<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO ______________.
COMMISSION FILE NUMBER 1-7746
---------------------
TRANSOCEAN OFFSHORE INC.
(Exact name of registrant as specified in its charter)
---------------------
CAYMAN ISLANDS N/A
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4 GREENWAY PLAZA
HOUSTON, TEXAS 77046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 232-7500
---------------------
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 [ ]
As of October 31, 1999, 100,574,790 ordinary shares, par value $.01 per
share, of Transocean Offshore Inc. were outstanding.
================================================================================
<PAGE>
TRANSOCEAN OFFSHORE INC.
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1999 and 1998....... 2
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998...................... 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998................. 4
Notes to Condensed Consolidated Financial Statements............. 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk... 26
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 27
ITEM 6. Exhibits and Reports on Form 8-K............................. 27
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Transocean Offshore Inc. and
consolidated subsidiaries included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and notes normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the audited consolidated financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. When used herein the term "Company" means
Transocean Offshore Inc., a Cayman Islands exempted company limited by shares,
its consolidated subsidiaries and its predecessors, unless the context indicates
otherwise.
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Revenues $204,305 $269,002 $746,229 $778,892
- -----------------------------------------------------------------------------------------------------
Costs and Expenses
Operating and maintenance 102,220 113,104 369,047 359,601
Depreciation and amortization 32,882 29,297 97,177 85,478
General and administrative 7,120 6,310 21,130 21,001
- -----------------------------------------------------------------------------------------------------
142,222 148,711 487,354 466,080
- -----------------------------------------------------------------------------------------------------
Operating Income 62,083 120,291 258,875 312,812
- -----------------------------------------------------------------------------------------------------
Other Income (Expense), Net
Equity in earnings of joint ventures 3,647 3,350 10,183 8,240
Interest income 612 562 1,858 2,514
Interest expense, net of amounts capitalized (13) (4,889) (2,952) (17,571)
Gain on termination of cash flow sharing agreement - - - 21,290
Other, net 152 12,501 (618) 13,354
- -----------------------------------------------------------------------------------------------------
4,398 11,524 8,471 27,827
- -----------------------------------------------------------------------------------------------------
Income Before Income Taxes 66,481 131,815 267,346 340,639
Income Taxes 19,612 38,886 78,867 100,489
- -----------------------------------------------------------------------------------------------------
Net Income $ 46,869 $ 92,929 $188,479 $240,150
=====================================================================================================
Earnings Per Share
Basic $ 0.47 $ 0.93 $ 1.88 $ 2.40
=====================================================================================================
Diluted $ 0.46 $ 0.92 $ 1.87 $ 2.38
=====================================================================================================
Weighted Average Shares Outstanding
Basic 100,368 100,283 100,352 100,015
- -----------------------------------------------------------------------------------------------------
Diluted 101,019 100,869 100,872 100,861
- -----------------------------------------------------------------------------------------------------
Dividends Paid Per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
=====================================================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(In thousands, except share data)
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 26,363 $ 69,453
Accounts Receivable 165,046 217,494
Deferred Income Taxes 11,584 -
Materials and Supplies 35,348 33,928
Prepayments 4,140 9,596
Costs Incurred on Drilling Services Projects in Progress 33 31,161
- -------------------------------------------------------------------------------------
Total Current Assets 242,514 361,632
- -------------------------------------------------------------------------------------
Property and Equipment 3,018,749 2,659,020
Less Accumulated Depreciation 611,407 530,949
- -------------------------------------------------------------------------------------
Property and Equipment, net 2,407,342 2,128,071
- -------------------------------------------------------------------------------------
Goodwill, net 661,798 675,243
Investments in and Advances to Joint Ventures 39,466 55,544
Other Assets 22,727 30,453
- -------------------------------------------------------------------------------------
Total Assets $3,373,847 $3,250,943
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable $ 31,633 $ 40,939
Accrued Income Taxes 110,177 58,711
Current Portion of Long-Term Debt 30,104 18,672
Deferred Income Taxes - 1,420
Other Current Liabilities 65,435 72,679
- -------------------------------------------------------------------------------------
Total Current Liabilities 237,349 192,421
- -------------------------------------------------------------------------------------
Long-Term Debt 711,270 813,953
Deferred Income Taxes 235,029 229,979
Other Long-Term Liabilities 32,071 35,947
- -------------------------------------------------------------------------------------
Total Long-Term Liabilities 978,370 1,079,879
- -------------------------------------------------------------------------------------
Preference Shares, $0.10 par value; 50,000,000 shares
authorized, none issued and outstanding - -
Ordinary Shares, $0.01 par value; 150,000,000 shares
authorized, 100,574,790 shares issued and outstanding at
September 30, 1999, and 104,335,127 shares issued, including
shares in treasury, and 100,551,127 shares outstanding at
December 31, 1998 1,044 1,043
Less Ordinary Shares in Treasury, at cost;
3,784,000 shares at December 31, 1998 - (144,297)
Additional Paid-in Capital 1,390,960 1,535,201
Retained Earnings 766,124 586,696
- -------------------------------------------------------------------------------------
Total Shareholders' Equity 2,158,128 1,978,643
- -------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $3,373,847 $3,250,943
=====================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 188,479 $ 240,150
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 97,177 85,478
Deferred income taxes (7,953) 39,972
Equity in earnings of joint ventures (10,183) (8,240)
(Gain) loss on disposal of assets 113 (16,725)
Deferred income, net (4,906) (6,908)
Deferred expenses, net 3,225 3,405
Other, net 8,143 5,522
Changes in operating assets and liabilities
Accounts receivable 50,572 (47,243)
Accounts payable (8,725) (21,195)
Income taxes receivable/payable, net 51,466 30,101
Other current assets 34,481 (12,725)
Other current liabilities (7,855) (4,166)
- -------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 394,034 287,426
- -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (365,581) (458,012)
Proceeds from disposal of assets, net 3,148 13,316
Joint ventures and other investments 26,262 4,359
Divestiture of non-core drilling services assets - 10,000
Other, net 39 (529)
- -------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (336,132) (430,866)
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit facility (86,500) 129,700
Dividends paid (9,051) (9,030)
Repayment of notes payable (4,615) (4,616)
Proceeds from issuance of ordinary shares under
stock-based compensation plans 889 6,678
Other, net (1,715) (2,836)
- -------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (100,992) 119,896
- -------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (43,090) (23,544)
- -------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 69,453 54,225
- -------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 26,363 $ 30,681
=====================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
BASIS OF CONSOLIDATION - The accompanying condensed consolidated financial
statements of the Company have been prepared without audit in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, pursuant to such rules and
regulations, these financial statements do not include all disclosures required
by generally accepted accounting principles for complete financial statements.
Operating results for the three and nine month periods ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. In connection with the preparation of these financial
statements, management was required to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues, expenses and
disclosure of contingent liabilities. Actual results could differ from such
estimates. The accompanying condensed consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1998.
SUPPLEMENTARY CASH FLOW INFORMATION - Cash payments for interest and income
taxes, net were $33.9 million and $35.4 million, respectively, for the nine
months ended September 30, 1999 and $36.8 million and $31.5 million,
respectively, for the nine months ended September 30, 1998. Non-cash financing
activities for the nine months ended September 30, 1999 included $144.3 million
for the cancellation of treasury shares (see Note 6). This has been reflected in
the condensed consolidated balance sheets as a decrease in Additional Paid-In
Capital.
GOODWILL - Goodwill is amortized on a straight-line basis over 40 years (the
period when benefits are expected to be derived). Accumulated amortization as
of September 30, 1999 and December 31, 1998 totaled $56.2 million and $42.7
million, respectively.
CAPITALIZED INTEREST - Interest costs for the construction and upgrade of
qualifying assets are capitalized. The Company capitalized interest costs on
construction work in progress of $12.7 million and $34.1 million for the three
and nine months ended September 30, 1999 and $10.0 million and $25.0 million in
the corresponding periods of 1998.
RECLASSIFICATIONS - Certain reclassifications have been made to prior period
amounts to conform with the current period's presentation.
INTERIM FINANCIAL INFORMATION - The financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods. Such adjustments are considered to be of a
normal recurring nature unless otherwise identified.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB 133 to delay the
required effective date for adoption of SFAS 133 to fiscal years beginning after
June 15, 2000. Because of the Company's limited use of derivatives to manage its
exposure to fluctuations in foreign exchange rates and interest rates,
management does not anticipate that the adoption of the new statement will have
a material
5
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
effect on the results of operations or the financial position of the Company.
The Company will adopt SFAS No. 133 as of January 1, 2001.
NOTE 2 - UPGRADE AND EXPANSION OF DRILLING FLEET
The Company's investments in its existing fleet and previously announced fleet
additions continue to require significant capital expenditures. Capital
expenditures totaled $365.6 million during the nine months ended September 30,
1999.
The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction projects.
<TABLE>
<CAPTION>
Discoverer Discoverer Discoverer
(Expenditures in millions) Enterprise Spirit Deep Seas
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative at December 31, 1998 $ 302 $124 $ 106
Actual for the nine months ended September 30, 1999 110 124 79
- ------------------------------------------------------------------------------------------------------
Cumulative at September 30, 1999 412 248 185
Projected through completion 33 110 170
- ------------------------------------------------------------------------------------------------------
Projected Total Costs $ 445 $358 $ 355
======================================================================================================
NOTE 3 - DEBT
Debt is comprised of the following:
September 30, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------
(In thousands)
Revolving Credit Facility $233,500 $320,000
Project Financing Agreement 186,990 186,990
8.00% Debentures, net of discount 199,263 199,243
7.45% Notes 100,000 100,000
6.90% Notes Payable 20,769 25,384
Other 852 1,008
- ------------------------------------------------------------------------------------------------------
Total Debt 741,374 832,625
Less Current Maturities 30,104 18,672
- ------------------------------------------------------------------------------------------------------
Total Long-Term Debt $711,270 $813,953
======================================================================================================
</TABLE>
Project Financing Agreement - In connection with the construction of the
Discoverer Enterprise and the upgrade of the Transocean Amirante, the Company's
wholly owned subsidiary, Transocean Enterprise Inc. ("TEI"), entered into a
project financing agreement effective December 27, 1996 with a group of banks
led by ABN AMRO Bank, N.V., as agent (the "Project Financing Agreement").
Approximately $323 million was available in two tranches for drawdowns during
the construction period. The first tranche of $62.9 million, which was
originally to be repaid upon completion of construction and acceptance of the
two rigs by Amoco Production Company ("Amoco"), was repaid in October 1999, as
described below. It bore an interest rate of LIBOR plus 0.35 percent. The
second tranche, amounting to $259.9 million (of which $124.1 million
6
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
in borrowings were outstanding as of September 30, 1999), bears an interest rate
of LIBOR plus 0.85 percent during the construction period and is convertible to
term financing upon completion of construction and acceptance of the two rigs by
Amoco. The amount available under the second tranche has been reduced by $32.9
million to $227.0 million as described below. The term financing, which is to be
paid out of cash flows from the two rigs, matures over a period of five years.
