====================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13729
R&B FALCON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0544217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Threadneedle, Houston, Texas 77079
(Address of principal executive offices)(Zip code)
(281) 496-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes _X_ No___
NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK
AT JUNE 30, 2000: 194,780,738
=====================================================================
Forward-Looking Statements and Assumptions
This Quarterly Report on Form 10-Q may contain or incorporate
by reference certain forward-looking statements, including by way
of illustration and not of limitation, statements relating to
liquidity, revenues, expenses, margins and contract rates and
terms. The Company strongly encourages readers to note that some
or all of the assumptions, upon which such forward-looking
statements are based, are beyond the Company's ability to control
or estimate precisely, and may in some cases be subject to rapid
and material changes. Such assumptions include the contract
status of the Company's offshore units, general market conditions
prevailing in the marine drilling industry (including daily rates
and utilization) and various other trends affecting the marine
drilling industry, including world oil and gas prices, the
exploration and development programs of the Company's customers,
the actions of the Company's competitors and economic conditions
generally.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company or Group of Companies for Which Report is Filed:
R&B Falcon Corporation and Subsidiaries
The financial statements for the three and six month periods
ended June 30, 2000 and 1999, include, in the opinion of the
Company, all adjustments (which only consist of normal recurring
adjustments) necessary to present fairly the financial position
and results of operations for such periods. The financial data
for the interim periods presented herein have been reviewed in
accordance with standards established by the American Institute of
Certified Public Accountants by Arthur Andersen LLP, the
registrant's independent public accountants, whose report is
included herein. Results of operations for the three and six
month periods ended June 30, 2000 are not necessarily indicative
of results of operations which will be realized for the year
ending December 31, 2000. The financial statements should be read
in conjunction with the Company's Form 10-K for the year ended
December 31, 1999.
R&B FALCON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
JUNE 30, DECEMBER 31,
2000 1999
-------- ---------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents, gross $ 362.4 $ 415.5
Less cash dedicated to capital projects (67.6) (160.4)
--------- ---------
Cash and cash equivalents, net 294.8 255.1
Short-term investments 64.6 301.5
Accounts receivable:
Trade, net 141.5 141.3
Other 50.5 86.0
Materials and supplies inventory 69.2 52.6
Drilling contracts in progress 5.3 16.7
Other current assets 29.8 19.7
--------- ---------
Total current assets 655.7 872.9
--------- ---------
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED INVESTEES 87.2 82.7
--------- ---------
PROPERTY AND EQUIPMENT:
Drilling 4,225.6 4,041.1
Other 270.1 256.1
--------- ---------
Total property and equipment 4,495.7 4,297.2
Accumulated depreciation (747.3) (662.0)
--------- ---------
Net property and equipment 3,748.4 3,635.2
--------- ---------
GOODWILL, NET OF ACCUMULATED AMORTIZATION 86.7 84.8
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS 170.3 246.3
--------- ---------
TOTAL ASSETS $ 4,748.3 $ 4,921.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Long-term obligations due within one year $ 39.9 $ 20.1
Accounts payable - trade 61.4 110.7
Accrued liabilities 194.6 227.8
--------- ---------
Total current liabilities 295.9 358.6
LONG-TERM OBLIGATIONS 2,910.3 2,933.4
OTHER NONCURRENT LIABILITIES 47.1 39.7
DEFERRED INCOME TAXES 12.7 53.2
--------- ---------
Total liabilities 3,266.0 3,384.9
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 58.2 56.6
--------- ---------
REDEEMABLE PREFERRED STOCK 302.0 276.0
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value 1.9 1.9
Capital in excess of par value 1,124.9 1,113.4
Retained earnings 1.3 95.9
Other (6.0) (6.8)
--------- ---------
Total stockholders' equity 1,122.1 1,204.4
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,748.3 $ 4,921.9
========= =========
The accompanying notes are an integral part of the interim consolidated
financial statements.
R&B FALCON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions except per share amounts)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
OPERATING REVENUES:
Deepwater $ 88.1 $ 86.3 $ 158.5 $ 176.5
Shallow water 56.7 47.8 101.8 114.6
Inland water 32.7 25.9 59.2 56.9
Engineering services
and land operations 31.6 66.4 95.2 122.2
Development 2.8 .1 4.7 .1
------- ------- ------- -------
Total operating revenues 211.9 226.5 419.4 470.3
------- ------- ------- -------
COSTS AND EXPENSES:
Deepwater 47.9 40.0 93.0 83.3
Shallow water 41.6 33.3 73.8 81.6
Inland water 26.1 28.8 53.5 56.7
Engineering services
and land operations 26.5 50.7 77.0 89.0
Development 1.2 1.2 2.0 2.2
Depreciation and amortization 45.0 38.3 89.2 74.8
General and administrative 15.2 25.1 29.7 40.9
------- ------- ------- -------
Total costs and expenses 203.5 217.4 418.2 428.5
------- ------- ------- -------
OPERATING INCOME 8.4 9.1 1.2 41.8
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net of
capitalized interest (50.6) (43.0) (102.5) (71.4)
Interest income 7.7 10.3 16.9 14.9
Income (loss) from equity
investees plus related
revenues and expenses (5.2) 5.7 (8.8) 6.3
Other, net .6 (.1) .2 (.3)
------- ------- ------- -------
Total other income (expense) (47.5) (27.1) (94.2) (50.5)
------- ------- ------- -------
LOSS BEFORE INCOME TAXES, MINORITY
INTEREST AND EXTRAORDINARY LOSS (39.1) (18.0) (93.0) (8.7)
------- ------- ------- -------
INCOME TAX EXPENSE (BENEFIT):
Current 14.7 10.8 12.6 18.6
Deferred (26.0) (17.2) (40.5) (21.7)
------- ------- ------- -------
Total income tax
expense (benefit) (11.3) (6.4) (27.9) (3.1)
------- ------- ------- -------
MINORITY INTEREST (1.5) (2.6) (3.3) (5.3)
------- ------- ------- -------
LOSS BEFORE EXTRAORDINARY LOSS (29.3) (14.2) (68.4) (10.9)
EXTRAORDINARY LOSS,
NET OF TAX BENEFIT - - - (1.7)
------- ------- ------- -------
NET LOSS (29.3) (14.2) (68.4) (12.6)
DIVIDENDS AND ACCRETION ON
PREFERRED STOCK 13.3 9.1 26.2 9.1
------- ------- ------- -------
NET LOSS APPLICABLE
TO COMMON STOCKHOLDERS $ (42.6) $ (23.3) $ (94.6) $ (21.7)
======= ======= ======= =======
NET LOSS PER COMMON SHARE:
Basic:
Loss before extraordinary
loss and after preferred
stock dividends $ (.22) $ (.12) $ (.49) $ (.10)
Extraordinary loss - - - (.01)
------- ------- ------- -------
Net loss $ (.22) $ (.12) $ (.49) $ (.11)
======= ======= ======= =======
Diluted:
Loss before extraordinary
loss and after preferred
stock dividends $ (.22) $ (.12) $ (.49) $ (.10)
Extraordinary loss - - - (.01)
------- ------- ------- -------
Net loss $ (.22) $ (.12) $ (.49) $ (.11)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 193.5 192.6 193.2 192.5
======= ======= ======= =======
Diluted 193.5 192.6 193.2 192.5
======= ======= ======= =======
The accompanying notes are an integral part of the interim consolidated
financial statements.
