<PAGE>
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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 June 30, 2000
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 August 10, 2000
Common Stock, no par value 65,648,307
===============================================================================
<PAGE>
PRIDE INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2000 and December 31, 1999.... 2
Consolidated Statement of Operations for the three months ended
June 30, 2000 and 1999................................................ 3
Consolidated Statement of Operations for the six months ended
June 30, 2000 and 1999................................................ 4
Consolidated Statement of Cash Flows for the six months ended
June 30, 2000 and 1999................................................ 5
Notes to Unaudited Consolidated Financial Statements.................... 6
Report of Independent Accountants....................................... 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................ 18
Item 6. Exhibits and Reports on Form 8-K................................... 18
Signatures................................................................. 19
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................................... $ 117,701 $ 111,627
Short-term investments....................................... - 42,877
Trade receivables, net....................................... 167,640 129,311
Parts and supplies........................................... 48,162 36,295
Other current assets......................................... 80,580 77,380
---------- ----------
Total current assets........................................ 414,083 397,490
---------- ----------
PROPERTY AND EQUIPMENT, net................................... 1,980,003 1,893,680
---------- ----------
OTHER ASSETS
Investments in affiliates.................................... 53,012 51,012
Goodwill..................................................... 53,949 3,120
Other assets, net............................................ 50,770 43,375
---------- ----------
Total other assets.......................................... 157,731 97,507
---------- ----------
$2,551,817 $2,388,677
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................. $ 127,813 $ 106,391
Accrued expenses............................................. 103,481 96,593
Short-term borrowings........................................ 50,275 402
Current portion of long-term debt............................ 57,989 53,097
Current portion of long-term lease obligations............... 8,554 8,336
---------- ----------
Total current liabilities................................... 348,112 264,819
---------- ----------
OTHER LONG-TERM LIABILITIES................................... 71,573 51,163
LONG-TERM DEBT, net of current portion........................ 890,162 898,237
LONG-TERM LEASE OBLIGATIONS, net of current portion........... 29,620 34,176
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES............... 221,606 216,473
DEFERRED INCOME TAXES......................................... 45,088 48,064
MINORITY INTEREST............................................. 55,103 50,476
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 100,000,000 shares authorized;
65,217,786 and 60,470,552 shares issued and 65,163,566
and 60,416,332 shares outstanding, respectively............. 1 1
Paid-in capital.............................................. 711,632 637,424
Treasury stock, at cost...................................... (191) (191)
Retained earnings............................................ 179,111 188,035
---------- ----------
Total shareholders' equity.................................. 890,553 825,269
---------- ----------
$2,551,817 $2,388,677
========== ==========
</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)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------
2000 1999
-------- ---------
<S> <C> <C>
REVENUE.................................................... $225,064 $168,083
OPERATING COSTS............................................ 149,734 123,666
-------- --------
Gross margin.............................................. 75,330 44,417
DEPRECIATION AND AMORTIZATION.............................. 33,086 23,107
SELLING, GENERAL AND ADMINISTRATIVE........................ 21,250 17,126
-------- --------
EARNINGS FROM OPERATIONS................................... 20,994 4,184
-------- --------
OTHER INCOME (EXPENSE)
Other income (expense), net............................... (62) 865
Interest income........................................... 2,316 1,015
Interest expense.......................................... (23,156) (14,931)
-------- --------
Total other income (expense), net........................ (20,902) (13,051)
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES & MINORITY INTEREST.... 92 (8,867)
INCOME TAX PROVISION (BENEFIT)............................. 556 (2,888)
MINORITY INTEREST.......................................... 1,567 876
-------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM.............. (2,031) (6,855)
EXTRAORDINARY ITEM, NET.................................... - 3,884
-------- --------
NET EARNINGS (LOSS)........................................ $ (2,031) $ (2,971)
======== ========
NET EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM:
Basic.................................................... $ (.03) $ (.13)
Diluted.................................................. $ (.03) $ (.13)
NET EARNINGS (LOSS) PER SHARE AFTER EXTRAORDINARY ITEM:
Basic.................................................... $ (.03) $ (.06)
Diluted.................................................. $ (.03) $ (.06)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.................................................... 65,099 51,098
Diluted.................................................. 65,099 51,098
</TABLE>
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)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
REVENUE.................................................... $395,147 $321,902
OPERATING COSTS............................................ 264,239 237,778
RESTRUCTURING CHARGES...................................... - 12,817
-------- --------
Gross margin.............................................. 130,908 71,307
DEPRECIATION AND AMORTIZATION.............................. 61,034 46,499
SELLING, GENERAL AND ADMINISTRATIVE........................ 37,559 39,019
RESTRUCTURING CHARGES...................................... - 25,700
-------- --------
EARNINGS (LOSS) FROM OPERATIONS............................ 32,315 (39,911)
-------- --------
OTHER INCOME (EXPENSE)
Other income (expense), net............................... (1,465) 1,428
Interest income........................................... 4,463 2,259
Interest expense.......................................... (42,161) (27,490)
-------- --------