Amoco has contracted the Transocean Amirante for a period of up to five years
and the Discoverer Enterprise for a period of five years following their
respective acceptance dates. The Company expects the term financing to consist
of borrowings under a lease securitization facility provided by the agent at a
floating interest rate (which has been converted to a fixed rate by the interest
rate swap transactions described below) plus a margin of 0.36 percent for
amounts fully amortized by cash flows from the Amoco contracts and a margin of
0.62 percent for the remaining amounts, if any.
The Project Financing Agreement originally required acceptance of the two
drilling units by Amoco, repayment of the first tranche and conversion of the
second tranche to term financing no later than December 31, 1998. Although the
Transocean Amirante was accepted by Amoco and commenced operations in July 1997,
the Discoverer Enterprise was not completed on this schedule due to construction
delays. As a result, during December 1998, TEI amended the Project Financing
Agreement to extend the outside date for acceptance of the Discoverer
Enterprise, repayment of the first tranche and conversion of the second tranche
to term financing from December 31, 1998 to August 31, 1999. During August
1999, the Project Financing Agreement was amended to extend the outside date
previously described to October 31, 1999 so as to allow more time to complete
the final testing phase of the Discoverer Enterprise.
During October 1999, the Project Financing Agreement was further amended to
extend the outside date for acceptance of the Discoverer Enterprise and
conversion of the second tranche to term financing from October 31, 1999 to
January 31, 2000 to allow time to complete certain equipment modifications
requested by Amoco during the final testing phase of the rig. In connection
with this extension, TEI repaid the $62.9 million outstanding under the first
tranche of the Project Financing Agreement and two banks participating in the
group withdrew. As a result, TEI repaid approximately $15.7 million outstanding
under the second tranche of the Project Financing Agreement and the total amount
of undrawn commitments available was reduced by $17.2 million, reducing the
total amount available to $227.0 million. The Company loaned TEI the necessary
funds to make these repayments through borrowings under the Revolving Credit
Facility.
On November 1, 1999, TEI amended the terms of its interest rate swap
transactions, which effectively lock in a fixed interest rate for the term
financing under the Project Financing Agreement, to change the start date to
November 30, 1999. In connection with the amendment, the fixed rate TEI would
pay increased from 6.8215 percent to 6.908 percent. The net unrealized loss on
the interest rate swaps was approximately $4.2 million as of September 30, 1999.
7
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - EARNINGS PER SHARE
The reconciliation of the numerator and denominator used for the computation of
basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Income for basic
and diluted earnings per share $ 46,869 $ 92,929 $188,479 $240,150
===============================================================================================
Weighted-average shares
for basic earnings per share 100,368 100,283 100,352 100,015
Effect of dilutive securities
Employee stock options and unvested stock grants 651 586 520 846
- -----------------------------------------------------------------------------------------------
Adjusted weighted-average shares and assumed
conversions for diluted earnings per share 101,019 100,869 100,872 100,861
===============================================================================================
Basic earnings per share $ 0.47 $ 0.93 $ 1.88 $ 2.40
===============================================================================================
Diluted earnings per share $ 0.46 $ 0.92 $ 1.87 $ 2.38
===============================================================================================
</TABLE>
NOTE 5 - SEGMENTS
The Company has two reportable segments: Mobile Units and Drilling Services.
The Mobile Units segment primarily operates drilling rigs for customers,
principally at a contractually determined price per day (dayrate). Drilling
Services primarily involves providing personnel and equipment other than rigs
for oil and gas exploration and production on either a dayrate or fixed price
basis. For both segments, performance is evaluated based on operating income
before general and administrative expenses.
8
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Mobile Units
U.S. Gulf of Mexico $ 69,807 $ 79,480 $256,882 $215,736
Europe 91,158 115,905 297,929 339,012
Other Western Hemisphere 31,036 42,694 97,252 108,787
Other Eastern Hemisphere 4,953 16,958 17,602 48,224
- -----------------------------------------------------------------------------------------------------
Total Mobile Units 196,954 255,037 669,665 711,759
- -----------------------------------------------------------------------------------------------------
Drilling Services 7,351 13,965 76,564 67,133
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUES $204,305 $269,002 $746,229 $778,892
=====================================================================================================
OPERATING INCOME (LOSS) (a)
Mobile Units
U.S. Gulf of Mexico $ 36,523 $ 49,609 $153,597 $129,452
Europe 18,211 43,108 66,113 119,256
Other Western Hemisphere 16,053 25,051 58,463 63,012
Other Eastern Hemisphere 1,311 10,705 2,722 26,451
Other (b) (2,619) (3,208) (10,153) (8,259)
- -----------------------------------------------------------------------------------------------------
Total Mobile Units 69,479 125,265 270,742 329,912
- -----------------------------------------------------------------------------------------------------
Drilling Services 245 1,570 10,538 4,773
- -----------------------------------------------------------------------------------------------------
Total Operating Income for Reportable Segments 69,724 126,835 281,280 334,685
Corporate Expenses (7,641) (6,544) (22,405) (21,873)
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 62,083 120,291 258,875 312,812
- -----------------------------------------------------------------------------------------------------
Equity in earnings of joint ventures 3,647 3,350 10,183 8,240
Interest income 612 562 1,858 2,514
Interest expense, net of amounts capitalized (13) (4,889) (2,952) (17,571)
Gain on termination of cash flow sharing agreement - - - 21,290
Other, net 152 12,501 (618) 13,354
- -----------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE), NET 4,398 11,524 8,471 27,827
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 66,481 $131,815 $267,346 $340,639
=====================================================================================================
</TABLE>
(a) After depreciation and amortization expense.
(b) Other includes operations and engineering overhead expenses not allocated
to geographic areas of operations.
9
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - CORPORATE REORGANIZATION
Effective May 14, 1999, the Company completed a corporate reorganization that
resulted in it becoming a Cayman Islands corporation rather than a Delaware
corporation ("Transocean-Delaware"), which had no material effect on the
condensed consolidated financial statements of the Company. In the
reorganization, each share of Transocean-Delaware's common stock was converted
into one ordinary share of the Company and all treasury shares were cancelled.
NOTE 7 - PROPOSED BUSINESS COMBINATION
On July 12, 1999, the Company announced the signing of a definitive merger
agreement (the "Merger Agreement") among the Company, Transocean SF Ltd., a
wholly owned subsidiary of the Company ("Merger Sub"), Schlumberger Limited
("Schlumberger") and Sedco Forex Holdings Limited, a wholly owned subsidiary of
Schlumberger ("Sedco Forex"). On the same date, Schlumberger and Sedco Forex
separately entered into a definitive distribution agreement (the "Distribution
Agreement"). Pursuant to the Merger Agreement and the Distribution Agreement,
Sedco Forex, which constitutes or will constitute a substantial portion of the
offshore contract drilling business of Schlumberger, will be spun off to the
shareholders of Schlumberger (the "Distribution"), and promptly merged with and
into Merger Sub (the "Merger"), thereby becoming a wholly-owned subsidiary of
the Company. The Schlumberger shareholders will receive shares of the Company
in exchange for their shares of Sedco Forex in the Merger. The Distribution and
the Merger are expected to be free of U.S. federal income taxes.
Following the Distribution and the Merger, Schlumberger shareholders will own
approximately 52 percent of the shares in the combined company, which will be
renamed "Transocean Sedco Forex Inc." The diluted ratio of ownership in the
share capital of the resulting company is fixed by the Merger Agreement and not
subject to adjustment. Based on the expected outstanding diluted share count of
the Company at the time of the Merger (approximately 101 million shares),
Schlumberger shareholders would receive approximately 109 million shares in the
combined company. Using the expected Schlumberger shares outstanding at the
time of the Merger (approximately 565 million shares), Schlumberger shareholders
would receive approximately one newly issued Transocean Sedco Forex share for
every five Schlumberger shares held. The approximately 109 million shares
expected to be issued in the Merger would be valued at approximately $3.3
billion using the average of the closing prices of the Company's ordinary shares
over the twenty consecutive trading-day period ending October 15, 1999. The
Merger will be accounted for as a purchase, with Sedco Forex as the accounting
acquiror.
At the effective time of the Merger, Sedco Forex will have approximately $435
million in debt, subject to adjustment based on agreed levels of working capital
and capital expenditures, among other matters, of which approximately $340
million is expected to be indebtedness to affiliates of Schlumberger and will be
required to be repaid immediately following the Merger. On October 19, 1999,
the Company executed a commitment letter with a commercial bank under which the
bank will underwrite a $400 million unsecured five-year term loan facility.
Proceeds made available under the facility will be used to refinance the
indebtedness of Sedco Forex to Schlumberger upon completion of the Merger and
for general corporate purposes. Amounts outstanding under the facility will
bear interest at floating rates equal to LIBOR plus a margin equal to a
percentage based on the Company's credit rating in effect from time to time or
the bank's prime rate, at the Company's option, and may be prepaid at any time
without premium or penalty. No principal amortization is required for the first
two years of the facility. The facility will be established under
10
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
a credit agreement that will contain financial covenants obligating the Company
to maintain a minimum interest coverage ratio and a maximum ratio of
consolidated indebtedness to total capitalization and will contain other
customary covenants, representations and warranties and conditions precedent.
The transactions described above have been approved, as appropriate, by the
board of directors of each of the Company and Schlumberger and are expected to
close by December 31, 1999, subject to the approval of the shareholders of both
companies and other customary closing conditions. Shareholder meetings for the
Company and Schlumberger have been set for December 10, 1999. On October 26,
1999, the Company filed a registration statement with the U. S. Securities and
Exchange Commission relating to the Company's ordinary shares to be issued in
the Merger. The registration statement became effective October 27, 1999.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in connection with the information
contained in the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. When used herein the term "Company" means Transocean
Offshore Inc., a Cayman Islands exempted company limited by shares, its
consolidated subsidiaries and its predecessors, unless the context indicates
otherwise.
OVERVIEW
Transocean Offshore Inc. is a leading international provider of offshore
contract drilling services for oil and gas exploration, development and
production. The Company owns, has partial ownership interests in or operates 30
mobile offshore drilling units. Transocean's fleet consists of seven fourth-
generation semisubmersibles, thirteen second- and third-generation
semisubmersibles, four drillships, including two newbuild drillships, the
Discoverer Enterprise, which is currently in the final stages of commissioning
and testing, and the Discoverer Spirit, which is at a U.S. Gulf Coast shipyard
for outfitting with drilling equipment, and six jackup rigs. The Company also
has under construction one additional Discoverer Enterprise-class drillship, to
be named the Discoverer Deep Seas. The Company contracts these drilling rigs,
related equipment and work crews primarily on a dayrate basis to drill offshore
wells. The Company also provides additional services, including turnkey
drilling, coiled tubing drilling and well intervention and management of third-
party well service activities.