R&B FALCON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)(unaudited)
SIX MONTHS ENDED
JUNE 30,
-----------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (68.4) $ (12.6)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 89.2 74.8
Deferred income taxes (40.5) (22.4)
Loss (gain) on dispositions of
property and equipment 1.7 (4.9)
Recognition of deferred expenses 10.0 5.8
Deferred compensation 1.7 3.4
(Income) loss from equity investees
plus related revenues and expenses 8.8 (6.3)
Minority interest in income of
consolidated subsidiaries 3.3 5.3
Extraordinary loss from extinguishment
of debt, net of tax benefit - 1.7
Changes in assets and liabilities:
Accounts receivable, net 35.3 65.5
Materials and supplies inventory (14.1) (7.7)
Drilling contracts in progress 11.3 2.8
Deferred charges and other assets (38.0) (23.0)
Accounts payable - trade (51.8) 9.5
Accrued liabilities (36.5) (10.7)
Accrued interest 1.5 30.4
Income taxes (1.2) 4.7
Other, net 5.8 .6
------- -------
Net cash (used in) provided by
operating activities (81.9) 116.9
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment .2 5.7
Purchases of property and equipment (202.2) (442.0)
Decrease in cash dedicated to capital projects 92.8 -
Sale (purchase) of short-term investments 236.9 (175.7)
Increase in investments in and advances
to unconsolidated investees (13.2) (156.7)
------- -------
Net cash provided by (used in)
investing activities 114.5 (768.7)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolving credit facilities - (150.0)
Net payments on short-term obligations - (123.4)
Proceeds from long-term obligations - 1,000.0
Net proceeds from issuance of preferred stock - 288.8
Principal payments on long-term obligations (3.3) (8.2)
Distribution to minority shareholders of
consolidated subsidiaries, net of contributions (1.7) (27.6)
Exercise of stock options 9.9 -
Exercise of warrants 2.3 -
Other (.1) .4
------- -------
Net cash provided by financing activities 7.1 980.0
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 39.7 328.2
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 255.1 177.4
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 294.8 $ 505.6
======= =======
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest $ 132.5 $ 74.3
Income taxes paid $ 20.7 $ 13.7
Purchase of property and equipment in
exchange for debt or equity $ 2.5 $ 9.2
The accompanying notes are an integral part of the interim consolidated
financial statements.
R&B FALCON CORPORATION
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A) SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - At June 30, 2000, $37.9
million of cash and cash equivalents related to the
Company's majority-owned subsidiary Arcade Drilling AS
("Arcade"). Arcade's cash and cash equivalents are available
to Arcade for all purposes subject to restrictions under the
Standstill Agreement dated as of August 31, 1991. Such
restrictions preclude the Company from borrowing any cash
from Arcade.
In the third quarter of 1999, the Company completed the
project financing for the Deepwater Nautilus and the
Deepwater Frontier (in which the Company has a 60% interest)
and as a result $67.6 million of the Company's cash at June
30, 2000 was restricted as to use. Such amount consists of
$17.6 million related to the financing of the Deepwater
Nautilus and will be used for certain principal and interest
payments. The remaining $50.0 million relates to the
financing for the construction of the Deepwater Frontier
which collateralizes a five year standby letter of credit
that the Company was required to secure for the limited
liability company to obtain such financing. As a result of
the above, the cash dedicated to these capital projects has
been reclassified to Other Assets.
PROPERTY AND EQUIPMENT - On June 30, 2000, the Company
completed a series of refinancing transactions on the
Deepwater Nautilus which resulted in the Company receiving
$13.0 million, which has been recorded as a reduction of the
Deepwater Nautilus' cost, and the Company has the potential
to receive an additional $19.0 million over the next 20
years.
GOODWILL - Goodwill was recorded as a result of the
purchase of Cliffs Drilling Company ("Cliffs Drilling") in
December 1998. Goodwill has increased $3.0 million since
December 31, 1999 as the result of a previously unrecognized
income tax contingency incurred by Cliffs Drilling prior to
December 1998. For the three months ended June 30, 2000 and
1999 amortization of goodwill was $.6 million and $.5
million, respectively. For the six months ended June 30,
2000 and 1999 amortization of goodwill was $1.1 million and
$.9 million, respectively.
CAPITALIZED INTEREST - The Company capitalizes interest
applicable to the construction and significant upgrades of
its marine equipment as a cost of such assets. Interest
capitalized for the three months ended June 30, 2000 and
1999 was $18.4 million and $21.4 million, respectively.
Interest capitalized for the six months ended June 30, 2000
and 1999 was $35.6 million and $36.0 million, respectively.
Interest capitalized is included as a reduction of interest
expense in the Consolidated Statement of Operations.
EXTRAORDINARY LOSS - In the first quarter of 1999, the
Company incurred an extraordinary loss of $1.7 million, net
of a tax benefit of $.9 million, due to the early
extinguishment of debt obligations. Such loss consisted of
the write-off of unamortized debt issuance costs.
NEWLY ISSUED ACCOUNTING STANDARDS - In December 1999,
SEC Staff Accounting Bulletin: No. 101 - Revenue Recognition
in Financial Statements ("SAB 101") was issued. SAB 101
summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 has been
amended allowing the Company to extend its implementation of
SAB 101 until the fourth quarter of 2000. The Company is
currently reviewing its accounting practices and if any
necessary adjustments are needed to comply, such adjustments
will be made in the fourth quarter of 2000.
RECLASSIFICATION - Certain prior period amounts in the
consolidated financial statements have been reclassified for
comparative purposes. Such reclassifications had no effect
on the net loss or the overall financial condition of the
Company.
