- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER: 1-13289
---------------------
PRIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<Table>
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)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 789-1400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Rights to Purchase Preferred Stock New York Stock Exchange
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act). Yes [X] No [ ]
The aggregate market value of the common stock held by non-affiliates of
the registrant at June 28, 2002, based on the closing price on the New York
Stock Exchange on such date, was approximately $1.7 billion. (The executive
officers and directors of the registrant and First Reserve Corporation, its
affiliates and related parties are considered affiliates for the purposes of
this calculation.)
The number of shares of the registrant's Common Stock outstanding on
March 8, 2004 was 135,769,487.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pride International, Inc. hereby amends Item 8 of its Annual Report on Form
10-K for the fiscal year ended December 31, 2002 (SEC File No. 1-13289) to
furnish the report of KPMG LLP to the Board of Directors and Shareholders of
Marine Drilling Companies, Inc. dated January 23, 2001 with respect to the
consolidated statements of operations, shareholders' equity and cash flows of
Marine for the year ended December 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Pride International, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the consolidated financial position of
Pride International, Inc. and Subsidiaries as of December 31, 2002 and 2001, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
acquisition 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 audit the financial statements
of Marine Drilling Companies, Inc., which reflect total revenue of $264 million
for the year ended December 31, 2000. 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 other auditors. We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Accounting for Goodwill and Other Intangible Assets".
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 25, 2003
1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Marine Drilling Companies, Inc.:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of Marine Drilling Companies, Inc. for the year ended
December 31, 2000 (not presented separately herein). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Marine Drilling Companies, Inc. for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Houston, Texas
January 23, 2001
2
PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
(IN THOUSANDS, EXCEPT
PAR VALUES)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 133,986 $ 58,988
Restricted cash........................................... 52,700 55,400
Trade receivables, net.................................... 265,885 333,433
Parts and supplies, net................................... 64,920 59,720
Deferred income taxes..................................... 3,332 2,096
Other current assets...................................... 148,561 122,503
---------- ----------
Total current assets................................. 669,384 632,140
---------- ----------
PROPERTY AND EQUIPMENT, net................................. 3,395,774 3,371,159
---------- ----------
OTHER ASSETS
Investments in and advances to affiliates................. 29,620 26,524
Goodwill, net............................................. 72,014 64,656
Other assets.............................................. 158,203 111,211
---------- ----------
Total other assets................................... 259,837 202,391
---------- ----------
$4,324,995 $4,205,690
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 186,657 $ 188,686
Accrued expenses.......................................... 243,190 206,488
Deferred income taxes..................................... 985 --
Short-term borrowings..................................... 17,724 42,379
Current portion of long-term debt......................... 95,610 99,850
Current portion of long-term lease obligations............ 2,679 2,643
---------- ----------
Total current liabilities............................ 546,845 540,046
---------- ----------
OTHER LONG-TERM LIABILITIES................................. 91,145 128,293
LONG-TERM DEBT, net of current portion...................... 1,791,619 1,624,888
LONG-TERM LEASE OBLIGATIONS, net of current portion......... 12,511 14,997
DEFERRED INCOME TAXES....................................... 100,966 134,253
MINORITY INTEREST........................................... 82,204 66,107
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 50,000 shares authorized;
none issued............................................ -- --
Common stock, $.01 par value; 400,000 shares authorized;
134,453 and 132,793 shares issued; 134,084 and 132,793
shares outstanding..................................... 1,344 1,328
Paid-in capital........................................... 1,237,146 1,218,624
Treasury stock, at cost................................... (4,409) --
Accumulated other comprehensive loss...................... (3,598) (1,015)
Retained earnings......................................... 469,222 478,169
---------- ----------
Total stockholders' equity........................... 1,699,705 1,697,106
---------- ----------
$4,324,995 $4,205,690
========== ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
3
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES................................................. $1,269,774 $1,512,895 $1,173,038
OPERATING COSTS.......................................... 807,445 902,267 722,303
---------- ---------- ----------
Gross Margin........................................... 462,329 610,628 450,735
DEPRECIATION AND AMORTIZATION............................ 226,422 198,928 174,570
SELLING, GENERAL AND ADMINISTRATIVE...................... 94,241 100,309 95,528
POOLING AND MERGER COSTS................................. -- 35,766 --
---------- ---------- ----------
EARNINGS FROM OPERATIONS................................. 141,666 275,625 180,637
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest expense....................................... (132,551) (116,785) (102,233)
Interest income........................................ 2,084 11,148 12,682
Other income (expense), net............................ 156 (15,375) 3,655
---------- ---------- ----------
Total other expense, net....................... (130,311) (121,012) (85,896)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST....... 11,355 154,613 94,741
INCOME TAX PROVISION..................................... 3,407 49,231 34,928
MINORITY INTEREST........................................ 16,097 15,508 10,812
---------- ---------- ----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM................ (8,149) 89,874 49,001
EXTRAORDINARY ITEM, NET.................................. (798) 1,332 --
---------- ---------- ----------
NET EARNINGS (LOSS)...................................... $ (8,947) $ 91,206 $ 49,001
========== ========== ==========
NET EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM
Basic.................................................. $ (0.06) $ 0.68 $ 0.40
Diluted................................................ $ (0.06) $ 0.67 $ 0.39
NET EARNINGS (LOSS) PER SHARE AFTER EXTRAORDINARY ITEM
Basic.................................................. $ (0.07) $ 0.69 $ 0.40
Diluted................................................ $ (0.07) $ 0.68 $ 0.39
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic.................................................. 133,305 131,630 123,038
Diluted................................................ 133,305 142,778 126,664
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
4
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER TOTAL
---------------- PAID-IN ---------------- COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT GAIN (LOSS) EARNINGS EQUITY
------- ------ ---------- ------ ------- ------------- -------- -------------
(IN THOUSANDS)
BALANCE -- DECEMBER 31, 1999........ 117,601 $1,176 $ 898,876 -- $ -- $(1,546) $337,962 $1,236,468
Net earnings...................... -- -- -- -- -- -- 49,001 49,001
Foreign currency translation...... -- -- -- -- -- 444 -- 444
----------
Total comprehensive income...... -- -- 49,445
Issuance of common stock in
connection with Direct Stock
Purchase Plan................... 2,282 23 54,377 -- -- -- -- 54,400
Issuance of common stock in
connection with private
investment...................... 4,500 45 71,955 -- -- -- -- 72,000
Issuance of stock for stock
offering........................ 1,000 10 18,451 -- -- -- -- 18,461
Other issuance of common stock.... 101 1 2,081 -- -- -- -- 2,082
Exercise of stock options......... 766 8 7,397 -- -- -- -- 7,405
Tax benefit of non-qualified stock
options......................... -- -- 3,069 -- -- -- -- 3,069
------- ------ ---------- --- ------- ------- -------- ----------
BALANCE -- DECEMBER 31, 2000........ 126,250 1,263 1,056,206 -- -- (1,102) 386,963 1,443,330
Net earnings...................... -- -- -- -- -- -- 91,206 91,206
Foreign currency translation...... -- -- -- -- -- 87 -- 87
----------
Total comprehensive income...... 91,293
Issuance of common stock in
connection with Direct Stock
Purchase Plan................... 2,596 26 62,000 -- -- -- -- 62,026
Issuance of common stock in
connection with private
investments..................... 3,555 35 92,971 -- -- -- -- 93,006
Other issuance of common stock.... 43 1 996 -- -- -- -- 997
Exercise of stock options......... 349 3 6,364 -- -- -- -- 6,367
Tax benefit on non-qualified stock
options......................... -- -- 87 -- -- -- -- 87
------- ------ ---------- --- ------- ------- -------- ----------
BALANCE -- DECEMBER 31, 2001........ 132,793 1,328 1,218,624 -- -- (1,015) 478,169 1,697,106
Net loss.......................... -- -- -- -- -- -- (8,947) (8,947)
Foreign currency translation...... -- -- -- -- -- (2,583) -- (2,583)
----------
Total comprehensive loss........ (11,530)
Issuance of common stock in
connection with private
investments..................... 528 5 6,295 369 (4,409) -- -- 1,891
Other issuance of common stock.... 37 -- 476 -- -- -- -- 476
Exercise of stock options......... 1,095 11 9,069 -- -- -- -- 9,080
Tax benefit on non-qualified stock
options......................... -- -- 2,682 -- -- -- -- 2,682
------- ------ ---------- --- ------- ------- -------- ----------
BALANCE -- DECEMBER 31, 2002........ 134,453 $1,344 $1,237,146 369 $(4,409) $(3,598) $469,222 $1,699,705
======= ====== ========== === ======= ======= ======== ==========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
5
PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2002 2001 2000
--------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net earnings (loss)..................................... $ (8,947) $ 91,206 $ 49,001
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities --
Depreciation and amortization........................ 226,422 198,928 174,570
Discount amortization on zero coupon convertible
debentures......................................... 11,062 16,204 10,388
Amortization of deferred loan costs.................. 7,836 6,604 344
Gain on sale of assets............................... (438) (1,393) (3,718)
Deferred income taxes................................ (30,426) 6,535 14,518
Minority interest.................................... 16,097 15,508 10,812
Extraordinary item................................... 798 (1,332) --
Changes in assets and liabilities, net of effects of
acquisitions --
Trade receivables............................... 53,436 (43,370) (104,736)
Parts and supplies.............................. (5,108) (4,152) (10,758)
Other current assets............................ (23,714) (54,037) 32,280
Other assets.................................... (47,146) (28,230) (23,099)
Accounts payable................................ (43,271) (18,061) 6,332
Accrued expenses................................ 29,903 29,709 26,923
Other liabilities............................... (34,536) 39,406 21,961
--------- --------- ---------
Net cash provided by operating activities....... 151,968 253,525 204,818
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of net assets of acquired entities, including
acquisition costs, less cash acquired................ (2,414) (8,934) (45,755)
Purchases of property and equipment..................... (215,490) (307,714) (215,372)
Proceeds from dispositions of property and equipment.... 1,256 2,737 5,115
Investments in and advances to affiliates............... (1,205) (17,788) (8,408)
Proceeds from sales of short-term investments........... -- -- 72,931
Purchases of short-term investments..................... -- -- (30,054)
--------- --------- ---------
Net cash used in investing activities........... (217,853) (331,699) (221,543)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock.................. 476 63,023 146,943
Proceeds from exercise of stock options................. 9,080 6,367 7,406
Proceeds from issuance of convertible senior debentures,
net of issue costs................................... 291,515 254,500 --
Proceeds from debt borrowings........................... 385,000 194,039 129,222
Reduction of debt....................................... (547,888) (453,045) (255,459)
Decrease (increase) in restricted cash.................. 2,700 (4,900) (33,800)
--------- --------- ---------
Net cash provided by financing activities....... 140,883 59,984 (5,688)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 74,998 (18,190) (22,413)
CASH AND CASH EQUIVALENTS, beginning of year.............. 58,988 77,178 99,591
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................... $ 133,986 $ 58,988 $ 77,178
========= ========= =========
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
6
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Reporting
The consolidated financial statements include the accounts of Pride
International, Inc. and its wholly-owned and majority-owned subsidiaries (the
"Company" or "Pride"). All significant intercompany transactions and balances
have been eliminated in consolidation. Investments in which the Company owns
less than 50% and exercises significant influence are accounted for using the
equity method of accounting, and investments in which the Company does not
exercise significant influence are accounted for using the cost method of
accounting. Certain reclassifications have been made to prior years' amounts to
conform with the current year presentation.
