buy foreign
currency to hedge anticipated expenses in 1998. The exchange rate on the
contracts ranges from 5.34 to 6.01 French francs to the U.S. dollar. The
SF-14
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exchange rate as of December 31, 1997 was 5.99 French francs to the U.S. dollar.
The fair market value of all forward exchange contracts based on quoted market
prices of comparable instruments was a liability of $2,278,000 as of December
31, 1997. The value of the contracts upon ultimate settlement is dependent upon
actual currency exchange rates at the various maturity dates during 1998. There
were no such contracts outstanding as of December 31, 1996.
6. LEASES
The Company has entered into agreements with a financial institution for
the sale and leaseback of up to $22,000,000 of equipment to be used in the
Company's business. The Company has received aggregate proceeds of $15,900,000
pursuant to these facilities attributable to two offshore platform rigs placed
in service in 1996. The Company has purchase and lease renewal options at
projected future fair market values under the agreements. The leases have been
classified as operating leases for financial statement purposes. The net book
value of the equipment has been removed from the balance sheet and the excess of
funding over such net book value has been deferred and is being amortized as a
reduction of lease expense over the maximum lease term of five years. Rentals on
these transactions total $3,071,000 annually.
In connection with the acquisition of Forasol, the Company assumed capital
lease obligations pursuant to a sale and leaseback agreement of three
tender-assisted rigs. The obligations are payable in semi-annual installments
through October 2002, and bear interest at 7.67%. In October 1997, the lease was
expanded by $11,000,000 in respect of the financing of a new derrick set for a
tender-assisted rig. The additional obligation is repayable in semi-annual
installments through October 2002, and bears interest at 7.80%.
Future maturities of capital lease obligations are as follows:
AMOUNT
--------------
(IN THOUSANDS)
1998................................. $ 11,201
1999................................. 11,201
2000................................. 11,201
2001................................. 11,200
2002................................. 11,200
Thereafter........................... 1,427
--------------
57,430
Less amounts representing interest... (10,819)
--------------
46,611
Current portion of long-term lease
obligations........................ 10,336
--------------
Long-term lease obligations, net
of current portion............ $ 36,275
==============
Rental expense for operating leases for equipment, vehicles and various
facilities of the Company for the years ended December 31, 1997, 1996 and 1995
was $26,760,000, $19,449,000 and $9,503,000, respectively.
SF-15
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of the income tax provision were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
United States:
Federal:
Current.................... $ 27,221 $ (243) $ 1,650
Deferred................... 6,427 2,762 3,616
--------- --------- ---------
Total -- Federal...... 33,648 2,519 5,266
--------- --------- ---------
State:
Current.................... 1,601 (14) 89
Deferred................... 378 203 201
--------- --------- ---------
Total -- State........ 1,979 189 290
--------- --------- ---------
Total -- United
States.............. 35,627 2,708 5,556
--------- --------- ---------
Foreign:
Current......................... 9,125 2,466 723
Deferred........................ 6,887 2,917 785
--------- --------- ---------
Total Foreign......... 16,012 5,383 1,508
--------- --------- ---------
Income tax
provision....... $ 51,639 $ 8,091 $ 7,064
========= ========= =========
The difference between the effective federal income tax rate reflected in
the income tax provision and the amounts which would be determined by applying
the statutory federal tax rate to earnings before income taxes is summarized as
follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
U.S. statutory rate.................. 35.0% 34.0% 34.0%
Foreign.............................. (3.1) (8.0) (7.1)
State and local taxes................ 1.3 0.6 1.3
Other................................ -- (0.3) 3.3
--------- --------- ---------
Effective tax rate......... 33.2% 26.3% 31.5%
========= ========= =========
The domestic and foreign components of earnings before income taxes were as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
Domestic............................. $ 96,560 $ 8,076 $ 13,302
Foreign.............................. 59,074 22,743 9,121
---------- --------- ---------
Earnings before income
taxes................... $ 155,634 $ 30,819 $ 22,423
========== ========= =========
SF-16
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets as of December
31, 1997 and 1996 were as follows:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Deferred tax liabilities:
Depreciation.................... $ 71,524 $ 50,704
Other........................... 2,792 2,085
--------- ---------
Total deferred tax
liabilities............. 74,316 52,789
--------- ---------
Deferred tax assets:
Foreign net operating loss
carryforwards................. (8,256) (3,883)
Insurance claims................ (318) (461)
Other........................... (1,930) (3,291)
--------- ---------
Total deferred tax
assets.................. (10,504) (7,635)
Valuation allowance for deferred
tax assets.................... 6,249 506
--------- ---------
Net deferred tax assets.... (4,255) (7,129)
--------- ---------
Net deferred tax
liability............... $ 70,061 $ 45,660
========= =========
The Company has recognized a valuation allowance as of December 31, 1997
and 1996 for certain foreign net operating loss carryforwards due to
uncertainties regarding the Company's ability to realize such tax benefits. The
change in the valuation allowance is the result of such additional allowance.
Applicable U.S. income taxes have not been provided on approximately
$71,400,000 of undistributed earnings of the Company's foreign subsidiaries. The
Company considers such earnings to be permanently invested outside the U.S.
These earnings could be subject to U.S. income tax if distributed to the Company
as dividends or otherwise. The Company anticipates that foreign tax credits
would substantially reduce the amount of U.S. income tax that would be payable
if these earnings were to be repatriated.
8. NET EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share"("SFAS No. 128"). Accordingly, earnings per
share in the consolidated financial statements has been restated for all periods
presented to comply with the requirements of SFAS No. 128.
In accordance with SFAS No. 128, 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.
SF-17
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents information necessary to calculate basic and
diluted net earnings per share:
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net earnings (numerator)............. $ 103,995 $ 22,728 $ 15,359
Interest expense on convertible
subordinated debentures............ 3,700 4,955 --
Income tax effect.................... (1,335) (1,784) --
---------- --------- ---------
Adjusted net earnings
(numerator)................... $ 106,360 $ 25,899 $ 15,359
========== ========= =========
Weighted average shares outstanding
(denominator)...................... 43,036 26,719 24,551
Convertible subordinated
debentures......................... 4,779 6,106 --
Stock options and warrants........... 1,328 932 577
---------- --------- ---------
Adjusted weighted average shares
outstanding (denominator)..... 49,143 33,757 25,128
========== ========= =========
Basic earnings per share... $ 2.42 $ .85 $ .63
========== ========= =========
Diluted earnings per
share................... $ 2.16 $ .77 $ .61
========== ========= =========
9. EMPLOYEE BENEFITS
The Company has a salary deferral plan covering its employees whereby
employees may elect to contribute up to 15% of their annual compensation. The
Company may at its discretion make matching contributions with respect to an
employee's salary contribution of up to $1,000 or 6.00% of compensation,
whichever is less. The Company made matching contributions to the plan for the
years ended December 31, 1997, 1996, and 1995 totaling $817,000, $219,000, and
$229,000, respectively.
In 1993, the Company established a deferred compensation plan providing
officers and key employees with the opportunity to participate in an unfunded
deferred compensation program titled the "401(k) Restoration Plan." The 401(k)
Restoration Plan is a non-qualified plan which allows certain employees to defer
up to 100% of base compensation and bonuses earned.
10. SHAREHOLDERS' EQUITY
COMMON STOCK
In July 1996, the Company completed the public sale of 3,450,000 shares of
common stock, which resulted in net proceeds to the Company of approximately
$45,641,000. Approximately $20,200,000 of such net proceeds was used to repay
outstanding indebtedness, approximately $12,000,000 was used to finance the
construction of two platform rigs for the Company's offshore fleet and
approximately $7,000,000 was used to fund various capital projects for
Quitral-Co, including rig upgrades and expansion of its rig transportation
fleet. The balance of the net proceeds, $6,441,000, was used for general working
capital needs of the Company.
In May 1997, concurrently with the issuance of the Senior Notes, the
Company also sold 4,391,505 shares of common stock in a public offering. 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.
SF-18
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1997, the Company sold 2,865,000 shares of common stock in a
public offering. Net proceeds from the public sale of common stock were
approximately $97,000,000 after deducting underwriting discounts and estimated
offering expenses. The Company used approximately $40,000,000 of such net
proceeds to repay certain indebtedness, including $25,000,000 to repay
borrowings under the Credit Facility, $30,000,000 of such net proceeds to fund
the construction of three land rigs to be deployed in Venezuela and the balance
for general corporate purposes.
STOCK OPTION PLANS
The Company has a Long-Term Incentive Plan which provides for the granting
or awarding of stock options, restricted stock, stock appreciation rights and
stock indemnification rights to officers and other key employees. The number of
shares authorized and reserved for issuance under the Long-Term Incentive Plan
is limited to 13.00% of total issued and outstanding shares, subject to
adjustment in the event of certain changes in the Company's corporate structure
or capital stock. Stock options may be exercised in whole or in part beginning
six months after termination of employment or one year after retirement, total
disability or death of an employee.
In 1993, the shareholders of the Company approved and ratified the 1993
Directors' Stock Option Plan. The purpose of the plan is to afford the Company's
directors who are not full-time employees of the Company or any subsidiary of
the Company an opportunity to acquire a greater proprietary interest in the
Company. A maximum of 200,000 shares of the Company's common stock is to be
available for purchase upon the exercise of options granted pursuant to the 1993
Directors' Stock Option Plan. The exercise price of options is the fair market
value per share on the date the option is granted. Directors' stock options vest
over two years at the rate of 50% per year and expire ten years from date of
grant.