B) CONTINGENCIES
GENERAL - The Company's construction and upgrade
projects are subject to the risks of delay and cost overruns
inherent in any large construction project, including
shortages of equipment, unforeseen engineering problems,
work stoppages, weather interference, unanticipated cost
increases and shortages of materials or skilled labor.
Significant cost overruns or delays would adversely affect
the Company's liquidity, financial condition and results of
operations. Delays could also result in penalties under, or
the termination of, the long-term contracts under which the
Company plans to operate these rigs.
The Falcon 100, Deepwater Navigator and Deepwater
Expedition were completed later than the required
commencement dates under the drilling contracts for such
rigs and at costs significantly in excess of original
estimates. The customers for the Falcon 100 and Deepwater
Navigator cancelled the drilling contracts for such rigs
based on the rigs not being delivered on time. The Company
does not believe that Petrobras, the customer for the Falcon
100, had the right to cancel such contract. The Company is
continuing to review its rights with respect to termination
of the contract. The Company has received a six-month
drilling contract from another customer for the Falcon 100
to commence drilling in the third quarter of 2000. Also, the
Company has received a three-year drilling contract from
Petrobras for the use of the Deepwater Navigator offshore
Brazil. Petrobras, the customer for the Deepwater
Expedition, did not cancel its drilling contract and the
Company has received a notice of claims amounting in the
aggregate of $9.6 million and R$1.1 million in penalties
under the contracts for delay in commencement of operations,
and the Company is contesting same. If late penalties are
imposed on the Deepwater Expedition, such amounts will be
capitalized and amortized over the term of the initial
drilling contract, subject to a determination of
realizability.
In 1998, the Company cancelled four drillship
conversion projects in which the Company had purchased or
committed to purchase drilling equipment for such projects.
The Company had expected to use some of the surplus
equipment on other construction and/or upgrade projects and
to maintain the balance as inventory. A majority of the
equipment originally ordered was directed to other
construction projects. As of June 30, 2000, the Company had
approximately $55.3 million remaining of such surplus
drilling equipment. The Company is continually reviewing the
value and utility of such equipment and if in the future it
is determined the Company cannot realize the recorded value
of the surplus equipment, the Company could incur additional
write-offs or write-downs of such equipment.
In April 1998, Cliffs Drilling entered into a turnkey
contract with PDVSA Exploration and Production ("PDVSA") to
drill 60 turnkey wells in Venezuela. The drilling program
commenced in March 1998 and the program was expected to
extend over approximately three and one-half years and to
utilize seven of the Company's land drilling rigs.
However, during the first quarter of 1999, in response to
the downturn in the market and changes in both PDVSA's
management and its operating policies, PDVSA and the Company
renegotiated prices at reduced margins and in the fourth
quarter of 1999, renegotiations were made at further reduced
margins. By the end of the second quarter of 2000, the
Company had completed 35 of the 60 wells. In February 2000,
PDVSA cancelled the turnkey contract for the remaining 25
wells. Although PDVSA cancelled its turnkey contract, three
of the land drilling rigs that were working on a turnkey
basis have been subsequently contracted to work for PDVSA on
a dayrate basis. Also, in December 1999, the Company
commenced work under a new one-year dayrate drilling
contract with PDVSA utilizing Rig 55 which had been
previously stacked and has obtained drilling contracts with
PDVSA for two jointly owned land drilling rigs. The Company
is currently bidding on other dayrate contracts with PDVSA.
LITIGATION - In November 1988, a lawsuit was filed in
the U.S. District Court for the Southern District of West
Virginia against Reading & Bates Coal Co., a wholly-owned
subsidiary of the Company, by SCW Associates, Inc. claiming
breach of an alleged agreement to purchase the stock of
Belva Coal Company, a wholly-owned subsidiary of Reading &
Bates Coal Co. with coal properties in West Virginia. When
those coal properties were sold in July 1989 as part of the
disposition of the Company's coal operations, the purchasing
joint venture indemnified Reading & Bates Coal Co. and the
Company against any liability Reading & Bates Coal Co. might
incur as the result of this litigation. A judgment for the
plaintiff of $32,000 entered in February 1991 was satisfied
and Reading & Bates Coal Co. was indemnified by the
purchasing joint venture. On October 31, 1990, SCW
Associates, Inc., the plaintiff in the above-referenced
action, filed a separate ancillary action in the Circuit
Court, Kanawha County, West Virginia against the Company,
Caymen Coal, Inc. (former owner of the Company's West
Virginia coal properties), as well as the joint venture,
Mr. William B. Sturgill personally (former President of
Reading & Bates Coal Co.), three other companies in which
the Company believes Mr. Sturgill holds an equity interest,
two employees of the joint venture, First National Bank of
Chicago and First Capital Corporation. The lawsuit seeks to
recover compensatory damages of $50.0 million and punitive
damages of $50.0 million for alleged tortious interference
with the contractual rights of the plaintiff and to impose a
constructive trust on the proceeds of the use and/or sale of
the assets of Caymen Coal, Inc. as they existed on
October 15, 1988. The Company continues to defend its
interests vigorously and believes the damages alleged by the
plaintiff in this action are highly exaggerated. In any
event, the Company believes that it has valid defenses and
that it will prevail in this litigation.
In December 1998, Mobil North Sea Limited ("Mobil")
purportedly terminated its contract for use of the Company's
Jack Bates semisubmersible rig based on failure of two
mooring lines while anchor recovery operations at a Mobil
well location had been suspended during heavy weather. The
contract provided for Mobil's use of the rig at a dayrate of
approximately $115,000 for the primary term through January
1999 and approximately $200,000 for the extension term from
February 1999 through December 2000. The Company does not
believe that Mobil had the right to terminate this contract.
The Company recontracted the Jack Bates to Mobil in 1999 for
one well at a dayrate of $156,000 and for another well at a
dayrate of $69,000. These contracts are without prejudice to
either party's rights in the dispute over the termination of
the original contract. The Company has filed a request for
arbitration with the London Court of International
Arbitration and the arbitration proceedings are continuing.
In March 1997, an action was filed by Mobil Exploration
and Producing U.S. Inc. and affiliates, St. Mary Land &
Exploration Company and affiliates and Samuel Geary and
Associates, Inc. against Cliffs Drilling, its underwriters
and insurance broker in the 16th Judicial District Court of
St. Mary Parish, Louisiana. The plaintiffs alleged damages
amounting to in excess of $50.0 million in connection with
the drilling of a turnkey well in 1995 and 1996. The case
was tried before a jury in January and February 2000, and a
judgment has been entered based on the jury verdict awarding
the plaintiffs damages of approximately $30.0 million for
excess drilling costs, loss of insurance proceeds, loss of
hydrocarbons and interest. The Company has filed motions
for a new trial and a judgment notwithstanding the verdict
in contemplation of perfecting its appeal of such judgment
and believes it will be successful upon appeal. The Company
further believes all but the portion of the verdict
representing excess drilling costs of approximately $4.7
million is covered by relevant primary and excess liability
insurance policies of Cliffs Drilling; however, the insurers
and underwriters have denied coverage. Cliffs Drilling has
instituted litigation against those insurers and
underwriters to enforce its rights under the relevant
policies. At this time Cliffs Drilling and the Company
believe adequate reserves have been established to protect
the interests of Cliffs Drilling and the Company in this
matter.
The Company is involved in various other legal actions
arising in the normal course of business. A substantial
number of these actions involve claims arising out of
injuries to employees of the Company who work on the
Company's rigs and power vessels. After taking into
consideration the evaluation of such actions by counsel for
the Company and the Company's insurance coverage, management
is of the opinion that the outcome of all known and
potential claims and litigation will not have a material
adverse effect on the Company's consolidated financial
position or results of operations.
C) SEGMENT INFORMATION
Segment information for the three and six month periods
ended June 30, 2000 and 1999 is as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
Operating revenues by segment:
Deepwater $ 88.1 $ 86.3 $ 158.8 $ 176.5
Shallow water 57.0 49.2 104.5 116.5
Inland water 35.7 25.9 63.6 56.9
Engineering services
and land operations 31.8 66.4 95.4 122.2
Development 2.8 .1 4.7 .1
Intersegment
eliminations (3.5) (1.4) (7.6) (1.9)
------- ------- ------- -------
Total operating
revenues $ 211.9 $ 226.5 $ 419.4 $ 470.3
======= ======= ======= =======
Operating income (loss) by segment:
Deepwater $ 20.9 $ 32.6 $ 27.2 $ 66.5
Shallow water .4 (.2) (1.3) 4.5
Inland water 1.3 (9.8) (5.2) (13.6)
Engineering services
and land operations 1.9 13.6 11.9 29.2
Development .1 (1.2) .8 (2.3)
Other and eliminations .4 .1 .4 .2
------- ------- ------- -------
25.0 35.1 33.8 84.5
Unallocated depreciation
and amortization (1.4) (.9) (2.9) (1.8)
Unallocated general
and administrative (15.2) (25.1) (29.7) (40.9)
------- ------- ------- -------
Operating income $ 8.4 $ 9.1 $ 1.2 $ 41.8
======= ======= ======= =======
For the three months ended June 30, 2000 and 1999,
revenues from PDVSA Exploration and Production of $11.6
million ($11.3 million reported in the engineering services
and land operations segment and $.3 million reported in the
inland water segment) and $42.9 million ($38.7 million
reported in the engineering services and land operations
segment and $4.2 million reported in the inland water
segment), respectively, accounted for 5.5% and 18.9%,
respectively, of the Company's consolidated operating
revenues. For the six months ended June 30, 2000 and 1999,
revenues from PDVSA Exploration and Production of $44.1
million ($43.2 million reported in the engineering services
and land operations segment and $.9 million reported in the
inland water segment) and $90.9 million ($82.0 million
reported in the engineering services and land operations
segment and $8.9 million reported in the inland water
segment), respectively, accounted for 10.5% and 19.3%,
respectively, of the Company's consolidated operating
revenues.
Total assets by segment were as follows (in millions):
June 30, December 31,
2000 1999
--------- ---------
Deepwater $ 2,858.8 $ 2,942.5
Shallow water 1,193.4 1,263.5
Inland water 355.3 227.7
Engineering services
and land operations 107.2 172.5
Development 56.7 49.5
Corporate 176.9 266.2
--------- ---------
Total $ 4,748.3 $ 4,921.9
========= =========
D) EARNINGS PER SHARE
The following table summarizes the basic and diluted
per share computations for loss before extraordinary loss
and after preferred stock dividends for the three and six
month periods ended June 30, 2000 and 1999 (in millions
except per share amounts):
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
Numerator:
Loss before extraordinary loss $ (29.3) $ (14.2) $ (68.4) $ (10.9)
Dividends and accretion on
preferred stock (13.3) (9.1) (26.2) (9.1)
------- ------- ------- -------
Loss before extraordinary loss
and after preferred stock
dividends - basic and diluted $ (42.6) $ (23.3) $ (94.6) $ (20.0)
======= ======= ======= =======
Denominator:
Weighted average common shares
outstanding - basic and diluted 193.5 192.6 193.2 192.5
======= ======= ======= =======
Earnings per share:
Loss before extraordinary loss and
after preferred stock dividends:
Basic $ (.22) $ (.12) $ (.49) $ (.10)
Diluted $ (.22) $ (.12) $ (.49) $ (.10)
E) STOCK AWARDS
During the first six months of 2000, the Company
granted stock options, with respect to the Company's common
stock, of approximately 2,474,381 shares to executive
officers and certain employees of the Company and
approximately 115,000 shares to non-employee members of the
board of directors. Such options vest at varying times from
six months to three years and were granted at prices ranging
from $12.469 to $20.625 per share (the market price on the
date of grants). All such options expire ten years from the
date of grant. Also in the first quarter of 2000,
restricted stock awards with respect to 137,350 shares were
granted to certain employees of the Company. Such shares
awarded are restricted as to transfer until fully vested
four years from the date of grant. The market value at the
date of grant of the common stock granted was recorded as
unearned compensation and will be expensed ratably over the
period during which the shares vest.
F) SUBSEQUENT EVENTS
In July 2000, the Company's wholly-owned subsidiary R&B
Falcon Subsea Development Inc. and its majority-owned
subsidiary Reading & Bates Development Co. ("Devco") sold
their Gulf of Mexico oil and gas properties to Enterprise
Oil for approximately $127.2 million in cash. The Company
expects to record a pre-tax gain of approximately $65-$70
million in the third quarter of 2000 from the sale of such
oil and gas properties. Approximately 13.6% of Devco is
owned by minority shareholders, including directors and
employees of the Company and Devco. Net proceeds to the
Company are impacted accordingly by sales of Devco
properties.
Also in the third quarter of 2000, the Company expects
to complete the sale of its 38.6% ownership interest in
Navis ASA for approximately $83.0 million. Navis ASA is a
Norwegian public company which owns the dynamically
positioned drillship, Navis Explorer I.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
R&B Falcon Corporation
We have reviewed the accompanying consolidated balance sheet of
R&B Falcon Corporation (a Delaware corporation) and Subsidiaries as of
June 30, 2000, the related consolidated statement of operations for
the three and six month periods ended June 30, 2000 and 1999 and the
related consolidated statement of cash flows for the six months ended
June 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements referred
to above for them to be in conformity with accounting principles
generally accepted in the United States.