Total other income (expense), net........................ (39,163) (23,803)
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES & MINORITY INTEREST.... (6,848) (63,714)
INCOME TAX PROVISION (BENEFIT)............................. (2,551) (18,265)
MINORITY INTEREST.......................................... 4,627 863
-------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM.............. (8,924) (46,312)
EXTRAORDINARY ITEM, NET.................................... - 3,884
-------- --------
NET EARNINGS (LOSS)........................................ $ (8,924) $(42,428)
======== ========
NET EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM:
Basic.................................................... $ (.14) $ (.91)
Diluted.................................................. $ (.14) $ (.91)
NET EARNINGS (LOSS) PER SHARE AFTER EXTRAORDINARY ITEM:
Basic.................................................... $ (.14) $ (.84)
Diluted.................................................. $ (.14) $ (.84)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.................................................... 62,800 50,752
Diluted.................................................. 62,800 50,752
</TABLE>
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>
Six Months Ended
June 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss)..................................................... $ (8,924) $ (42,428)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities -
Depreciation and amortization......................................... 61,034 46,499
Discount amortization on zero coupon convertible subordinated
debentures........................................................... 5,133 5,636
Gain on sale of assets................................................ (1,569) (492)
Deferred tax provision (benefit)...................................... (6,526) (25,960)
Minority interest..................................................... 4,627 945
Extraordinary item.................................................... - (6,825)
Changes in assets and liabilities, net of effects of acquisitions -
Trade receivables.................................................... (16,947) 32,229
Parts and supplies................................................... (4,982) 8
Other current assets................................................. (1,189) 1,635
Other assets......................................................... (6,246) (12,542)
Accounts payable..................................................... 2,625 (26,638)
Accrued expenses..................................................... (5,289) 17,948
Other liabilities.................................................... 20,410 10,563
-------- ---------
Net cash provided by operating activities........................... 42,157 578
-------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities, less cash acquired......... (33,130) -
Purchases of property and equipment..................................... (79,470) (265,933)
Proceeds from sales of property and equipment........................... 2,449 97,974
Investments in affiliates............................................... (2,000) 1,035
Proceeds from sales of short-term investments........................... 72,931 -
Purchases of short-term investments..................................... (30,054) -
-------- ---------
Net cash used in investing activities............................... (69,274) (166,924)
-------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock.................................. 72,000 25,000
Proceeds from exercise of stock options................................. 2,208 303
Proceeds from debt borrowings........................................... 35,625 425,838
Reduction of debt....................................................... (76,642) (194,446)
-------- ---------
Net cash provided by financing activities........................... 33,191 256,695
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................ 6,074 90,349
CASH AND CASH EQUIVALENTS, beginning of period........................... 111,627 86,540
-------- ---------
CASH AND CASH EQUIVALENTS, end of period................................. $117,701 $ 176,889
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Capital expenditures in accounts payable................................ $ 9,416 $ 35,536
</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 accounting
principles generally accepted in the United States of America 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, 1999. 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. LONG-TERM DEBT
Long-term debt as of June 30, 2000 and December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
(in thousands)
<S> <C> <C>
9 3/8% Senior Notes due 2007................. $325,000 $325,000
10% Senior Notes due 2009.................... 200,000 200,000
Drillship loans.............................. 337,135 356,491
Limited-recourse collateralized term loans... 24,277 26,699
Senior convertible note payable.............. 21,250 21,250
Collateralized term loans.................... 14,204 18,771
Note payable to seller....................... 24,556 -
Other notes payable.......................... 1,729 3,123
-------- --------
948,151 951,334
Current portion of long-term debt............ 57,989 53,097
-------- --------
Long-term debt, net of current portion....... $890,162 $898,237
======== ========
</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 financing arrangements
with a group of banks that provided $400 million of the total cost of $470
million for the drillships. The loans with respect to the drillships are non-
recourse to the joint venture partners.
In connection with the drillship loans and the limited-recourse
collateralized term loans, at June 30, 2000, $31.2 million of the Company's cash
balances, which amount is included in cash and cash equivalents, is held in
trust and is not available for use by the Company.
6
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. RESTRUCTURING CHARGES
During the first quarter of 1999, the Company implemented a restructuring
plan to address the dramatic decline in drilling and workover activity that had
occurred since the third quarter of 1998. The restructuring consisted of
regional base consolidations, downsizing of administrative staffs and other
reductions in personnel which resulted in a pretax charge of $38.5 million for
current and future cash expenditures. During the fourth quarter of 1999, $1.8
million of the charge was reversed. Charges included the estimated costs 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 incurred approximately
$34.7 million of such costs attributable to involuntary employee termination
benefits relating to 767 operational employees and 88 management and
administrative employees, $900,000 attributable to facility closures and $1.1
million of other costs in connection with the restructuring.