Stock option transactions pursuant to the Long-Term Incentive Plan and the
1993 Directors' Stock Option Plan for the last three years are summarized as
follows:
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN 1993 DIRECTORS' PLAN
------------------------------ -----------------------------
PRICE SHARES PRICE SHARES
----------------- ----------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
Outstanding as of
December 31, 1994...... 1,926,350 39,000
Granted.............. $6.875 483,000 $8.375 - $9.125 19,000
Exercised............ $2.25 - $6.875 (256,000) -- --
----------- ---------
Outstanding as of
December 31, 1995...... 2,153,350 58,000
Granted.............. $9.125 - $14.125 924,000 $17.875 12,000
Exercised............ $2.25 - $6.875 (255,200) -- --
----------- ---------
Outstanding as of
December 31, 1996...... 2,822,150 70,000
Granted.............. $17.25 - $22.75 1,849,200 $19.875 - $20.625 32,000
Exercised............ $2.25 - $14.125 (883,479) -- --
----------- ---------
Outstanding as of
December 31, 1997...... 3,787,871 102,000
=========== =========
Exercisable as of
December 31, 1997...... 2,431,449 64,000
=========== =========
</TABLE>
The weighted average fair values per share of options granted during the
years ended December 31, 1997, 1996 and 1995 were $8.60 and $5.12 and $3.05,
respectively. The fair values were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions for each of
the three years in the period ended December 31, 1997: dividend yield of 0.00%;
volatility of approximately 37.00% for all years; risk free rate of interest
ranging from 6.35% to 6.56%, 5.27% to 6.90% and 5.24% to 6.89%, respectively;
and an expected term of five years for all years.
SF-19
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information on stock options outstanding and
exercisable as of December 31, 1997 pursuant to the Long-term Incentive Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------
WGTD. AVG.
REMAINING
RANGE OF SHARES CONTR. WGTD. AVG. SHARES WGTD. AVG.
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------ ----------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$2.25 - $ 5.00.... 394,750 1.40 $ 2.57 394,750 $ 2.57
$5.01 - $ 7.00.... 1,421,353 7.22 $ 7.44 1,294,071 $ 7.31
$7.01 - $22.75.... 1,971,768 9.23 $19.98 742,628 $18.06
----------- -----------
$2.25 - $22.75.... 3,787,871 7.66 $13.48 2,431,449 $ 9.83
=========== ===========
The following table summarizes information on stock options outstanding and
exercisable as of December 31, 1997 pursuant to the 1993 Directors' Stock Option
Plan:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------
WGTD. AVG.
REMAINING
RANGE OF SHARES CONTR. WGTD. AVG. SHARES WGTD. AVG.
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------ ----------- ---------- -------------- ----------- --------------
$ 4.25 - $10.00... 58,000 6.25 $ 6.28 58,000 $ 6.28
$10.01 -
$20.623......... 44,000 9.02 $19.53 6,000 $17.88
----------- -----------
$ 4.25 -
$20.623......... 102,000 7.45 $12.00 64,000 $ 7.37
=========== ===========
</TABLE>
If the fair value based method of accounting prescribed by SFAS No. 123 had
been applied, the Company's net earnings and earnings per share would
approximate the pro forma amounts indicated below. The effects of applying SFAS
No. 123 in this pro forma disclosure are not indicative of future amounts.
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)
Pro forma net earnings............... $ 97,424 $ 20,658
Pro forma net earnings per share
Basic........................... $ 2.26 $ .77
Diluted......................... $ 2.03 $ .71
11. COMMITMENTS AND CONTINGENCIES
The Company is from time to time involved in litigation incidental to its
business, which at times involves claims for significant monetary amounts, some
of which would not be covered by insurance. In the opinion of management, none
of the Company's existing litigation should have any material adverse effect on
the Company's financial position or results of operations.
The Company's international land rigs are insured, with deductibles of
generally $25,000 per occurrence. Nineteen of the Company's 23 offshore platform
rigs and all of its other offshore rigs are insured with deductibles of $50,000
and $150,000, respectively. Presently, the Company has insurance deductibles of
$100,000 for general liability claims. The Company maintains statutory insurance
coverages on its offshore platform rig workers and its maritime employees, with
deductibles of up to $50,000 per occurrence. Coverages with respect to foreign
operations for workers' compensation and automobile claims are subject to
deductibles of generally $40,000 to $100,000 per occurrence.
As of December 31, 1997 and 1996, the Company had accrued approximately
$4,643,000 and $4,853,000, respectively, for estimated claims liabilities, of
which $3,746,000 and $3,713,000, respectively, was included in current
liabilities and $897,000 and $1,140,000, respectively, was included in other
long-
SF-20
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term liabilities in the accompanying consolidated balance sheet. As of December
31, 1997, the Company had letters of credit outstanding totaling $8,330,000.
These letters of credit principally guarantee the funding of the Company's share
of insured claims.
During 1997, the Company entered into a joint venture to construct, own and
operate an ultra-deepwater drillship currently under construction in South
Korea. The drillship is contracted to work offshore Angola for a term of five
years. It is anticipated that the drillship will commence operations in mid-
1999. Subsequent to December 31, 1997, the joint venture entered into a
financing arrangement with a group of banks providing that, upon delivery of the
drillship, approximately 80% of the drillship's estimated construction cost of
$235 million will be provided by loans that are without recourse to the joint
venture participants. The Company estimates that its total equity investment in
the project will be approximately $12 million, which will represent a 51%
ownership interest.
Also during 1997, a newly organized special purpose subsidiary of the
Company agreed to participate in joint ventures to construct, own and operate
six Amethyst-class dynamically positioned semisubmersible drilling rigs. The
rigs will be operated under charter and service contracts with initial terms of
six to eight years. The total estimated cost to construct, equip and mobilize
the six rigs is approximately $1 billion, approximately 90% of which is expected
to be provided from the proceeds of project finance obligations of the ventures
without recourse to the joint venture participants. Delivery of the rigs is
expected during late 1999 and 2000. The Company estimates that its total equity
investment in the project will be approximately $30 million, which will
represent a 30% ownership interest.
12. SUPPLEMENTAL FINANCIAL INFORMATION
OTHER CURRENT ASSETS
Other current assets as of December 31, 1997 and 1996 consisted of the
following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Other receivables.................... $ 21,376 $ 7,743
Prepaid expenses..................... 14,315 8,943
--------- ---------
Total other current assets...... $ 35,691 $ 16,686
========= =========
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles as of December 31, 1997 and 1996 consisted
of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Goodwill............................. $ 2,944 $ 2,944
Other intangibles.................... 1,373 2,097
--------- ---------
4,317 5,041
Accumulated amortization............. (694) (1,907)
--------- ---------
Total goodwill and other
intangibles..................... $ 3,623 $ 3,134
========= =========
Amortization expense amounted to $198,000, $198,000 and $196,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
SF-21
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
Other assets as of December 31, 1997 and 1996 consisted of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Prepaid expenses..................... $ 1,156 $ 3,898
Deferred financing costs............. 9,014 1,449
Mobilization costs................... 5,974 --
Other................................ 6,785 1,925
--------- ---------
Total other assets.............. $ 22,929 $ 7,272
========= =========
ACCRUED EXPENSES
Accrued expenses as of December 31, 1997 and 1996 consisted of the
following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Insurance............................ $ 3,872 $ 3,713
Payroll.............................. 5,504 7,019
Taxes, other than income............. 10,537 8,826
Foreign social benefits.............. 30,707 3,073
Other................................ 7,792 3,154
--------- ---------
Total accrued expenses.......... $ 58,412 $ 25,785
========= =========
OTHER LONG-TERM LIABILITIES
Other long-term liabilities as of December 31, 1997 and 1996 consisted of
the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Foreign social benefits.............. $ 25,210 $ 9,502
Insurance............................ 897 1,140
Deferred compensation................ 2,583 1,142
Deferred lease benefit............... 221 350
--------- ---------
Total other long-term
liabilities................... $ 28,911 $ 12,134
========= =========
OPERATING EXPENSES
Operating expenses for the years ended December 31, 1997 and 1996 include
gains on insurance recoveries from damaged or destroyed rigs of $1,800,000 and
$1,085,000, respectively. There were no insurance recoveries during the year
ended December 31, 1995.
OTHER INCOME
Other income for the years ended December 31, 1997 included a gain of
$83,553,000 as a result of the sale of substantially all of the Company's assets
used in its U.S. land-based well servicing operations.
