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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-13289
PRIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 76-0069030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 SAN FELIPE, SUITE 3300
HOUSTON, TEXAS 77057
(Address of principal executive offices) (Zip Code)
(713) 789-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practical date.
Outstanding as of November 9, 1999
Common Stock, no par value 60,415,107
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<PAGE>
PRIDE INTERNATIONAL, INC.
INDEX
PAGE NO.
---------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1999 and
December 31, 1998 ................................................ 2
Consolidated Statement of Operations for the three months
ended September 30, 1999 and 1998................................. 3
Consolidated Statement of Operations for the nine months
ended September 30, 1999 and 1998................................. 4
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 and 1998................................. 5
Notes to Unaudited Consolidated Financial Statements................ 6
Report of Independent Accountants................................... 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 12
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................... 21
Item 6. Exhibits and Reports on Form 8-K.............................. 21
Signatures............................................................. 22
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................................... $ 195,477 $ 86,540
Trade receivables, net ............................................. 132,258 187,351
Parts and supplies ................................................. 28,668 29,161
Deferred income taxes .............................................. 3,961 1,320
Prepaid expenses and other current assets .......................... 68,608 65,410
----------- -----------
Total current assets .......................................... 428,972 369,782
----------- -----------
PROPERTY AND EQUIPMENT, net .............................................. 1,869,761 1,725,787
----------- -----------
OTHER ASSETS
Investments in and advances to affiliates .......................... 47,547 48,582
Other assets ....................................................... 58,936 48,016
----------- -----------
Total other assets ............................................ 106,483 96,598
----------- -----------
$ 2,405,216 $ 2,192,167
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................... $ 121,809 $ 151,514
Accrued expenses ................................................... 113,970 79,794
Short-term borrowings .............................................. 2,739 16,522
Current portion of long-term debt .................................. 14,688 27,452
Current portion of long-term lease obligations ..................... 10,150 9,897
----------- -----------
Total current liabilities ..................................... 263,356 285,179
----------- -----------
OTHER LONG-TERM LIABILITIES .............................................. 64,419 48,987
LONG-TERM DEBT, net of current portion ................................... 906,809 630,520
LONG-TERM LEASE OBLIGATIONS, net of current portion ...................... 44,021 50,148
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES ............................... 24,041 52,480
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES .......................... 213,670 237,327
DEFERRED INCOME TAXES .................................................... 59,329 101,302
MINORITY INTEREST ........................................................ 23,864 22,822
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 100,000,000 shares authorized;
58,622,019 and 50,437,261 shares issued and 58,567,799
and 50,383,041 shares outstanding, respectively ............... 1 1
Paid-in capital .................................................... 614,747 523,674
Treasury stock, at cost ............................................ (191) (191)
Retained earnings .................................................. 191,150 239,918
----------- -----------
Total shareholders' equity .................................... 805,707 763,402
----------- -----------
$ 2,405,216 $ 2,192,167
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
--------- ---------
REVENUES ......................................... $ 142,128 $ 209,964
OPERATING COSTS .................................. 98,936 130,959
--------- ---------
Gross margin ............................... 43,192 79,005
DEPRECIATION AND AMORTIZATION .................... 23,839 19,667
SELLING, GENERAL AND ADMINISTRATIVE .............. 16,318 20,756
--------- ---------
EARNINGS FROM OPERATIONS ......................... 3,035 38,582
--------- ---------
OTHER INCOME (EXPENSE)
Other income (expense), net ................ 2,489 (722)
Interest income ............................ 3,180 1,785
Interest expense ........................... (16,913) (11,413)
--------- ---------
Total other income (expense), net ..... (11,244) (10,350)
--------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES .............. (8,209) 28,232
INCOME TAX PROVISION (BENEFIT) ................... (1,869) 7,424
--------- ---------
NET EARNINGS (LOSS) .............................. $ (6,340) $ 20,808
========= =========
NET EARNINGS (LOSS) PER SHARE:
Basic ................................. $ (.11) $ .42
Diluted ............................... $ (.11) $ .37
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ................................. 56,194 50,101
Diluted ............................... 56,194 63,008
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
--------- ---------
REVENUES ......................................... $ 464,030 $ 642,836
OPERATING COSTS .................................. 336,714 404,894
RESTRUCTURING COSTS .............................. 12,817 --
--------- ---------
Gross margin .......................... 114,499 237,942
DEPRECIATION AND AMORTIZATION .................... 70,338 57,566
SELLING, GENERAL AND ADMINISTRATIVE .............. 55,337 61,508
RESTRUCTURING COSTS .............................. 25,700 --
--------- ---------
EARNINGS (LOSS) FROM OPERATIONS .................. (36,876) 118,868
--------- ---------
OTHER INCOME (EXPENSE)
Other income (expense), net ................ 3,054 (1,281)
Interest income ............................ 5,439 4,849
Interest expense ........................... (44,403) (34,241)
--------- ---------
Total other income (expense), net ..... (35,910) (30,673)
--------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES .............. (72,786) 88,195
INCOME TAX PROVISION (BENEFIT) ................... (20,134) 21,437
--------- ---------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN .... (52,652) 66,758
EXTRAORDINARY GAIN ............................... 3,884 --
--------- ---------
NET EARNINGS (LOSS) .............................. $ (48,768) $ 66,758
========= =========
NET EARNINGS (LOSS) PER SHARE BEFORE
EXTRAORDINARY GAIN:
Basic ................................. $ (1.00) $ 1.33
Diluted ............................... $ (1.00) $ 1.19
NET EARNINGS (LOSS) PER SHARE AFTER
EXTRAORDINARY GAIN:
Basic ................................. $ (.93) $ 1.33
Diluted ............................... $ (.93) $ 1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ................................. 52,526 50,082
Diluted ............................... 52,526 59,890
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) .......................................................... $ (48,768) $ 66,758
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities -
Depreciation and amortization ........................................... 70,338 57,566
Discount amortization on zero coupon convertible subordinated
debentures ......................................................... 8,183 4,552
Gain on sale of assets .................................................. (697) (878)
Deferred tax provision (benefit) ........................................ (44,614) 9,945
Minority interest ....................................................... 1,042 67
Extraordinary gain ...................................................... (6,825) --
Changes in assets and liabilities:
Trade receivables .................................................. 55,093 (6,377)
Parts and supplies ................................................. 493 (4,981)
Prepaid expenses and other current assets .......................... (3,198) (8,767)
Other assets ....................................................... (6,646) (9,001)
Accounts payable ................................................... (21,180) (10,459)
Accrued expenses ................................................... 34,176 16,661
Other liabilities .................................................. 15,432 31,879
--------- ---------
Net cash provided by (used in) operating activities ........... 52,829 146,965
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities, including acquisition costs,
less cash acquired ...................................................... -- (17,000)
Purchases of property and equipment .......................................... (320,029) (355,347)
Proceeds from sales of property and equipment ................................ 98,104 3,784
Investments in affiliates .................................................... 1,035 (39,380)
--------- ---------
Net cash used in investing activities ......................... (220,890) (407,943)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock ....................................... 37,500 --
Proceeds from exercise of stock options ...................................... 445 601
Proceeds from minority interest owners ....................................... -- 22,113
Proceeds from issuance of convertible subordinated debentures ................ -- 223,100
Proceeds from debt borrowings ................................................ 454,281 149,442
Reduction of debt ............................................................ (215,228) (107,020)
--------- ---------
Net cash provided by financing activities ..................... 276,998 288,236
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................................... 108,937 27,258
CASH AND CASH EQUIVALENTS, beginning of period ..................................... 86,540 74,395
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ........................................... $ 195,477 $ 101,653
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of Pride International, Inc. (the "Company") included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation.
In the opinion of management, the unaudited consolidated financial
information included herein reflects all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for a full year or any other interim period.
2. DEBT
LONG-TERM DEBT
Long-term debt as of September 30, 1999 and December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
9 3/8% Senior Notes due 2007 .................... $325,000 $325,000
10% Senior Notes due 2009 ....................... 200,000 --
Drillship construction loans .................... 323,963 158,866
Collateralized term loans ....................... 21,816 70,558
Limited-recourse collateralized term loans ...... 27,629 31,112
Senior convertible note ......................... 21,250 21,250
Other notes payable ............................. 1,839 12,186
Bank credit facility ............................ -- 39,000
-------- --------
921,497 657,972
Current portion of long-term debt ............... 14,688 27,452
-------- --------
Long-term debt, net of current portion .......... $906,809 $630,520
======== ========
</TABLE>
In connection with the construction of two new ultra-deepwater drillships,
the PRIDE AFRICA and the PRIDE ANGOLA, the Company and the two joint venture
companies in which the Company has a 51% interest have entered into financing
arrangements with a group of banks that are providing approximately $400 million
of the drillships' total estimated construction cost of $470 million. The loans
with respect to the PRIDE AFRICA have become non-recourse to the joint venture
participants, and the loans with respect to the PRIDE ANGOLA will become
non-recourse upon commencement of operations of the drillship. During the
construction of the PRIDE ANGOLA, the lenders could have recourse to the Company
with respect to an aggregate of up to $200 million of such loans. As of
September 30, 1999, $176.0 million was outstanding under the non-recourse loans
for the PRIDE AFRICA and $148.0 million was outstanding under the construction
period loans for the PRIDE ANGOLA.