4. INCOME TAXES
Although the Company incurred a loss of $1.5 million before income taxes
for the three months ended June 30, 2000, the Company recorded a tax provision
of $0.6 million, attributable primarily to operations in countries with deemed
profit tax regimes in which the Company's tax liability is based on revenues
rather than actual income or loss.
The Company's consolidated effective income tax rate for the six months
ended June 30, 2000 was approximately 37.3%, as compared to approximately 28.7%
for the corresponding period in 1999. The increase in the effective tax rate
for the six months ended June 30, 2000 resulted from the tax effect of certain
operations in high effective tax rate jurisdictions.
5. 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. As a result of net losses for the three months and six months ended June
30, 2000 and 1999, dilutive net earnings per share is the same as basic net
earnings per share for such periods. Common shares issuable pursuant to
outstanding stock options and convertible debt securities have been excluded
from the calculation of diluted loss per share because their effect is
antidilutive for these periods. The following table presents the number of
shares of common stock excluded for each period:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Shares of common stock 11,141 17,460 11,204 17,722
6. ACQUISITION AND SALE OF COMMON EQUITY
In April 2000, the Company's wholly owned subsidiary, Twin Oaks Financial
Ltd. ("Twin Oaks"), acquired all the outstanding capital stock of Servicios
Especiales San Antonio S.A. ("San Antonio") from Perez Companc S.A. ("Perez
Companc"). The purchase price was $61 million, consisting of $35 million in cash
and a $26 million promissory note of Twin Oaks guaranteed by San Antonio and
payable in monthly installments equal to the lesser of (1) 25% of the revenues
of San Antonio for the relevant month from services provided by it to Perez
Companc and its affiliates or (2) $722,222. Interest on the outstanding balance
of the note is payable quarterly at LIBOR plus 2.75%, which was 9.395% at June
30, 2000. Perez Companc is also entitled to "earn-out" payments of up to $12
million in the aggregate over the next four years. Assets acquired and
liabilities assumed consisted of current assets of $32.1 million, long-term
assets of $59.6 million, current liabilities of $76.4 million and long-term
liabilities of $32.1 million, resulting in acquisition goodwill of $51.8
million. To finance the acquisition and to improve the Company's overall
liquidity, the Company capitalized Twin Oaks with 4.5 million shares of the
Company's common stock, and Twin Oaks, in turn, sold those shares to a fund
managed by First Reserve Corporation ("First Reserve") for $72 million in cash.
As a result of this transaction, First Reserve funds owned a total of 10.2
million shares of the Company's common stock at June 30, 2000, or approximately
15.7% of the total shares outstanding at that date.
7
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. 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 should have a material adverse effect on the
Company's financial position, results of operations or cash flows.
8. 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. Two of the rigs, the Pride Brazil and the
Pride Carlos Walter, have been constructed in South Korea and are now undergoing
equipment commissioning and testing. These two rigs are expected to be
delivered by the shipyard by the end of 2000, subject to satisfactory completion
of testing and resolution of outstanding construction contract matters.
The other two rigs, the Amethyst 4 and Amethyst 5, are under construction
in the United States. In early January 2000, the shipyard building the Amethyst
4 and Amethyst 5 notified the joint venture that construction of the rigs was
being suspended because of alleged delays in receiving detailed engineering work
and the joint venture's previous rejection of the shipyard's requests for
extensions of the construction contract delivery dates. Subsequently, the
shipyard asserted claims against the joint venture for an extension of the
construction contract delivery dates on grounds of permissible delay within the
terms of the construction contracts and damages for alleged breach of those
contracts. In May 2000, the joint venture settled all of the shipyard's
significant claims and the shipyard resumed construction of the Amethyst 4 and
Amethyst 5. The Company currently expects that the Amethyst 4 and Amethyst 5
will be delivered by the shipyard in late 2001. The joint venture was formed to
build, own and operate its four rigs under charter and service contracts with
Petroleo Brasilerio S.A. ("Petrobras") having initial terms of six to eight
years. Petrobras has threatened to cancel those contracts for late delivery of
the rigs, and the joint venture has obtained a preliminary injunction in a
Brazilian court against that cancellation. Based on Petrobras' announced
deepwater drilling program and related rig requirements, the Company believes
that Petrobras likely will employ all of the joint venture's rigs upon
completion; however, there can be no assurance that any of the four rigs will be
chartered to Petrobras or to any other customer.
If Petrobras were to successfully cancel 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 the Pride Brazil and Pride Carlos Walter with certain
commitments and guarantees, the principal one being a guarantee for repayment of
up to $32.4 million of loans aggregating up to $340 million. In November 1999,
the joint venture issued $53 million of senior secured notes, which are
partially secured by a Company guarantee of up to $30 million. The $32.4
million Company guarantee of borrowings under the credit facilities is separate
from, and in addition to, the Company's guarantee of up to $30 million of the
venture's senior secured notes. The Company's other commitments and guarantees
to the lenders under the credit facilities for the Pride Brazil and Pride Carlos
Walter 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) guarantees relating
to the performance of its subsidiaries and affiliates under their management
agreements and charters relating to the rigs.
8
<PAGE>
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
If Petrobras accepts delivery of the joint venture's rigs under the existing
charters, it will be entitled to impose late delivery penalties which, in the
case of the Pride Brazil and Pride Carlos Walter, could be as much as $29.4
million based on the dates those rigs are currently expected to commence
operations under their respective Petrobras charters. In connection with the
credit facilities for the Amethyst 4 and Amethyst 5, the Company has guaranteed
payment of up to $20.5 million of late delivery penalties that are accruing and
may be payable under the charters relating to those two rigs. If the Amethyst 4
and Amethyst 5 are completed and delivered to Petrobras under their existing
charters, the maximum late delivery penalties Petrobras would be entitled to
impose for those rigs would be $56.0 million. The Company has not expressly
guaranteed payment of more than $20.5 million of late delivery penalties for any
of the Amethyst rigs but may be called upon to advance 30% of those penalties if
the venture does not have or is unable to obtain funds to pay those penalties or
if Petrobras refuses to allow such penalties to be paid or charged against
charter payments over the terms of the charters, as it has done in the past with
offshore drilling rigs it has chartered from other firms.
9. SEGMENT INFORMATION
The following table sets forth selected consolidated financial information
of the Company by operating segment for the periods indicated. Operating costs
for the six month period ended June 30, 1999 include restructuring charges.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ---------------------------
2000 1999 2000 1999
-------------- --------------- ---------------- ------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
United States offshore............. $ 29.7 13.2% $ 23.4 13.9% $ 51.7 13.1% $ 51.8 16.1%
International offshore............. 84.5 37.5 85.1 50.6 158.9 40.2 143.3 44.5
International land................. 83.0 36.9 59.6 35.5 156.7 39.7 126.8 39.4
E&P services....................... 27.8 12.4 - - 27.8 7.0 - -
------ ----- ------ ----- ------ ----- ------ -----
Total revenue..................... 225.0 100.0 168.1 100.0 395.1 100.0 321.9 100.0
------ ----- ------ ----- ------ ----- ------ -----
Operating Costs:....................
United States offshore............. 20.8 13.9 15.0 12.1 38.4 14.5 37.4 14.9
International offshore............. 46.8 31.3 64.7 52.3 86.9 32.9 106.1 42.3
International land................. 62.0 41.4 44.0 35.6 118.8 45.0 107.1 42.8
E&P services....................... 20.1 13.4 - - 20.1 7.6 - -
------ ----- ------ ----- ------ ----- ------ -----
Total operating costs............. 149.7 100.0 123.7 100.0 264.2 100.0 250.6 100.0
------ ----- ------ ----- ------ ----- ------ -----
Gross Margin:.......................
United States offshore............. 8.9 11.8 8.4 18.8 13.3 10.2 14.4 20.2
International offshore............. 37.7 50.1 20.4 46.1 72.0 55.0 37.2 52.1
International land................. 21.0 27.9 15.6 35.1 37.9 28.9 19.7 27.7
E&P services....................... 7.7 10.2 - - 7.7 5.9 - -
------ ----- ------ ----- ------ ----- ------ -----
Total gross margin................ $ 75.3 100.0% $ 44.4 100.0% $130.9 100.0% $ 71.3 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Pride International, Inc.:
We have reviewed the accompanying consolidated balance sheet of Pride
International, Inc. as of June 30, 2000, and the related consolidated statement
of operations for each of the three-month and six-month periods ended June 30,
2000 and 1999, and the related consolidated statement of cash flows for the six-
month periods ended June 30, 2000 and 1999. 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 auditing standards generally accepted in the United States of
America, 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 consolidated interim 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, 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein), and in our report dated March 30, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1999 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
August 10, 2000
10
<PAGE>
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 June 30, 2000 and for the
three-month and six-month periods ended June 30, 2000 and 1999 included
elsewhere herein, and with our Annual Report on Form 10-K for the year ended
December 31, 1999. 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 294 rigs, including two ultra-deepwater drillships, three
semisubmersible rigs, 19 jackup rigs, six tender-assisted rigs, three barge
rigs, 21 offshore platform rigs and 240 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 a 51% ownership interest in joint
ventures that own and operate two ultra-deepwater drillships, the Pride Africa
and the Pride Angola, and we have a 26.4% interest in a joint venture engaged in
the construction of four fourth-generation Amethyst-class semisubmersible rigs.
Two of these rigs, the Pride Brazil and the Pride Carlos Walter, have been
constructed in Korea and are presently undergoing equipment commission and
testing. The other two are under construction in the United States. We also
have expanded the range of services we provide to our customers in South America
with the acquisition in April 2000 of Servicios Especiales San Antonio S.A.
OUTLOOK
With market conditions improving as a result of the increases in oil
and gas prices since mid-1999, management anticipates continued increases in
utilization and dayrates through the remainder of 2000. If commodity prices
remain near their current levels, we expect that our financial results will
improve throughout the year. However, due to the volatility of oil and gas
prices, which affect the demand for our drilling services, we cannot predict
with any certainty whether these improving conditions will continue to affect
our financial results positively or whether commodity prices and demand for our
services will decline substantially.