/s/Arthur Andersen LLP
Houston, Texas
July 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Industry Conditions
Activity in the contract drilling industry and related oil and
gas service businesses deteriorated significantly in 1999 due
primarily to decreased worldwide demand for drilling rigs and related
services resulting from a substantial decline in crude oil prices
experienced in 1998 through the first quarter of 1999. In mid 1999,
crude oil prices began a recovery, and demand for drilling services
started to recover as well. However, there can be no assurance that
demand for drilling rigs and related services will reach utilization
and dayrate levels of 1996-1998. To date, while certain markets have
improved substantially, taken as a whole, demand for drilling rigs has
not recovered to the levels experienced in 1996-1998. Oil and gas
companies' demand for offshore drilling services are a function of: 1)
current and projected oil and gas prices, 2) government taxation and
concession/leasing policies, 3) the oil and gas company's lease
inventory and existing drilling commitments on leases held, 4) the oil
and gas company's free cash flow and general funding availability, 5)
the oil and gas company's internal reserve replacement requirements,
6) geopolitical factors (e.g., the drive for national hydrocarbons
self sufficiency). The first factor is generally the most important.
In particular, the domestic shallow water market tends to be primarily
driven by the price of natural gas. Continued strength in natural gas
prices has recently bolstered this market.
Changes in demand for exploration and production services can
impact the Company's liquidity as supply and demand factors directly
affect utilization and dayrates, which are the primary determinants of
cash flow from the Company's operations. In late 1998 and early 1999,
lower crude oil and gas prices reduced exploration and production
spending, which led to significantly lower dayrates and utilization
for offshore drilling companies, particularly in the U.S. Gulf of
Mexico. Management believes such decline in demand also contributed to
terminated or renegotiated contracts for certain of the Company's
deepwater rigs. While there has been some improvement in utilization
and dayrates in certain segments of drilling activity in which the
Company participates since the beginning of 2000, if crude oil and/or
gas prices were to decline substantially from current levels, there
could be a deterioration in rig utilization and dayrates which could
have a material adverse effect on the Company's liquidity, financial
position and results of operations.
Results of Operations
SIX MONTHS ENDED JUNE 30, 2000 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1999
The Company's net loss for the six months ended June 30, 2000 was
$68.4 million ($.49 loss per diluted share after preferred stock
dividends and accretion of $26.2 million) compared with a net loss of
$12.6 million ($.11 per diluted share after preferred stock dividends
and accretion of $9.1 million) for the same period of 1999. Included
in the 1999 results was a $1.7 million extraordinary loss due to the
extinguishment of debt obligations.
Operating revenues are primarily a function of dayrates and
utilization. Operating revenues decreased for the six months ended
June 30, 2000 compared to the same period in 1999 due to a decrease in
the engineering services segment resulting from a decrease in the
number of international turnkey wells completed in the period, a
decrease in the deepwater segment primarily due to lower dayrates and
utilization, a decrease in the shallow water segment primarily due to
decreased utilization and dayrates for the international jack-up
fleet, offset by a slight increase in the inland water segment due to
higher utilization and dayrates on the domestic barge fleet and an
increase in the development segment due to revenues from the Company's
domestic oil and gas interest in Gyrfalcon. For the six months ended
June 30, 2000 and 1999, revenues from one customer in Venezuela (PDVSA
Exploration and Production) of $44.1 million and $82.0 million,
respectively, accounted for 10.5% and 17.4%, respectively, of the
Company's total operating revenues. See "Other" below.
Operating expenses do not necessarily fluctuate in proportion to
changes in operating revenues due to the continuation of personnel on
board and equipment maintenance when the Company's units are stacked.
It is only during prolonged stacked periods that the Company is able
to significantly reduce labor costs and equipment maintenance expense.
Additionally, labor costs fluctuate due to the geographic
diversification of the Company's units and the mix of labor between
expatriates and nationals as stipulated in the contracts. In general,
labor costs increase primarily due to higher salary levels and
inflation. Equipment maintenance expenses fluctuate depending upon
the type of activity the unit is performing and the age and condition
of the equipment. Scheduled maintenance and overhauls of equipment
are performed on the basis of number of hours operated in accordance
with the Company's preventive maintenance program. Operating expenses
for a unit are typically deferred or capitalized as appropriate during
periods of mobilization, contract preparation, major upgrades or
conversions unless corresponding revenue is recognized, in which case
such costs are expensed as incurred.
The decrease in operating expenses for the six months ended June
30, 2000 as compared to the same period in 1999 is due to a decrease
in the engineering services segment resulting from a decrease in the
number of international turnkey wells completed in the period, a
decrease in the shallow water segment due to lower utilization of the
international jackup fleet and the 1999 recognition of an $8.3 million
gain on the W. D. Kent derrick equipment casualty, offset by an
increase for the deepwater segment primarily due to the activation of
the Deepwater Millennium, Deepwater Expedition and the Falcon 100.
Depreciation and amortization expense increased for the six
months ended June 30, 2000 as compared to the same period in 1999.
Such increase is primarily due to the activation of the Deepwater
Millennium, Deepwater Expedition and the Falcon 100 in the later part
of 1999 and significant upgrades of offshore vessels during the past
12 months.
General & administrative expense decreased for the six months
ended June 30, 2000 as compared to the same period in 1999 primarily
due to $8.1 million of executive termination and employee incentive
compensation expense incurred in 1999 and cost savings associated with
the consolidation in July 1999 of the Cliffs Drilling corporate office
with the R&B Falcon corporate office.
Interest expense increased for the six months ended June 30, 2000
as compared to the same period in 1999 primarily due to the issuance
of $1.0 billion of senior notes in March 1999 and completion of a
$250.0 million project financing in August 1999.
Interest income increased for the six months ended June 30, 2000
as compared to the same period in 1999 due to increased cash and short-
term investment balances during the period.
Loss from equity investees plus related revenues and expenses
increased for the six months ended June 30, 2000 as compared to the
same period in 1999 due to increased losses associated with the
Deepwater Frontier resulting from downtime and greater than expected
operating expenses, offset by increased earnings on the Deepwater
Pathfinder, both of which commenced operations in the first half of
1999.