6
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In May 1999, the Company completed the public sale of $200 million
principal amount of 10% Senior Notes due June 1, 2009. Interest on the notes is
payable semi-annually on June 1 and December 1 of each year. The notes are not
redeemable prior to June 1, 2004, after which they will be redeemable, in whole
or in part, at the option of the Company at redemption prices starting at 105%
of the principal amount and declining to 100% by June 1, 2007. In the event the
Company consummates a qualified equity offering on or prior to June 1, 2002, the
Company may use all or a portion of the proceeds to redeem up to 33% of the
principal amount of the notes at a redemption price equal to 110% of the
aggregate principal amount thereof, together with accrued and unpaid interest to
the date of redemption. The notes contain provisions that limit the ability of
the Company and its subsidiaries, with certain exceptions, to pay dividends or
make other restricted payments; incur additional debt or issue preferred stock;
create or permit to exist liens; incur dividend or other payment restrictions
affecting subsidiaries; consolidate, merge or transfer all or substantially all
of its assets; sell assets; enter into transactions with affiliates and engage
in sale and leaseback transactions.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
In September 1999, the Company issued a redemption notice relating to all
outstanding 6 1/4% Convertible Subordinated Debentures. As of September 30,
1999, holders of an aggregate of $28.4 million principal amount of such
debentures had converted such debentures into 2.3 million shares of common
stock. Subsequent to September 30, 1999, holders of an additional $27.7 million
principal amount converted such debentures into an additional 2.3 million shares
of common stock, and the balance of $0.7 million principal amount was redeemed
for cash.
3. SALE-LEASEBACK TRANSACTION
In February 1999, the Company completed the sale and leaseback of a
semisubmersible drilling rig, pursuant to which it received $97 million in cash.
The net book value of the rig has been removed from the balance sheet and the
excess of funding over the net book value of the rig has been deferred and is
being amortized as a reduction of lease expense over the lease term. The lease
is for a term of 13.5 years, and the Company has options to purchase the rig at
the end of eight and one-half years and at the end of the lease term. Annual
rentals on the rig range from $11.7 million to $15.9 million.
4. RESTRUCTURING CHARGES
During the three month period ended March 31, 1999, the Company
implemented a restructuring plan to address the dramatic decline in drilling and
workover activity that has occurred since the third quarter of 1998. The
restructuring consisted of regional base consolidations, down-sizing of
administrative staffs and other reductions in personnel and resulted in a pretax
charge of $38.5 million for current and future cash expenditures. Charges
included the cost of involuntary employee termination benefits, including
severance, wage continuation, medical and other benefits, facility closures and
other costs in connection with the restructuring plan. The Company paid
approximately $27.4 million of such cost attributed primarily to involuntary
employee termination benefits during the nine months ended September 30, 1999
(of which $2.6 million was paid in the third quarter). It is the opinion of
management that the remaining $11.1 million provision is adequate to cover the
future costs attributable to the restructuring.
5. INCOME TAXES
The Company's consolidated effective income tax rate for the nine months
ended September 30, 1999 was approximately 27.7%, as compared to approximately
24.3% for the corresponding period in 1998. The increase in the effective tax
rate for the nine months ended September 30, 1999 resulted primarily from the
effect of a significant portion of the tax effect of the restructuring costs and
the net losses being subject to taxation in higher effective tax rate
jurisdictions.
7
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. NET EARNINGS PER SHARE
Basic net earnings per share has been computed based on the weighted
average number of shares of common stock outstanding during the applicable
period. Diluted net earnings per share has been computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, as if the convertible debt 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 debt.
The following table presents information necessary to calculate basic and
diluted net earnings (loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net earnings (loss) before extraordinary gain .................... $ (6,340) $ 20,808 $(52,652) $ 66,758
Extraordinary gain ............................................... -- -- 3,884 --
-------- -------- -------- --------
Net earnings (loss) after extraordinary gain ..................... (6,340) 20,808 (48,768) 66,758
Interest expense on convertible debt ............................. 3,721 3,672 11,894 7,287
Income tax effect ................................................ (1,302) (1,322) (4,163) (2,623)
-------- -------- -------- --------
Adjusted net earnings (loss) after extraordinary gain ...... $ (3,921) $ 23,158 $(41,037) $ 71,422
======== ======== ======== ========
Weighted average shares outstanding .............................. 56,194 50,101 52,526 50,082
Convertible subordinated debentures .............................. 10,366 12,395 11,053 8,979
Stock options and warrants ....................................... 723 512 1,427 829
-------- -------- -------- --------
Adjusted weighted average shares outstanding ............... 67,283 63,008 65,006 59,890
======== ======== ======== ========
Basic net earnings (loss) per share:
Before extraordinary gain .................................. $ (.11) $ .42 $ (1.00) $ 1.33
======== ======== ======== ========
After extraordinary gain ................................... $ (.11) $ .42 $ (.93) $ 1.33
======== ======== ======== ========
Diluted net earnings (loss) per share ............................ $ (.11) $ .37 $ (.93) $ 1.19
======== ======== ======== ========
</TABLE>
As a result of net losses for the three months and the nine months ended
September 30, 1999, all common stock equivalents have been excluded from the
calculation of earnings (loss) per share because their effect is antidilutive
for those periods.
The Company will become obligated to purchase its zero coupon convertible
subordinated debentures, at the option of the holders, in whole or in part, on
April 24, 2003, 2008 and 2013. The Company has the option to purchase the
debentures for cash, common stock or a combination thereof. The Company does not
anticipate using common stock to satisfy any such future purchase obligation.
8
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EQUITY INVESTMENT
In June 1999, the Company issued approximately 4.7 million shares of
common stock to a private investment firm for $25 million in cash and the
delivery of approximately $77 million principal amount at maturity of the
Company's Zero Coupon Convertible Subordinated Debentures due 2018 that the
investment firm had previously acquired. Those debentures had an accreted value
of approximately $31.8 million. In connection with the cancellation of the
debentures, the Company recognized an extraordinary gain of $3.9 million, net of
income taxes. In July 1999, the Company issued an additional 1.0 million shares
to the investment firm for $12.5 million in cash. In September 1999, the
investment firm invested an additional $12.5 million cash in the common equity
of one of the Company's unconsolidated affiliates. The investment firm's $12.5
million investment in the affiliate is exchangeable after three years (or
earlier in certain events) at the investment firm's option for an additional
approximately 1.0 million shares of the Company's common stock. The Company will
have the option to purchase the stock of the affiliate for cash or shares of the
Company's common stock once the affiliate stock becomes exchangeable for the
Company's common stock.
8. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components in a full set of
financial statements. Comprehensive income includes all changes in a company's
equity, except those resulting from investments by and distributions to owners.
There was no difference between comprehensive income (loss) and net earnings
(loss) for the three or nine month periods ended September 30, 1999 and 1998.
9. COMMITMENTS AND CONTINGENCIES
The Company is routinely 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 will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
10. OTHER EVENTS
The Company has a 26.4% equity interest in a joint venture company
organized to construct, own and operate four dynamically positioned,
Amethyst-class semisubmersible drillings rigs. The rigs are currently under
construction at shipyards in South Korea and the United States. Upon their
completion, it is expected that the rigs will be operated under charters and
related service rendering contracts with Petroleo Brasilerio S.A. ("Petrobras")
having initial terms of six to eight years.
Each charter states that it may be canceled by Petrobras if the chartered
rig is not delivered within 180 days after the delivery date specified. On May
28, 1998, however, Petrobras provided a letter waiving its right to cancel the
charters and related service rendering contracts on the basis of late delivery
unless the delay exceeds 540 days and, even then, only if best endeavors to make
delivery are not being made. On October 13, 1999, the joint venture company's
majority equity owner received a letter from Petrobras stating that Petrobras
will cancel the charters and service rendering contracts for the rigs when delay
in delivery exceeds 180 days as specified in the charters. Based on construction
contract delivery dates plus an allowance for mobilization, delivery of the rigs
is expected to be between 263 and 433 days after the delivery dates set forth
under their respective charters. In its letter, Petrobras also reserved its
right to seek compensation for damages. By threatening to cancel the charters if
delay in delivery exceeds 180 days, Petrobras indicated an intent contrary to
its May 1998 letter.
9
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
If Petrobras follows through with its threat and cancels the charters for
the rigs, such cancellation would constitute an event of default under the joint
venture company's financing arrangements that are providing substantially all of
the financing for construction of the rigs. The Company has provided the lenders
financing construction of two of the rigs with certain commitments and
guarantees, the principal ones being guarantees for repayment of up to $62.4
million of loans aggregating up to $340 million.
The joint venture company believes that Petrobras has significant needs
for the Amethyst rigs and valid contractual obligations to utilize the rigs upon
completion and that, accordingly, there is significant likelihood that Petrobras
will not ultimately cancel the charters. There can be no assurance, however,
that this will be the case.
11. SEGMENT INFORMATION
The following table sets forth selected consolidated financial information
of the Company by operating segment for the periods indicated (operating costs
include restructuring costs):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
International land ................... $ 64.6 45.5% $103.3 49.2% $191.4 41.2% $313.9 48.8%
International offshore ............... 60.7 42.7 67.2 32.0 204.0 44.0 196.5 30.6
United States offshore ............... 16.8 11.8 39.5 18.8 68.6 14.8 132.4 20.6
------ ------ ------ ------ ------ ------ ------ ------
Total revenues .................... 142.1 100.0 210.0 100.0 464.0 100.0 642.8 100.0
------ ------ ------ ------ ------ ------ ------ ------
Operating Costs:
International land ................... 47.9 48.4 72.1 55.1 155.0 44.3 226.0 55.8
International offshore ............... 36.3 36.7 38.2 29.1 142.4 40.8 107.2 26.5
United States offshore ............... 14.7 14.9 20.7 15.8 52.1 14.9 71.7 17.7
------ ------ ------ ------ ------ ------ ------ ------
Total operating costs ............. 98.9 100.0 131.0 100.0 349.5 100.0 404.9 100.0
------ ------ ------ ------ ------ ------ ------ ------
Gross Margin:
International land ................... 16.7 38.7 31.2 39.4 36.4 31.8 87.9 36.9
International offshore ............... 24.4 56.5 29.0 36.8 61.6 53.7 89.3 37.5
United States offshore ............... 2.1 4.8 18.8 23.8 16.5 14.5 60.7 25.6
------ ------ ------ ------ ------ ------ ------ ------
Total gross margin ................ $ 43.2 100.0% $ 79.0 100.0% $114.5 100.0% $237.9 100.0%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Pride International, Inc.:
We have reviewed the accompanying consolidated balance sheet of Pride
International, Inc. as of September 30, 1999, and the related consolidated
statements of operations for the three-month and nine-month periods ended
September 30, 1999 and 1998, and the related consolidated statement of cash
flows for the nine-month periods ended September 30, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 1998, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated March 30, 1999, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of December 31,
1998 is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
November 12, 1999
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our unaudited consolidated financial statements as of September 30, 1999 and for
the three-month and nine-month periods ended September 30, 1999 and 1998
included elsewhere herein, and with our Annual Report on Form 10-K for the year
ended December 31, 1998. The following information contains forward-looking
statements. Please read "Forward-Looking Statements" for a discussion of
limitations inherent in such statements.