The depressed industry conditions over the latter part of 1998 and in
1999 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.
11
<PAGE>
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 six-month period ended June 30, 1999 include restructuring charges.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- -------------------------------------
2000 1999 2000 1999
-------------- -------------- ----------------- ------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
United States offshore............. $ 29.7 13.2% $ 23.4 13.9% $ 51.7 13.1% $ 51.8 16.1%
International offshore............. 84.5 37.5 85.1 50.6 158.9 40.2 143.3 44.5
International land................. 83.0 36.9 59.6 35.5 156.7 39.7 126.8 39.4
E&P services....................... 27.8 12.4 - - 27.8 7.0 - -
------ ----- ------ ----- ------ ----- ------ -----
Total revenue..................... 225.0 100.0 168.1 100.0 395.1 100.0 321.9 100.0
------ ----- ------ ----- ------ ----- ------ -----
Operating Costs:
United States offshore............. 20.8 13.9 15.0 12.1 38.4 14.5 37.4 14.9
International offshore............. 46.8 31.3 64.7 52.3 86.9 32.9 106.1 42.3
International land................. 62.0 41.4 44.0 35.6 118.8 45.0 107.1 42.8
E&P services....................... 20.1 13.4 - - 20.1 7.6 - -
------ ----- ------ ----- ------ ----- ------ -----
Total operating costs............. 149.7 100.0 123.7 100.0 264.2 100.0 250.6 100.0
------ ----- ------ ----- ------ ----- ------ -----
Gross Margin:
United States offshore............. 8.9 11.8 8.4 18.8 13.3 10.2 14.4 20.2
International offshore............. 37.7 50.1 20.4 46.1 72.0 55.0 37.2 52.1
International land................. 21.0 27.9 15.6 35.1 37.9 28.9 19.7 27.7
E&P services....................... 7.7 10.2 - - 7.7 5.9 - -
------ ----- ------ ----- ------ ----- ------ -----
Total gross margin................ $ 75.3 100.0% $ 44.4 100.0% $130.9 100.0% $ 71.3 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999.
Revenue. Revenue for the three months ended June 30, 2000 increased $56.9
million, or 33.8%, as compared to the corresponding period in 1999. Of this
increase, $27.9 million related to the initiation of E&P services through the
acquisition of Servicios Especiales San Antonio S.A. ("San Antonio"). Revenue
from international land operations increased $23.4 million, primarily due to
higher utilization of our land-based fleet in South America. Revenue from United
States offshore operations increased $6.3 million, due to increased utilization
of our Gulf of Mexico jackup and platform rigs. Revenue from international
offshore operations was essentially unchanged, as increases from commencement of
operations of our two new drillships, which generate substantially higher
margins, were offset by lower utilization and day rates for our tender-assisted
rigs and lower revenue from our management of rigs that we do not own.
Operating Costs. Operating costs for the three months ended June 30, 2000
increased $26.0 million, or 21.0%, as compared to the corresponding period in
1999. Of this increase, $20.1 million related to the addition of E&P services
through the acquisition of San Antonio, discussed above. Operating costs for
international land operations increased $18.0 million, primarily due to higher
utilization of our land-based fleet in South America. Operating costs for our
United States offshore operations increased $5.8 million, due to increased
utilization of our Gulf of Mexico jackup and platform rigs. These increases
were partially offset by a decrease in operating costs of $19.9 million for our
international offshore operations. Although operating costs for this segment
increased with the commencement of operations of our two new drillships, such
increase was more than offset by reduced operating costs due to lower
utilization of many of our other international offshore rigs, primarily our
tender-assisted rigs, as well as a reduction in activity levels for non-owned
rigs that we manage.
Depreciation and Amortization. Depreciation and amortization for the three
months ended June 30, 2000 increased $10.0 million, or 43.2%, as compared to the
corresponding period in 1999. Of this amount, $3.2 million related to our two
new drillships, $3.2 million was due to the assets acquired in the San Antonio
acquisition, $2.0 million was attributable to the expansion of our other
deepwater fleet assets and $1.6 million was related to the expansion of our Gulf
of Mexico jackup rig fleet.
12
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended June 30, 2000 increased $4.1 million, or
24.1%, as compared to the corresponding period in 1999. Of this increase, $2.8
million was attributable to the addition of the San Antonio operations and the
remaining amount was due to increased insurance and personnel related expenses.
Other Income (Expense). Other expense for the three months ended June 30,
2000 increased $7.9 million, or 60.2%, as compared to the corresponding period
in 1999. Of this increase, $5.3 million was due to a decrease in capitalized
interest in the second quarter of 2000 with the commencement of operations of
our two newly-built drillships and $2.9 million related to increased borrowings
to fund drillship construction and other deepwater asset expansion projects.