OPERATING RESULTS
Comparative data relating to the Company's operating revenues and operating
income by segment and geographic area follows. In the table and related
discussion below, the "Mobile Units" segment primarily consists of the results
of operations for drilling rigs operated for customers, primarily at a
contractually determined price per day (dayrate). The "Drilling Services"
segment primarily includes results from providing personnel and equipment other
than rigs for oil and gas exploration and production on either a dayrate or
fixed price basis.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Mobile Units
U.S. Gulf of Mexico $ 69,807 $ 79,480 $256,882 $215,736
Europe 91,158 115,905 297,929 339,012
Other Western Hemisphere 31,036 42,694 97,252 108,787
Other Eastern Hemisphere 4,953 16,958 17,602 48,224
- -----------------------------------------------------------------------------------------------------
Total Mobile Units 196,954 255,037 669,665 711,759
- -----------------------------------------------------------------------------------------------------
Drilling Services 7,351 13,965 76,564 67,133
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUES $204,305 $269,002 $746,229 $778,892
=====================================================================================================
OPERATING INCOME (LOSS) (a)
Mobile Units
U.S. Gulf of Mexico $ 36,523 $ 49,609 $153,597 $129,452
Europe 18,211 43,108 66,113 119,256
Other Western Hemisphere 16,053 25,051 58,463 63,012
Other Eastern Hemisphere 1,311 10,705 2,722 26,451
Other (b) (2,619) (3,208) (10,153) (8,259)
- -----------------------------------------------------------------------------------------------------
Total Mobile Units 69,479 125,265 270,742 329,912
- -----------------------------------------------------------------------------------------------------
Drilling Services 245 1,570 10,538 4,773
- -----------------------------------------------------------------------------------------------------
Total Operating Income for Reportable Segments 69,724 126,835 281,280 334,685
Corporate Expenses (7,641) (6,544) (22,405) (21,873)
- -----------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 62,083 120,291 258,875 312,812
- -----------------------------------------------------------------------------------------------------
Equity in earnings of joint ventures 3,647 3,350 10,183 8,240
Interest income 612 562 1,858 2,514
Interest expense, net of amounts capitalized (13) (4,889) (2,952) (17,571)
Gain on termination of cash flow sharing agreement - - - 21,290
Other, net 152 12,501 (618) 13,354
- -----------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE), NET 4,398 11,524 8,471 27,827
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 66,481 $131,815 $267,346 $340,639
=====================================================================================================
</TABLE>
(a) After depreciation and amortization expense.
(b) Other includes operations and engineering overhead expenses not allocated
to geographic areas of operations.
13
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
Net income for the three months ended September 30, 1999 was $46.9 million or
$0.46 per share, diluted, compared to $92.9 million or $0.92 per share, diluted,
for the three months ended September 30, 1998, a decrease of $46.0 million or
$0.46 per share, diluted. The decrease for 1999 as compared to 1998 resulted
primarily from decreases in rig utilization, caused by reduced exploration and
production spending levels by the Company's customers, and higher depreciation
expense, partially offset by lower operating and maintenance costs and lower net
interest expense. In addition, other income was lower for the three months
ended September 30, 1999 due to the fact that the prior year period included a
non-recurring $13.2 million pre-tax gain ($8.5 million after tax or $0.08 per
share, diluted) on the sale of certain non-core assets within the Company's
Drilling Services business segment and surplus drilling components.
Revenues were $204.3 million for the three months ended September 30, 1999
compared to $269.0 million for the three months ended September 30, 1998, a
decrease of $64.7 million or 24.1 percent. Operating income was $62.1 million
for the three months ended September 30, 1999 compared to $120.3 million for the
three months ended September 30, 1998, a decrease of $58.2 million or 48.4
percent. The decrease in revenues for the three months ended September 30, 1999
resulted from decreased utilization and average dayrates compared to the three
months ended September 30, 1998, while the decrease in operating income resulted
primarily from decreased utilization and average dayrates, as well as higher
depreciation expense, partially offset by lower operating and maintenance costs.
Revenues and operating income from Mobile Units decreased for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998.
Fleetwide rig utilization decreased to 80 percent for the three months ended
September 30, 1999 from 98 percent for the three months ended September 30,
1998, reflecting the fact that seven rigs were idle for all or part of the third
quarter of 1999. The average dayrate for the Company's semisubmersible drilling
rigs and drillships was approximately $116,200 for the three months ended
September 30, 1999 compared to approximately $124,800 for the three months ended
September 30, 1998, a decrease of 6.9 percent. The average dayrate for the
Company's six jackup rigs decreased 50.0 percent as compared to the prior year
quarter.
In the U.S. Gulf of Mexico, the decrease in revenues and operating income
resulted primarily from one rig that had worked in the region the entire third
quarter of 1998 relocating to Other Western Hemisphere during the third quarter
of 1999, and from lower average dayrates earned. These decreases were partially
offset by the results of two rigs working in the region that had only worked in
the region a portion of the three months ended September 30, 1998. In Europe,
the decreases in revenues and operating income resulted from decreased
utilization due to four rigs, which worked the entire three months ended
September 30, 1998, being idle for all or part of the three months ended
September 30, 1999, as well as lower average dayrates compared to the prior year
period. In Other Western Hemisphere, the decrease in revenues and operating
income resulted from one rig working in the U.S. Gulf of Mexico during the three
months ended September 30, 1999 that had worked in the region a portion of the
three months ended September 30, 1998, and from one semisubmersible being idle
in the U.S. Gulf of Mexico that had worked in the region the entire three months
ended September 30, 1998. These negative variances were partially offset by the
results of one rig working in the region a portion of the three months ended
September 30, 1999 that had worked in the U.S. Gulf of Mexico during the prior
year period, as well as an increase in average dayrates during the three months
ended September 30, 1999. In Other Eastern Hemisphere, the decrease in revenues
and operating income resulted from lower average dayrates and utilization. Two
jackup rigs that had worked the entire three months ended September 30, 1998
were idle the entire three months ended September 30, 1999.
14
<PAGE>
Revenues and operating income from Drilling Services decreased for the three
months ended September 30, 1999 compared to the three months ended September 30,
1998. This decrease is primarily the result of a lower level of activity in
Europe and no drilling services activity in Mexico and India during the three
months ended September 30, 1999.
Depreciation and amortization expense increased by $3.6 million for the three
months ended September 30, 1999 over the three months ended September 30, 1998.
The increase was primarily due to additional depreciation resulting from the
capitalization of property and equipment associated with the Company's completed
major upgrade and construction projects.
Other income, net decreased to $4.4 million for the three months ended September
30, 1999 compared to $11.5 million for the three months ended September 30,
1998. The prior year period included a $13.2 million pre-tax gain on the sale
of certain non-core assets within its Drilling Services business segment and
surplus drilling equipment. Net interest expense decreased by $4.9 million for
the three months ended September 30, 1999 compared to the three months ended
September 30, 1998 primarily due to the increased capitalization of interest on
the Company's construction projects.
Income tax expense decreased by $19.3 million primarily due to lower pre-tax
earnings for the three months ended September 30, 1999 compared to the three
months ended September 30, 1998. The Company's effective tax rate remained the
same for the three months ended September 30, 1999 compared to the three months
ended September 30, 1998, and was lower than the U.S. statutory rate primarily
due to the permanent reinvestment of earnings of certain foreign operations.
NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net income for the nine months ended September 30, 1999 was $188.5 million or
$1.87 per share, diluted, compared to $240.2 million or $2.38 per share,
diluted, for the nine months ended September 30, 1998, a decrease of $51.7
million or $0.51 per share, diluted. The decrease for the nine months ended
September 30, 1999 resulted primarily from a decrease in rig utilization caused
by reduced exploration and production spending levels by the Company's
customers, higher operating and maintenance costs and higher depreciation
expense, partially offset by lower net interest expense. In the nine months
ended September 30, 1998, the Company recognized a non-recurring $21.3 million
pre-tax gain ($13.8 million after tax or $0.14 per share, diluted) on the
termination of a cash flow sharing agreement with Global Marine Inc. ("Global
Marine") and a non-recurring $13.2 million pre-tax gain ($8.6 million after tax
or $0.08 per share, diluted) on the sale of certain non-core assets within the
Company's Drilling Services business segment and surplus drilling components.
Revenues were $746.2 million for the nine months ended September 30, 1999,
compared to $778.9 million for the nine months ended September 30, 1998, a
decrease of $32.7 million or 4.2 percent. Operating income was $258.9 million
for the nine months ended September 30, 1999 compared to $312.8 million for the
nine months ended September 30, 1998, a decrease of $53.9 million or 17.2
percent. The decrease in revenues for the nine months ended September 30, 1999
resulted primarily from decreased utilization from the nine months ended
September 30, 1998, partially offset by higher revenues from the turnkey
drilling services operations in Mexico, which were completed in the second
quarter of 1999. The decrease in operating income for the nine months ended
September 30, 1999 resulted primarily from decreased utilization, as well as,
higher operating and maintenance costs and higher depreciation and amortization
expense.
Revenues and operating income from Mobile Units decreased for the nine months
ended September 30, 1999, compared to the nine months ended September 30, 1998.
The Company's fleetwide rig utilization
15
<PAGE>
decreased to 84 percent for the nine months ended September 30, 1999 from 98
percent for the nine months ended September 30, 1998. Partially offsetting these
decreases, the average dayrate for the Company's semisubmersible drilling rigs
and drillships was approximately $125,600 for the nine months ended September
30, 1999, compared to approximately $118,200 for the nine months ended September
30, 1998, an increase of 6.3 percent. In addition, one rig worked in the nine
months ended September 30, 1999 that had been in the shipyard undergoing a
conversion during the majority of the prior year period.
In the U.S. Gulf of Mexico, the increase in revenues and operating income for
the nine months ended September 30, 1999, resulted primarily from including the
results of one rig that was in the shipyard undergoing a conversion during the
majority of the nine months ended September 30, 1998 and the results of an
additional rig for the entire nine months ended September 30, 1999, compared to
a portion for the nine months ended September 30, 1998. In Europe, decreases in
revenues and operating income resulted from decreased utilization due to five
rigs being idle a portion of the nine months ended September 30, 1999, as well
as higher downtime and maintenance expenses on two rigs that each underwent a
scheduled classification survey in the nine months ended September 30, 1999.
These rigs worked the entire nine months ended September 30, 1998. In Other
Western Hemisphere, the decrease in revenues and operating income resulted
primarily from the fact that one semisubmersible that had worked in the region
during a portion of the nine months ended September 30, 1998 was working in the
U.S. Gulf of Mexico during the entire nine months ended September 30, 1999.
These negative variances were partially offset by an increase in the average
dayrate over the prior year period and the inclusion of the results of one rig
for a portion of the nine months ended September 30, 1999 that had worked in the
U.S. Gulf of Mexico during the entire nine months ended September 30, 1998. In
Other Eastern Hemisphere, the significant decrease in revenues and operating
income resulted from lower average dayrates and utilization. Two rigs that had
worked the majority of the nine months ended September 30, 1998 were idle for
all or a portion of the nine months ended September 30, 1999.
Revenues and operating income from Drilling Services increased for the nine
months ended September 30, 1999, compared to the nine months ended September 30,
1998. This increase primarily reflects higher revenues and operating income
from turnkey and subsequent daywork operations associated with the turnkey
drilling project in Mexico, which was completed in the second quarter of 1999.
Depreciation and amortization expense increased by $11.7 million for the nine
months ended September 30, 1999, compared to the nine months ended September 30,
1998. The increase was primarily due to additional depreciation resulting from
the capitalization of property and equipment associated with the Company's
completed major upgrade and construction projects.
Other income, net decreased to $8.5 million for the nine months ended September
30, 1999, compared to $27.9 million for the nine months ended September 30,
1998. Net interest expense decreased significantly for the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998
primarily due to the increased capitalization of interest on the Company's
construction projects. The nine months ended September 30, 1998 included a
$21.3 million pre-tax gain on the termination of a cash flow sharing agreement
with Global Marine and a $13.2 million pre-tax gain on the sale of certain non-
core assets within the Company's Drilling Services business segment and surplus
drilling components.