GENERAL
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. Currently, we operate a global
fleet of 319 rigs, including two ultra-deepwater drillships, three
semisubmersible rigs, 17 jackup rigs, seven tender-assisted rigs, four barge
rigs, 23 offshore platform rigs and 263 land-based drilling and workover rigs.
We operate in more than 20 countries and marine provinces. The significant
diversity of our rig fleet and areas of operations enables us to provide a broad
range of services and to take advantage of market upturns while reducing our
exposure to sharp downturns in any particular market sector or geographic
region.
Most recently, we have focused on increasing the size of our fleet capable
of drilling in deeper waters. We have added to our fleet two ultra-deepwater
drillships, the PRIDE AFRICA (which commenced operations in late October 1999
under a long-term contract) and the PRIDE ANGOLA (recently constructed and now
in transit to its first job), which is expected to commence operations under a
long-term contract in early 2000, and four dynamically-positioned,
Amethyst-class semisubmersible rigs, which also are committed under long-term
contracts and are expected to be delivered in mid-2000.
The PRIDE AFRICA recently sustained damage to certain of its drilling
equipment. The drillship's top drive drilling system and drilling line were
damaged and its blowout prevention equipment fell to the sea floor along with a
limited amount of riser, in approximately 5,400 feet of water. Currently, we
cannot anticipate whether the equipment will be recoverable or repairable. There
has been no damage to the drillship's hull or marine systems, and we do not
expect that any other significant drilling components were damaged. No personnel
from the drillship were injured, and no well or environmental damage occurred.
Plans are being made to install replacement equipment so that operations will be
resumed. Our joint venture company which owns and operates the drillship is
insured with respect to the equipment and interruption of operations, subject to
normal deductibles.
OUTLOOK
Despite recent strength in oil and gas commodity prices, management
anticipates that we will experience an environment of relatively low dayrates
and utilization in the near term. In recent months, our aggregate dayrates and
utilization have decreased as higher margin long-term contracts have expired. We
currently have four jackup rigs and 18 platform rigs idle in the Gulf of Mexico,
where our contracts have traditionally been and continue to be short-term. We
are continuing to experience weakness in our land drilling and workover
operations in South America, particularly in Venezuela, where private-sector
exploration and production activity levels have been reduced. As a result, we
expect to realize substantially less revenue from the assets working in these
areas in the near term than in corresponding periods in 1998. Our operating
costs have not, however, decreased proportionately. This revenue decrease will
continue to adversely affect our results of operations for at least the near
term, likely resulting in losses for 1999 and potentially beyond. Due to the
short-term nature of many of our contracts, and the unpredictable nature of oil
and gas prices, which affect the demand for drilling activity, we cannot predict
the duration of such adverse results accurately. Management anticipates that
drilling markets will remain depressed for at least the balance of 1999, and
possibly longer, but believes the long-term outlook for the industry and for us
is favorable.
The deteriorating industry conditions over the latter part of 1998 and the
first nine months of 1999 have led us to reduce our workforce significantly. In
the first quarter of 1999, we recorded charges of $28.9 million, net of income
taxes, for current and future cash expenditures related to a company-wide
restructuring plan implemented to address the dramatic decline in drilling and
workover activity. We expect the restructuring to result in annual cost savings
in excess of $25 million.
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RESULTS OF OPERATIONS
We have presented in the following table selected consolidated financial
information by operating segment for the periods indicated. Operating costs for
the three and nine-month periods ended September 30, 1999 include restructuring
charges.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
International land ................... $ 64.6 45.5% $103.3 49.2% $191.4 41.2% $313.9 48.8%
International offshore ............... 60.7 42.7 67.2 32.0 204.0 44.0 196.5 30.6
United States offshore ............... 16.8 11.8 39.5 18.8 68.6 14.8 132.4 20.6
------ ------ ------ ------ ------ ------ ------ ------
Total revenues .................... 142.1 100.0 210.0 100.0 464.0 100.0 642.8 100.0
------ ------ ------ ------ ------ ------ ------ ------
Operating Costs:
International land ................... 47.9 48.4 72.1 55.1 155.0 44.3 226.0 55.8
International offshore ............... 36.3 36.7 38.2 29.1 142.4 40.8 107.2 26.5
United States offshore ............... 14.7 14.9 20.7 15.8 52.1 14.9 71.7 17.7
------ ------ ------ ------ ------ ------ ------ ------
Total operating costs ............. 98.9 100.0 131.0 100.0 349.5 100.0 404.9 100.0
------ ------ ------ ------ ------ ------ ------ ------
Gross Margin:
International land ................... 16.7 38.7 31.2 39.4 36.4 31.8 87.9 36.9
International offshore ............... 24.4 56.5 29.0 36.8 61.6 53.7 89.3 37.5
United States offshore ............... 2.1 4.8 18.8 23.8 16.5 14.5 60.7 25.6
------ ------ ------ ------ ------ ------ ------ ------
Total gross margin ................ $ 43.2 100.0% $ 79.0 100.0% $114.5 100.0% $237.9 100.0%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998.
REVENUES. Revenues for the three months ended September 30, 1999 decreased
$67.9 million, or 32.3%, as compared to the corresponding period in 1998. Of
this decrease, $38.7 million was a result of significantly reduced rig
utilization of our international land-based fleet, primarily in Argentina,
Colombia and Venezuela. Revenues from our United States offshore operations
decreased $22.7 million due to lower dayrates and utilization of our Gulf of
Mexico jackup and platform rigs. Revenues from our international offshore
operations decreased by $6.5 million primarily due to lower utilization for our
international offshore rigs.
OPERATING COSTS. Operating costs for the three months ended September 30,
1999 decreased $32.1 million, or 24.5%, as compared to the corresponding period
in 1998. Operating costs attributable to our international land-based operations
decreased $24.2 million, attributable to our United States offshore operations
decreased $6.0 million and attributable to our international offshore operations
decreased by $1.9 million, all of which resulted from decreased utilization, as
discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended September 30, 1999 increased $4.2 million, or 21.2%, as compared to
the corresponding period in 1998, primarily due to the expansion of our fleet.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended September 30, 1999 decreased $4.4 million,
or 21.4%, as compared to the corresponding period in 1998, primarily as a result
of the base consolidations and down-sizing of administrative staff undertaken in
the first quarter of 1999.
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<PAGE>
OTHER INCOME (EXPENSE). Other income (expense) for the three months ended
September 30, 1999 increased $0.9 million, or 8.6%, as compared to the
corresponding period in 1998, primarily as a result of an increase in interest
expense of $5.5 million due to increased borrowings. During the three months
ended September 30, 1999, we capitalized $7.5 million of interest expense in
connection with construction projects, as compared to $4.7 million for the three
months ended September 30, 1998.
INCOME TAX PROVISION. Our consolidated effective income tax rate for the
three months ended September 30, 1999 was approximately 22.8%, as compared to
approximately 26.3% for the corresponding period in 1998. The decrease in the
effective income tax rate for the three months ended September 30, 1999 resulted
primarily from the net losses in the current period being in lower effective tax
rate jurisdictions.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998.
REVENUES. Revenues for the nine months ended September 30, 1999 decreased
$178.8 million, or 27.8%, as compared to the corresponding period in 1998. Of
this decrease, $122.5 million was a result of significantly reduced rig
utilization of our international land-based fleet, primarily in Argentina,
Colombia and Venezuela. Revenues from our United States offshore operations
decreased $63.8 million due to the continuation of low dayrates and utilization
of our Gulf of Mexico jackup and platform rigs. These revenue decreases were
offset by a $7.5 million increase in revenues attributable to our international
offshore operations, primarily due to the addition of the semisubmersible rig
AMETHYST 1 in October 1998.
OPERATING COSTS. Operating costs for the nine months ended September 30,
1999 decreased $55.4 million, or 13.7%, as compared to the corresponding period
in 1998. Of this decrease, $71.0 million was attributable to lower rig
utilization for our international land-based rigs, as discussed above, partially
offset by $8.9 million of non-recurring costs, primarily employee termination
benefits, in connection with the restructuring of such operations. Operating
costs attributable to our United States offshore operations decreased $19.6
million due to lower rig utilization as discussed above. Operating costs for our
international offshore operations increased by $35.2 million, $3.9 million of
which represented non-recurring restructuring charges, primarily employee
termination benefits, in connection with the restructuring of such operations,
and $10.4 million of which was attributable to the addition of the AMETHYST 1,
as discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$12.8 million, or 22.2%, for the nine months ended September 30, 1999 as
compared to the corresponding period in 1998, primarily due to the expansion of
our fleet.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased $6.2 million, or 10.0%, for the nine months ended September
30, 1999 as compared to the corresponding period in 1998 primarily as a result
of the base consolidations and down-sizing of the administrative staff, offset
by the non-recurring costs of this restructuring incurred in the first quarter
of 1999.
OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1999 increased $5.2 million, or 17.1%, over the corresponding
period in 1998, primarily as a result of an increase in interest expense of
$10.2 million due to increased borrowings. During the nine months ended
September 30, 1999, we capitalized $22.4 million of interest expense in
connection with construction projects, as compared to $10.5 million for the nine
months ended September 30, 1998.
INCOME TAX PROVISION. Our consolidated effective income tax rate for the
nine months ended September 30, 1999 was approximately 27.7% as compared to
approximately 24.3% for the corresponding period in 1998. The increase in the
effective income tax rate for the nine months ended September 30, 1999 resulted
primarily from a significant portion of the tax effect of the costs for the
restructuring and the net losses being subject to taxation in higher effective
tax rate jurisdictions.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $165.6 million and $84.6 million as of September
30, 1999 and December 31, 1998, respectively. Our current ratio was 1.6 as of
September 30, 1999 and 1.3 as of December 31, 1998. The increases in the amount
of working capital and the current ratio were attributable primarily to the net
increase in cash and cash equivalents from our capital transactions in 1999,
described below, and a decrease in short-term borrowings.
During the nine months ended September 30, 1999, our capital expenditures
primarily consisted of approximately $225 million related to the construction of
the PRIDE AFRICA and the PRIDE ANGOLA, approximately $12 million attributable to
certain other construction and refurbishment projects begun in 1998 and
approximately $24 million of other enhancement and sustaining capital
expenditures.
We expect to spend approximately $56 million during the remainder of 1999
to complete construction of the PRIDE ANGOLA and approximately $4 million for
other enhancement and sustaining capital expenditures.
We have a senior secured revolving credit facility with a group of banks
under which up to $50 million (including $30 million for letters of credit) is
available. Availability under the credit facility is limited to a borrowing base
based on the value of collateral. The credit facility is collateralized by our
accounts receivable, inventory and other assets and those of our domestic
subsidiaries, two-thirds of the stock of our foreign subsidiaries, the stock of
our 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 our ability to incur additional indebtedness,
create liens, enter into mergers and consolidations, pay cash dividends on our
capital stock, make acquisitions, sell assets or change our business without
prior consent of the lenders. Under the credit facility, we must maintain
certain financial ratios, including (a) funded debt to EBITDA, (b) funded debt
to capitalization, (c) adjusted EBITDA to debt service and (d) minimum tangible
net worth. As of September 30, 1999, there were approximately $13.5 million of
letters of credit and no advances outstanding under the credit facility.
In connection with the construction of two new ultra-deepwater drillships,
the PRIDE AFRICA and the PRIDE ANGOLA, we and the two joint venture companies in
which we have a 51% interest have entered into financing arrangements with a
group of banks that are providing approximately $400 million of the drillships'
total estimated construction cost of $470 million. The loans with respect to the
PRIDE AFRICA have become non-recourse to the joint venture participants, and the
loans with respect to the PRIDE ANGOLA will become non-recourse upon
commencement of operations of the drillship. During the construction of the
PRIDE ANGOLA, the lenders could have recourse to us with respect to an aggregate
of up to $200 million of such loans. As of September 30, 1999, $176.0 million
was outstanding under the non-recourse loan for the PRIDE AFRICA and $148.0
million was outstanding under the construction period loans for the PRIDE
ANGOLA.
Pride has a 26.4% equity interest in a joint venture company organized to
construct, own and operate four dynamically positioned, Amethyst-class
semisubmersible drillings rigs. The rigs are currently under construction at
shipyards in South Korea and the United States. Upon their completion, it is
expected that the rigs will be operated under charters and related service
rendering contracts with Petroleo Brasilerio S.A. ("Petrobras") having initial
terms of six to eight years.
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<PAGE>
Each charter states that it may be canceled by Petrobras if the chartered
rig is not delivered within 180 days after the delivery date specified. On May
28, 1998, however, Petrobras provided a letter waiving its right to cancel the
charters and related service rendering contracts on the basis of late delivery
unless the delay exceeds 540 days and, even then, only if best endeavors to make
delivery are not being made. On October 13, 1999, the joint venture company's
majority equity owner received a letter from Petrobras stating that Petrobras
will cancel the charters and service rendering contracts for the rigs when delay
in delivery exceeds 180 days as specified in the charters. Based on construction
contract delivery dates plus an allowance for mobilization, delivery of the rigs
is expected to be between 263 and 433 days after the delivery dates set forth
under their respective charters. In its letter, Petrobras also reserved its
right to seek compensation for damages. By threatening to cancel the charters if
delay in delivery exceeds 180 days, Petrobras indicated an intent contrary to
its May 1998 letter.
If Petrobras follows through with its threat and cancels the charters for
the rigs, such cancellation would constitute an event of default under the joint
venture company's financing arrangements that are providing substantially all of
the financing for construction of the rigs. Pride has provided the lenders
financing construction of the two rigs in South Korea with certain commitments
and guarantees, the principal ones being guarantees for repayment of up to $62.4
million of loans aggregating up to $340 million. Pride's other commitments and
guarantees to the lenders include(a) a guarantee of the cost overruns of up to
an aggregate of $6 million; (b) a guarantee of the cost of the two rigs in
excess of related refund guarantees supporting their construction contracts and
(c) certain other financial and operating-related guarantees.
The joint venture company believes that Petrobras has significant needs
for the Amethyst rigs and valid contractual obligations to utilize the rigs upon
completion and that, accordingly, there is significant likelihood that Petrobras
will not ultimately cancel the charters. There can be no assurance, however,
that this will be the case.
The joint venture has received a guarantee from the United States Maritime
Administration ("MARAD") of obligations for both construction period and
mortgage period financing relating to the construction of the two Amethyst rigs
under construction in the United States. The MARAD guarantee covers
approximately $300 million of the estimated $340 million cost of the vessels.
The joint venture has completed the construction period financing and has
engaged a placement agent for the mortgage period financing. In connection with
the MARAD financing, Pride has agreed to guarantee payment of up to $20.5
million of late delivery penalties that are accruing and may be payable under
the charter and service contracts related to these two rigs.
In February 1999, we completed the sale and leaseback of the
semisubmersible rig AMETHYST 1, pursuant to which we received $97 million in
cash. The lease is for a maximum term of 13.5 years, and we have options to
purchase the rig at the end of eight and one-half years and at the end of the
lease term. Annual rentals for the rig range from $11.7 million to $15.9
million.
In June 1999, we issued a total of approximately 4.7 million shares of common
stock to two funds managed by First Reserve Corporation for $25 million in cash
and the delivery of approximately $77 million principal amount at maturity of
our Zero Coupon Convertible Subordinated Debentures due 2018 that First Reserve
had previously acquired. Those debentures had an accreted value of approximately
$31.8 million. In connection with the cancellation of the debentures, we
recognized an extraordinary gain of $3.9 million, net of income taxes. In July
1999, we issued an additional 1.0 million shares to the two funds for $12.5
million in cash. In September 1999, First Reserve invested an additional $12.5
million cash in the common equity of the Amethyst joint venture company, which
is exchangeable after three years (or earlier in certain events) at First
Reserve's option for an additional approximately 1.0 million shares of Pride's
common stock. Pride will have the option to purchase the stock of the affiliate
for cash or shares of Pride's common stock once the affiliate stock becomes
exchangeable for Pride's common stock.
16
<PAGE>
In May 1999, we completed the public sale of $200 million principal amount
of 10% Senior Notes due June 1, 2009. The notes contain provisions that limit
our ability and the ability of our subsidiaries, with certain exceptions, to pay
dividends or make other restricted payments; incur additional debt or issue
preferred stock; create or permit to exist liens; incur dividend or other
payment restrictions affecting subsidiaries; consolidate, merge or transfer all
or substantially all our assets; sell assets; enter into transactions with
affiliates and engage in sale and leaseback transactions.
In September 1999, we issued a redemption notice relating to all
outstanding 6 1/4% Convertible Subordinated Debentures. As of September 30,
1999, holders of an aggregate of $28.4 million principal amount of such
debentures had converted such debentures into 2.3 million shares of common
stock. Subsequent to September 30, 1999, holders of an additional $27.7 million
principal amount converted such debentures into an additional 2.3 million shares
of common stock, and the balance of $0.7 million principal amount was redeemed
for cash.
Management believes that the cash and cash equivalents on hand, together
with the cash generated from our operations and borrowings under the credit
facility, will be adequate to fund normal ongoing capital expenditures, working
capital and debt service requirements for the foreseeable future.
From time to time, we may review possible expansion and acquisition
opportunities relating to our business segments. Currently, no substantial
acquisition agreements are pending; however, 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,
we have one or more bids outstanding for contracts that could require
significant capital expenditures and mobilization costs. We expect to fund
acquisitions and project opportunities primarily through a combination of
working capital, cash flow from operations and full or limited recourse debt or
equity financing.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this Quarterly Report on Form 10-Q that address
activities, events or developments that the we expect, project, believe or
anticipate will or may occur in the future are forward-looking statements. These
include such matters as:
o 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)
o repayment of debt
o expansion and other development trends in the contract drilling
industry
o business strategies
o expansion and growth of operations
o utilization rates and contract rates for rigs and
o future operating results and financial condition
17
<PAGE>
We have based these statements on assumptions and analyses made by our
management 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. These statements are subject to a number
of assumptions, risks and uncertainties, including:
o general economic and business conditions
o prices of oil and gas and industry expectations about future prices
o foreign exchange controls and currency fluctuations
o the business opportunities (or lack thereof) that may be presented
to and pursued by us and
o changes in laws or regulations
Most of these factors are beyond our control. We caution you that forward
looking-statements are not guarantees of future performance and that actual
results or developments may differ materially from those projected in these
statements.
YEAR 2000 ISSUE
BACKGROUND. The "Year 2000" problem refers to the inability for certain
computer systems and other equipment with embedded chips or processors
(collectively "Business Systems") to correctly interpret the century from a date
in which the year is represented by only two digits. Business Systems which are
not Year 2000 compliant would not be able to correctly process certain data, or
in extreme situations, could cause the entire system to be disabled.