These higher expenses in the second quarter of 2000 were partially offset by
increased interest income of $1.3 million attributable to an increase in the
average cash balances available for investment. Additionally, we recognized net
losses on foreign currency exchange contracts of $1.3 million and an insurance
gain of $2.2 million in Bolivia during the second quarter of 1999.
Income Tax Provision. Although we incurred a loss of $1.5 million before
income taxes for the three months ended June 30, 2000, we recorded a tax
provision of $0.6 million, attributable primarily to operations in countries
with deemed profit tax regimes in which our tax liability is based on revenues
rather than actual income or loss.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999.
Revenue. Revenue for the six months ended June 30, 2000 increased $73.2
million, or 22.8%, as compared to the corresponding period in 1999. Of this
increase, $27.8 million related to the addition of E&P services through the
April 2000 acquisition of San Antonio, discussed above. Revenue from
international land operations increased $29.9 million, primarily due to higher
utilization of our land-based fleet in South America. Revenue from
international offshore operations increased $15.6 million, primarily due to the
commencement of operations of our two new drillships, partially offset by lower
utilization and day rates for our tender-assisted rigs and lower revenue from
our management of non-owned rigs. Revenue from United States offshore operations
was essentially unchanged.
Operating Costs. Operating costs for the six months ended June 30, 2000
increased $13.6 million, or 5.4%, as compared to the corresponding period in
1999. Of this increase, $20.1 million related to the addition of E&P services
through the acquisition of San Antonio, discussed above. Operating costs for our
international land operations increased $11.7 million, primarily due to higher
utilization of our land-based fleet in South America. Operating costs for our
United States offshore operations increased $1.0 million, due to increased
utilization of our Gulf of Mexico jackup and platform rigs. These increases were
offset by a decrease in operating costs of $19.2 million for our international
offshore operations. Although operating costs for this segment increased with
the commencement of operations of our two new drillships, such increase was more
than offset by reduced operating costs due to lower utilization of many of our
other international offshore rigs, primarily our tender-assisted rigs, as well
as a reduction in activity levels for non-owned rigs that we manage.
Depreciation and Amortization. Depreciation and amortization increased
$14.5 million, or 31.3%, for the six months ended June 30, 2000 as compared to
the corresponding period in 1999. Of this increase, $3.2 million related to the
San Antonio acquisition, $5.7 million related to our two new drillships, $2.1
million related to the expansion of our other deepwater fleet assets and $3.5
million related to the expansion of our Gulf of Mexico jackup rig fleet.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $27.2 million, or 42.0%, for the six months ended June 30,
2000 as compared to the corresponding period in 1999, as a result of non-
recurring restructuring charges recorded in the first quarter of 1999 and the
effect of reduced expenses as a result of the restructuring in the second
quarter of 2000, offset by increases related to the acquisition of San Antonio
and increased insurance and personnel expenses.
Other Income (Expense). Other expense for the six months ended June 30,
2000 increased $15.4 million, or 64.5%, over the corresponding period in 1999.
Of this increase, $14.7 million related to increased borrowings to fund
drillship construction and other deepwater asset expansion projects, and $2.0
million related to net losses recognized on foreign currency exchange contracts
during the current year period. These higher expenses for the first six months
of 2000 were partially offset by increased interest income of $2.2 million
attributable to an increase in the average cash balances available for
investment. In addition, we recognized an insurance gain of $2.2 million in
Bolivia in 1999.
13
<PAGE>
Income Tax Provision. Our consolidated effective income tax rate for the
six months ended June 30, 2000 was approximately 37.3% as compared to
approximately 28.7% for the corresponding period in 1999. The increase in the
effective income tax rate for the six months ended June 30, 2000 resulted from
the tax effect of the operations in high effective tax rate jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $66.0 million and $132.7 million as of June 30,
2000 and December 31, 1999, respectively. Our current ratio, the ratio of
current assets to current liabilities, was 1.2 as of June 30, 2000 and 1.5 as of
December 31, 1999. The decreases were attributable to the expenditure of cash
and incurrence and assumption of debt in connection with the April 2000 San
Antonio acquisition, certain capital expenditures, and the partial repayment of
drillship and other loans. At June 30, 2000, we had approximately $47 million
outstanding under short-term loans that we intend to repay with future draws
under the long-term drillship loans.
During the six-months ended June 30, 2000, our capital expenditures
consisted of $61.4 million for acquisition of San Antonio, $22.0 million
for the construction of the Pride Africa and the Pride Angola, $10.7 million for
the acquisition and outfitting of a 3,000 horsepower land rig, $12.1 million
relating to the acquisition of the Pride Cabinda jackup rig, $41.1 million for
certain other construction and refurbishment expenditures begun in 1998 and 1999
and approximately $2.1 million for other enhancement and sustaining capital
projects. We expect to spend approximately $20 to $30 million during the
remainder of 2000 for enhancements and sustaining capital expenditures.