Foreign exchange transaction (gains) losses included in other income were
$(3,736,000), $437,000 and $142,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
SF-22
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH FLOW INFORMATION
Cash paid (received) for interest and income taxes during the years ended
December 31, 1997, 1996, and 1995 was as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
Cash paid (received) during the year
for:
Interest, net of amounts
capitalized................... $ 32,810 $ 11,220 $ 4,316
Income taxes -- U.S. ........... 34,117 (472) 500
Income taxes -- foreign......... 8,433 5,844 16
13. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS
The following table sets forth certain consolidated information with
respect to the Company and its subsidiaries by operating segment:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL
--------------------- ---------------------
LAND OFFSHORE LAND OFFSHORE TOTAL
-------- --------- -------- --------- ----------
(IN THOUSANDS)
1997
- -------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 16,485 $ 135,281 $385,590 $ 162,432 $ 699,788
Earnings from operations............. 519 40,965 42,500 24,401 108,385
Identifiable assets.................. 1,503 395,598 687,789 456,611 1,541,501
Capital expenditures, including
acquisitions....................... 8,465 330,252 132,729 418,538 889,984
Depreciation and amortization........ 818 13,076 33,801 10,966 58,661
1996
- -------------------------------------
Revenues............................. $117,142 $ 57,450 $218,562 $ 14,020 $ 407,174
Earnings from operations............. 7,808 6,983 23,372 1,979 40,142
Identifiable assets.................. 94,559 61,251 331,462 54,790 542,062
Capital expenditures, including
acquisitions....................... 8,666 18,618 211,834 17 239,135
Depreciation and amortization........ 5,738 3,665 12,677 6,985 29,065
1995
- -------------------------------------
Revenues............................. $113,115 $ 49,595 $100,889 $ -- $ 263,599
Earnings from operations............. 7,906 6,785 12,630 -- 27,321
Identifiable assets.................. 77,243 50,978 129,384 -- 257,605
Capital expenditures, including
acquisitions....................... 14,502 15,066 28,940 -- 58,508
Depreciation and amortization........ 5,578 3,091 7,988 -- 16,657
SF-23
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth certain information with respect to the
Company and its subsidiaries by geographic area:
NORTH SOUTH OTHER
AMERICA AMERICA INTERNATIONAL TOTAL
-------- -------- -------------- -----------
(IN THOUSANDS)
1997
- -------------------------------------
Revenues............................. $151,766 $451,693 $ 96,329 $ 699,788
Earnings from operations............. 41,484 53,302 13,599 108,385
Identifiable assets.................. 397,101 720,126 424,274 1,541,501
Capital expenditures, including
acquisitions....................... 338,717 119,932 431,335 889,984
Depreciation and amortization........ 13,894 34,478 10,289 58,661
1996
- -------------------------------------
Revenues............................. $174,592 $231,038 $ 1,544 $ 407,174
Earnings from operations............. 14,791 25,799 (448) 40,142
Identifiable assets.................. 155,810 384,165 2,087 542,062
Capital expenditures, including
acquisitions....................... 27,284 211,851 -- 239,135
Depreciation and amortization........ 9,403 19,394 268 29,065
1995
- -------------------------------------
Revenues............................. $162,710 $ 98,382 $ 2,507 $ 263,599
Earnings from operations............. 14,691 12,448 182 27,321
Identifiable assets.................. 128,221 125,939 3,445 257,605
Capital expenditures, including
acquisitions....................... 29,568 28,940 -- 58,508
Depreciation and amortization........ 8,669 7,611 377 16,657
</TABLE>
SIGNIFICANT CUSTOMERS
One customer accounted for approximately 14% of consolidated revenues for
the year ended December 31, 1997 and one customer accounted for approximately
16% and 17% of consolidated revenues for the years ended December 31, 1996 and
1995, respectively. Another customer accounted for approximately 54% of revenues
from domestic offshore operations during 1995. Revenues from such customer and
its affiliates from both land and offshore operations accounted for
approximately 13% of consolidated revenues during such period.
SF-24
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997
<S> <C> <C> <C> <C>
Revenues............................. $131,376 $174,537 $182,908 $210,967
Earnings from operations............. 15,198 26,899 29,947 36,341
Net earnings......................... 57,494 13,053 14,032 19,416
Net earnings per share
Basic........................... 1.82 .29 .30 .40
Diluted......................... 1.49 .27 .28 .37
Weighted average shares outstanding
Basic........................... 31,569 44,884 46,809 48,652
Diluted......................... 39,046 50,293 52,621 54,358
1996
Revenues............................. $ 66,235 $101,989 $115,369 $123,581
Earnings from operations............. 5,358 9,361 11,971 13,452
Net earnings......................... 2,780 4,795 6,879 8,274
Net earnings per share
Basic........................... .11 .19 .24 .29
Diluted......................... .11 .17 .22 .25
Weighted average shares outstanding
Basic........................... 24,846 25,038 28,438 28,516
Diluted......................... 30,345 32,599 35,913 36,124
</TABLE>
SF-25
<PAGE>
PROSPECTUS
$500,000,000
[LOGO] PRIDE INTERNATIONAL, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
------------------------
Pride International, Inc. (the "Company") may offer from time to time,
together or separately, (i) its unsecured debt securities consisting of notes,
debentures or other evidences of indebtedness (the "Debt Securities"), (ii)
shares of its preferred stock, no par value ("Preferred Stock"), and (iii)
shares of its common stock, no par value ("Common Stock"). The aggregate initial
offering price of the Debt Securities, Preferred Stock and Common Stock to be
offered by the Company hereby (collectively, the "Securities") will not exceed
$500,000,000 or, if applicable, the equivalent thereof in any other currency,
currency unit or composite currency. The Securities may be offered as separate
series in amounts, at prices and on terms to be determined in light of market
conditions at the time of sale and set forth in a Prospectus Supplement.
The terms of each series of Debt Securities, including, where applicable,
the specific designation, aggregate principal amount, ranking as senior debt or
subordinated debt, authorized denomination, maturity, rate (or method of
determining the same) and times of payment of any interest, any terms for
optional or mandatory redemption, which may include redemption at the option of
holders upon the occurrence of certain events or payment of additional amounts
or any sinking fund provisions, any provisions with respect to conversion or
exchangeability, the initial public offering price, the net proceeds to the
Company and any other specific terms in connection with the offering and sale of
such series will be set forth in a Prospectus Supplement. As used herein, the
Debt Securities shall include securities denominated in United States dollars
or, at the option of the Company if so specified in an applicable Prospectus
Supplement, in any other currency, currency unit or composite currency, or in
amounts determined by reference to an index or formula. In addition, all or a
portion of the Debt Securities of a series may be issuable in temporary or
permanent global form.
The terms of each series of Preferred Stock, including, where applicable,
the specific designation, number of shares, liquidation preference per share,
dividend or distribution rate (or method of determining the same) and dates on
which dividends or distributions shall be payable and dates from which dividends
or distributions shall accrue, any terms for optional or mandatory redemption,
which may include redemption at the option of holders upon the occurrence of
certain events or payment of additional amounts or any sinking fund provisions,
any provisions with respect to conversion or exchangeability, any voting rights,
any other relative rights or restrictions, preferences, limitations or
qualifications relating to the Preferred Stock of a specific series, the initial
public offering price, the net proceeds to the Company and any other specific
terms in connection with the offering and sale of such series will be set forth
in a Prospectus Supplement.
The Securities may be sold directly by the Company to investors, through
agents designated from time to time or to or through underwriters or dealers.
See "Plan of Distribution." If any agents of the Company or any underwriters are
involved in the sale of any Securities in respect of which this Prospectus is
being delivered, the names of such agents or underwriters and any applicable
commissions or discounts will be set forth in a Prospectus Supplement. The net
proceeds to the Company from such sale also will be set forth in a Prospectus
Supplement.
The Common Stock is traded on the New York Stock Exchange under the symbol
"PDE." Any Common Stock offered will be traded, subject to notice of issuance,
on the New York Stock Exchange.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE INVESTORS IN SECURITIES SHOULD CONSIDER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is March 23, 1998.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS PROSPECTUS NOR
THE ACCOMPANYING PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY SALE OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
Available Information................ 3
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 4
Risk Factors......................... 4
Use of Proceeds...................... 6
Ratio of Earnings to Fixed Charges... 7
Description of Debt Securities....... 7
Description of Capital Stock......... 15
Plan of Distribution................. 18
Legal Matters........................ 19
Independent Public Accountants....... 19
------------------------
IN CONNECTION WITH AN OFFERING THROUGH UNDERWRITERS, CERTAIN PERSONS
PARTICIPATING IN SUCH OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED HEREBY, WHICH
MAY INCLUDE, AMONG OTHERS, OVERALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN THE SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND
AFTER SUCH OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"), which can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549; and
at the regional offices of the Commission at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at Seven World Trade Center, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. The Commission maintains an Internet
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
(HTTP://WWW.SEC.GOV). The Common Stock is traded on the New York Stock Exchange
under the symbol "PDE," and such material also can be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus, which constitutes part of a registration statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), omits
certain of the information contained in the Registration Statement. Reference is
hereby made to the Registration Statement and the exhibits thereto, which may be
obtained at the public reference facilities maintained by the Commission as
provided in the preceding paragraph, for further information with respect to the
Company and the securities offered hereby. Statements contained herein
concerning the provisions of such documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which the Company has filed with the Commission
pursuant to the Exchange Act, are incorporated in this Prospectus by reference
and shall be deemed to be a part hereof:
a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
b) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed on August 19, 1997, as such
Registration Statement may be amended from time to time for the purpose of
updating, changing or modifying such description; and
c) The Company's Current Report on Form 8-K dated March 20, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such document. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, a copy of any or all documents
that have been incorporated herein by reference (not including exhibits to the
documents that have been incorporated herein by reference unless such exhibits
are specifically incorporated by reference in the documents this Prospectus
incorporates). Requests should be directed to Robert W. Randall, Secretary,
Pride International, Inc., 5847 San Felipe, Suite 3300, Houston, Texas 77057
(telephone number: (713) 789-1400).
3
<PAGE>
THE COMPANY
GENERAL
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. The Company operates a global
fleet of 295 rigs, including two semisubmersible rigs, 17 jackup rigs, nine
tender-assisted rigs, seven barge rigs, 23 offshore platform rigs, 78 land-based
drilling rigs and 159 land-based workover rigs. Pride International, Inc. is a
Louisiana corporation with principal executive offices located at 5847 San
Felipe, Suite 3300, Houston, Texas 77057. Its telephone number at that address
is (713) 789-1400.
RISK FACTORS
THE FOLLOWING SHOULD BE CONSIDERED CAREFULLY WITH THE INFORMATION PROVIDED
ELSEWHERE IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN IN REACHING A DECISION REGARDING AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
INDUSTRY CONDITIONS
The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. The Company's
current business and operations are substantially dependent upon conditions in
the oil and gas industry and, specifically, the exploration and production
expenditures of oil and gas companies. The demand for contract drilling and
related services is directly influenced by oil and gas prices, expectations
about future prices, the cost of producing and delivering oil and gas,
government regulations, local and international political and economic
conditions, including the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and prices, the level
of production by non-OPEC countries and the policies of the various governments
regarding exploration and development of their oil and gas reserves. There can
be no assurance that current levels of exploration and production expenditures
of oil and gas companies will be maintained or that demand for the Company's
services will reflect the level of such activities.
