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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 March 31, 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 MARCH 31, 2000: 194,067,037
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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 months ended March 31, 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 three months ended March 31, 2000 included 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 months ended March 31, 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)
MARCH 31, DECEMBER 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents, gross $ 355.8 $ 415.5
Less cash dedicated to capital projects (79.8) (160.4)
--------- ---------
Cash and cash equivalents, net 276.0 255.1
Short-term investments 153.8 301.5
Accounts receivable:
Trade, net 139.5 141.3
Other 63.2 86.0
Materials and supplies inventory 61.3 52.6
Drilling contracts in progress 7.7 16.7
Other current assets 19.3 19.7
--------- ---------
Total current assets 720.8 872.9
--------- ---------
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED
INVESTEES 81.7 82.7
--------- ---------
PROPERTY AND EQUIPMENT:
Drilling 4,150.0 4,041.1
Other 269.8 256.1
--------- ---------
Total property and equipment 4,419.8 4,297.2
Accumulated depreciation (704.4) (662.0)
--------- ---------
Net property and equipment 3,715.4 3,635.2
--------- ---------
GOODWILL, NET OF ACCUMULATED AMORTIZATION 87.3 84.8
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS 178.6 246.3
--------- ---------
TOTAL ASSETS $ 4,783.8 $ 4,921.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Long-term obligations due within one year $ 34.0 $ 20.1
Accounts payable - trade 36.7 110.7
Accrued liabilities 209.6 227.8
--------- ---------
Total current liabilities 280.3 358.6
LONG-TERM OBLIGATIONS 2,919.5 2,933.4
OTHER NONCURRENT LIABILITIES 43.0 39.7
DEFERRED INCOME TAXES 38.6 53.2
--------- ---------
Total liabilities 3,281.4 3,384.9
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 57.8 56.6
--------- ---------
REDEEMABLE PREFERRED STOCK 288.8 276.0
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value 1.9 1.9
Capital in excess of par value 1,117.3 1,113.4
Retained earnings 43.9 95.9
Other (7.3) (6.8)
--------- ---------
Total stockholders' equity 1,155.8 1,204.4
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,783.8 $ 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
MARCH 31,
------------------
2000 1999
------- -------
OPERATING REVENUES:
Deepwater $ 70.4 $ 90.2
Shallow water 45.1 66.8
Inland water 26.5 31.0
Engineering services and land operations 63.6 55.8
Development 1.9 -
------- -------
Total operating revenues 207.5 243.8
------- -------
COSTS AND EXPENSES:
Deepwater 45.1 43.3
Shallow water 32.2 48.3
Inland water 27.4 27.9
Engineering services and land operations 50.5 38.3
Development .8 1.0
Depreciation and amortization 44.2 36.5
General and administrative 14.5 15.8
------- -------
Total costs and expenses 214.7 211.1
------- -------
OPERATING INCOME (LOSS) (7.2) 32.7
------- -------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest (51.9) (28.4)
Interest income 9.2 4.6
Income (loss) from equity investees plus related income (3.6) .6
Other, net (.4) (.2)
------- -------
Total other income (expense) (46.7) (23.4)
------- -------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST AND EXTRAORDINARY LOSS (53.9) 9.3
------- -------
INCOME TAX EXPENSE (BENEFIT):
Current (2.1) 7.8
Deferred (14.5) (4.5)
------- -------
Total income tax expense (benefit) (16.6) 3.3
------- -------
MINORITY INTEREST (1.8) (2.7)
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (39.1) 3.3
EXTRAORDINARY LOSS, NET OF TAX BENEFIT - (1.7)
------- -------
NET INCOME (LOSS) (39.1) 1.6
DIVIDENDS AND ACCRETION ON PREFERRED STOCK 12.9 -
------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (52.0) $ 1.6
======= =======
NET INCOME (LOSS) PER COMMON SHARE:
Basic:
Income (loss) before extraordinary loss and after
preferred stock dividends $ (.27) $ .02
Extraordinary loss - (.01)
------- -------
Net income (loss) $ (.27) $ .01
======= =======
Diluted:
Income (loss) before extraordinary loss and after
preferred stock dividends $ (.27) $ .02
Extraordinary loss - (.01)
------- -------
Net income (loss) $ (.27) $ .01
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 193.0 192.5
======= =======
Diluted 193.0 193.5
======= =======
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)
THREE MONTHS ENDED
MARCH 31,
----------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (39.1) $ 1.6
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 44.2 36.5
Deferred income taxes (14.5) (5.1)
Recognition of deferred expenses 3.7 2.6
Deferred compensation .9 1.2
(Income) loss from equity investees plus related income 3.6 (.6)
Minority interest in income of consolidated subsidiaries 1.8 2.7
Extraordinary loss from extinguishment of
debt, net of tax benefit - 1.7
Changes in assets and liabilities:
Accounts receivable, net 24.6 32.3
Materials and supplies inventory (6.2) (4.2)
Drilling contracts in progress 9.0 1.7
Deferred charges and other assets (16.5) (25.6)
Accounts payable - trade (74.0) (7.4)
Accrued liabilities (17.8) (4.9)
Accrued interest 6.3 34.5
Income taxes (9.8) 5.4
Other, net 1.5 3.3
------- -------
Net cash (used in) provided by operating activities (82.3) 75.7
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment - 1.4
Purchases of property and equipment (126.1) (236.3)
Decrease in cash dedicated to capital projects 80.6 -
Sale (purchase) of short-term investments 147.7 (34.0)
Increase in investments in and advances to
unconsolidated investees (2.6) (142.3)
------- -------
Net cash provided by (used in) investing activities 99.6 (411.2)
------- -------
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
Principal payments on long-term obligations - (2.0)
Distribution to minority shareholders of
consolidated subsidiaries, net of contributions (.6) (21.0)
Exercise of stock options 4.2 -
Other - (.4)
------- -------
Net cash provided by financing activities 3.6 703.2
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20.9 367.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 255.1 177.4
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 276.0 $ 545.1
======= =======
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest $ 60.5 $ 7.6
Income taxes paid $ 13.4 $ 3.0
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 March 31, 2000, $33.9 million of
cash, cash equivalents and short-term investments related to the
Company's majority-owned subsidiary Arcade Drilling AS ("Arcade").
Arcade's cash, cash equivalents and short-term investments 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 (which
the Company owns 60%) and as a result $79.8 million of the Company's
cash at March 31, 2000 was restricted as to use. Such amount consists
of $29.8 million related to the financing of the Deepwater Nautilus
and will be used for capital expenditures and 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.
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
March 31, 2000 and 1999 amortization of goodwill was $.5 million and
$.4 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 March 31, 2000 and 1999 was $17.2 million and $14.6
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. In March 2000, an
amendment to SAB 101 was issued allowing the Company to extend its
evaluation of SAB 101 by three months. The Company believes its
accounting practices are consistent with this rule but will complete
its evaluation in the second 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
income (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 have 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 considering the Company's rights
with respect to termination of the contract. The Company has
received a letter of intent from another customer for the Falcon 100
to commence a six-month drilling contract 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.
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. The Company is
preparing a response contesting such claim. However, 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.
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 intends 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 the jury
returned a verdict of approximately $30.0 million in favor of the
plaintiffs for excess drilling costs, loss of insurance proceeds, loss
of hydrocarbons and interest. However, the trial court has not entered
a judgment on the verdict, as there are a number of matters to be
ruled upon before doing so. If a judgment is entered on such verdict,
Cliffs Drilling intends to appeal and believes its efforts to do so
will be successful. The Company 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, two insurers have denied
coverage and the others have reserved their rights. If necessary,
Cliffs Drilling and the Company intend to take appropriate legal
action to enforce Cliffs Drilling's rights with respect to such
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 months ended March 31, 2000 and
1999 is as follows (in millions):
Three Months Ended
March 31,
-----------------
2000 1999
------- -------
Operating revenues by segment:
Deepwater $ 70.7 $ 90.2
Shallow water 47.5 67.3
Inland water 27.9 31.0
Engineering services and land operations 63.6 55.8
Development 1.9 -
Intersegment (4.1) (.5)
------- -------
Total operating revenues $ 207.5 $ 243.8
======= =======
Operating income (loss) by segment:
Deepwater $ 6.3 $ 34.0
Shallow water (1.7) 4.7
Inland water (6.5) (3.8)
Engineering services and land operations 10.0 15.6
Development .7 (1.1)
------- -------
8.8 49.4
Unallocated depreciation and amortization (1.5) (.9)
Unallocated general and administrative (14.5) (15.8)
------- -------
Operating income (loss) $ (7.2) $ 32.7
======= =======
For the three months ended March 31, 2000, revenues from PDVSA
Exploration and Production of $32.5 million ($31.9 million reported in
the engineering services and land operations segment and $.6 million
reported in the inland water segment) accounted for 15.7% of the
Company's consolidated operating revenues. For the three months ended
March 31, 1999, revenues from PDVSA Exploration and Production of
$43.4 million (reported in the engineering services and land
operations segment) accounted for 17.8% of the Company's consolidated
operating revenues.