Income tax benefit increased for the six months ended June 30,
2000 as compared to the same period in 1999, primarily as a result of
increased losses for the six months ended June 30, 2000 as compared to
the same period in 1999. In addition, the Company recorded the income
tax benefit for the six months ended June 30, 2000 at an effective tax
rate of 30% compared to full statutory rates for the six months ended
June 30, 1999. The lower than full statutory rate for the six months
ended June 30, 2000 is primarily due to the lack of creditability of
certain foreign tax credits and other revised foreign tax estimates.
Minority interest relates primarily to the results of Arcade
Drilling, a majority-owned subsidiary of the Company. Arcade Drilling
reported lower income in the six months ended June 30, 2000 as
compared to the same period in 1999 primarily due to lower dayrates
and higher operating costs on the Henry Goodrich and a slightly higher
effective income tax rate.
Extraordinary loss for the six months ended June 30, 1999 of $1.7
million, after a tax benefit of $.9 million was due to the
extinguishment of debt obligations in connection with the issuance of
new debt obligations. See Note A of Notes to Interim Consolidated
Financial Statements.
Dividends and accretion on preferred stock increased for the six
months ended June 30, 2000 as compared to the same period in 1999 as a
result of the Company issuing the 13.875% Senior Cumulative Redeemable
Preferred Stock in April 1999.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED
TO THREE MONTHS ENDED JUNE 30, 1999
The Company's net loss for the three months ended June 30, 2000
was $29.3 million ($.22 loss per diluted share after preferred stock
dividends and accretion of $13.3 million) compared with a net loss of
$14.2 million ($.12 per diluted share after preferred stock dividends
and accretion of $9.1 million) for the same period of 1999.
Operating revenues are primarily a function of dayrates and
utilization. Operating revenues decreased for the three months ended
June 30, 2000 compared to the same period in 1999 due to a decrease in
the engineering services segment resulting from a decrease in the
number of international turnkey wells completed in the period, offset
by an increase in the shallow water segment due to increased
utilization and dayrates for the domestic jack-up fleet, an increase
in the inland water segment due to increased utilization and dayrates
for the domestic barges, and an increase in revenues in the
development segment due to revenues from the Company's domestic oil
and gas interest in Gyrfalcon. For the three months ended June 30,
2000 and 1999, revenues from one customer in Venezuela (PDVSA
Exploration and Production) of $11.6 million and $38.6 million,
respectively, accounted for 5.5% and 17.0%, respectively, of the
Company's total operating revenues. See "Other" below.
Operating expenses do not necessarily fluctuate in proportion to
changes in operating revenues due to the continuation of personnel on
board and equipment maintenance when the Company's units are stacked.
It is only during prolonged stacked periods that the Company is able
to significantly reduce labor costs and equipment maintenance expense.
Additionally, labor costs fluctuate due to the geographic
diversification of the Company's units and the mix of labor between
expatriates and nationals as stipulated in the contracts. In general,
labor costs increase primarily due to higher salary levels and
inflation. Equipment maintenance expenses fluctuate depending upon
the type of activity the unit is performing and the age and condition
of the equipment. Scheduled maintenance and overhauls of equipment
are performed on the basis of number of hours operated in accordance
with the Company's preventive maintenance program. Operating expenses
for a unit are typically deferred or capitalized as appropriate during
periods of mobilization, contract preparation, major upgrades or
conversions unless corresponding revenue is recognized, in which case
such costs are expensed as incurred.
The decrease in operating expenses for the three months ended
June 30, 2000 as compared to the same period in 1999 is due to a
decrease in the engineering services segment due to a decrease in the
number of international turnkey wells completed in the period, offset
by an increase in the shallow water segment as a result of the 1999
recognition of an $8.3 million gain on the W. D. Kent derrick
equipment casualty and an increase in the deepwater segment primarily
due to the activation of the Deepwater Millennium, Deepwater
Expedition and the Falcon 100.
Depreciation and amortization expense increased for the three
months ended June 30, 2000 as compared to the same period in 1999.
Such increase is primarily due to the activation of the Deepwater
Millennium, Deepwater Expedition and the Falcon 100 in the later part
of 1999 and significant upgrades of offshore vessels during the past
12 months.
General & administrative expense decreased for the three months
ended June 30, 2000 as compared to the same period in 1999 primarily
due to $8.1 million of executive termination and employee incentive
compensation expense incurred in 1999 and cost savings associated with
the consolidation in July 1999 of the Cliffs Drilling corporate office
with the R&B Falcon corporate office.
Interest expense increased for the three months ended June 30,
2000 as compared to the same period in 1999 primarily due to the
completion of a $250.0 million project financing in August 1999 and a
decrease in capitalized interest due to new build and significant
upgrade projects approaching completion.
Interest income decreased for the three months ended June 30,
2000 as compared to the same period in 1999 due to decreased cash and
short-term investment balances during the period.
Loss from equity investees plus related revenues and expenses
increased for the three months ended June 30, 2000 as compared to the
same period in 1999 due to increased losses associated with the
Deepwater Frontier due to downtime and greater than expected operating
expenses.
Income tax benefit increased for the three months ended June 30,
2000 as compared to the same period in 1999, primarily as a result of
increased losses for the three months ended June 30, 2000 as compared
to the same period in 1999. In addition, the Company recorded the
income tax benefit for the three months ended June 30, 2000 at an
effective tax rate of 29% compared to full statutory rates for the
three months ended June 30, 1999. The lower than full statutory rate
for the three months ended June 30, 2000 is primarily due to the lack
of creditability of certain foreign tax credits and other revised
foreign tax estimates.
Minority interest relates primarily to the results of Arcade
Drilling, a majority-owned subsidiary of the Company. Arcade Drilling
reported lower income in the three months ended June 30, 2000 as
compared to the same period in 1999 primarily due to lower dayrates
and higher operating costs on the Henry Goodrich and a slightly higher
effective income tax rate.
Dividends and accretion on preferred stock increased for the
three months ended June 30, 2000 as compared to the same period in
1999 as a result of the Company issuing the 13.875% Senior Cumulative
Redeemable Preferred Stock in April 1999.
Liquidity and Capital Resources
Cash Flows
Net cash used in operating activities was $81.9 million for the
six months ended June 30, 2000 compared to net cash provided by
operating activities of $116.9 million for the same period in 1999.
The change in cash flows from operating activities is primarily due to
the increase in net loss in 2000 as a result of lower dayrates and
utilization, and changes in the components of working capital.
Net cash provided by investing activities was $114.5 million for
the six months ended June 30, 2000 compared to net cash used in
investing activities of $768.7 million for the same period in 1999.