INTERNATIONAL OPERATIONS
A significant portion of the Company's revenues are attributable to
international operations. Risks associated with operating in international
markets include foreign exchange restrictions and currency fluctuations, foreign
taxation, political instability, foreign and domestic monetary and tax policies,
expropriation, nationalization, nullification, modification or renegotiation of
contracts, war and civil disturbances and other risks that may limit or disrupt
markets. Additionally, the ability of the Company to compete in international
contract drilling markets may be adversely affected by foreign governmental
regulations that favor or require the awarding of such contracts to local
contractors, or by regulations requiring foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. Furthermore, the
Company's foreign subsidiaries may face governmentally imposed restrictions from
time to time on their ability to transfer funds to the Company. No predictions
can be made as to what foreign governmental regulations may be applicable to the
Company's operations in the future.
From time to time, certain foreign subsidiaries of the Company operate in
countries such as Libya and Iran that are subject to sanctions and embargoes
imposed by the U.S. Government. Although these sanctions and embargoes do not
prohibit such subsidiaries from completing existing contracts or from entering
into new contracts to provide drilling services in such countries, they do
prohibit the Company and its domestic subsidiaries, as well as employees of the
Company's foreign subsidiaries who are U.S. citizens, from participating in or
approving any aspect of the business activities in such countries. The Company
is unable to predict whether such constraints on its ability to have U.S.
persons provide managerial oversight and supervision will adversely affect the
financial or operating performance of such business activities.
4
<PAGE>
RISKS RELATED TO NEW CONSTRUCTION, UPGRADE AND REFURBISHMENT PROJECTS
The Company intends to make significant expenditures to construct new rigs
and to upgrade and refurbish other rigs that are not currently under contract.
These projects are subject to the risks of delay or cost overruns inherent in
large construction and refurbishment projects, including shipyard availability,
shortages of materials or skilled labor, unforeseen engineering problems, work
stoppages, weather interference, unanticipated cost increases, nonavailability
of necessary equipment and inability to obtain any of the requisite permits or
approvals. Significant delays could also have a material adverse effect on the
Company's marketing plans for such rigs and could jeopardize the contracts under
which the Company plans to operate such rigs.
ACQUISITION-RELATED RISKS
A substantial portion of the Company's growth has resulted from the
acquisition of other oilfield services businesses and assets. There can be no
assurance, however, that the Company will be able to continue to identify
attractive acquisition opportunities, negotiate acceptable acquisition terms,
obtain financing for acquisitions on satisfactory terms or successfully acquire
identified targets. The ability of the Company to pursue acquisition
opportunities may be affected by the limitations on its financing flexibility
imposed by the Company's current financing arrangements. Moreover, there can be
no assurance that competition for acquisition opportunities in the industry will
not escalate, thereby increasing the cost to the Company of making further
acquisitions or causing the Company to refrain from making further acquisitions.
In addition, no assurance can be given that the Company will be successful in
integrating acquired businesses and assets into its existing operations. Such
integration may result in unforeseen operational difficulties or require a
disproportionate amount of management's attention. The Company's failure to
achieve consolidation savings, to incorporate the acquired businesses and assets
into its existing operations successfully or to minimize any unforeseen
operational difficulties could have a material adverse effect on the Company.
LEVERAGE AND DEBT COVENANTS
As of December 31, 1997, the Company had approximately $523.9 million in
long-term indebtedness, net of current portion, approximately $52.5 million of
which was represented by subordinated debentures that are convertible into
Common Stock at a conversion price of $12.25 per share. The level of the
Company's indebtedness will have several important effects on the Company's
future operations, including, among others, (i) a significant portion of the
Company's cash flow from operations will be dedicated to the payment of
principal of and interest on its indebtedness and will not be available for
other purposes, (ii) covenants contained in the Company's existing financing
arrangements require the Company to meet certain financial tests, which may
affect the Company's flexibility in planning for, and reacting to, changes in
its business, and (iii) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to general economic
conditions, industry cycles and financial, business and other factors affecting
the operations of the Company, many of which are beyond its control.
OPERATING RISKS AND INSURANCE
The Company's operations are subject to the many hazards inherent in the
oilfield services industry. Contract drilling and well servicing require the use
of heavy equipment and exposure to hazardous conditions, which may subject the
Company to liability claims by employees, customers and third parties. These
hazards can cause personal injury or loss of life, severe damage to or
destruction of property and equipment, pollution or environmental damage and
suspension of operations. The Company's offshore fleet is also subject to
hazards inherent in marine operations, either while on site or during
mobilization, such as capsizing, sinking and damage from severe weather
conditions. In certain instances, contractual indemnification of customers or
others is required of the Company. The Company maintains workers' compensation
insurance for its employees and other insurance coverage for normal business
risks, including general
5
<PAGE>
liability insurance. Although the Company believes its insurance coverages to be
adequate and in accordance with industry practice against normal risks in its
operations, there can be no assurance that any insurance protection will be
sufficient or effective under all circumstances or against all hazards to which
the Company may be subject. The occurrence of a significant event against which
the Company is not fully insured, or of a number of lesser events against which
the Company is insured, but subject to substantial deductibles, could materially
and adversely affect the Company's operations and financial condition. Moreover,
no assurance can be given that the Company will be able to maintain adequate
insurance in the future at rates or on terms it considers reasonable or
acceptable.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling and
well servicing industries. The Company's operations routinely involve the
handling of waste materials, some of which are classified as hazardous
substances. Consequently, the regulations applicable to the Company's operations
include those with respect to containment, disposal and controlling the
discharge of hazardous oilfield waste and other nonhazardous waste material into
the environment, requiring removal and cleanup under certain circumstances, or
otherwise relating to the protection of the environment. Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain circumstances impose strict liability, rendering a party liable for
environmental damage without regard to negligence or fault on the part of such
party. Such laws and regulations may expose the Company to liability for the
conduct of, or conditions caused by, others or for acts of the Company which
were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on the Company. In addition,
the modification of existing laws or regulations or the adoption of new laws or
regulations curtailing exploratory or development drilling for oil and gas for
economic, environmental or other reasons could have a material adverse effect on
the Company's operations by limiting future contract drilling opportunities.
USE OF PROCEEDS
Except as otherwise described in any Prospectus Supplement or any Pricing
Supplement, the net proceeds from the sale of Securities will be used for
general corporate purposes, which may include refinancings of indebtedness,
working capital, capital expenditures, acquisitions and repurchases and
redemptions of Securities.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges.. 4.5x 2.7x 4.0x 6.2x 5.8x
The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus fixed
charges less capitalized interest) by fixed charges (interest expense plus
capitalized interest and the portion of operating lease rental expense that
represents the interest factor). The Company had no Preferred Stock outstanding
for any period presented, and accordingly, the ratio of earnings to combined
fixed charges and Preferred Stock dividends is the same as the ratio of earnings
to fixed charges.
DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate (the "Offered Debt Securities"). The particular terms of the Offered
Debt Securities and the extent to which such general provisions may apply will
be described in a Prospectus Supplement relating to such Offered Debt
Securities.
The Debt Securities will be general unsecured obligations of the Company
and will constitute either senior debt securities or subordinated debt
securities. In the case of Debt Securities that will be senior debt securities
("Senior Debt Securities"), such Debt Securities will be issued under an
Indenture dated as of May 1, 1997 (the "Senior Indenture") between the Company
and The Chase Manhattan Bank, as trustee under the Senior Indenture (the "Senior
Trustee"), and will rank PARI PASSU with all other unsecured and unsubordinated
debt of the Company. In the case of Debt Securities that will be subordinated
debt securities ("Subordinated Debt Securities"), such Debt Securities will be
issued under an Indenture (the "Subordinated Indenture") to be executed by the
Company and such trustee thereunder as shall be named in an applicable
Prospectus Supplement (the "Subordinated Trustee"), and will rank PARI PASSU
with certain other subordinated debt of the Company that may be outstanding from
time to time and will rank junior to all Senior Indebtedness (as defined below)
of the Company (including any Senior Debt Securities) that may be outstanding
from time to time. The Senior Indenture and the Subordinated Indenture are
sometimes hereinafter referred to individually as an "Indenture" and
collectively as the "Indentures," and the Senior Trustee and the Subordinated
Trustee are sometimes hereinafter referred to individually as a "Trustee" and
collectively as the "Trustees." The statements under this caption relating to
the Debt Securities and the Indentures are summaries only and do not purport to
be complete. Such summaries make use of terms defined in the Indentures.
Wherever such terms are used herein or particular provisions of the Indentures
are referred to, such terms or provisions, as the case may be, are incorporated
by reference as part of the statements made herein, and such statements are
qualified in their entirety by such reference. Certain defined terms in the
Indentures are capitalized herein.
PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT SECURITIES
GENERAL. The Senior Indenture does not, and the Subordinated Indenture will
not, limit the aggregate principal amount of Debt Securities that can be issued
thereunder, and provides or will provide that Debt Securities may be issued from
time to time thereunder in one or more series, each in an aggregate principal
amount authorized by the Company prior to issuance. The Senior Indenture does
not, and the Subordinated Indenture will not, limit the amount of other
unsecured indebtedness or securities that may be issued by the Company.
Unless otherwise indicated in a Prospectus Supplement, the Debt Securities
will not benefit from any covenant or other provision that would afford Holders
of such Debt Securities special protection in the event of a highly leveraged
transaction involving the Company.