In September 2001, Pride acquired Marine Drilling Companies, Inc.
("Marine") pursuant to a merger of Marine into a wholly owned subsidiary of
Pride. Approximately 58.7 million shares of Pride common stock were issued to
the former shareholders of Marine, which equaled approximately 44% of the
outstanding common shares of the combined company immediately following the
acquisition. The Marine merger was followed by a merger that changed Pride's
state of incorporation from Louisiana to Delaware. The acquisition of Marine 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 combination are combined and reported as the historical results of
operations of the combined company. The results of operations of Pride and
Marine for periods prior to the combination that are included in the combined
company's recorded amounts are as follows (in thousands):
<Table>
<Caption>
PRIDE MARINE COMBINED
-------- -------- ----------
SIX MONTHS ENDED JUNE 30, 2001
Revenues............................................ $561,414 $182,639 $ 744,053
Net earnings........................................ 30,071 52,562 82,633
YEAR ENDED DECEMBER 31, 2000
Revenues............................................ $909,007 $264,031 $1,173,038
Net earnings........................................ 736 48,265 49,001
</Table>
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments having maturities
of three months or less at the date of purchase to be cash equivalents.
Parts and Supplies
Parts and supplies consist of spare rig parts and supplies held for use in
operations and are valued at the lower of weighted average cost or estimated
market value.
Property and Equipment
Property and equipment are carried at original cost or adjusted net
realizable value, as applicable. Major renewals and improvements are capitalized
and depreciated over the respective asset's remaining useful life. Maintenance
and repair costs are charged to expense as incurred. When assets are sold or
retired, the remaining costs and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in income.
7
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For financial reporting purposes, depreciation of property and equipment is
provided using the straight-line method based upon expected useful lives of each
class of assets. Estimated useful lives of the assets for financial reporting
purposes are as follows:
<Table>
<Caption>
YEARS
-----
Rigs and rig equipment...................................... 5-25
Transportation equipment.................................... 3-7
Buildings and improvements.................................. 10-20
Furniture and fixtures...................................... 5
</Table>
Rigs and rig equipment have salvage values not exceeding 20% of the cost of
the rig or rig equipment.
Interest is capitalized on construction in progress at the interest rate on
debt incurred for construction or at the weighted average cost of debt
outstanding during the period of construction.
Goodwill
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, which eliminates the amortization of
goodwill and requires that goodwill be reviewed annually for impairment. The
Company ceased amortizing goodwill on January 1, 2002, which was previously
amortized using the straight-line method over ten to fifteen years. The Company
performed an impairment test of goodwill in the fourth quarter of 2002 and
determined that the fair value exceeded the recorded cost as of December 31,
2002; accordingly, no impairment was recorded.
The Company's net earnings and net earnings per share, adjusted to exclude
goodwill amortization expense, for the years ended 2001 and 2000, are as
follows:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net earnings as reported.................................... $91,206 $49,001
Goodwill amortization, net of tax........................... 2,737 1,875
------- -------
Adjusted net earnings....................................... $93,943 $50,876
======= =======
BASIC EARNINGS PER SHARE
Net basic earnings per share as reported.................... $ 0.69 $ 0.40
Goodwill amortization, net of tax........................... 0.02 0.01
------- -------
Adjusted basic earnings per share........................... $ 0.71 $ 0.41
======= =======
DILUTED EARNINGS PER SHARE
Net diluted earnings per share as reported.................. $ 0.68 $ 0.39
Goodwill amortization, net of tax........................... 0.02 0.01
------- -------
Adjusted diluted earnings per share......................... $ 0.70 $ 0.40
======= =======
</Table>
Long Lived Asset Impairment
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", and the accounting and reporting
8
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provisions of Accounting Principles Board ("APB") Opinion No. 30 "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". SFAS No. 144 retains the fundamental provisions of SFAS No. 121
and the basic requirements of APB No. 30; however, it establishes a single
accounting model to be used for long-lived assets to be disposed of by sale and
it expands the presentation of discontinued operations to include more disposal
transactions.
The Company performed an impairment test on certain specific rigs and
groups of rigs in the fourth quarter of 2002 and determined that the
undiscounted future cash flows based on expected day rates and utilization rates
exceeded the recorded cost as of December 31, 2002; accordingly, no impairment
was recorded.
Revenue Recognition
The Company recognizes revenue as services are performed based upon
contracted day rates and the number of operating days during the period. Revenue
from turnkey contracts is generally recognized upon completion. Anticipated
losses on turnkey contracts are recognized in operating results when known.
Mobilization fees received and costs incurred to mobilize a rig in connection
with a customer contract from one geographic area to another are deferred and
recognized over the term of such contract. Costs incurred to mobilize a rig
without a contract are expensed as incurred. Fees received for capital
improvements to rigs or other property and equipment are deferred and recognized
over the period of the related drilling contract. The costs of such capital
improvements are capitalized and depreciated over the useful lives of the
assets.
Rig Construction Contracts
The Company has historically only constructed drilling rigs for its own
use. At the request of some of its significant customers, the Company entered
into contracts to design, construct and mobilize specialized drilling rigs. The
Company also entered into contracts to operate the rigs on behalf of the
customers. Construction contract revenues and related costs are recognized using
the percentage of completion method. Revenues recognized in excess of (less
than) billings to the customer are accumulated and reported as part of other
assets (other long-term liabilities), which as of December 31, 2002 and 2001
were $28.4 million and $(23.0 million), respectively.
Beginning October 1, 2002, the Company's technical services group is
reported as a separate business segment, with the first three quarters of 2002
adjusted to reflect the change in presentation, which had no effect on
consolidated gross margin, earnings from operations or net earnings (loss).
Amounts related to prior periods were not significant.
Rig Certifications
The Company is required to obtain certifications from various regulatory
bodies in order to operate its offshore drilling rigs and must maintain such
certifications through periodic inspections and surveys. The costs associated
with obtaining and maintaining such certifications, including inspections and
surveys, drydock costs and remedial structural work to the rigs are deferred and
amortized over the corresponding certification periods.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and the tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the asset is recovered or the liability is settled.
9
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
The Company accounts for translation of foreign currency in accordance with
SFAS No. 52, "Foreign Currency Translation." The majority of the Company's
revenues and expenditures are denominated in U.S. dollars to limit the Company's
exposure to foreign currency fluctuations, resulting in the use of the U.S.
dollar as the functional currency. In addition, the Company's operations in
certain foreign jurisdictions are in "highly inflationary" economies resulting
in the use of the U.S. dollar as the functional currency. As a result, certain
assets and liabilities of foreign operations are translated at historical
exchange rates, revenues and expenses in these countries are translated at the
average rate of exchange for the period, and all translation gains or losses are
reflected in the period's results of operations. In those countries where the
U.S. dollar is not the functional currency, revenues and expenses are translated
at the average rate of exchange for the period, assets and liabilities are
translated at end-of-period exchange rates and all translation gains and losses
are included in accumulated other comprehensive loss within stockholders'
equity.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
trade receivables. The Company places its cash and cash equivalents in U.S.
Government securities and other high quality financial instruments. The Company
limits the amount of credit exposure to any one financial institution or issuer.