Total assets by segment were as follows (in millions):
March 31, December 31,
2000 1999
--------- ---------
Deepwater $ 2,878.3 $ 2,942.5
Shallow water 1,203.0 1,263.5
Inland water 344.4 227.7
Engineering services and land operations 134.4 172.5
Development 56.4 49.5
Corporate 167.3 266.2
--------- ---------
Total $ 4,783.8 $ 4,921.9
========= =========
D) EARNINGS PER SHARE
The following table summarizes the basic and diluted per share
computations for income (loss) before extraordinary loss and after
preferred stock dividends for the three months ended March 31, 2000
and 1999 (in millions except per share amounts):
Three Months
Ended March 31,
-----------------
2000 1999
------- -------
Numerator:
Income (loss) before extraordinary loss $ (39.1) $ 3.3
Dividends and accretion on preferred stock (12.9) -
------- -------
Income (loss) before extraordinary loss
and after preferred stock dividends -
basic and diluted $ (52.0) $ 3.3
======= =======
Denominator:
Weighted average common shares
outstanding - basic 193.0 192.5
Outstanding stock options and restricted
stock awards - 1.0
------- -------
Weighted average common shares outstanding
- diluted 193.0 193.5
======= =======
Earnings per share:
Income (loss) before extraordinary loss
and after preferred stock dividends:
Basic $ (.27) $ .02
Diluted $ (.27) $ .02
E) STOCK AWARDS
During the first three months of 2000, the Company granted stock
options, with respect to the Company's common stock, of approximately
2,122,461 shares to executive officers and certain employees of the
Company and approximately 109,500 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 $12.719 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 three months of 2000, restricted stock awards with respect to
135,300 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.
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 March
31, 2000, and the related consolidated statements of operations and cash
flows for the three months ended March 31, 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
May 2, 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,
but there can be no assurance that demand for drilling rigs and related
services will recover in a similar manner. To date, 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. 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. Crude oil and
natural gas prices have continued to fluctuate over the last several years.
If crude oil and gas prices decline or a weakness in crude oil and gas
prices continued for an extended period, there could be a further
deterioration in both 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
THREE MONTHS ENDED MARCH 31, 2000 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1999
The Company's net loss for the three months ended March 31, 2000 was
$39.1 million ($.27 loss per diluted share after preferred stock dividends
and accretion of $12.9 million) compared with net income of $1.6 million
($.01 per diluted share) 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 three months ended March
31, 2000 compared to the same period in 1999. The revenue decrease is
primarily due to lower dayrates and utilization in the deepwater and
shallow water segments, offset by an increase in revenues in engineering
services due to an increase in the number of turnkey wells completed in the
period, 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 March 31, 2000 and 1999, revenues from one customer
in Venezuela (PDVSA Exploration and Production) of $32.5 million and $43.4
million, respectively, accounted for 15.7% and 17.8%, 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 March
31, 2000 as compared to the same period in 1999 is attributable to the
shallow water segment, primarily the international jackup fleet, due to
lower utilization and the cold stacking of some units, offset by higher
operating expenses for the engineering services segment due to an increase
in the number of turnkey wells completed in the period.
Depreciation and amortization expense increased for the three months
ended March 31, 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
March 31, 2000 as compared to the same period in 1999 primarily due to cost
savings associated with the consolidation of the Cliffs Drilling corporate
office with the R&B Falcon corporate office.
Interest expense increased for the three months ended March 31, 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 a $250.0 million project
financing in August 1999, partially offset by increased capitalized
interest related to new build and significant upgrade projects.
Interest income increased for the three months ended March 31, 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 income increased for the three
months ended March 31, 2000 as compared to the same period in 1999 due to
increased losses associated with the Deepwater Frontier, offset by
increased earnings on the Deepwater Pathfinder, both of which commenced
operations in the latter part of the first quarter of 1999.
