================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-13289
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PRIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 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 7, 2001
Common Stock, par value $.01 per share 132,792,443
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PRIDE INTERNATIONAL, INC.
INDEX
<Table>
<Caption>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 2001 and December 31, 2000.................... 2
Consolidated Statement of Operations for the three months ended
September 30, 2001 and 2000............................................................. 3
Consolidated Statement of Operations for the nine months ended
September 30, 2001 and 2000............................................................. 4
Consolidated Statement of Cash Flows for the nine months ended
September 30, 2001 and 2000............................................................. 5
Notes to Unaudited Consolidated Financial Statements......................................... 6
Report of Independent Accountants............................................................ 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................. 23
PART II. OTHER INFORMATION
Item 1. Litigation............................................................................. 23
Item 2. Changes in Securities and Use of Proceeds.............................................. 23
Item 4. Submission of Matters to a Vote of Security Holders.................................... 23
Item 6. Exhibits and Reports on Form 8-K....................................................... 23
Signatures....................................................................................... 25
</Table>
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (includes restricted cash of $48,368 and $50,496) $ 161,060 $ 127,678
Trade receivables, net .................................................... 375,543 284,761
Parts and supplies ........................................................ 58,255 54,448
Other current assets ...................................................... 118,277 68,599
----------- -----------
Total current assets .................................................. 713,135 535,486
----------- -----------
PROPERTY AND EQUIPMENT, net .................................................... 3,320,512 2,621,365
----------- -----------
OTHER ASSETS
Investments in and advances to affiliates ................................. 26,070 59,420
Goodwill, net ............................................................. 65,881 51,940
Other assets, net ......................................................... 69,695 69,422
----------- -----------
Total other assets .................................................... 161,646 180,782
----------- -----------
$ 4,195,293 $ 3,337,633
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................................................... $ 187,437 $ 148,246
Accrued expenses .......................................................... 245,106 150,168
Short-term borrowings ..................................................... 44,100 22,135
Current portion of long-term debt ......................................... 86,446 85,286
Current portion of long-term lease obligations ............................ 2,517 4,267
----------- -----------
Total current liabilities ............................................. 565,606 410,102
----------- -----------
OTHER LONG-TERM LIABILITIES .................................................... 104,164 82,639
LONG-TERM DEBT, net of current portion ......................................... 1,607,737 1,219,638
LONG-TERM LEASE OBLIGATIONS, net of current portion ............................ 15,784 17,682
DEFERRED INCOME TAXES .......................................................... 145,554 112,541
MINORITY INTEREST .............................................................. 61,461 50,599
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 400,000 shares authorized; 132,792 and
126,305 shares issued and 132,792
and 126,251 shares outstanding, respectively .......................... 1,328 1,263
Paid-in capital ........................................................... 1,218,620 1,056,397
Treasury stock, at cost ................................................... -- (191)
Retained earnings ......................................................... 475,039 386,963
----------- -----------
Total shareholders' equity ............................................ 1,694,987 1,444,432
----------- -----------
$ 4,195,293 $ 3,337,633
=========== ===========
</Table>
The accompanying notes are an integral part of the
consolidated financial statements.
2
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
--------- ---------
REVENUE ............................................ $ 406,298 $ 304,317
OPERATING COSTS .................................... 248,993 179,717
--------- ---------
Gross margin .................................. 157,305 124,600
DEPRECIATION AND AMORTIZATION ...................... 49,796 45,421
SELLING, GENERAL AND ADMINISTRATIVE ................ 26,188 24,701
POOLING AND MERGER COSTS ........................... 35,766 --
--------- ---------
EARNINGS FROM OPERATIONS ........................... 45,555 54,478
--------- ---------
OTHER INCOME (EXPENSE)
Interest expense .............................. (33,011) (27,364)
Interest income ............................... 2,477 2,567
Other, net .................................... 2,705 3,172
--------- ---------
Total other income (expense) .............. (27,829) (21,625)
--------- ---------
EARNINGS BEFORE INCOME TAXES & MINORITY INTEREST ... 17,726 32,853
INCOME TAX PROVISION ............................... 9,856 11,941
MINORITY INTEREST .................................. 2,991 4,185
--------- ---------
NET EARNINGS BEFORE EXTRAORDINARY ITEM ............. 4,879 16,727
EXTRAORDINARY ITEM, net ............................ 564 --
--------- ---------
NET EARNINGS ....................................... $ 5,443 $ 16,727
========= =========
NET EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM
Basic ..................................... $ 0.04 $ 0.13
Diluted ................................... $ 0.04 $ 0.13
NET EARNINGS PER SHARE AFTER EXTRAORDINARY ITEM
Basic ..................................... $ 0.04 $ 0.13
Diluted ................................... $ 0.04 $ 0.13
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ..................................... 132,790 124,225
Diluted ................................... 133,865 127,658
</Table>
The accompanying notes are an integral part of the
consolidated financial statements.
3
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2001 2000
----------- -----------
REVENUE ........................................ $ 1,150,351 $ 810,906
OPERATING COSTS ................................ 669,699 501,143
----------- -----------
Gross margin .............................. 480,652 309,763
DEPRECIATION AND AMORTIZATION .................. 147,509 128,155
SELLING, GENERAL AND ADMINISTRATIVE ............ 75,805 69,272
POOLING AND MERGER COSTS ....................... 35,766 --
----------- -----------
EARNINGS FROM OPERATIONS ....................... 221,572 112,336
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense .......................... (81,937) (75,921)
Interest income ........................... 9,451 7,321
Other, net ................................ (2,091) 2,739
----------- -----------
Total other income (expense) .......... (74,577) (65,861)
----------- -----------
EARNINGS BEFORE INCOME TAXES & MINORITY INTEREST 146,995 46,475
INCOME TAX PROVISION ........................... 48,626 17,169
MINORITY INTEREST .............................. 10,857 8,812
----------- -----------
NET EARNINGS BEFORE EXTRAORDINARY ITEM ......... 87,512 20,494
EXTRAORDINARY ITEM, net ........................ 564 --
----------- -----------
NET EARNINGS ................................... $ 88,076 $ 20,494
=========== ===========
NET EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM
Basic ................................. $ 0.67 $ 0.17
Diluted ............................... $ 0.63 $ 0.16
NET EARNINGS PER SHARE AFTER EXTRAORDINARY ITEM
Basic ................................. $ 0.67 $ 0.17
Diluted ............................... $ 0.63 $ 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ................................. 131,220 122,128
Diluted ............................... 145,194 124,313
</Table>
The accompanying notes are an integral part of the
consolidated financial statements.
4
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net earnings .......................................................... $ 88,076 $ 20,494
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization ..................................... 147,509 128,155
Discount amortization on zero coupon debentures ................... 8,163 7,740
Gain on sale of assets ............................................ (739) (2,961)
Deferred tax provision ............................................ 15,595 4,351
Minority interest ................................................. 10,857 8,812
Changes in assets and liabilities, net of effects of acquisitions -
Trade receivables ............................................ (85,480) (73,467)
Parts and supplies ........................................... (2,687) (4,765)
Other current assets ......................................... (48,522) 20,134
Other assets ................................................. 19,890 (7,947)
Accounts payable ............................................. (6,570) (347)
Accrued expenses ............................................. 72,303 15,927
Other liabilities ............................................ 15,277 10,293
--------- ---------
Net cash provided by operating activities ................ 233,672 126,419
--------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities, less cash acquired ....... (8,934) (45,755)
Purchases of property and equipment ................................... (219,010) (148,375)
Proceeds from sales of property and equipment ......................... 1,445 4,201
Investments in and advances to affiliates ............................. (17,329) (3,000)
Proceeds from sales of short-term investments ......................... -- 72,931
Purchases of short-term investments ................................... -- (30,054)
--------- ---------
Net cash used in investing activities .................... (243,828) (150,052)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................ 62,000 125,283
Proceeds from exercise of stock options ............................... 7,508 7,425
Proceeds from issuance of convertible senior debentures, net .......... 254,500 --
Proceeds from debt borrowings ......................................... 71,266 54,047
Reduction of debt ..................................................... (351,736) (144,808)
--------- ---------
Net cash provided by financing activities ................ 43,538 41,947
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................................. 33,382 18,314
CASH AND CASH EQUIVALENTS, beginning of period ............................. 127,678 116,291
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ................................... $ 161,060 $ 134,605
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Capital expenditures in accounts payable .............................. $ 42,606 $ 14,360
</Table>
The accompanying notes are an integral part of the
consolidated financial statements.
