UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-13289

PRIDE INTERNATIONAL, INC.

(713) 789-1400
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ü] NO [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ü] NO [ ]

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practical date.

PRIDE INTERNATIONAL, INC.

INDEX

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PRIDE INTERNATIONAL, INC.

The accompanying notes are an integral part of the consolidated financial statements.

2

PRIDE INTERNATIONAL, INC.

The accompanying notes are an integral part of the consolidated financial statements.

3

PRIDE INTERNATIONAL, INC.

The accompanying notes are an integral part of the consolidated financial statements.

4

PRIDE INTERNATIONAL, INC.

The accompanying notes are an integral part of the consolidated financial statements.

5

PRIDE INTERNATIONAL INC.

1. General

Principles of Consolidation and Reporting

     The unaudited consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Pride International, Inc. (the “Company” or “Pride”) and its wholly-owned and majority owned subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Unless the context indicates otherwise, references to the “Company” or “Pride” include Pride International, Inc. and its wholly owned and majority-owned subsidiaries.

     In the opinion of management, the unaudited consolidated financial information included herein reflects all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for a full year or any other interim period.

     PricewaterhouseCoopers LLP, an independent registered public accounting firm, has performed a review of the unaudited consolidated financial statements included herein in accordance with the standards of the Public Company Accounting Oversight Board (United States). Pursuant to Rule 436(c) under the Securities Act of 1933, the report of PricewaterhouseCoopers LLP, included herein, should not be considered a part of any registration statement prepared or certified within the meanings of Sections 7 and 11 of the Securities Act, and the liability provisions of Section 11 of the Securities Act do not apply to such report.

     In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46R, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (revised December 2003).” FIN No. 46R 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. It was determined that the unaffiliated trust with which the Company completed the sale and leaseback of the Pride South America semisubmersible drilling rig in February 1999 would qualify for consolidation as a variable interest entity in which the Company is the primary beneficiary, as defined. The Company elected in the fourth quarter of 2003 to adopt retroactively the provisions of FIN No. 46R and to restate previously issued financial statements for the applicable periods for comparability purposes. The effect on the Company’s consolidated statement of operations for the three months and nine months ended September 30, 2003 was as follows:

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PRIDE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive Income

     Comprehensive income is the change in the Company’s equity from all transactions except those resulting from investments by or distributions to owners. Comprehensive income (loss) was as follows:

Management Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be materially different than the estimates and assumptions.

Rig Construction Contracts

     In 2001 and 2002, the Company’s technical services group entered into lump-sum contracts to design, engineer, manage construction of and commission four deepwater platform drilling rigs for certain of the Company’s significant customers. Construction contract revenues and related costs are recognized under the percentage-of-completion method of accounting using measurements of progress toward completion appropriate for the work performed, such as man-hours, costs incurred or physical progress. Accordingly, in connection with the preparation of the Company’s quarterly consolidated financial statements, following the end of each quarter the Company updates its evaluation of its contract price and cost estimates related to the projects and reflects in its results of operations any revisions in these estimates based on that evaluation. To the extent these revisions result in an increase in previously reported losses with respect to a project, the Company would recognize a charge against current earnings, which could be material.

Stock-Based Compensation

     The Company uses the intrinsic value based method of accounting for stock-based compensation prescribed by Accounting Principles Board Opinion 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.

     If the fair value based method of accounting prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-Based Compensation” 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.

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PRIDE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

     In January 2004, the Company awarded a total of 125,000 restricted shares to certain key employees pursuant to the Company’s long-term incentive plan. In May 2004, the Company awarded a total of 13,800 restricted shares to the Company’s non-employee directors pursuant to the Company’s directors’ stock incentive plan. The Company recorded unearned compensation as a reduction of stockholders’ equity based on the closing price of the Company’s common stock on the date of grant. The unearned compensation is being recognized ratably over the applicable vesting period.

Reclassifications

     Certain reclassifications have been made to the prior periods’ condensed consolidated financial statements to conform with the current period presentation.

2. Construction Projects

     In 2001 and 2002, the Company’s technical services group entered into lump-sum contracts to design, engineer, manage construction of and commission four deepwater platform drilling rigs for installation on spars and tension-leg platforms. The Company entered into these lump-sum contracts in connection with long-term contracts to provide drilling operations management of the rigs once they have been installed on platforms. The first rig was completed and delivered in 2003, the second rig was completed and delivered in the second quarter of 2004, and the third rig was completed in the second quarter of 2004 and delivered early in the third quarter of 2004. The final rig is on location at the customer’s platform construction site for integration into the unit. Our commissioning of the rig is expected to continue until the platform is completed and delivered in the first quarter of 2005.