The Company's customer base consists primarily of major integrated and
government-owned international oil companies, as well as smaller independent oil
and gas producers. Management believes the credit quality of its customers is
generally high. The Company has in place insurance to cover certain exposure in
its foreign operations and provides allowances for potential credit losses when
necessary.
Venezuela has recently implemented exchange controls which, together with
recent employee dismissals and reorganization within Petroleos de Venezuela,
S.A. ("PDVSA"), have led to a slower rate of collection of trade receivables,
and which may limit the Company's ability to convert local currency to U.S.
dollars and transfer funds out of the country. Management believes that all such
receivables will ultimately be recovered.
Conditions Affecting Ongoing Operations
The Company's current business and operations are substantially dependent
upon conditions in the oil and gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. The demand for contract
drilling and related services is influenced by oil and gas prices, expectations
about future prices, the cost of producing and delivering oil and gas,
government regulations and local and international political and economic
conditions. There can be no assurance that current levels of exploration and
production expenditures of oil and gas companies will be maintained or that
demand for the Company's services will reflect the level of such activities.
Stock-Based Compensation
The Company uses the intrinsic value based method of accounting for
stock-based compensation prescribed by APB No. 25 "Accounting for Stock Issued
to Employees" and related interpretations. Under this method, the Company
records no compensation expense for stock options granted when the exercise
price for options granted is equal to the fair market value of the Company's
stock on the date of the grant.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock Based Compensation-Transition and
Disclosure-an Amendment of FASB Statement No. 123". SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation. The disclosure provisions of
SFAS No. 148 are effective immediately and require revised disclosures in both
annual and interim financial statements about the
10
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of accounting for stock-based compensation and the effect of the method
used on reported results. The Company has adopted the new disclosure
requirements for its fiscal year ended December 31, 2002, as reflected below.
Under SFAS No. 123, the fair value of stock-based awards is calculated
using option pricing models. The Company's calculations were made using the
Black-Sholes option pricing model with the following significant assumptions:
<Table>
<Caption>
2002 2001 2000
------- ------- -------
Dividend yield............................................ 0.00% 0.00% 0.00%
Volatility................................................ 59.45% 56.05% 54.64%
Risk free interest rate................................... 4.73% 4.87% 6.26%
Expected term............................................. 5 years 5 years 5 years
</Table>
The weighted average fair values per share of options granted during the
years ended December 31, 2002, 2001 and 2000 were $7.94, $9.31 and $10.55,
respectively.
If the fair value based method of accounting prescribed by SFAS No. 123 had
been applied, the Company's pro forma net earnings (loss), net earnings (loss)
per share and stock-based compensation cost would approximate the amounts
indicated below. The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------
2002 2001 2000
-------- -------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net earnings (loss), as reported...................... $ (8,947) $ 91,206 $49,001
Add: Stock-based compensation included in reported net
earnings (loss), net of tax......................... -- -- --
Deduct: Total stock-based employee compensation
expense determined under the fair value method, net
of tax.............................................. (8,538) (18,197) (9,896)
-------- -------- -------
Pro forma net earnings (loss)......................... $(17,485) $ 73,009 $39,105
======== ======== =======
Net earnings (loss) per share:
Basic -- as reported................................ $ (0.07) $ 0.69 $ 0.40
Basic -- pro forma.................................. $ (0.13) $ 0.55 $ 0.32
Diluted -- as reported.............................. $ (0.07) $ 0.68 $ 0.39
Diluted -- pro forma................................ $ (0.13) $ 0.55 $ 0.31
</Table>
Derivative Instruments and Hedging
The Company accounts for derivative instruments and hedging activities in
accordance with SFAS No. 133, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" as amended by SFAS No. 138 (collectively "SFAS No.
133"). SFAS No. 133 requires that all derivative financial instruments,
including certain derivative instruments imbedded in other contracts, be
recognized in the balance sheet at fair value, and that changes in such fair
value be recognized in earnings unless specific hedging criteria are met. The
Company adopted SFAS No. 133, on January 1, 2001. Adoption of SFAS No. 133, has
not had nor is it expected to have a material impact on the Company's
consolidated results of operations or financial position.
11
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, including realization of customer and
insurance receivables and resolutions of tax claims. While it is believed that
such estimates are reasonable, actual results could differ from those estimates.
New Accounting Pronouncements
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.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No.
145 eliminates the requirement that gains and losses from the extinguishment of
debt be aggregated and classified as extraordinary items and requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. Upon adoption,
previously reported extraordinary items from the extinguishment of debt will be
combined with other income (expense) and the related tax provision (benefit)
will be reported with the income tax provision.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost that is associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on
required disclosures by a guarantor in its financial statements about
obligations under certain guarantees that it has issued and requires a guarantor
to recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The provisions of
FIN No. 45 relating to initial recognition and measurement of guarantor
liabilities are effective for qualifying guarantees entered into or modified
after December 31, 2002. The disclosure provisions of FIN No. 45 for certain
guarantees are effective immediately.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51". FIN 46 requires a company
to consolidate a variable interest entity, as defined, when the company will
absorb a majority of the variable interest entity's expected losses, receive a
majority of the variable interest entity's expected residual returns, or both.
FIN No. 46 also requires certain disclosures relating to consolidated variable
interest entities and unconsolidated variable interest entities in which a
company has a significant variable interest. The disclosure provisions of FIN
No. 46 are effective for all financial statements issued after January 31, 2003.
The consolidation provisions of FIN No. 46 apply immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which a company obtains an interest after January 31, 2003. With
respect to variable interest entities in which a company holds a variable
interest that is acquired before February 1, 2003, the consolidation provisions
are required to be applied no later than the company's first fiscal year or
interim period beginning after June 15, 2003.
SFAS Nos. 143, 145, 146 and FIN Nos. 45 and 46 are not expected to have a
material impact on the Company's consolidated financial position, results of
operations or cash flows when adopted.
12
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<Table>
<Caption>
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
(IN THOUSANDS)
Rigs and rig equipment...................................... $4,131,992 $3,814,593
Transportation equipment.................................... 28,125 25,501
Buildings................................................... 35,866 33,644
Other....................................................... 44,102 38,675
Construction-in-progress.................................... 63,065 145,117
Land........................................................ 8,752 8,752
---------- ----------
4,311,902 4,066,282
Accumulated depreciation and amortization................... (916,128) (695,123)
---------- ----------
Net property and equipment.................................. $3,395,774 $3,371,159
========== ==========
</Table>
The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. For the years ended December
31, 2002, 2001 and 2000, total interest incurred was $134.5 million, $135.8
million and $113.4 million, respectively, of which $1.9 million, $19.0 million
and $11.2 million, respectively, was capitalized.
During the years ended December 31, 2002, 2001 and 2000, maintenance and
repair costs included in operating costs on the accompanying consolidated
statement of operations were $81.6 million, $85.2 million and $116.5 million,
respectively.
3. ACQUISITIONS
In February 2001, the Company acquired a second-generation semisubmersible
drilling rig (now the Pride North Sea) and a third-generation semisubmersible
drilling rig (now the Pride Venezuela) for $44.7 million in cash and 3.0 million
shares of the Company's common stock valued at $78.9 million.
In March 2001, the Company increased from 26.4% to 100% its ownership in a
joint venture that constructed two dynamically-positioned, deepwater
semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil. The
purchase consideration for the interests the Company did not previously own
consisted of approximately $86 million aggregate principal amount of senior
convertible notes, convertible into approximately 4.0 million shares of the
Company's common stock, 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 two investment funds managed by
First Reserve Corporation pursuant to the funds' original investment in the
joint venture. 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
($215 million of which was outstanding as of December 31, 2002) and
approximately $86 million of convertible senior notes issued to the Brazilian
participant. See Note 4.
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 operated 12 land drilling rigs in Argentina and two land
drilling rigs in Venezuela.
13
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 2002, the Company acquired Uniao Nacional De Perfuracao Limitada
("Unap") for aggregate consideration of $5.5 million. Unap manages one
land-based drilling rig and seven land-based workover rigs and provides
directional drilling and other related services onshore Brazil.
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.
In September 2001, the Company acquired Marine in a stock-for-stock
transaction. Marine owned and operated a fleet of 17 offshore drilling rigs
consisting of two semisubmersible units and 15 jackup units. Additionally,
Marine owned one jackup rig configured as an accommodation unit. The acquisition
of Marine was accounted for as a pooling-of-interests for accounting and
financial reporting purposes. In connection with the acquisition, the estimated
remaining useful lives and residual values of certain rigs were reassessed and,
as a result, net income for 2001 increased $6.7 million (or $.05 per share on a
basic and diluted basis). The Company incurred pooling and merger costs totaling
$35.8 million associated with this acquisition which consisted of investment
advisory, legal and other professional fees of $24.4 million and costs
associated with the closure of duplicate office facilities and employee
terminations of $11.4 million. During 2002 and 2001, the Company paid $12.0
million and $22.9 million, respectively, of such fees and acquisition costs.
4. DEBT
Short-Term Borrowings
The Company has agreements with several banks for short-term lines of
credit primarily denominated in U.S. dollars. The facilities are renewable
annually and bear interest at variable rates based on LIBOR. The weighted
average interest rates on such borrowings at December 31, 2002 was 3.1%. As of
December 31, 2002, $17.7 million was outstanding under these facilities and
$34.1 million was available.