Reference is made to the Prospectus Supplement for the following terms of
the Offered Debt Securities, which will be issued in registered form: (i) the
title and aggregate principal amount of the Offered Debt Securities; (ii)
whether such Offered Debt Securities will be issued in the form of one or more
7
<PAGE>
global securities and whether such global securities are to be issuable in
temporary global form or permanent global form; (iii) the date or dates on which
the principal of and premium, if any, on the Offered Debt Securities is payable
or the method of determination thereof; (iv) the rate or rates, or the method of
determination thereof, at which the Offered Debt Securities will bear interest,
if any; (v) the date or dates from which such interest will accrue; (vi) the
interest payment dates on which such interest will be payable and the record
date for the interest payable on any Offered Debt Securities on any interest
payment date; (vii) whether and under what circumstances Additional Amounts with
respect to the Offered Debt Securities will be payable; (viii) the place or
places where the principal of, premium and interest, if any, on and any
Additional Amounts with respect to the Offered Debt Securities will be payable;
(ix) the period or periods within which, the price or prices at which and the
terms and conditions upon which Offered Debt Securities may be redeemed, in
whole or in part, at the option of the Company, if the Company is to have that
option; (x) the obligation, if any, of the Company to redeem, purchase or repay
Offered Debt Securities pursuant to any sinking fund or analogous provisions or
at the option of a holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which Offered Debt
Securities will be redeemed, purchased or repaid in whole or in part pursuant to
such obligation; (xi) the currency or currencies (including composite
currencies), if other than U.S. dollars, or the form, including equity
securities, other debt securities (including Debt Securities), warrants or any
other securities or property of the Company or any other Person, in which
payment of principal of, premium and interest, if any, on and any Additional
Amounts with respect to the Offered Debt Securities will be payable; (xii) if
such payments are to be payable, at the election of the Company or a holder
thereof, in a currency or currencies other than that in which the Offered Debt
Securities are stated to be payable, the currency or currencies in which such
payments as to which such election is made will be payable, and the periods
within which and the terms and conditions upon which such election is to be
made; (xiii) if the amount of such payments may be determined with reference to
any commodities, currencies or indices, values, rates or prices or any other
index or formula, the manner in which such amounts will be determined; (xiv) if
other than the entire principal amount thereof, the portion of the principal
amount of Offered Debt Securities that will be payable upon declaration of
acceleration of the maturity thereof; (xv) any additional means of satisfaction
and discharge of the applicable Indenture and any additional conditions or
limitations to discharge with respect to Offered Debt Securities or any
modifications of or deletions from such conditions or limitations; (xvi) any
deletions or modifications of or additions to the definitions, Events of Default
or covenants of the Company pertaining to the Offered Debt Securities; (xvii)
any restrictions or other provisions with respect to the transfer or exchange of
Offered Debt Securities; (xviii) if the Offered Debt Securities are to be
convertible into or exchangeable for equity securities, other debt securities
(including Debt Securities), warrants or any other securities or property of the
Company or any other Person, at the option of the Company or the holder or upon
the occurrence of any condition or event, the terms and conditions for such
conversion or exchange; and (xix) any other terms of the Offered Debt
Securities. Reference is also made to the Prospectus Supplement for information
with respect to any material United States federal income tax consequences with
respect to the ownership and disposition of Offered Debt Securities.
No service charge will be made for any registration of transfer or exchange
of the Debt Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Company conducts substantially all of its operations through
subsidiaries. The Holders of Debt Securities will have a junior position to any
creditors of the Company's subsidiaries.
Offered Debt Securities may be sold at a discount (which may be
substantial) below their stated principal amount bearing no interest or interest
at a rate that at the time of issuance is below market rates. Any material
United States federal income tax consequences and other special considerations
applicable thereto will be described in the Prospectus Supplement relating to
any such Offered Debt Securities.
If any of the Offered Debt Securities are sold for any foreign currency or
currency unit or if the principal of, or premium or interest, if any, on, or any
Additional Amounts with respect to any of the Offered Debt Securities is payable
in any foreign currency or currency unit, the restrictions, elections, tax
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consequences, specific terms and other information with respect to such Offered
Debt Securities and such foreign currency or currency unit will be set forth in
the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT. Unless otherwise provided with respect to any series of
Debt Securities, the following are or will be Events of Default under each
Indenture with respect to the Debt Securities of such series issued under such
Indenture: (a) failure to pay principal of or premium, if any, on any Debt
Security of such series when due; (b) failure to pay any interest on or any
Additional Amounts with respect to any Debt Security of such series when due,
continued for 30 days; (c) failure to deposit any sinking fund payment, when
due, in respect of the Debt Securities of such series, continued for 30 days;
(d) failure to perform any other covenant of the Company in the applicable
Indenture (other than a covenant included in such Indenture for the benefit of a
series of Debt Securities other than such series), continued for 90 days after
written notice as provided in such Indenture; (e) certain events of bankruptcy,
insolvency or reorganization; and (f) any other Event of Default as may be
specified with respect to Debt Securities of such series.
If an Event of Default with respect to any outstanding series of Debt
Securities occurs and is continuing, either the applicable Trustee or the
Holders of at least 25% in principal amount of the outstanding Debt Securities
of such series (in the case of an Event of Default described in clause (a), (b),
(c) or (f) above) or at least 25% in principal amount of all outstanding Debt
Securities under the applicable Indenture (in the case of an Event of Default
described in clause (d) above) may declare the principal amount of all the Debt
Securities of the applicable series (or of all outstanding Debt Securities under
the Indenture, as the case may be) to be due and payable immediately. If an
Event of Default described in clause (e) above occurs, the principal amount of
the outstanding Debt Securities of all series IPSO FACTO shall become
immediately due and payable without any declaration or other act on the part of
either Trustee or any Holder. At any time after a declaration of acceleration
has been made, but before a judgment has been obtained, the Holders of a
majority in principal amount of the outstanding Debt Securities of such series
(or of all outstanding Debt Securities under the applicable Indenture, as the
case may be) may, under certain circumstances, rescind and annul such
acceleration. Depending on the terms of other indebtedness of the Company
outstanding from time to time, an Event of Default under the Indentures may give
rise to cross defaults on such other indebtedness of the Company.
The Senior Indenture provides, and the Subordinated Indenture will provide,
that, within 90 days after the occurrence of a default with respect to any
series of Debt Securities, the applicable Trustee will give to the Holders of
the Debt Securities of such series notice of all uncured and unwaived defaults
known to it; PROVIDED, HOWEVER, that, except in the case of a default in the
payment of the principal of or premium, if any, or any interest on, or any
Additional Amounts or sinking fund installment with respect to, any Debt
Securities of such series, the applicable Trustee will be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Holders of the Debt Securities of such
series; and PROVIDED, FURTHER, that such notice shall not be given until at
least 30 days after the occurrence of a default in the performance or breach of
any covenant or warranty of the Company under such Indenture other than for the
payment of the principal of or premium, if any, or any interest on, or any
Additional Amounts or sinking fund installment with respect to, any Debt
Securities of such series. For the purpose of this provision, "default" with
respect to Debt Securities of any series means any event that is, or after
notice or lapse of time, or both, would become, an Event of Default with respect
to the Debt Securities of such series.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt Securities
under the applicable Indenture) have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
Trustee or exercising any trust or power conferred on such Trustee with respect
to the Debt Securities of such series (or of all outstanding Debt Securities
under the applicable Indenture), subject to certain limitations specified in the
applicable Indenture. The Senior Indenture provides, and the Subordinated
Indenture will provide, that in case an Event of Default shall occur and be
continuing, the applicable Trustee shall exercise such of its rights and powers
under the applicable Indenture and use the same degree of care and skill in its
exercise
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as a prudent man would exercise or use under the circumstances in the conduct of
his own affairs. Subject to such provisions, neither Trustee will be under an
obligation to exercise any of its rights or powers under the respective
Indenture at the request of any of the Holders of the Debt Securities unless
they have offered to the applicable Trustee reasonable security or indemnity
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt Securities
under the applicable Indenture) may on behalf of the Holders of all Debt
Securities of such series (or of all outstanding Debt Securities under the
applicable Indenture) waive any past default under the applicable Indenture,
except a default in the payment of the principal of or premium, if any, or
interest on or any Additional Amounts with respect to any Debt Security or in
respect of a provision that under the applicable Indenture cannot be modified or
amended without the consent of the Holder of each outstanding Debt Security
affected. The Holders of a majority in principal amount of the outstanding Debt
Securities affected thereby may on behalf of the Holders of all such Debt
Securities waive compliance by the Company with certain restrictive provisions
of the Indenture.
The Company is required to furnish to each Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
applicable Indenture and as to any default in such performance.
MODIFICATION. Modifications and amendments of each Indenture may be made by
the Company and the applicable Trustee with the consent of the Holders of a
majority in principal amount of the outstanding Debt Securities under the
applicable Indenture affected thereby; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Debt Security affected thereby, (a) change the stated maturity date
of the principal of, or any installment of principal of or interest on, or any
Additional Amounts with respect to any Debt Security, (b) reduce the principal
amount of, or the premium (if any) or interest on, or any Additional Amounts
with respect to any Debt Security, (c) change the place or currency, currencies,
or currency unit or units of payment of principal of, or premium (if any) or
interest on, or any Additional Amounts with respect to any Debt Security, (d)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Debt Security or (e) reduce the percentage in principal amount of
outstanding Debt Securities the consent of the Holders of which is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indentures or for waiver of certain defaults.
The Senior Indenture provides, and the Subordinated Indenture will provide,
that the Company and the applicable Trustee may, without the consent of any
Holders of Debt Securities, enter into supplemental indentures for the purposes,
among other things, of adding to the Company's covenants, adding additional
Events of Default, establishing the form or terms of Debt Securities or curing
ambiguities or inconsistencies in the applicable Indenture, PROVIDED that such
action to cure ambiguities or inconsistencies shall not adversely affect the
interests of the Holders of the Debt Securities in any material respect.
CONSOLIDATION, MERGER AND SALE OF ASSETS. Without the consent of any
Holders of outstanding Debt Securities, the Company may consolidate with or
merge into, or convey, transfer or lease its properties and assets substantially
as an entirety to, any Person, provided that (i) the Person formed by such
consolidation or into which the Company is merged or that acquires or leases the
properties and assets of the Company substantially as an entirety is a Person
that assumes by supplemental indenture the Company's obligations on the Debt
Securities and under each Indenture, (ii) after giving effect to the
transaction, no Event of Default and no event that, after notice or lapse of
time or both, would become an Event of Default has occurred and is continuing,
and (iii) certain other conditions are met. Upon compliance with these
provisions by a successor Person, the Company will (except in the case of a
lease) be relieved of its obligations under each Indenture and the Debt
Securities.