OVERALL GOALS AND OBJECTIVES. Our goal is to have all of our significant
Business Systems functioning properly with respect to the Year 2000 problem and
to develop contingency plans in the event of disruptions caused by the Year 2000
problem before December 31, 1999. We established a global task force of key
employees at each location to ensure the goal is met. At this time, we have
upgraded or replaced the majority of our existing significant systems during
this process. We have also developed contingency plans as required. These
overall goals and objectives are referred to as the "Year 2000 Project Plan."
YEAR 2000 PROJECT PLAN. The phases of the Year 2000 Project Plan include:
o identifying, inventory and assigning priorities to existing
significant systems
o determining and implementing the new Year 2000 compliant systems
that will be used throughout the company
o assessing all remaining Year 2000 risks
o resolving and correcting remaining Year 2000 problems with upgrades
or replacements
o testing the Year 2000 upgrades or replacements
o conducting Year 2000 surveys of significant customers, suppliers,
and business partners
o developing and testing Year 2000 contingency plans
Currently, we estimate that we are substantially complete with the Year
2000 Project Plan.
BUSINESS SYSTEMS: OPERATIONAL. Part of the Year 2000 Project Plan includes
performing an inventory of each drilling rig's critical Business Systems. This
inventory has been developed and evaluated, and a compilation of written
documentation regarding compliance is ongoing as we continue to receive updates
from hardware and software manufacturers. We believe that all of our rigs will
be operational for Year 2000 and we have developed contingency plans to address
possible Year 2000 scenarios if they arise.
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<PAGE>
KEY BUSINESS PARTNERS. We have completed a survey of our key business
partners to seek Year 2000 readiness assurances and determine the extent to
which their failure to correct their own Year 2000 problems could affect us.
Based on the key business partners' written responses, we expect that they are
or will be Year 2000 compliant. Our key business partners include suppliers
whose critical function is to provide drilling rig capital equipment essential
to the operation of a rig. As part of normal business operations, we generally
do not maintain an inventory of drilling rig capital equipment replacement
parts. In the event replacement parts are required for a rig and we are
unsuccessful in purchasing the equipment from our suppliers, the rig could
experience idle time resulting in loss of revenue.
Key business partners also include customers who provide our source of
revenue and cash flow. Any disruption in this revenue stream could impact our
cash flow, results of operations and financial position. Other key business
partners include strategic suppliers whose critical function is to provide
Business Systems which are Year 2000 compliant and consultants who can advise
and assist us in the implementation of the systems. Any Year 2000 problems with
these Business Systems could impact us adversely in terms of lost time or even
loss of revenues.
We cannot guarantee that Year 2000 problems in other key
business partners' systems on which we rely will be timely resolved, nor can we
inspect the companies' Year 2000 efforts or independently verify their
representations to us. In addition, we cannot predict the effect on our business
operations from the failure of systems owned by others, from the delivery of
inaccurate information from other companies, or from the inability of their
systems to interface with our systems. Accordingly, we cannot guarantee that
other companies' failure to resolve their Year 2000 problems would not have a
material adverse effect on us; however, we are continually in the process of
assessing these risks.
COSTS. As of November 5, 1999, we had incurred approximately $12.3 million
in costs related to the Year 2000 issue, primarily for new hardware, new
software licenses and outside consultants. We estimate that we will incur
approximately $1.2 million of such additional costs during the remainder of
1999.
RISKS. Our expectations regarding the Year 2000 are subject to
uncertainties which could affect our results of operations or financial
condition. Success depends on many factors, some of which are outside our
control. Despite reasonable efforts, we cannot assure you that we will not
experience any disruptions or otherwise be adversely affected by Year 2000
problems. While we presently do not expect any catastrophic failures of any of
our systems, we cannot provide any assurances that such failures will not occur.
CONTINGENCY PLANS. We have developed contingency plans for Business
Systems and certain processes that are high and moderately critical to our
business operations. The contingency plan encompasses alternative courses of
action which should be taken in the event that Business Systems or processes are
not Year 2000 compliant. The plan has three components summarized below:
o The first component is Year 2000 event preparation and comprises
specific procedures for making preparations prior to any date event
period. The procedures include checklists and drills for verifying
the operations of various equipment and drills for training and
practicing specific emergency operations, such as changing over to
manual operations. These procedures are to verify that equipment is
functioning correctly prior to a date event.
o The second component is Year 2000 event transition and comprises
specific procedures for the period covering any date event period.
The procedures include guidelines for observing equipment for
disruptions and procedures for specific emergency operations.
o The third component is Year 2000 post event and comprises specific
procedures for checking and verifying the operational status of
equipment following any date event period. These procedures include
checklists for verifying the operations of various equipment prior
to resuming normal operations. The procedures are to verify that
equipment is functioning correctly after a date event using the
checks described in the first bullet as a baseline to determine
whether a disruption may have occurred.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from the use of financial
instruments in the ordinary course of business. These risks arise primarily as a
result of potential changes in the fair market value of financial instruments
that would result from adverse fluctuation in interest rates and foreign
currency exchange rates as discussed below. We entered into these instruments
other than for trading purposes.
INTEREST RATE RISK. We are exposed to interest rate risk through our
convertible and fixed rate long-term debt. The fair market value of fixed rate
debt will increase as prevailing interest rates decrease. The fair value of our
long-term debt is estimated based on quoted market prices where applicable, or
based on the present value of expected cash flows relating to the debt
discounted at rates currently available to us for long-term borrowings with
similar terms and maturities. The estimated fair value of our long-term debt as
of September 30, 1999 was approximately $1.13 billion, which is less that its
carrying value of $1.19 billion. A hypothetical 10% decrease in interest rates
would increase the fair market value of our long-term debt by approximately
$48.3 million.
FOREIGN CURRENCY EXCHANGE RATE RISK. We operate in a number of
international areas and are involved in transactions denominated in currencies
other than U.S. dollars, which expose us to foreign exchange rate risk. We
utilize forward exchange contracts, local currency borrowings and the payment
structure of customer contracts to selectively hedge our exposure to exchange
rate fluctuations in connection with monetary assets, liabilities and cash flows
denominated in certain foreign currencies. A hypothetical 10% decrease in the
U.S. dollar relative to the value of all foreign currencies as of September 30,
1999 would result in an approximate $3.6 million decrease in the fair value of
our forward exchange contracts. We do not hold or issue forward exchange
contracts or other derivative financial instruments for speculative purposes.
20
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information set forth under the caption "Liquidity and Capital
Resources" in "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" regarding the issuance in July 1999 of
1,047,121 shares of our common stock to two funds managed by First Reserve
Corporation for $12,500,000 in cash is incorporated by reference in response to
this item. In our opinion, this issuance is exempt from registration under the
Securities Act of 1933 by virtue of Section 4(2) thereof in that such
transaction did not involve any public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS*
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 -- Put and Exchange Agreement, dated as of September 14, 1999, between
Pride International, Inc. (the "Company") and First Reserve Fund
VIII, L.P.
10.2 -- First Amendment to Shareholders Agreement, dated as of September 14,
1999, between the Company and First Reserve Fund VIII, L.P.
15.1 -- Awareness Letter of PricewaterhouseCoopers LLP
27 -- Financial Data Schedule
- --------------
* During the three months ended September 30, 1999, the Company entered into
debt instruments under which the total amount of securities authorized
does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to paragraph 4(v) of Item
601(b) of Regulation S-K, the Company agrees to furnish a copy of such
instruments to the Securities and Exchange Commission upon request.
(B) REPORTS ON FORM 8-K
The Company has filed no reports on Form 8-K during the three months ended
September 30, 1999.
21
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PRIDE INTERNATIONAL, INC.
By: /s/ EARL W. MCNIEL
(EARL W. MCNIEL)
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Date: November 15, 1999
22
EXHIBIT 10.1
PUT AND EXCHANGE AGREEMENT
This Put and Exchange Agreement ("AGREEMENT") is made this 14th day of
September, 1999 by and between Pride International, Inc., a Louisiana
corporation (the "COMPANY"), and First Reserve Fund VIII, L.P. a Delaware
limited partnership (the "PURCHASER").
RECITALS:
WHEREAS, the Company and the Purchaser entered into that certain
Securities Purchase Agreement dated as of May 5, 1999 (the "ORIGINAL PURCHASE
AGREEMENT"), as amended by those certain Letter Agreements dated June 4, 1999,
June 18, 1999, June 21, 1999 and July 14, 1999 (the Original Purchase Agreement
as so amended, the "PURCHASE AGREEMENT");
WHEREAS, pursuant to the Purchase Agreement and subject to certain
conditions included therein, Purchaser agreed to buy and the Company agreed to
cause Amethyst Financial Company Limited, a British Virgin Islands corporation
and a 30% owned affiliate of the Company ("AMETHYST"), to issue and deliver to
the Purchaser shares of Exchangeable Stock which represent common equity
securities of Amethyst;
WHEREAS, the Company and the Purchaser desire to amend the Purchase
Agreement to provide that the Purchaser shall subscribe for shares of common
stock of Amethyst, and the Purchaser shall have certain exchange rights with
respect to such stock pursuant to this Agreement and the Purchase Agreement;
WHEREAS, the Company and the Purchaser desire to enter into certain
agreements relating to the dilution of the Exchangeable Stock; and
WHEREAS, the Company and the Purchaser desire to make certain other
agreements relating to the Second Closing;
NOW, THEREFORE, in consideration of the premises, the mutual promises made
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
1. AMENDMENT; MEANINGS OF CERTAIN TERMS. This Agreement constitutes (i) an
amendment to the Purchase Agreement, and (ii) the Amethyst Agreement, as such
term is defined in the Purchase Agreement. The common stock of Amethyst issued
to the Purchaser (or to another member of the First Reserve Group) exchangeable
for common stock of the Company constitutes the Exchangeable Stock, as such term
is defined in the Purchase Agreement. Capitalized terms used herein that are not
otherwise defined shall have the respective meanings given them in the Purchase
Agreement.
<PAGE>
2. SECOND CLOSING. Subject to the terms and conditions of the Purchase
Agreement, the issuance and purchase of the 1,250 shares of Exchangeable Stock
shall take place at the Amethyst Closing to be held at the offices of Vinson &
Elkins L.L.P., 1001 Fannin Street, 23rd Floor, Houston, Texas, at 10:00 a.m.
(Central time) on September 14, 1999, or such other date as may be agreed by the
parties (the "SECOND CLOSING DATE"). On the Second Closing Date, the Company
will cause Amethyst to deliver certificates representing 1,250 validly issued,
fully paid and nonassessable shares of Exchangeable Stock upon receipt by
Amethyst of $12,500,000 therefor in cash by wire transfer of immediately
available funds to an account designated by Amethyst, or by such other method as
is mutually agreed to by the Purchaser and the Company, registered in the name
of the Purchaser and/or another member of the First Reserve Group designated by
the Purchaser.
3. CLOSING DATE. The Company and the Purchaser hereby agree that for the
purposes of the Second Closing, all references in the Purchase Agreement to the
term "Closing Date" shall be deemed to be references to the Second Closing Date.
4. AMENDMENTS TO PURCHASE AGREEMENT.
(a) The initial paragraph of Section 5.10 of the Purchase Agreement shall
be and hereby is amended to read in its entirety as follows:
"From and after the earlier of (i) the third anniversary of the
Closing Date, (ii) the occurrence of a Change of Control, or (iii) the
issuance by the Company in one or more transactions after the Closing Date
of Common Stock or Convertible Securities without consideration or for a
consideration per share of Common Stock less than the Current Market
Price, exclusive of any underwriter's or other agent's discounts or
commissions, per share of Common Stock on the date of each such issuance
(other than shares of Common Stock issued pursuant to director or employee
stock option or other benefit plans) and the Common Stock or Convertible
Securities so issued represent 2% or more of the outstanding Common Stock
on a fully diluted basis, the Purchaser, any of the members of the First
Reserve Group or their respective assignees shall have the right to
exchange all, but not less than all, of the shares of Exchangeable Stock
for an aggregate of 1,047,120 shares of Common Stock, or an assumed
exchange price of approximately $11.9375 per share (the "EXCHANGE PRICE"),
which Exchange Price is subject to adjustment for the events described in
the Amethyst Agreement, as follows:"
(b) A definition of "CURRENT MARKET PRICE" shall be and hereby is added to
Section 1.1 of the Purchase Agreement and shall read in its entirety as
follows:
"'CURRENT MARKET PRICE' per share of Common Stock on any date shall
mean the average of the daily closing prices (weighted by volume) of the
Common Stock on the New York Stock Exchange for the 5 consecutive trading
dates commencing 7 trading dates before the date of determination."
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<PAGE>
(c) The definition of "EXCHANGEABLE STOCK" in Section 1.1 of the Purchase
Agreement shall be and hereby is amended to read in its entirety as
follows:
"'EXCHANGEABLE STOCK' shall mean the common stock of Amethyst or any
instrument, contract right, claim, security or other right of any kind or
nature whatsoever into which such shares of Amethyst common stock have
been converted, exchanged or otherwise changed at the date such shares are
exchanged for Common Stock as provided in Section 5.10, which (a) shall
represent a proportionate part (based on the amount of equity capital
invested) of the issued share equity of Amethyst and (b) may be exchanged
for Common Stock as provided in Section 5.10 of this Agreement."
5. DILUTION PROVISIONS. As contemplated by Section 5.10 of the Original Purchase
Agreement, the Exchange Price is subject to adjustment, as follows:
(a)(i)In case the Company shall after the Closing Date (A) pay a
dividend or make a distribution on its Common Stock that is paid or made
(1) in shares of its Common Stock or (2) in rights to purchase stock or
other securities if such rights are not separable from the Common Stock
except upon the occurrence of a contingency, (B) subdivide or split its
outstanding Common Stock into a greater number of shares, (C) combine its
outstanding Common Stock into a smaller number of shares or (D) issue any
shares of capital stock by reclassification of its Common Stock, the
Exchange Price in effect immediately prior thereto shall be adjusted, or
in the case of clause (A)(2) other provision shall be made, so that the
holder of any share of Exchangeable Stock thereafter surrendered for
exchange shall be entitled to receive the number of shares of Common Stock
of the Company and rights to purchase stock or other securities which such
holder would have owned or have been entitled to receive after the
occurrence of any of the events described above had such share been
surrendered for exchange immediately prior to the occurrence of such event
or the record date therefor, whichever is earlier. In the event of the
redemption of any rights referred to in clause (A), such holder shall have
the right to receive, in lieu of any such rights, any cash, property or
securities paid in respect of such redemption. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately after the
close of business on the record date for determination of stockholders
entitled to receive such dividend or distribution in the case of a
dividend or distribution (except as provided in paragraph (e) below) and
shall become effective immediately after the close of business on the
effective date in the case of a subdivision, split, combination or
reclassification. Any shares of Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the
close of business on the record date for such dividend for purposes of
calculating the number of outstanding shares of Common Stock under clauses
(ii) and (iii) below.
(ii) In case the Company shall issue after the Closing Date
options, rights or warrants to all holders of Common Stock entitling them
to subscribe for or purchase Common Stock, or Convertible Securities, at
an exercise, purchase, conversion or exchange price or rate per share of
Common Stock less than the Current Market Price per share of Common Stock
at the record date for the determination of stockholders entitled to
receive
- 3 -
<PAGE>
such options, rights or warrants (or if no record date is taken, the
issuance date thereof), then the Exchange Price in effect immediately
prior thereto shall be adjusted to equal the price determined by
multiplying (A) the Exchange Price in effect immediately prior to the
record date (or if no record date is taken, the issuance date thereof) of
issuance of such options, rights or warrants by (B) a fraction, the
numerator of which shall be the sum of (1) the number of shares of Common
Stock outstanding on such date (without giving effect to any such
issuance) and (2) the number of shares which the aggregate proceeds from
the exercise of such options, rights or warrants (and the proceeds from
the conversion or exchange of the Convertible Securities acquired upon the
exercise of any such options, warrants or rights) for Common Stock would
purchase at such Current Market Price, and the denominator of which shall
be the sum of (1) the number of shares of Common Stock outstanding on such
date (without giving effect to any such issuance) and (2) the number of
additional shares of Common Stock offered for subscription or purchase
upon the exercise of such options, rights or warrants and upon the
conversion or exchange of such Convertible Securities. Such adjustment
shall be made successively whenever any such options, rights or warrants
are issued, and shall become effective immediately after such record date
(or if no record date is taken, the issuance date thereof). In determining
whether any options, rights or warrants (or the related Convertible
Securities) entitle the holders of Common Stock to subscribe for or
purchase shares of Common Stock at less than such Current Market Price,
there shall be taken into account any consideration received by the
Company upon issuance and upon exercise of such options rights or warrants
(and the conversion or exchange of such Convertible Securities).
(iii) In case the Company shall pay a dividend or make a
distribution to all holders of its Common Stock after the Closing Date of
any shares of capital stock of the Company or its subsidiaries (other than
Common Stock), or Convertible Securities, or evidences of its indebtedness
or assets, including securities (any of the foregoing being hereinafter in
this subparagraph (iii) called the "SECURITIES") and cash to the extent in
excess of regular periodic cash dividends in an amount equal to that paid
by the Company on the Common Stock on the Closing Date (if any), but
excluding options, rights, warrants, dividends and distributions referred
to in subparagraphs (i) and (ii) above, regular periodic cash dividends in
an amount not greater than that paid by the Company on the Common Stock on
the Closing Date payable out of the Company's surplus that may from time
to time be declared by the Board of Directors and dividends and
distributions in connection with the liquidation, dissolution or winding
up of the Company, then in each such case, the Exchange Price shall be
adjusted so that it shall equal the price determined by multiplying (A)
the Exchange Price in effect on the record date mentioned below by (B) a
fraction, the numerator of which shall be the Current Market Price per
share of the Common Stock on the record date mentioned below less the then
fair market value as determined by the Board of Directors of the Company
(whose determination shall, if made in good faith, be conclusive) as of
such record date of the portion of the Securities applicable to one share
of Common Stock, and the denominator of which shall be the Current Market
Price per share of the Common Stock on such record date; PROVIDED,
HOWEVER, that in the event the then fair market value (as so determined)
of the portion of Securities so distributed applicable to one share of
Common
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<PAGE>
Stock is equal to or greater than the Current Market Price per share of
Common Stock on the record date mentioned above, in lieu of the foregoing
adjustment, adequate provision shall be made so that each holder of shares
of Exchangeable Stock shall have the right to receive the amount and kind
of Securities such holder would have received had such holder converted
each such share of Exchangeable Stock immediately prior to the record date
for the distribution of the Securities. Except as provided in paragraph
(e) below, such adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) Upon the expiration or termination of the options, rights
or warrants described in subparagraph (a)(ii) above, if any such options,
rights or warrants shall not have been exercised, then the Exchange Price
shall forthwith be readjusted and thereafter be the rate which it would
have been had an adjustment been made on the basis that (A) the only
options, rights or warrants so issued or sold were those so exercised and
they were issued or sold for the consideration actually received by the
Company upon such exercise, plus the consideration, if any, actually
received by the Company for the granting of all such rights or warrants
whether or not exercised, plus the consideration, if any, actually
received by the Company upon the conversion or exercise of any Convertible
Securities issuable upon the exercise of such options, rights or warrants
and (B) the Company issued and sold a number of shares of Common Stock
equal to those actually issued upon exercise of such options, rights or
warrants or such conversion or exchange, and such shares were issued and
sold for a consideration equal to the sum of the aggregate exercise price
in effect under the options, rights or warrants actually exercised at the
respective dates of their exercise plus the aggregate conversion or
exchange price under Convertible Securities actually converted or
exchanged at the respective dates of conversion or exchange. For purposes
of subparagraph (ii), the aggregate consideration received by the Company
in connection with the issuance of shares of Common Stock or of options,
rights or warrants or Convertible Securities shall be deemed to be equal
to the sum of the aggregate offering price (before deduction of
underwriting discounts or commissions and expenses payable to third
parties) of all such securities plus the minimum aggregate amount, if any,
payable upon the exercise of such options, rights or warrants or upon the
conversion or exchange of such Convertible Securities into shares of
Common Stock. In the case of the issuance of Common Stock (otherwise than
upon the exchange of the Exchangeable Stock or other Convertible
Securities of the Company) for a consideration in whole or in part other
than cash, including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other than
cash shall be the fair value thereof as determined by the Board of
Directors of the Company, irrespective of any accounting treatment;
PROVIDED, THAT such fair value as determined by the Board of Directors
shall not exceed the aggregate Current Market Price of the shares of
Common Stock being issued as of the date the Board of Directors authorizes
the issuance of such shares.
