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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 21, 2000
TRANSOCEAN SEDCO FOREX INC.
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 333-75899 N/A
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
4 GREENWAY PLAZA
HOUSTON, TEXAS 77046
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (713) 232-7500
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EXPLANATORY NOTE
The registrant is filing this Form 8-K in connection with the filing of a
Registration Statement on Form S-4 relating to the merger of Transocean Sedco
Forex Inc. and R&B Falcon Corporation. This Form 8-K reports the events
described below under Item 5 and presents in more detail the pro forma financial
information for the year ended December 31, 1999 of Transocean Offshore Inc. and
Sedco Forex Holdings Limited, as previously reported in the registrant's annual
report on Form 10-K and incorporated by reference in the Form S-4.
ITEM 5. OTHER EVENTS
The Company is a defendant in Verdin v. R&B Falcon Drilling USA, Inc., et
al., Civil Action No. G-00-488, in the United States District Court for the
Southern District of Texas, Galveston Division. R&B Falcon Drilling USA is a
wholly owned indirect subsidiary of R&B Falcon Corporation. In this suit,
plaintiff Raymond Verdin, who purports to be an "offshore worker" previously
employed by R&B Falcon Drilling USA, alleges that R&B Falcon Drilling USA, the
Company and a number of other offshore drilling contractors with operations in
the Gulf of Mexico have engaged in a conspiracy to depress wages and benefits
paid to their offshore employees. Plaintiff contends that this alleged conduct
violates federal and state antitrust laws. Plaintiff seeks an unspecified amount
of treble damages, attorneys' fees and costs on behalf of himself and an alleged
class of offshore workers. The Company vigorously denies these allegations and
does not expect that the outcome of this matter will have a material adverse
effect on its business or financial position.
Each of Messrs. W. Dennis Heagney, Robert L. Long, Jon C. Cole, Donald R.
Ray and Eric B. Brown and Ms. Barbara S. Koucouthakis are parties to employment
agreements with the Company as described in the Company's proxy statement filed
with the Securities and Exchange Commission on April 3, 2000. Such agreements
presently provide that the executives may leave for any reason during January
2001 and receive the payments defined in the employment agreements, which
generally guarantee a minimum salary and bonus for a period of three years. In
order to induce the executives to remove such right and remain with the Company,
the Company has offered the executives either (a) a cash payment equivalent to
the amount otherwise due under the employment agreement as if the executive left
in January 2001 to be vested and paid, with interest, over a three year period
in equal annual installments commencing January 2002, in exchange for
termination of the employment agreement (such amounts would become payable if
the executive remained employed, and would become payable in a lump sum if the
executive's termination occurred due to death, disability or termination without
cause, or due to certain reductions in authority or base salary), or (b) an
extension of the existing employment agreement for three years beyond the
current one month trigger period with a first term of 18 months during which the
employee commits to remain with the Company, followed by an additional term of
eighteen months during which the employee can self trigger the payment rights,
with interest, under the employment agreement by terminating his or her
employment.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) PRO FORMA FINANCIAL INFORMATION
On December 31, 1999, the merger of Transocean Offshore Inc. ("Transocean")
and Sedco Forex Holdings Limited ("Sedco Forex") was completed. Sedco Forex was
the offshore contract drilling service business of Schlumberger Limited
("Schlumberger") and was spun-off immediately prior to the merger transaction.
As a result of the merger, Sedco Forex became a wholly owned subsidiary of
Transocean, which changed its name to Transocean Sedco Forex Inc.
The unaudited condensed pro forma combined statement of operations of Sedco
Forex and Transocean for the year ended December 31, 1999 is presented assuming
the spin-off and the merger were completed on January 1, 1999. If Sedco Forex
had been spun off and combined with Transocean in the past, Transocean Sedco
Forex might have performed differently. You should not rely on the pro forma
financial information as an indication of the financial position or results of
operations that Transocean Sedco Forex would have achieved had the spin-off and
merger taken place earlier or of the future results that Transocean Sedco Forex
will achieve after the merger.
The pro forma combined financial information of Transocean Sedco Forex was
prepared using the purchase method, with Sedco Forex treated as the acquiror for
accounting purposes. The assets and liabilities of Sedco Forex were recorded at
historical amounts, without restatement to fair values. The assets and
liabilities of Transocean were recorded at their preliminary estimated fair
values at the date of merger, with the excess of the purchase price over the sum
of such fair values recorded as goodwill. The preliminary estimated fair values
are subject to change. Reclassifications were made to the historical amounts to
conform to the pro forma presentation.
The Transocean Sedco Forex unaudited condensed pro forma combined financial
statements reflect a total purchase price of $2.99 billion, which was based on
the calculated market capitalization of Transocean, using an average closing
price of Transocean ordinary shares for a period immediately before and after
July 12, 1999, the date the merger was announced, plus the estimated fair value
of Transocean's stock options at the merger date, which were assumed by
Transocean Sedco Forex.
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TRANSOCEAN SEDCO FOREX INC.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- --------------------------------
SEDCO FOREX TRANSOCEAN ADJUSTMENTS (1) COMBINED
----------- ---------- --------------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Revenues $ 648,236 $ 930,822 $ -- $1,579,058
--------- --------- --------- ---------
Costs and Expenses
Operating and Maintenance 450,282 474,885 -- 925,167
Depreciation and Amortization 131,933 129,708 40,301(1a) 301,942
General and Administrative 16,703 45,529 -- 62,232
--------- --------- --------- ---------
598,918 650,122 40,301 1,289,341
--------- --------- --------- ---------
Operating Income (Expense) 49,318 280,700 (40,301) 289,717
Other Income (Expense), Net (37) 9,291 2,397(1b) 11,651
--------- --------- --------- ---------
Income Before Income Taxes 49,281 289,991 (37,904) 301,368
and Minority Interest
Minority Interest 474 11 -- 485
Income Tax Expense (Benefit) (9,296) 81,193 (8,912)(1c) 62,985
--------- --------- --------- ---------
Net Income $ 58,103 $(208,787) $ (28,992) $ 237,898
========= ========= ========= =========
Earnings Per Share
Basic $ 2.08 $ 1.13
========= =========
Diluted $ 2.07 $ 1.13
========= =========
Weighted Average Shares Outstanding
Basic 100,360 109,564(2) 209,924
Diluted 100,887 109,636(3) 210,523
</TABLE>
See Notes to the Transocean Sedco Forex Inc.
Unaudited Condensed Pro Forma Combined Financial Statements.
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TRANSOCEAN SEDCO FOREX INC.
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
(1) A summary of the pro forma adjustments to effect the merger is as follows:
(a) Depreciation and amortization -- A reconciliation of the pro forma
adjustment to depreciation and amortization is as follows:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C>
Additional depreciation resulting from the
adjustment to fair value of Transocean's
property and equipment $ 31,538
Amortization of goodwill resulting from the
merger over a 40-year estimated life 8,763
----------------------------------------------------------------------------------------------------------
Total pro forma adjustment to depreciation
and amortization $ 40,301
==========================================================================================================
</TABLE>
(b) Other income (expense), net -- Represents the elimination of interest
expense associated with related party debt partially offset by interest expense
on third party debt used to refinance the debt balance owed to Schlumberger at
an assumed rate of 5.85 percent.
(c) Income taxes -- Represents the incremental benefit from U.S. and
foreign income taxes related to pro forma adjustments. The amortization of
goodwill and the incremental interest expense adjustments were assumed to be
nondeductible for tax purposes.
(2) Basic earnings per share -- The adjustment to pro forma basic shares
outstanding represents the total Transocean shares issued pursuant to
the merger agreement.
(3) Diluted earnings per share -- The adjustment to pro forma diluted
shares outstanding is the sum of the total Transocean shares issued
pursuant to the merger agreement and the dilutive effect of Transocean
Sedco Forex stock options granted to certain Sedco Forex employees.
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TRANSOCEAN SECO FOREX INC.
SUPPLEMENTAL FINANCIAL INFORMATION
In reviewing the Unaudited Condensed Pro Forma Combined Financial
Statements, the additional supplemental financial information discussed below
should be considered.
Related Party Transactions
Sedco Forex paid insurance premiums to third-party insurance companies for
some risks where the insurance risk was then assumed by a wholly-owned affiliate
of Schlumberger through a reinsurance program. Transocean Sedco Forex did not
continue this insurance program following the merger. The historical Sedco Forex
financial statements included insurance expense of approximately $24 million for
the year ended December 31, 1999 for this insurance program.
Schlumberger cost allocations for research and engineering and general and
administrative expenses, which amounted to $13 million for the year ended
December 31, 1999, will not be incurred by Transocean Sedco Forex following the
merger. However, some of this expense reduction will be offset by the costs
incurred by Transocean Sedco Forex to replace these services through contractual
arrangements with Schlumberger or other third parties.
Depreciation Expense
Depreciation expense of $132 million for the year ended December 31, 1999
was included in the Sedco Forex historical financial statements. As a result of
the merger, Transocean Sedco Forex has conformed the estimated lives of the
Sedco Forex rigs and associated equipment to those used by Transocean for
similar assets. Since the useful lives used by Transocean are generally longer
than those used by Sedco Forex, the result will be lower depreciation expense.
The change in estimated lives would have reduced historical Sedco Forex
depreciation expense by approximately $68 million for the year ended
December 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on September 22, 2000.
TRANSOCEAN SEDCO FOREX INC.
By: /s/ Ricardo H. Rosa
-------------------------------
Ricardo H. Rosa
Vice President and Controller
(Principal Accounting Officer)
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