DISCHARGE AND DEFEASANCE. The Company may terminate its obligations under
each Indenture, other than its obligation to pay the principal of, premium, if
any, and interest on and any Additional Amounts with respect to the Debt
Securities of any series and certain other obligations, PROVIDED that it (i)
irrevocably deposits or causes to be irrevocably deposited with the applicable
Trustee as trust funds money or U.S.
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Government Obligations maturing as to principal and interest sufficient to pay
the principal of, premium, if any, and any interest on, and any Additional
Amounts and mandatory sinking funds with respect to, all outstanding Debt
Securities of such series on the stated maturity of such payments or on any
redemption date and (ii) complies with any additional conditions specified to be
applicable with respect to the covenant defeasance of Debt Securities of such
series.
The terms of any series of Debt Securities may also provide for legal
defeasance pursuant to the applicable Indenture. In such case, if the Company
(i) irrevocably deposits or causes to be irrevocably deposited money or U.S.
Government Obligations as described above, (ii) makes a request to the
applicable Trustee to be discharged from its obligations on the Debt Securities
of such series and (iii) complies with any additional conditions specified to be
applicable with respect to legal defeasance of Debt Securities of such series,
then the Company shall be deemed to have paid and discharged the entire
indebtedness on all the outstanding Debt Securities of such series, the
obligations of the Company under the applicable Indenture and the Debt
Securities of such series to pay the principal of, premium, if any, and interest
on and any Additional Amounts with respect to the Debt Securities of such series
shall cease, terminate and be completely discharged, and the Holders thereof
shall thereafter be entitled only to payment out of the money or U.S. Government
Obligations deposited with the applicable Trustee as aforesaid, unless the
Company's obligations are revived and reinstated because such Trustee is unable
to apply such trust fund by reason of any legal proceeding, order or judgment.
The term "U.S. Government Obligations" is or will be defined in each
Indenture as direct noncallable obligations of, or noncallable obligations the
payment of principal of and interest on which is guaranteed by, the United
States of America, or to the payment of which obligations or guarantees the full
faith and credit of the United States of America is pledged, or beneficial
interests in a trust the corpus of which consists exclusively of money or such
obligations or a combination thereof.
FORM, EXCHANGE, REGISTRATION AND TRANSFER. Debt Securities of any series
will be exchangeable for other Debt Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. Debt
Securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed), at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose with respect to any series of Debt Securities and referred to in an
applicable Prospectus Supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the applicable Indenture.
Such transfer or exchange will be effected upon the Security Registrar or such
transfer agent, as the case may be, being satisfied with the documents of title
and identity of the Person making the request. The Company will appoint the
Trustee under each Indenture as Security Registrar for Debt Securities issued
thereunder. If a Prospectus Supplement refers to any transfer agents (in
addition to the Security Registrar) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts. The Company is required to maintain
a transfer agent in each Place of Payment for such series. The Company may at
any time designate additional transfer agents with respect to any series of Debt
Securities.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days prior to the
selection of Debt Securities of that series for redemption and ending on the
close of business on the day of mailing of the relevant notice of redemption or
(ii) register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part.
PAYMENT AND PAYING AGENTS. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of principal of, premium, if any, and interest on
and any Additional Amounts with respect to Debt Securities will be made in the
designated currency or currency unit at the office of such Paying Agent or
Paying Agents as the Company may designate from time to time, except that, at
the option of the Company, payment of any interest may be made by check mailed
to the address of the Person entitled thereto as such
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address appears in the Security Register. Unless otherwise indicated in an
applicable Prospectus Supplement, payment of any installment of interest on Debt
Securities will be made to the Person in whose name such Debt Security is
registered at the close of business on the Regular Record Date for such
interest.
Unless otherwise indicated in an applicable Prospectus Supplement, the
Corporate Trust Office of each Trustee in New York, New York will be designated
as a Paying Agent for the Company for payments with respect to Debt Securities
issued under the applicable Indenture. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Company will be required to maintain a Paying Agent in each Place of Payment
for such series.
All moneys paid by the Company to a Paying Agent for the payment of
principal of, premium, if any, or interest on and any Additional Amounts with
respect to any Debt Security that remain unclaimed at the end of three years
after such principal, premium, interest or Additional Amounts have become due
and payable will (subject to applicable escheat laws) be repaid to the Company,
and the Holder of such Debt Security or any coupon will thereafter look only to
the Company for payment thereof.
BOOK-ENTRY DEBT SECURITIES. The Debt Securities of a series may be issued,
in whole or in part, in the form of one or more global Debt Securities that
would be deposited with a depositary or its nominee identified in the applicable
Prospectus Supplement. Global Debt Securities may be issued in either temporary
or permanent form. The specific terms of any depositary arrangement with respect
to any portion of a series of Debt Securities and the rights of, and limitations
on, owners of beneficial interests in any such global Debt Security representing
all or a portion of a series of Debt Securities will be described in the
applicable Prospectus Supplement.
MEETINGS. The Senior Indenture contains, and the Subordinated Indenture
will contain, provisions for convening meetings of the Holders of Debt
Securities of a series. A meeting may be called at any time by the applicable
Trustee, and also, upon request, by the Company or the Holders of at least 10%
in principal amount of the Outstanding Debt Securities of such series, in any
such case upon notice given as described under " -- Notices" below. Except for
any consent that must be given by the Holder of each Outstanding Debt Security
affected thereby, as described under " -- Modification" above, any resolution
presented at a meeting or adjourned meeting at which a quorum is present may be
adopted by the affirmative vote of the Holders of a majority in principal amount
of the Outstanding Debt Securities of that series; PROVIDED, HOWEVER, that,
except for any consent that must be given by the Holder of each Outstanding Debt
Security affected thereby, as described under " -- Modification" above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority in principal
amount of the Outstanding Debt Securities of a series, may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Debt Securities of that series. Subject to the proviso set
forth above, any resolution passed or decision taken at any meeting of Holders
of Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of Debt Securities of that series and
any related coupons. The quorum at any meeting called to adopt a resolution, and
at any reconvened meeting, will be Persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series.
GOVERNING LAW. Each Indenture and the Debt Securities will be governed by
and construed in accordance with the laws of the State of New York.
NOTICES. Notices to Holders of Debt Securities will be given by mail to
the addresses of such Holders as they appear in the Security Register.
TRUSTEES. The Senior Indenture contains, and the Subordinated Indenture
will contain, certain limitations on the right of the applicable Trustee, as a
creditor of the Company, to obtain payment of claims in certain cases and to
realize on certain property received with respect to any such claims, as
security or
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otherwise. Each Trustee is or will be permitted to engage in other transactions,
except that, if it acquires any conflicting interest (as defined), it must
eliminate such conflict or resign.
The Senior Trustee has made loans to the Company and its subsidiaries and
affiliates from time to time in the ordinary course of business and at
prevailing interest rates under agreements with commercial bank groups. In
addition, the Senior Trustee may from time to time serve as a depositary of
funds of, and perform other services for, the Company.
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
The payment of the principal of, premium, if any, and interest on and any
Additional Amounts with respect to the Subordinated Debt Securities will be
expressly subordinated, to the extent and in the manner set forth in the
Subordinated Indenture, to the prior payment in full of all Senior Indebtedness
of the Company.
The Subordinated Indenture will provide that no payment may be made by the
Company on account of the principal of, premium, if any, or interest on or any
Additional Amounts with respect to the Subordinated Debt Securities, or to
acquire any of the Subordinated Debt Securities (including repurchases of
Subordinated Debt Securities at the option of the Holder thereof) for cash or
property (other than certain junior securities of the Company), or on account of
the redemption provisions of the Subordinated Debt Securities, in the event of
(i) default in the payment of any principal of, premium, if any, or interest on
any Senior Indebtedness of the Company when it becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist, or (ii) any other event of default with
respect to any Designated Senior Indebtedness permitting the holders of such
Designated Senior Indebtedness (or a trustee or other representative on behalf
of the holders thereof) to declare such Designated Senior Indebtedness due and
payable prior to the date on which it would otherwise have become due and
payable, upon written notice thereof to the Company and the Subordinated Trustee
by any holders of such Designated Senior Indebtedness (or a trustee or other
representative on behalf of the holders thereof) (the "Default Notice"), unless
and until such event of default shall have been cured or waived or otherwise has
ceased to exist, PROVIDED that such payments may not be prevented under clause
(ii) above for more than 179 days after an applicable Default Notice has been
received by the Subordinated Trustee unless the Designated Senior Indebtedness
in respect of which such event of default exists has been declared due and
payable in its entirety, in which case no such payment may be made until such
acceleration has been rescinded or annulled or such Designated Senior
Indebtedness has been paid in full. No event of default that existed or was
continuing on the date of any Default Notice (whether or not such event of
default is on the same issue of Designated Senior Indebtedness) may be made the
basis for the giving of a second Default Notice, and only one such Default
Notice may be given in any 365-day period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than certain junior securities of
the Company) is received by the Subordinated Trustee or the Holders of
Subordinated Debt Securities at a time when such payment or distribution is
prohibited by the foregoing provisions, then, unless such payment or
distribution is no longer prohibited by the foregoing provisions, such payment
or distribution shall be received and held in trust by the Subordinated Trustee
or such Holders or the Paying Agent for the benefit of the holders of Senior
Indebtedness of the Company, and shall be paid or delivered by the Subordinated
Trustee or such Holders or the Paying Agent, as the case may be, to the holders
of the Senior Indebtedness of the Company remaining unpaid or unprovided for or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
of the Company may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the Company held or
represented by each, for application to the payment of all Senior Indebtedness
in full after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency,
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receivership or a similar proceeding or upon assignment for the benefit of
creditors, (i) the holders of all Senior Indebtedness of the Company will first
be entitled to receive payment in full before the Holders of Subordinated Debt
Securities are entitled to receive any payment on account of the principal of,
premium, if any, and interest on or any Additional Amounts with respect to the
Subordinated Debt Securities (other than certain junior securities of the
Company) and (ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than certain
junior securities of the Company) to which the Holders of Subordinated Debt
Securities or the Subordinated Trustee on behalf of such Holders would be
entitled, except for the subordination provisions contained in the Subordinated
Indenture, will be paid by the liquidating trustee or agent or other person
making such a payment or distribution directly to the holders of Senior
Indebtedness of the Company or their representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full of all such Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness.