Income taxes for the three months ended March 31, 2000 resulted in a
benefit as compared to an expense for the same period in 1999, which was
the result of a pretax loss for the three months ended March 31, 2000
compared to pretax income for the same period in 1999. The Company recorded
the income tax benefit for the three months ended March 31, 2000 at an
effective tax rate of 31% compared to full statutory rates on pretax income
for the three months ended March 31, 1999. The lower than full statutory
rate for the three months ended March 31, 2000 is primarily due to the lack
of creditability of certain foreign tax credits and other revised 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 March 31, 2000 as compared to the same
period in 1999 primarily due to lower dayrates on the Henry Goodrich.
Extraordinary loss for the three months ended March 31, 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 for the three months ended
March 31, 2000 was the result of the Company issuing 13.875% Senior
Cumulative Redeemable Preferred Stock in April 1999.
Liquidity and Capital Resources
Cash Flows
Net cash used in operating activities was $82.3 million for the three
months ended March 31, 2000 compared to net cash provided by operating
activities of $75.7 million for the same period in 1999. The change in cash
flows from operating activities is primarily due to the decrease in net
income 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 $99.6 million for the
three months ended March 31, 2000 compared to net cash used in investing
activities of $411.2 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 $3.6 million for the
three months ended March 31, 2000 compared to $703.2 million for the same
period in 1999. The change in cash flows from financing activities is
primarily due to the financing activity in 1999 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
Depth Estimated Contract Expenditures
Capability Delivery Term Estimated Through
(feet) Date (years) Cost March 31, 2000
---------- --------- ------- --------- --------------
Drillships: (in millions)
DEEPWATER PATHFINDER (1) 10,000 Delivered 5 $ 277.0 $ 276.6
DEEPWATER FRONTIER (2) 10,000 Delivered 2.5 271.0 264.9
DEEPWATER MILLENNIUM 10,000 Delivered 4 (3) 275.0 274.1
DEEPWATER DISCOVERY 10,000 3rd 3 305.0 164.6
quarter 2000
DEEPWATER EXPEDITION 10,000 Delivered 6 230.0 224.1
DEEPWATER NAVIGATOR (4) 7,200 Delivered 3 320.0 306.3
Semisubmersibles:
FALCON 100 (5) 2,400 Delivered - 125.5 125.5
DEEPWATER NAUTILUS 8,000 Delivered 5 350.0 328.1
DEEPWATER HORIZON 10,000 1st 3 350.0 111.0
quarter 2001
--------- ---------
$ 2,503.5 $ 2,075.2
========= =========
_______________________
(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 rig
for two and one half of the first five years after delivery. During
1999, both Conoco and the Company used the rig to drill a well and in
October 1999, under the Company's direction, the rig commenced a two-
year drilling contract offshore Brazil with Petrobras.
(3) Statoil will use this drillship for the first three years after
delivery, then the Company will alternate use of the rig 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 will commence a three-year drilling contract offshore
Brazil for Petrobras in the second quarter of 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 a letter of intent from another customer for 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 $430.0 million. As of March 31, 2000, the Company had $509.6
million of cash, cash equivalents, cash dedicated to capital projects and
short-term investments. Also, the Company is considering certain asset
sales, including 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. As of
March 31, 2000, the Company had completed 34 of the 60 wells with one well
in progress, which was completed in April 2000. In February 2000, PDVSA
cancelled the turnkey contract for the remaining 25 wells. Although PDVSA
cancelled its turnkey contract, some of the rigs that were working on a
turnkey basis are expected to obtain work with PDVSA or other operators on
either a dayrate or integrated services contract basis. The Company is
currently bidding on dayrate contracts with PDVSA which could utilize up to
four rigs. 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.
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 March 31, 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
March 31, 2000 (dollars in millions):
Extimated
Fair Value
at March 31,
2000 2001 2002 2003 2004 Thereafter Total 2000
------ ------ ------ ------- ------ --------- --------- ---------
Fixed
Rate Debt:
Amount $ 20.1 $ 41.5 $ 38.6 $ 591.6 $ 44.6 $ 2,219.7 $ 2,956.1 $ 2,842.4
Average
interest
rate 7.324% 7.622% 7.310% 8.268% 7.310% 9.374% 9.056%
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 the jury returned a verdict of approximately $30.0
million in favor of the plaintiffs for excess drilling costs, loss of
insurance proceeds, loss of hydrocarbons and interest. However, the trial
court has not entered a judgment on the verdict, as there are a number of
matters to be ruled upon before doing so. If a judgment is entered on such
verdict, Cliffs Drilling intends to appeal and believes its efforts to do
so will be successful. The Company 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, two insurers have denied coverage and the
others have reserved their rights. If necessary, Cliffs Drilling and the
Company intend to take appropriate legal action to enforce Cliffs
Drilling's rights with respect to such 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Consent of Note Holder dated February 1, 2000 regarding the
Note Purchase Agreement, Deepwater Nautilus, dated August 12,
1999, RBF Exploration Co.
10.2 - Consent of Surety dated February 1, 2000 regarding the Trust
Indenture and Security Agreement dated August 12, 1999 as
supplemental and amended by the Supplemental Indenture and
Amendment dated February 1, 2000.
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.)
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the
three months ended March 31, 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: May 12, 2000 By /s/T. W. Nagle
----------------------------
T. W. Nagle
Executive Vice President and
Chief Financial Officer
EXHIBIT 10.1
CONSENT OF NOTE HOLDER
WHEREAS, the undersigned ("Note Holder") entered into that certain
Note Purchase Agreement dated as of August 12, 1999 (the "Note Purchase
Agreement") with RBF Exploration Co., a Nevada corporation ("Issuer"); and
WHEREAS, as a condition to Note Holder entering into the Note Purchase
Agreement, Issuer entered into that certain Trust Indenture and Security
Agreement dated as of August 12, 1999 ("Indenture") with Chase Bank of
Texas, National Association, as Trustee ("Trustee"); and
WHEREAS, Issuer now desires to amend or replace, or have amended or
replaced, certain documents subject or related to the Indenture that are
listed on Schedule A hereto (the "Amended Documents") in connection with
the delivery of the Drilling Rig (as defined in the Indenture) (the "Stage
One Delivery"); and
WHEREAS, Issuer now desires to enter into, or have entered into or
created, certain documents that are listed on Schedule B hereto (the "New
Documents" and collectively with the Amended Documents, the "Stage One
Documents") in connection with the Stage One Delivery;
NOW, THEREFORE, to comply with the provisions of Article 11 of the
Indenture and to allow for the Stage One Delivery, Note Holder hereby
expressly agrees, consents or declares to Trustee as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms
used herein shall have the meaning ascribed thereto in that certain
Supplemental Indenture and Amendment of even date herewith (the
"Supplemental Indenture") by and among BTM Capital Corporation, a Delaware
corporation ("Independent Owner"), Trustee and Issuer or, if not therein,
in the Indenture.
2. Solicitation. Note Holder has been informed of, and had an
opportunity to review, each of the New Documents and has been afforded the
opportunity of considering such New Documents with sufficient information
to make an informed decision with respect thereto. Note Holder has not,
directly or indirectly, received any remuneration, whether of supplemental
or additional interest, fee or otherwise as consideration for entering into
the New Documents.
3. Documents. Note Holder has received copies of each of the Stage
One Documents and hereby consents, to the extent required by the Indenture,
to (a) the amendment, change or novation of the Amended Documents and (b)
the execution and delivery of each of the New Documents. Note Holder
hereby directs Trustee, to the extent required or permitted by the
Indenture, to (a) execute and deliver each of the New Documents to which
Trustee is a party and (b) deliver to the Sureties the Original Performance
Bond.
4. Security Interests. Note Holder hereby consents, to the extent
required by the Indenture, (a) to the release of the security interest by
the Trustee as provided in Section 2.03(a) of the Supplemental Indenture,
(b) to the concurrent grant of the security interest by the Independent
Owner to Trustee as provided in Article 3 of the Supplemental Indenture and
(c) to the creation, modification or release of such other liens, if any,
provided for in the New Documents.
5. Trustee Consent Authorized. Note Holder hereby consents, to the
extent required by the Indenture, to the consents given by the Trustee
under Article 2 of the Supplemental Indenture.
6. Waiver of Notice. Note Holder hereby waives the notice
requirements otherwise required to be given by the Trustee under Section
11.3 of the Indenture.
7. No Further Consent. Note Holder expressly does not hereby or
otherwise consent to (a) any further amendment, change, assignment or
novation of (i) the Stage One Documents after the execution and delivery
thereof in the form provided to Note Holder or (ii) any other Transaction
Document, (b) to any sale, assignment or other disposition of the Drilling
Rig or the Equipment other than pursuant to the Put Option in Section 10 of
the Sale and Funding Agreement, subject to the conditions set forth in
Section 2.03(c) of the Supplemental Indenture or (c) to any assignment by
the Issuer of any of its right, title or interest in, to or under the SDDI
Contract or the Operation and Maintenance Agreement, whether or not
contemplated by the Stage One Documents.