Income tax expense decreased by $21.6 million primarily due to lower pre-tax
earnings for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 1998. The Company's effective tax rate remained the
same for the nine months ended September 30, 1999 compared to the nine months
ended September 30, 1998 and was lower than the U.S. statutory rate primarily
due to the permanent reinvestment of earnings of certain foreign operations.
16
<PAGE>
MARKET OUTLOOK
Rig utilization for the third quarter 1999 averaged 80 percent (versus 81
percent, second quarter 1999) fleetwide and 86 percent (versus 87 percent,
second quarter 1999) for the Company's 20 fully owned and active floating
drilling units. Average dayrates during the third quarter of 1999 declined to
$101,500 (versus $111,500, second quarter 1999) fleetwide and $116,200 (versus
$128,100, second quarter 1999) for the Company's floaters, primarily as a result
of several rigs commencing lower rate contracts during the quarter. As of
September 30, 1999, the Company had 68 percent of its fleet days committed for
the remainder of 1999 (including the Discoverer Enterprise, which is expected to
be placed in service during the fourth quarter of 1999) and 47 percent for the
year 2000.
Reduced exploration and development activity by the Company's customers,
resulting from the sustained period of low oil prices from late 1997 through
early 1999 and industry consolidation over the same time period, continued in
the third quarter despite the upturn in prices since February 1999. Rig
availability has also increased as a result of expiring contracts and
construction by drilling contractors of new rigs that are capable of competing
with the Company's rigs. This decline in exploration and development activity
and increased rig availability has created a highly competitive market for
contract drilling services, with corresponding reductions in utilization and
dayrates for all classes of offshore rigs.
Oil prices have rallied from lows experienced in 1998, reaching a price in
excess of $24 a barrel in September before falling back to approximately $22 in
October. This level of oil prices suggests that there could be an improving
long-term fundamental outlook for the offshore drilling business. The Company
has recently experienced an increase in customer inquiries in its principal
market areas, but this has not yet led to meaningful increases in dayrates or
rig utilization. It is expected that in the near term, customers will continue
a cautious approach to exploration and development spending until these
commodity price gains prove to be sustainable.
The Company's efforts to secure contracts for its drilling units becoming
available due to contract expirations have been and will continue to be
adversely affected by continuing market weakness. Some units have been
contracted at lower rates in order to secure work and others have been stacked.
As of October 31, 1999, two of the Company's jackups and three semisubmersibles
were stacked. In addition to the loss of revenues associated with stacking
rigs, the Company has incurred and may incur additional expenses associated with
severance and related payments to rig operating personnel made redundant as a
result of idled rigs.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Cash flows provided by operations were $394.0 million for the nine months ended
September 30, 1999, compared to $287.4 million for the nine months ended
September 30, 1998, an increase of $106.6 million. The increase in cash
provided by operations was primarily due to increases provided by net working
capital components, partially offset by lower cash flows from net income in the
1999 period compared to the 1998 period.
Cash flows used in investing activities in the first nine months of 1999 were
$336.1 million, compared to $430.9 million in the first nine months of 1998.
The Company received $26.3 million of capital distributions in respect of an
equity investment in the first nine months of 1999 compared to $3.3 million
received in the first nine months of 1998. In addition, capital expenditures
decreased by $92.4 million in the first nine
17
<PAGE>
months of 1999 as compared to the first nine months of 1998. The 1998 period
includes $10.0 million in proceeds from the divestiture of certain non-core
drilling services assets. Proceeds from other asset disposals were $3.1 million
in the first nine months of 1999 compared to $13.3 million in the prior year
period.
Cash flows used in financing activities were $101.0 million in the first nine
months of 1999, compared to cash flows provided by financing activities of
$119.9 million in the first nine months of 1998. The increase in cash used in
financing activities was primarily due to net repayments on the revolving line
of credit during the first nine months of 1999 compared to net borrowings during
the first nine months of 1998.
CAPITAL EXPENDITURES
The Company's investments in its existing fleet and previously announced fleet
additions continue to require significant capital expenditures. Capital
expenditures totaled $366 million during the nine months ending September 30,
1999 and are expected to be approximately $209 million during the remainder of
the year, including amounts that will be spent on the construction of the
deepwater drillships Discoverer Enterprise, Discoverer Spirit and Discoverer
Deep Seas.
The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction projects.
<TABLE>
<CAPTION>
Discoverer Discoverer Discoverer
(Expenditures in millions) Enterprise Spirit Deep Seas
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative at December 31, 1998 $302 $124 $106
Actual for the nine months ended
September 30, 1999 110 124 79
- -----------------------------------------------------------------------------------------------
Cumulative at September 30, 1999 412 248 185
Projected - October 1, 1999 through December 31, 1999 23 76 80
Projected - 2000 10 34 90
- -----------------------------------------------------------------------------------------------
Projected Total Costs $445 $358 $355
===============================================================================================
</TABLE>
The amounts shown for the Discoverer Enterprise include certain costs not
expected to be incurred in connection with the construction of the Discoverer
Spirit and Discoverer Deep Seas, including: engineering design costs that will
not be repeated because the Discoverer Spirit and Discoverer Deep Seas are the
same design as the Discoverer Enterprise; lifting and other construction costs
that have been contracted on a lump sum rather than a time and materials basis;
incremental capitalized interest and administrative costs attributable to
project delays, some of which were due to weather and other factors beyond the
control of the Company; and costs and delays associated with commissioning and
testing several items of drilling equipment that are based on new designs or
technology. The Discoverer Enterprise is expected to be completed during the
fourth quarter of 1999; the Discoverer Spirit, which is at a U. S. Gulf Coast
shipyard for outfitting with drilling equipment, and the Discoverer Deep Seas
are expected to be completed in the second and third quarter of 2000,
respectively.
As with any major construction project that takes place over an extended period
of time, the actual costs, the timing of expenditures, and the project
completion date may vary from estimates based on numerous factors, including
modification of the design, actual terms of awarded contracts, weather, exchange
rates, shipyard labor conditions and the market demand for components and
resources required for drilling unit construction. The Company intends to fund
the cash requirements relating to these capital commitments through available
cash balances, borrowings under the Credit Agreement referred to below and other
commercial bank or
18
<PAGE>
capital market financings, including potential public offerings under the
Company's shelf registration statement (discussed below) and, in the case of the
Discoverer Enterprise, financing under the Project Financing Agreement referred
to below.
MERGERS AND ACQUISITIONS
The Company, from time to time, reviews possible mergers and acquisitions of
businesses and drilling units, and may in the future make significant capital
commitments for such purposes. Any such transaction could involve the payment
by the Company of a substantial amount of cash and the issuance of a substantial
number of ordinary shares or preference shares. The Company would expect to
fund the cash requirements of any such transaction through cash balances on
hand, the incurrence of additional debt, sales of assets, issuance of ordinary
shares or preference shares, or a combination thereof. See "--Proposed Business
Combination".
AUTHORIZED STOCK REPURCHASE
In May 1997, the Company's Board of Directors authorized the repurchase of up to
$200 million worth of its ordinary shares from time to time on the open market
or in privately negotiated transactions. After purchases made during 1997,
approximately $105 million remains available under this authority. The Board of
Directors, from time to time, reviews the possibility of repurchasing ordinary
shares in light of prevailing share prices and the financial position of the
Company.
DEBT
Project Financing Agreement - In connection with the construction of the
Discoverer Enterprise and the upgrade of Transocean Amirante, the Company's
wholly owned subsidiary, Transocean Enterprise Inc. ("TEI"), entered into a
project financing agreement effective December 27, 1996 with a group of banks
led by ABN AMRO Bank, N.V., as agent (the "Project Financing Agreement").
Approximately $323 million was available in two tranches for drawdowns during
the construction period. The first tranche of $62.9 million, which was
originally to be repaid upon completion of construction and acceptance of the
two rigs by Amoco Production Company ("Amoco"), was repaid in October 1999, as
described below. It bore an interest rate of LIBOR plus 0.35 percent. The
second tranche, amounting to $259.9 million (of which $124.1 million in
borrowings were outstanding as of September 30, 1999), bears an interest rate of
LIBOR plus 0.85 percent during the construction period and is convertible to
term financing upon completion of construction and acceptance of the two rigs by
Amoco. The amount available under the second tranche has been reduced by $32.9
million to $227.0 million as described below. The term financing, which is to
be paid out of cash flows from the two rigs, matures over a period of five
years. Amoco has contracted the Transocean Amirante for a period of up to five
years and the Discoverer Enterprise for a period of five years following their
respective acceptance dates. The Company expects the term financing to consist
of borrowings under a lease securitization facility provided by the agent at a
floating interest rate (which has been converted to a fixed rate by the interest
rate swap transactions described below) plus a margin of 0.36 percent for
amounts fully amortized by cash flows from the Amoco contracts and a margin of
0.62 percent for the remaining amounts, if any.
The Project Financing Agreement originally required acceptance of the two
drilling units by Amoco, repayment of the first tranche and conversion of the
second tranche to term financing no later than December 31, 1998. Although the
Transocean Amirante was accepted by Amoco and commenced operations in July 1997,
the Discoverer Enterprise was not completed on this schedule due to construction
delays. As a result, during December 1998, TEI amended the Project Financing
Agreement to extend the outside date for
19
<PAGE>
acceptance of the Discoverer Enterprise, repayment of the first tranche and
conversion of the second tranche to term financing from December 31, 1998 to
August 31, 1999. During August 1999, the Project Financing Agreement was amended
to extend the outside date previously described to October 31, 1999 so as to
allow more time to complete the final testing phase of the Discoverer
Enterprise.
During October 1999, the Project Financing Agreement was further amended to
extend the outside date for acceptance of the Discoverer Enterprise and
conversion of the second tranche to term financing from October 31, 1999 to
January 31, 2000 to allow time to complete certain equipment modifications
requested by Amoco during the final testing phase of the rig. In connection
with this extension, TEI repaid the $62.9 million outstanding under the first
tranche of the Project Financing Agreement and two banks participating in the
group withdrew. As a result, TEI repaid approximately $15.7 million outstanding
under the second tranche of the Project Financing Agreement and the total amount
of undrawn commitments available was reduced by $17.2 million, reducing the
total amount available to $227.0 million. The Company loaned TEI the necessary
funds to make these repayments through borrowings under the Revolving Credit
Facility.
On November 1, 1999, TEI amended the terms of its interest rate swap
transactions, which effectively lock in a fixed interest rate for the term
financing under the Project Financing Agreement, to change the start date to
November 30, 1999. In connection with the amendment, the fixed rate TEI would
pay increased from 6.8215 percent to 6.908 percent. The net unrealized loss on
the interest rate swaps was approximately $4.2 million as of September 30, 1999.