The change in cash flows from investing activities in 2000 is due to
the following: 1) a decrease in capital expenditures, primarily
related to the completion of several of the Company's significant
capital projects, 2) a decrease in investments made in joint venture
projects, primarily due to advances made in 1999 to the limited
liability company that operates the Deepwater Frontier, 3) a reduction
of cash dedicated to capital projects which was used for capital
expenditures and interest payments (see Note A of Notes to Interim
Consolidated Financial Statements) and 4) the sale of short-term
investments.
Net cash provided by financing activities was $7.1 million for
the six months ended June 30, 2000 compared to $980.0 million for the
same period in 1999. The change in cash flows from financing
activities is primarily due to a $300.0 million preferred stock
offering in April 1999 and the 1999 financing activity associated with
a $1.0 billion debt offering and repayment of debt obligations with
proceeds from such debt offering.
Capital Expenditure Commitments
The Company has numerous projects substantially completed or
under way involving the construction or upgrade of drilling units.
The following is a list of such projects:
Water Expenditures
Depth Estimated Contract Through
Capability Delivery Term Estimated June 30,
(feet) Date (years) Cost 2000
------ ---- ------- ---- ----
Drillships: (in millions)
DEEPWATER PATHFINDER (1) 10,000 Delivered 5 $ 277.0 $ 276.6
DEEPWATER FRONTIER (2) 10,000 Delivered 2.5 271.0 267.0
DEEPWATER MILLENNIUM (3) 10,000 Delivered 4 275.0 274.3
DEEPWATER DISCOVERY 10,000 3rd quarter 2000 3 305.0 177.9
DEEPWATER EXPEDITION 10,000 Delivered 6 230.0 225.7
DEEPWATER NAVIGATOR (4) 7,200 Delivered 3 335.0 323.3
Semisubmersibles:
FALCON 100 (5) 2,400 Delivered .5 125.5 125.5
DEEPWATER NAUTILUS 8,000 Delivered 5 350.0 346.5
DEEPWATER HORIZON 10,000 1st quarter 2001 3 365.0 128.1
--------- ---------
$ 2,533.5 $ 2,144.9
========= =========
(1) The Company owns a 50% interest in the limited liability
company that operates this drillship.
(2) The Company owns a 60% interest in the limited liability
company that operates this drillship. Under the drilling
contract for this drillship, the Company and Conoco have each
committed to use this drillship for two and one half of the
first five years after delivery. During 1999, both Conoco and
the Company used the drillship to drill a well and in October
1999, under the Company's direction, the drillship commenced a
two-year drilling contract offshore Brazil with Petrobras.
(3) In October 1999, the drillship commenced a three-year drilling
contract with Statoil, then the Company will alternate use of
the drillship with Statoil every six months for the next two
years.
(4) On April 15, 1999, BP Amoco cancelled the drilling contract for
the Deepwater Navigator in accordance with the contract's terms
because the drillship had not been delivered on time. However,
the Deepwater Navigator commenced a three-year drilling
contract offshore Brazil for Petrobras in July 2000.
(5) In May 1999, Petrobras cancelled the drilling contract for the
Falcon 100 based on its interpretation of the cancellation
provisions of the contract. The Company does not believe that
Petrobras has the right to cancel such contract. The Company
has engaged Brazilian counsel to pursue the Company's rights
under the contract. The Company has received from another
customer a six-month drilling contract to commence in the
third quarter of 2000.
The Company's construction and upgrade projects are subject to
the risks of delay and cost overruns inherent in any large
construction project, including shortages of equipment, unforeseen
engineering problems, work stoppages, weather interference,
unanticipated cost increases and shortages of materials or skilled
labor. Significant cost overruns or delays would adversely affect the
Company's liquidity, financial condition and results of operations.
Delays could also result in penalties under, or the termination of,
certain of the long-term contracts under which the Company plans to
operate these rigs.
Liquidity
The Company has substantially completed or is currently
constructing or significantly upgrading nine deepwater drilling rigs.
The Company estimates its capital expenditure commitments on these
projects and its other routine capital expenditures for the remainder
of 2000 to total approximately $305.0 million. As of June 30, 2000,
the Company had $427.0 million of cash, cash equivalents, cash
dedicated to capital projects and short-term investments. Also, in
July 2000, the Company completed the sale of its Gulf of Mexico oil
and gas properties for approximately $127.2 million in cash and as a
result the Company received $117.2 million and expects to receive the
remaining $10.0 million in August 2000. The Company no longer expects
to sell the Seillean and Iolair.
The Company has limited ability under its indenture covenants to
incur additional recourse indebtedness. However, the Company believes
its projected level of cash flows from operations, which assumes an
industry recovery in 2000, cash on hand, potential asset sales and/or
new financings will be sufficient to satisfy the Company's short-term
and long-term working capital needs, planned investments, capital
expenditures, debt, lease and other payment obligations. If the
Company were to build excess cash balances, it will most likely use a
portion of the excess to retire debt and/or preferred obligations.
Other
In April 1998, Cliffs Drilling entered into a turnkey contract
with PDVSA Exploration and Production ("PDVSA") to drill 60 turnkey
wells in Venezuela. The drilling program commenced in March 1998 and
the program was expected to extend over approximately three and one-
half years and to utilize seven of the Company's land drilling rigs.
However, during the first quarter of 1999, in response to the downturn
in the market and changes in both PDVSA's management and its operating
policies, PDVSA and the Company renegotiated prices at reduced margins
and in the fourth quarter of 1999, renegotiations were made at further
reduced margins. By the end of the second quarter of 2000, the Company
had completed 35 of the 60 wells. In February 2000, PDVSA cancelled
the turnkey contract for the remaining 25 wells. Although PDVSA
cancelled its turnkey contract, three of the land drilling rigs that
were working on a turnkey basis have been subsequently contracted to
work for PDVSA on a dayrate basis. Also, in December 1999, the Company
commenced work under a new one-year dayrate drilling contract with
PDVSA utilizing Rig 55 which had been previously stacked and has
obtained drilling contracts with PDVSA for two jointly owned land
drilling rigs. The Company is currently bidding on other dayrate
contracts with PDVSA.