8. Principal Amount Owed. Note Holder is the record owner of a Note
in the principal amount as set forth below its signature and, as such, has
all requisite authority to execute and deliver this consent.
[signature page follows]
IN WITNESS WHEREOF, the undersigned Note Holder has caused this
Consent of Note Holder to be executed and delivered by its duly authorized
officer as of February 1, 2000.
NOTE HOLDER:
VICTORY RECEIVABLES CORPORATION
By:______________________________
Name:
Title:
Class A1 Note Holder in the amount of
$200,000,000.00
IN WITNESS WHEREOF, the undersigned Note Holder has caused this
Consent of Note Holder to be executed and delivered by its duly authorized
officer as of February 1, 2000.
NOTE HOLDER:
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:______________________________
Name:
Title:
Class A2 Note Holder in the amount of
$10,000,000.00
IN WITNESS WHEREOF, the undersigned Note Holder has caused this
Consent of Note Holder to be executed and delivered by its duly authorized
officer as of February 1, 2000.
NOTE HOLDER:
FIRST SUNAMERICA LIFE INSURANCE COMPANY
By:______________________________
Name:
Title:
Class A2 Note Holder in the amount of $5,000,00.00
IN WITNESS WHEREOF, the undersigned Note Holder has caused this
Consent of Note Holder to be executed and delivered by its duly authorized
officer as of February 1, 2000.
NOTE HOLDER:
PARTHENON RECEIVABLES FUNDING LLC
By: Parthenon Receivables Funding Corporation,
its sole member
By:______________________________
Name:
Title:
Class A2 Note Holder in the amount of
$35,000,000.00
SCHEDULE A
Amended Documents
1. Indenture
2. Construction Contract
3. Construction Supervisory Agreement
4. Performance Guarantee
5. Performance Bond
6. Note Purchase Agreements
7. UCC-1 Financing Statement file number 99-164271 executed by Issuer in
favor of Trustee filed on August 16, 1999
SCHEDULE B
New Documents
1. Supplemental Indenture
2. Amendment to Note Purchase Agreement
3. New Performance Bond
4. First Preferred Ship Mortgage
5. New Construction Supervisory Agreement
6. Sale and Funding Agreement
7. Novation Agreement
8. Certain UCC-1 Financing Statements executed by Issuer and Independent
Owner in favor of Trustee relating to security interests granted under
the Indenture, Supplemental Indenture and the Assignment of Interests
9. UCC-3 Financing Statement Change executed by Issuer and Trustee
affecting and evidencing the transaction contemplated by the Stage One
Documents
10. Acknowledgment of Rig Ownership and Ratification of Operation and
Maintenance Agreement by and among Parent, Issuer and Independent
Owner
11. New Performance Guarantee
12. Collection Account Notification Letter
13. Acknowledgment of Independent Transaction of even date herewith by and
among each Note Holder signatory to the Note Purchase Agreements,
Issuer, Independent Owner and Trustee
EXHIBIT 10.2
CONSENT OF SURETY
WHEREAS, RBF Exploration Co., a Nevada corporation ("Issuer") entered
into that certain Trust Indenture and Security Agreement dated as of August
12, 1999 ("Indenture") with Chase Bank of Texas, National Association, as
Trustee ("Trustee") as supplemented and amended by that certain
Supplemental Indenture and Amendment of even date herewith (the
"Supplemental Indenture") by and among BTM Capital Corporation, a Delaware
corporation ("Independent Owner"), Trustee and Issuer; and
WHEREAS, Travelers Casualty and Surety Company of America and American
Home Assurance Company (each, a "Surety") and RBF Exploration II Inc. ("RBF
II") entered into that certain Performance Bond dated August 18, 1999 (the
"First Bond"), and whereas, in replacement of the First Bond, RBF II, the
Sureties and the Independent Owner have entered into that certain
Performance Bond of even date herewith: and
WHEREAS, Issuer now desires to amend or replace, or have amended or
replaced, certain documents subject or related to the Indenture that are
listed on Schedule A hereto (the "Amended Documents") in connection with
the delivery of the Drilling Rig (as defined in the Indenture) (the "Stage
One Delivery"); and
WHEREAS, Issuer now desires to enter into, or have entered into or
created, certain documents that are listed on Schedule B hereto (the "New
Documents" and collectively with the Amended Documents, the "Stage One
Documents") in connection with the Stage One Delivery;
NOW, THEREFORE, to comply with the provisions of Article 11 of the
Indenture and to allow for the Stage One Delivery, the undersigned Surety
hereby expressly agrees, consents or declares to Trustee as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms
used herein shall have the meaning ascribed thereto in the Supplemental
Indenture or, if not therein, the Indenture.