5
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.
In September 2001, the mergers of Pride International, Inc. (the
"Company" or "Pride"), Marine Drilling Companies, Inc. ("Marine") and related
entities were completed. The mergers included a change in the Company's state of
incorporation from Louisiana to Delaware. The merger of Marine into a wholly
owned subsidiary of Pride was accounted for as a pooling-of-interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded historical carrying amounts of the assets and liabilities of Pride
and Marine are carried forward to the financial statements of the combined
company at recorded amounts, results of operations of the combined company
include the income and expenses of Pride and Marine for the entire fiscal period
in which the combination occurred and the historical results of operations of
the separate companies for fiscal periods prior to the mergers are combined and
reported as the results of operations of the combined company. The results of
operations of Pride and Marine for periods prior to the consummation of the
merger that are included in the combined Company's recorded amounts are:
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2001
--------------------------------
Pride Marine Combined
-------- -------- --------
(IN THOUSANDS)
Revenues ......................... $561,414 $182,639 $744,053
Net earnings ..................... $ 30,071 $ 52,562 $ 82,633
</Table>
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------
Pride Marine Combined
-------- -------- --------
(IN THOUSANDS)
Revenues ......................... $ 626,957 $ 183,949 $ 810,906
Net earnings (loss) .............. $ (7,795) $ 28,289 $ 20,494
</Table>
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of Pride and Marine included in their respective Annual Reports on Form 10-K for
the year ended December 31, 2000. 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.
6
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. LONG-TERM DEBT
Long-term debt as of September 30, 2001 and December 31, 2000 consisted
of the following:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------- ----------
(IN THOUSANDS)
9 3/8% Senior Notes due 2007 ......................................... $ 325,000 $ 325,000
10% Senior Notes due 2009 ............................................ 200,000 200,000
Drillship loans ...................................................... 301,932 351,826
Semisubmersible construction loans ................................... 237,524 --
Zero Coupon Convertible Senior Debentures Due 2021 ................... 266,901 --
Zero Coupon Convertible Subordinated Debentures Due 2018 ............. 214,303 226,861
Senior convertible notes payable ..................................... 85,853 21,250
Limited-recourse collateralized term loans ........................... 17,689 21,736
Note payable to seller ............................................... 13,723 20,222
Other notes payable .................................................. 1,258 13,029
Credit facilities .................................................... 30,000 125,000
---------- ----------
1,694,183 1,304,924
Current portion of long-term debt .................................... 86,446 85,286
---------- ----------
Long-term debt, net of current portion ............................... $1,607,737 $1,219,638
========== ==========
</Table>
In connection with the construction of two ultra-deepwater drillships,
the Pride Africa and the Pride Angola, the Company and the two joint venture
companies that own and operate the drillships, in which the Company has a 51%
interest, entered into financing arrangements with a group of banks that
provided $400 million of the drillships' total cost of $495 million. These loans
are secured by the two drillships and the proceeds from the related drilling
contracts and are non-recourse to the joint venture owners.
As a condition of the drillship loans, the Company entered into
interest rate swap and cap agreements. The agreements fixed the interest rate on
the Pride Africa loan at 7.34% through December 2006, fixed the interest rate on
the Pride Angola loan at 6.52% through July 2003 and capped the interest rate on
the Pride Angola loan at 6.52% from August 2003 to July 2007.
In March 2001, in connection with the acquisition of the interests the
Company did not previously own in two deepwater semisubmersible drilling rigs,
the Pride Carlos Walter and the Pride Brazil, the Company issued approximately
$86 million aggregate principal amount of senior convertible notes. The notes,
which mature in March 2004 and bear interest at 9% per annum, are convertible
into approximately 4.0 million shares of the Company's common stock. In
addition, the Company assumed approximately $287 million of indebtedness
incurred to finance the construction of the rigs. An aggregate $53 million of
the construction-related indebtedness, which was scheduled to mature in November
2001 and bore interest at 11 3/4% per annum, was repaid in April 2001. The Pride
Carlos Walter and Pride Brazil commenced operations in June 2001 and July 2001,
respectively.
In July 2001, the Company entered into a credit agreement with a group
of foreign banks to provide loans totaling up to $250 million to refinance the
construction loans for the Pride Carlos Walter and Pride Brazil. Borrowings
under the new facility will bear interest at rates based on LIBOR plus an
applicable margin of 1.50% to 1.85%. Principal and interest are payable
semi-annually from March 2002 through 2008. Funding under the new facility and
repayment of the construction loans (which currently bear interest at 11% per
annum) was completed in November 2001. As a condition of the new facility, the
Company entered into interest rate swap agreements, effectively fixing the
respective interest rates from March 2002 through 2006. Such swap agreements are
not considered derivatives, as the swap agreements were required by the lenders
under the facility agreement and the interest rates on the swap agreements are
clearly and closely related to the interest rates provided for in the agreement.
The new loans are secured by, among other things, a first priority mortgage on
the drilling rigs and assignment of the charters for the rigs.
7
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In January 2001, the Company completed a public sale of Zero Coupon
Convertible Senior Debentures with a face amount of $431.5 million. The net
proceeds to the Company in connection with the sale, after deducting
underwriting discounts and offering expenses totaling $8.0 million, amounted to
approximately $254.5 million. The issue price of $608.41 for each debenture
represents a yield to maturity of 2.50% per annum (computed on a semiannual bond
equivalent basis) calculated from the issue date. The difference between the
issue price and face amount of the debentures is recorded as a discount and
amortized to interest expense on a straight-line basis over the term of the
debentures. The debentures, which mature on January 16, 2021, are convertible
into a total of approximately 9.4 million shares of common stock of the Company
(equal to a conversion rate of 21.729 shares of common stock per $1,000
principal amount at maturity). The Company will become obligated to purchase the
debentures, at the option of the holders, in whole or in part, on January 16,
2003, 2005, 2007, 2009 and 2016 at a price per debenture equal to the issue
price plus accrued original issue discount to the relevant purchase date. On or
subsequent to January 16, 2004, the debentures are redeemable at the option of
the Company, in whole or in part, for cash at a price equal to the issue price
plus accrued original issue discount to the date of redemption. The debentures,
like certain of the Company's other long-term debt instruments, 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.
In September 2001, the Company purchased on the open market and then
extinguished $45.0 million principal amount at maturity of its Zero Coupon
Convertible Subordinated Debentures. The purchase price was $19.4 million and
the accreted value, less offering costs, was $20.3 million, resulting in an
extraordinary gain after estimated income taxes of $564,000.
The Company currently has senior bank credit facilities with domestic
and foreign banks that provide aggregate availability of up to $322.6 million.
The credit facilities terminate between January 2002 and June 2005. Borrowings
under each of the credit facilities bear interest at variable rates based on
LIBOR plus a spread ranging from 0.50% to 2.50%. As of September 30, 2001, there
was $30 million outstanding under these credit facilities.
The Company has a senior secured credit facility with a U.S. bank under
which up to $15 million of letters of credit may be issued. Outstanding letters
of credit issued under this credit facility are secured by the Company's cash
and cash equivalents maintained at such bank. The letter of credit facility
expires in March 2003. As of September 30, 2001, there were $12.6 million of
letters of credit issued under this credit facility.
As of September 30, 2001, $48.4 million of the Company's cash balances,
which amount is included in cash and cash equivalents, consists of funds held in
trust in connection with the drillship loans and the limited-recourse
collateralized term loans and, accordingly, is not available for use by the
Company.
3. INCOME TAXES
The Company's consolidated effective income tax rate for the three
months and nine months ended September 30, 2001 was 55.6% and 33.1%,
respectively, as compared to 36.3% and 36.9% for the corresponding periods in
2000. The increase in the effective tax rate for the three months ended
September 30, 2001 resulted primarily from the estimated non-deductibility for
U.S. federal income tax purposes of a substantial portion of the pooling and
merger costs incurred in connection with the Marine merger. The effective income
tax rate for the nine months ended September 30, 2001 decreased to 33.1% from
36.9% in the corresponding period in 2000, primarily as a result of increased
income in foreign jurisdictions with low or zero effective tax rates.
8
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. 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 stock options, convertible debentures and
other convertible debt were converted into common stock, after giving
retroactive effect to the elimination of interest expense, net of income tax
effect, applicable to the convertible debentures and other convertible debt.
The following table presents information necessary to calculate basic
and diluted net earnings per share:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- --------- ---------
2001 2000 2001 2000
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net earnings before extraordinary item ............. $ 4,879 $ 16,727 $ 87,512 $ 20,494
Extraordinary item, net ............................ 564 -- 564 --
--------- --------- --------- ---------
Net earnings after extraordinary item .............. 5,443 16,727 88,076 20,494
Interest expense on convertible debentures and notes -- -- 6,235 --
Income tax effect .................................. -- -- (2,182) --
--------- --------- --------- ---------
Adjusted net earnings after extraordinary item $ 5,443 $ 16,727 $ 92,129 $ 20,494
========= ========= ========= =========
Weighted average number of common shares outstanding 132,790 124,225 131,220 122,128
Convertible debentures and notes ................... -- -- 11,958 --
Stock options and warrants ......................... 1,075 3,433 2,016 2,185
--------- --------- --------- ---------
Adjusted weighted average shares outstanding .. 133,865 127,658 145,194 124,313
========= ========= ========= =========
Net earnings per share before extraordinary item
Basic net earnings per share .................. $ 0.04 $ 0.13 $ 0.67 $ 0.17
Diluted net earnings per share ................ $ 0.04 $ 0.13 $ 0.63 $ 0.16
Net earnings per share after extraordinary item
Basic net earnings per share .................. $ 0.04 $ 0.13 $ 0.67 $ 0.17
Diluted net earnings per share ................ $ 0.04 $ 0.13 $ 0.63 $ 0.16
</Table>
The calculation of diluted weighted average shares outstanding for the
three months ended September 30, 2001 and 2000 excludes 26.2 million and 6.5
million common shares, respectively, issuable pursuant to outstanding options,
convertible debentures and notes, because their effect was antidilutive. For the
nine months ended September 30, 2001 and 2000, 9.8 million and 7.6 million
common shares, respectively, were excluded in the calculation of diluted
weighted average shares outstanding.
5. SHAREHOLDERS' EQUITY
During the nine months ended September 30, 2001, the Company sold
approximately 2.6 million shares of common stock under its Direct Stock Purchase
Plan for net proceeds of $62.0 million.
In connection with the mergers described in Note 6, all treasury stock
was canceled and restrictions on outstanding restricted stock grants were
lifted.
6. MERGERS
In September 2001, Marine was merged into a wholly owned subsidiary of
the Company in a tax-free exchange of Marine common stock for common stock of
the Company on a one-for-one basis. Immediately thereafter, the Company
completed a second merger in which the Company changed its state of
incorporation from Louisiana to Delaware. The merger of Marine into the
Company's wholly owned subsidiary was accounted for as a pooling-of-interests
for accounting and financial reporting purposes.
9
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. ACQUISITIONS
In February 2001, the Company completed the acquisition of a
second-generation semisubmersible drilling rig (now the Pride North Sea) and a
third-generation semisubmersible drilling rig (now the Pride Venezuela) located
in the North Sea for $44.7 million in cash and 3.0 million shares of the
Company's common stock valued at $78.9 million. The Pride Venezuela was under
charter to an affiliate of the seller through October 2001 and is now being
prepared for a contract with a minimum term of one year in Venezuela. The Pride
North Sea was refurbished prior to commencing operations in July 2001 in the
Irish Sea, and is now being prepared for a contract in the United Kingdom sector
of the North Sea.
In March 2001, the Company increased from 26.4% to 100% its ownership
in a joint venture that recently constructed two dynamically-positioned,
deepwater semisubmersible drilling rigs. The Pride Carlos Walter commenced
operations in June 2001 and the Pride Brazil commenced operations in July 2001.
These rigs are operating for Petroleo Brasilerio S.A. ("Petrobras") under new
five-year charter and service rendering contracts, each with two one-year
extension options. The purchase consideration for the interests the Company did
not previously own consisted of approximately $86 million aggregate principal
amount of senior convertible notes, which were issued to the Brazilian
participant in the joint venture, and 519,468 shares of the Company's common
stock valued at approximately $14 million, which were issued to investment funds
managed by First Reserve Corporation pursuant to the funds' original investment
in the joint venture. First Reserve-managed funds continue to hold an interest
in the portion of the joint venture that is constructing two additional
dynamically-positioned, deepwater semisubmersible drilling rigs known as the
Amethyst 4 and Amethyst 5 (see Note 9), which interest is exchangeable for
527,652 shares of the Company's common stock. The new charter and service
rendering contracts with Petrobras, together with the Company's acquisition of
100% ownership, resulted in the termination of previous seven-year charter and
service rendering contracts and resolved all the outstanding issues with
Petrobras relating to the Pride Carlos Walter and the Pride Brazil, including
the elimination of accrued late delivery penalties. The acquisition added to the
Company's consolidated balance sheet approximately $443 million of assets
represented by the two rigs, approximately $287 million of indebtedness incurred
to finance the construction of the rigs ($53 million of which was repaid in
April 2001) and approximately $86 million of convertible senior notes issued to
the Brazilian participant.
In July 2001, the Company acquired all the outstanding capital stock of
Almeria Austral S.A. and an affiliate ("Almeria") for aggregate consideration of
$48 million. Almeria operates 12 land drilling rigs in Argentina and two land
drilling rigs in Venezuela.
Each of the acquisitions discussed above was recorded using the
purchase method of accounting. The operating results of each acquisition have
been included in the Company's consolidated results of operations from the date
of the acquisition.
8. COMMITMENTS AND CONTINGENCIES
The Company and a number of other offshore drilling contractors with
operations in the Gulf of Mexico are defendants in a lawsuit in the U.S.
District Court of the Southern District of Texas entitled Verdin v. R&B Falcon
Drilling USA, Inc. The plaintiff, who purports to be an "offshore worker"
previously employed by R&B Falcon Drilling USA, has alleged that the defendants
engaged in a conspiracy to depress wages and benefits paid to the defendants'
offshore employees in violation of federal and state antitrust laws. The Company
vigorously denies these allegations; however, it has agreed to participate in a
settlement, subject to certification of a settlement class by the court and the
satisfaction of other conditions. In June 2001, the Company recognized a $5.1
million charge for the portion of its share of the settlement amount that is not
within the policy limits of its insurance. The Company's insurance carrier has
not yet agreed to pay the remaining amount. The court has given preliminary
approval to the settlement, which cannot become final until all members of the
proposed class of plaintiffs (approximately 80,000 individuals) have been given
notice and an opportunity to opt out of the settlement. Based on these and other
procedural requirements, it is not expected that the court will be in a position
to enter a final order until the second quarter of 2002. The Company does not
believe the settlement will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
10
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is routinely involved in other 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 existing litigation will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
9. INVESTMENT IN AMETHYST JOINT VENTURE
The Company has a 26.4% equity interest in a joint venture company that
is constructing two dynamically-positioned, deepwater semisubmersible drilling
rigs, yet to be named and currently referred to as the Amethyst 4 and Amethyst
5. In April 2001, the builder of these rigs, Friede Goldman Halter, Inc.
("FGH"), filed a voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code and requested the Bankruptcy Court to reject the
construction contracts. In July 2001, the Bankruptcy Court officially rejected
the construction contracts. To ensure completion of construction under the
shipbuilding contracts for the Amethyst 4 and Amethyst 5, FGH posted performance
bonds totaling $175 million. The surety has commenced funding the cost of
completing the rigs under its obligations. Currently, a limited scope of work is
continuing on the rigs at FGH to prepare them for transit to other shipyards
while bids are being obtained for completion of the construction of the rigs.
The Company anticipates that the construction of the rigs will be completed in
the first quarter of 2003. The joint venture company has financed 87.5% of the
cost of construction of these rigs through credit facilities, with repayment of
the borrowings under those facilities guaranteed by the United States Maritime
Administration ("MARAD"). Advances under the credit facilities are being
provided without recourse to any of the joint venture owners. The remaining
12.5% of the cost of construction is being provided by the joint venture company
from equity contributions that have been made by the joint venture partners.
Through September 30, 2001, the Company's equity contributions to the joint
venture totaled $26.1 million, including capitalized interest of $4.5 million.
In the opinion of management, the performance and payment bonds issued by the
surety on behalf of FGH, together with additional draws under the
MARAD-guaranteed credit facilities, will provide sufficient funds to complete
the Amethyst 4 and Amethyst 5 without requiring additional contributions by the
joint venture partners.
The Amethyst 4 and Amethyst 5 are being built to operate under
long-term charter and service rendering contracts with Petrobras; however,
Petrobras has given notice of its intention to cancel those contracts for late
delivery. Based on current demand for deepwater drilling rigs, the Company
believes that Petrobras or another customer will employ the Amethyst 4 and
Amethyst 5 under new or amended contracts. There can be no assurance, however,
that either the Amethyst 4 or Amethyst 5 will be chartered to Petrobras or to
any other customer.
10. FINANCIAL INSTRUMENTS
The Company's operations are subject to foreign exchange risks
including the risks of adverse foreign currency fluctuations and devaluations
and of restrictions on currency repatriation.
The Company limits the risks of adverse currency fluctuations and
restrictions on currency repatriation by obtaining contracts providing for
payment in U.S. dollars or freely convertible currency. To the extent possible,
the Company limits its exposure to potentially devaluating currencies by
matching its acceptance of local currencies to its expense requirements in those
currencies. Moreover, the Company enters into forward exchange contracts and
option contracts to manage foreign currency exchange risks associated with its
French franc and Euro denominated expenses.
11
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The forward exchange contracts and option contracts have not been
designated as hedging instruments under the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The net realized
and unrealized gains on all forward and option contracts, included in other
income (expense) during the three months and nine months ended September 30,
2001, were approximately $3.2 million and $0.9 million, respectively.
In connection with the construction of two ultra-deepwater drillships,
the Pride Africa and the Pride Angola, and as a condition of the drillship
loans, the Company entered into interest rate swap and cap agreements, fixing
the interest rates on the Pride Africa and Pride Angola loans (See Note 2). The
interest rate swap and cap agreements related to the loans are not considered
derivatives as the agreements were required by the lenders under the related
debt agreements and the interest rates on the interest rate swap and cap
agreements are clearly and closely related to the interest rates on the loan
agreements.
11. SEGMENT INFORMATION
The following table sets forth selected consolidated financial
information of the Company by operating segment for the periods indicated.
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------- ---------------------------------------------
2001 2000 2001 2000
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS, EXCEPT PERCENTAGES)
Revenue:
United States offshore $ 108.2 26.6% $ 90.9 29.9% $ 365.5 31.8% $ 220.0 27.1%
International offshore 139.3 34.3 98.0 32.2 350.7 30.5 290.9 35.9
International land .... 121.8 30.0 88.9 29.2 327.0 28.4 245.6 30.3
E&P services .......... 37.0 9.1 26.5 8.7 107.1 9.3 54.4 6.7
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue ....... 406.3 100.0 304.3 100.0 1,150.3 100.0 810.9 100.0
-------- -------- -------- -------- -------- -------- -------- --------
Operating Costs:
United States offshore 57.8 23.2 48.3 26.9 171.3 25.6 131.7 26.3
International offshore 74.5 29.9 47.9 26.6 188.7 28.2 147.0 29.3
International land .... 87.6 35.2 64.3 35.8 228.8 34.2 183.1 36.5
E&P services .......... 29.1 11.7 19.2 10.7 80.9 12.0 39.3 7.9
-------- -------- -------- -------- -------- -------- -------- --------
Total operating costs 249.0 100.0 179.7 100.0 669.7 100.0 501.1 100.0
-------- -------- -------- -------- -------- -------- -------- --------
Gross Margin: ........... .
United States offshore 50.4 32.0 42.6 34.2 194.2 40.4 88.3 28.5
International offshore 64.8 41.2 50.1 40.2 162.0 33.7 143.9 46.4
International land .... 34.2 21.8 24.6 19.7 98.2 20.4 62.5 20.2
E&P services .......... 7.9 5.0 7.3 5.9 26.2 5.5 15.1 4.9
-------- -------- -------- -------- -------- -------- -------- --------
Total gross margin .. $ 157.3 100.0% $ 124.6 100.0% $ 480.6 100.0% $ 309.8 100.0%
======== ======== ======== ======== ======== ======== ======== ========
</Table>
Significant Customers
Two customers accounted for approximately $90.9 million, or 22.4%, of
consolidated revenue for the three months ended September 30, 2001. Of this
amount, $43.8 million and $47.1 million were attributable to the Company's
international offshore and international land operations, respectively. Two
customers accounted for approximately $264.8 million, or 23.0%, of consolidated
revenue for the nine months ended September 30, 2001. Of this amount, $131.4
million and $133.4 million were attributable to the Company's international
offshore and international land operations, respectively.
12
PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and
Other Intangible Assets." SFAS No. 141, which is applicable to all business
combinations initiated after June 30, 2001, prohibits the use of
pooling-of-interests method of accounting for business combinations and provides
a new definition of intangible assets.
SFAS No. 142 eliminates the amortization of goodwill and requires that
goodwill be reviewed annually for impairment. SFAS No. 142 also requires that
the useful lives of previously recognized intangible assets be reassessed and
the remaining amortization periods be adjusted accordingly. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001 and affects all
goodwill and other intangible assets recognized on the Company's balance sheet
at that date, regardless of when the assets were initially recognized. The
Company recognized goodwill amortization expense of $0.9 million and $2.8
million for the three month and nine month periods ended September 30, 2001.
Such amortization will not be recorded after the adoption of SFAS No. 142. The
Company is currently evaluating the effect of SFAS No. 142 relating to the
annual impairment review of goodwill.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002 with early adoption encouraged. The
Company has not adopted SFAS No. 143 and is currently evaluating its provisions.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and provides updated guidance concerning the
recognition and measurement of an impairment loss for certain types of
long-lived assets. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 with earlier application encouraged. The Company has not
adopted SFAS No. 144 and is currently evaluating its provisions.
13
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, 2001, and the related consolidated
statement of operations for each of the three-month and nine-month periods ended
September 30, 2001 and 2000, and the related consolidated statement of cash
flows for the nine month periods ended September 30, 2001 and 2000. These
financial statements are the responsibility of the Company's management.
The consolidated financial statements give retroactive effect to the
merger of Marine Drilling Companies, Inc. on September 13, 2001 in a transaction
accounted for as a pooling of interests, as described in Note 1 to the
consolidated financial statements. We did not review the financial statements of
Marine Drilling Companies, Inc., whose total assets as of December 31, 2000 and
whose revenue for the three-month and nine-month periods ended September 30,
2000 constituted 20 percent, 24 percent and 23 percent, respectively, of related
consolidated totals. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Marine Drilling Companies,
Inc., is based solely on the report of the other auditors.
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 and the report of the other accountants, 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
accounting principles generally accepted in the United States of America.
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, 2000, and the related consolidated statements of
operations, shareholder's equity, and cash flows for the year then ended (not
presented herein) prior to their restatement for the 2001 pooling of interests,
and in our report dated March 26, 2001, we expressed an unqualified opinion on
those consolidated financial statements. Separate financial statements of Marine
Drilling Companies, Inc., included in the 2000 restated consolidated balance
sheet, were audited and reported on separately by other auditors. We audited the
combination of the accompanying consolidated statements of income and cash flows
for the year ended December 31, 2000, after restatement for the 2001 pooling of
interests. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2000 is fairly stated in all
material respects in relation to the restated consolidated balance sheet from
which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
November 12, 2001
14
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, 2001
and for the three month and nine month periods ended September 30, 2001 and 2000
included elsewhere herein, and with the separate Annual Reports of Pride and
Marine Drilling Companies, Inc. on Form 10-K for the year ended December 31,
2000. 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 337 rigs, including two ultra-deepwater drillships, 11
semisubmersible rigs, 35 jackup rigs, 29 tender-assisted, barge, and platform
rigs and 260 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.
Since mid-1999, we have increased the size of our fleet capable of
drilling in deeper waters. We have a 51% ownership interest in and operate two
ultra-deepwater drillships, the Pride Africa and the Pride Angola, that were
placed in service in October 1999 and May 2000, respectively. In February 2001,
we purchased two semisubmersible drilling rigs located in the North Sea, now the
Pride Venezuela and the Pride North Sea. The Pride Venezuela was under charter
to an affiliate of the seller through October 2001 and is now being prepared for
a contract with a minimum term of one year in Venezuela. The Pride North Sea was
refurbished prior to commencing operations in July 2001 in the Irish Sea and is
now being prepared for a contract in the United Kingdom sector of the North Sea.
In March 2001, we increased our ownership from 26.4% to 100% in two
newly built, dynamically-positioned, deepwater semisubmersible drilling rigs,
the Pride Carlos Walter and the Pride Brazil. The Pride Carlos Walter and Pride
Brazil commenced operations in Brazil in June and July 2001, respectively,
working under five-year charter and service rendering contracts.
In July 2001, we acquired all the outstanding capital stock of Almeria
Austral S.A. and an affiliate ("Almeria") for aggregate consideration of $48
million. Almeria operates 12 land drilling rigs in Argentina and two land
drilling rigs in Venezuela.
In September 2001, we completed a merger with Marine in a stock for
stock transaction that created one of the world's largest offshore drilling
contractors. Marine owned and operated a fleet of 17 offshore drilling rigs
consisting of 15 jackup units and two semisubmersible units. Additionally,
Marine owned one jackup rig configured as an accommodation unit. Currently, 15
of these rigs are located in the U.S. Gulf of Mexico, and the three remaining
rigs are in Southeast Asia, the North Sea and India. The combination with Marine
presents an opportunity for deleveraging our consolidated balance sheet and, at
the same time, is expected to significantly enhance our competitive position in
the Gulf of Mexico jackup rig market and elsewhere. The merger with Marine was
followed by a merger that changed our state of incorporation from Louisiana to
Delaware.
The merger with Marine was accounted for as a pooling-of-interests for
accounting and financial reporting purposes and, accordingly, the results of
operations for each of the periods discussed below are presented on a
consolidated basis, as if the merger had been completed on the first day of each
period.
BUSINESS ENVIRONMENT
The business environment for our drilling and E&P services is driven by
the capital spending programs of our customers. Our customers' capital spending
is affected by their expectations about oil and natural gas prices, anticipated
production levels, demand for crude oil and natural gas products, government
regulations and many other factors. Due to the volatility of commodity prices,
it is difficult to predict with any certainty whether conditions for a
particular sector of our business will improve or deteriorate.
15
Prices for oil and natural gas increased during 2000 and early 2001 and
had a favorable impact on utilization, dayrates and demand for our services. Our
financial results benefited from the strength of the global drilling market.
From mid-year 2001, increasing inventories of natural gas and slowing demand in
the North America market have reduced U.S. natural gas prices, resulting in a
significant decrease in activity levels and dayrates for jackup rigs in the Gulf
of Mexico. Currently, 17 out of our total fleet of 27 jackups located in the
Gulf of Mexico are stacked or undergoing shipyard work, and the ten active
jackup rigs are working at an average rate of $29,250 per day. Relatively strong
oil prices have driven increased capital spending by large multinational and
national oil companies resulting in high utilization and dayrates for offshore
and land drilling rigs in international markets.
RESULTS OF OPERATIONS
We have presented in the following table selected consolidated
financial and operational information by operating segment for the periods
indicated.
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------- ---------------------------------------------
2001 2000 2001 2000
---------------------- ----------------------- --------------------- --------------------
(DOLLARS IN MILLIONS)
Revenue:
United States offshore ... $ 108.2 26.6% $ 90.9 29.9% $ 365.5 31.8% $ 220.0 27.1%
International offshore ... 139.3 34.3 98.0 32.2 350.7 30.5 290.9 35.9
International land ....... 121.8 30.0 88.9 29.2 327.0 28.4 245.6 30.3
E&P services ............. 37.0 9.1 26.5 8.7 107.1 9.3 54.4 6.7
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue .......... 406.3 100.0 304.3 100.0 1,150.3 100.0 810.9 100.0
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Costs:
United States offshore ... 57.8 23.2 48.3 26.9 171.3 25.6 131.7 26.3
International offshore ... 74.5 29.9 47.9 26.6 188.7 28.2 147.0 29.3
International land ....... 87.6 35.2 64.3 35.8 228.8 34.2 183.1 36.5
E&P services ............. 29.1 11.7 19.2 10.7 80.9 12.0 39.3 7.9
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating costs .. 249.0 100.0 179.7 100.0 669.7 100.0 501.1 100.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross Margin:
United States offshore ... 50.4 32.0 42.6 34.2 194.2 40.4 88.3 28.5
International offshore ... 64.8 41.2 50.1 40.2 162.0 33.7 143.9 46.4
International land ....... 34.2 21.8 24.6 19.7 98.2 20.4 62.5 20.2
E&P services ............. 7.9 5.0 7.3 5.9 26.2 5.5 15.1 4.9
--------- --------- --------- --------- --------- --------- --------- ---------
Total gross margin ..... $ 157.3 100.0% $ 124.6 100.0% $ 480.6 100.0% $ 309.8 100.0%
========= ========= ========= ========= ========= ========= ========= =========
Days Worked:
United States offshore ... 2,721 3,048 9,331 8,088
International offshore ... 2,208 1,392 5,457 4,155
International land ....... 13,840 12,305 39,373 33,635
Utilization:
United States offshore ... 71% 82% 82% 75%
International offshore ... 91% 63% 84% 61%
International land ....... 80% 75% 79% 63%
</Table>
16
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000.
Revenues. Revenues for the three months ended September 30, 2001
increased by $102 million, or 33.5%, as compared with the corresponding period
in 2000 with increases in each of our operating segments.
United States offshore revenues for the three months ended September
30, 2001 increased by $17.3 million, or 19.0%, as compared with the
corresponding quarter in 2000 due to increases in average day rates and an
increase in the number of available rigs due to the completion of upgrades of
five jackup and platform rigs, partially offset by a decline in average
utilization rates. Average day rates for our Gulf of Mexico jackup and platform
rig fleets averaged $42,000 and $19,800 per day during the quarter ended
September 30, 2001, as compared with $30,600 and $15,200 for the third quarter
of 2000. Additionally, rates for the Pride North America semisubmersible rig
increased by approximately $9,000 per day due to contractual rate adjustments.
Average utilization of our Gulf of Mexico jackup and platform rig fleets fell
from 95% and 59%, respectively, in the third quarter of 2000 to 80% and 53% in
the third quarter of 2001.
International offshore revenues increased by $41.3 million, or 42.1%,
for the three months ended September 30, 2001 as compared with the corresponding
period in 2000, principally due to revenues from newly constructed and recently
acquired rigs and to increased utilization of existing rigs. Revenues from the
newly constructed semisubmersible rigs, the Pride Carlos Walter and the Pride
Brazil, totaled $18.3 million in the third quarter of 2001 and revenues from the
Pride Venezuela and the Pride North Sea semisubmersible rigs, which were
acquired in February 2001, totaled $8.0 million in the quarter. The Pride South
Seas, Pride Rotterdam, Al Baraka 1, Piranha and Pride Montana rigs, which were
being upgraded or mobilizing to new areas during the third quarter of 2000,
generated approximately $19.0 million of revenues in the third quarter of 2001.
Revenues from international land operations increased by $32.9 million,
or 37.0%, in the three months ended September 30, 2001 as compared with the
corresponding period in 2000, principally due to $7.0 million of revenue from 14
newly acquired land rigs in Argentina and Venezuela and to increased day rates
and utilization of our other rigs in South America.
Revenues from E&P services increased by 39.6% to $37.0 million in the
quarter ended September 30, 2001 from $26.5 million for the corresponding
quarter in 2000 as a result of an increase in integrated project management
services and coiled tubing drilling.
Operating Costs. Operating costs for the quarter ended September 30,
2001 were $69.3 million, or 38.6%, higher than in the corresponding period of
2000. The increase was principally due to costs related to the newly acquired or
constructed semisubmersible and land rigs, to increased costs of rigs that
operated during the quarter ended September 30, 2001 that were being upgraded or
were stacked during the corresponding period in 2000 and to costs in the E&P
division associated with the expansion of integrated project management services
and coiled tubing drilling.
Depreciation and Amortization. Depreciation expense increased by $4.4
million, or 9.6%, in the quarter ended September 30, 2001 as compared with the
corresponding period in 2000, due to incremental depreciation recorded on newly
acquired and constructed rigs and to depreciation of the costs associated with
significant rig refurbishments and upgrades. This increase was partially offset
by the impact of a reassessment of residual values and estimated remaining
useful lives of certain rigs.
Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended September 30, 2001 increased
by $1.5 million, or 6.0%, as compared to the corresponding period in 2000
primarily due to the July 2001 acquisition of Almeria. As a percentage of
revenue, selling, general and administrative expenses decreased from 8.1% for
the third quarter of 2000 to 6.4% for the third quarter of 2001.
Pooling and Merger Costs. Costs totaling $35.8 million were incurred in
connection with the merger with Marine in September 2001. The costs consisted
primarily of investment advisory, legal and other professional fees for a total
of approximately $24.4 million and costs associated with the closure of
duplicate office facilities and employee termination costs.
17
Other Income (Expense). Other expense for the three months ended
September 30, 2001 increased by $6.2 million as compared to the corresponding
period in 2000. Interest expense increased by $5.6 million principally due to
interest on indebtedness added in the acquisition of the interests that it did
not previously own in the joint venture that constructed the Pride Carlos Walter
and Pride Brazil and interest on construction financing for the rigs that had
been capitalized during their construction. These increases in interest expense
were partially offset by the impact of a reduction in interest rates on floating
rate debt. Other, net in the quarter ended September 30, 2001 principally
comprised net unrealized foreign exchange gains. Other, net in the corresponding
period in 2000 included a gain from settlement of a lawsuit, partially offset by
losses on foreign currency exchange contracts.
Income Tax Provision. For the three months ended September 30, 2001,
the effective income tax rate increased to 55.6% from 36.3% in the corresponding
period in 2000, as a substantial portion of the pooling and merger costs
incurred in the three months ended September 30, 2001 are estimated to be
non-deductible for U.S. federal income tax purposes. Exclusive of such pooling
and merger costs, the effective tax rate would have been approximately 29.8%
primarily as a result of increased income in foreign jurisdictions with low or
zero effective tax rates.
Extraordinary Item. The extraordinary gain of $564,000 after estimated
income taxes in the three month period ended September 30, 2001 related to the
early extinguishment of approximately $20.7 million accreted value of our
Zero Coupon Convertible Subordinated Debentures due 2018.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000.
Revenue. Revenues for the nine months ended September 30, 2001
increased by $339.4 million, or 41.9%, from the corresponding period in 2000.
United States offshore revenues increased by $145.5 million, or 66.1%,
from $220.0 million for the nine months ended September 30, 2000 to $365.5
million for the nine months ended September 30, 2001, principally due to an
increase in average day rates and utilization for our Gulf of Mexico jackup and
platform rig fleets. Average day rates for our jackup rigs increased by 61%,
from $26,100 to $41,900, and for our platform rigs by 37%, from $13,900 to
$19,000. Average utilization rates for our jackup and platform rigs increased to
92% and 62%, respectively, for the nine months ended September 30, 2001, from
88% and 52% for the corresponding period in 2000.
International offshore revenues increased by $59.8 million, or 20.6%,
for the nine months ended September 30, 2001, as compared with the corresponding
period in 2000. The increase was principally due to revenues from newly
constructed and recently acquired rigs, full-period operations in 2001 for the
drillship the Pride Angola and to increased utilization of other rigs. Revenues
from the Pride Carlos Walter and the Pride Brazil semisubmersible rigs which
entered into service in June and July 2001, respectively, totaled $19.1 million
in the nine months ended September 30, 2001 and revenues from the Pride
Venezuela and the Pride North Sea semisubmersible rigs, which were acquired in
February 2001, totaled $12.9 million. Revenues from the Pride Angola, which
commenced operations in May 2000, totaled $47.9 million in the nine months ended
September 30, 2001 compared to $31.7 million in the corresponding period in
2000.
Revenues from international land operations increased by $81.4 million,
or 33.1%, from $245.6 million in the nine months ended September 20, 2000 to
$327.0 million in the nine months ended September 30, 2001, as a result of
increased day rates and utilization for our rigs in South America and the
acquisition of Almeria in July 2001.
Revenues from E&P services increased by $52.7 million, or 96.9%, in the
nine-month period ended September 30, 2001, as compared with the corresponding
period in 2000, due to a full nine months of operations in 2001 as compared with
only six months activity in 2000, following the acquisition of the division in
April of that year, and to an increase in revenues from integrated project
management services and coiled tubing drilling.
Operating Costs. Operating costs for the nine months ended September
30, 2001 were $168.6 million, or 33.6%, higher than in the corresponding period
of 2000. The increase was principally due to costs related to the newly acquired
or constructed semisubmersible rigs, to increased costs of rigs that operated
during the nine months ended September 30, 2001 that were being upgraded or were
stacked in 2000, to costs for a full period in the E&P division as compared with
a partial period in 2000 and to costs associated with integrated project
management services and coiled tubing drilling.
18
Depreciation and Amortization. Depreciation expense increased by $19.4
million, or 15.1%, in the nine months ended September 30, 2001 as compared with
the corresponding period in 2000, due to incremental depreciation recorded on
newly acquired and constructed rigs and to depreciation of the costs associated
with significant rig refurbishments and upgrades. This increase was partially
offset by the impact of a reassessment of residual values and estimated
remaining useful lives of certain rigs as of July 1, 2001.
Selling, General and Administrative. Selling, general and
administrative expenses for the nine months ended September 30, 2001 increased
by $6.5 million, or 9.4%, as compared with the corresponding period in 2000,
primarily due to a full nine months of expenses for our E&P services division as
compared with six months of expenses in 2000 and the July 2001 acquisition of
Almeria. As a percentage of revenues, selling, general and administrative
expenses decreased from 8.5% in the first nine months of 2000 to 6.6% in the
corresponding period of 2001.
Pooling and Merger Costs. Costs totaling $35.8 million were incurred in
connection with the merger with Marine in September 2001. The costs consisted
primarily of investment advisory, legal and other professional fees for a total
of approximately $24.4 million and costs associated with the closure of
duplicate office facilities and employee termination costs.
Other Income (Expense). Other expenses for the nine months ended
September 30, 2001 increased by $8.7 million as compared with the nine months
ended September 30, 2000. Interest expense increased by $6.0 million,
principally due to interest on indebtedness added in the acquisition of the
interests that it did not previously own in the joint venture that constructed
the Pride Carlos Walter and Pride Brazil and interest on construction financing
for the rigs that had been capitalized during their construction. The
increase in interest expense was partially offset by the impact of a reduction
in interest rates on floating rate debt. Other, net in the nine-month period
ended September 30, 2001 was principally comprised of net unrealized foreign
exchange losses, a $5.1 million charge for the settlement of a wage related
antitrust lawsuit and a gain from the sale of drill pipe. Other, net in the
corresponding period in 2000 included a gain from settlement of a lawsuit,
partially offset by losses on foreign currency exchange contracts.
Income Tax Provision. The effective income tax rate for the nine months
ended September 30, 2001 decreased to 33.1% of consolidated earnings before
income taxes from 36.9% in the corresponding period in 2000, principally as a
result of increased income in foreign jurisdictions with low or zero effective
tax rates. The decrease was partially offset as a substantial portion of the
pooling and merger costs incurred are estimated to be non-deductible for U.S.
federal income tax purposes. Exclusive of such pooling and merger costs, the
effective tax rate would have been approximately 29.8%.
LIQUIDITY AND CAPITAL RESOURCES
We had net working capital of $147.5 million and $125.4 million as of
September 30, 2001 and December 31, 2000, respectively. Our current ratio, the
ratio of current assets to current liabilities, was 1.3 at both September 30,
2001 and December 31, 2000. The increase in net working capital was attributable
primarily to net cash provided by financing activities of $43.5 million during
the nine months ended September 30, 2001.
During the nine months ended September 30, 2001, our additions to
property and equipment consisted of $442.9 million for the acquisition of the
ownership interests we did not already own in the Pride Carlos Walter and Pride
Brazil, $123.6 million for the purchase of the Pride Venezuela and Pride North
Sea, $44.8 million for the construction of five mobile land rigs which are due
to commence operations in Chad late 2001 and early 2002, $93.1 million for
certain reactivation, refurbishment and upgrade expenditures, approximately
$68.9 million for other enhancement and sustaining capital projects and $48.0
million for the acquisition of 14 land rigs and facilities in South America. We
expect to spend approximately $15 to $25 million during the remainder of 2001
for enhancements and sustaining capital projects.
In February 2001, we completed the acquisition of a second-generation
semisubmersible drilling rig (now the Pride North Sea) and a third-generation
semisubmersible drilling rig (now the Pride Venezuela) located in the North Sea
for $44.7 million in cash and 3.0 million shares of our common stock valued at
$78.9 million.
In March 2001, we increased from 26.4% to 100% our ownership in a joint
venture that recently constructed two dynamically-positioned, deepwater
semisubmersible drilling rigs. The Pride Carlos Walter commenced operations in
June 2001, and the Pride Brazil commenced operations in July 2001. These rigs
are operating for Petroleo Brasilerio
19
S.A. ("Petrobras") under new five-year charter and service rendering contracts,
each with two one-year extension options. The purchase consideration for the
interests we did not previously own consisted of approximately $86 million
aggregate principal amount of senior convertible notes, which were issued to the
Brazilian participant in the joint venture, and 519,468 shares of our common
stock valued at approximately $14.0 million, which were issued to investment
funds managed by First Reserve Corporation pursuant to the funds' original
investment in the joint venture. The new charter and service rendering contracts
with Petrobras, together with our acquisition of 100% ownership, resulted in the
termination of previous seven-year charter and service rendering contracts and
resolved all the outstanding issues with Petrobras relating to the Pride Carlos
Walter and the Pride Brazil, including the elimination of accrued late delivery
penalties. The acquisition added to our consolidated balance sheet approximately
$443 million of assets represented by the two rigs, approximately $287 million
of indebtedness incurred to finance the construction of the rigs and
approximately $86 million of senior convertible notes issued to the Brazilian
participant. The notes mature in March 2004, bear interest at 9% per annum and
are convertible into approximately 4.0 million shares of our common stock. An
aggregate $53 million of the construction-related indebtedness, which was
scheduled to mature in November 2001 and bore interest at 11 3/4% per annum, was
repaid in April 2001. In July 2001, we entered into a new financing agreement
with a group of foreign banks to provide loans totaling up to $250 million to
refinance the construction loans for the Pride Carlos Walter and Pride Brazil.
Borrowings under the new facility will bear interest at rates based on LIBOR
plus an applicable margin of 1.50% to 1.85%. Principal and interest are payable
semi-annually from March 2002 through 2008. Funding under the new facility and
repayment of the construction loans was completed during the fourth quarter
of 2001. As a condition of the facility, we entered into interest rate swap
agreements, effectively fixing the respective interest rates from March 2002
through 2006. The new loans are to be secured by, among other things, a first
priority mortgage on the drilling rigs and assignment of the charters for the
rigs.
In January 2001, we completed a public sale of $431.5 million face
amount of Zero Coupon Convertible Senior Debentures due 2021. The net proceeds
to us in connection with the sale, after deducting underwriting discounts and
offering expenses, amounted to approximately $254.5 million. The issue price of
$608.41 for each debenture represents a yield to maturity of 2.50% per annum
(computed on a semiannual bond equivalent basis) calculated from the issue date.
The debentures, which mature on January 16, 2021, are convertible into a total
of approximately 9.4 million shares of our common stock (equal to a conversion
rate of 21.729 shares of common stock per $1,000 principal amount at maturity).
We will become obligated to purchase the debentures, at the option of the
holders, in whole or in part, on January 16, 2003, 2005, 2007, 2009 and 2016 at
a price per debenture equal to the issue price plus accrued original issue
discount to the relevant purchase date. On or subsequent to January 16, 2004,
the debentures are redeemable at our option, in whole or in part, for cash at a
price equal to the issue price plus accrued original issue discount to the date
of redemption. The debentures, like certain of our other long-term debt
instruments, 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 of our
assets; sell assets; enter into transactions with affiliates and engage in sale
and leaseback transactions.
During the three-month period ended September 30, 2001, we purchased on
the open market and then extinguished $45.0 million principal amount at maturity
of our Zero Coupon Convertible Subordinated Debentures due 2018. The combined
purchase price was $19.4 and the accreted value, less offering costs, of the
debentures was approximately $20.3 million, resulting in a gain after estimated
taxes of $564,000, which amount is included as an extraordinary item in our
consolidated statement of operations for the period. In October 2001, we
purchased an additional $55.4 million principal amount at maturity of the
debentures on the open market. The purchase price was $23.4 million and the
accreted value, less offering costs, was $24.3 million, resulting in an
extraordinary gain after estimated income taxes of $609,000, which will be
recognized in the fourth quarter of 2001.
We currently have senior bank credit facilities with domestic and
foreign banks that provide aggregate availability of up to $322.6 million. The
credit facilities terminate between January 2002 and June 2005. Borrowings under
each of the credit facilities bear interest at variable rates based on LIBOR
plus a spread ranging from 0.50% to 2.50%. As of September 30, 2001, there were
borrowings of $30 million outstanding under these credit facilities.
20
We have a senior secured credit facility with a U.S. bank under which
up to $15 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 September 30, 2001, there were $12.6 million of letters of
credit issued under this credit facility.
During the first six months of 2001, we sold approximately 2.6 million
shares of common stock under our Direct Stock Purchase Plan for net proceeds of
$62.0 million. We sold no shares of common stock under the plan in the third
quarter of 2001.
We have a 26.4% equity interest in a joint venture company that is
constructing two dynamically-positioned, deepwater semisubmersible drilling
rigs, yet to be named and currently referred to as the Amethyst 4 and Amethyst
5. In April 2001, the builder of these rigs, Friede Goldman Halter, Inc.
("FGH"), filed a voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code and requested the Bankruptcy Court to reject the
construction contracts. In July 2001, the Bankruptcy Court officially rejected
the construction contracts. To ensure completion of construction under the
shipbuilding contracts for the Amethyst 4 and Amethyst 5, FGH posted performance
bonds totaling $175 million. The surety has commenced funding the cost of
completing the rigs under its obligations. Currently, a limited scope of work is
continuing on the rigs at FGH to prepare them for transit to other shipyards
while bids are being obtained for completion of the construction of the rigs. We
anticipate that the construction of the rigs will be completed in the first
quarter of 2003. The joint venture company has financed 87.5% of the cost of
construction of those rigs through credit facilities, with repayment of the
borrowings under those facilities guaranteed by the United States Maritime
Administration ("MARAD"). Advances under the credit facilities are being
provided without recourse to any of the joint venture owners. The remaining
12.5% of the cost of construction is being provided by the joint venture company
from equity contributions that have been made by the joint venture partners.
Through September 30, 2001, our equity contributions to the joint venture
totaled $26.1 million, including capitalized interest of $4.5 million. In the
opinion of management, the performance and payment bonds issued by the surety on
behalf of FGH, together with additional draws under the MARAD-guaranteed credit
facilities, will provide sufficient funds to complete the Amethyst 4 and
Amethyst 5 without requiring additional contributions by the joint venture
partners.
The Amethyst 4 and Amethyst 5 are being built to operate under
long-term charter and service rendering contracts with Petrobras; however,
Petrobras has given notice of its intention to cancel those contracts for late
delivery. Based on current demand for deepwater drilling rigs, we believe that
Petrobras or another customer will employ the Amethyst 4 and Amethyst 5 under
new or amended contracts. There can be no assurance, however, that either the
Amethyst 4 or Amethyst 5 will be chartered to Petrobras or to any other
customer.
As of September 30, 2001, we had approximately $1.7 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. As of
September 30, 2001, $48.4 million of our cash balances, which amount is included
in cash and cash equivalents, consists of funds held in trust in connection with
our drillship loans and the limited-recourse collateralized term loans and,
accordingly, is not available for our use.
Management believes the September 2001 combination with Marine presents
an opportunity for deleveraging our consolidated balance sheet and enhances our
competitive position in the Gulf of Mexico jackup rig market and elsewhere.
Since the merger was a stock-for-stock transaction and Marine was essentially
debt free, the combined company has a lower debt to equity ratio than Pride had
previously on a stand-alone basis. The lower debt to equity ratio has resulted
in improved credit ratings, which are expected to reduce borrowing costs. We
believe the cash flows of the combined company will allow us to accelerate
reduction of long term indebtedness.
From time to time, we may review other 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.
21
ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No.
141, which is applicable to all business combinations initiated after June 30,
2001, prohibits the use of pooling-of-interests method of accounting for
business combinations and provides a new definition of intangible assets.