No provision of the Subordinated Indenture or the Subordinated Debt
Securities will affect the obligation of the Company, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
and any Additional Amounts with respect to the Subordinated Debt Securities. The
subordination provisions of the Subordinated Indenture and the Subordinated Debt
Securities will not prevent the occurrence of any default or Event of Default
under the Subordinated Indenture or limit the rights of the Subordinated Trustee
or any Holder of Subordinated Debt Securities, subject to the two preceding
paragraphs, to pursue any other rights or remedies with respect to the
Subordinated Debt Securities.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshaling of assets or liabilities of the Company
and its subsidiaries, Holders of Subordinated Debt Securities may receive
ratably less than other creditors.
The term "Indebtedness," as applied to any Person, unless otherwise
provided with respect to the Subordinated Debt Securities of a series and
described in the Prospectus Supplement relating thereto, will be defined in the
Subordinated Indenture as, without duplication, the following: (i) all
liabilities and obligations, contingent or otherwise, of any such Person (a) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (b) evidenced
by bonds, notes, debentures or similar instruments, (c) representing the balance
deferred and unpaid of the purchase price of any property or services, except
such as would constitute trade payables to trade creditors in the ordinary
course of business that are not more than 90 days past their original due date,
(d) evidenced by banker's acceptances or similar instruments issued or accepted
by banks, (e) for the payment of money relating to rental obligations under a
lease required to be capitalized in accordance with generally accepted
accounting principles or (f) evidenced by a letter of credit or a reimbursement
obligation of such Person with respect to any letter of credit; (ii) all net
obligations of such Person under certain interest swap and hedging obligations;
(iii) all liabilities of others of the kind described in the preceding clause
(i) or (ii) that such Person has guaranteed or that is otherwise its legal
liability and all obligations to purchase, redeem or acquire any capital stock
of any Person; and (iv) any and all deferrals, renewals, extensions,
refinancings, refunds (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (i), (ii) or (iii), or this clause (iv), whether or not
between or among the same parties.
The term "Senior Indebtedness" of the Company, unless otherwise provided
with respect to the Subordinated Debt Securities of a series and described in
the Prospectus Supplement relating thereto, will be defined in the Subordinated
Indenture as (i) all Indebtedness of the Company unless, by the terms of the
instrument creating or evidencing such Indebtedness, it is provided that such
Indebtedness is not superior in right of payment to the Subordinated Debt
Securities or to other Indebtedness which is PARI PASSU with or subordinated to
the Subordinated Debt Securities and (ii) any modifications, refunding,
deferrals, renewals or extensions of any such Indebtedness or securities, notes
or other evidences of Indebtedness issued in
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exchange for such Indebtedness; PROVIDED that in no event shall "Senior
Indebtedness" include (a) Indebtedness of the Company owed or owing to any
subsidiary of the Company or any officer, director or employee of the Company or
any subsidiary of the Company, (b) Indebtedness to trade creditors or (c) any
liability for taxes owed or owing by the Company.
The term "Designated Senior Indebtedness," unless otherwise provided with
respect to the Subordinated Debt Securities of a series and described in the
Prospectus Supplement relating thereto, will be defined in the Subordinated
Indenture to mean any Senior Indebtedness of the Company that (i) in the
instrument evidencing the same or the assumption or guarantee thereof (or
related documents to which the Company is a party) is expressly designated as
"Designated Senior Indebtedness" for purposes of the Subordinated Indenture or
(unless otherwise provided) the Indenture governing the Company's convertible
subordinated debentures, and (ii) satisfies such other conditions as may be
provided with respect to the Subordinated Debt Securities of such series
(provided that such instrument or documents may place limitations and conditions
on the rights of the holders of such Senior Indebtedness to exercise the rights
of Designated Senior Indebtedness).
If Subordinated Debt Securities are issued under the Subordinated
Indenture, the aggregate principal amount of Senior Indebtedness outstanding as
of a recent date will be set forth in the Prospectus Supplement. The
Subordinated Indenture will not restrict the amount of Senior Indebtedness that
the Company may incur.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 100,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. To date, no series of Preferred Stock has
been designated or issued. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the Amended
and Restated Articles of Incorporation of the Company (the "Articles"), a copy
of which has been incorporated by reference as an exhibit to the Registration
Statement.
PREFERRED STOCK
When and if issued, shares of each series of Preferred Stock will have such
rights and preferences as are fixed by the Board of Directors in the resolution
or resolutions authorizing the issuance of that particular series. In
designating any series of Preferred Stock, the Board of Directors has the
authority, without further action of the holders of Common Stock, to fix the
number of shares constituting that series and to fix the preferences,
limitations and relative rights of the series, including the dividend rights,
dividend rate, terms and prices of redemption, liquidation preferences, sinking
fund rights, conversion rights and voting rights. It is expected that the
holders of any series of Preferred Stock, when and if issued, will have priority
with respect to dividends and any distributions upon liquidation of the Company,
and may have other preferences over the holders of the Common Stock, including
the preferential right to elect directors in the event dividends on the
Preferred Stock are not paid for a specified period. The particular terms of any
series of Preferred Stock will be described in a Prospectus Supplement. The
issuance of Preferred Stock could be used to discourage an unsolicited
acquisition proposal or otherwise have an antitakeover effect.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share, and, in
general, a majority of votes cast with respect to a matter is sufficient to
authorize action. Dividends may be paid to the holders of Common Stock when, as
and if declared by the Board of Directors out of funds legally available for
such purpose. Holders of Common Stock have no conversion, redemption, cumulative
voting or preemptive rights. In the event of any liquidation, dissolution or
winding up of the Company, after payment or provision for payment of the debts
and other liabilities of the Company and payment or provision for payment of all
amounts to which holders of any other series or class of the Company's stock
hereafter issued that ranks senior as to liquidation rights to the Common Stock
are entitled, the holders of Common Stock will be entitled to share ratably in
any remaining assets of the Company. All outstanding shares of Common Stock are,
and any
15
<PAGE>
shares of Common Stock to be sold by the Company hereby will be, duly and
validly issued, fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND LOUISIANA LAW
The Articles, the Company's Bylaws (the "Bylaws") and Louisiana law contain
certain other provisions that may impede an unsolicited takeover attempt or
otherwise have an antitakeover effect.
DIRECTOR TERMS AND RELATED PROVISIONS
The Articles provide that the members of the Board of Directors of the
Company will be elected for terms of five years and until their successors are
elected and qualified. The Articles further provide that the number of directors
will be as designated in the Bylaws, although no amendment to the Bylaws to
decrease the number of directors shall shorten the term of any incumbent
director. The Bylaws provide for eight directors and, in addition, that the
Bylaws may be amended by shareholders only upon the affirmative vote of at least
80% of the voting power. Moreover, the Articles provide that any vacancy on the
Board of Directors may be filled by a vote of at least two-thirds of the
directors then in office, and a director elected to fill a vacancy shall serve
until the next shareholders' meeting held for the election of directors
generally. The shareholders, however, have the right at a special meeting, if
called for such purpose prior to such action by the Board of Directors, to fill
a vacancy. The Articles also provide that directors may be removed only for
cause and only by the affirmative vote of not less than 80% of the voting power,
PROVIDED that the removal may only be effected at a meeting of shareholders
called for that purpose.
SHAREHOLDER MEETINGS
The Articles and the Bylaws provide that special meetings of shareholders
may be called by any shareholder or group of shareholders holding in the
aggregate at least 80% of the total voting power, or by the Chairman of the
Board, the President or the Board of Directors of the Company. A quorum for a
meeting of shareholders is a majority of the outstanding shares of Common Stock
entitled to vote. Unless the question brought before the meeting is one for
which, by express provision of law or the Articles, a different vote is
required, a majority of the votes cast decides the question. Unless otherwise
required by law or the Bylaws, meetings of shareholders may be held at any place
within or without Louisiana, as designated by the Board of Directors.
SHAREHOLDER NOMINATIONS OF DIRECTORS
The Articles provide that only persons who are nominated by, or at the
direction of, the Board of Directors of the Company or by a shareholder who has
given timely notice to the Secretary of the Company prior to the meeting at
which directors are to be elected will be eligible for election as directors. To
be timely, notice must be received by the Company at its principal executive
offices not less than 45 days nor more than 90 days prior to the meeting (or, if
less than 55 days' notice or prior public disclosure of the meeting date is
given or made to shareholders, not later than the tenth day following the day on
which such notice was mailed or such prior public disclosure was made). Notice
to the Company from a shareholder who proposes to nominate a person at a meeting
for election as a director must contain certain specified information about that
person.
SUPERMAJORITY VOTE FOR CERTAIN BUSINESS COMBINATIONS
The Articles provide that no Business Combination (as hereinafter defined)
shall be effected unless it is approved at the shareholders' meeting called for
that purpose by the affirmative vote of 80% of the total voting power of the
holders of voting securities or other obligations with voting power (excluding
such securities and obligations owned by an Acquiring Entity (as hereinafter
defined) and its affiliates). In addition to the voting requirements, no
Business Combination may be effected without first satisfying substantive
conditions with regard to: (i) the form and quantity of the consideration to be
received by
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<PAGE>
shareholders; (ii) certain restrictions prohibiting the Acquiring Entity from
purchasing voting securities or obligations with voting power subsequent to
becoming an Acquiring Entity but prior to any Business Combination; (iii) the
dividends paid on the outstanding stock of the Company; (iv) certain
restrictions prohibiting the Acquiring Entity from receiving the benefit of any
financial assistance of the Company or making any major change in the Company's
business or equity capital structure without unanimous approval of the directors
and (v) the distribution of a proxy statement containing any recommendations by
the directors and the opinion of a reputable investment banking firm as to the
fairness of the terms of the Business Combination.