(v) No adjustment in the Exchange Price shall be required
unless such adjustment would require an increase or decrease of at least
1% in such price; PROVIDED, HOWEVER, that any adjustments which by reason
of this subparagraph (v) are not required to
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<PAGE>
be made shall be carried forward and taken into account in any subsequent
adjustment; and FURTHER PROVIDED, HOWEVER, that any adjustment shall be
required and shall be made in accordance with the provisions of this
Agreement (other than this subparagraph (v)) not later than such time as
may be required in order to preserve the tax-free nature of a distribution
to the holders of shares of Common Stock. All calculations under this
Agreement shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest 1/100th of a share (with .005 of a share being
rounded upward), as the case may be. Anything in this paragraph (a) to the
contrary notwithstanding, the Company shall be entitled, to the extent
permitted by law, to make such reductions in the Exchange Price, in
addition to those required by this paragraph (a), as it in its discretion
shall determine to be advisable in order that any stock dividend,
subdivision of shares, distribution of rights or warrants to purchase
stock or securities, or distribution of other assets or any other
transaction which could be treated as any of the foregoing transactions
pursuant to Section 305 of the Internal Revenue Code of 1986, as amended,
hereafter made by the Company to its stockholders shall not be taxable to
such stockholders.
(b) In case the Company shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, sale of all or substantially all of the Company's assets or
recapitalization of the Common Stock (each of the foregoing being referred
to as a "BUSINESS COMBINATION"), in each case as a result of which shares
of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof),
then the Exchangeable Stock remaining outstanding will thereafter no
longer be subject to exchange for Common Stock pursuant to this Agreement,
but instead shall be exchangeable for the kind and amount of shares of
stock and other securities and property receivable (including cash) upon
the consummation of such Business Combination by a holder of that number
of shares or fraction thereof of Common Stock for which one share of
Exchangeable Stock was exchangeable immediately prior to such Business
Combination. The Company shall not be a party to any Business Combination
unless the terms of such Business Combination are consistent with the
provisions of this paragraph (b) and it shall not consent or agree to the
occurrence of any Business Combination until the Company has entered into
an agreement with the successor or purchasing entity, as the case may be,
for the benefit of the holders of the Exchangeable Stock which will
contain provisions enabling the holders of the Exchangeable Stock which
remains outstanding after such Business Combination to convert into the
consideration received by holders of Common Stock at the Exchange Price
immediately after such Business Combination. In the event that at any
time, as a result of an adjustment made pursuant to this Agreement, the
Exchangeable Stock shall become subject to exchange for any securities
other than shares of Common Stock, thereafter the number of such other
securities so issuable upon exchange of the shares of Exchangeable Stock
shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
shares of Exchangeable Stock contained in this Agreement. The provisions
of this paragraph (b) shall similarly apply to successive Business
Combinations.
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<PAGE>
(c) If:
(i) the Company shall declare a dividend (or any other
distribution) on the Common Stock that would cause an adjustment to the
Exchange Price of the Exchangeable Stock pursuant to the terms of any of
the paragraphs above;
(ii) the Company shall authorize the granting to the holders
of the Common Stock of rights or warrants to subscribe for or purchase
Convertible Securities or any shares of any other class or any other
rights or warrants;
(iii) there shall be any reclassification or change of the
Common Stock (other than an event to which paragraph (a)(i) applies) or
any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or a statutory
share exchange, or a self tender offer by the Company for all or
substantially all of its outstanding shares of Common Stock, or the sale
or transfer of all or substantially all of the assets of the Company; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed with its transfer agent and shall
cause to be mailed to the holders of shares of the Exchangeable Stock at
their addresses as shown on the stock records of the Company, as promptly
as possible, but at least 15 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution or granting of rights or
warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (B) the date on
which such reclassification, change, consolidation, merger, statutory
share exchange, sale, transfer, dissolution, liquidation or winding up is
expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger,
statutory share exchange, sale, transfer, dissolution, liquidation or
winding up. Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
Agreement.
(d) Whenever the Exchange Price is adjusted as herein provided, the
Company shall promptly transmit to the Purchaser an officers' certificate
signed by the President or a Vice President and the Chief Financial
Officer or the Secretary of the Company setting forth the Exchange Price
after such adjustment, the method of calculation thereof and setting forth
a brief statement of the facts requiring such adjustment and upon which
such adjustment is based. If the calculation of the adjustment requires a
determination by the Board of Directors pursuant to paragraph (a)(iii) or
any similar provision, such certificate shall include a copy of the
resolution of the Board of Directors relating to such determination.
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<PAGE>
(e) In any case in which paragraph (a) provides that an adjustment
shall become effective immediately after a record date for an event and
the date fixed for exchange pursuant to this Agreement occurs after such
record date but before the occurrence of such event, the Company may defer
until the actual occurrence of such event issuing to the holder of any
share of Exchangeable Stock surrendered for exchange the additional shares
of Common Stock issuable upon such exchange by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
exchange before giving effect to such adjustment.
(f) For purposes of this Agreement, the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock
then owned or held by or for the account of the Company or any corporation
controlled by the Company.
(g) If any single action would require adjustment pursuant to more
than one paragraph of this Section 5 of this Agreement, only one
adjustment shall be made and such adjustment shall be the amount of
adjustment which has the highest absolute value to the holders of the
Exchangeable Stock.
(h) In case the Company shall take any action affecting the Common
Stock, other than action described in this Section 5 of this Agreement,
which in the opinion of the Board of Directors would materially adversely
affect the exchange rights of the holders of the shares of Exchangeable
Stock, the Exchange Price for the Exchangeable Stock shall be adjusted, to
the extent permitted by law, in such manner, if any, and at such time, as
the Board of Directors may determine to be equitable in the circumstances.
Subject to the foregoing, there shall be no adjustment of the Exchange
Price in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 5 of this Agreement.
(i) The Company shall at all times reserve and keep available, free
from contractual or statutory preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock or its issued shares of
Common Stock held in its treasury, or both, for the purpose of effecting
exchange of the Exchangeable Stock, the full number of shares of Common
Stock deliverable upon the exchange of all outstanding shares of
Exchangeable Stock not theretofore exchanged. For purposes of this
paragraph (i), the number of shares of Common Stock which shall be
deliverable upon the exchange of all outstanding shares of Exchangeable
Stock shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
Before taking any action which would cause an adjustment reducing
the Exchange Price below the then par value of the shares of Common Stock
deliverable upon exchange of the Exchangeable Stock, the Company will take
any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock at such adjusted Exchange
Price.
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The Company will make the shares of Common Stock required to be
delivered upon exchange of the Exchangeable Stock eligible for trading
upon the New York Stock Exchange or upon any other national securities
exchange upon which the Common Stock shall then be traded, prior to such
delivery.
Prior to the delivery of any securities which the Company shall be
obligated to deliver upon exchange of the Exchangeable Stock, the Company
will comply with all federal and state laws and regulations thereunder
requiring the registration of such securities with, or any approval of or
consent to the delivery thereof by, any governmental authority.
(j) The Company will pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of the
shares of Exchangeable Stock (or any other securities issued on account of
the Exchangeable Stock pursuant hereto) or shares of Common Stock on
exchange of or as payment of a dividend or distribution on the
Exchangeable Stock pursuant hereto; PROVIDED, HOWEVER, that the Company
shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issue or delivery of shares of Exchangeable
Stock (or any other securities issued on account of the Exchangeable Stock
pursuant hereto) and the Company shall not be required to make any issue
or delivery unless and until the person requesting such issue or delivery
has paid to the Company the amount of any such tax or has established, to
the reasonable satisfaction of the Company, that such tax has been paid or
is not required to be paid.
(k) The Company shall not take any action which results in an
adjustment of the number of shares of Common Stock issuable upon exchange
of a share of Exchangeable Stock if the total number of shares of Common
Stock issuable after such action upon exchange of the Exchangeable Stock
then outstanding, together with the total number of shares of Common Stock
then outstanding, would exceed the total number of shares of Common Stock
then authorized under the Articles of Incorporation of the Company.
Subject to the foregoing, the Company shall take all such actions as it
may deem reasonable under the circumstances to provide for the issuance of
such number of shares of Common Stock as would be necessary to allow for
the exchange from time to time, and taking into account adjustments as
herein provided, of outstanding shares of the Exchangeable Stock in
accordance with the terms and provisions of the Articles of Incorporation
of the Company.
6. RIGHTS OF EXCHANGEABLE STOCK . Company hereby represents and warrants to the
Purchaser that upon issuance to the Purchaser (or to another member of the First
Reserve Group) at the Second Closing, the Exchangeable Stock shall represent a
proportionate part (based on the amount of equity capital invested) of the
issued share equity of Amethyst and shall have the same rights (including,
without limitation, voting and dividend rights), preferences, privileges and
other attributes as all other issued and outstanding shares of capital stock of
Amethyst.
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<PAGE>
7. COUNTERPARTS; FACSIMILE. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be delivered by delivery of facsimile signature pages.
8. RATIFICATION; CONFIRMATION. Except to the extent otherwise expressly
contemplated hereby, the Purchase Agreement is hereby ratified and confirmed.
9. EXERCISE OF RIGHTS. Any right provided for in this Agreement may be exercised
by the party possessing such right by notice in writing given to all of the
other parties to this Agreement which notice shall state the right being
exercised.
10. NOTICE. Notice required or permitted under this Agreement shall be deemed to
be given two days after a writing thereof is deposited in the United States
mail, return receipt requested, addressed to the address for each party set
forth below or such other address as such party may fix by notice similarly
given:
To the Company:
Pride International, Inc.
5847 San Felipe, Suite 3300
Houston, Texas 77057
Fax: 713-789-1430
Attn: Mr. Paul A. Bragg
President and Chief Executive Officer
with a copy to:
Baker & Botts, L.L.P.
910 Louisiana
Houston, Texas 77002
Fax: 713-229-1522
Attn: L.P. Thomas, Esq.
If to the Purchaser:
First Reserve Fund VIII, L.P.
c/o First Reserve Corp.
1801 California Street
Denver, Colorado 80202
Fax: 303-382-1275
Attn: Thomas Denison, Esq.
With a copy to:
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<PAGE>
Vinson & Elkins L.L.P.
1001 Fannin Street, 23rd Floor
Houston, Texas 77002-6760
Fax: 713-615-5605
Attn: Ronald T. Astin, Esq.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
Purchaser will not assign its rights under this Agreement or transfer or dispose
of any shares of Exchangeable Stock unless the assignee or transferee agrees to
be bound by the Purchase Agreement and this Agreement.
12. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements made
and performed wholly in the State of New York.
13. SEVERABILITY. If any provision or this Agreement shall be held invalid, such
invalidity shall not affect any other provision of this Agreement that can be
given effect without the invalid provision, and to this end, the provisions
hereof are separable.
14. HEADINGS. The headings in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
15. AMENDMENT. This Agreement cannot be amended or modified except by a written
agreement executed by the parties hereto.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PRIDE INTERNATIONAL, INC.
By: /s/ PAUL A. BRAGG
Paul A. Bragg
President and Chief Executive Officer
FIRST RESERVE FUND VIII, L.P.
By: First Reserve Fund GP VIII, L.P.
its General Partner
By: First Reserve Corporation
its General Partner
By: /s/ THOMAS R. DENISON
Thomas R. Denison
Managing Director
- 12 -
EXHIBIT 10.2
FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT (this "AMENDMENT") is
entered into as of the 14th day of September, 1999 by and between Pride
International, Inc., a Louisiana corporation (the "COMPANY"), and First Reserve
Fund VIII, Limited Partnership, a Delaware limited partnership ("FIRST
RESERVE").
W I T N E S S E T H:
WHEREAS, the Company and First Reserve entered into that certain
Shareholders Agreement dated as of June 21, 1999 (the "SHAREHOLDERS AGREEMENT")
and that certain Securities Purchase Agreement dated as of May 5, 1999, as
amended by those certain Letter Agreements dated June 4, 1999, June 18, 1999,
June 21, 1999 and July 14, 1999 and that certain Put and Exchange Agreement
dated as of September 14, 1999 (as so amended, the "PURCHASE AGREEMENT");
WHEREAS, the Company and First Reserve included in the Shareholders
Agreement certain registration rights with respect to the Registrable Securities
held by or issued to First Reserve;
WHEREAS, the Company and First Reserve desire to reflect herein certain
agreements relating to shelf registration rights with respect to the shares of
Common Stock issued upon exchange of the Exchangeable Stock (as defined in the
Purchase Agreement) pursuant to the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1
Definitions
SECTION 1.1 Capitalized terms used but not defined herein shall have the
meanings set forth in the Shareholders Agreement.
ARTICLE 2
AMENDMENTS TO SHAREHOLDERS AGREEMENT
SECTION 2.1 The following definitions shall be and hereby are added to Section
1.1 of the Shareholders Agreement:
"AMETHYST REGISTRABLE SECURITIES" means the shares of Common Stock that
(i) are Registerable Securities and (ii) are received by a member of the First
Reserve Group upon exchange of the Exchangeable Stock pursuant to Section 5.10
or 5.11 of the Purchase Agreement or would be received by a member of the First
Reserve Group upon exercise of its right to exchange the Exchangeable Stock
pursuant to Section 5.10 of the Purchase Agreement.
<PAGE>
SECTION 2.2 New paragraph (iv) shall be and hereby is added to Section 5.2(a) of
the Shareholders Agreement and shall read in its entirety as follows:
"(iv) In addition to the Demand Registration rights enumerated above, with
respect to the Amethyst Registrable Securities at any time after (X) July 1,
2002 or (Y) such earlier date which is 60 days prior to the date on which
the Exchangeable Stock shall have been exchanged for Common Stock pursuant
to Section 5.10 or 5.11 of the Purchase Agreement, First Reserve may make a
request in writing that the Company file a registration statement under the
Securities Act to register under the Securities Act all Amethyst Registrable
Securities (whether or not such Amethyst Registrable Securities are then
issued and outstanding) for resale on a delayed or continuous basis for a
period of one year in an amount equal to the lesser of (A) all such Amethyst
Registrable Securities, or (B) the number of Amethyst Registrable Securities
that could be sold pursuant to the provisions of Rule 144 by an affiliate of
the Company (assuming such Amethyst Registrable Securities were not
restricted securities within the meaning of Rule 144) during such one-year
period. Such a request (and the related registration) shall be in addition
to the Demand Registrations provided for in Section 5.2(a)(i) of this
Agreement."
SECTION 2.3 The proviso of the first sentence of Section 5.2(d)(i) shall be
deleted in its entirety and the following shall be substituted in lieu thereof:
"provided that if at the time the Company receives a request to file a
Registration Statement with respect to Registrable Securities or thereafter,
the Company is engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required in such
Registration Statement or a related prospectus or supplement thereto (but
would not be required if such Registration Statement were not filed) and the
board of directors of the Company determines in good faith that such
disclosure would be materially detrimental to the Company and its
stockholders, the Company shall have a period of not more than 120 days
(less the number of days during the previous 12 months that the use of a
Prospectus was suspended pursuant to Section 5.2(d)(vi) and/or this Section
5.2(d)(i)) within which to file such registration statement measured from
the date of the Company's receipt of First Reserve's request for
registration in accordance with Section 5.2(a) hereof or to file any
supplement required by Section 5.2(d)(vi)"
ARTICLE 3
MISCELLANEOUS
SECTION 3.1 COUNTERPARTS; FACSIMILE. This Amendment may be executed in any
number of counterparts, each of which when so executed shall be deemed an
original but all of which together shall constitute one and the same instrument.
This Amendment may be delivered by delivery of facsimile signature pages.
- 2 -
<PAGE>
SECTION 3.2 RATIFICATION; CONFIRMATION. Except to the extent otherwise expressly
contemplated hereby, the Shareholders Agreement is hereby ratified and
confirmed.
SECTION 3.3 SEVERABILITY. If any provision of this Amendment shall be held
invalid, such invalidity shall not affect any other provision of this Amendment
that can be given effect without the invalid provision, and to this end, the
provisions hereof are separable.
SECTION 3.4 HEADINGS. The headings in this Amendment are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Amendment.
- 3 -
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the date first
above written.
Address: PRIDE INTERNATIONAL, INC.
5847 San Felipe Road, Suite 3300 By: /S/ PAUL A. BRAGG
Houston, Texas 77057 Paul A. Bragg
Attn: Mr. Paul A. Bragg President and Chief Executive Officer
Fax: 713-789-1430
Address: FIRST RESERVE FUND VIII, LIMITED
600 Travis, Suite 6000 PARTNERSHIP
Houston, Texas 77002
Attn: Ben A. Guill By: First Reserve GP VIII, L.P.,
Fax: 713-224-0771 its General Partner
By: First Reserve Corporation,
its General Partner
By: /S/ THOMAS R. DENISON
Thomas R. Denison
Managing Director
- 4 -
EXHIBIT 15.1
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Pride International, Inc.
Quarterly Report on Form 10-Q
We are aware that our report dated November 12, 1999 on our review of
interim financial information of Pride International, Inc. (the "Company") as of
and for the periods ended September 30, 1999 and 1998 and included in the
Company's quarterly report on Form 10-Q is incorporated by reference in its
Registration Statements on Form S-8 and Form S-3 filed with the Securities and
Exchange Commission: Form S-8 (file no. 333-06823) and Form S-8 (file no.
333-06825) filed on June 26, 1996; Form S-8 (file no. 333-27661) filed on May
22, 1997; Form S-8 (file no. 333-35089) and Form S-8 (file no. 333-35093) filed
on September 8, 1997; Form S-3 (file no. 333-44925) filed on March 23, 1998; and
Form S-8 (file no. 333-87259) and Form S-8 (file no. 333-87263) filed on
September 16, 1999. Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of the registration statements
prepared or certified by us within the meanings of Sections 7 and 11 of that
Act.
Very truly yours,
PricewaterhouseCoopers LLP
Houston, Texas
November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE PRIDE INTERNATIONAL, INC. UNAUDITED CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1999 AND THE UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE NINE
MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 195,477
<SECURITIES> 0
<RECEIVABLES> 138,485
<ALLOWANCES> 6,227
<INVENTORY> 28,668
<CURRENT-ASSETS> 428,972
<PP&E> 2,101,043
<DEPRECIATION> 231,282
<TOTAL-ASSETS> 2,405,216
<CURRENT-LIABILITIES> 263,356
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 2,405,215
<TOTAL-LIABILITY-AND-EQUITY> 2,405,216
<SALES> 464,030
<TOTAL-REVENUES> 464,030
<CGS> 336,714
<TOTAL-COSTS> 500,906
<OTHER-EXPENSES> (8,493)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,403
<INCOME-PRETAX> (72,786)
<INCOME-TAX> (20,134)
<INCOME-CONTINUING> (52,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,884
<CHANGES> 0
<NET-INCOME> (48,768)
<EPS-BASIC> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