2. Documents. Surety has received copies of each of the Stage One
Documents and hereby consents, to the extent required by the Indenture or
the First Bond, to (a) the amendment, change or novation of the Amended
Documents and (b) the execution and delivery of each of the New Documents.
Surety hereby directs Trustee, to the extent required or permitted by the
Indenture, to (a) execute and deliver each of the New Documents to which
Trustee is a party and (b) deliver to the Sureties the First Bond.
3. Security Interests. Surety hereby consents, to the extent
required by the Indenture or the First Bond, (a) to the release of the
security interest by the Trustee as provided in Section 2.03(a) of the
Supplemental Indenture, (b) to the concurrent grant of the security
interest by the Independent Owner to Trustee as provided in Article 3 of
the Supplemental Indenture and (c) to the creation, modification or release
of such other liens, if any, provided for in the New Documents.
4. Trustee Consent Authorized. Surety hereby consents, to the
extent required by the Indenture or the First Bond, to the consents given
by the Trustee under Article 2 of the Supplemental Indenture.
[signature page follows]
IN WITNESS WHEREOF, the undersigned Surety has caused this Consent of
Surety to be executed and delivered by its duly authorized officer as of
February 1, 2000.
SURETY:
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA
By:______________________________
Name:
Title:
SURETY:
AMERICAN HOME ASSURANCE COMPANY
By:______________________________
Name:
Title:
SCHEDULE A
Amended Documents
1. Indenture
2. Construction Contract
3. Construction Supervisory Agreement
4. Performance Guarantee
5. Performance Bond
6. Note Purchase Agreements
7. UCC-1 Financing Statement file number 99-164271 executed by Issuer in
favor of Trustee filed on August 16, 1999
SCHEDULE B
New Documents
1. Supplemental Indenture
2. Amendment to Note Purchase Agreement
3. New Performance Bond
4. First Preferred Ship Mortgage
5. New Construction Supervisory Agreement
6. Sale and Funding Agreement
7. Novation Agreement
8. Certain UCC-1 Financing Statements executed by Issuer and Independent
Owner in favor of Trustee relating to security interests granted under
the Indenture, Supplemental Indenture and the Assignment of Interests
9. UCC-3 Financing Statement Change executed by Issuer and Trustee
affecting and evidencing the transaction contemplated by the Stage One
Documents
10. New Performance Guarantee
Exhibit 15
R&B Falcon Corporation
We are aware that R&B Falcon Corporation has incorporated by reference
in its Registration Statements No. 333-43475, 333-67755, 333-67757, 333-
68101, 333-81179, 333-81181, 333-81381, 333-88839, 333-88841 and 333-
88843 its Form 10-Q for the quarter ended March 31, 2000, which includes
our report dated May 2, 2000 covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the Securities
Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our firm or a report prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.
/s/Arthur Andersen LLP
Houston, Texas
May 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of R&B Falcon Corporation for the three months ended March
31, 2000 and 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 276 545
<SECURITIES> 154 34
<RECEIVABLES> 223 252
<ALLOWANCES> 20 14
<INVENTORY> 61 40
<CURRENT-ASSETS> 721 902
<PP&E> 4,420 3,781
<DEPRECIATION> 704 551
<TOTAL-ASSETS> 4,784 4,447
<CURRENT-LIABILITIES> 280 257
<BONDS> 2,919 2,714
289 0
0 0
<COMMON> 2 2
<OTHER-SE> 1,154 1,251
<TOTAL-LIABILITY-AND-EQUITY> 4,784 4,447
<SALES> 0 0
<TOTAL-REVENUES> 208 244
<CGS> 0 0
<TOTAL-COSTS> 215 211
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 52 28
<INCOME-PRETAX> (54) 9
<INCOME-TAX> (17) 3
<INCOME-CONTINUING> (39) 2
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