These requirements will not apply to a Business Combination that (i) is
approved by a majority of directors unaffiliated with the Acquiring Entity who
were directors prior to an Acquiring Entity's becoming such (or certain
successors) (the "Continuing Directors"), if there are at least three Continuing
Directors or (ii) involves solely either (a) a transfer of assets of the Company
to a subsidiary wholly owned by the Company or (b) a merger or consolidation
with or into a successor corporation, as long as the percentages of shareholder
ownership remain the same and the successor corporation's articles of
incorporation contain the same provisions as the Articles.
A "Business Combination" is defined in the Articles as: (i) any merger or
consolidation of the Company with or into any entity unrelated to the Company
which is the beneficial owner of securities representing 30% or more of the
voting power of the Company's securities or other obligations of the Company
granting voting rights (an "Acquiring Entity") or any affiliate thereof; (ii)
any sale or other disposition of all or substantially all of the assets of the
Company to an Acquiring Entity or any affiliate thereof; (iii) any sale or other
disposition to the Company or any subsidiary thereof of any assets in exchange
for which an Acquiring Entity or any affiliate thereof becomes the beneficial
owner of either (a) voting securities of the Company or any subsidiary thereof
or (b) other obligations of the Company granting voting rights; (iv) any
transaction designed to decrease the number of holders of the Company's voting
securities remaining after an Acquiring Entity has become an Acquiring Entity or
(v) the adoption of any plan or proposal for the liquidation or dissolution of
the Company in which anything other than cash will be received by an Acquiring
Entity or any affiliate thereof.
LOUISIANA LAW
Louisiana law requires that certain transactions, such as mergers,
consolidations or share exchanges, with a shareholder beneficially owning 10% or
more of the voting power of the corporation (an "Interested Shareholder") or its
affiliates be recommended by the board of directors and approved by the
affirmative vote of (i) 80% of the votes entitled to be cast by outstanding
shares of the corporation's voting stock and (ii) two-thirds of the votes
entitled to be cast by holders of voting stock other than the Interested
Shareholder and its affiliates. These voting requirements do not apply to such
transactions if the transaction (i) does not alter the contract rights of the
stock or change or convert, in whole or in part, the outstanding shares of the
corporation or (ii) satisfies certain requirements with regard to the
consideration to be received by shareholders and certain procedural
requirements. Additionally, the Articles prohibit the application of these
voting requirements to transactions involving any person who was an Interested
Shareholder on the date the Company first had 100 shareholders (or any
transferee of such person).
OTHER PROVISIONS
The Articles and Louisiana law provide that the Board of Directors of the
Company, when evaluating a tender offer or an offer to make a tender or exchange
offer or to effect a Business Combination, may, in exercising its judgment in
determining what is in the best interests of the Company and its shareholders,
consider the following factors and any other factors that it deems relevant: (i)
not only the consideration being offered in the proposed transaction, in
relation to the then current market price for the outstanding capital stock of
the Company, but also (a) the market price for the capital stock of the Company
over a period of years, (b) the estimated price that might be achieved in a
negotiated sale of the Company as a whole or in part or through orderly
liquidation, (c) the premiums over market price for the securities of other
corporations in similar transactions, (d) current political, economic and other
factors bearing on
17
<PAGE>
securities prices and (e) the Company's financial condition and future
prospects; (ii) the social and economic effects of such transaction on the
Company, its subsidiaries or their employees, customers, creditors and the
communities in which the Company and its subsidiaries do business; (iii) the
business and financial condition and earnings prospects of the acquiring party
or parties, including, but not limited to, debt service and other existing or
likely financial obligations of the acquiring party or parties, and the possible
effect of such conditions upon the Company and its subsidiaries and the
communities in which the Company and its subsidiaries do business; and (iv) the
competence, experience and integrity of the acquiring party or parties and its
or their management.
AMENDMENT OF CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS
The Articles provide, with certain exceptions, that if either a majority of
the directors at a time when there is no Acquiring Entity or a majority of the
Continuing Directors at a time when there is an Acquiring Entity recommends an
amendment to the Articles, the holders of a majority of the total voting power
present at a shareholders' meeting are required to amend certain provisions of
the Articles. The exceptions relate generally to the authority of the Board of
Directors to issue Preferred Stock, the antitakeover provisions and limitations
on director liability, in which instances an amendment requires approval of
holders of 80% of the total voting power. The Bylaws provide that they may be
amended or repealed only by (i) a majority of the entire Board of Directors at
any time when there is no Acquiring Entity, (ii) both a majority of the entire
Board of Directors and a majority of the Continuing Directors at any time when
there is an Acquiring Entity or (iii) the affirmative vote of the holders of at
least 80% of the total voting power.
PLAN OF DISTRIBUTION
The Company may sell the Securities in and/or outside the United States:
(i) through underwriters or dealers, (ii) directly to purchasers or (iii)
through agents. The Prospectus Supplement with respect to the Securities offered
thereby (the "Offered Securities") will set forth the terms of the offering of
the Offered Securities, including the name or names of any underwriters or
agents, the purchase price of the Offered Securities and the proceeds to the
Company from such sale, any delayed delivery arrangements, any underwriting
discounts and other items constituting underwriters' compensation, any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Securities to be named in the
Prospectus Supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement relating thereto, the obligations of the underwriters to
purchase the Offered Securities will be subject to conditions precedent, and the
underwriters will be obligated to purchase all the Offered Securities if any are
purchased.
During and after an offering through underwriters, such underwriters may
purchase and sell the Securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers for the Offered Securities sold for
their account may be reclaimed by the syndicate if such Offered Securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Offered Securities, which may be higher than the price that might otherwise
prevail in the open market, and, if commenced, may be discontinued at any time.
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<PAGE>
If dealers are used in the sale of Offered Securities in respect of which
this Prospectus is delivered, the Company will sell such Offered Securities to
dealers as principals. The dealers may then resell such Offered Securities to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the Prospectus Supplement relating thereto.
The Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of the Offered Securities in respect to which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will be
set forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
The Securities may be sold directly by the Company to institutional
investors or others who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any sale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers from certain types
of institutions to purchase Offered Securities from the Company at the public
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, dealers and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that such agents, dealers or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may be
customers of, engage in transactions with, or perform services for the Company
in the ordinary course of business.
The Securities may or may not be listed on a national securities exchange.
No assurances can be given that there will be a market for the Securities.
LEGAL MATTERS
Certain legal matters in connection with the Preferred Stock and Common
Stock offered hereby will be passed upon for the Company by McGlinchey Stafford,
a professional limited liability company, New Orleans, Louisiana. Certain legal
matters in connection with the Debt Securities offered hereby will be passed
upon for the Company by Baker & Botts, L.L.P., Houston, Texas. McGlinchey
Stafford, a professional limited liability company, will pass on all matters of
Louisiana law in this connection.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheet of the Company as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997, and the related schedules, incorporated by reference in
this Prospectus, have been incorporated by reference herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in auditing and accounting.
The Historical Statement of Revenues and Direct/Allocated Operating
Expenses of the Mat-Supported Jackup Rigs of Noble Drilling Corporation for the
year ended December 31, 1996, incorporated in this Prospectus by reference to
the Company's Current Report on Form 8-K dated March 20, 1998, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated balance sheet of Forasol-Foramer N.V. ("Forasol") as of
December 31, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended, incorporated by
reference in this Prospectus, have been audited by Ernst & Young Audit,
independent auditors, as set forth in their report thereon appearing in the
Company's Current Report on
19
<PAGE>
Form 8-K dated March 20, 1998, and incorporated by reference herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated balance sheets of Forasol at December 31, 1995, prepared
in accordance with generally accepted accounting principles in the United
States, and the related consolidated statements of income, of cash flows and of
changes in stockholders' equity for each of the two years in the period ended
December 31, 1995, incorporated by reference in this Prospectus, except as they
relate to National Drilling and Services Co. LLC, have been audited by Price
Waterhouse, Paris, France, independent accountants. Such financial statements
have been so incorporated by reference in reliance on the reports of such
independent accountants given on the authority of such firm as experts in
auditing and accounting.
20
<PAGE>
[LINE DRAWING OMITTED]
The PRIDE AFRICA, an ultra-deepwater dynamically positioned drillship currently
under construction, is contracted to operate offshore Angola.
[LINE DRAWING OMITTED]
One of six enhanced Amethyst-class dynamically positioned semisubmersible
drilling rigs to be constructed and operating under contracts in the Campos
basin offshore Brazil.
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THE DEBENTURES OFFERED HEREBY, NOR DO
THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
DEBENTURES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........ S-3
Forward-Looking Statements........... S-9
Risk Factors......................... S-9
Price Range of Common Stock and
Dividend Policy.................... S-13
Use of Proceeds...................... S-13
Capitalization....................... S-14
Selected Financial Data.............. S-15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-17
Business............................. S-23
Management........................... S-33
Description of Debentures............ S-35
Certain Federal Income Tax
Consequences....................... S-47
Underwriting......................... S-50
Legal Matters........................ S-51
Index to Financial Statements........ SF-1
PROSPECTUS
Available Information................ 3
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 4
Risk Factors......................... 4
Use of Proceeds...................... 6
Ratio of Earnings to Fixed Charges... 7
Description of Debt Securities....... 7
Description of Capital Stock......... 15
Plan of Distribution................. 18
Legal Matters........................ 19
Independent Public Accountants....... 19
$511,431,000
PRIDE INTERNATIONAL, INC.
ZERO COUPON CONVERTIBLE
SUBORDINATED DEBENTURES
DUE 2018
------------------------
PROSPECTUS SUPPLEMENT
------------------------
SALOMON SMITH BARNEY
MORGAN STANLEY DEAN WITTER
APRIL 20, 1998
================================================================================