14
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Debt
Long-term debt consists of the following:
<Table>
<Caption>
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
(IN THOUSANDS)
Senior secured term loan.................................... $ 198,500 $ --
Senior secured revolving credit facilities.................. 110,000 100,000
9 3/8% Senior Notes due 2007................................ 325,000 325,000
10% Senior Notes due 2009................................... 200,000 200,000
Drillship loans............................................. 231,966 288,687
Semisubmersible loans....................................... 215,371 250,000
2 1/2% Convertible Senior Notes due 2007.................... 300,000 --
Zero Coupon Convertible Senior Debentures Due 2021.......... 98,220 268,545
Zero Coupon Convertible Subordinated Debentures Due 2018.... 111,481 177,575
Senior convertible notes payable............................ 85,853 85,853
Limited-recourse collateralized term loans.................. 10,263 16,274
Note payable to seller...................................... -- 11,556
Other notes payable......................................... 575 1,248
---------- ----------
1,887,229 1,724,738
Current portion of long-term debt........................... 95,610 99,850
---------- ----------
Long-term debt, net of current portion...................... $1,791,619 $1,624,888
========== ==========
</Table>
Senior Secured Term Loan and Senior Secured Revolving Credit Facilities
In June 2002, the Company entered into senior secured credit facilities
with a group of banks providing for aggregate availability of up to $450.0
million, consisting of a five-year $200.0 million term loan and a three-year
$250.0 million revolving credit facility. Proceeds from the term loan were used
to refinance a portion of the amounts outstanding under other credit facilities.
Borrowings under the revolving credit facility are available for general
corporate purposes. The Company may issue up to $50.0 million of letters of
credit under the facility. As of December 31, 2002, $25.0 million of borrowings
and an additional $12.4 million of letters of credit were outstanding under the
facility. The facilities are collateralized by two deepwater semisubmersible
rigs, the Pride North America and the Pride South Pacific, and 28 jackup rigs.
Borrowings under the facilities currently bear interest at variable rates based
on LIBOR plus a spread based on the credit rating of the facility or, if
unrated, index debt. As of March 14, 2003, the spread was 3.5% for the term loan
and 2.6% for the revolving credit facility. The interest rate on the term loan
was 5.3% at December 31, 2002. The credit facilities contain provisions that
limit the ability of the Company and its subsidiaries, with certain exceptions,
to pay dividends or make other restricted payments and investments; incur
additional debt; create liens; incur dividend or other payment restrictions
affecting subsidiaries; consolidate, merge or transfer all or substantially all
of its assets; sell assets or subsidiaries; enter into speculative hedging
arrangements outside the ordinary course of business; enter into transactions
with affiliates; make maintenance capital expenditures and incur long-term
operating leases. The credit facilities also require the Company to comply with
specified financial tests, including a ratio of net debt to EBITDA, as defined,
an interest coverage ratio, a ratio of net debt to total capitalization and a
minimum net worth.
The Company also has a senior revolving credit facility with non-U.S. banks
that provides aggregate availability of up to $95.0 million. The credit facility
terminates in June 2005 and is collateralized by a
15
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
semisubmersible rig, the Pride South Atlantic, a jackup rig, the Pride Montana,
and a tender-assisted rig. Borrowings under the credit facility bear interest at
variable rates based on LIBOR plus a spread ranging from 1.00% to 1.55%. As of
December 31, 2002, there was $85.0 million outstanding under this credit
facility. Together with the revolving credit facility discussed above, the
Company had $222.6 million in aggregate availability under its senior revolving
credit facilities as of December 31, 2002.
9 3/8% Senior Notes due 2007
In May 1997, the Company issued $325.0 million principal amount of 9 3/8%
Senior Notes due May 1, 2007 (the "9 3/8% Senior Notes"). Interest on the 9 3/8%
Senior Notes is payable semi-annually on May 1 and November 1 of each year. The
9 3/8% Senior Notes are redeemable, in whole or in part, at the option of the
Company at redemption prices starting at 104.688% and declining to 100% by May
1, 2005. The indenture governing the 9 3/8% Senior Notes contains provisions
that limit the ability of the Company and its subsidiaries, with certain
exemptions, 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.
10% Senior Notes due 2009
In May 1999, the Company issued $200.0 million principal amount of 10%
Senior Notes due June 1, 2009 (the "10% Senior Notes"). Interest on the 10%
Senior Notes is payable semi-annually on June 1 and December 1 of each year. The
10% Senior Notes are not redeemable prior to June 1, 2004, after which they will
be redeemable, in whole or in part, at the option of the Company at redemption
prices starting at 105% of the principal amount and declining to 100% by June 1,
2007. The indenture governing the 10% Senior Notes contains provisions that
limit the ability of the Company and its subsidiaries, with certain exemptions,
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.
Drillship Loans
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 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. The loans with respect to the Pride Africa and the
Pride Angola are non-recourse to the Company and the joint owner. As of December
31, 2002, $97.8 million was outstanding under the loans for the Pride Africa and
$134.2 million was outstanding under the loans for the Pride Angola. The loans
are being repaid from the proceeds of the related charter contracts in
semi-annual installments of principal and interest through December 2006 and
July 2007 for the Pride Africa and Pride Angola, respectively. The payment terms
of the Pride Angola loan were extended from July 2005 to July 2007 when the
customer extended the drilling contract to five years in February 2002. The
drillship loans bear interest at LIBOR plus 1.10% to 1.25%. As a condition of
the drillship loans, the Company entered into interest rate swap and cap
agreements with the lenders that 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 January 2003 and capped the interest rate on the Pride
Angola loan at 6.52% from February 2003 to January 2007. As a result, the
drillship loans had a weighted average interest rate of 6.9% at December 31,
2002. Such swap and cap agreements are not considered derivatives because (1)
the swap and cap agreements were required by the lenders under the drillship
loans; (2) the Company believes that such loans would not have been available to
the Company without the related swap and cap agreements; and (3) the drillship
loans prohibit the Company from selling or
16
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transferring the swap and cap agreements without the consent of the lenders, and
the Company does not believe that the lenders would grant such consent as long
as any principal amounts are outstanding. In accordance with the debt
agreements, certain cash balances are held in trust to assure that timely
interest and principal payments are made. At December 31, 2002 and 2001, $34.3
million and $48.4 million, respectively, of such cash balances, which amount is
included in restricted cash, was held in trust and is not available for use by
the Company.
Semisubmersible Loans
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 facility 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 facility and repayment of the
construction loans (which had interest rates of 11% per annum) was completed in
November 2001. As required by the lenders under the facility, the Company
entered into interest rate swap and cap agreements with the lenders that capped
the interest rate on $50.0 million of the debt at 7% and which fixed the
interest rate on the remainder of the debt at 5.58% through September 2006. Such
swap and cap agreements are not considered derivatives because (1) the swap and
cap agreements were required by the lenders under the facility agreement; (2)
the Company believes that such credit facility would not have been available to
the Company without the related swap and cap agreements; and (3) the credit
facility prohibits the Company from selling or transferring the swap and cap
agreements without the consent of the lenders, and the Company does not believe
that the lenders would grant such consent as long as any principal amounts are
outstanding. The new loans are collateralized by, among other things, a first
priority mortgage on the drilling rigs and assignment of the charters for the
rigs. The debt agreement requires certain cash balance to be held in trust to
assure that timely interest and principal payments are made. At December 31,
2002 and 2001, $16.0 million and $4.6 million, respectively, of such cash
balances, which amount is included in restricted cash, was held in trust and is
not available for use by the Company.
2 1/2% Convertible Senior Notes Due 2007
In March 2002, the Company issued $300.0 million principal amount of 2 1/2%
convertible senior notes due March 1, 2007. The net proceeds to the Company,
after deducting underwriting discounts and offering costs, were $291.5 million.
The notes are convertible into approximately 18.2 million shares of common stock
of the Company (equal to a conversion rate of 60.5694 shares of common stock per
$1,000 principal amount, or $16.51 per share). Interest on the notes is payable
semiannually on March 1 and September 1 of each year. On or after March 4, 2005,
the notes are redeemable at the Company's option, in whole or in part, for cash
at redemption prices starting at 101% and declining to 100% by March 1, 2007, in
each case plus accrued and unpaid interest. The Company may redeem some or all
of the notes at any time prior to March 4, 2005 at 100% of the principal amount,
plus accrued and unpaid interest and an amount equal to 7.5% of the principal
amount, less the amount of any interest actually paid on the notes on or prior
to the redemption date, if the closing price of the Company's common stock has
exceeded 150% of the conversion price per share then in effect for at least 20
trading days within a period of 30 consecutive trading days. In connection with
the issuance of the notes, a private equity fund related to First Reserve
Corporation purchased 7.9 million shares of the Company's common stock from
third parties. First Reserve manages private equity funds that specialize in the
energy industry.
Zero Coupon Convertible Senior Debentures Due 2021
In January 2001, the Company issued zero coupon convertible senior
debentures due January 16, 2021 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, amounted to approximately $254.5
million. The issue
17
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 using the effective
interest method over the term of the debentures.