At December 31, 1999, we had a senior revolving bank credit facility under
which up to $50 million (including $30 million for letters of credit) was
available. The credit facility was terminated in March 2000. We currently have
senior bank credit facilities with foreign banks that provide aggregate
availability of up to $190.0 million. The credit facilities terminate between
August 2000 and February 2005. Borrowings under each of the credit facilities
bear interest at variable rates based on LIBOR plus a spread ranging from 0.35%
to 1.70%. As of June 30, 2000, there were no advances outstanding under these
credit facilities.
We have a senior secured credit facility with a U.S. bank under which up to
$25 million of letters of credit may be issued. Outstanding letters of credit
issued under this credit facility are secured by our cash and cash equivalents
maintained at such bank. The letter of credit facility expires in March 2003.
As of June 30, 2000, there were $18.9 million of letters of credit issued under
this credit facility.
In connection with the construction of the Pride Africa and the Pride
Angola, we and the two joint venture companies in which we have a 51% interest
have financing arrangements with a group of banks that provided $400 million of
the total cost of $470 million for the drillships. The loans with respect to the
drillships are non-recourse to the joint venture partners.
Pride has a 26.4% equity interest in a joint venture company organized to
construct, own and operate four dynamically positioned, Amethyst-class
semisubmersible drilling rigs. Two of the rigs, the Pride Brazil and the Pride
Carlos Walter, have been constructed in South Korea and are now undergoing
equipment commissioning and testing. These two rigs are expected to be delivered
by the shipyard by the end of 2000, subject to satisfactory completion of
testing and resolution of outstanding construction contract matters.
14
<PAGE>
The other two rigs, the Amethyst 4 and Amethyst 5, are under construction in
the United States. In early January 2000, the shipyard building the Amethyst 4
and Amethyst 5 notified the joint venture that construction of the rigs was
being suspended because of alleged delays in receiving detailed engineering work
and the joint venture's previous rejection of the shipyard's requests for
extensions of the construction contract delivery dates. Subsequently, the
shipyard asserted claims against the joint venture for an extension of the
construction contract delivery dates on grounds of permissible delay within the
terms of the construction contracts and damages for alleged breech of those
contracts. In May 2000, the joint venture settled all of the shipyard's
significant claims and the shipyard resumed construction of the Amethyst 4 and
Amethyst 5. We currently expect that the Amethyst 4 and Amethyst 5 will be
delivered by the shipyard in late 2001. The joint venture was formed to build,
own and operate its four rigs under charter and service contracts with Petroleo
Brasilerio S.A. ("Petrobras") having initial terms of six to eight years.
Petrobras has threatened to cancel those contracts for late delivery of the
rigs, and the joint venture has obtained a preliminary injunction in a Brazilian
court against that cancellation. Based on Petrobras' announced deepwater
drilling program and related rig requirements, we believe that Petrobras likely
will employ all of the joint venture's rigs upon completion; however, there can
be no assurance that any of the four rigs will be chartered to Petrobras or to
any other customer.
If Petrobras were to successfully cancel 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 Pride Brazil and Pride Carlos Walter with certain
commitments and guarantees, the principal one being a guarantee for repayment of
up to $32.4 million of loans aggregating up to $340 million. In November 1999,
the joint venture issued $53 million of senior secured notes, which are
partially secured by a Pride guarantee of up to $30 million. The $32.4 million
Pride guarantee of borrowings under the credit facilities is separate from, and
in addition to, Pride's guarantee of up to $30 million of the venture's senior
secured notes. Pride's other commitments and guarantees to the lenders under
the credit facilities for the Pride Brazil and Pride Carlos Walter 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) guarantees relating to the
performance of our subsidiaries and affiliates under their management agreements
and charters relating to the rigs.
If Petrobras accepts delivery of the joint venture's rigs under the existing
charters, it will be entitled to impose late delivery penalties which, in the
case of the Pride Brazil and Pride Carlos Walter, could be as much as $29.4
million based on the dates those rigs are currently expected to commence
operations under their respective Petrobras charters. In connection with the
credit facilities for the Amethyst 4 and Amethyst 5, Pride has guaranteed
payment of up to $20.5 million of late delivery penalties that are accruing and
may be payable under the charters relating to those two rigs. If the Amethyst 4
and Amethyst 5 are completed and delivered to Petrobras under their existing
charters, the maximum late delivery penalties Petrobras would be entitled to
impose for those rigs would be $56.0 million. Pride has not expressly guaranteed
payment of more than $20.5 million of late delivery penalties for any of the
Amethyst rigs but may be called upon to advance 30% of those penalties if the
venture does not have or is unable to obtain funds to pay those penalties or if
Petrobras refuses to allow such penalties to be paid or charged against charter
payments over the terms of the charters, as it has done in the past with
offshore drilling rigs it has chartered from other firms.