SFAS No. 142 eliminates the amortization of goodwill and requires that
goodwill be reviewed annually for impairment. SFAS No. 142 also requires that
the useful lives of previously recognized intangible assets be reassessed and
the remaining amortization periods be adjusted accordingly. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001 and affects all
goodwill and other intangible assets recognized on our balance sheet at that
date, regardless of when the assets were initially recognized. We recognized
goodwill amortization expense of $0.9 million and $2.8 million, respectively,
for the three month and nine month periods ended September 30, 2001. We will not
record such amortization after the adoption of SFAS No. 142. We are currently
evaluating the effect of SFAS No. 142 relating to the annual impairment review
of goodwill.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002 with early adoption encouraged. We
have not adopted SFAS No. 143 and are currently evaluating its provisions.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and provides updated guidance concerning the
recognition and measurement of an impairment loss for certain types of
long-lived assets. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 with earlier application encouraged. We have not adopted SFAS
No. 144 and are currently evaluating its provisions.
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:
o benefits, effects or results of the Marine merger
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
o completion and employment of Amethyst 4 and Amethyst 5 rigs and
o future operating results and financial condition
We have based these statements on our assumptions and analyses in light
of our experience and perception of historical trends, current conditions,
expected future developments and other factors we believe 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 political stability in the countries in which we operate
o the business opportunities (or lack thereof) that may be presented to
and pursued by us
o changes in laws or regulations and
22
o the ability to integrate the operations of Pride and Marine
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
For information regarding our exposure to certain market risks, see
"Quantitative and Qualitative Disclosures about Market Risk" in Item 7A of our
Annual Report on Form 10-K for the year ended December 31, 2000. There have been
no material changes to the disclosure regarding our exposure to certain market
risks made in the annual report. For additional information regarding our
long-term debt, please see Note 2 of the Notes to Unaudited Consolidated
Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.
PART II. OTHER INFORMATION
ITEM 1. LITIGATION
The information set forth in Note 8 of the Notes to Unaudited
Consolidated Financial Statements in Item 1 of Part I of this Quarterly
Report on Form 10-Q regarding the lawsuit entitled Verdin v. R&B Falcon
Drilling USA, Inc. is incorporated by reference in response to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2001, Pride completed its acquisition of Marine and its
reincorporation from Louisiana to Delaware. A description of the acquisition
and the reincorporation and of Pride's capital stock after the reincorporation
is included in the joint proxy statement/prospectus of Pride and Marine
filed with the Securities and Exchange Commission on August 3, 2001 and in
Pride's Current Report on Form 8-K dated September 28, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meetings of shareholders of Pride was held in Houston, Texas
on September 12, 2001 for the purpose of voting on proposals to approve the
issuance of Pride common stock in the merger of Marine Drilling Companies, Inc.
into a wholly owned subsidiary of Pride and to approve the reincorporation of
Pride from Louisiana to Delaware. 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 of
Pride approved (1) the issuance of shares in the Marine merger and (2) the
reincorporation of Pride as a Delaware corporation by the following votes:
<Table>
<Caption>
(1) (2)
----------- -----------
Affirmative votes................ 51,912,475 62,026,406
Negative votes................... 1,793,040 1,791,334
Abstentions...................... 155,213 31,708
Shares not voted................. 20,216,737 10,228,017
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO DESCRIPTION
- ----------- -----------
2.1 -- Agreement and Plan of Merger, dated as of May 23, 2001, among
Pride, PM Merger, Inc. ("New Pride"), Marine and AM Merger,
Inc. ("AM Merger") (incorporated by reference to Annex A to
the Registration Statement of Pride and New Pride on Form S-4,
Registration Nos. 333-66644 and 333-66644-01 (the
"Registration Statement")).
2.2 -- Letter Agreement, dated as of August 3, 2001, among Pride, New
Pride, Marine and AM Merger (incorporated by reference to
Exhibit 2.2 to the Current Report of Pride on Form 8-K dated
September 13, 2001, File No. 1-13289 (the "Form 8-K")).
3.1 -- Certificate of Incorporation of New Pride (incorporated by
reference to Annex D to the Registration Statement).
23
3.2 -- Bylaws of New Pride (incorporated by reference to Annex E to
the Registration Statement).
4.1 -- Form of New Pride Common Stock Certificate (incorporated by
reference to Exhibit 4.13 to the Registration Statement).
4.2 -- Rights Agreement, dated as of September 13, 2001, between New
Pride and American Stock Transfer & Trust Company, as Rights
Agent (incorporated by reference to Exhibit 4.2 to the Form
8-K).
4.3 -- Certificate of Designations of Series A Junior Participating
Preferred Stock of New Pride (incorporated by reference to
Exhibit 4.3 to the Form 8-K).
4.4 -- Fourth Supplemental Indenture, dated as of September 10, 2001,
between New Pride and The Chase Manhattan Bank, as trustee
under the Indenture dated May 1, 1997 (incorporated by
reference to Exhibit 4.4 to the Form 8-K).
4.5 -- Second Supplemental Indenture, dated as of September 10, 2001,
between New Pride and HSBC Bank USA, as trustee under the
Indenture dated as of April 1, 1998 (incorporated by reference
to Exhibit 4.5 to the Form 8-K).
Pride and its subsidiaries are parties to several debt instruments under which
the total amount of securities authorized does not exceed 10% of the total
assets of Pride and its subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Pride agrees to furnish a
copy of such instruments to the SEC upon request.
15.1 -- Awareness letter of PricewaterhouseCoopers LLP.
- ----------
(b) Reports on Form 8-K
In a Current Report on Form 8-K dated September 28, 2001, we reported
pursuant to Item 2 of Form 8-K that we had completed the acquisition of Marine
Drilling Companies, Inc. pursuant to the Agreement and Plan of Merger dated as
of May 23, 2001. We also filed pursuant to Item 5 of Form 8-K a description of
our common stock, preferred stock and certificate of incorporation and bylaws.
In addition, pursuant to Item 7 of Form 8-K we filed financial statements of
Marine and certain documents related to the transaction.
24
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: November 14, 2001
25
EXHIBIT INDEX
EXHIBIT NO DESCRIPTION
- ----------- -----------
2.1 -- Agreement and Plan of Merger, dated as of May 23, 2001, among
Pride, PM Merger, Inc. ("New Pride"), Marine and AM Merger,
Inc. ("AM Merger") (incorporated by reference to Annex A to
the Registration Statement of Pride and New Pride on Form S-4,
Registration Nos. 333-66644 and 333-66644-01 (the
"Registration Statement")).
2.2 -- Letter Agreement, dated as of August 3, 2001, among Pride, New
Pride, Marine and AM Merger (incorporated by reference to
Exhibit 2.2 to the Current Report of Pride on Form 8-K dated
September 13, 2001, File No. 1-13289 (the "Form 8-K")).
3.1 -- Certificate of Incorporation of New Pride (incorporated by
reference to Annex D to the Registration Statement).
3.2 -- Bylaws of New Pride (incorporated by reference to Annex E to
the Registration Statement).
4.1 -- Form of New Pride Common Stock Certificate (incorporated by
reference to Exhibit 4.13 to the Registration Statement).
4.2 -- Rights Agreement, dated as of September 13, 2001, between New
Pride and American Stock Transfer & Trust Company, as Rights
Agent (incorporated by reference to Exhibit 4.2 to the Form
8-K).
4.3 -- Certificate of Designations of Series A Junior Participating
Preferred Stock of New Pride (incorporated by reference to
Exhibit 4.3 to the Form 8-K).
4.4 -- Fourth Supplemental Indenture, dated as of September 10, 2001,
between New Pride and The Chase Manhattan Bank, as trustee
under the Indenture dated May 1, 1997 (incorporated by
reference to Exhibit 4.4 to the Form 8-K).
4.5 -- Second Supplemental Indenture, dated as of September 10, 2001,
between New Pride and HSBC Bank USA, as trustee under the
Indenture dated as of April 1, 1998 (incorporated by reference
to Exhibit 4.5 to the Form 8-K).
Pride and its subsidiaries are parties to several debt instruments under which
the total amount of securities authorized does not exceed 10% of the total
assets of Pride and its subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Pride agrees to furnish a
copy of such instruments to the SEC upon request.
15.1 -- Awareness letter of PricewaterhouseCoopers LLP.