     For the nine month period ended September 30, 2004, the Company recorded loss provisions totaling $32.5 million relating to the construction of the rigs, including a loss provision of $0.7 million for the three month period ended September 30, 2004. The 2004 loss provisions principally consisted of additional provisions for higher commissioning costs for the rigs, the costs of settling certain commercial disputes and renegotiations of commercial terms with shipyards, equipment vendors and other sub-contractors, completion issues at the shipyard constructing the final two rigs and revised estimates for other cost items. For the three month and nine month periods ended September 30, 2003, the Company recorded loss provisions of $3.4 million and $46.9 million, respectively, related to the rig construction projects. As of September 30, 2004, the cumulative losses recorded on the projects was $130.9 million. The revenues and costs of the construction projects are included in the sales components of revenues and costs of sales, respectively, on the Company’s consolidated statement of operations.

     A variety of events could require the Company to revise its estimates in future periods and could result in further cost overruns to complete these projects, which could be material, and would require the Company to record additional loss provisions. Such events could include, among others, variations in labor and equipment productivity over the remaining construction period, unanticipated cost increases, engineering changes, project management issues,

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PRIDE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

shortages of equipment, materials or skilled labor, weather delays, unscheduled delays in the delivery of ordered materials and equipment, work stoppages or other delays.

3. Debt

Short-Term Borrowings

     As of September 30, 2004, the Company had agreements with several banks for uncollateralized short-term lines of credit totaling $40.9 million, primarily denominated in U.S. dollars. Of these facilities, $38.7 million are renewable annually and bear interest at variable rates based on LIBOR. As of September 30, 2004, $2.2 million was outstanding under these facilities and $38.7 million was available.

Long-Term Debt

     Long-term debt consisted of the following:

     In July 2004, the Company completed a private offering of $500 million principal amount of 7 3/8% Senior Notes due 2014 (the “7 3/8% Senior Notes”) and entered into new senior secured credit facilities with aggregate availability of up to $800 million, consisting of a $300 million term loan and a $500 million revolving credit facility.

     Borrowings under the revolving credit facility are available for general corporate purposes. As of September 30, 2004, $85.0 million of borrowings were outstanding under the facility. The Company may obtain up to $100 million of letters of credit under the facility. As of September 30, 2004, $28.9 million of letters of credit were outstanding under the facility. Amounts drawn under the facilities bear interest at variable rates based on LIBOR plus a margin or prime rate plus a margin. The interest rate margin will vary based on the Company’s leverage, except that the LIBOR margin for the term loan is fixed at 1.75%. As of September 30, 2004, the interest rates on the term loan and revolving credit facility were 3.3% and 3.5%, respectively, and availability under the revolving credit facility was approximately $386.1 million.

     The revolving credit facility will mature in July 2009 and the term loan will mature in July 2011 (with amortization on the term loan of 0.25% per quarter prior to maturity). The Company may prepay the term loan at any time without penalty. Additionally, the Company is required to prepay the term loan and, in certain cases, the revolving loans with the proceeds from (i) asset sales or casualty events (with some exceptions), (ii) certain extraordinary events such as tax refunds, indemnity payments and pension reversion proceeds if availability under the

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PRIDE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

new revolving credit facility plus the Company’s unrestricted cash is less than $200 million and (iii) future debt issuances not permitted by the credit facilities.

     The senior secured credit facilities are secured by first priority liens on certain of the Company’s subsidiaries’ existing and future rigs, accounts receivable, inventory and related insurance, all of the equity of the Company’s subsidiary Pride Offshore, Inc., the borrower under the facilities, and Pride Offshore’s domestic subsidiaries and 65% of the stock of certain of the Company’s foreign subsidiaries. The senior secured credit facilities contain a number of covenants restricting, among other things, prepayment, redemption and repurchase of the Company’s indebtedness; distributions, dividends and repurchases of capital stock and other equity interests; acquisitions and investments; asset sales; capital expenditures; indebtedness; liens and affiliate transactions. The senior secured credit facilities also contain customary events of default, including with respect to a change of control.

     The 7 3/8% Senior Notes contain provisions that limit the Company’s ability to enter into transactions with affiliates; pay dividends and make other restricted payments; incur debt and issue preferred stock; incur dividend or other payment restrictions affecting the Company’s subsidiaries; sell assets; engage in sale and leaseback transactions; create liens; and consolidate, merge or transfer all or substantially all of the Company’s assets. Many of these restrictions will terminate if the notes are rated investment grade by either Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. and, in either case, the notes have a specified minimum rating by the other rating agency. The Company is required to offer to repurchase the notes in connection with specified change in control events that result in a ratings decline. The notes are subject to redemption, in whole or in part, at the option of the Company at any time on or after July 15, 2009 at redemption prices starting at 103.688% of the principal amount redeemed and declining to 100% by July 15, 2012. Prior to July 15, 2009, the Company may redeem some or all of the notes at 100% of the principal amount plus a make-whole premium. Prior to July 15, 2007, the Company also may redeem up to 35% of the notes from the proceeds of certain equity offerings at a specified redemption price.