During 2002, the Company purchased on the open market and then extinguished
$277.9 million face amount of the debentures. The total purchase price was
$172.8 million and the accreted value of the debentures, less unamortized
deferred offering costs, was $171.9 million, resulting in an extraordinary loss
after estimated income taxes of $.6 million. As of December 31, 2002, the
outstanding debentures had a face amount of $153.6 million. In January 2003, the
Company purchased all of the outstanding zero coupon convertible senior
debentures for $98.2 million.
Zero Coupon Convertible Subordinated Debentures Due 2018
In April 1998, the Company issued zero coupon convertible subordinated
debentures due April 24, 2018 with a face amount of $588.1 million. The net
proceeds to the Company in connection with the sale, after deducting
underwriting discounts and offering expenses, amounted to approximately $222.6
million. The issue price of $391.06 for each debenture represents a yield to
maturity of 4.75% per annum (computed on a semiannual bond equivalent basis)
calculated from the issue date. The difference between the issue price and face
amount of the debentures is recorded as a discount and amortized to interest
expense using the effective interest method over the term of the debentures. The
debentures are convertible into shares of common stock of the Company at a
conversion rate of 13.794 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 April 24, 2003, 2008 and 2013 at
a price per debenture equal to the issue price plus accrued original issue
discount to the relevant purchase date, settled either in cash, common stock or
a combination thereof at the option of the Company. On or subsequent to April
24, 2003, the debentures are redeemable at the option of the Company, in whole
or in part, for cash at a price equal to the issue price plus accrued original
issue discount to the date of redemption.
During 2001, the Company purchased on the open market and then extinguished
$129.1 million face amount of the debentures. The total purchase price was $56.2
million and the accreted value of the debentures, less unamortized deferred
offering costs, was $58.2 million, resulting in an extraordinary gain after
estimated income taxes of $1.3 million.
During 2002, the Company purchased on the open market and then extinguished
$153.3 million face amount of the debentures. The total purchase price was $72.7
million and the accreted value of the debentures, less unamortized deferred
offering costs, was $72.3 million, resulting in an extraordinary loss after
estimated income taxes of $.2 million. As of December 31, 2002, the outstanding
debentures had a face amount of $228.6 million.
Senior Convertible Notes Payable
In March 2001, in connection with the acquisition of the interests the
Company did not previously own in 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.
Limited-Recourse Collateralized Term Loans
The limited-recourse collateralized term loans are collateralized by two of
the Company's drilling/ workover barge rigs, the Pride I and the Pride II, and
related charter contracts. The loans are being repaid from the proceeds of the
related charter contracts in equal monthly installments of principal and
interest
18
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through July 2004. These loans are non-interest bearing and have implied
interest rates of 9.61%. In addition, a portion of contract proceeds is being
held in trust to assure that timely payment of future debt service obligations
is made. At December 31, 2002 and 2001, $2.4 million of such contract proceeds,
which amount is included in restricted cash, was being held in trust as security
for the lenders and is not available for use by the Company.
Note Payable to Seller
In connection with the acquisition in April 2000 of Services Especiales San
Antonio S.A. ("San Antonio"), which is included in the Company's E&P services
division, the Company issued a $26.0 million promissory note to the seller. The
note was settled in full in June 2002.
Future Maturities
Future maturities of long-term debt at December 31, 2002 are as follows:
<Table>
<Caption>
AMOUNT
--------------
(IN THOUSANDS)
2003........................................................ $ 95,610
2004........................................................ 194,388
2005........................................................ 393,709
2006........................................................ 100,860
2007........................................................ 876,683
Thereafter.................................................. 225,979
----------
Total long-term debt...................................... $1,887,229
==========
</Table>
As of December 31, 2002, the fair value of long-term debt was approximately
$1,962 million.
The Company purchased for cash all outstanding zero coupon convertible
senior debentures due 2021 during January 2003. As required by the terms of the
Company's zero coupon convertible subordinated debentures due 2018, the Company
has made an offer to purchase the debentures for cash on April 24, 2003 at a
price per debenture equal to the issue price plus accrued original issue
discount to the purchase date. The debentures are convertible at any time into
shares of the Company's common stock at a conversion rate of 13.794 shares of
common stock per $1,000 principal amount at maturity, which represents a
conversion price of $28.35 per share. The closing price of the Company's common
stock on the New York Stock Exchange on March 14, 2003 was $13.11 per share.
Based on current market conditions, the Company believes that it will likely be
required to purchase all debentures outstanding on the initial put date. The
accreted price on such put date of the debentures outstanding as of December 31,
2002 is $113.2 million. The future maturities of long-term debt in 2005 included
in the above table reflect the accreted amount of both series of debentures as
of December 31, 2002. These debentures are classified as long-term debt based on
the Company's ability and intent to refinance the debentures using its existing
senior credit facilities maturing in 2005 and available cash.
5. LEASES
In February 1999, the Company completed the sale and leaseback of the Pride
South America semisubmersible drilling rig with an unaffiliated entity pursuant
to which it received $97.0 million as the sales price. The excess of funding
over net book value of the rig has been deferred and is being amortized as a
reduction of lease expense over the lease term. The lease is for a maximum term
of 13.5 years, and the Company has options to purchase the rig at the end of 8.5
years and at the end of the maximum term. The lease has been classified as an
operating lease for financial statement purposes. Rent expense on the rig ranges
from $11.7 million to $15.9 million annually.
19
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has agreements with an unaffiliated financial institution for
the sale and leaseback of up to $22.0 million of equipment to be used in the
Company's business. The Company has received aggregate proceeds of $15.9 million
pursuant to these facilities attributable to two offshore platform rigs placed
in service in 1996. The Company has purchase and lease renewal options at
projected future fair market values under the agreements. The leases have been
classified as operating leases for financial statement purposes. The excess of
funding over net book value has been deferred and is being amortized as a
reduction of lease expense over the maximum lease term of five years. Rent
expense on these transactions total $3.1 million annually.
Rental expense for operating leases for equipment, vehicles and various
facilities of the Company for the years ended December 31, 2002, 2001 and 2000
were $41.1 million, $48.8 million and $39.4 million, respectively.
The Company has capital lease obligations pursuant to sale and leaseback
agreements or financing arrangements with unaffiliated entities for three
platform rigs and offices in France. The obligations are payable in semiannual
installments through June 2006 and bear interest at a weighted average rate of
7.8%.
Future maturities of capital lease obligations, net of interest, at
December 31, 2002 are as follows:
<Table>
<Caption>
AMOUNT
--------------
(IN THOUSANDS)
2003........................................................ $ 2,679
2004........................................................ 2,585
2005........................................................ 7,704
2006........................................................ 2,004
2007........................................................ 81
Thereafter.................................................. 137
-------
Total capital lease obligations........................... $15,190
=======
</Table>
6. 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 risk associated with its
Euro-denominated expenses. These forward exchange contacts and option contracts
have not been designated as hedging instruments under SFAS No. 133, as the
forward or option contracts are not systematically identified as being the hedge
of specific expenditures at inception.
Currency option contracts existing at December 31, 2002 consist of U.S.
dollar calls/Euro puts sold by the Company. These contracts provide an economic
hedge of the Company's exposure to fluctuations in the value of the Euro
relative to the U.S. dollar. If the U.S. dollar strengthens during the period of
the contracts, the counterparties will likely exercise their options and deliver
Euro for U.S. dollars at the predetermined rate. In this case, the premium on
the contract will offset part of the difference between the contractual strike
rate on the option and the spot U.S. dollar/Euro rate at which the Company could
otherwise have sold its U.S. dollars for Euro. If the U.S. dollar falls below
the strike rate, the counterparties will tend not to exercise their options. In
this case, the premium will partially offset the negative effect to the Company
of the increase in the
20
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. dollar equivalent of its Euro-denominated expenditures. The counterparties
to these contracts are all major European banks.
The unrealized loss on all forward exchange contracts and option contracts
based on quoted market prices of comparable instruments was approximately $1.0
million and $6.6 million at December 31, 2002 and 2001, respectively. The net
realized and unrealized gains (losses) on all forward and option contracts,
included in other income (expense) for the years ended December 31, 2002, 2001
and 2000, were approximately $4.8 million, $(0.1) million and $(3.3) million,
respectively.
The following table summarizes forward exchange contracts and option
contracts outstanding at December 31, 2002:
<Table>
<Caption>
WEIGHTED
AVERAGE
NOTIONAL NOTIONAL EXCHANGE EXCHANGE
CONTRACT TYPE AMOUNT CURRENCY CURRENCY RATE MATURITY GAIN (LOSS)
- ------------- -------------- ----------- -------- -------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Forward exchange
contracts.......... $12,000 U.S. Dollar Euro 0.8959 2003 $(1,046)
U.S. Dollar call
options sold....... 8,000 U.S. Dollar Euro 1.0700 2003 --
------- -------
Total................ $20,000 $(1,046)
======= =======
</Table>
The value of forward exchange contracts and option contracts upon ultimate
settlement is dependent upon actual currency exchange rates at the various
maturity or exercise dates. Upon maturity of forward exchange contracts, the
Company delivers U.S. dollars and receives the Euro at the contractual rate or
may pay or receive cash based on the notional amounts of the contracts and the
difference between the contractual and market exchange rates on the maturity
dates. In the case of sales of U.S. dollar call options, the Company is obliged
to accept the Euro in exchange for U.S. dollars at the contractual rate on the
exercise date notified by the counterparty or, by agreement, may pay cash based
on the notional amounts of the contracts and the excess of market exchange rates
over the contractual exchange rates on the exercise date.
7. INCOME TAXES
The components of the income tax provision were as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001 2000
-------- ------- -------
(IN THOUSANDS)
United States:
Federal:
Current.............................................. $ -- $15,694 $(1,457)
Deferred............................................. (38,245) 8,947 14,360
-------- ------- -------
Total -- Federal.................................. (38,245) 24,641 12,903
-------- ------- -------
Foreign:
Current.............................................. 33,833 27,002 21,867
Deferred............................................. 7,819 (2,412) 158
-------- ------- -------
Total -- Foreign.................................. 41,652 24,590 22,025
-------- ------- -------
Income tax provision............................ $ 3,407 $49,231 $34,928
======== ======= =======
</Table>
21
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the effective federal income tax rate reflected in
the income tax provision and the amounts which would be determined by applying
the statutory federal tax rate to earnings before income taxes and minority
interest is summarized as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
2002 2001 2000
------- ----- -----
U.S. statutory rate......................................... 35.0% 35.0% 35.0%
Foreign................................................... (117.3) (4.6) 1.6
Change in valuation allowance............................. 108.9 (1.8) --
Other..................................................... 3.4 3.2 0.3
------ ---- ----
Effective tax rate..................................... 30.0% 31.8% 36.9%
====== ==== ====
</Table>
The domestic and foreign components of earnings before income taxes and
minority interest were as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
2002 2001 2000
--------- -------- --------
(IN THOUSANDS)
Domestic............................................ $(140,816) $ 20,248 $(15,284)
Foreign............................................. 152,171 134,365 110,025
--------- -------- --------
Earnings before income taxes and minority
interest....................................... $ 11,355 $154,613 $ 94,741
========= ======== ========
</Table>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets were as
follows:
<Table>
<Caption>
DECEMBER 31,
---------------------
2002 2001
--------- ---------
(IN THOUSANDS)
Deferred tax liabilities:
Depreciation........................................... $ 312,215 $ 295,186
Other.................................................. 16,962 12,368
--------- ---------
Total deferred tax liabilities....................... 329,177 307,554
--------- ---------
Deferred tax assets:
Net operating loss carryforwards....................... (217,114) (155,093)
Alternative Minimum Tax credits........................ (27,958) (27,958)
Other.................................................. (9,271) (3,763)
--------- ---------
Total deferred tax assets............................ (254,343) (186,814)
Valuation allowance for deferred tax assets............ 23,785 11,417
--------- ---------
Net deferred tax assets.............................. (230,558) (175,397)
--------- ---------
Net deferred tax liability........................... $ 98,619 $ 132,157
========= =========
</Table>
Applicable U.S. deferred income taxes and related foreign dividend
withholding taxes have not been provided on approximately $388.0 million of
undistributed earnings and profits of the Company's foreign subsidiaries. The
Company considers such earnings to be permanently reinvested outside the United
States. It is not practicable to estimate the amount of deferred income taxes
associated with these unremitted earnings.
22
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2002, the Company had deferred tax assets of $217.1
million relating to $624.3 million of net operating loss ("NOL") carryforwards
and had $28.0 million of non-expiring Alternative Minimum Tax ("AMT") credits.
The NOL carryforwards and AMT credits can be used to reduce the Company's
federal and foreign income taxes payable in future years. The Company's ability
to realize the entire benefit of its deferred tax assets requires that the
Company achieve certain future earnings levels prior to the expiration of its
NOL carryforwards. U.S. NOL carryforwards total $523.8 million and expire in
2019 through 2022. Foreign NOL carryforwards include $41.9 million which do not
expire and $58.6 million which expire in 2003 through 2013. The Company has
recognized a partial valuation allowance due to the uncertainty of realizing
certain foreign NOL carryforwards. The Company could be required to record an
additional valuation allowance against certain or all of its remaining deferred
tax assets if market conditions deteriorate or future earnings are below current
estimates.
In connection with the acquisition of Marine, the Company determined that
certain NOL carryforwards and AMT credits are subject to limitation under
Sections 382 and 383 of the U.S. Internal Revenue Code as a result of the
greater than 50% cumulative change in the Company's ownership. However, the
Company has determined that such limitations should not affect its ability to
realize the benefits of the deferred tax assets associated with such NOL
carryforwards and AMT credits.
8. 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.
23
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents information necessary to calculate basic and
diluted net earnings per share:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2002 2001 2000
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Earnings (loss) before extraordinary item............ $ (8,149) $ 89,874 $ 49,001
Extraordinary gain (loss)............................ (798) 1,332 --
-------- -------- --------
Net earnings (loss) after extraordinary item......... (8,947) 91,206 49,001
Interest expense on convertible debentures and
notes.............................................. -- 9,171 --
Income tax effect.................................... -- (3,210) --
-------- -------- --------
Adjusted net earnings (loss) after extraordinary
Item............................................ $ (8,947) $ 97,167 $ 49,001
======== ======== ========
Weighted average shares outstanding.................. 133,305 131,630 123,038
Convertible debentures and notes..................... -- 9,437 --
Stock options........................................ -- 1,711 3,626
-------- -------- --------
Adjusted weighted average shares outstanding....... 133,305 142,778 126,664
======== ======== ========
Earnings (loss) per share before extraordinary item
Basic.............................................. $ (0.06) $ 0.68 $ 0.40
======== ======== ========
Diluted............................................ $ (0.06) $ 0.67 $ 0.39
======== ======== ========
Net earnings (loss) per share after extraordinary
item
Basic.............................................. $ (0.07) $ 0.69 $ 0.40
======== ======== ========
Diluted............................................ $ (0.07) $ 0.68 $ 0.39
======== ======== ========
</Table>
The calculation of diluted weighted average shares outstanding excludes
34.3 million, 13.2 million and 13.1 million common shares issuable pursuant to
outstanding options, convertible notes and debentures for the years ended
December 31, 2002, 2001 and 2000, respectively, because their effect was
antidilutive.
9. EMPLOYEE BENEFITS
The Company has 401(k) defined contribution plans for its employees, which
allow eligible employees to defer up to 15% of their eligible annual
compensation, with certain limitations. The Company may at its discretion match
up to 100% of the first 6% of compensation. The Company's contributions to the
plan for the years ended December 31, 2002, 2001 and 2000 were $1.6 million,
$3.5 million and $2.9 million, respectively.
The Company has a deferred compensation plan, which provides its officers
and key employees with the opportunity to participate in an unfunded,
non-qualified plan. Eligible employees may defer up to 100% of compensation,
including bonuses and net proceeds from the exercise of stock options.
10. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 50 million shares of preferred stock,
par value $0.01 per share. The Company's board of directors has the authority to
issue shares of preferred stock in one or more series and to fix the number of
shares, designations and other terms of each series. The board of directors has
designated 4.0 million shares of preferred stock to constitute the Series A
Junior Participating Preferred Stock in
24
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the Company's stockholders' rights plan. As of December 31,
2002, no shares of preferred stock are outstanding.
Common Stock
In March 2000, the Company issued 4.5 million shares of common stock to a
fund managed by First Reserve Corporation for approximately $72.0 million in
order to finance the $35.0 million cash portion of the consideration paid for
San Antonio (which constitutes the Company's E&P services division) and to
improve the Company's overall liquidity.
In 2000, the Company established the Pride International, Inc. Direct Stock
Purchase Plan, which provides a convenient way for investors to purchase shares
of its common stock without paying brokerage commissions or service charges. For
the years ended December 31, 2001 and 2000, the Company sold 2.6 million shares
for $62.0 million and 2.3 million shares for $54.4 million, respectively. There
were no shares sold under the plan in 2002.
In February 2001, the Company issued 3.0 million shares of common stock
valued at $78.9 million in connection with the acquisition of the Pride North
Sea and the Pride Venezuela.
In March 2001, the Company issued 519,468 shares of common stock valued at
approximately $14.0 million to investment funds managed by First Reserve
Corporation in connection with the Company's acquisition of the funds' equity
ownership interest in the Pride Carlos Walter and Pride Brazil (see Note 3).
In October 2002, the Company issued 527,652 shares of common stock to two
funds managed by First Reserve in exchange for an additional 11.9% investment in
the Amethyst joint venture. Subsequently, in November 2002 the other joint
venture partner exercised its option to acquire up to 70% of the interest
acquired by the Company, in exchange for 369,356 shares of the Company's common
stock. The shares of Company common stock acquired in the exchange are currently
held as treasury shares.
Stockholders' Rights Plan
The Company has a preferred share purchase rights plan. Under the plan,
each share of common stock includes one right to purchase preferred stock. The
rights will separate from the common stock and become exercisable (1) ten days
after public announcement that a person or group of affiliated or associated
persons has acquired, or obtained the right to acquire, beneficial ownership of
15% of the Company's outstanding common stock or (2) ten business days following
the start of a tender offer or exchange offer that would result in a person's
acquiring beneficial ownership of 15% of the Company's outstanding common stock.
A 15% beneficial owner is referred to as an "acquiring person" under the plan.
Certain investment funds managed by First Reserve Corporation, their affiliates
and certain related parties currently have the right to acquire beneficial
ownership of up to 19% of the Company's common stock without becoming an
acquiring person under the plan.