In 1998, the Company cancelled four drillship conversion projects
in which the Company had purchased or committed to purchase drilling
equipment for such projects. The Company had expected to use some of
the surplus equipment on other construction and/or upgrade projects
and to maintain the balance as inventory. A majority of the equipment
originally ordered was directed to other construction projects. As of
June 30, 2000, the Company had approximately $55.3 million remaining
of such surplus drilling equipment. The Company is continually
reviewing the value and utility of such equipment and if in the future
it is determined the Company cannot realize the recorded value of the
surplus equipment, the Company could incur additional write-offs or
write-downs of such equipment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to changes in interest rates with respect
to its debt obligations. The following table sets forth the average
interest rate for the scheduled maturity of the Company's debt
obligations as of June 30, 2000 (dollars in millions):
Estimated
Fair Value
at
2000 2001 2002 2003 2004 Thereafter Total June 30, 2000
---- ---- ---- ---- ---- ---------- ----- -------------
Fixed
Rate Debt:
Amount $ 17.0 $ 41.3 $ 38.6 $ 591.6 $ 44.6 $ 2,219.7 $ 2,952.8 $ 2,910.3
Average
interest
rate 7.314% 7.621% 7.310% 8.268% 7.310% 9.374% 9.058%
The Company is exposed to changes in the price of oil and natural
gas. The marine contract drilling industry is dependent upon the
exploration and production programs of oil and gas companies, which in
turn are influenced by the price of oil and natural gas.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, an action was filed by Mobil Exploration and
Producing U.S. Inc. and affiliates, St. Mary Land & Exploration
Company and affiliates and Samuel Geary and Associates, Inc. against
Cliffs Drilling, its underwriters and insurance broker in the 16th
Judicial District Court of St. Mary Parish, Louisiana. The plaintiffs
alleged damages amounting to in excess of $50.0 million in connection
with the drilling of a turnkey well in 1995 and 1996. The case was
tried before a jury in January and February 2000, and a judgment has
been entered based on the jury verdict awarding the plaintiffs damages
of approximately $30.0 million for excess drilling costs, loss of
insurance proceeds, loss of hydrocarbons and interest. The Company
has filed motions for a new trial and a judgment notwithstanding the
verdict in contemplation of perfecting its appeal of such judgment and
believes it will be successful upon appeal. The Company further
believes all but the portion of the verdict representing excess
drilling costs of approximately $4.7 million is covered by relevant
primary and excess liability insurance policies of Cliffs Drilling;
however, the insurers and underwriters have denied coverage. Cliffs
Drilling has instituted litigation against those insurers and
underwriters to enforce its rights under the relevant policies. At
this time Cliffs Drilling and the Company believe adequate reserves
have been established to protect the interests of Cliffs Drilling and
the Company in this matter.
The Company is involved in various other legal actions arising in
the normal course of business. After taking into consideration the
evaluation of such actions by counsel for the Company, management is
of the opinion that the outcome of all known and potential claims and
litigation will not have a material adverse effect on the Company's
business or consolidated financial position or results of operations.
Item 4. Results of Votes of Security Holders
At the annual meeting of stockholders of R&B Falcon Corporation,
held on May 17, 2000, four Class III directors were elected by a vote
of common stockholders, as outlined in the Company's Proxy Statement
relating to such annual meeting. Proxies for the annual meeting were
solicited pursuant to Regulation 14 under the Securities and Exchange
Act of 1934, there was no solicitation in opposition to the
management's nominees as listed in the Proxy Statement and all of such
nominees were elected, with 126,609,235, 126,610,449, 126,609,787
and 126,609,884 votes for each of Mr. Chatterjee, Mr. Donabedian, Mr.
Loyd and Mr. Webster, respectively, and 413,557, 412,343, 413,005
and 412,908 votes withheld from each of such nominees, respectively.
In addition, two proposals were voted upon: (i) a proposal to approve
the Company's 2000 Employee Long-Term Incentive Plan, with 119,018,210
votes for the proposal, 7,860,255 votes against the proposal and
144,327 abstentions, and (ii) a proposal to ratify and approve the
appointment of Arthur Andersen LLP as independent public accountants
for the Company for its fiscal year 2000, with 126,824,983 votes for
the proposal, 129,783 votes against the proposal and 68,026
abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* - 2000 Employee Long-Term Incentive Plan (Filed as Exhibit
99.A to the Company's Proxy Statement dated April 24, 2000
and incorporated by reference.)
10.2* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and P. C. Chatterjee under
R&B Falcon Corporation 1999 Director Long-Term Incentive
Plan.
10.3* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Arnold Chavkin under
R&B Falcon Corporation 1999 Director Long-Term Incentive
Plan.
10.4* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Charles Donabedian
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.5* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Douglas Hamilton
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.6* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Macko Laqueur
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.7* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Richard Pattarozzi
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.8* - Stock Option Agreement dated as of February 14, 2000
between R&B Falcon Corporation and Richard A. Pattarozzi
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.9* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Michael Porter
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.10* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Robert Sandmeyer
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.11* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Douglas Swanson
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.12* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Steven Webster
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.13* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and William Ziegler
under R&B Falcon Corporation 1999 Director Long-Term
Incentive Plan.
10.14* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Paul B. Loyd, Jr.
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.15* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Paul B Loyd, Jr.
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.16* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Andrew Bakonyi under
R&B Falcon Corporation 1999 Employee Long-Term Incentive
Plan.
10.17* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Andrew Bakonyi
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.18* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Bernie W. Stewart
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.19* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Bernie W. Stewart
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.20* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Tim W. Nagle under
R&B Falcon Corporation 1999 Employee Long-Term Incentive
Plan.
10.21* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Tim W. Nagle under
R&B Falcon Corporation 1999 Employee Long-Term Incentive
Plan.
10.22* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Tim W. Nagle under
R&B Falcon Corporation 1999 Employee Long-Term Incentive
Plan.
10.23* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Wayne K. Hillin
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.24* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Wayne K. Hillin
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.25* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Charles R. Ofner
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.26* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Charles R. Ofner
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.27* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Imran Toufeeq
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.28* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Imran Toufeeq
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.29* - Stock Option Agreement dated as of January 28, 2000
between R&B Falcon Corporation and Imran Toufeeq
under R&B Falcon Corporation 1999 Employee Long-Term
Incentive Plan.
10.30 - Contingent Undertaking dated as of June 2, 2000 between
the Company and Sovereign Corporate Limited.
10.31 - Operation and Maintenance Agreement dated as of June 2,
2000 among the Company, RBF Exploration Co., BTM Capital
Corporation and R&B Falcon Deepwater (UK) Limited.
10.32 - Consent of Note Holder dated as of May 2000 regarding
the Note Purchase Agreement, Deepwater Nautilus, dated
August 12, 1999.
15 - Letter regarding unaudited interim financial information.
27 - Financial Data Schedule. (Exhibit 27 is being submitted as
an exhibit only in the electronic format of this Quarterly
Report on Form 10-Q being submitted to the Securities and
Exchange Commission.)
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the
three months ended June 30, 2000.
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.
R&B FALCON CORPORATION
Date: August 11, 2000 By /s/T. W. Nagle
------------------------
T. W. Nagle
Executive Vice President and
Chief Financial Officer