     The Company used the net proceeds from the offering of the 7 3/8% Senior Notes of $491.1 million (after discounts but before other expenses) to retire $175 million aggregate principal amount of its 9 3/8% Senior Notes due 2007 and $200 million aggregate principal amount of its 10% Senior Notes due 2009, together with the applicable prepayment premium and accrued and unpaid interest, and to retire other indebtedness, including its senior convertible notes due 2004. Proceeds from the term loan and initial borrowings of approximately $95 million under the revolving credit facility were used to refinance amounts outstanding under other credit facilities of the Company. In connection with the retirement of the 9 3/8% Senior Notes and 10% Senior Notes, the Company commenced an offer to purchase the notes at 37.5 basis points over the respective redemption prices described below. The Company purchased a total of $110.6 million aggregate principal amount of the 9 3/8% Senior Notes and $127.6 million aggregate principal amount of the 10% Senior Notes pursuant to the tender offer. The remaining notes were redeemed on August 6, 2004 at redemption prices of 101.563% of the principal amount of the 9 3/8% Senior Notes and 105.000% of the principal amount of the 10% Senior Notes, in each case plus accrued and unpaid interest to the redemption date.

     In connection with the early retirement of (i) the 9 3/8% Senior Notes and the 10% Senior Notes, including the redemption of the notes outstanding following completion of the tender offer, and (ii) the senior secured term loan and the senior secured revolving credit facilities, the Company recognized in the third quarter of 2004 refinancing charges of approximately $30.8 million, consisting of the tender offer premium, prepayment premiums and the write-off of unamortized deferred financing costs related to the retired debt.

     In April 2004, the Company completed a refinancing of its drillship loan facilities through its consolidated joint venture company that owns the drillships the Pride Africa and the Pride Angola. The new and expanded drillship credit facility provides for a total credit commitment of $301.4 million, of which a $278.9 million term loan was funded at closing and $22.5 million was funded in August 2004. Funds at closing, together with $15.4 million of previously restricted cash held by the joint venture, were used to (i) refinance the outstanding principal balance on the

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PRIDE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

prior drillship loans of $172.6 million, (ii) repay $103.6 million of loans due from the joint venture company to the Company, (iii) repay $10.0 million of indebtedness of the joint venture company to the joint venture partner, and (iv) pay loan transaction costs of $3.1 million. The $22.5 million funding in August was used to repay loans due from the joint venture company to the Company. The funds paid to the Company were used to reduce the Company’s other outstanding debt and to improve liquidity. The new drillship loan facility matures in September 2010 and amortizes semi-annually. The drillship loan is non-recourse to the Company and the joint owner.

     As of September 30, 2004, $29.5 million of the Company’s cash balances, which amount is included in restricted cash, consists of funds held in trust in connection with the Company’s drillship and semisubmersible loans and, accordingly, is not available for use by the Company other than to meet scheduled principal and interest payments under the loan agreements.

4. Income Taxes

     The Company’s consolidated effective income tax rate for the three months ended September 30, 2004 was 940.0% as compared to 23.4% for the corresponding period in 2003. The higher rate for the three months ended September 30, 2004 is principally because the debt refinancing charges described in Note 3 and construction losses described in Note 2 reduced income without a proportional reduction in income taxes. The Company recorded the entire amount of the debt refinancing charges and the related tax benefit in the third quarter of 2004. The rate is also impacted by an increase in expected taxable income for 2004 in high effective tax rate countries in Latin America and lower net income in foreign jurisdictions with low or zero effective tax rates.

     For the nine months ended September 30, 2004, the consolidated effective income tax rate was 120.9% as compared to 27.9% for the same period in 2003. The higher rate for the nine months ended September 30, 2004 is a result of the factors discussed above for the three months ended September 30, 2004.

5. Net Earnings (Loss) Per Share

     Basic net earnings (loss) per share has been computed based on the weighted average number of shares of common stock outstanding during the applicable period. Diluted net earnings (loss) per share has been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period, as if stock options, convertible debentures and other convertible debt were converted into common stock, after giving retroactive effect to the elimination of interest expense, net of income tax effect, applicable to the convertible debentures and other convertible debt.

     The following table presents information to calculate basic and diluted net earnings (loss) per share: