-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L94dtknrf8iw+JyJSSE5409ZBreOLfZiSZnHKVJ6y3jor79S4bSmmW9j78Bj69Gi 7VVYoQTjDCHO2DVpIRuPLQ== 0000890566-98-000519.txt : 19980401 0000890566-98-000519.hdr.sgml : 19980401 ACCESSION NUMBER: 0000890566-98-000519 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIDE INTERNATIONAL INC CENTRAL INDEX KEY: 0000833081 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 760069030 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-13289 FILM NUMBER: 98583399 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE ST ST 3300 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7138718567 MAIL ADDRESS: STREET 1: 1500 CITY WEST BLVD STREET 2: SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77042 FORMER COMPANY: FORMER CONFORMED NAME: PRIDE PETROLEUM SERVICES INC DATE OF NAME CHANGE: 19920703 10-K405/A 1 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, 1997 COMMISSION FILE NUMBER: 1-13289 ------------------------ PRIDE INTERNATIONAL, INC. (FORMERLY PRIDE PETROLEUM SERVICES, INC.) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) LOUISIANA 76-0069030 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5847 SAN FELIPE, SUITE 3300 HOUSTON, TEXAS 77057 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 789-1400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, no par value New York Stock Exchange 6 1/4% Convertible Subordinated New York Stock Exchange Debentures due 2006 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] The aggregate market value of the voting stock held by non-affiliates of the registrant at March 12, 1998, based on the closing price on the New York Stock Exchange on such date, was $910,554,536. (The officers and directors of the registrant are considered affiliates for the purposes of this calculation.) The number of shares of the registrant's Common Stock outstanding on March 12, 1998 was 50,068,048. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held in May 1998 are incorporated by reference into Part III of this report. ================================================================================ Pride International, Inc. (the "Company") hereby amends Items 5, 6 and 7 of its Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Commission File No. 1-13289) to read in their entirety as follows: ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange under the symbol "PDE." Prior to September 10, 1997, the Common Stock traded on The Nasdaq Stock Market's National Market under the symbol "PRDE." As of March 12, 1998, there were 2,004 shareholders of record of the Common Stock. The following table sets forth the range of high and low sales prices of the Common Stock for the periods shown: PRICE ---------------------- HIGH LOW ------- ----------- 1996 First Quarter........................ $14 3/8 $ 9 1/8 Second Quarter....................... 18 13 5/8 Third Quarter........................ 16 1/4 11 5/8 Fourth Quarter....................... 23 1/4 13 1/8 1997 First Quarter........................ $24 3/8 $ 16 1/4 Second Quarter....................... 24 16 1/2 Third Quarter........................ 37 7/16 22 7/8 Fourth Quarter....................... 37 3/4 20 The Company has not paid any cash dividends on the Common Stock since becoming a publicly held corporation in September 1988. The Company currently has a policy of retaining all available earnings for the development and growth of its business and does not anticipate paying dividends on the Common Stock at any time in the foreseeable future. The ability of the Company to pay cash dividends in the future is restricted by the Company's $100 million secured credit facility and covenants contained in the indenture governing $325 million principal amount of Senior Notes. The desirability of paying such dividends could also be materially affected by U.S. and foreign tax considerations. 14 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial information as of December 31, 1997 and 1996, and for each of the years in the three-year period ended December 31, 1997, has been derived from the audited consolidated financial statements of the Company included elsewhere herein. This information should be read in conjunction with such consolidated financial statements and the notes thereto. The selected consolidated financial information as of December 31, 1995, 1994 and 1993, and for each of the years in the two-year period ended December 31, 1994, has been derived from audited consolidated financial statements of the Company that have previously been included in the Company's reports under the Exchange Act that are not included herein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues............................. $ 127,099 $ 182,336 $ 263,599 $ 407,174 $ 699,788 Operating costs...................... 100,305 139,653 187,203 292,599 458,861 Depreciation and amortization........ 6,407 9,550 16,657 29,065 58,661 Selling, general and administrative..................... 17,572 25,105 32,418 45,368 73,881 ---------- ---------- ---------- ---------- ----------- Earnings from operations............. 2,815 8,028 27,321 40,142 108,385 Other income (expense) net(1)........ 504 106 (4,898) (9,323) 47,249 ---------- ---------- ---------- ---------- ----------- Earnings before income taxes(1)...... 3,319 8,134 22,423 30,819 155,634 Income tax provision (benefit)(2).... (2,621) 1,920 7,064 8,091 51,639 ---------- ---------- ---------- ---------- ----------- Net earnings(1)(2)................... $ 5,940 $ 6,214 $ 15,359 $ 22,728 $ 103,995 ========== ========== ========== ========== =========== Net earnings per share(1)(2)(3) Basic........................... $ .37 $ .30 $ .63 $ .85 $ 2.42 ========== ========== ========== ========== =========== Diluted......................... $ .36 $ .30 $ .61 $ .77 $ 2.16 ========== ========== ========== ========== =========== Weighted average shares outstanding(3) Basic........................... 16,133 20,418 24,551 26,719 43,036 Diluted......................... 16,360 20,650 25,128 33,755 49,143 BALANCE SHEET DATA (AS OF DECEMBER 31): Working capital...................... $ 21,758 $ 26,640 $ 31,302 $ 62,722 $ 103,733 Property and equipment, net.......... 62,823 139,899 178,488 375,249 1,171,647 Total assets......................... 109,981 205,193 257,605 542,062 1,541,501 Long-term debt, net of current portion............................ 200 42,096 61,136 106,508 435,100 Long-term lease obligations, net of current portion............. -- -- -- -- 36,275 Convertible subordinated debentures......................... -- -- -- 80,500 52,500 Shareholders' equity................. 69,126 111,385 131,239 201,797 685,157
- ------------ (1) Other income (expense) net, earnings before income taxes and net earnings for the year ended December 31, 1997 include a pretax gain on the divestiture of the Company's U.S. land-based well servicing business of $83.6 million. The gain was partially offset by nonrecurring charges totaling $4.2 million, net of estimated income taxes, relating principally to the induced conversion of $28.0 million principal amount of the Company's 6 1/4% Convertible Subordinated Debentures. Excluding such nonrecurring items, net earnings for the year ended December 31, 1997 were $54.7 million, or $1.16 per share on a diluted basis. (2) Income tax provision (benefit) and net earnings for the year ended December 31, 1993 include $3.8 million, or $0.23 per share on a diluted basis, cumulative effect of change in accounting for income taxes. (3) Net earnings per share for the years ended December 31, 1996, 1995, 1994 and 1993 and weighted average shares outstanding as of such dates have been restated to comply with the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share." 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, included elsewhere herein. The following information contains forward-looking statements. For a discussion of certain limitations inherent in such statements, see "Forward-Looking Statements." GENERAL The Company's operations and future results have been and will be significantly affected by a series of strategic transactions that have transformed the Company from the second largest provider of land-based workover and related well services in the United States into a diversified drilling contractor operating both offshore and onshore in international markets and offshore in the U.S. Gulf of Mexico. With the sale of its domestic land-based well servicing operations in February 1997, the Company has ceased to provide rig services onshore in the United States. As a result of its recent acquisition activity, the Company expects to continue to experience revenue growth. International drilling and well servicing activity is affected by fluctuations in oil and gas prices, but historically to a lesser extent than domestic activity. International rig services contracts are typically for terms of one year or more, while domestic contracts are typically for one well or multiple wells. Accordingly, international rig services activities generally are not as sensitive to short-term changes in oil and gas prices as domestic operations. Since 1993, the Company has entered into a number of transactions that have significantly expanded its international and domestic offshore operations, including the following: o During 1993 and 1994, the Company made entry-level acquisitions in Argentina, Venezuela and the Gulf of Mexico. o In January 1995, the Company commenced operating two barge rigs on Lake Maracaibo, Venezuela. The barge rigs were constructed during 1994 pursuant to ten-year operating contracts entered into with Petroleos de Venezuela, S.A. ("PDVSA"), the Venezuelan national oil company. o In April 1996, the Company acquired Quitral-Co S.A.I.C. ("Quitral-Co") from Perez Companc S.A. and other shareholders. The 23 land-based drilling and 57 land-based workover rigs in Argentina and seven land-based drilling and 23 land-based workover rigs in Venezuela operated by Quitral-Co were combined with the Company's existing land-based operations in those countries. The Company has further expanded international operations by deploying more than 40 rigs from its former U.S. land-based fleet to Argentina and Venezuela, and by acquiring four rigs from an Argentine competitor. o In October 1996, the Company expanded its Colombian operations to 20 rigs through the acquisition of Ingeser de Colombia, S.A. ("Ingeser"), which operated seven land-based drilling rigs and six land-based workover rigs in Colombia. o In November 1996, the Company added three land-based drilling rigs and support assets to its operations in Argentina through the acquisition of the assets of another contractor. o In February 1997, the Company completed the divestiture of its domestic land-based well servicing operations, which included 407 workover rigs operating in Texas, California, New Mexico and Louisiana. o In March 1997, the Company completed the Forasol acquisition, adding two semisubmersible rigs, three jackup rigs, seven tender-assisted rigs, four barge rigs and 29 land-based rigs operating in various locations in South America, Africa, the Middle East and Southeast Asia. o In May 1997, the Company purchased 13 mat-supported jackup drilling rigs, 11 of which are currently operating in the Gulf of Mexico, one of which is currently operating in West Africa and one of which is being mobilized to Malaysia. o In April 1997, the Company puchased a tender-assisted rig, which has been upgraded and deployed to Souteast Asia. In October 1997, the Company purchsed an independant-leg, cantilevered jackup rig capable of opertating in water depths of up to 300 feet, which is currently under contract in Souteast Asia. 16 RESULTS OF OPERATIONS The following table sets forth selected consolidated financial information of the Company by operating segment for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1995 1996 1997 --------------------- --------------------- --------------------- (DOLLARS IN THOUSANDS) Revenues: United States land.............. $ 113,115 42.9% $ 117,142 28.8% $ 16,485 2.4% United States offshore.......... 49,595 18.8 57,450 14.1 135,281 19.3 International land.............. 100,889 38.3 218,562 53.7 385,590 55.1 International offshore.......... -- -- 14,020 3.4 162,432 23.2 ---------- --------- ---------- --------- ---------- --------- Total revenues............. $ 263,599 100.0% $ 407,174 100.0% $ 699,788 100.0% ========== ========= ========== ========= ========== ========= Earnings from operations: United States land.............. $ 7,906 28.9% $ 7,808 19.5% $ 519 .5% United States offshore.......... 6,785 24.9 6,983 17.4 40,965 37.8 International land.............. 12,630 46.2 23,372 58.2 42,500 39.2 International offshore.......... -- -- 1,979 4.9 24,401 22.5 ---------- --------- ---------- --------- ---------- --------- Total earnings from operations.............. $ 27,321 100.0% $ 40,142 100.0% $ 108,385 100.0% ========== ========= ========== ========= ========== =========
1997 COMPARED WITH 1996 REVENUES. Revenues for 1997 increased $292.6 million, or 72%, as compared to 1996. This increase was due primarily to the expansion of the Company's Gulf of Mexico and international operations as follows: (i) $201.3 million was related to the operations acquired in the Forasol acquisition in March 1997, (ii) $70.2 million was related to the operations of the mat-supported jackup rigs acquired in May 1997 and (iii) $50.0 million was related to the incremental full-year effect of the operations acquired in the April 1996 acquisition of Quitral-Co. The remaining increase in revenue was due to the net addition of five land-based drilling rigs and two barge rigs in South America combined with increased contract drilling dayrates from ongoing operations. This increase was partially offset by a reduction of $100.0 million in revenue related to the divestiture of the Company's domestic land-based well servicing operations. OPERATING COSTS. Operating costs for 1997 increased $166.3 million, or 57%, as compared to 1996. This increase was due primarily to the acquisitions and asset purchases discussed above as follows: (i) $130.4 million was related to the operations acquired in the Forasol acquisition in March 1997, (ii) $30.1 million was related to the operations of the mat-supported jackup rigs acquired in May 1997 and (iii) $20.0 million was related to the incremental full-year effect of the operations acquired in the April 1996 acquisition of Quitral-Co. The remaining increase in operating costs was due to the net addition of four land-based drilling rigs and two barge rigs in South America combined with increased labor costs from ongoing operations in Venezuela. This increase in operating costs was partially offset by a reduction of $90.0 million related to the divestiture of the Company's domestic land-based well servicing operations. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1997 increased $29.6 million, or 102%, compared to 1996, primarily as a result of the acquisitions of Forasol, Quitral-Co and the mat-supported jackup rigs, and depreciation of new, refurbished and upgraded rigs placed in service during the year, which increase was partially offset by the sale of the Company's domestic land-based well servicing operations. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs in 1997 increased approximately $28.5 million, or 63%, as compared to 1996, primarily as a result of the acquisitions of Forasol, Quitral-Co and the mat-supported jackup rigs, which increase was partially offset by the sale of the Company's domestic land-based well servicing operations. As a percentage of revenues, total selling, general and administrative costs decreased from 11.1% for 1996 to 10.5% for 1997. OTHER INCOME (EXPENSE). Other income (expense) resulted in income of $47.2 million in 1997 as compared to expense of $9.3 million in 1996. Other income and expense included interest income, interest 17 expense, net gains or losses from sale of assets, minority interests, foreign exchange gains or losses and other sources. The Company incurred a gain of $83.6 million from the sale of its domestic land-based well servicing operations in February 1997. This gain was partially offset by a charge of approximately $3.7 million relating to the induced conversion of $28.0 million of the Company's 6 1/4% Convertible Subordinated Debentures and other charges. Interest expense for 1997 increased $20.7 million, or 152%, compared to 1996. This increase was due primarily to the issuance of $325 million in Senior Notes by the Company in May 1997. During 1997 the Company capitalized approximately $5.7 million in interest expense related to its capital expenditures, as compared to approximately $2.0 million in 1996. INCOME TAX PROVISION (BENEFIT). The Company's consolidated effective income tax rate for 1997 was approximately 33%, as compared to approximately 26% for 1996. The increase in the effective tax rate resulted from the effects of (i) certain non-deductible amounts, primarily $3.7 million of costs related to induced conversion of the Company's 6 1/4% Convertible Subordinated Debentures, (ii) an estimated effective combined U.S. federal and state income tax rate of 36% on the gain from the sale of the Company's U.S. land-based well servicing operations and (iii) an estimated effective income tax rate of 29% on ongoing operations. 1996 COMPARED WITH 1995 REVENUES. Revenues for 1996 increased $143.6 million, or 54%, as compared to 1995. Of this increase, $131.7 million was a result of expansion of the Company's international operations, primarily due to the acquisition of Quitral-Co in April 1996. Revenues from domestic land operations increased $4.0 million, primarily as a result of the inclusion of operating results of X-Pert Enterprises, Inc. ("X-Pert") (the operations of which were sold in February 1997) for 12 months in 1996 as compared to only ten months in 1995. Revenues attributable to domestic offshore operations increased $7.9 million, due primarily to an increased number of the Company's offshore platform rigs working in 1996. OPERATING COSTS. Operating costs for 1996 increased $105.4 million, or 56%, as compared to 1995. Of this increase, $94.0 million was a result of expansion of the Company's international operations and $3.0 million was attributable to domestic land-based operations, primarily due to the inclusion of the operating results of X-Pert for the full period, which offset a $2.4 million reduction of workers' compensation expense recorded in the fourth quarter of 1996. Operating costs related to domestic offshore operations increased $7.6 million due to an increased number of offshore platform rigs working, as discussed above, and a related increase in mobilization costs. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1996 increased $12.4 million, or 74%, as compared to 1995, primarily as a result of the Quitral-Co acquisition and additional expansion of the Company's international and domestic offshore assets. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for 1996 increased $13.0 million, or 40%, as compared to 1995, primarily due to the inclusion of such costs for Quitral-Co. During 1996, the Company incurred certain nonrecurring expenses in connection with consolidation of acquired operations with its existing operations in Argentina and Venezuela. As a percentage of revenues, total selling, general and administrative costs were 11% for 1996 as compared to 12% for 1995. EARNINGS FROM OPERATIONS. Earnings from operations for 1996 increased by $12.8 million, or 47%, as compared to 1995. Of this increase, $12.7 million was attributable to international expansion, including the Quitral-Co acquisition. Domestic offshore utilization also improved, resulting in a $198,000 increase in earnings from operations. Earnings from domestic land operations were essentially unchanged between 1996 and 1995. OTHER INCOME (EXPENSE). Other income (expense) for 1996 included net gains from asset sales, foreign exchange transactions and other sources. Other income (expense) for 1995 consisted primarily of miscellaneous gains of $638,000 from asset sales, insurance recoveries, foreign exchange transactions and other sources. Interest income increased to $2.4 million for 1996 from $740,000 for 1995 due to an increase in cash available for investment. Interest expense for 1996 increased by $7.4 million over 1995, as a result of interest accrued on the convertible subordinated debentures and borrowings related to the Quitral-Co acquisition and other additions to property and equipment. During 1996 and 1995, the Company capitalized $1.9 million and $250,000, respectively, of interest expense in connection with construction projects. 18 INCOME TAX PROVISION (BENEFIT). The Company's consolidated effective income tax rate for 1996 was approximately 26%, as compared to approximately 32% for 1995. The decrease was attributable to the increase in foreign income, which is taxed at a lower statutory rate, and the reduction in U.S. income, which is taxed at a higher statutory rate. The decrease was also due to recognition in 1996 of $2.2 million of foreign net operating loss carryforwards, including net operating loss carryforwards of acquired businesses. The Company had previously provided a valuation allowance for certain foreign net operating loss carryforwards, due to uncertainties regarding the Company's ability to realize such tax benefits. LIQUIDITY AND CAPITAL RESOURCES The Company had net working capital of $103.7 million and $62.7 million at December 31, 1997 and 1996, respectively. The Company's current ratio was 1.5 and 1.7 at December 31, 1997 and December 31, 1996, respectively. In March 1997, the Company entered into a revolving credit facility with a group of banks (as amended and restated in December 1997, the "Credit Facility") which provides for availability of up to $100.0 million (including $25.0 million for letters of credit). Availability under the Credit Facility is limited to a borrowing base based on the value of collateral. The Credit Facility is collateralized by the accounts receivable, inventory and intangibles of the Company and its domestic subsidiaries, two-thirds of the stock of the Company's foreign subsidiaries, the stock of the Company's domestic subsidiaries and certain other assets. The Credit Facility terminates in December 2000. Borrowings under the Credit Facility bear interest at a variable rate based on either the prime rate or LIBOR. The Credit Facility limits the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business without prior consent of the lenders. Under the Credit Facility, the Company must maintain certain financial ratios, including (i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii) adjusted EBITDA to debt service and (iv) minimum tangible net worth. As of March 30, 1998, borrowings totaling $15.0 million were outstanding under the Credit Facility. In order to maintain the availability of the Credit Facility, the Company will be required to obtain waivers from the lenders or amend the Credit Facility prior to funding of the equipment loans described below for the PRIDE AFRICA. In May 1997, the Company issued $325.0 million of 9 3/8% Senior Notes due May 1, 2007 (the "Senior Notes"). Interest on the Senior Notes is payable semiannually on May 1 and November 1 of each year, commencing November 1, 1997. The Senior Notes are not redeemable prior to May 1, 2002, after which they will be redeemable, in whole or in part, at the option of the Company at redemption prices starting at 104.688% and declining to 100% by May 1, 2005. In the event the Company consummates a public equity offering on or prior to May 1, 2000, the Company at its option may use all or a portion of the proceeds from such public equity offering to redeem up to $108.3 million principal amount of the Senior Notes at a redemption price equal to 109.375% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of redemption. The Indenture governing the Senior Notes (as amended and supplemented, the "Indenture") contains provisions which limit the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business. A newly organized, special purpose subsidiary of the Company is participating in joint ventures to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. The rigs will be operated under charter and service contracts with Petrobras having initial terms of six to eight years. The total estimated cost to construct, equip and mobilize the six rigs is approximately $1 billion, approximately 90% of which is expected to be provided from the proceeds of project finance obligations of the ventures without recourse to the joint venture participants. Delivery of the rigs is expected during late 1999 and 2000. The Company estimates that its total equity investment in the project will be approximately $30 million, which will represent a 30% ownership interest. A subsidiary of the Company has entered into a joint venture to construct, own and operate the PRIDE AFRICA, an ultra-deepwater drillship currently under construction in South Korea. The PRIDE AFRICA, which will be capable of operating in water depths of up to 10,000 feet, is contracted to work for Elf Exploration Angola ("ELF Angola") for a term of five years. It is anticipated that the PRIDE AFRICA will commence operations in mid-1999. The joint venture has entered into a financing arrangement with a group of banks providing that approximately 80% of the estimated construction cost of $235 million will be financed by loans that are, upon delivery of the drillship, 19 without recourse to the joint venture participants. The Company estimates that its total equity investment in the project will be approximately $12.0 million, which will represent a 51% ownership interest. The Company has obtained a commitment from a group of banks to provide up to $110.0 million in loans to finance the acquisition of certain equipment to be installed on the PRIDE AFRICA. The loans will be secured by such equipment and will bear interest at a rate of LIBOR plus 1.25% per annum. The Company has agreed to sell such equipment to the joint venture formed to construct, own and operate the rig on or before the date Elf Angola accepts delivery of the rig under the charter, which is anticipated to be mid-1999, and expects to repay such loan from such sales proceeds. The joint venture intends to draw on its financing arrangement described above to finance its payment to the Company. The Company has filed a "shelf" registration statement under the Securities Act pursuant to which it may issue up to $500.0 million of securities consisting of any combination of debt securities, Common Stock and preferred stock of the Company. Management believes that the cash generated from the Company's operations, together with borrowings under the Credit Facility and issuances of securities pursuant to the shelf registration statement, will be adequate to fund the rig acquisitions and equity investments discussed above and the Company's normal ongoing capital expenditure, working capital and debt service requirements. The Company is active in reviewing possible expansion and acquisition opportunities relating to all of its business segments. While the Company has no definitive agreements to acquire additional equipment other than those discussed above, suitable opportunities may arise in the future. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable. From time to time, the Company has one or more bids outstanding for contracts that could require significant capital expenditures and mobilization costs. The Company expects to fund acquisitions and project opportunities primarily through a combination of working capital, cash flow from operations and full or limited recourse debt or equity financing. ACCOUNTING MATTERS The Company will adopt Statement of Financial Accounting Standards ("FAS") No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," FAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," and FAS No. 130 "Reporting Comprehensive Income" for the year ended December 31, 1998. The Company does not anticipate that the adoption of these disclosure standards will have a material impact on its consolidated financial statements. YEAR 2000 MATTERS Year 2000 issues result from the inability of computer programs or computerized equipment to accurately calculate, store or use a date subsequent to December 31, 1999. The erroneous date can be interpreted in a number of different ways; typically, the year 2000 is represented as the year 1900. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business. The Company is in the process of implementing new financial reporting, operational reporting and computer systems. The first phase of implementation was completed in February 1998. The remaining phases are scheduled for implementation and completion within the next two years. In addition, the Company is assessing the use of less critical software systems and various types of equipment. The Company is using both internal and external resources to complete tasks and perform testing necessary to address year 2000 issues. The Company believes that the potential impact, if any, of these systems not being year 2000 compliant will at most require employees to manually complete otherwise automated tasks or calculations and that it should not affect the Company's ability to continue drilling or sales activities. The Company has initiated formal communication with its significant suppliers, business partners and customers to determine the extent to which the Company is vulnerable to those third parties' failure to correct their own year 2000 issues. There can be no assurances that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. 20 SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PRIDE INTERNATIONAL, INC. By: /s/ EARL McNIEL EARL McNIEL VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: March 31, 1998 37 -----END PRIVACY-ENHANCED MESSAGE-----