15
<PAGE>
In April 2000, our wholly owned subsidiary, Twin Oaks Financial Ltd. ("Twin
Oaks"), acquired all the outstanding capital stock of San Antonio from Perez
Companc S.A. ("Perez Companc"). The purchase price was $61 million, consisting
of $35 million in cash and a $26 million promissory note of Twin Oaks
guaranteed by San Antonio and payable in monthly installments equal to the
lesser of (1) 25% of the revenues of San Antonio for the relevant month from
services provided by it to Perez Companc and its affiliates or (2) $722,222.
Interest on the outstanding balance of the note is payable quarterly at LIBOR
plus 2.75%, which was 9.395% at June 30, 2000. Perez Companc is also entitled to
"earn-out" payments of up to $12 million in the aggregate over the next four
years. To finance the acquisition and to improve the Company's overall
liquidity, the Company capitalized Twin Oaks with 4.5 million shares of our
common stock, and Twin Oaks, in turn, sold those shares to a fund managed by
First Reserve Corporation ("First Reserve") for $72 million in cash. As a result
of this transaction, First Reserve funds owned a total of 10.2 million shares of
our common stock at June 30, 2000, or approximately 15.7% of the total shares
outstanding at that date.
In connection with our drillship loans and limited-recourse collateralized
term loans, at June 30, 2000, $31.2 million of our cash balances, which amount
is included in cash and cash equivalents, is held in trust and is not available
for use by the company.
At June 30, 2000, we had approximately $1.3 billion of debt and capital
lease obligations. We do not expect that our level of total indebtedness will
have a material adverse impact on our financial position, results of operations
or liquidity in future periods.
Management believes that the cash and cash equivalents on hand, together
with the cash generated from our operations and borrowings under our credit
facilities, will be adequate to fund normal ongoing capital expenditures,
working capital and debt service requirements for the foreseeable future.
From time to time, we may review possible expansion and acquisition
opportunities. 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 we expect, project, believe or
anticipate will or may occur in the future are forward-looking statements. These
include such matters as:
. future capital expenditures and investments in the construction, acquisition
and refurbishment of rigs (including the amount and nature thereof and the
timing of completion thereof)
. repayment of debt
. expansion and other development trends in the contract drilling industry
. business strategies
. expansion and growth of operations
. utilization rates and contract rates for rigs
. employment of rigs by Petrobras and impact of late-delivery penalties and
. future operating results and financial condition
16
<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:
. general economic and business conditions
. prices of oil and gas and industry expectations about future prices
. foreign exchange controls and currency fluctuations
. the business opportunities (or lack thereof) that may be presented to and
pursued by us and
. 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.
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 June 30, 2000 was approximately $1.14 billion, which is approximately the
same as its carrying value. A hypothetical 10% decrease in interest rates would
increase the fair market value of our long-term debt by approximately $47
million.
We enter into interest rate swap and cap agreements to manage our exposure
to interest rate risk. As of June 30, 2000, we held interest rate swap and cap
agreements covering $354 million, fixing our interest payments on related debt
at 7.5%. The weighted average interest rate incurred on the related debt in the
first half of 2000 excluding the swap agreements was 8.2%. The fair market
value of our interest rate swap and cap agreements is determined based upon
discounted expected future cash flows using the market interest rate at the
balance sheet date. The estimated fair value of our interest rate swap and cap
agreements as of June 30, 2000 was a gain of approximately $9.3 million. A
hypothetical 10% decrease in interest rates would decrease the fair market value
of our interest rate swap and cap agreements by approximately $9.0 million. The
change in the cash flows from the interest rate swap and cap agreements would be
offset by a corresponding change in interest expense on the related debt.
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 mitigate our exposure to exchange
rate fluctuations in connection with monetary assets, liabilities and cash flows
denominated in certain foreign currencies. A hypothetical 10% increase in the
U.S. dollar relative to the value of all foreign currencies as of June 30, 2000
would result in an approximate $4.3 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.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of shareholders was held in Houston, Texas on May 23, 2000
for the purpose of voting on the proposals described below. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act
of 1934 and there was no solicitation in opposition to management's
solicitation.
Shareholders approved and ratified the issuance on March 31, 2000 of
4,500,000 shares of our common stock to First Reserve Fund VIII, L.P. by the
following vote:
Affirmative votes................. 35,857,736
Negative votes.................... 57,623
Abstentions....................... 1,509,016
Shares not voted.................. 27,587,041
Shareholders ratified the appointment of PricewaterhouseCoopers LLP as our
independent accountants for 2000 by the following vote:
Affirmative votes................. 37,253,850
Negative votes.................... 54,012
Abstentions....................... 117,573
Shares not voted.................. 27,585,981
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits*
EXHIBIT NO. DESCRIPTION
----------- -----------
15.1 -- Awareness Letter of PricewaterhouseCoopers LLP
27 -- Financial Data Schedule
______________
* During the three months ended June 30, 2000 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 filed no reports on Form 8-K during the three months ended
June 30, 2000.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIDE INTERNATIONAL, INC.
By: EARL W. McNIEL
-----------------------------
(Earl W. McNiel)
Vice President and Chief
Financial Officer
Date: August 14, 2000
19