The Company's board of directors can elect to delay the separation of the
rights from the common stock beyond the ten-day periods referred to above. The
plan also confers on the board the discretion to increase or decrease the level
of ownership that causes a person to become an acquiring person. Until the
rights are separately distributed, the rights will be evidenced by the common
stock certificates and will be transferred with and only with the common stock
certificates.
After the rights are separately distributed, each right will entitle the
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock for a purchase price of $50. The rights
will expire at the close of business on September 30, 2011, unless the Company
redeems or exchanges them earlier as described below.
25
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If a person becomes an acquiring person, the rights will become rights to
purchase shares of the Company's common stock for one-half the current market
price, as defined in the rights agreement, of the common stock. This occurrence
is referred to as a "flip-in event" under the plan. After any flip-in event, all
rights that are beneficially owned by an acquiring person, or by certain related
parties, will be null and void. The Company's board of directors has the power
to decide that a particular tender or exchange offer for all outstanding shares
of the Company's common stock is fair to and otherwise in the best interests of
its stockholders. If the board makes this determination, the purchase of shares
under the offer will not be a flip-in event.
If, after there is an acquiring person, the Company is acquired in a merger
or other business combination transaction or 50% or more of the Company's
assets, earning power or cash flow are sold or transferred, each holder of a
right will have the right to purchase shares of the common stock of the
acquiring company at a price of one-half the current market price of that stock.
This occurrence is referred to as a "flip-over event" under the plan. An
acquiring person will not be entitled to exercise its rights, which will have
become void.
Until ten days after the announcement that a person has become an acquiring
person, the Company's board of directors may decide to redeem the rights at a
price of $0.01 per right, payable in cash, shares of common stock or other
consideration. The rights will not be exercisable after a flip-in event until
the rights are no longer redeemable.
At any time after a flip-in event and prior to either a person's becoming
the beneficial owner of 50% or more of the shares of common stock or a flip-over
event, the Company's board of directors may decide to exchange the rights for
shares of common stock on a one-for-one basis. Rights owned by an acquiring
person, which will have become void, will not be exchanged.
Stock Option Plans
The Company has a long-term incentive plan which provides for the granting
or awarding of stock options, restricted stock, stock appreciation rights and
stock indemnification rights to officers and other key employees. The number of
shares authorized and reserved for issuance under the long-term incentive plan
is limited to 10% of total issued and outstanding shares, subject to adjustment
in the event of certain changes in the Company's corporate structure or capital
stock. Stock options may be exercised in whole or in part within 60 days of
termination of employment or one year after retirement, total disability or
death of an employee.
Options granted under the long-term incentive plan prior to 1998 were
vested 25% immediately, 50% after one year, 75% after two years and 100% after
three years. Options granted in 1998 were vested 20% after one year, 40% after
two years, 60% after three years, 80% after four years and 100% after five
years. Options granted in 1999 and thereafter were vested 20% immediately, 40%
after six months, 60% after 18 months, 80% after two years and 100% after 30
months.
In 1993, the shareholders of the Company approved and ratified the 1993
Directors' Stock Option Plan. The purpose of the plan is to afford the Company's
directors who are not full-time employees of the Company or any subsidiary of
the Company an opportunity to acquire a greater proprietary interest in the
Company. A maximum of 400,000 shares of the Company's common stock has been
reserved for issuance upon the exercise of options granted pursuant to the plan.
The exercise price of options is the fair market value per share on the date the
option is granted. Directors' stock options vest over two years at the rate of
50% per year and expire ten years from date of grant.
Pursuant to the merger agreement with Marine, all options to acquire Marine
common stock under various Marine stock option plans were deemed to be options
to acquire the same number of shares of the Company's common stock and all
Marine options became fully vested and exercisable pursuant to the "change of
control" provisions of the Marine stock option plans.
26
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee and director stock option transactions for the last three years
are summarized as follows:
<Table>
<Caption>
EMPLOYEE STOCK OPTIONS DIRECTOR STOCK OPTIONS
-------------------------- -----------------------
PRICE SHARES PRICE SHARES
------------- ---------- ------------- -------
Outstanding as of December 31,
1999............................ 7,402,920 287,665
Granted......................... $15.75-$28.66 1,454,700 $19.56-$29.25 48,500
Exercised....................... $ 1.25-$22.75 (737,873) $ 4.00-$15.63 (28,000)
Forfeited....................... $ 6.19-$18.88 (121,385) -- --
---------- -------
Outstanding as of December 31,
2000............................ 7,998,362 308,165
Granted......................... $14.65-$29.63 2,159,500 $14.65-$28.10 66,500
Exercised....................... $ 2.50-$22.75 (322,689) $ 4.00-$8.38 (26,000)
Forfeited....................... $ 8.00-$29.63 (39,488) -- --
---------- -------
Outstanding as of December 31,
2001............................ 9,795,685 348,665
Granted......................... $14.35-$19.14 1,225,000 $ 14.35 52,500
Exercised....................... $ 6.25-$16.50 (1,095,005) -- --
Forfeited....................... $ 8.00-$29.63 (1,208,650) -- --
---------- -------
Outstanding as of December 31,
2002............................ 8,717,030 401,165
========== =======
Exercisable as of December 31,
2002............................ 6,596,235 331,915
========== =======
</Table>
The following table summarizes information on stock options outstanding and
exercisable at December 31, 2002 pursuant to the employee stock option plans:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ---------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE REMAINING LIFE EXERCISE PRICE
- --------------- ----------- -------------- -------------- ----------- -------------- --------------
$ 1.25-$12.00........ 2,858,261 5.1 $ 8.65 2,538,266 5.0 $ 8.62
$12.01-$29.63........ 5,858,769 7.2 $17.66 4,057,969 6.5 $18.79
--------- ---------
$ 1.25-$29.63........ 8,717,030 6.5 $14.70 6,596,235 5.9 $14.88
========= =========
</Table>
The following table summarizes information on stock options outstanding and
exercisable at December 31, 2002 pursuant to the directors' stock option plan:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ---------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE REMAINING LIFE EXERCISE PRICE
- --------------- ----------- -------------- -------------- ----------- -------------- --------------
$ 1.25-$12.00........ 54,000 5.4 $ 9.56 54,000 5.4 $ 9.56
$12.01-$29.63........ 347,165 6.6 $19.51 277,915 6.0 $20.78
------- -------
$ 1.25-$29.63........ 401,165 6.4 $18.17 331,915 5.9 $18.95
======= =======
</Table>
11. COMMITMENTS AND CONTINGENCIES
In April 2002, the Company contributed $14.1 million to the settlement of a
wage-related antitrust lawsuit, of which $5.1 million, not within the policy
limits of the Company's insurance, had previously been recognized in 2001. The
Company's insurance carrier has not yet agreed to pay the remaining amount, and
the Company has commenced litigation against this insurer. The Company believes
it will prevail in this matter
27
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and collect the approximately $10.2 million receivable, representing the insured
settlement amount and legal costs, included in other assets in the accompanying
balance sheet.
Since the second quarter of 2002, Venezuela has experienced political and
economic turmoil, including prolonged labor strikes, demonstrations and an
attempt to overthrow the government. Much of the turmoil has negatively impacted
PDVSA, which is the Company's principal customer in Venezuela, and led to the
dismissal of more than 12,000 PDVSA employees by the government. The
implications and results of the political, economic and social instability in
Venezuela are uncertain at this time, but the instability has had and is
continuing to have an adverse effect on the Company's business. Currently 17 of
the Company's 47 rigs in the country are working. Venezuela has also recently
implemented exchange controls, which, together with recent employee dismissals
and reorganization within PDVSA, have led to a slower rate of collection of the
Company's trade receivables and could limit the Company's ability to convert
local currency into U.S. dollars and transfer funds out of Venezuela. The
exchange controls could result in an artificially high value being placed on the
local currency.
The Company is routinely involved in other litigation, claims and disputes
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.
12. INVESTMENT IN AMETHYST JOINT VENTURE
As of December 31, 2002, the Company had a 30.0% equity interest in a joint
venture company that is constructing two dynamically-positioned, deepwater
semisubmersible drilling rigs, currently referred to as the Amethyst 4 and
Amethyst 5. In October 2002, two funds managed by First Reserve Corporation that
collectively held an 11.9% interest in the joint venture transferred their
interests to the Company in exchange for a total of 527,652 shares of the
Company's common stock. Subsequently, in November 2002, the other joint venture
partner exercised its option to acquire 70% of the interest acquired by the
Company in the First Reserve exchange, which reduced the Company's interest to
30%. The exercise price of that option was 369,356 shares of the Company's
common stock. As a result of the exchange and other purchases of the Company's
common stock by First Reserve managed funds, First Reserve funds owned as of
December 31, 2002 approximately 20.0 million shares of the Company's common
stock, or approximately 15% of the total shares outstanding.
The Amethyst 4 and Amethyst 5 are being constructed at a shipyard in Maine.
The Company anticipates that the construction of the rigs will be completed in
late 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 December 31, 2002, the Company's equity contributions to the joint
venture totaled $29.6 million, including capitalized interest of $6.1 million.
Based on the availability of funds under performance and payment bonds issued on
behalf of a prior construction contractor and draws remaining under the
MARAD-guaranteed credit facilities, the Company believes the Amethyst 4 and
Amethyst 5 will be completed without requiring additional contributions by the
joint venture partners.