Credit Agreement - The Company entered into a credit agreement dated as of July
30, 1996 with a group of banks led by ABN AMRO Bank, N.V. (the "Credit
Agreement"). The Credit Agreement, as subsequently amended, provides for
borrowing by the Company under a revolving credit facility in the amount of $540
million (the "Revolving Credit Facility"). Loans under the Credit Agreement
bear interest, at the option of the Company, at a base rate or LIBOR plus a
margin (0.25 percent at September 30, 1999) that varies depending on the
Company's funded debt to total capital ratio or its public senior unsecured debt
rating. The Credit Agreement requires compliance with various restrictive
covenants, including an interest coverage ratio, which could limit the Company's
ability to pay dividends in the future. The Credit Agreement has a maturity
date of July 2002. As of September 30, 1999, approximately $306.0 million was
available for borrowings under the Revolving Credit Facility.
LETTERS OF CREDIT
The Company had letters of credit outstanding at September 30, 1999 totaling
$37.5 million, including $28.4 million relating to a legal dispute with Kvaerner
Installasjon a.s. See Part II. Item 1. Legal Proceedings. The remaining $9.1
million guarantees various insurance and contract bidding activities.
SHELF REGISTRATION
The Company has a $450 million shelf registration statement on Form S-3 for the
proposed offering from time to time of senior or subordinated debt securities,
preference shares, ordinary shares and warrants to purchase debt securities,
preference shares, ordinary shares or other securities.
20
<PAGE>
DERIVATIVE INSTRUMENTS
The Company enters into a variety of derivative financial instruments in
connection with the management of its exposure to fluctuations in foreign
exchange rates and interest rates. The Company does not enter into derivative
transactions for speculative purposes; however, for accounting purposes certain
transactions may not meet the current criteria for hedge accounting.
Gains and losses on foreign exchange derivative instruments, which qualify as
accounting hedges, are deferred and recognized when the underlying foreign
exchange exposure is realized. Gains and losses on foreign exchange derivative
instruments, which do not qualify as hedges for accounting purposes, are
recognized currently based on the change in market value of the derivative
instruments. At September 30, 1999 and 1998, the Company did not have any
foreign exchange derivative instruments not qualifying as hedges.
The Company uses interest rate swap agreements to effectively convert a portion
of its floating rate debt to a fixed rate basis, reducing the impact of interest
rate changes on future income. Interest rate swaps are designated as a hedge of
underlying future interest payments. The interest rate differential to be
received or paid on the swaps is recognized over the lives of the swaps as an
adjustment to interest expense. At September 30, 1999, the net unrealized loss
on open interest rate swaps was approximately $4.2 million.
SOURCES OF LIQUIDITY
The Company believes that its cash and cash equivalents, cash generated from
operations, borrowings available under its Credit Agreement, Project Financing
Agreement and access to other financing sources will be adequate to meet its
anticipated short-term and long-term liquidity requirements, including scheduled
debt repayments and capital expenditures for new rig construction and upgrade
projects.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB 133 to delay the required effective date for adoption of
SFAS 133 to fiscal years beginning after June 15, 2000. Because of the
Company's limited use of derivatives to manage its exposure to fluctuations in
foreign exchange rates and interest rates, management does not anticipate that
the adoption of the new statement will have a significant effect on the results
of operations or the financial position of the Company. The Company will adopt
SFAS 133 as of January 1, 2001.
CORPORATE REORGANIZATION
On May 13, 1999, the shareholders approved a corporate reorganization that
resulted in the Company becoming a Cayman Islands corporation rather than a
Delaware corporation. In the reorganization, which was effected May 14, 1999,
(i) Transocean Offshore Inc., a Delaware corporation ("Transocean-Delaware"),
merged with and into Transocean Offshore (Texas) Inc., a Texas corporation
("Transocean-Texas"), (ii) following, such merger, Transocean-Texas converted to
and registered by way of continuation as a Cayman Islands exempted company
limited by shares named "Transocean Offshore Inc." and (iii) following such
conversion and continuation, the Company contributed a significant portion of
its assets to a newly formed Delaware subsidiary. The Company believes the
reorganization will give it greater flexibility in seeking to lower its
worldwide effective corporate income tax rate and allow it to restructure its
business to improve operational efficiencies, including improved worldwide cash
management. In addition, the Company anticipates that the reorganization may
increase its access to international capital markets, broaden its
21
<PAGE>
investor base by making its securities more attractive to non-U.S. investors and
may result in a more favorable corporate structure for expansion of its current
business through creation of foreign joint ventures and future acquisition
opportunities. In the reorganization, each share of Transocean-Delaware's common
stock was converted into one ordinary share of the Company. The shares of the
Company are listed on the New York Stock Exchange under "RIG," the same symbol
under which the Transocean-Delaware common stock was previously listed.
PROPOSED BUSINESS COMBINATION
On July 12, 1999, the Company announced the signing of a definitive merger
agreement (the "Merger Agreement") among the Company, Transocean SF Ltd., a
wholly owned subsidiary of the Company ("Merger Sub"), Schlumberger Limited
("Schlumberger") and Sedco Forex Holdings Limited, a wholly owned subsidiary of
Schlumberger ("Sedco Forex"). On the same date, Schlumberger and Sedco Forex
separately entered into a definitive distribution agreement (the "Distribution
Agreement"). Pursuant to the Merger Agreement and the Distribution Agreement,
Sedco Forex, which constitutes or will constitute a substantial portion of the
offshore contract drilling business of Schlumberger, will be spun off to the
shareholders of Schlumberger (the "Distribution"), and promptly merged with and
into Merger Sub (the "Merger"), thereby becoming a wholly-owned subsidiary of
the Company. The Schlumberger shareholders will receive shares of the Company
in exchange for their shares of Sedco Forex in the Merger. The Distribution and
the Merger are expected to be free of U.S. federal income taxes.
Following the Distribution and the Merger, Schlumberger shareholders will own
approximately 52 percent of the shares in the combined company, which will be
renamed "Transocean Sedco Forex Inc." The diluted ratio of ownership in the
share capital of the resulting company is fixed by the Merger Agreement and not
subject to adjustment. Based on the expected outstanding diluted share count of
the Company at the time of the Merger (approximately 101 million shares),
Schlumberger shareholders would receive approximately 109 million shares in the
combined company. Using the expected Schlumberger shares outstanding at the
time of the Merger (approximately 565 million shares), Schlumberger shareholders
would receive approximately one newly issued Transocean Sedco Forex share for
every five Schlumberger shares held. The approximately 109 million shares
expected to be issued in the Merger would be valued at approximately $3.3
billion using the average of the closing prices of the Company's ordinary shares
over the twenty consecutive trading-day period ending October 15, 1999. The
Merger will be accounted for as a purchase, with Sedco Forex as the accounting
acquiror.
At the effective time of the Merger, Sedco Forex will have approximately $435
million in debt, subject to adjustment based on agreed levels of working capital
and capital expenditures, among other matters, of which approximately $340
million is expected to be indebtedness to affiliates of Schlumberger and will be
required to be repaid immediately following the Merger. On October 19, 1999,
the Company executed a commitment letter with a commercial bank under which the
bank will underwrite a $400 million unsecured five-year term loan facility.
Proceeds made available under the facility will be used to refinance the
indebtedness of Sedco Forex to Schlumberger upon completion of the Merger and
for general corporate purposes. Amounts outstanding under the facility will
bear interest at floating rates equal to LIBOR plus a margin equal to a
percentage based on the Company's credit rating in effect from time to time or
the bank's prime rate, at the Company's option, and may be prepaid at any time
without premium or penalty. No principal amortization is required for the first
two years of the facility. The facility will be established under a credit
agreement that will contain financial covenants obligating the Company to
maintain a minimum interest coverage ratio and a maximum ratio of consolidated
indebtedness to total capitalization and will contain other customary covenants,
representations and warranties and conditions precedent.
22
<PAGE>
The transactions described above have been approved, as appropriate, by the
board of directors of each of the Company and Schlumberger and are expected to
close by December 31, 1999, subject to the approval of the shareholders of both
companies and other customary closing conditions. Shareholder meetings for the
Company and Schlumberger have been set for December 10, 1999. On October 26,
1999, the Company filed a registration statement with the U.S. Securities and
Exchange Commission relating to the Company's ordinary shares to be issued in
the Merger. The registration statement became effective October 27, 1999.
YEAR 2000 ISSUE
The Company has instituted a plan to address the Year 2000 issue for its
computer systems, microprocessors, operational and control systems and other
significant computer-based devices and applications. It is possible that
certain of these systems will not be able to process dates beginning in the year
2000, as many such systems are based on storing two digits to identify a
particular year rather than a full four digits and are not designed to take into
account the start of a new century. In addition, like every other business
enterprise, the Company is at risk from year 2000 failures on the part of its
major business counterparts, including suppliers and service providers, as well
as potential failures in public and private infrastructure services, including
electricity, water, gas, transportation and communications.
The Company's Year 2000 plan focuses on Year 2000 compliance in two distinct
areas--(i) rig-based operational systems and control devices and (ii) all other
business, financial and engineering systems, including third-party systems upon
which the Company may rely. The Company's efforts are directed towards areas
that are reasonably within its control. The plan is being implemented under the
direction of senior management by the Company's information systems and
technology personnel and operations personnel with appropriate expertise. The
five phases of the Company's plan--inventory, assessment, remediation, testing
and verification, and contingency planning--are in varying stages of completion,
and ultimate completion of the plan is expected by December 31, 1999.
Inventory - The Company conducted a survey of computer systems, computer-
controlled equipment, control systems, and electronic devices, including
equipment with embedded microprocessors, onboard each rig to identify those
systems and devices to be reviewed for Year 2000 compliance. With respect to
business, financial and engineering systems, the Company surveyed all of its
internal hardware and software systems worldwide. Key third-party businesses
whose year 2000 failures would most significantly impact the Company were
identified. The inventory phase is substantially complete.
Assessment - Once each at-risk system or device was identified, users were asked
to assess how critical the system or device is to the safety and operations of
the Company. For rig-based systems, the Company has requested letters of
compliance from its third-party vendors and suppliers for all at-risk items
identified in the survey and, in addition, is conducting its own tests where
possible to verify compliance. With respect to business, financial and
engineering systems, letters of compliance have been requested from all vendors
of standard systems, and the Company is conducting tests of selected systems to
provide an enhanced degree of confidence for Year 2000 compliance. The
assessment phase is substantially complete. Compliance information has been
obtained from the Company's third-party vendors and suppliers for a majority of
the identified systems or devices.
Remediation - Critical systems and devices identified by the survey that are
likely to be affected by the Year 2000 issue are in the process of being
modified or replaced. A number of these systems and devices had already been
identified for renewal or replacement in connection with the Company's ongoing
maintenance programs. In some cases, systems or equipment are covered by
warranties, while other vendors are providing software upgrades at minimal
costs. The Company believes its Year 2000 compliance plan has adequately
23
<PAGE>
identified and addressed Year 2000 issues with respect to critical operational
and safety systems and devices. With respect to business, financial and
engineering systems, replacement or modification of known non-compliant systems
has commenced. The remediation phase is approximately 95 percent complete with
respect to rig-based systems, applications and devices and is approximately 90
percent complete with respect to business, financial and engineering systems.
The Company's remediation phase is substantially complete except for the
replacement of the maintenance/purchasing/inventory system on certain rigs. To
the extent that certain of these rigs are not operating in the fourth quarter of
1999, or are not anticipated to operate in the first quarter of 2000, the
Company may choose to delay the replacement of this system until such rigs are
returned to service. Any such delay is not expected to have a material impact
on the results of operations of the Company.
Testing and Verification - The testing and verification phase includes
establishing a test environment, performing systems testing (with third parties
if necessary) and verifying the results. The verification process entails
having experienced personnel review test results, computer screens and printouts
against pre-established criteria to ensure system or device compliance. In the
case of program logic chips, access to internal programs is frequently not
possible; however, a review of program diagrams is completed to determine if any
date or time dependency exists. All internal systems and devices identified as
critical operational and safety systems and devices, along with critical
business hardware and software systems are being tested. With respect to rig-
based systems, the Company has instituted an ongoing compliance procedure that
starts with the results of the initial survey followed by analysis, vendor
participation, corrective action, testing and continuous reappraisal. Testing
and verification is currently underway and is expected to continue throughout
1999. The Company has received compliance information and has successfully
completed testing of its corporate and field-based accounting software systems.
The Company has initiated written and telephonic communications with key third-
party businesses as well as public and private providers of infrastructure
services to ascertain and evaluate their efforts in addressing Year 2000
compliance. Although there have been no indications that such third-party
providers have significant Year 2000 compliance issues, there can be no
assurance that such companies will not experience compliance problems.
Contingency Planning - The Company has developed or, in some cases, is still in
the process of developing specific contingency plans for critical operational
and business systems and devices in the event of Year 2000-related disruptions.
The Company's rig-based operations manuals also include documented policies and
procedures in the event of an emergency or equipment failure. The effect of
significant Year 2000 disruptions with direct suppliers of materials and
supplies needed for ongoing rig operations is being considered. An overall
corporate contingency plan will be compiled with input from both operations
personnel and information systems and technology personnel and is expected to be
completed during November, 1999.
The Company believes that the reasonably likely worst case scenario is that
there will be some localized disruptions of systems that will affect individual
business and operations processes, facilities or suppliers for a short time
rather than systemic or long-term problems affecting its business operations as
a whole. The Company's drilling units are composed of many stand-alone systems
provided by a wide diversity of manufacturers. As such, the Company believes
the risk of a failure that would affect the functionality or safety of the fleet
is minimal, and the Company does not believe that the Year 2000 issue will have
a significant effect on the operations of its drilling units.
The Company's contingency planning efforts are being designed to identify
systems or other aspects of its business or that of its suppliers that it
believes would be most likely to experience Year 2000 problems, as well as those
business operations in which a localized disruption could have the potential for
causing a wider
24
<PAGE>
problem by interrupting the flow of materials or data. Because there is
uncertainty as to which activities may be affected and the exact nature of the
problems that may arise, the contingency planning efforts will focus on
minimizing the scope and duration of any disruptions by having sufficient
personnel and other resources in place to permit a flexible response to specific
problems as they may arise.
Costs - The Company has expended approximately $1.1 million through September
30, 1999 and expects additional expenditures of approximately $0.8 million to
complete implementation of its Year 2000 plan, some of which will be
capitalized. The Company does not separately track the internal costs of
employees who are not working full-time on the Company's Year 2000 plan.
Although the Company's failure to implement fully its Year 2000 compliance plan
or the occurrence of an unexpected Year 2000 problem could result in the
disruption of normal business activities or operations and have a material
adverse effect on the Company's results of operations, liquidity or financial
condition, based upon the work performed to date and the anticipated completion
of the plan during December 1999, the Company does not believe that such matters
will have a material adverse effect. During the remainder of 1999, the Company
will continue its efforts described above to address potential disruptions in
areas where the Company's operations rely on third parties. In particular, the
Company's operations in international locations could be at a greater risk of
being adversely affected by the failure of third-party businesses to adequately
address the Year 2000 problem. While such failure could affect the operations
of the Company, either directly or indirectly, in a significant manner, the
Company cannot estimate either the likelihood or the potential cost of such
failures.
The nature and focus of the Company's efforts to address the Year 2000 problem
may be revised periodically as interim goals are achieved or new issues are
identified.
FORWARD-LOOKING INFORMATION
The statements included in this quarterly report regarding future financial
performance and results of operations and other statements that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Statements to the effect that the Company or management "anticipates,"
"believes," "estimates," "expects," "predicts," or "projects" a particular
result or course of events, or that such result or course of events "may" or
"should" occur, and similar expressions, are also intended to identify forward-
looking statements. Forward-looking statements in this quarterly report
include, but are not limited to, statements involving expected capital
expenditures, liquidity requirements, financial arrangements, the timing of
completion of capital projects, the Company's plans and expectations with regard
to Year 2000 issues, the Company's expectations with regard to market outlook,
the proposed merger with Sedco Forex, and the anticipated effects of the
reorganization of the Company as a Cayman Islands corporation. Such statements
are subject to numerous risks, uncertainties and assumptions, including but not
limited to uncertainties relating to the level of activity in offshore oil and
gas exploration, development and production (particularly in deepwater and
harsh-environment regions), exploration success by producers, worldwide demand
for oil and gas, oil and gas prices, work stoppages by shipyard workers,
competition and market conditions in the offshore contract drilling industry,
delays or cost overruns on construction projects, the ability to enter into and
the terms of future contracts, risks inherent in turnkey contracts, the
availability of qualified personnel, labor relations and wage negotiations with
unions, operating hazards, political and other uncertainties inherent in foreign
operations (including exchange and currency fluctuations), the impact of
governmental laws and regulations, the adequacy of sources of liquidity, the
effect of litigation and contingencies, the success of the Company in
implementing its Year 2000 compliance plan, the failure of financial and other
service providers to be Year 2000 compliant on a timely basis, the closing of
the merger with Sedco Forex and
25
<PAGE>
other factors discussed in this quarterly report and in the Company's other
filings with the Securities and Exchange Commission. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Debt--Project Financing
Agreement" and "--Liquidity and Capital Resources--Derivative Instruments."
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has certain claims pending involving a dispute of work performance
by and amounts owed to the Kvaerner shipyard in Norway and contested tax
assessments by the municipality of Rio de Janeiro, Brazil. These matters have
been previously discussed and reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. There have been no material
developments in these previously reported matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed in connection with this Report:
NUMBER DESCRIPTION
- ------ -----------
*2.1 Agreement and Plan of Merger (incorporated by reference to Annex A to
the Joint Proxy Statement/Prospectus dated October 27, 1999 included in
Transocean's Registration Statement on Form S-4 (Registration
No. 333-89727))
*2.2 Distribution Agreement (incorporated by reference to Annex B to the
Joint Proxy Statement/Prospectus dated October 27, 1999 included in
Transocean's Registration Statement on Form S-4 (Registration
No. 333-89727))
4.1 Second Amendment to Secured Credit Agreement dated as of August 13,
1999 among Transocean Enterprise Inc., the Lenders party thereto, ABN
AMRO Bank N.V., as Agent, and the Co-Agents listed therein.
4.4 Third Amendment to Secured Credit Agreement dated as of October 22,
1999 among Transocean Enterprise Inc., the Lenders party thereto, ABN
AMRO Bank, N.V., as Agent, and the Co-Agents listed therein.
27.1 Financial Data Schedule.
- ------------
* Incorporated by reference as indicated.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on July 27, 1999 reporting
under Item 5. thereof the signing of a definitive merger agreement among the
Company, Transocean SF Ltd., a wholly owned subsidiary of the Company,
Schlumberger Limited and Sedco Forex Holdings Limited, a wholly owned subsidiary
of Schlumberger, and the signing of a definitive distribution agreement by
Schlumberger and Sedco Forex and including as an exhibit the press release
relating thereto.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 12, 1999.
TRANSOCEAN OFFSHORE INC.
By: /s/ Robert L. Long
----------------------------
Robert L. Long
Senior Vice President
(Principal Financial Officer)
By: /s/ Barbara S. Koucouthakis
----------------------------
Barbara S. Koucouthakis
Vice President and Controller
(Principal Accounting Officer)
28
<PAGE>
EXHIBIT 4.1
SECOND AMENDMENT TO SECURED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECURED CREDIT AGREEMENT (this "Amendment") dated
as of August 13, 1999, is by and among Transocean Enterprise Inc., a Delaware
corporation (the "Borrower"), the lenders from time to time parties hereto (each
a "Lender" and collectively, the "Lenders"), ABN AMRO Bank N.V. ("ABN AMRO"), a
Netherlands chartered bank, as agent for the Lenders (in such capacity, the
"Agent"), and Australia and New Zealand Banking Group Limited, Bank of Montreal,
The Bank of Nova Scotia, Atlanta Agency, The Bank of Tokyo-Mitsubishi, Ltd.,
Houston Agency and Westdeutsche Landesbank Girozentrale, as co-agents for the
Lenders (in such capacity, collectively, the "Co-Agents").
WITNESSETH
----------
WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agents have
entered into that certain Secured Credit Agreement dated as of January 17, 1997,
as amended by First Amendment to Secured Credit Agreement dated December 21,
1998 (such agreement, as amended, "Credit Agreement"), pursuant to which the
Lenders have made and agreed to make Loans to the Borrower; and
WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agents desire to
amend the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrower, the Lenders, the Agent and the Co-Agents hereby
agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. (a) Section 1.1 of the Credit
Agreement is hereby amended by amending:
(i) the definitions of "Acceptance Date", "Conversion Date" and "Maturity
Date" by deleting "August 31, 1999" in each such definition and inserting
"October 31, 1999" in lieu thereof; and
(ii) the definition of "Guarantor" to read as follows:
"Guarantor" means Transocean Offshore Inc., a Cayman Islands exempted
company, as successor by merger and conversion to Transocean Offshore
Inc., a Delaware corporation.
(b) Clause (z) of Section 2.7(c)(i) of the Credit Agreement is hereby amended
to read as follows: "(z) any change in the Conversion Date from October 31,
1999."
(c) Section 3.1(a) of the Credit Agreement is hereby amended by deleting
"December 31, 1998" in such Section and inserting "October 31, 1999" in lieu
thereof.
(d) Each of Sections 4.2(ii) and 6.18(c) of the Credit Agreement is hereby
amended by deleting "August 31, 1999" in such Sections and inserting "October
31, 1999" in lieu thereof.
<PAGE>
2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce the
Lenders, the Agent and the Co-Agents to enter into this Amendment, the Borrower
hereby reaffirms, as of the date hereof, that its representations and warranties
contained in the Credit Agreement are true and correct in all material respects
(except to the extent such representations and warranties are not so true and
correct in all material respects as a result of the transactions expressly
permitted under the Credit Agreement or under the other Credit Documents, or
relate solely to an earlier date) and additionally represents and warrants as
follows:
(i) The execution and delivery by the Borrower of this Amendment
and the performance by the Borrower of its obligations under this Amendment
and the Credit Agreement, as amended hereby, are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate
action of the Borrower and do not and will not contravene in any material
respect any provision of applicable law or contravene or conflict with any
provision of the certificate of incorporation, bylaws or any material
agreements binding upon the Borrower, and the execution and delivery by the
Borrower of this Amendment have received all necessary governmental
approvals or other consents (if any shall be required);
(ii) This Amendment and the Credit Agreement, as amended hereby,
are legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, subject as to
enforcement only to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and equitable principles;
(iii) There are no actions, suits, proceedings or counterclaims
(including, without limitation, derivative or injunctive actions) pending
or, to the knowledge of the Borrower, threatened against the Borrower or
any of its Subsidiaries which purports to affect the legality, validity or
enforceability of this Amendment, the Credit Agreement, as amended hereby,
or any other Credit Document; and
(iv) No Default or Event of Default has occurred and is
continuing (after giving effect to this Amendment).
3. REAFFIRMATION OF CREDIT AGREEMENT. This amendment shall be deemed to
be an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Credit Agreement in the Credit Agreement and the other
Credit Documents (excluding this Amendment) shall hereafter be deemed to refer
to the Credit Agreement, as amended hereby. The parties hereto hereby
undertake, in good faith, to amend any other Credit Documents necessary so as to
reflect the agreements of the parties set forth in this Amendment.
4. DEFINED TERMS. Terms used but not defined herein when defined in the
Credit Agreement shall have the same meanings herein unless the context
otherwise requires.
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<PAGE>
5. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The effectiveness
of this Amendment is subject to receipt by the Agent of the following documents,
all in form and substance reasonably satisfactory to the Agent:
(i) Transocean Performance Guaranty. Ratification by Transocean
of its obligations under the Second Amended and Restated Transocean
Performance Guaranty in substantially the form of Exhibit A; and
(ii) Other Documents. Such other documents as the Agent may
reasonably request.
6. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) This Amendment and the other Credit Documents, and the rights and
duties of the parties hereto and thereto, shall be construed in accordance with
and governed by the internal laws of the state of New York.
(b) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
HERETO AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AMENDMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE CO-AGENTS, THE LENDERS OR THE BORROWER MAY BE BROUGHT AND
MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF
MANHATTAN OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY AND ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, ANY OBJECTION WHICH IT MAY
HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT
IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
-3-
<PAGE>
PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER
THIS AMENDMENT AND THE OTHER CREDIT DOCUMENTS.
(c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AMENDMENT, THE CREDIT AGREEMENT, ANY
OTHER CREDIT DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AMENDMENT, THE CREDIT AGREEMENT, ANY OTHER CREDIT DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
7. Counterparts. This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart signature
pages, each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same agreement.
8. Severability. Any provision of this Amendment that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9. Headings. Section headings used in this Amendment are for reference
only and shall not affect the construction of this Amendment.
10. NOTICE OF ENTIRE AGREEMENT. This Amendment, together with the other
Credit Documents, constitute the entire understanding among the Borrower, the
Lenders, the Agent and the Co-Agents and supersede all earlier or
contemporaneous agreements, whether written or oral, concerning the subject
matter of the Credit Documents. THIS WRITTEN AMENDMENT, TOGETHER WITH THE OTHER
CREDIT DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Second
Amendment to Secured Credit Agreement as of the date first written above.
BORROWER:
--------
TRANSOCEAN ENTERPRISE INC.,
a Delaware corporation
By: /s/ Brian C. Voegele
---------------------------------------------------
Name: Brian C. Voegele
-------------------------------------------------
Title: Vice President - Finance
------------------------------------------------
LENDERS:
-------
ABN AMRO BANK N.V., as Agent, Collateral
Agent and as a Lender
By: /s/ Stuart Murray
---------------------------------------------------
Name: Stuart Murray
-------------------------------------------------
Title: Vice President
------------------------------------------------
By: /s/ Charles W. Randall
---------------------------------------------------
Name: Charles W. Randall
-------------------------------------------------
Title: Vice President
------------------------------------------------
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED, as Co-Agent and as a Lender
By: /s/ Claude Devillers
---------------------------------------------------
Name: Claude Devillers
-------------------------------------------------
Title: Director - Oil and Gas Americas
------------------------------------------------
-5-
<PAGE>
BANK OF MONTREAL, as Co-Agent and as a Lender
By: /s/ Mary Lee Latta
---------------------------------------------------
Name: Mary Lee Latta
-------------------------------------------------
Title: Director - Bank of Montreal
------------------------------------------------
THE BANK OF NOVA SCOTIA, ATLANTA
AGENCY, as Co-Agent and as a Lender
By: /s/ F.C.H. Ashby
---------------------------------------------------
Name: F.C.H. Ashby
-------------------------------------------------
Title: Senior Manager - Loan Operations
------------------------------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY, as Co-agent and as a Lender
By: /s/ Michael Heiss
---------------------------------------------------
Name: Michael Heiss
-------------------------------------------------
Title: Vice President
------------------------------------------------
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
as Co-Agent and as a Lender
By: /s/ Jonathan Berman
---------------------------------------------------
Name: Jonathan Berman
-------------------------------------------------
Title: Managing Director
------------------------------------------------
By: /s/ Cheryl A. Solometo
---------------------------------------------------
Name: Cheryl A. Solometo
-------------------------------------------------
Title: Managing Director
------------------------------------------------
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<PAGE>
BAYERISCHE HYPO-UND VEREINSBANK AG,
New York Branch, as a Lender
By: /s/ Pamela J. Gillons
---------------------------------------------------
Name: Pamela J. Gillons
-------------------------------------------------
Title: Associate Director
------------------------------------------------
By: /s/ Steven Atwell
---------------------------------------------------
Name: Steven Atwell
-------------------------------------------------
Title: Director
------------------------------------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Ki Allen
---------------------------------------------------
Name: Ki Allen
-------------------------------------------------
Title: Vice President
------------------------------------------------
SUNTRUST BANK, ATLANTA, as a Lender
By: /s/ John A. Fields, Jr.
---------------------------------------------------
Name: John A. Fields, Jr.
-------------------------------------------------
Title: Vice President
------------------------------------------------
By: /s/ Steven J. Newby
---------------------------------------------------
Name: Steven J. Newby
-------------------------------------------------
Title: Assistant Vice President
------------------------------------------------
-7-
<PAGE>
DEUTSCHE BANK AG IN HAMBURG, as a Lender
By: /s/ Ehrhardt
---------------------------------------------------
Name: Ehrhardt
-------------------------------------------------
Title: Senior Vice President
------------------------------------------------
By: /s/ L. Peter Flug
---------------------------------------------------
Name: L. Peter Flug
-------------------------------------------------
Title: Legal Counsel
------------------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as a Lender
By: /s/ Karen A. Patterson
---------------------------------------------------
Name: Karen A. Patterson
-------------------------------------------------
Title: Authorized Officer
------------------------------------------------
THE BANK OF NEW YORK, as a Lender
By: /s/ Peter Keller
---------------------------------------------------
Name: Peter Keller
-------------------------------------------------
Title: Vice President
------------------------------------------------
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG, as Lender
By: /s/ Mark K. Connelly
---------------------------------------------------
Name: Mark K. Connelly
-------------------------------------------------
Title: Vice President
------------------------------------------------
By: /s/ Lynne McCarthy
---------------------------------------------------
Name: Lynne McCarthy
-------------------------------------------------
Title: Assistant Vice President
------------------------------------------------
-8-
<PAGE>
ROYAL BANK OF CANADA, as a Lender
By: /s/ Linda M. Stephens
---------------------------------------------------
Name: Linda M. Stephens
-------------------------------------------------
Title: Senior Manager
------------------------------------------------
KBC BANK, N.V., as a Lender
By: /s/ Robert Snauffer
---------------------------------------------------
Name: Robert Snauffer
-------------------------------------------------
Title: First Vice President
------------------------------------------------
By: /s/ Declan Meagher
---------------------------------------------------
Name: Declan Meagher
-------------------------------------------------
Title: First Vice President
------------------------------------------------
THE ROYAL BANK OF SCOTLAND plc, as a Lender
By: /s/ Scott Barton
---------------------------------------------------
Name: Scott Barton
-------------------------------------------------
Title: Vice President
------------------------------------------------
-9-
<PAGE>
EXHIBIT 4.4
THIRD AMENDMENT TO SECURED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SECURED CREDIT AGREEMENT (this "Amendment") dated
as of October 22, 1999, is by and among Transocean Enterprise Inc., a Delaware
corporation (the "Borrower"), the lenders from time to time parties hereto (each
a "Lender" and collectively, the "Lenders"), ABN AMRO Bank N.V. ("ABN AMRO"), a
Netherlands chartered bank, as agent for the Lenders (in such capacity, the
"Agent"), and Australia and New Zealand Banking Group Limited, Bank of Montreal,
The Bank of Nova Scotia, Atlanta Agency, The Bank of Tokyo-Mitsubishi, Ltd.,
Houston Agency and Westdeutsche Landesbank Girozentrale, as co-agents for the
Lenders (in such capacity, collectively, the "Co-Agents").
WITNESSETH
----------
WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agents have
entered into that certain Secured Credit Agreement dated as of January 17, 1997,
as amended by First Amendment to Secured Credit Agreement dated December 21,
1998, as amended by Second Amendment to Secured Credit Agreement dated August
13, 1999 (such agreement, as amended, "Credit Agreement"), pursuant to which the
Lenders have made and agreed to make Loans to the Borrower; and
WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agents desire to
amend the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrower, the Lenders, the Agent and the Co-Agents hereby
agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by amending
the definitions of "Acceptance Date", "Conversion Date" and "Maturity Date" by
deleting "October 31, 1999" in each such definition and inserting "January 31,
2000" in lieu thereof; and
(b) Clause (z) of Section 2.7(c)(i) of the Credit Agreement is hereby
amended to read as follows: "(z) any change in the Conversion Date from January
31, 2000."
(c) Section 3.1(a) of the Credit Agreement is hereby amended by
deleting "October 31, 1999" in such Section and inserting "January 31, 2000" in
lieu thereof.
(d) Each of Sections 4.2(ii) and 6.18(c) of the Credit Agreement is
hereby amended by deleting "October 31, 1999" in such Sections and inserting
"January 31, 2000" in lieu thereof.
(e) Section 3.1(c) is hereby added, which reads in its entirety as
follows:
(c) Conversion Fees. If, as of December 31, 1999, the Conversion
Date has not occurred, then the Borrower shall pay to the
<PAGE>
Agent, for the account of each Lender, a fee equal to .025% of the
Commitment of such Lender.
2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce the
Lenders, the Agent and the Co-Agents to enter into this Amendment, the Borrower
hereby reaffirms, as of the date hereof, that its representations and warranties
contained in the Credit Agreement are true and correct in all material respects
(except to the extent such representations and warranties are not so true and
correct in all material respects as a result of the transactions expressly
permitted under the Credit Agreement or under the other Credit Documents, or
relate solely to an earlier date) and additionally represents and warrants as
follows:
(i) The execution and delivery by the Borrower of this Amendment
and the performance by the Borrower of its obligations under this Amendment
and the Credit Agreement, as amended hereby, are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate
action of the Borrower and do not and will not contravene in any material
respect any provision of applicable law or contravene or conflict with any
provision of the certificate of incorporation, bylaws or any material
agreements binding upon the Borrower, and the execution and delivery by the
Borrower of this Amendment have received all necessary governmental
approvals or other consents (if any shall be required);
(ii) This Amendment and the Credit Agreement, as amended hereby,
are legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, subject as to
enforcement only to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and equitable principles;
(iii) There are no actions, suits, proceedings or counterclaims
(including, without limitation, derivative or injunctive actions) pending
or, to the knowledge of the Borrower, threatened against the Borrower or
any of its Subsidiaries which purports to affect the legality, validity or
enforceability of this Amendment, the Credit Agreement, as amended hereby,
or any other Credit Document; and
(iv) No Default or Event of Default has occurred and is
continuing (after giving effect to this Amendment).
3. REAFFIRMATION OF CREDIT AGREEMENT. This amendment shall be deemed to
be an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Credit Agreement in the Credit Agreement and the other
Credit Documents (excluding this Amendment) shall hereafter be deemed to refer
to the Credit Agreement, as amended hereby. The parties hereto hereby
undertake, in good faith, to amend any other Credit Documents necessary so as to
reflect the agreements of the parties set forth in this Amendment.
4. DEFINED TERMS. Terms used but not defined herein when defined in the
Credit Agreement shall have the same meanings herein unless the context
otherwise requires.
-2-
<PAGE>
5. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The effectiveness
of this Amendment is subject to receipt by the Agent of the following documents,
all in form and substance reasonably satisfactory to the Agent:
(i) Transocean Performance Guaranty. Ratification by Transocean
of its obligations under the Second Amended and Restated Transocean
Performance Guaranty in substantially the form of Exhibit A;
(ii) Payment of Amendment Fee. Payment by the Borrower to the
Agent, for the account of each Lender, of an amendment fee equal to .025%
of the Commitment of such Lenders; and
(iii) Other Documents. Such other documents as the Agent may
reasonably request.
6. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) This Amendment and the other Credit Documents, and the rights and
duties of the parties hereto and thereto, shall be construed in accordance with
and governed by the internal laws of the state of New York.
(b) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
HERETO AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AMENDMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE CO-AGENTS, THE LENDERS OR THE BORROWER MAY BE BROUGHT AND
MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF
MANHATTAN OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY AND ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, ANY OBJECTION WHICH IT MAY
HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT
IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
-3-
<PAGE>
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS AMENDMENT AND THE OTHER CREDIT DOCUMENTS.
(c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AMENDMENT, THE CREDIT AGREEMENT, ANY
OTHER CREDIT DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AMENDMENT, THE CREDIT AGREEMENT, ANY OTHER CREDIT DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart signature
pages, each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same agreement.
8. SEVERABILITY. Any provision of this Amendment that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9. HEADINGS. Section headings used in this Amendment are for reference
only and shall not affect the construction of this Amendment.
10. NOTICE OF ENTIRE AGREEMENT. This Amendment, together with the other
Credit Documents, constitute the entire understanding among the Borrower, the
Lenders, the Agent and the Co-Agents and supersede all earlier or
contemporaneous agreements, whether written or oral, concerning the subject
matter of the Credit Documents. THIS WRITTEN AMENDMENT, TOGETHER WITH THE OTHER
CREDIT DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Third
Amendment to Secured Credit Agreement as of the date first written above.
BORROWER:
--------
TRANSOCEAN ENTERPRISE INC.,
a Delaware corporation
By: /s/ Brian C. Voegele
----------------------------------------------------
Name: Brian C. Voegele
--------------------------------------------------
Title: Vice President - Finance
-------------------------------------------------
LENDERS:
-------
ABN AMRO BANK N.V., as Agent, Collateral
Agent and as a Lender
By: /s/ Stuart Murray
----------------------------------------------------
Name: Stuart Murray
--------------------------------------------------
Title: Vice President
-------------------------------------------------
By: /s/ Michael A. Tribolet
----------------------------------------------------
Name: Michael A. Tribolet
--------------------------------------------------
Title: Senior Vice President
-------------------------------------------------
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED, as Co-Agent and as a Lender
By: /s/ Claude Devillers
----------------------------------------------------
Name: Claude Devillers
--------------------------------------------------
Title: Director - Oil and Gas Americas
-------------------------------------------------
-5-
<PAGE>
THE BANK OF NOVA SCOTIA, ATLANTA
AGENCY, as Co-Agent and as a Lender
By: /s/ F.C.H. Ashby
----------------------------------------------------
Name: F.C.H. Ashby
--------------------------------------------------
Title: Senior Manager - Loan Operations
-------------------------------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY, as Co-agent and as a Lender
By: /s/ Michael G. Meiss
----------------------------------------------------
Name: Michael G. Meiss
--------------------------------------------------
Title: Vice President and Manager
-------------------------------------------------
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
as Co-Agent and as a Lender
By: /s/ Jonathan Berman
----------------------------------------------------
Name: Jonathan Berman
--------------------------------------------------
Title: Managing Director
-------------------------------------------------
By: /s/ Michael D. Peist
----------------------------------------------------
Name: Michael D. Peist
--------------------------------------------------
Title: Vice President
-------------------------------------------------
-6-
<PAGE>
BAYERISCHE HYPO-UND VEREINSBANK AG,
New York Branch, as a Lender
By: /s/ Steven Atwell
----------------------------------------------------
Name: Steven Atwell
--------------------------------------------------
Title: Director
-------------------------------------------------
By: /s/ Pamela J. Gillons
----------------------------------------------------
Name: Pamela J. Gillons
--------------------------------------------------
Title: Associate Director
-------------------------------------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Ki Allen
----------------------------------------------------
Name: Ki Allen
--------------------------------------------------
Title: Vice President
-------------------------------------------------
SUNTRUST BANK, ATLANTA, as a Lender
By: /s/ John A. Fields, Jr.
----------------------------------------------------
Name: John A. Fields, Jr.
--------------------------------------------------
Title: Vice President
-------------------------------------------------
By: /s/ Steven J. Newby
----------------------------------------------------
Name: Steven J. Newby
--------------------------------------------------
Title: Assistant Vice President
-------------------------------------------------
-7-
<PAGE>
BANK ONE N.A., formerly known as
The First National Bank of Chicago, as a Lender
By: /s/ Helen A. Carr
----------------------------------------------------
Name: Helen A. Carr
--------------------------------------------------
Title: First Vice President
-------------------------------------------------
THE BANK OF NEW YORK, as a Lender
By: /s/ Peter Keller
----------------------------------------------------
Name: Peter Keller
--------------------------------------------------
Title: Vice President
-------------------------------------------------
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG, as Lender
By: /s/ Mark K. Connelly
----------------------------------------------------
Name: Mark K. Connelly
--------------------------------------------------
Title: Vice President
-------------------------------------------------
By: /s/ Lynne McCarthy
----------------------------------------------------
Name: Lynne McCarthy
--------------------------------------------------
Title: Assistant Vice President
-------------------------------------------------
-8-
<PAGE>
ROYAL BANK OF CANADA, as a Lender
By: /s/ Gil J. Benard
----------------------------------------------------
Name: Gil J. Benard
--------------------------------------------------
Title: Senior Manager
-------------------------------------------------
KBC BANK, N.V., as a Lender
By: /s/ Robert Snaffer
----------------------------------------------------
Name: Robert Snaffer
--------------------------------------------------
Title: First Vice President
-------------------------------------------------
By: /s/ Robert M. Surdam, Jr.
----------------------------------------------------
Name: Robert M. Surdam, Jr.
--------------------------------------------------
Title: Vice President
-------------------------------------------------
THE ROYAL BANK OF SCOTLAND plc, as a Lender
By: /s/ Scott Barton
----------------------------------------------------
Name: Scott Barton
--------------------------------------------------
Title: Vice President
-------------------------------------------------
-9-
<PAGE>
Exhibit "A"
RATIFICATION AND AMENDMENT OF SECOND AMENDED AND RESTATED
TRANSOCEAN PERFORMANCE GUARANTY
THIS RATIFICATION AND AMENDMENT OF THE SECOND AMENDED AND RESTATED
TRANSOCEAN GUARANTY (this "Guaranty Ratification"), dated as of October 22,
1999, is from Transocean Offshore Inc., a Cayman Islands exempted company (the
"Guarantor"), to the Lenders, as such term is defined in the Second Amended and
Restated Transocean Performance Guaranty as amended by that certain Ratification
of the Second Amended and Restated Transocean Guaranty dated as of August 13,
1999 (the "Guaranty"), and ABN AMRO BANK N.V., a Netherlands chartered bank, as
Agent for the Lenders, and certain Co-Agents (as such term is defined in that
certain Third Amendment to Secured Credit Agreement, executed as of the date
hereof):
WITNESSETH:
A. Whereas, Transocean Enterprise Inc., a Delaware corporation, as
Borrower, Lenders, Agent and Co-Agents have entered into that certain Third
Amendment to Secured Credit Agreement as of the date hereof (the "Amendment")
to, among other things, extend the time for completion of the Drillship until
January 31, 2000; and
B. Whereas, it is a condition precedent to execution of the Amendment
that Guarantor execute this Guaranty Ratification; and
C. Whereas, in order to induce the Lenders to execute the Amendment,
Guarantor has agreed to enter into this Guaranty Ratification;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
to make and maintain the Loans to the Borrower pursuant to the Amendment: (i)
each of the Agent and Guarantor agrees that the date "October 31, 1999" in
Section 1.2(a) of the Guaranty is hereby deleted and the date "January 31, 2000"
is inserted in lieu thereof, and the date "November 15, 1999" in Section 1.2(a)
of the Guaranty is hereby deleted and the date "February 15, 2000" is inserted
in lieu thereof, and (ii) Guarantor hereby agrees that Guarantor has received a
copy of the Amendment and Guarantor's performance obligations and liabilities
under the Guaranty shall remain enforceable against Guarantor in accordance with
the terms of the Guaranty, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditor
rights generally and equitable principles, and shall not be reduced, altered,
limited, lessened or in any way affected by the execution and delivery of the
Third Amendment to Secured Credit Agreement. Guarantor hereby confirms and
ratifies its performance obligations and liabilities under the Guaranty in all
respects.
A-1
<PAGE>
Executed as of the date first set forth above.
Transocean Offshore Inc.
By: /s/ Brian C. Voegele
-----------------------------------------
Name: Brian C. Voegele
---------------------------------------
Title: Vice President - Finance
--------------------------------------
Accepted and Agreed to:
ABN AMRO BANK N.V., as Agent
By: /s/ Stuart Murray
------------------------------------
Name: Stuart Murray
----------------------------------
Title: Vice President
----------------------------------
By: /s/ Michael Tribolet
------------------------------------
Name: Michael Tribolet
----------------------------------
Title: Senior Vice President
----------------------------------
A-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 26,363 30,681
<SECURITIES> 0 0
<RECEIVABLES> 165,046 245,539
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 242,514 341,266
<PP&E> 3,018,749 2,548,094
<DEPRECIATION> 611,407 505,214
<TOTAL-ASSETS> 3,373,847 3,148,689
<CURRENT-LIABILITIES> 237,349 181,501
<BONDS> 711,270 853,134
0 0
0 0
<COMMON> 1,044 1,043
<OTHER-SE> 2,157,084 1,867,445
<TOTAL-LIABILITY-AND-EQUITY> 3,373,847 3,148,689
<SALES> 0 0
<TOTAL-REVENUES> 746,229 778,892
<CGS> 0 0
<TOTAL-COSTS> 487,354 466,080
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,952 17,571
<INCOME-PRETAX> 267,346 340,639
<INCOME-TAX> 78,867 100,489
<INCOME-CONTINUING> 188,479 240,150
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 188,479 240,150
<EPS-BASIC> 1.88 2.40
<EPS-DILUTED> 1.87 2.38
</TABLE>