28
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUPPLEMENTAL FINANCIAL INFORMATION
Other Current Assets
Other current assets consists of the following:
<Table>
<Caption>
DECEMBER 31,
-------------------
2002 2001
-------- --------
(IN THOUSANDS)
Deferred mobilization and inspection costs.................. $ 59,753 $ 34,275
Insurance receivables....................................... 33,982 26,426
Prepaid expenses............................................ 27,549 33,825
Other receivables........................................... 13,266 20,600
Deferred financing costs.................................... 11,121 1,816
Other....................................................... 2,890 5,561
-------- --------
Total other current assets................................ $148,561 $122,503
======== ========
</Table>
Other Assets
Other assets consists of the following:
<Table>
<Caption>
DECEMBER 31,
-------------------
2002 2001
-------- --------
(IN THOUSANDS)
Deferred mobilization and inspection costs.................. $ 55,882 $ 38,177
Deferred financing costs.................................... 38,860 41,064
Employee savings plan....................................... 11,670 14,875
Project costs............................................... 28,351 --
Other....................................................... 23,440 17,095
-------- --------
Total other assets........................................ $158,203 $111,211
======== ========
</Table>
Accrued Expenses
Accrued expenses consists of the following:
<Table>
<Caption>
DECEMBER 31,
-------------------
2002 2001
-------- --------
(IN THOUSANDS)
Deferred mobilization and other revenue..................... $ 90,302 $ 39,182
Payroll and benefits........................................ 42,830 40,297
Interest.................................................... 25,613 20,735
Current income taxes........................................ 22,334 11,545
Taxes, other than income.................................... 21,705 5,853
Insurance................................................... 7,147 13,623
Earn-out payment, current portion........................... 3,000 3,000
Foreign currency contracts.................................. 1,116 6,573
Pooling and merger costs.................................... 886 12,912
Other....................................................... 28,257 52,768
-------- --------
Total accrued expenses.................................... $243,190 $206,488
======== ========
</Table>
29
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Long-Term Liabilities
Other long-term liabilities consists of the following:
<Table>
<Caption>
DECEMBER 31,
------------------
2002 2001
------- --------
(IN THOUSANDS)
Deferred mobilization revenue............................... $47,457 $ 47,420
Deferred compensation....................................... 14,621 16,188
Deferred revenue, other..................................... 14,712 17,682
Earn-out payment, net of current portion.................... 3,000 6,000
Deferred gain on sale/leaseback............................. 2,666 2,839
Project costs............................................... -- 22,994
Other....................................................... 8,689 15,170
------- --------
Total other long-term liabilities......................... $91,145 $128,293
======= ========
</Table>
Other Income (Expense), net
Other income (expense), net consists of the following:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
2002 2001 2000
---- -------- -------
(IN THOUSANDS)
Argentina writedown....................................... $ -- $(10,679) $ --
Foreign exchange losses................................... (1) (2,375) (7,404)
Insurance gains........................................... -- 1,299 1,800
Litigation settlement..................................... -- (5,100) 5,000
Other, net................................................ 157 1,480 4,259
---- -------- -------
Total other income (expense), net....................... $156 $(15,375) $ 3,655
==== ======== =======
</Table>
Cash Flow Information
Supplemental cash flow and non-cash transactions are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001 2000
-------- ------- -------
(IN THOUSANDS)
Cash paid during the year for:
Interest............................................. $111,576 $97,970 $97,166
Income taxes -- U.S., net............................ -- 13,165 --
Income taxes -- foreign, net......................... 22,728 25,704 14,884
Change in capital expenditures in account payable.... 35,863 55,346 21,244
</Table>
30
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS
The following table sets forth certain consolidated information with
respect to the Company by operating segment:
<Table>
<Caption>
INTERNATIONAL
GULF OF --------------------- E&P TECHNICAL
MEXICO OFFSHORE LAND SERVICES SERVICES OTHER TOTAL
-------- ---------- -------- -------- --------- -------- ----------
(IN THOUSANDS)
2002
Revenue.................... $165,419 $ 642,319 $299,278 $ 73,000 $89,758 $ -- $1,269,774
Earnings (loss) from
operations............... (36,664) 238,542 (42,338) (1,614) 3,217 (19,477) 141,666
Total assets............... 726,832 2,501,039 721,843 159,695 37,887 177,699 4,324,995
Capital expenditures,
including acquisitions... 95,879 17,363 135,485 10,709 508 (4,118) 255,826
Depreciation and
amortization............. 46,041 94,603 71,557 10,345 10 3,866 226,422
2001
Revenue.................... $418,850 $ 507,139 $444,405 $142,501 -- $ -- $1,512,895
Earnings (loss) from
operations............... 112,490 177,355 15,723 7,547 -- (37,490) 275,625
Total assets............... 929,550 2,214,653 767,769 147,967 -- 145,751 4,205,690
Capital expenditures,
including acquisitions... 45,596 708,433 151,451 22,895 -- 3,898 932,273
Depreciation and
amortization............. 57,860 76,065 47,745 13,566 -- 3,692 198,928
2000
Revenue.................... $327,368 $ 395,336 $364,461 $ 85,873 -- $ -- $1,173,038
Earnings (loss) from
operations............... 78,927 101,300 29,796 8,232 -- (37,618) 180,637
Total assets............... 969,722 1,470,816 523,420 145,076 -- 228,599 3,337,633
Capital expenditures,
including acquisitions... 72,544 84,699 74,076 65,758 -- 12,493 309,570
Depreciation and
amortization............. 57,394 57,309 47,166 9,423 -- 3,278 174,570
</Table>
31
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth certain information with respect to the
Company by geographic area:
<Table>
<Caption>
NORTH SOUTH OTHER
AMERICA AMERICA INTERNATIONAL TOTAL
-------- ---------- ------------- ----------
(IN THOUSANDS)
2002
Revenue............................... $252,127 $ 515,045 $ 502,602 $1,269,774
Earnings (loss) from operations....... (43,016) 60,409 124,273 141,666
Long-term assets...................... 536,762 624,304 2,494,545 3,655,611
Capital expenditures, including
acquisitions........................ 46,923 38,554 170,349 255,826
Depreciation and amortization......... 49,917 87,920 88,585 226,422
2001
Revenue............................... $418,850 $ 716,572 $ 377,473 $1,512,895
Earnings from operations.............. 75,000 77,436 123,189 275,625
Long-term assets...................... 953,619 1,154,219 1,465,712 3,573,550
Capital expenditures, including
acquisitions........................ 49,494 612,741 270,038 932,273
Depreciation and amortization......... 61,552 82,557 54,819 198,928
2000
Revenue............................... $327,368 $ 549,984 $ 295,686 $1,173,038
Earnings from operations.............. 41,309 69,267 70,061 180,637
Long-term assets...................... 787,830 648,117 1,366,200 2,802,147
Capital expenditures, including
acquisitions........................ 85,037 112,935 111,598 309,570
Depreciation and amortization......... 60,672 56,158 57,740 174,570
</Table>
Revenue is classified in geographic areas based on the physical location of
the rigs. Transactions between reportable segments are accounted for consistent
with revenue and expense of external customers and are eliminated in
consolidation.
Significant Customers
Two customers accounted for approximately 16% and 12%, respectively, of
consolidated revenue for the year ended December 31, 2002, which amounts are
included in South America and Other International geographic segments,
respectively. One customer accounted for approximately 11% of consolidated
revenue for the years ended December 31, 2001 and 2000, which amounts are
included in the South America geographic segment for the respective years.
32
PRIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 2002
and 2001 were as follows:
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002
Revenue(1)................................. $298,557 $309,484 $312,750 $348,983
Earnings from operations................... 33,052 35,258 33,227 40,129
Net earnings (loss)........................ 109 (4,313) (5,723) 980
Net earnings (loss) per share
Basic.................................... $ -- $ (0.03) $ (0.04) $ 0.01
Diluted.................................. $ -- $ (0.03) $ (0.04) $ 0.01
Weighted average common shares and
equivalents outstanding
Basic.................................... 132,863 133,094 133,212 134,041
Diluted.................................. 133,816 133,094 133,212 134,838
2001
Revenue.................................... $355,228 $388,825 $406,298 $362,544
Earnings from operations................... 76,223 99,794 45,555 54,053
Net earnings............................... 35,921 46,712 5,443 3,130
Net earnings per share
Basic.................................... $ 0.28 $ 0.35 $ 0.04 $ 0.02
Diluted.................................. $ 0.26 $ 0.32 $ 0.04 $ 0.02
Weighted average common shares and
equivalents outstanding
Basic.................................... 128,674 132,151 132,790 132,829
Diluted.................................. 147,213 154,803 133,865 133,717
</Table>
- ---------------
(1) Includes revenues of $15.7 million, $26.0 million and $26.5 million for the
first, second and third quarters, respectively, to reflect the separate
presentation of the technical services segment. See Note 1.
33
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON MARCH 30, 2004.
PRIDE INTERNATIONAL, INC.
By: /s/ PAUL A. BRAGG
------------------------------------
Paul A. Bragg
Chief Executive Officer
34
INDEX TO EXHIBITS
<Table>
<Caption>
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of KPMG LLP.
31.1 -- Certification of Chief Executive Officer of Pride pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 -- Certification of Chief Financial Officer of Pride pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 -- Certification of the Chief Executive Officer and the Chief Financial
Officer of Pride pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
</Table>